Microsoft Corporation

Greetings, and welcome to the Microsoft Fiscal Year 2021 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Spencer, General Manager, Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chief Executive Officer, Amy Hood, Chief Financial Officer, Alice Jala, Chief Accounting Officer, and Keith Oliver, Deputy General Counsel. On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides a reconciliation of differences between GAAP and non-GAAP financial measures. Unless otherwise specified, we will refer to non-GAAP metrics on the call. The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. They are included as additional clarifying items to aid investors in further understanding the company's quarterly performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted. We also provide growth rates and constant currency when available as a framework for assessing how our underlying business is performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we will refer to growth rate only. We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Investor Relations website. During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release, in the comments made during this conference call, and in the risk factor sections of our Form 10-K, Forms 10-Q, and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement. And with that, I'll turn the call over to Satya.

Thank you, Mike. We're off to a strong start in fiscal 2021, driven by the continued strength of our commercial cloud, which surpassed 15 billion in revenue, up 31% year over year. The next decade of economic performance for every business will be defined by the speed of their digital transformation. We're innovating across the full modern tech stack to help customers in every industry improve time to value, increase agility, and reduce costs. Now I'll highlight examples of our momentum and impact, starting with Azure. We're building Azure as the world's computer with more data center regions than any other provider, now 66, including new regions in Austria, Brazil, Greece, and Taiwan. We're expanding our hybrid capabilities so that organizations can seamlessly build, manage, and deploy their applications anywhere. With Arc, customers can extend Azure management and deploy Azure data services on-premise, at the edge, or in multi-cloud environments. With Azure SQL Edge, we are bringing SQL Data Engine to IoT devices for the first time. And with Azure Space, we are partnering with SpaceX and SCS to bring Azure Compute to anywhere on the planet. Leading companies in every industry are taking advantage of this distributed computing fabric to address their biggest challenges. In energy, both BP and Shell rely on our cloud to meet sustainability goals. In consumer goods, PepsiCo will migrate its mission-critical SAP workloads to Azure. And with Azure for Operators, we are expanding our partnership with companies like AT&T and Telstra, bringing the power of the cloud and the edge to their networks. Just last week, Verizon chose Azure to offer private 5G mobile edge computing to their business customers. When it comes to data, Azure brings together cloud-native, limitless data and unmatched analytics. Nearly one million SQL databases have migrated to Azure to date, and we process more than 1.4 trillion customer queries each day. The number of petabyte-scale workloads running on Azure has more than doubled year over year. Azure Synapse redefines cloud analytics by bringing together enterprise data warehousing and big data analytics. With Synapse Link, customers can run real-time analytics over their operational data. They can build advanced AI models using Azure Machine Learning to identify trends and predict outcomes. And with Power BI, anyone in an organization can access these insights and build custom dashboards. From Electrolux, GE Aviation, and Rockwell Automation and Manufacturing to Marks and Spencers and Myntra and Retail, businesses are choosing Synapse to accelerate time to insight across their organizations. We're also leading in AI in its enterprise applications. Azure Cognitive Services make it easier for organizations from Airbus to Volkswagen to build applications that see, hear, speak, search, understand, and accelerate decision-making. We are going further to meet some of our customers' biggest challenges today, introducing new capabilities to understand people's movements in physical space and detect anomalies in metrics. And our partnership with OpenAI brings leading-edge, large-scale AI models such as GPT-3 to Azure. Now to developers. As software developers become critical to value creation in every industry, their productivity is key to business performance. We have the most widely used and loved toolchain to help developers rapidly go from idea to code and code to cloud. With the most popular code editing tools, Visual Studio, as well as VS Code, developers are more productive than ever. With GitHub, more than 70% of the Fortune 50 build software together. And with Azure, they have the best-in-class services to build cloud-native apps and modernize existing ones. New code scanning capabilities in GitHub help developers find security vulnerabilities before they reach production. and new integrations between GitHub and Power Apps enables professional developers and domain experts to collaborate. At the PaaS layer, we're innovating to help developers build modern applications. New Azure Communication Services enables any developer to integrate rich communication APIs into their application using the same infrastructure that powers Teams. With Azure Mixed Reality services, the entire world is an application canvas. Lock-in Martin, for example, is using Azure Mixed Reality and HoloLens to speed up the development of the Orion spacecraft. Now to Power Platform. More than ever, companies need to empower domain experts to increase the rate of digitization across the enterprise. Power Platform is the only low-code, no-code solution that enables anyone in an organization to rapidly create an application, build a virtual agent, automate a workflow, or analyze data. Power Platform now has more than 10 million monthly active users at more than 500,000 organizations, from IKEA to Toyota. PayPal, for example, is using Power BI within Teams to expand access to data insights. More than 1,900 organizations have signed up to use the return to workplace solution to help keep employees safe and healthy when they go back to the office. The Los Angeles Unified School District plans to use Power Platform to help keep 700,000 students and educators safe across more than 1,400 schools when they reopen. Now on to Dynamics 365. As organizations look to move from being reactive to proactive, they're choosing Dynamics 365. From AEP and Chipotle to Ingram Micro and Walgreens Boots Alliance, we are seeing strong adoption of our customer data platform, Dynamics 365 Customer Insights. More companies are turning to our mixed reality solutions to keep employees connected with experts even when they're apart. Mercedes-Benz is using Dynamics 365 Remote Assist to help technicians across its U.S. dealership services service increasingly complex cars faster. And BHP is using the solution to keep employees at mining sites in rural Australia safe. Just yesterday, we announced a partnership with C3.ai and Adobe to bring to market a new class of industry-specific CRM solutions powered by Dynamics 365. And our first industry-specific cloud, the Microsoft Cloud for Healthcare, will become generally available later this week. It brings together healthcare-specific capabilities from across Dynamics 365, as well as Microsoft 365 Power Platform and Azure, to help providers like Cleveland Clinic and St. Luke's Health Network improve patient outcomes. Now to LinkedIn. Amid a rapidly changing work environment, LinkedIn is where more than 722 million professionals go to connect with their communities, learn new skills, and find new opportunities. We saw record levels of engagement again this quarter. We launched our most significant redesign with a streamlined search and messaging experience, as well as new ways for connecting and sharing with stories. More professionals are turning to LinkedIn Learning to increase their knowledge capital, watching more than a million hours of content each week, more than double the amount a year ago. Three people are hired every minute on LinkedIn, and new features make it easier for nearly 40 million job seekers to indicate they're looking for their next opportunity. In marketing solutions, advertiser demand on LinkedIn returned to near pre-COVID levels, up 40% year over year, as marketeers use our tools to connect with professionals ready to do business. And organizations continue to tap into the combination of LinkedIn Sales Navigator and Dynamics 365 to ensure salespeople have the context they need to sell remotely. Now to Microsoft 365. PCs have become mission critical to sustain work, learning, and life at home and maintain business continuity in the enterprise in a remote everything world. Windows 10 monthly active devices are up double digits year over year across commercial, consumer, and education. And we will have the largest lineup of Surface and OEM devices ever this holiday season to support every person in work styles. Microsoft 365 is the comprehensive suite of productivity apps and experiences people use and rely on every day. Teams now has more than 115 million daily active users. We are seeing increased usage intensity as people communicate, collaborate and co-author content across work, life and learning. All up, Microsoft 365 users generated more than 30 billion collaboration minutes in a single day this quarter. Teams is the only solution with meetings, calls, chat, content collaboration, as well as business process workflow in a secure, integrated user experience. And as companies move online, they also want one unified platform from meetings to phone systems which Teams delivers. The key to productivity is to move beyond transactional meetings and stay in the flow of work and maintain business process context. That's where Microsoft 365 and Teams stand out. You collaborate on a PowerPoint presentation before a meeting and share it with participants in SharePoint. If you miss a meeting, you can access a recording via our stream and catch up via persistent chat. Action items can automatically be assigned in lists with Power Platform and Teams. You can build custom productivity apps using lists as a data source. And you can even connect Dynamics 365 to Teams so that you can see customer information and take action. It's clear that people will need more flexibility in when, where, and how they work. We are adding reimagined workspaces in Teams for every collaborator. remote, in person, or on the go. And we are accelerating our innovation for both first line as well as knowledge workers with over 100 new capabilities in the last six months, including breakout rooms, meeting recap, shift scheduling, and large scale digital events up to 20,000 participants to help people transcend both time and distance. Employee health and well-being is a top concern for every CEO. We are innovating with new experiences to help people prioritize well-being in the flow of work. New insights and teams provides personalized recommended actions, making it easier for employees to create healthy work habits and for leaders to build high-performing teams. New virtual commute gives structure to remote workday with scheduled cognitive breathers. And together mode is helping employees at companies like Office Depot reduce video fatigue. More broadly, we're accelerating our innovation across Microsoft 365. New Microsoft Stream is the video platform for the enterprise, making it easy to create, share, and discover videos at work. Transcription and voice commands in Word help people save time, and SharePoint syntax makes it easier to find and work with content across the enterprise. We are seeing Microsoft 365 momentum in every industry. In education, nearly 270,000 institutions are using Teams to power remote learning and improve learning outcomes, including the University of Nottingham in the UK, Morehouse College, the University of South Florida, and some of the largest school districts in the United States, like Miami-Dade County Public Schools. In sports, the NBA and NFL are reimagining the game day experience for fans. PepsiCo will deploy Microsoft 365 and Teams to its 270,000 employees worldwide. And Morgan Stanley, PricewaterhouseCoopers, and Prudential Financials all chose Microsoft 365 E5 this quarter for differentiated security, compliance, voice, and analytics. Now to security. We're the only company that offers end-to-end capabilities to protect and manage data, devices, identities, and infrastructure holistically, enabling a cross-platform and a multi-cloud zero trust architecture. H&R Block, for example, used our tools to implement zero trust principles in just two weeks, enabling thousands of tax professionals to securely work from home. In identity, Azure AD has nearly 400 million monthly active users, and we have seen usage of third-party apps increase 2x since last year. In security, new Microsoft Defender simplifies threat detection and response and now includes coverage for Android and iOS, as well as multi-cloud and on-premise protection for SQL workloads. In device and data management, Microsoft Endpoint Manager monitors an organization's devices in a unified platform, and new tools offer proactive remediation of issues before they disrupt end users. And in compliance, our new compliance manager offers more than 150 out-of-the-box assessments for regulations such as GDPR. Now to gaming. Gaming is the most expansive category in the entertainment industry. Three billion consumers look to gaming for entertainment, community, and achievement, and our ambition is to empower each of them wherever they play. Our Xbox Game Pass service has more than 15 million subscribers. Differentiated content is the flywheel behind the service's growth, and the addition of EA Play next month, along with our pending acquisition of ZeniMax Media, will add more of the world's most iconic franchises to more than 100 high-quality games already available, and materially increases our ability to increase content. We're also transforming how games are distributed and played. and reaching new players on mobile and tablet by bringing cloud gaming to Game Pass. Finally, we are delighted by early reviews and excitement in the Xbox Series S and Xbox Series X, which will be the most affordable and the most powerful consoles available. In closing, In a world of uncertainty and constraints, every person in every organization needs more digital technology to recover and reimagine what comes next. This represents an unprecedented expansion of our addressable market in every layer of the tech stack. We are focused on innovating and differentiating to meet these needs and growing opportunity. With that, I'll hand over to Amy, who will cover our financial results in detail and share our outlook, and I look forward to rejoining for your questions.