Microsoft Corporation

Greetings and welcome to the Microsoft Fiscal Year 2021 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief 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, Mike Spencer, General Manager, Investor Relations. Thank you, sir. 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 post-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 second quarter 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 will also provide growth rates in 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 section 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 Sacha.

Thank you, Mike. It was a record quarter driven by our commercial cloud, which surpassed 16 billion in revenue, up 34% year over year. What we are witnessing is the dawn of a second wave of digital transformation sweeping every company and every industry. Digital capability is key to both resilience and growth. It's no longer enough to just adopt technology. Businesses need to build their own technology to compete and grow. Microsoft is powering this shift with the world's largest and most comprehensive cloud platform. And now I'll briefly highlight how we're innovating across every layer of the modern tech stack, starting with Azure. We're building Azure as the world's computer to support organizations growing cloud needs. We're investing to bring our cloud services to more customers, announcing seven new data center regions in Asia, Europe, and Latin America, and adding support for top secret classified workloads in the United States. We've always led in hybrid computing, and we are accelerating our innovation to meet customers where they are. Azure Stack HCI, now broadly available, helps businesses extend the power of the cloud to sovereign workloads. More than 1,000 customers now use Azure Arc to simplify hybrid management and run Azure services across on-premises, multi-cloud, and at the edge. And with Azure Digital Twins, organizations like Bentley Systems, Honeywell Industries, and Johnson Controls can bridge the digital and physical worlds, creating simulations of factories, cities to optimize their operations. We're seeing momentum in every industry. Deutsche Telekom will rely on Azure to modernize its IT infrastructure through a partnership with Broad Institute of MIT and Harvard, as well as Verily, our cloud will be used to help more researchers analyze biomedical data. Cruise and GM chose Azure as their preferred cloud as they work to make autonomous driving mainstream. And just last Friday, we announced an expansion of our partnership with SAP to accelerate the adoption of SAP workloads on Azure. In the past six months, we've seen Tier 1 ERP migrations from companies such as Bayer, Carhartt, Coats, and PepsiCo to Azure. At the data layer, Azure is the only cloud with limitless data and analytics capabilities that enable organizations to build the predictive and analytical power required to digitally transform. Azure Synapse brings together big data, data warehousing, and data integration all into one powerful solution. Leading companies like FedEx, Grab, and P&G are using Synapse to generate immediate insights from massive amounts of structured and unstructured data. And we are seeing strong overall growth in our analytics business as companies accelerate their data initiatives to build competitive advantage. Data governance is top of mind for every business leader and will grow into an important category on its own, as critical as any AI or analytics category today. We are investing to participate in this growth. New Azure Purview provides an end-to-end view of an organization's data estate across on-premise, multi-cloud, and SaaS apps that previously was impossible. In AI, we offer the most comprehensive a portfolio of tools, frameworks, and infrastructure enabling businesses to build mission-critical solutions that comprehend speech, understand natural language, make predictions, provide insights, and support decision-making. Our Azure Health Bot, for example, is being used by organizations like CDC, Primera, Blue Cross, and Walgreens to build virtual healthcare assistance used by more than 80 million people worldwide at a time when expanding access to healthcare information is more critical than ever. Now to developers. Developers have been critical to business continuity over the last year, and we are helping them collaborate and scale their impact to drive organizational outcomes. From GitHub to Visual Studio, we have the most widely used and loved tool chain to help developers rapidly go from idea to code and code to cloud. Use of GitHub is becoming key to building digital capability in every company across every industry. Today, GitHub is used by more than 56 million developers, as well as 3 million organizations, from BuzzFeed and Plaid to Martian, McKellen, Oracle, and Volvo Cars. Now to Power Platform. We are empowering domain experts, enabling anyone in any organization to build applications, automate processes, create virtual agents, and analyze data. Power Platform is the clear leader in low-code, no-code development with more than 11 million monthly active users, up 95% year over year. Businesses like Nestle, Humana chose Power BI this quarter to help employees use data to make smarter decisions. In public sector, the city of Kobe in Japan is relying on Power Virtual Agents and Power Automate to keep citizens informed, building intelligent paths to answer frequently asked questions, as well as automated workflows to route inquiries. Vaccine distribution perhaps best exemplifies the critical need for digital capability across the globe, and our vaccine registration and administration solution built on Power Platform enables governments to manage the end-to-end process from screening and scheduling to administration and follow-ups. In Australia, the government of Victoria is relying on our tools to help deliver doses to more than 6 million residents. And here in the United States, Minnesota, Nebraska, Oklahoma are using our capabilities. Our return to workplace solution and power platform is also helping organizations keep workers safe and healthy when they go back to the office. And we are adding new capabilities to ensure people have verifiable, secure access to their vaccination records. Now to Dynamics 365. We are taking share as companies in every industry turn to new business applications to grow. customer expectations are changing faster than ever before requiring near real-time visibility into trends behavior and needs our customer data platform customer insights leads its category and has helped customers unify over 2 billion customer profiles providing a single view of interactions across marketing sales and e-commerce to deliver more personalized experiences more companies are turning to our mixed reality solutions to help frontline employees connected even when apart. L'Oreal, for example, is using Dynamics 365 Remote Assist and HoloLens 2 to help technicians repair equipment at factories when they cannot travel. In retail, our applications were front and center at NRF earlier this month. Dynamics 365 Commerce now supports both B2C and B2B e-commerce, enabling retailers like Columbia Sportswear to ship inventory from stores and offer contactless payment options. Promote IQ continues to scale rapidly with retailers like Dick's Sporting Goods and Home Depot and Kroger using the platform to power their digital vendor marketing programs. Finally, our new Microsoft Cloud for Retail is bringing together our platform and tools across the shopper journey, accelerating time to value. It builds on the success of the Microsoft Cloud for Healthcare, which is being used by organizations, including Providence, to empower clinicians to better serve patients. Now to LinkedIn. We once again saw record levels of engagement across the platform, as LinkedIn's nearly 740 million members used the network to connect, learn, and find new opportunities. Sessions increased 30%, conversations were up 48%, And hours spent on LinkedIn Learning were up 2x compared to a year ago. LinkedIn's advertising business had a record quarter, accounting for more than a third of LinkedIn's total revenue. LinkedIn's marketing solutions was up over 50% as advertisers increasingly turned to the platform as the trusted way to reach professionals ready to do business. Finally, we continue to benefit from the secular shift to remote selling. Businesses are using the combination of LinkedIn Sales Navigator and Dynamics 365 to ensure salespeople have the context they need to sell remotely, while new tools help sales organizations use LinkedIn data to identify and size opportunities. Now to Microsoft 365. The pandemic has proven the PC's central role in keeping people connected, productive, and secure. We added more new devices running Windows 10 this quarter than ever before. At CES, our partners showcased new PCs designed for the new ways we work, learn, and play. And our Pluton security processor built by AMD, Intel, and Qualcomm will bring chip to cloud security. Flexible work is here to stay. To empower the digital workforce, organizations will need an organizing layer for all the ways people work, learn, and collaborate. That's what Microsoft 365 and Teams uniquely provide. Teams is the only solution with meetings, calls, chat, content collaboration with Office and business process workflows in a secure, integrated user experience. We're seeing large deployments. 117 organizations have more than 100,000 users of Teams and over 2,700 organizations have over 10,000. And Teams has nearly 60 million daily active users on mobile alone. Teams enables people to collaborate both synchronously and asynchronously, retain business context and stay in the flow of work, driving increased usage across Office 365 and Power Platform. Power Platform monthly average usage on Teams has grown 4X year over year, and with Microsoft Dataverse, anyone now can create and deploy custom solutions with Power Apps and intelligent bots with Power Virtual Agents directly in Teams. Teams is rapidly becoming the de facto unified communications platform of choice for every organization. New features like voice-enabled channels create a more powerful and streamlined calling experience, And noise suppression and live captions with speaker attribution make meetings more accessible. At Accenture alone, audio conferencing on Teams has increased to over 1 billion minutes a month as 85,000 employees use Teams to make external calls. And this quarter, Lumen, formerly CenturyLink, rolled out Teams calling globally to 42,000 employees in just four weeks. The pandemic has shown the importance of empowering the 2 billion frontline workers around the world with the right technology. 390,000 associates at Home Depot will use Microsoft 365, including Yammer, to foster connection and engagement across the organization. And more than 500,000 employees at the U.S. Department of Veterans Affairs, including healthcare workers, use Teams to collaborate. In education, more than 200 million students and educators worldwide rely on Microsoft Education products for remote learning. And leading customers in every industry, including Amgen, AT&T, Daimler, GSK, and IKEA, are increasingly turning to our premium offerings for advanced security, compliance, voice, and analytics capabilities. Microsoft 365 E5 revenue has grown triple digits for the past four quarters. Now to security. The recent SolarWinds attack are a stark reminder of how critical security is to our customers. We are focused on ensuring organizations deploy and maintain a zero trust architecture. Our end-to-end security capabilities, inclusive of identity, security, compliance, and management across all clouds and all client platforms have been key as we help customers strengthen their security posture and mitigate impact. Beyond our products, our operational security posture and threat intelligence, which analyzes 8 trillion signals each day, help customers defend themselves. Over the past 12 months, our security business revenue has surpassed 10 billion, up more than 40%. This milestone is a testament to the deep trust organizations place in us And we will continue to invest in new capabilities across all our products and services to protect our customers. We see strong momentum in usage of our products. In identity, Azure AD has more than 425 million monthly active users. In security, Microsoft Defender blocked nearly 6 billion threats last year alone. In management, we saw triple-digit growth in the number of devices managed by Microsoft Intune. And in compliance, we have seen 90% increase in our customer base year over year. Now on to gaming. We surpassed $5 billion in revenue for the first time in this quarter as we expand our opportunity to reach the world's 3 billion gamers wherever they play. The launch of Xbox Series X and Series S was the most successful in our history with the most devices ever sold in a launch month. Game developers are benefiting too as they turn to us to reach more players and scale their games using the power of our cloud. We exceeded $2 billion in revenue from third-party titles this quarter for the first time. We're gaining console share as gamers recognize the value of our broader ecosystem. Xbox Live has more than 100 million monthly active users, while Game Pass now has 18 million subscribers. And we are transforming how games are distributed, played, and viewed, bringing cloud gaming in Game Pass to iOS devices and Windows PCs over the next few months. We are pleased with the overall growth in our consumer subscriptions. With Game Pass and more than 47 million Microsoft 365 personal and family subscribers, we have a large and growing consumer subscription business. And we see significant opportunity in both of these segments as they move to services and on-demand models. In closing, I'm energized by our increasing momentum and the expanding opportunity fueled by the structural change brought about by the rapid adoption of digital technology. We're investing to meet these needs in the coming decade, and I'm optimistic about what's ahead. With that, I'll hand it over to Amy, who will cover our financial results in detail and share our outlook, and I look forward to rejoining you after for questions.