Microsoft Corporation

Greetings and welcome to the Microsoft Fiscal Year 2021 Fourth 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, Brett Iverson, General Manager of Investor Relations. Thank you. You may begin.

Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer, Amy Hood, Chief Financial Officer, Alice Jala, Chief Accounting Officer, and Keith Dolliver, 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 the reconciliation of differences between GAAP, and non-GAAP financial measures. Unless otherwise specified, we will refer to the 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're included as additional clarifying items to aid investors in further understanding the company's fourth 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 businesses performed, excluding the effect of foreign currency rate fluctuations. Where the growth rates are the same in constant currency, we will refer to the 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 make 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 at 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 Satya.

Thanks much, Brett. We had a very strong close to our fiscal year. Our commercial cloud surpassed $69 billion in annual revenue, up 34%. We are seeing revenue growth across industries, customer segments, and geographies with over 50% of sales coming from outside the United States. We continue to grow new franchises for Microsoft in large and growing markets. In the past three years alone, gaming, security and now LinkedIn have all surpassed $10 billion in annual revenue. Now I'll highlight our innovation and our expanding opportunity across the tech stack, starting with infrastructure. Moving forward, every organization will need more ubiquitous and decentralized computing. We are the only cloud provider with the capabilities to support every organization's multi-cloud, hybrid, and edge needs. Over the past year, we have added new data center regions in 15 countries across five continents, delivering faster access to cloud services and addressing data residency requirements. And now we're taking cloud compute to the edge with 5G deployments. Our new Azure Edge services help operators and enterprises deliver ultra low latency compute fabric. And we're also helping operators run their networks in the cloud. AT&T chose Azure to power its 5G core network, making it the first tier one operator to move its existing customer traffic to the public cloud. We're also expanding our opportunity in hybrid. Today, over 75% of the Fortune 500 use our hybrid offerings. Azure Arc extends the Azure control plane across on-premise, multi-cloud, and the edge. With Arc, customers like EY and Telstra can manage their Kubernetes deployments anywhere and deploy Azure SQL databases and run Azure application services on any infrastructure. As the digital and physical worlds converge, we are leading in a new layer of the infrastructure stack, the enterprise metaverse. AB InBev is using our solutions, including Azure Digital Twins and Azure IoT, to optimize operations from the barley field to the warehouse to distribution. Customers also continue to choose our infrastructure to run mission-critical SAP solutions. Thousands of enterprises have migrated their ERP workloads to Azure, including Campbell Soup, L'Oreal, Mondelez International, ServiceNow, and even SAP. All this innovation is driving larger and more strategic Azure commitments from industry leaders, including MaaS in consumer goods, Morgan Stanley in financial services, and NEC in IT. Now onto data. Data is the most strategic asset for every business. We're the only cloud provider that helps organizations build sovereignty over their data by bringing together hyperscale OLTP, analytics, and governance workloads. Cosmos DB has become the go-to database, powering the world's most demanding mission-critical workloads. New capabilities help organizations like Albertsons, Asos, DHL, La Liga, Maersk, Swiss Re optimize costs and boost performance. Walmart is using Cosmos DB to handle billions of online requests daily and to ensure millions of customers receive the items they want when they need them. Azure Synapse brings together data integration, big data and data warehouses into a single service. From ABN AMRO in finance and AmResource Bergen in pharma to Walgreens in retail and WPP in advertising, organizations are using Synapse to generate insights from massive amounts of structured and unstructured data. Queries performed using Synapse increased 146% over the last quarter alone. Now on to developers. GitHub is used by 72% of the Fortune 50 to build, ship, and maintain software. Organizations like Ford, NASA, and Shopify are using new project planning capabilities to help developers better manage projects directly within their workflow. And Epic Games, Motorola Solutions, and Volkswagen Software Group all chose GitHub Advanced Security this quarter to help secure their code. We're also leading in enterprise AI. Our new Azure applied AI services help organizations like Dow, Lufthansa, and Samsung apply AI to common business scenarios. And live captions in Twitter spaces are being powered by our speech services. Finally, we are bringing the power of our partnership with OpenAI to both professional developers and domain experts. With GitHub Copilot, professional developers can write code faster with less work, and using the world's most powerful language model, GPT-3, domain experts can build apps using natural language with Power Platform. Power Platform has become the leading business process automation and productivity suite for domain experts across all functions. Power BI is the leader in business intelligence in the Cloud. Organizations in every industry, including Bayer, Cerner, Rolls-Royce, are choosing the platform to foster a data-driven culture. The number of organizations using Power Apps is more than doubled year over year. BASF chose Power Apps to give 122,000 employees the capability to build low-code, no-code apps. And at Toyota, Fusion teams of pro developers and domain experts are using Power Apps and Azure PaaS services to improve quality control. All up, Power Platform revenue increased 83% over the past year. And now on to Dynamics 365. Every business function, including marketing, sales, customer support, and supply chain, will need to be reimagined for an AI-first and collaboration-first world. And the silos between communications, collaboration, and business process have to be broken down. With Dynamics 365, we are building a new generation of business applications to help organizations adapt to this new reality. We continue to gain share. Dynamics 365 revenue accelerated for the third consecutive quarter, up 49% year over year. We are helping businesses to become digitally sovereign over their customer interactions with our customer insights product with organizations like Columbia Sportswear, GNC, and LA Clippers, all choosing to unify customer profiles and deliver more personalized experiences. We are empowering employees for hybrid work by creating a new category of collaborative applications, bringing business process directly into the flow of work. New integrations between Dynamics 365 and Teams enable anyone in an organization to seamlessly view and collaborate on customer records within Teams without having to purchase multiple licenses. Customers want this and no other vendor is doing this today. And we are helping organizations reimagine their core business process with new apps built for an age of omnichannel communications. With Dynamics 365, customer service organizations like Coca-Cola, Renault, and Xiaomi have a single comprehensive solution to deliver consistent and personalized support across all channels. Now on to industry solutions. Over the past year, we have introduced industry clouds for financial services, healthcare, manufacturing, nonprofits, and retail. And this quarter we announced our new Microsoft Cloud for Sustainability, bringing together capabilities across our stack to create an entirely new business process category to help every organization address this very urgent need. Now on to LinkedIn. LinkedIn's revenue surpassed $10 billion for the first time this fiscal year, up 27%, a testament to how mission critical the platform has become to help people connect, learn, grow, and get hired over the course of their careers. In the past five years since our acquisition, revenue has nearly tripled and growth has accelerated. LinkedIn has become a leader across multiple secular growth areas spanning B2B advertising, professional hiring, corporate learning, and sales intelligence. And from LinkedIn profiles within Office to LinkedIn learning courses within Microsoft Viva and LinkedIn sales navigator leads within Microsoft Dynamics 365, we have brought together the power of LinkedIn and Microsoft to transform how people learn, sell, and connect. LinkedIn has more than 774 million members who are more engaged than ever. Sessions were up 30% this quarter compared to a year ago. And LinkedIn's advertising business surpassed $1 billion in revenue this quarter for the first time, up 97% year over year, growing three times faster than the category. Now to Microsoft 365 and Teams. Hybrid work represents the biggest change to the way we work in a generation and will require a new operating model spanning people, places, and processes. We're the only cloud that supports everything an organization needs to successfully make the shift. Microsoft Teams is the new front end. It's where people meet, chat, call, collaborate, and automate business processes all within the flow of work. Teams usage has never been higher. We are nearly 250 million monthly active users as people use Teams each day to communicate, collaborate, and co-author content across work, life, and learning. We are leading in the new and growing enterprise phone category. Just like video meetings, chat and business processes happen in Teams, calls happen in Teams, creating a huge new opportunity. We have nearly 80 million monthly active Teams phones users, with total calls surpassing 1 billion in a single month this quarter, and we're just getting started. Teams is also at the center of orchestrating collaboration across the entire SaaS estate, from HR to marketing to finance. Leading third-party SaaS vendors, including Adobe, Atlassian, Salesforce, SAP, ServiceNow, and Workday, have now built apps that deeply integrate with Teams, bringing every business process and function directly into the flow of work. And we are bringing Teams to consumers so people can connect and collaborate with family and friends across desktop, mobile, and the web. All this innovation is driving growth. 124 organizations now have more than 100,000 users of Teams, and nearly 3,000 have more than 10,000 users. More broadly, across Microsoft 365, you're seeing double-digit year-over-year seed growth in every segment from frontline and small business to enterprise. Leading companies like Bayer, Siemens, Vodafone, all chose our premium EFI offerings for advanced security, compliance, voice, and analytics. Now onto employee experience cloud. Having a digital employee experience platform is critical for every organization. With Microsoft Viva, we are creating an entirely new category, bringing together communications, learning, well-being, and knowledge directly into the flow of work. New capabilities empower leaders to build human capital, nurture well-being, and focus on employee results. We are seeing strong interest in early adoption in every industry from American Express and Barclays to AT&T and Mars. Humana chose Viva to help 26,000 employees make the shift to hybrid work, gaining insights on everything from collaboration trends to manager effectiveness. Now on to Windows. Windows 11 is the biggest update to our operating system in a decade. We are reimagining everything from the Windows platform to the store to help people and organizations be more productive and secure and build a more open ecosystem for developers and creators. We are delighted by early feedback. More people have downloaded our early builds than any other Windows release or update in the history of our Insider program. And along with our OEM ecosystem, we are excited to bring Windows 11 to new PCs beginning this holiday. And with Windows 365, we are creating a new category, the Cloud PC. Just like applications move to the cloud with SaaS, we are now bringing the operating system to the cloud, enabling organizations to stream the full Windows experience to any employee's personal or corporate device. Now on to security. With the cybersecurity landscape more complex than ever, it's never been clearer that every organization will need to deploy and maintain a zero-trust security architecture. This is driving accelerated demand for our integrated end-to-end solutions spanning identity, security, compliance, and device management across all clouds and all platforms. No other vendor is recognized by analysts as the leader in as many categories. This is reflected in our share gains with nearly 600,000 organizations, including FedEx, Nestle, NTT, and Volkswagen using our security offerings across Azure and Microsoft 365. We saw a 70% increase in the number of small and medium business customers. And it's reflected in our sales growth with annual revenue, continuing to increase 40% year-over-year. We're going further to protect organizations, and our recent acquisitions of Cloud Knox, ReFirm Labs, and RiskIQ both store our security capabilities in key areas, including identity management, IoT, and threat intelligence. Now on to gaming. Gaming is the largest category in the entertainment industry, and we are expanding our opportunity to reach the world's 3 billion gamers wherever and whenever they play. We're all in on games. At E3 last month, we unveiled our biggest games lineup ever, announcing 27 new titles, which will all be available to Game Pass subscribers. Game Pass is growing rapidly, and it's transforming how people discover, connect, and play games. Subscribers play approximately 40% more games and spend 50% more than non-members. We continue to lead in the fast-growing cloud gaming market with last month. Just last month, we made Xbox cloud gaming available on PCs as well as Apple phones and tablets via the browser in 22 countries with more to come. Millions have already streamed games to their desktops, tablets, and phones. And the Xbox Series S and X are our fastest selling consoles ever, with more consoles sold live to date than any previous generation. Finally, we continue to grow our opportunity in the creator economy, adding new ways for players to build and monetize their creations in many of our most popular games, including Flight Simulator and Minecraft. Creators earn more than double what they did a year ago across our titles. In closing, going forward, every person and every organization will require more digital technology to be more resilient and to transform. We are innovating across the entire tech stack to ensure our customers succeed in this new era. With that, I'll hand it over to Amy.