Microsoft Corporation

Greetings, and welcome to the Microsoft Fiscal Year 2022 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, Vice President 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 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 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 and 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 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'll 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 maturely 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 Satya.

Thank you, Brett. Amid this macroeconomic environment, the Microsoft Cloud surpassed $25 billion in quarterly revenue for the first time, up 28% and 33% in constant currency. When I talk with customers, it's clear there is a real opportunity to help organizations in every industry use digital technology to overcome today's challenges and emerge stronger. In this environment, we are focused on three things. First, no company is better positioned than Microsoft to help organizations deliver on their digital imperative so that they can do more with less. From infrastructure and data to business applications and hybrid work, we provide unique differentiated value to our customers. Second, we will invest to take share and build new businesses in categories where we have long-term structural advantage. Lastly, we will manage through this period with an intense focus on prioritization and executional excellence in our own operations to drive operational leverage. With that, let me highlight our progress starting with Azure. Organizations in every industry continue to choose our cloud to align their IT investments with demand. We are seeing larger and longer term commitments and won a record number of $100 million plus and $1 billion plus deals this quarter. We have more data center regions than any other provider, and we will launch 10 regions over the next year. Our new Microsoft Cloud for Sovereignty helps public sector customers meet urgent compliance, security and privacy requirements. With Azure Arc, we are meeting customers where they are, enabling companies like GM, Greggs, UBS, and Uniper to run applications across on-prem edge and multi-cloud environments. We are seeing more customers move their mission-critical workloads to Azure. American Airlines, for example, chose our cloud to run its key operational workloads, including its data warehouse, and Telstra will move its internal IT workloads to Azure. And we are the platform of choice for SAP apps on the cloud. Leaders in every industry, including Kraft Heinz, Fujitsu, and Unilever, have migrated ERP workloads to Azure. Just last week, we announced a new service to accelerate adoption of Oracle workloads on Azure. We are the only public cloud with simplified direct access to Oracle databases running in the Oracle cloud. Now on to data and AI. With our Microsoft Intelligent Data Platform, we provide a complete data fabric spanning operational databases, analytics, and governance, helping customers focus on creating value instead of integrating fragmented data estate. More than 65% of the Fortune 1000 use three or more of our data solutions, and we are growing faster than the market. We are seeing leaders in every industry, from La Liga and Lenovo to Swiss Re and Walgreens, unify their data using our tools. Cosmos DB is the go-to database powering the world's most demanding mission-critical workloads at any scale. Transactions and data volume increased over 100% year over year for the fourth quarter in a row. When it comes to AI, we're seeing a paradigm shift as the world's large AI models become powerful platforms themselves. With our Azure Open AI service, a diverse set of customers from HSBC, PwC, and RTL Group to Shell and Wipro are applying language models to advance scenarios like content and code generation. Now on to developer tools. We have the most popular developer tools across any cloud and any platform. Leaders in every industry from Ahold Delhaize to KPMG to Philips are all choosing GitHub to build software. GitHub Copilot is the first of its kind AI pair programmer, which helps developers write better code faster. More than 400,000 people have subscribed since we made it generally available a month ago. And with our expanding portfolio of container services, organizations like H&M can build modern, more resilient cloud native applications. All up revenue from Azure container services increased by triple digits. Now on to Power Platform. With Power Platform, we're helping domain experts rapidly drive productivity gains at a time when it's never been more important. We now have nearly 25 million monthly active users, and we are innovating to make it even easier for teams of pro and citizen developers to build end-to-end business solutions together. AB InBev, Arm, Equinor, Toyota, Vodafone, and Zurich Insurance have all built centers of excellence to train employees at scale on how to use Power Platform. PG&E, for example, expects to save at least 720,000 hours by eliminating redundant and manual processes across employee workflows. Now on to Dynamics 365. We are helping organizations digitize their customer experience, service, finance, and supply chain functions as we continue to outgrow the market in every category. Our new Microsoft Digital Contact Center platform brings together Dynamics 365, Microsoft Teams, as well as enterprise AI capabilities from Nuance to help customers like HP deliver omnichannel customer engagement. New integrations between Dynamics 365 and Intelligent Order Management and Teams help people collaborate in the flow of work to overcome supply chain disruptions. We are winning customers as we help organizations address their most pressing challenges. Pete's Coffee is modernizing its supply chain with our business applications. Carlsberg is standardizing its field service and customer service operations. And Visa switched to Dynamics 365 for both its sales and call center organizations. When it comes to our industry and cross-industry clouds, we are seeing strong adoption as we take a platform-driven approach to help organizations deliver on their digital imperative. For example, Microsoft Cloud for Healthcare, inclusive of nuance, is becoming the platform of choice for companies across the healthcare value chain looking to drive meaningful clinical and financial outcomes. Whether it's a provider modernizing care delivery or health plan transforming the member experience or a retailer expanding into health services, having a technology partner that is truly dedicated to empowering their success is a significant differentiator for us. Intermountain Healthcare, for example, chose the Cloud for Healthcare as well as Nuance's DAX ambient intelligence solution as the pillar of its new digital strategy. Now on to Microsoft 365 and Teams. In this economic environment, every organization is looking to support employee flexibility and improve productivity. Hybrid work is now just work, and it's imperative that organizations reconnect and reengage the workforce at home, in the office, and everywhere in between. To do this, companies need a digital fabric that connects employees as well as customers and partners wherever and whenever they work while reducing cost and complexity. We are all in on teams. Over the past year, we've introduced more than 450 capabilities to empower frontline and knowledge workers to collaborate synchronously and asynchronously, as well as remote and in person. Teams is taking share across every category from collaboration to chat to meetings to calling and seeing higher usage intensity as companies turn to the platform to accelerate their digital transformation and orchestrate all their business process in the flow of work. ISVs from Adobe to Workday have built deep integrations with Teams. And more than 100,000 companies, including Johnson & Johnson, Lumen Technologies, and Progressive Insurance, have deployed custom line of business applications in Teams. All up, the number of third-party and lab apps with active usage increased by 40% year over year. Teams Phone is the market leader in cloud calling across VoIP and PSTN. We now have over 12 million PSTN users, nearly double the number a year ago. And Teams Rooms bridges the gap between people working remotely and those in the office with innovations like AI-powered cameras. More than 60% of the Fortune 500 have chosen Teams Rooms to connect employees across the hybrid workplace. We're also building a completely new suite with Microsoft Viva as we create a new employee experience category. This is both a priority for our customers and an expansive and high-growth TAM for us. 25% of the Fortune 500 already use Viva as organizations increasingly recognize that employee experience and well-being are essential to their productivity. We have seen broad adoption across segments and industries from Commonwealth Bank, Fidelity Investments, and MasterCard to AstraZeneca and Schlumberger. And this innovation is driving revenue growth across Microsoft 365. Asahi, Expedia Group, and Qualcomm all chose our premium offerings to transform how employees work. E5 seats increased more than 60% year over year. Now on to Windows. With Windows, we are putting people at the center to help them securely work, connect and play. Despite a changing market for PCs during the quarter, we continue to see more PCs shipped than pre-pandemic and are taking share. And we are seeing higher monthly usage of Windows 11 applications with increased time spent across creative work, collaboration, gaming, media, and writing code as people rely on the PC for its unique productivity capabilities, rich interactive experiences, and to stay connected. We are transforming how Windows is experienced and managed with Azure Virtual Desktop and Windows 365. Azure Virtual Desktop monthly active usage increased nearly 60% year over year. One year in, we are seeing strong adoption of Windows 365 from organizations in every industry, from Hamburg Commercial Bank and Kendrell to Lego Group and Schroders as they use cloud PCs to rapidly onboard new and temporary employees and speed M&A integration while reducing IT costs. Now on to security. As the rate and pace of threats continue to accelerate, security is the top priority for every organization. We provide comprehensive solutions that integrate more than 50 categories, informed by more than 43 trillion signals each day, reducing cost and complexity. We're taking share across all major categories we serve. All up, our security revenue increased 40%. We are the only cloud provider with protection for the top three cloud platforms, and we're seeing more and more customers turn to us to protect their multi-cloud, multi-platform infrastructure. Pearson Vue and Vodafone both chose our security stack to protect their digital estate across clouds. And we're going further to help protect organizations. Our new Entra product family includes tools for permissions management, identity governance, and identity verification. and we now offer managed threat detection and response with Microsoft security experts. The world's largest hedge fund, Bridgewater Associates, for example, will use the service to supplement its own security operations. Now onto LinkedIn. We once again saw record engagement among the more than 850 million members, a testament to how mission critical the platform is to connect job seekers with jobs, learners with skills, and marketeers with bias. We are seeing job candidates and employers alike prioritize skills to more efficiently find and source work. More than 40% of the companies on LinkedIn now rely on skills filters to identify candidates. LinkedIn talent solutions surpassed $6 billion in revenue over the past 12 months, up 39% year over year. And LinkedIn marketing solutions surpassed $5 billion in annual revenue for the first time. We are a leader in B2B digital advertising and we continue to see customers choose us for higher reach and ROI. More broadly, despite the current headwinds in the ad market, we are expanding our opportunity in advertising as we look towards the long term. We are creating a new monetization engine for the web, an alternative that offers marketeers and publishers more long-term viable ad solutions and supports consumer privacy and strong data governance. It starts with our first-party Internet experiences. We are focused on increasing our share and engagement across Edge, Bing, and our personalized content feed, Microsoft Start. Daily content consumption across start and categories like news, weather, finance, and sports increased 80% since we launched the service one year ago. And Edge continues to gain share as consumers use it to save money with our built-in coupon and price comparison features. Our approach extends to our third-party ad network. We closed our acquisition of Zander last month and now power one of the world's largest marketplaces for premium advertising. With Microsoft advertising, every media and consumer internet company now has a trusted platform for their own ad innovation and monetization. Just two weeks ago, Netflix chose us as its exclusive technology and sales partner for its first ad-supported subscription offering, a validation of the differentiated value we provide to any publisher looking for a flexible partner willing to build and innovate with them. And with PromoteIQ, we are providing a platform for retailers like Home Depot, Kohl's and Kroger to build their own digital commerce and marketing channels. This quarter, Sephora chose our solution to help build a new advertising revenue stream while maintaining ownership of their own data and customer relationships. Now on to gaming. We offer the best value in the gaming industry. Our Xbox Game Pass subscription service includes access to hundreds of games and Xbox Series S is the most affordable next-generation console. We sold more consoles live to date than any previous generation of Xbox and have been the market leader in North America for three quarters in a row amongst next-gen consoles. And with Xbox cloud gaming, we are bringing games to new endpoints. Players now can stream Xbox games on Samsung smart TVs. And we partner with Epic Games to make Fortnite available for free via the browser. Over 4 million people have streamed the game to date, including over 1 million who were new to our ecosystem. In closing, we're investing in sharpening our focus to help our customers during this critical moment and to capture the massive technological shifts underway. Our portfolio of best of category products and best of suite solutions, along with our durable business models and intense focus on prioritization and executional excellence, make me confident about our opportunity ahead in the coming year. With that, I'll hand it over to Amy.