Microsoft Corporation

Greetings and welcome to the Microsoft Fiscal Year 2022 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow our 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 and 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 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 first 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 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 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, Form 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, Brett. We're off to a fast start in fiscal 2022 with Microsoft Cloud quarterly revenue surpassing $20 billion for the first time, up 36% year over year. The case for digital transformation has never been more urgent or more clear. Digital technology is a deflationary force in an inflationary economy. Businesses small and large can improve productivity and the affordability of their products and services by building tech intensity. The Microsoft Cloud delivers the end-to-end platforms and tools organizations need to navigate this time of transition and change. Now I'll highlight examples of our innovation and momentum starting with Azure. Every organization will need a distributed computing fabric across the Cloud and the Edge to rapidly build, manage, and deploy applications anywhere. We are building Azure as the world's computer with more data center regions than any other provider, delivering fast access to cloud services while addressing critical data residency requirements. And we are partnering with mobile operators from AT&T and Verizon in the United States to Telefonica and BT in Europe, Telstra and Singtel in Asia Pacific as they embrace new business models and bring ultra low latency compute power and storage to the network and the enterprise edge. 78% of the Fortune 500 use our hybrid offerings. And with Azure Arc, customers like Nokia, Royal Bank of Canada, and SKF can deploy and run applications at the edge or in multi-cloud environments. Organizations also prefer our cloud to power the mission critical apps they rely on every day. GE Healthcare and Procter & Gamble migrated critical workloads to Azure this quarter. And leading companies in every industry, including Bertelsmann, Kimberly-Clark, the NBA, SoftBank, ThyssenKrupp, all chose Azure for their SAP workloads. Now on to data. The leading indicator of digital transformation success in an organization is organization's ability to turn data into analytical and predictive power. Azure Synapse brings together data integration, enterprise data warehousing, and big data analytics into a comprehensive solution. With Synapse Link for Dataverse, organizations can analyze data from business applications like Power Platform and Dynamics 365 with just a few clicks. With Synapse Link for Cosmos DB, they can run real-time no ETL analytics over their operational data. And with Power BI, anyone in the organization can access these insights. Thousands of active Power BI customers are using Synapse today. More than ever, every business needs a holistic understanding of its data estate, and Azure Purview, now generally available, is helping organizations such as FedEx manage and govern on-premise multi-cloud and SaaS data. Now on to developers. As every company becomes a digital company, they will need standardized tools to modernize existing apps and build new ones. From GitHub to Visual Studio, we have the most used and loved developer tools to build any app on any platform. GitHub is now home to 73 million developers, up 2x since our acquisition three years ago. More and more businesses are choosing GitHub Enterprise to provide their developer teams the most advanced platform to build, ship, and maintain software. This quarter alone, we introduced more than 70 enterprise features, 84% of the Fortune 100 use GitHub, and we are seeing growing usage from digital native companies and the world's most established firms, from Pinterest to Procter & Gamble, from Stripe to Societe Generale. We are rapidly innovating in AI and our large-scale models are powering everything from meeting recaps in Teams to helping developers code in GitHub to the next best action in Dynamics 365. As machine learning continues to mature, managing the life cycle of models or MLOps has become more prevalent and Azure ML is now the go-to tool for data science teams. Large organizations from Ecolab to Providence Healthcare are relying on Azure AI to better meet customer needs. Now to Power Platform. With Power Platform, we're helping domain experts drive productivity gains with low-code, no-code tools, robotic process automation, virtual agents, and business intelligence. All up, Power Platform now has nearly 20 million monthly active users, up 76% year-over-year. Power Apps is the undisputed market leader in low-code, no-code tools, now with 10 million monthly active users. 91% of the Fortune 500 use the service to build applications, and 129 organizations have more than 10,000 users, including 3M, EY, GSK, Marks & Spencer, Sony, and ZF Group. Now onto Dynamics 365. Going forward, every business process will be collaborative, powered by data and AI, and will bridge the digital and physical worlds. Dynamics 365 ushers in this hyper-connected business process era. We continue to gain share with Dynamics 365 and Teams. We are creating a complete new category of collaborative applications that help businesses like Rockwell Automation, Willis Stiles Watson surface data and insights across the entire organization. Dynamics 365 Customer Insights leads its category. Customers like Meijer are using it to create 360-degree view of customers in order to deliver more personalized experiences. All up, the number of customer profiles increased 174% year over year. Now on to industry. Our industry clouds bring together capabilities across the entire Microsoft cloud, along with industry specific customizations to improve time to value, increase agility and lower costs. We are seeing strong customer adoption of our new industry cloud for health care and our clouds for financial services and manufacturing will become more broadly available next week. Sustainability is an existential priority for our society and for every business today. And when we think about our approach to sustainability, it's more than just the carbon footprint of our own data centers. With our Microsoft Cloud for Sustainability, we are creating an entirely new business process category to help organizations monitor their carbon footprint across their operations. The world's largest baking company, Grupo Bimbo, for example, is using our tools to report, record and reduce its emissions in every country where it operates. Now on to LinkedIn. We're experiencing a great reshuffle across the global labor market as people are rethinking not only where and how they work, but why. And as more people change jobs than ever before, we saw record engagement as they increasingly turn to LinkedIn to connect, learn, grow, and get hired. LinkedIn now has nearly 800 million members. Confirmed hires on the platform increased more than 160% year over year. And this quarter, we launched new ways to help job seekers discover roles that align with how they want to work. In a rapidly evolving labor market, companies are increasingly turning to LinkedIn Learning to upskill and reskill their employees. We now have over 15,000 enterprise customers of LinkedIn Learning, and we are expanding our opportunity in the creator economy, including offering new ways for LinkedIn Learning instructors to build their audiences and connect with learners live. Businesses continue to choose LinkedIn as the trusted way to reach professionals. LinkedIn advertising revenue was up 61% year over year. Now on to Microsoft 365 and Teams. Flexibility and productivity are not mutually exclusive. We are innovating to empower people to have impact from home, in the office, and anywhere in between. Microsoft Teams is the only solution that supports all the ways people work. Usage has never been higher. 138 organizations now have more than 100,000 users of Teams, and more than 3,000 have more than 10,000 users. Updates to Teams rooms, including new AI-powered cameras and spatial audio, ensure every meeting attendee is always a first-class participant. The rise of hybrid work is transforming the enterprise phone market, and we are taking share across PSTN and VoIP. Calls originating from Teams chats increased 50% this quarter compared to a year ago. Operator Connect enables organizations to bring their existing service directly into Teams. And leaders in every industry, including Schlumberger, Westpac, ZF Group, REI, and SAP chose Teams Phone this quarter to meet all their internal and external calling needs. Moving forward, organizations will need a digital fabric that spans organizational boundaries to address key challenges like customer service swarming and supply chain resilience. With Teams Connect, employees across multiple companies can chat and collaborate as one extended team without switching tenants. In private preview, we are already seeing strong interest in usage from companies like LVMH and WPP. Teams by itself has become a first-class platform for application development. For example, employees at Levi Strauss and NTT Data are using ServiceNow applications right within Teams to access critical info within the flow of work. Organizations are also using Power Platform to build their own rich collaborative apps within Teams for everything from curbside pickup to care team coordination. All up, the number of organizations with more than 10,000 users integrating their third party and line of business applications with Teams increased 82% year over year. We are creating a complete new category with Microsoft Viva, which brings together communications, knowledge, learning, resources, and insights. Our acquisition of Ally.io, a leader in the fast-growing objectives and key results category, adds new tools to help employees drive outcomes, not just output in hybrid work. Avanade, Old Mitchell, PayPal, and Toyota North America all chose Viva to help strengthen connections between employees and their mission, between employees and managers, and drive individual empowerment. Across Microsoft 365, we're seeing growth in all segments, including triple-digit year-over-year usage growth of Teams in Frontline. Coles, one of Australia's largest retailers, chose Teams to bring two-way communications to more than 120,000 Frontline employees. And Chevron, H&M, Lumen, and St. Jude all turned to our premium Microsoft 365 E5 offerings for advanced security, compliance, voice, and analytics. Now onto Windows. Earlier this month, we launched Windows 11, the biggest update to our operating system in a decade. When I step back and reflect on the future of how we work, connect, and play, one thing is clear, the PC will be more critical than ever. There has been a structural shift in PC demand emerging from this pandemic, and we're delighted with the early response to Windows 11. With every new generation of Windows, we also unlock the next generation of hardware innovation across our ecosystem. And together with our OEM partners, we're excited to offer the widest choice of Windows 11 devices at every price point in every form factor this holiday. We are providing people and organizations everywhere with the most differentiated devices for productivity, learning, and gaming, and also have massive opportunity to create a new class of applications that take advantage of the edge and AI capabilities in Windows coupled with Cloud. And Windows 11 is also the most open platform. It's pioneering new store commerce models and policies with both Amazon and Epic Games are bringing their marketplaces to the Microsoft Store. Now on to security. Cybersecurity is the number one threat facing businesses today. Our goal is to help every organization strengthen its defense through the zero trust architecture built on end-to-end solutions that span all clouds and all platforms. We analyze over 24 trillion signals across email endpoints and identities each day and translate this intelligence into innovative features to protect our customers. We have prevented more than 70 billion attacks over the past year alone. We now have nearly 650,000 customers using our security solutions up 50% year-over-year. And businesses like HCA Healthcare and Siemens switched to our security solutions to protect their endpoints. In identity, Azure Active Directory now has more than 500 million monthly active users, and we have seen usage of third-party apps increase 1.5x year-over-year. And the future of security is passwordless. Nearly 240 million users have adopted passwordless login to date, and consumers can now completely remove passwords from their personal Microsoft accounts. And we're not stopping there. Over the next five years, we'll invest $20 billion to advance our security solutions and protect customers. Now on to gaming. We continue to attract new gamers and retain those we have gained over the past year and a half. We saw record first quarter monetization and engagement. This holiday season will bring our biggest lineup of content and exclusive games ever, with three new AAA titles, including Halo Infinite, available via Game Pass subscription service, which continues to offer the best value in gaming. We're also bringing xCloud Gaming, gaming to the console for the first time, enabling Xbox users to discover the stream and stream more than 100 games with just a click. Cloud gaming is now available in 26 countries, including as of this quarter in Australia, Brazil, Mexico, and Japan. We are expanding our opportunity with independent creators as well as top studios. Updates to Azure PlayFab make it easy for developers to integrate the creator marketplace in games they build. And leading publishers from Bungie to Krafton are all relying on our cloud to scale and operate their games. In closing, we have the most diversified set of digital businesses, and we are innovating to expand our opportunity across the entire portfolio to help our customers in this new era. Next week, we'll hold our flagship Ignite conference, where we will share the next chapter of Microsoft Cloud, from the metawars to large-scale AI, from hybrid work to hybrid infrastructure. I couldn't be more optimistic about the opportunities ahead. With that, I'll hand it over to Amy.