Microsoft Corporation

Greetings and welcome to the Microsoft fiscal year 2024 first 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. I would now like to turn the call over to your host, Brett Iverson, Vice President of Investor Relations. Mr. Iverson, please go ahead.

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 Jolin, Chief Accounting Officer, and Keith Dolliver, Corporate Secretary and 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 a reconciliation of differences between GAAP and non-GAAP financial measures. More detailed outlook slides will be available on the Microsoft Investor Relations website when we provide outlook commentary on today's call. Microsoft completed the acquisition of Activision Blizzard on October 13, 2023. We will share more on the expected impact of the Activision acquisition during the Outlook commentary portion of today's call. On this call, we will discuss certain non-GAAP items. 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 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 businesses performed, excluding the effect of foreign currency rate fluctuations. Where growth rates are the same in constant currency, we'll refer to the growth rate only. We'll 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 and 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. We are off to a strong start to the fiscal year, driven by the continued strength of Microsoft Cloud, which surpassed $31.8 billion in quarterly revenue, up 24%. With Copilots, we are making the age of AI real for people and businesses everywhere. We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers. Now I'll highlight examples of our progress starting with infrastructure. Azure again took share as organizations bring their workloads to our cloud. We have the most comprehensive cloud footprint with more than 60 data center regions worldwide, as well as the best AI infrastructure for both training and inference. And we also have our AI services deployed in more regions than any other cloud provider. This quarter, we announced the general availability of our next-generation H100 virtual machines. Azure AI provides access to best-in-class frontier models from OpenAI and open-source models, including our own, as well as from Meta and Hugging Face, which customers can use to build their own AI apps while meeting specific cost, latency, and performance needs. Because of our overall differentiation, more than 18,000 organizations now use Azure OpenAI service, including new to Azure customers. And we are expanding our reach with digital-first companies with OpenAI APIs as leading AI startups use OpenAI to power their AI solutions, therefore making them Azure customers as well. We continue to see more cloud migrations with Azure Arc. We are meeting customers where they are, helping them run apps across on-prem, edge, and multi-cloud environments. We now have 21,000 Arc customers, up 140% year-over-year. We are the only other cloud provider to run Oracle's database services, making it simpler for customers to migrate their on-prem Oracle databases to our cloud. Customers like PepsiCo and Vodafone will have access to a seamless, fully integrated experience for deploying, managing, and using Oracle database instances on Azure. And we are the cloud of choice for customers' SAP workloads too. Companies like Brother Industries, Haines, ZEISS, and ZF Group all run SAP on Azure. Now on to data. In the age of co-pilots, organizations are looking to consolidate their data estate. That's why with our Microsoft Intelligent Data Platform, we're bringing together operational data stores, analytics, and governance. More than 73% of the Fortune 1000 use three or more of our data solutions today. And with Microsoft Fabric, we're unifying compute, storage, and governance into one end-to-end analytics solution with an all-inclusive business model. More than 16,000 customers are actively using Fabric, including over 50% of the Fortune 500s. Now on to developers. With GitHub Copilot, we are increasing developer productivity by up to 55% while helping them stay in the flow and bringing the joy back to coding. We have over 1 million paid Copilot users and more than 37,000 organizations have subscribed to Copilot for Business, up 40% quarter over quarter, with significant traction outside the United States. This quarter, we added new capabilities with GitHub Copilot Chat, which are already being used by both digital natives like Shopify, as well as leading enterprises like Maersk and PwC to supercharge the productivity of their software developers. All up, the number of developers using GitHub has increased 4x since our acquisition five years ago. We've also brought Copilot to Power Platform, enabling anyone to use natural language to create apps, build virtual agents, and analyze data. More than 126,000 organizations, including 3M, Equinor, Lumen Technologies, Nationwide, PG&E, and Toyota, have all used Copilot and Power Platform to date. EY, for example, has enabled Copilot for all 170,000-plus Power Platform users at the company. And this quarter, we added new co-pilot capabilities to Power Pages, making it possible to build data-driven websites using just a few sentences or clicks. Finally, Power Apps remains the market leader in low-code, no-code development, now with 20 million monthly active users, up 40% year-over-year. Now on to business applications. All up, Dynamics 365 took share for the 10th consecutive quarter. We're using this AI inflection point to redefine our role in business applications. We are becoming the co-pilot-led business process transformation layer on top of existing CRM systems like Salesforce. For example, our sales co-pilot helps sellers at more than 15,000 organizations, including Rockwell Automation, Sandvik, Coromant, Securitas, and teleperformance personalized customer interactions based on data from third-party CRMs. We're also bringing Copilot to Dynamics 365 to help with everything from suggested actions and content ideas to faster access to valuable business data. And this quarter, we introduced Copilot and Dynamics 365 Field Service to help streamline frontline tasks. Now on to industry and cross-industry clouds. In healthcare, our Dragon Ambient Experience solution helps clinicians automatically document patient interactions at the point of care. It's been used across more than 10 million interactions to date. And with Dax Copilot, we are applying generative AI models to draft high-quality clinical notes in seconds, increasing physician productivity and reducing burnout. For example, Atrium Health, a leading provider in Southeast United States, credits Dax Copilot with helping its physicians each save up to 40 minutes per day in documentation time. We're also introducing healthcare data solutions in Microsoft Fabric, enabling providers like Northwestern Medicine and SingHealth to unify health data in a secure, compliant way. And with our Microsoft Cloud for Sovereignty, which will become generally available by the end of the calendar year, we offer industry-leading data sovereignty and encryption controls, meeting the specific needs of public sector customers around the world. Now on to future work. Copilot is your everyday AI assistant, helping you be more creative in Word, more analytical in Excel, more expressive in PowerPoint, more productive in Outlook, and more collaborative in Teams. Tens of thousands of employees at customers like Bayer, KPMG, Mayo Clinic, Suncorp, and Visa, including 40% of the Fortune 100, are using Copilot as part of our early access programs. Customers tell us that once they use Copilot, they can't imagine work without it, and we are excited to make it generally available for enterprise customers next week. This quarter, we also introduced a new hero experience in Copilot, helping employees tap into their entire universe of work, data, and knowledge using chat. And the new Copilot Lab helps employees build their own work habits for this era of AI by helping them turn good prompts into great ones. When it comes to Teams, usage continues to grow with more than 320 million monthly active users, making Teams the place to work across chat, collaboration, meetings, and calling. This quarter, we introduced a new version of Teams that is up to two times faster while using 50% less memory and includes seamless cross-tenant communications and collaboration. We've seen nine consecutive quarters of triple-digit revenue growth for Teams Rooms, and more than 10,000 paid customers now use Teams Premium. Teams has also become a multiplayer canvas for business process. There are more than 2,000 apps in Teams Store and collaborative apps from Adobe, Atlassian, and Workday each exceeded 1 million monthly active users on Teams. And with Weaver, we have created a new market category for employee experience, helping companies like Dell, Lloyds Banking Group, and PayPal build high-performance organizations. With skills in Weaver, we are bringing together information from Microsoft 365 and LinkedIn to help employers understand workforce gaps and suggest personalized learning content to address it, all in the flow of work. All up, we continue to see more organizations choose Microsoft 365, and companies across private and public sector, including Cerebrus, Chanel, DXC Technology, all rely on our premium E5 offerings for advanced security, compliance, voice, and analytics. Now on to Windows. The PC market unit volumes were at roughly pre-pandemic levels. And we continue to innovate across Windows, adding differentiated AI-powered experiences to the operating system. We rolled out the biggest update to Windows 11 ever with 150 new features, including new AI-powered experiences like Clipchamp, Paint, and Photos. And we introduced Copilot in Windows, the everyday AI companion which incorporates the context of the web, your work data, and what you are doing on the PC to provide better assistance. We are seeing accelerated Windows 11 deployments worldwide from companies like BP, Eurowings, Cantor, and RBC. Finally, with Windows 365 Boot and Switch, we are making it easier than ever for employees at companies like Crocs, Hamburg Commercial Bank, and the ING Bank to get a personalized Windows 365 Cloud PC with Copilot on any device. Now on to security. The speed, scale, and sophistication of cyber attacks today is unparalleled, and security is the number one priority for CIOs worldwide. We see high demand for security co-pilot, the industry's first and most advanced generative AI product, which is now seamlessly integrated with Microsoft 365 Defender. Dozens of organizations, including Bridgewater, Fidelity National Financial, and Government of Alberta, have been using Copilot in preview, and early feedback has been positive. And we look forward to bringing Copilot to hundreds of organizations in the coming months as part of the new early access program so they can improve the productivity of their own security operation centers and stop threats at machine speeds. More broadly, we continue to take share across all major categories we serve, and our SIEM, Microsoft Sentinel, now has more than 25,000 customers and revenues surpassed $1 billion annual run rate. And customers in every industry, like Booz Allen Hamilton, Grant Thornton, and MetLife, use our end-to-end solutions to protect their environments. Now onto LinkedIn. We are now applying this new generation of AI to transform how the 985 million members learn, sell, and get hired. Membership growth has now accelerated each quarter for over two years in a row. This quarter, we introduced new AI-driven features across all of our businesses, including a learning coach that gives members personalized content guidelines and tools to help employers find qualified candidates and sellers and marketeers attract buyers in a single step since introducing ai assisted messages for recruiters five months ago three-fourths of them say it saves them time and we have seen a nearly 80 increase in members watching ai related learning courses this quarter more broadly we continue to see record engagement and knowledge sharing on the platform We now have more than 450 million newsletter subscriptions globally, up 3x year-over-year. Premium subscription sign-ups were up 55% year-over-year, and our hiring business took share for the fifth consecutive quarter. Now on to search advertising and news. With our co-pilot for the web, we are redefining how people use the Internet to search and create. Bing users have engaged in more than 1.9 billion chats, and Microsoft Edge has now gained share for 10 consecutive quarters. This quarter, we introduced new personalized answers, as well as support for Dolly 3, helping people get more relevant answers and to create incredibly realistic images. More than 1.8 billion images have been created today. And with our co-pilot and shopping, people can find more tailored recommendations and better deals. We're also expanding to new endpoints, bringing Bing to Meta's AI chat experience in order to provide more up-to-date answers as well as access to real-time search information. Finally, we're integrating this new generation of AI directly into our ad platforms to more effectively connect marketeers to customer intent and chat experiences, both from us as well as customers like Axial, Springer, and Snap. Now, on to gaming. We were delighted to close our acquisition of Activision Blizzard King earlier this month. Together, we will advance our goal of bringing great games to players everywhere on any endpoint. Already with Game Pass, we are redefining how games are distributed, played, and discovered. We set a record for hours played per subscriber this quarter. We released Starfield this quarter to broad acclaim. More than 11 million people have played the game to date. Nearly half of the hours played have been on PC, and on launch day, we set a record for the most Game Pass subscriptions added on a single day ever. Minecraft has now surpassed 300 million copies sold, and with Activision Blizzard King, we now add significant depth to our content portfolio. We will have 13 billion dollar plus franchises from Candy Crush, Diablo, and Halo to Warcraft, Elder Scrolls, and Gears of War. And we're looking forward to one of our strongest first party holiday lineups ever, including new titles like Call of Duty, Modern Warfare 3, and Forza Motorsport. In closing, we're rapidly innovating to expand our opportunity across our consumer and commercial businesses as we help our customers thrive in this new era. In just a few weeks, we'll be holding our flagship Ignite conference, where we will introduce more than 100 new products and capabilities, including exciting new AI innovations. I encourage you to tune in. With that, I'll turn it over to Amy.