Microsoft Corporation

Greetings, and welcome to the Microsoft Fiscal Year 2022 Second 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, 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 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 businesses performed, excluding the effect of foreign currency rate fluctuations. Where 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 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 factors 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.

Thank you, Brett. It was a record quarter driven by continued strength of the Microsoft Cloud, which surpassed $22 billion in revenue, up 32% year over year. We are living through a generational shift in our economy and society, Digital technology is the most malleable resource at the world's disposal to overcome constraints and reimagine everyday work and life. We're innovating and expanding our entire portfolio across consumer and commercial segments to help people and organizations thrive in this new era. Now I'll highlight examples starting with Azure. As every company becomes a digital company, They will need a distributed computing fabric to build, manage, secure, and deploy applications anywhere. We have more data center regions than any other provider delivering fast access to cloud services while meeting data residency requirements. We're extending our infrastructure to the 5G network edge, helping operators and enterprises create new business models and deliver ultra low latency services closer to the end user. AT&T, for example, is bringing together its 5G network with our cloud services to help General Motors deliver next generation connected vehicle solutions to drivers. Our Azure Arc customer base has tripled year over year. We are now helping thousands of organizations from BP to Robobank unify their on-premise hybrid and multi-cloud infrastructure. As the digital and physical worlds come together, we're seeing real enterprise metaverse usage. From smart factories to smart buildings to smart cities, we're helping organizations use the combination of Azure IoT, digital twins, and mesh to help digitize people, places, and things in order to visualize, simulate, and analyze any business process. Ecolab, for example, is using these tools to build its own platform to model and optimize water management. Across Azure, we are seeing growing adoption across every sector. CVS Health, Johnson & Johnson Medical Devices, Kendrell, and Wells Fargo all chose our cloud as their preferred provider this quarter. Now on to data. From best-in-class databases and analytics to AI and data governance, we have the most comprehensive data stack to help every organization turn its data into predictive and analytical power. Cosmos DB is the database of choice for cloud-native app development at any scale. Data volumes and transactions increased over 100% year-over-year. With Azure Synapse, we are removing traditional barriers between enterprise data warehousing and big data analytics so anyone can collaborate, build, and manage analytic solutions. Data governance is emerging as an important and growing category. And Azure Purview is leading here, helping thousands of organizations achieve a more complete understanding of their data estate. In AI, we have one of the most powerful supercomputers in the cloud, and we're using it not only to train new models, but to deliver them as platforms to our customers. Our new Azure OpenAI service is in preview, and that brings together advanced language models with the enterprise capabilities of Azure. GitHub Copilot is using this capability to help developers write better code. More broadly, we continue to see strong usage across our cognitive services with over 30 million hours of speech transcribed last quarter, up nearly 2x compared to a year ago. Now to developers. From GitHub to Visual Studio to Azure PaaS services, we have the most popular tools to help every developer going from idea to code and code to cloud. As companies prioritize embedding security into their developers' workflow, we are investing across GitHub to secure open source. Increasingly, every DevSecOps workflow will start with GitHub Advanced Security, and we are seeing strong demand from both digital natives like Afterpay and Mercari, as well as established companies like 3M and Bosch. And organizations are increasingly turning to both Visual Studio and our past services like Container Apps and Chaos Studio to streamline development and build modern, more resilient cloud-native applications. Now to Power Platform. Low-code, no-code tools are rapidly becoming a priority for every organization's digital capability building. We are innovating to help organizations like Airbus, Centrica, and Johnson Controls rapidly scale their user power platform using end-to-end suite to automate workflows, create applications, build virtual agents, and analyze data. At H&M, more than 30,000 employees have used Power Platform to drive productivity gains. They've created more than 1,500 applications, flows, and dashboards to date for everything from managing office capacity to tracking team goals. And at Kroger, more than 420,000 associates are using our return to workplace solution, which is built on Power Platform to verify their health and vaccination status. Now onto Dynamics 365. To counter demand shocks and supply constraints in this economy, every business will need to become a hyper-connected business, unifying data, process, and teams across the organization. Across Dynamics 365, we continue to take share as companies turn to our expanding portfolio of business applications to address these and other challenges. With Dynamics 365 connected spaces, we are creating a new software category to help organizations manage physical operations across diverse industries from real estate to retail to factories and construction. Companies like Chipotle and Home Depot are relying on our new customer experience platform to take control of their data, connecting customer touchpoints to deliver more personalized experiences. Daimler Trucks North America is using Dynamics 365 Supply Chain Insights to preempt supply chain issues. And just yesterday, we announced a new logistics as a service offering with FedEx combining data and insights from the company's network with Dynamics 365 to help brands better fulfill ship and service customer orders. Now on to industry solutions. Just over a year ago, we introduced our first industry cloud offering. bringing together industry-specific customizations with our entire stack to help customers improve time to value, increase agility, and lower costs. We now have six industry clouds, and they are driving significant increases in usage across the Microsoft Cloud. Our Cloud for Retail was front and center at NRF and retailers from Ahole, Delhaize, and GNC are sharing how they're using our solutions to deliver seamless customer experiences. Our Cloud for Sustainability unifies data to help customers record, report, and reduce their carbon emissions. Industry leaders, including Nissan Motor, are turning to the offering to help meet sustainability goals. Now onto LinkedIn. We are experiencing a great reshuffle across the labor market as more people in more places than ever rethink how, where, and why they work. In this new economy, LinkedIn has become mission critical to connect creators with their communities, job seekers with employers, learners with skills, and sellers with buyers. Last quarter, we once again saw record engagement, and LinkedIn has become one of the world's largest platform for professional events with more than 24,000 events created and 1.5 million RSVPs each week. Confirmed hires were up 110% year over year, and we've added tools to make it easier to discover open roles that align with how and where people want to work. With entrepreneurship on the rise, our new service marketplace has helped nearly 3 million freelancers and small businesses discover new clients. We also saw strong growth in LinkedIn sales solutions, which surpassed $1 billion in revenue over the past 12 months for the first time. Our sales, talent, marketing, and premier subscriptions lines of business have all now reached this milestone. Now on to Microsoft 365 and Teams. Every organization today needs a digital fabric to connect and empower everyone inside and outside the organization, from knowledge and frontline workers to customers and partners. At the center of this digital fabric is Teams, which surpassed 270 million monthly active users this quarter. Organizations are using Teams to run their business with collaborative applications that bring business process data right into the flow of work. Monthly usage of third-party applications and custom-built solutions has grown 10x in the last two years, with new and updated apps this quarter from Atlassian, Monday.com, SAP, and Workday. United Airlines is using bots within Teams to create tighter connections between operations and flight crews. And Marks & Spencers uses PowerApps and Teams to streamline internal helpdesk requests. As hybrid work becomes the norm, every organization will need to rethink their approach to space. With Teams Rooms, we are bringing Teams to a growing ecosystem of devices to help people stay connected and participate fully in meetings from anywhere. The number of active Teams Room devices more than doubled year over year. And with Mesh for Teams, we're bringing the metaverse to Teams, helping employees at organizations like Accenture access a shared immersive experience where they can have water cooler type conversations and even white boarding sessions. Teams is rapidly becoming the standard for unified communications. Over 90% of Fortune 500 companies use Teams Phone this quarter, and we continue to take share across PSTN and VoIP as organizations like Bank of Montreal, Chevron, General Motors, LVMH, and NetApp turn to Teams to meet their internal and external collaboration needs. All up, we are seeing Teams growth in every segment from frontline worker usage up to X year over year. Zebra Technologies will bring Teams walkie-talkie communications to devices used by millions of employees on retail floors. And Walmart chose Teams for their more than 2 million frontline workers this quarter. And we are expanding our opportunity with Teams Essentials, the first standalone Teams offering specifically designed to meet the needs of small businesses. It's early days, but we are very encouraged by the strong demand. With Microsoft Viva, we are creating a new employee experience category combining communications, knowledge, learning, resources, and insights to help people feel connected to the company's mission and culture. Now broadly available, Viva is being used by more than 1,000 paid customers including Bloom, Nationwide, and REI to help address challenges like employee burnout and retention. All this innovation is driving growth across Microsoft 365. From Heineken to Hilton to Zurich Insurance, organizations continue to choose our premium E5 offering for advanced security, compliance, voice, and analytics. Now on to Windows. We've seen a structural shift in PC demand. More than ever, people are turning to PCs to exercise their agency and unleash their creativity, whether it's meeting in virtual reality or for remote work, writing code or collaborating in documents, live streaming video or playing games, or for graphic design and engineering design. As new use cases are born every day and existing ones see a resurgence, we are experiencing a PC renaissance with increased in time spent on PCs, and PCs per household. Three months in, we are delighted by the response to Windows 11. We are seeing more usage intensity and higher quality than previous versions of our operating system. And Windows took share this quarter. We are delivering Windows in new ways to meet evolving customer needs. This quarter, we introduced Windows 11 SE, our cloud-first operating system, purpose-built for schools. And with Windows 365, we're bringing the operating system to the cloud, helping businesses like Coats North America and Regeneron Pharmaceuticals stream the full Windows experience to any employee device. There are now more than 1.4 billion monthly active devices running Windows 10 or Windows 11, and they're a powerful on-ramp for both our first-party and third-party services. Windows 11 users engage with the Windows App Store at nearly 3x the rate of Windows 10. And across Bing and Edge, we are creating differentiated high-value experiences for consumers and advertisers in key verticals, including shopping. Just one year since the launch of coupon and price comparison features in Edge, we already have surfaced more than $800 million in savings. More broadly, we are expanding our opportunity in advertising. Over the past 12 months, our total advertising revenue, inclusive of LinkedIn, surpassed $10 billion ex-tack. And with our acquisition of Zander, we will bring to market new advertising solutions that combine our deep audience understanding and customer base with Zander's large-scale data-driven platforms. Now on to security. Cybercrime is the number one threat facing every business today. Our aim is to help organizations implement a comprehensive zero-trust architecture that protects people, devices, applications, and data holistically across their heterogeneous cloud and client environments. We protect our customers in two interconnected ways. First, we incorporate security by design into every product we build. Second, we deliver advanced end-to-end cross-cloud, cross-platform security solutions, which integrate more than 50 different categories across security, compliance, identity, device management, and privacy, informed by more than 24 trillion threat signals we see each day. Among analysts, we are a leader in more security categories now, 19, than any other provider. Our multi-cloud, multi-platform innovation is driving growth. Across commercial and consumer, more than 1 billion monthly active users now rely on Microsoft Account to securely access their favorite app products and services with just one login. More than 15,000 customers now use our cloud-native SIM, Microsoft Sentinel, to stop threats before they happen, up over 70% year-over-year. And all up, the number of customers that use our advanced security solutions accelerated this quarter to over 715,000. More than half have four or more workloads, up 75% year over year, underscoring our end-to-end differentiation. On average, customers save 60% compared to multi-vendor solutions. As a result of our customers' trust, our security business revenue surpassed $15 billion over the past 12 months, up nearly 45% year over year. Now on to gaming. The big bets we have made across content, community, and cloud over the past few years are paying off. We saw record engagement as well as revenue this quarter. Game Pass has more than 25 million subscribers across PC and console, Our differentiated content is driving the service's growth and we released new AAA titles this holiday to rave reviews and record usage. 18 million have played Forza Horizon 5 to date and more than 20 million have played Halo Infinite, making it the biggest Halo launch in history. And with our planned acquisition of Activision Blizzard announced last week, we're investing to make it easier for people to play great games wherever, whenever and however they want. and also shape what comes next for gaming as platforms like the Metaverse develop. In closing, as digital technology as a percentage of global GDP continues to increase, we are innovating and investing across a diverse and growing TAMs with common underlying technology stack and an operating model that reinforces a common strategy, culture, and sense of purpose. 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 for questions.