Microsoft Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Microsoft Fiscal Year 2022 Third 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 Jolla, 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 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 clarified items to aid investors in further understanding the company's third 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 and constant currency when available as a framework for assessing how our underlying business has 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 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 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. It was a record third quarter driven by the continued strength of the Microsoft cloud, which surpassed $23 billion in revenue, up 32% year over year. Going forward, digital technology will be the key input that powers the world's economic output. Across the tech stack, we're expanding our opportunity and taking share as we help customers differentiate, build resilience, and do more with less. Now I'll highlight examples starting with Azure. We're building a distributed computing fabric across the cloud and the edge to help every organization build, run, and manage mission-critical workloads anywhere. This quarter, we helped more customers than ever, simplifying and accelerating their cloud migrations. And it's still early days. We're winning tier one infrastructure workloads. Leaders in every industry from BlackRock to Bridgestone to Lufthansa are all moving mission critical workloads to Azure. and we are the market leader for customers SAP workloads in the Cloud. Atos, Chevron, Fujitsu, and Woolworths all migrated their SAP applications to Azure in recent months. Overall, we're seeing larger, more strategic Azure commitments from industry leaders, including Boeing, Kraft Heinz, US Bank, and Westpac, who all chose our Cloud to accelerate their digital transformations. The number of $100 million-plus Azure deals more than doubled year over year. And we are seeing consumption growth across every industry, customer segment, and geography. Now to data and AI. Our data stack is unique in bringing best-in-class operational databases, analytics, and governance into one integrated data fabric. Cosmos DB transactions and data volume increased over 100% year over year for the third quarter in a row. Synapse data volume more than doubled year over year. And we're seeing strong adoption of Purview as we help organizations govern, protect, and manage their data estate across platforms and clouds. From Deutsche Börse to EY, customers in every industry are using our end-to-end data platform. In AI, we continue to see strong usage of Azure machine learning. The number of monthly inference requests increased 86% year over year with companies like PepsiCo using the service to predict which products are most likely to sell. And our Azure OpenAI service brings together advanced language models with the enterprise capabilities of Azure, helping companies like CarMax turn customer reviews into customized content for shoppers. Now to developer tools. From Azure DevOps and GitHub to Visual Studio, we have the most comprehensive and loved developer SaaS service. increasingly every new developer project starts with our tools visual studio has more than 31 million monthly active users including most of the fortune 500 and github usage is increasing among both independent developers and startups as well as the world's most established enterprises ninety percent of the fortune hundred use github In fact, Mercedes-Benz, for example, is using GitHub Enterprise to provide a unified development platform for more than 20,000 employees to build, ship, and maintain software. Now on to Power Platform. Power Platform has become the leading business process automation and productivity suite for domain experts in every industry. Power Platform surpassed $2 billion in revenue over the past 12 months, up 72% year over year, making it one of the fastest growing businesses at scale. Power Apps is the market leader in low-code, no-code app development, and Power BI has more than 200,000 customers. And our acquisition of Minit adds new process mining capabilities, helping organizations identify bottlenecks and opportunities for operational efficiency. Now to Dynamics 365. Dynamics 365 is growing faster than the business applications market overall. For example, in a world of supply chain constraints, we are helping companies like Cracker Barrel and Unilever predict disruptions before they happen. Businesses like Heineken and Siemens are turning to Dynamics 365 to drive and deliver more consistent and personalized customer engagement and service. We are leading innovation in new industrial metaverse to help companies optimize their operations using technologies such as IoT, digital twins, connected spaces, and mixed reality applications. And we are further differentiating the Microsoft Cloud by bringing together Dynamics 365, Teams, and Synapse to usher in a new era of collaborative applications that transform every business function and process. When it comes to industry, our six industry clouds are helping customers speed time to value. Our cloud for healthcare was front and center at HIMSS last month, where we introduced Azure Health Data Services to unify disparate clinical imaging and med tech data. Cleveland Clinic will use the solution to normalize data from different systems and integrate insights into the clinician workflow. And with our acquisition of Nuance, I'm excited about our opportunity to apply the company's deep enterprise AI expertise to accelerate the growth of both Nuance's business and our industry clouds. Now onto LinkedIn. We once again saw record engagement as more than 830 million professionals use the platform to connect, learn, grow, and get hired. Amid the great reshuffle, we are seeing a skills-first labor market emerge. The number of companies using skills filters on LinkedIn to fill open roles has doubled year over year. And this dynamic labor market, hires on LinkedIn has increased 88%. Talent Solutions' revenue was up 43%, marking the sixth consecutive quarter of accelerating growth. Our marketing solutions business continues to thrive as we offer advertisers high reach and ROI. And creators are increasingly turning to the platform to establish their voices and grow their communities using tools like newsletter to share content they're passionate about. 28 million members now subscribe to at least one newsletter on LinkedIn, up 51% over the past quarter alone. Now on to Microsoft 365 and Teams. The last two years have proven that every organization needs a digital fabric that connects the entire organization from the boardroom to the frontline to customers and partners. No company is better positioned to meet this need than Microsoft with Microsoft 365 and Teams. Teams is the most used and the most advanced platform for work and the only solution with meetings, calls, chat, collaboration and business process automation. And organizations from enterprises to SMBs are relying on teams to run their business. Our comprehensive approach reduces complexity and costs. Microsoft 365 customers can save as much as 60% compared to a patchwork of single point identity, productivity, collaboration, and meeting solutions. Teams usage has never been higher. We are seeing growth in every segment, including very small businesses with Teams Essentials. Teams is the leading platform for collaborative apps. From Asana to Zendesk, there are over 1,000 third-party apps available at the Teams app store. And companies in every industry, including CBRE, CVS Health, and the National Health Service in the United Kingdom, have built custom line-of-business apps within Teams, bringing business process directly into flow of work. And we are adding new growth engines to meet the demands of hybrid work with Teams Rooms, Teams Phone, and Microsoft Viva. Teams Room is bridging the gap between people working remotely and those in the office with innovations like Front Row. Teams Phone with Operator Connect enables organizations to easily bring their existing calling service to Teams. Total Operator Connect minutes increased 8x quarter over quarter. And Viva has more than 10 million monthly active users at companies like Bloom, Cerner, Marks & Spencer. This quarter, we added LinkedIn's Glint employee engagement tool to Viva, ensuring leaders can more easily solicit employee feedback and receive actionable insights. All this innovation is driving growth across Microsoft 365. Organizations across private and public sector, including American Family Insurance, the Queensland Government, and Telefonica, are increasingly choosing our premium E5 offerings for advanced security, compliance, voice, and analytics. Now on to Windows. The PC has never been more relevant to work life and play. The number of use cases is increasing, as is the amount of time spent on PCs. More than 100 million PCs have shipped in each of the last eight quarters, and Windows continues to take share. With Windows 11, we continue to see the highest quality scores of any version of the operating system. The enterprises are adopting Windows 11 at a faster pace than any previous release. With Windows 365, we are bringing the power of Azure computing to Windows computers, enabling businesses like Landsend, SCS, and Xerox to stream the full Windows experience to any employee device. New integrations between Windows 11 and Windows 365 will make it possible to switch between Cloud PC and the local PC with a single click. And we continue to help organizations like AIG, Grant Thornton, and Sage shift their on-premise virtualization services to the cloud with Azure Virtual Desktop. In consumer, Windows is key to curating our content and services to help every person with their everyday tasks from browsing and searching to learning and gaming and shopping. all with security and privacy built in. We are seeing strong engagement with nearly 500 million monthly active users of our personalized content feed, Microsoft Start. As usage continues to grow, we are seeing a flywheel emerge between content consumption and commerce as we generate new opportunities for content creators as well as advertisers. And our browser, Microsoft Edge, continues to gain share as we help people save money and shop securely. Now to security. Security is a top priority for every organization undergoing a digital transformation. To keep our customers secure, we build security by design into every product we sell. And we deliver end-to-end solutions spanning security, compliance, identity, device management, and privacy across clouds and platforms, informed by 24 trillion threat signals each day. This comprehensive capability has been critical during the recent world events, and we continue to disrupt cyber attacks and share threat intelligence with the Ukrainian government as well as other public sector agencies. Multi-cloud, multi-platform support is central to our approach. In security, we're the only cloud provider with native multi-cloud protection for the industry's top three cloud platforms. In identity, we now provide permissions management across all clouds. Azure Active Directory is the undisputed market leader with more than 550 million monthly active users. In management, the number of Windows, Android, and iOS devices protected by Intune grew over 60% year over year. And we are expanding to new market segments with Microsoft Defender for Business, which will help keep small businesses secure. This innovation and differentiation is driving our overall growth. All up, the number of customers who trust our security solutions grew nearly 50% year over year to 785,000, including Citrix, Domino's, Pizza, Fujitsu, Heineken, Petronas, who rely on us to protect their multi-cloud infrastructure. And we have over 15,000 partners in our security ecosystem more than anyone else in the industry. Now on to gaming. Our ambition is to power gamers to play when and how and where they want. With our Xbox Series S and X consoles, we have taken share globally for two quarters in a row, and we are the market leader this quarter among the next-gen consoles in the United States, Canada, UK, and Western Europe. and with xbox cloud gaming we are redefining how games are distributed played and viewed to date more than 10 million people have streamed games many of our most popular titles including flight simulator are now accessible on phones tablets low spec pcs for the first time our game pass library now includes hundreds of titles across pc and console including more games from third-party publishers than ever before Billions of hours have been played by subscribers over the past 12 months, up 45%. And with Azure, we are building the best cloud for game studios of all sizes to build, host, and grow their games. New capabilities, speed, time to development, and to help connect players across platforms. Azure gaming revenue fiscal year to date increased 66%. In closing, we are entering a new era where every company will become a digital company. Our portfolio of durable digital businesses and diverse business models built on a common tech stack position as well to capture the massive opportunities ahead. With that, I'll hand it over to Amy.