Microsoft Corporation

Greetings and welcome to the Microsoft Fiscal Year 2026 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, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Jonathan Nielsen, Vice President of Investor Relations. 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 Jolla, Chief Accounting Officer, and Keith Dolliver, Corporate Secretary and Deputy General Counsel. On the Microsoft Investor Relations website, we will provide our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks 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. 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. will also provide growth rates in constant currency when available as a framework for assessing how our underlying business 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 today's call is being 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 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, Jonathan. It was a very strong start to our fiscal year. Microsoft cloud revenue surpassed $49 billion, up 26% year over year. And our commercial RPO increased over 50% to nearly $400 billion with a weighted average duration of only two years. We're seeing increasing demand and diffusion of our AI platform and family of co-pilots, which is fueling our investments across both capital and talent. When it comes to infrastructure, we're building a planet-scale cloud and an AI factory, maximizing tokens per dollar per watt, while supporting the sovereignty needs of customers and countries. We're innovating rapidly across the family of co-pilots, spanning the high value domains of information work, coding, security, science, health, and consumer. And as you saw yesterday, we closed a new definitive agreement with OpenAI, marking the next chapter in what is one of the most successful partnerships and investments our industry has ever seen. This is a great milestone for both companies, and we continue to benefit mutually from each other's growth across multiple dimensions. Already, we have roughly 10x our investment. OpenAI has contracted an incremental $250 billion of Azure services. Our RevShare exclusive IP rights and API exclusivity for Azure continue until AGI or through 2030. And we have extended the model and product IP rights through 2032. And we are also energized to innovate and pursue AI advancements with both talent and compute investments that have real-world impact. With that, let's turn to our momentum across our AI platform and co-pilots, as well as with agents. We have the most expansive data center fleet for the AI era, and we are adding capacity at an unprecedented scale. We will increase our total AI capacity by over 80% this year and roughly double our total data center footprint over the next two years, reflecting the demand signals we see. Just this quarter, we announced the world's most powerful AI data center, Fairwater in Wisconsin, which will go online next year and scale to 2 gigawatts alone. And we have deployed the world's first large-scale cluster of NVIDIA GB300s. We are building a fungible fleet that's being continuously modernized and spans all stages of the AI lifecycle, from pre-training to post-training to synthetic data generation and inference, And it also goes beyond gen AI workloads to recommendation engines, databases, and streaming. We're optimizing this fleet across silicon systems and software to maximize performance and efficiency. It's this combination of fungibility and continuous optimization that allows us to deliver the best ROI and TCO for us and our customers. For example, during the quarter, we increased the token throughput for GPT-4.1 and GPT-5, two of the most widely used models by over 30% per GPU. We also have the most comprehensive digital sovereignty platform. Azure customers in 33 countries are now developing their own cloud and AI capabilities within their borders to meet local data residency requirements. In Germany, for example, OpenAI and SAP will rely on Azure to deliver new AI solutions to the public sector. On top of this infrastructure, we're building Azure AI Foundry to help customers build their own AI apps and agents. We have 80,000 customers, including 80% of the Fortune 500. We offer developers and enterprise access to over 11,000 models more than any other vendor, including as of this quarter, OpenAI's GPT-5 as well as XAI's Grok 4. For example, Ralph Lauren used Foundry to build conversational shopping experience in its app, enabling customers to describe what they're looking for and get personalized recommendations. And OpenEvidence used Foundry to create its AI-powered clinical assistant, which surfaces relevant medical information to physicians and helps streamline charting. When it comes to our first-party models, we are excited by the performance of our new MAI models for text, voice, and image generation, which debuted among the top in the industry leaderboards. And we continue to make great progress with our five family of SLMs, which now have been downloaded over 60 million times, up 3x year over year. Beyond Models and Foundry, we are providing everything developers need to design, customize, and manage AI applications and agents at scale. Our new Microsoft Agent Framework helps developers orchestrate multi-agent systems with compliance, observability, and deep integration out of the box. For example, KPMG used the framework to modernize the audit process, connecting agents to internal data with enterprise-grade governance and observability. These kinds of real production-scale AI deployments are driving Azure's overall growth. And once again, this quarter, Azure took share. Now let's turn to applications and agents we ourselves are building on this platform. We now have 900 million monthly active users of our AI features across our products. And our first-party family of co-pilots now has surpassed 150 million monthly active users across information work, coding, security, science, health, and consumer. When it comes to information work, we continue to innovate with Microsoft 365 Copilot. Copilot is becoming the UI for the agentic AI experience. We have integrated chat and agentic workflows into everyday tools like Outlook, Word, Excel, PowerPoint, and Teams. Just nine months since release, tens of millions of users across Microsoft 365 customer base are already using chat. Adoption is accelerating rapidly, growing 50% quarter over quarter, and we continue to see usage intensity increase. This quarter, we also introduce agent mode, which turns single prompts into expert quality Word documents, Excel spreadsheets, PowerPoint presentation, and then iterate to deliver the final product, much like agent mode in coding tools today. We're thrilled by the early response, including third-party benchmarks that rank it best in class. Beyond individual productivity, Copilot is multiplayer. With Teams mode announced this week, you can now invite colleagues into a Copilot conversation. And our collaborative agents like facilitator and project manager prep meeting agendas, take notes, capture decision, kick off group tasks. We are seeing a growing Copilot agent ecosystem with top ISVs like Adobe, Asana, Jira, LexisNexis, SAP, ServiceNow, Snowflake, and Workday all building their own agents that connect to Copilot. And customers are also building agents for their mission-critical business processes and workflows using tools like Copilot Studio and integrating them into Copilot. The overall number of agent users doubled quarter over quarter. And just yesterday, we announced App Builder, a new copilot agent that lets anyone create and deploy task-specific apps and agents in minutes grounded in Microsoft 365 context. All this innovation is driving our momentum. Customers continue to adopt Microsoft 365 Copilot at a faster rate than any other new Microsoft 365 suite. All up, more than 90% of the Fortune 500 now use Microsoft 365 Copilot. Accenture, Bristol-Myers Squibb, EY Global, and the UK's Tax and Payment and Customs Authority all purchased over 15,000 seats this quarter. Lloyds Banking Group has deployed 30,000 seats, saving each employee an average of 46 minutes daily. and a large majority of our enterprise customers continue to come back to purchase more seats. Our partner, PwC alone added 155,000 seats this quarter, and now has over 200,000 deployed across its global operations. In just six months, PwC employees interacted with Microsoft 365 Co-Pilot over 30 million times, and they credit this agentic transformation with saving millions of hours in employee productivity. When it comes to coding, GitHub Copilot is the most popular AI pair programmer now with over 26 million users. For example, tens of thousands of developers at AMD use GitHub Copilot, accepting hundreds of thousands of lines of code suggestions each month and crediting it with saving months of development time. All up, GitHub is now home to over 180 million developers and the platform is growing at the fastest rate in its history, adding a developer every second. 80% of new developers on GitHub start with Copilot within the first week. Overall, the rise of AI coding agents is driving record usage with over 500 million pull requests merged over the past year. And just yesterday at GitHub Universe, we introduced Agent HQ. GitHub Copilot and Agent HQ is the organizing layer for all coding agent extending the GitHub primitives like PRs, issues, actions to coding agents from OpenAI, Anthropic, Google, Cognition, XAI, as well as OSS and in-house models. GitHub now provides a single mission control to launch, manage, and review these agents, each operating from its own branch with built-in controls, observability, and governance. We're building a similar system in security with over three dozen agents in co-pilot integrated across Entra, Defender, Purview, and Intune. For example, with our phishing triage agent in Defender, studies show that analysts can be up to 6.5 times more efficient in detecting malicious mails. In health, Dragon Co-Pilot helps providers automate critical workflows. This quarter alone, we helped document over 17 million patient encounters, up nearly 5x year over year. More than 650 healthcare organizations have purchased our ambient listening tech to date, including University of Michigan Health, where over 1,000 physicians are actively using it. Finally, when it comes to AI consumer experiences, we are excited about all the progress Copilot is making, starting with Windows. Every Windows 11 PC now is an AI PC. Just two weeks ago, we introduced new ways to speak naturally to your computer, including a co-pilot wake word. With Vision, co-pilot sees what you see on your screen and you can have a real-time conversation about it. And with Action, it takes real action on your behalf, interacting with both web and desktop apps. In Edge, we are introducing first of its kind AI features to automate multi-step workflows within the browser and help you pick up right where you left off. Edge now has taken share for 18 consecutive quarters. In Bing, our overview pages now include embedded conversational capabilities. We took share again in search. And daily users of our Copilot consumer app increased nearly 50% quarter over quarter. Among many updates we made last week is Groups, which turns Copilot for the first time into a shared experience. We also are creating a great consumer subscription offer with Microsoft 365 Premium. It brings together our office applications and advanced co-pilot features with high usage limits, giving individuals the flexibility to bring their own AI to work in a secure way. Finally, in gaming, Copilot provides a voice-first immersive experience across PC, mobile, and our new Xbox ally. Beyond our family of Copilots and AI platform, we are seeing strong momentum across the portfolio. Cloud migrations are accelerating. In data and analytics, fabric revenue grew 60%, which is faster than any other data and analytics platform in the industry. We now have 28,000 paid fabric customers. In databases, SQL DB, Hyperscale revenue was up nearly 75%, 50% in Cosmos DB. In business applications, Dynamics 365 gained share. In security, our end-to-end stack is now informed by 100 trillion daily signals. 1 billion monthly active users of Entra, 16 billion co-pilot interactions audited by Purview, up 72% quarter over quarter. 40,000 Sentinel customers, and we took share across all categories we serve in security. In LinkedIn, nearly 1.3 billion members. And finally, in gaming, we expanded our reach across every endpoint focused on our high margin content and services. We launched critically acclaimed games like Keeper, Ninja Gaiden 4, and Outer Worlds 2, reaching 155 million monthly active users in Minecraft, an all-time high, and set new record for overall content and services revenue for the quarter. We also saw a great response to Xbox Ally launch two weeks ago and set new records for players on PCs. In closing, our planet-scale cloud and AI factory together with co-pilots across high-value domains is driving broad diffusion and real-world impact. And we continue to increase our investments in AI across both capital and talent to meet the massive opportunity ahead. With that, let me turn it over to Amy to walk through our financial results and outlook, and I look forward to rejoining for your questions.