Microsoft Corporation

Greetings and welcome to the Microsoft Fiscal Year 2024 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. I would now like to turn the conference over to your host, Brett Iverson, Vice President of Investor Relations.

Good afternoon, and thank you for joining us today. On the call with me are Sati Nadella, Chairman and Chief Executive Officer, Amy Hood, Chief Financial Officer, Alice Jala, Chief Accounting Officer, and Keith Oliver, 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 the 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. 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 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 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'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 in the comments made during this conference call and in the risk factors section of our form 10k forms 10q 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 had a solid close to our fiscal year. All up annual revenue was more than $245 billion, up 15% year over year. And Microsoft Cloud revenue surpassed $135 billion, up 23%. Before I dive in, I want to offer some broader perspective on the AI platform shift. Similar to the cloud, this transition involves both knowledge and capital intensive investments. And as we go through this shift, we are focused on two fundamental things. First, driving innovation across a product portfolio that spans infrastructure and applications so as to ensure that we are maximizing our opportunity, while in parallel continuing to scale our cloud business and prioritizing fundamentals starting with security. Second, Using customer demand signal and time to value to manage our cost structure dynamically and generate durable long-term operating leverage. With that, let me highlight examples starting with Azure. Our share gains accelerated this year driven by AI. We expanded our data center footprint announcing investments across four continents. These are long-term assets around the world to drive growth for the next decade and beyond. We added new AI accelerators from AMD and NVIDIA, as well as our own first-party silicon, Azure Maya. And we introduced new Cobalt 100, which provides best-in-class performance for customers like Elastic, MongoDB, Siemens, Snowflake, and Teradata. We continue to see sustained revenue growth from migrations. Azure Arc is helping customers in every industry from ABB and Cathay Pacific to La Liga to streamline their cloud migrations. We now have 36,000 of our customers up 90% year over year. We remain the hyperscale cloud of choice for SAP and Oracle workloads. Atos, Coles, Daimler Truck AG, Domino's, Halion, for example, all migrated their mission-critical SAP workloads to our cloud. And with our Azure VMware solution, we offer the fastest and most cost-effective way for customers to migrate their VMware workloads to. With Azure AI, we are building out the app server for the AI wave, providing access to the most diverse selection of models to meet customers' unique cost, latency, and design considerations. All up, we now have over 60,000 Azure AI customers, up nearly 60% year-over-year, and average spend per customer continues to grow. Azure OpenAI Service provides access to best-in-class frontier models, including as of this quarter, GPT-4.0 and GPT-4.0 Mini. It's being used by leading companies in every industry, including H&R Block, Suzuki, Swiss Re, Telstra, as well as digital natives like Freshworks, Misho, and Zomato. With 5.3, we offer a family of powerful small language models which are being used by companies like BlackRock, Emirates, Epic, ITC, Navy Federal Credit Union, and others. And with Models as a Service, we provide API access to third-party models, including, as of last week, the latest from Cohere, Meta, and Mistral. The number of paid model service customers more than doubled quarter over quarter, and we are seeing increased usage by leaders in every industry from Adobe and Bridgestone to Novo Nordisk and Palantir. Now on to data. Our Microsoft Intelligent Data Platform provides customers with the broadest capabilities spanning databases, analytics, business intelligence, and governance, along with seamless integration with all of our AI services. The number of Azure AI customers also using our data and analytics tools grew nearly 50% year over year. Microsoft Fabric, our AI-powered next-generation data platform, now has over 14,000 paid customers, including leaders in every industry, from Accenture and Kroger to Rockwell Automation and Zeiss, up 20% quarter over quarter. This quarter, we introduced new first-of-their-kind real-time intelligence capabilities in Fabric so customers can unlock insights on high-volume time-sensitive data. Now on to developer tools. GitHub Copilot is by far the most widely adopted AI-powered developer tool. Just over two years since its general availability, more than 77,000 organizations from BBVA, FedEx, and H&M to Infosys and Paytm have adopted Copilot up 180% year-over-year. And we're going further. With Copilot Workspace, we offer Copilot native end-to-end developer productivity across plan, build, test, debug, and deploy cycle. Copilot is driving GitHub growth all up. GitHub annual revenue run rate is now $2 billion. Copilot accounted for over 40% of GitHub revenue growth this year and is already a larger business than all of GitHub was when we acquired it. We're also integrating generative AI across Power Platform, enabling anyone to use natural language to create apps, automate workflows, or build a website. To date, over 480,000 organizations have used AI-powered capabilities in Power Platform, up 45% quarter over quarter. In total, we now have 48 million monthly active users of Power Platform, up 40% year over year. Now on to future of work. Copilot for Microsoft 365 is becoming a daily habit for knowledge workers as it transforms work, workflow, and work artifacts. The number of people who use Copilot daily at work nearly doubled quarter over quarter as they use it to complete tasks faster, hold more effective meetings, and automate business workflows and processes. Copilot customers increased more than 60% quarter over quarter. Feedback has been positive with majority of enterprise customers coming back to purchase more seats. All up, the number of customers with more than 10,000 seats more than doubled quarter over quarter, including Capital Group, Disney, Dow, Kendrell, Novartis, and EY alone will deploy Copilot to 150,000 of its employees. And we are going further, adding agent capabilities to Copilot. New team Copilot can facilitate meetings and create and assign tasks. And with Copilot Studio, customers can extend Copilot for Microsoft 365 and build custom Copilots that proactively respond to data and events using their own first- and third-party business data. To date, 50,000 organizations from Carnival Corporations, Cognizant, and Eaton to KPMG, Majesco, and McKinsey have used Copilot Studio up over 70% quarter over quarter. We're also extending Copilot to specific industries, including healthcare, where Dax Copilot, more than 400 healthcare organizations, including Community Health Network, Intermountain, Northwestern Memorial Healthcare, and Ohio State University Wexner Medical Center, have purchased Dax Copilot to date, up 40% quarter over quarter, and the number of AI-generated clinical reports more than tripled. Copilot is also transforming ERP and CRM business applications. We again took share this quarter as customers like Thermo Fisher Scientific switched to Dynamics. Our new Dynamics 365 Contact Center is a Copilot-first solution that infuses generative AI throughout the contact center workflow. Companies like 1-800-Flowers, Mediterranean Shipping, Synoptek will rely on it to deliver better customer support. And Dynamics 365 Business Central is now trusted by over 40,000 organizations for core ERP. Microsoft Teams has become essential to how hundreds of millions of people meet, call, chat, collaborate, and do business. We once again saw year-over-year usage growth. Teams Premium has surpassed 3 million seats up nearly 400% year-over-year as organizations like Dentsu, Eli Lilly, and Ford chose it for advanced features like end-to-end encryption and real-time translation. When it comes to devices, we introduced our new category of Copilot Plus PCs this quarter. They are the fastest, most intelligent Windows PCs ever. They include a new system architecture designed to deliver best-in-class performance and breakthrough AI experiences. We are delighted by early reviews, and we are looking forward to the introduction of more Copilot Plus PCs powered by all of our silicon and OEM partners in the coming months. More broadly, Windows 11 active devices increased 50% year over year, and we are seeing accelerated adoption of Windows 11 by companies like Carlsberg, E.ON, National Australia Bank. And now on to security. We continue to prioritize security above all else. We are doubling down on our secure future initiative as we implement our principles of secure by design, secure by default, and secure operations. Through this initiative, we are also continually applying what we are learning and translating it into innovation for our customers, including how we approach AI. Over 1,000 paid customers used Copilot for security, including Alaska Airlines, Oregon State University, Petrofac, Wipro, WTW, and we are also securing customers' AI deployments with updates to Defender and Purview. All up, we now have 1.2 million security customers, over 800,000, including Dell Technologies, Deutsche Telekom, TomTom use four or more workloads, up 25% year over year. And Defender for Cloud, our cloud security solution, surpassed $1 billion in revenue over the past 12 months as we protect customer workloads across multi-cloud and hybrid environments. Now let me turn to our consumer businesses, starting with LinkedIn. LinkedIn continues to see accelerated member growth and record engagement. 1.5 million pieces of content are shared every minute on the platform. And video is now the fastest growing format on LinkedIn with uploads up 34% year over year. LinkedIn Marketing Solutions continues to be a leader in B2B digital advertising, helping companies deliver the right message to the right audience on a safe, trusted platform. And when it comes to our subscription businesses, premium sign-ups increased 51% this fiscal year, and we are adding even more value to our members and customers with new AI tools. Our reimagined AI-powered LinkedIn premium experience is now available for every premium subscriber worldwide, helping them more easily and intuitively connect to opportunity, learn, and get career coaching. Finally, hiring took share for the second consecutive year. And now on to search advertising and news. We are ensuring that Bing, Edge, and Copilot collectively are driving more engagement and value to end users, publishers, and advertisers. Our overall revenue x-tack increased 19% year-over-year, and we again took share across Bing and Edge. We continue to apply generative AI to pioneer new approaches to how people search and browse. Just last week, we announced we are testing a new generative search experience which creates a dynamic response to users' query while maintaining click share to publishers. And we continue to drive record engagement with Copilot for the web. Consumers have used Copilot to create over 12 billion images and conduct 13 billion chats to date, up 150% since the start of the calendar year. Thousands of news and entertainment publishers trust us to reach new audiences with Microsoft Start. And in fact, we have paid them $1 billion over the last five years. We are helping advertisers increase their ROI too. We have seen positive response to Performance Max, which uses AI to dynamically create and optimize ads, and co-pilot in Microsoft Ad Platform helps marketeers create campaigns and troubleshoot using natural language. Now on to gaming. We now have over 500 million monthly active users across platforms and devices, and our content pipeline has never been stronger. We previewed a record 30 new titles at our showcase this quarter. 18 of them, such as Call of Duty, Black Ops 6, will be available on Game Pass. Game Pass Ultimate subscribers can now stream games directly on devices they already have, including, as of last month, Amazon Fire TVs. Finally, we are bringing our IP to new audiences. Fallout, for example, made its debut as a TV show on Amazon Prime this quarter. It was the second most watched title on the platform ever, and hours played on Game Pass for the Fallout franchise increased nearly 5x quarter over quarter. In closing, I'm energized about the opportunities ahead. We are investing for the long term in our fundamentals, in our innovation, and in our people. With that, let me turn it over to Amy.