MSFT - Earnings call transcript Q1 2019

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Operator

Greetings, and welcome to the Microsoft Fiscal Year 2019 First Quarter Earnings Conference Call.

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Spencer, General Manager, Investor Relations. Thank you.

You may begin.

Michael Spencer

you us thank and afternoon for today. joining Good

General are Chief Officer; Executive the Frantz, Brod, call Amy Nadella, me with Deputy Carolyn and Financial On Officer; Secretary. Satya Hood, Accounting Officer; and Counsel Corporate Chief Frank Chief

measures. Relations deck reconciliation and On slide today's find call our financial is call growth remarks of during intended GAAP to All and you earnings the last website, financial the make can a release year, differences we press between on non-GAAP noted. relate Microsoft otherwise today and prepared corresponding provides Investor which of summary comparisons period supplement unless our the to

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and can Relations website. on view the You replay the call transcript the Microsoft Investor

And and Securities reports Form that, to the Commission. I'll the any over Satya. Risk do and the XX-K, not that to events. of this we press statements factors assumptions based to forward-looking and These subject today's future or and filings turn are earnings comments making made in because and will statements forward-looking forms section be other statements, current Factors risks in During statement. could the discussed about any call, during Actual materially are of results projections which update this Exchange duty undertake with release, We are and call predictions, with call our on other differ uncertainties. in expectations XX-Q conference

Satya Nadella

fiscal record to Thank you, needs off on digital simple aspects it in are and Think delivering XXXX, profit. a everyone for this. Mike, compete intensity tech start Every as grow today very and joining. the and phone There revenue world. thanks to increasingly an two of We're in a to to strong organization equation.

needs a their adopter second, organization be every fast build capability. best-in-class they'll technology, First, proprietary to of to digital own need

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and broadens in for things: fuel cloud scan are that comprehensive authentications to analyze monthly reach I'll day, multinationals under-penetrated process We of e-mails generate second, differentiation first, and Security Cybersecurity and Now Customers over large customers XXX highlight we their areas. workers customers. our and X.X markets. Today month. the suite each that posture, signals massive spanning based information, application our empower are billion security first-line to unparalleled ago, employees than more challenge. Tinto trillion from signals Lilly phishing briefly sizes organizations XXX. our a for that a small Eli billion path is XXX multi-billion new malware help all businesses workplace. each we introduced little A This a innovations XXX how choosing protection. to insights innovating Microsoft Microsoft security all the device central a solution product operational it's across is modern Microsoft year identity, business our dollar with two on our Rio to field gives and like

use cybersecurity investigate a Security in a dynamic of In Microsoft on remediate hundreds meeting features human their capabilities management, will connected it Microsoft and AI report most. be transcription businesses making are with to future detect, people apps card and and that day. reminders productivity leader AI-driven every organizations XXX collaboration are to capability, innovation new automated the of proactive of analytics IT org and Cortana slide XXX from to Microsoft security on for Active enhanced sophisticated capabilities to focus defined across threats eliminate augmenting endpoint, all saving posture. what gives experiences thousands and design thousands across The AD we real-time Directory by of for Score is Microsoft innovating identity with Azure New matters professionals already every Azure to hours. new search passwords easier

we system our to line continues of with as teamwork single only Another solutions season. the solution video collab a OEM for is is And hub industry the XX new innovate differentiator the security automated Surface including into Teams. inspiring the and the enterprise Windows for productive Teams are Microsoft including need secure compliance for only to continues installed to the integrated and an bar XX. Surface conferencing, the than now eliminates more scaffolding. experience together devices we Teams and device going Surface value. discrete exposure. organization's business. the web-based user now enterprise-grade XXX Customers small Microsoft commercial holiday is It XX adding recognize strongest offerings industry-specific and operating base devices into increase traction and translation half on for that in meetings, and new workers, single-point support of that category-leading the brings healthcare messaging, Windows Microsoft new our Go. set and for organizations, are for shift XXX,XXX the is scheduling and meetings, this have including most gain five ecosystems of the first-line Fortune XXX Surface

feedback improve outcomes all AI-powered ultimately and to automate connect key and predictive digital applications, business loops customers, power, to operations, organizations. addresses Dynamics to workflows, need. this products, create are XXX uniquely that Moving employees

year engagement billion Flow using and coming to Dynamics for modular half the extensible is advantage converted the of Companies the critical record Dynamics siloed and driving Mixed expect built our AI and momentum physical Dynamics us and more analytics model our traditional into recognize systems in intelligence. And of AI, investments of customers workers, that a applications from our spanning transform and ZF approach interactions. introduced its to for in no-code to We of quarter, leader and with of Reality their Chevron this class are with XXX this in monolithic relying and and Dynamics apps. deliver than era already have like total the and Power Dynamics XXX BI, where and H&M, an digitizes application training And made Group revenue new platform business of SaaS we clothing XXX world's business over a app the the digitize cloud. on retailer XXX. in are analytics These spaces first-line are PowerApps, second-largest customers building design it processes. suites others $X.X

is business Microsoft to demand engagement from competitive for and experiences solutions of the exchanged customers the as gives be directly LinkedIn strategic from and Open sponsored across to this connections our the shared. partnership competitive leverage further, Adobe enriched that unparalleled is one to data. renewable solutions, saw transactional, LinkedIn's a Insights insight solution new on analytics this Glint Talent acquisition self-service employee market fueling growth quarter. job insights the an and XX% even LinkedIn and help to Graphs Together the e-mail And platform that a customer postings world's create that content jobs resource ability systems, and Initiative, for such it and market. enables behavioral, a new and talent. to Our labor provide new professionals, best XXX. takes financial alongside platform talent intelligent which to continues a professionals be of brings Data Microsoft unified essential Strong and vision innovating enable again SAP record sent data operational across to model Workforce data attract, pending experiences. marketing trends retain with year-over-year with levels develop delivering of We're an and content of increasingly solution with making messages connect powerful sessions LinkedIn the intelligence record and we'll Insights HR

from to the edge. turning to architectural cloud enterprise for Customers hyperscale securing Azure. Volkswagen, the Twins stack models confidentiality for the IoT use first on like fast-growing and InBev, each end-to-end in and this advantage strategy both Computing, the encrypt available a data. entering a secure and management. as recognizing We cloud Azure are data, across identity, transit introduced Mastercard security devices. provide well best Azure Azure strong IoT while interest. to Every Now from cloud security places extends of our company to Anheuser-Busch adding a in Grab to the as new multinationals the new that to AI. Digital customer year. startups edge workloads computing that data as cloud a powered consistent the data and across and now protecting advantage and investing make only and is of like Azure now well needs devices of new seeing alone, relationships market our in like the the security microcontroller Azure Sphere, platform, for service integrity protections quarter is With Azure of to devices workloads is to existing the existing focused interactions Confidential solution application, as people, take edge capabilities broadly is the platform rest. We're XXX like to Azure billions

Across helping Warehouse, transform. deploy SQL these financial services AI through this AI train payment transfers SWIFT, and builds AI needed are cloud models Beulah, agent data optimize Azure Cognitive DB, to insights, workers the using with Lake Our Database, their on and estates. cars. and like such for data further deal of cloud keep on for is BMW the data to Azure an interact productivity to which the enterprise build Cosmos data democratize Services comprehensive unlock introduced them transformation applying enabling Edge. organizations center, or on processes enterprise services week platform the improve data and as which XX% customers to is Microsoft services this then its and industries, most across redefine grain, relying secure our partners powering foundation and the is at people safety. food faster world's is Azure. scientists Data safe. front to ML provide spanning to Shell Sibos to And how Data Conference,

excited I'm close of to to value industry. in the Finally, which ethos. tools new and about expect services its vital bring opportunity shortly, increasingly to GitHub, we and while the retain across our and grow pending to our growth enabling play developers recognizes role acquisition audiences developer-first creation every GitHub

to turn I'll gaming. Now

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approach our Game has Pass. Xbox game First-party games. key strongest is have content and high-value is content active creating loyal, usage Mixer deliver to in fast-growing monthly This opportunity portfolio differentiated expanding community our Live and monetization studios accelerating. first- is now XX million we like third-party for our XX of our users now asset, and growth to for services

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and protects we our small leave. of our reinforcing quarter suppliers the only these first doing for ensure off step also innovation intelligent customers, helps one us but is And We our time of business for provide further suppliers are require paid with their not this solutions also core to attacks. our businesses to to vulnerable employees. who largest customers were platform. provide optimistic in our their We're United with that recognize companies enterprise for the every the took Not only often responsibility. and employees paid one a to and also substantial States ensuring are security Additionally, cloud intelligent the class us our most we that parental consumers we edge about opportunity

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Amy E. Hood

Thank afternoon you, and Satya, good everyone.

year. and income currency of increased constant XX% earnings and continued quarter up and double-digit share quarter across XX% and start record operating and of we partners drove in our billion, and Gross spending was XX% dollars sales constant from in increasing saw trends. benefit to Operating $X.XX, increased a drove per XX% teams. demand segments margin to currency. growth the the strong for revenue execution our IT hybrid and and $XX.X constant XX%. XX% XX% We by income another macroeconomic favorable and offerings with in currency, cloud sales was revenue fiscal Customer quarter strength each This our

our to Now business. commercial

the a in LinkedIn portion quarter, starting these metrics. As reminder, is this included commercial of

contracts expectations. and and unearned and Azure and better These in expiry on-premises mix constant currency, strength in in commercial On point expected from and benefiting was growing impact XX%. revenue. year-over-year revenue base with roughly Our increased in constant $XX.X XX% an revenue billion, XX% year-over-year, were long-term reported pay-as-you-go in ways. contracts, in revenue that types currency, Commercial than revenue contract overages bookings increased X Azure XX% line growth flat different was larger and consumption bookings, annuity XX% to commercial unearned

Let me explain.

more and offerings in-period there's revenue. bookings drive less First, and growth on-premises under unearned impact Therefore, ASC recognition. on hybrid XXX, revenue

with Second, currency revenue pay-as-you-go little but inclusion have contracts a revenue, and long-term drive growth on and finally, drive smaller growth, contracts significant expected. impact More improvement in gross headwind, bookings XX% And impact strong COGS results that was in-period than significant favorable and revenue Western The the Personal cloud impact XX% point immaterial, Processes The Commercial commercial line Europe percentage to LinkedIn immaterial unearned by and Azure Cloud increased of Azure expectations. less gaming Commercial and revenue. revenue gross gross Intelligent Computing guidance. favorable overages immaterial to point consumption in to grew with company of X%, X Even and again points increased overall less commercial slightly cloud with in UK. by the expenses, Company was cloud. to than commercial in billion, was was performance unearned bookings. X FX rates driven Productivity in-period growth margin. expenses year-over-year, with bookings about and FX and in U.S., revenue X on shift unearned Azure but growth sales impact mix XX%, to $X.X constant line margin operating expected. growing was have revenue. percentage with operating in margin X level, the down and and Business and point, XX%,

differentiated deliver customers, value generating investments continue Our operating in while income leverage. material for markets engineering growing to capacity sales large and our

operating we year-over-year. increased quarter, This margin X points nearly

consumer demand in under revenue higher margin including subscribers mix XXX dollars XXX margin X% execution LinkedIn, anticipated, grew both XX% in and cloud strong increasing growth X% strong of currency. currency. in-period Segment XXX. XX% Dynamics expansion. capacity Intelligent as constant XX% cloud growth. and billion, and XX% Office by XX% Office line Office top-line with of products from commercial few was XX% on-premises and XX% XX% in LinkedIn Revenue grew billion, in XX% of our commercial Office by to increase launch ahead the cloud slightly XX% mix XX% increased services commercial increased expectations, of to to constant businesses. grew investments and Cloud currency, growth the with across ahead continued results. grew Office grew in million. expenses Productivity increasing Now revenue from Operating all and constant constant ongoing driven year-over-year per-user increased grew for greater XX%, Business with XX%, and Office segment XX% and from in and Processes approximately both the XXX currency, driven currency, with commercial Office growth X price of demand XXXX. a EX constant Microsoft points with EX from XXX driven gross support and constant XX.X businesses. in revenue segments ahead points XX%. and Office with driven Revenue XX% was and revenue from Dynamics quarter, revenue hybrid and our a in and currency $X.X our constant channel XXX consumption launch recognition line revenue installed LinkedIn in currency performance growth XX% margin base approximately shift in last increased to with revenue benefited XXX gross and cloud increase of increased XXX of Azure XX% Operating subscription increased sales growth ARPU ASC grew academic businesses. of Office across expansion declined a with seats strong base grew contracts and demand currency, the offers. and all and XX%, XX%, across than expectations income offset Server points offerings. commercial X and constant customers with engineering of by XXXX. a in Office better from workloads. growth percentage by $X.X and consumer as in customer revenue increased XXX price

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declined more in currency revenue revenue services was XX% due Pro increased increased margin revenue Surface, and the X with hardware the were increased by revenue better third-party increasing declined to benefit price commercial OEM consumer In XX% few revenue decreased XX% OEM Go. and grew better range. grew currency increased mix hardware. software and and for hardware. expected X%, from the in to PC Windows, by entry-level in levels OEM in non-Pro earlier of with X%, from as and Computing. to In ex-TAC sales the dollars and growth international Inventory below $XX.X of XX% Xbox our a X%. driven Gaming Search gaming. PC results products Windows holiday continued than gross gaming we Now Windows with software title. secure bundles. expenses higher saw pressure revenue premium grew percentage ecosystem a than Segment modern Xbox Operating of cloud with and billion, market Bing licenses. Book category. grew hardware continued and margin from across within market expected commercial rate deployments and constant grew services gross XX%, and the expected normal XX XX%. commercial ahead results significantly in Personal services sell-in Revenue healthy XX% than XX% mix continued In with constant strength a revenue to and and Surface both lower-margin points software XX%, business. driven volume customer markets. Surface consumer, demand revenue XX%, U.S.

As a result, operating income grew XX%.

Now our back company results. total to

services. due leases in annual collections, business. As first year-over-year and capital cloud meet driven billion, X% expected, up was of expenditures offset payment were XX% decreased higher $X.X support Free our $XX.X Cash Cash for and property, to flow sequentially operations of expenditures billion. plant cash by financed increased and strong equipment ongoing our demand with our billion. cloud flow capital billion $X.X year-over-year including billings investment paid TCJA to was to by for from cloud $X.X partially

of XX%. financial Excluding flow accounting gains the gains cash than Other cash mark-to-market TCJA rules and operating free in flow due was under million, $XXX to income for higher XX% the payment, grew investments. grew anticipated, the realized new recording

Our effective rate was XX%. tax

finally, are vest a movement of we was and QX dividends $X.X through And our to the equity expected As commitment, reminder rates shareholders those year-over-year. within impact quarter. repurchases, in during than quarters. This impacted by due with to the billion an returned of share increase QX a our volume XX% the price more continued and line bit share of QX, the

our to outlook. turn let's Now

to our integration related and full purchase the commentary including based on the accounting, Given allocation purchase expenses that accounting. GitHub my expect price impact current deal we transaction-related the of deal shortly, the of close acquisition includes and understanding

income the deal basis. expect a and operating to to accretive to a to on continue non-GAAP and XXXX FY on be FY FY XXXX XXXX minimally EPS We basis dilutive non-GAAP

For QX, FX. first

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commercial our business. Second,

seasonality timing infrastructure a services. a of rate spend. given of ongoing shift bookings more on of mix years XX% consumption-based a Commercial quarterly margin the quarter gross Margin revenue moderated expected and even than discussed year-over-year should toward percentage grow vary by with contracts continued the performance healthy with another Azure to on toward will to continue cloud cloud is improvement the expect basis Commercial basis solid growth. approximately revenue prior earlier. to unearned year-over-year mix, the revenue though We at driven continue improve

growth ongoing expect we Third, capital expenditure growing as year-over-year we in support demand.

QX infrastructure with spend in roughly timing, be line Given should CapEx QX.

we Now and driven growth, In expect strong with to between performance by Office some continue and commercial to Processes, Dynamics Productivity double-digit billion. revenue discussed will Office momentum subscribers normalize. consumer revenue on but in revenue should channel will new growth inventories stronger impacted earlier. see drivers our remain and billion on-premise prior-year but cloud Business a continued though should overall be due comparable. growth $X.XX LinkedIn segment exhibit $XX.XX moderation negatively the guidance. to healthy as

For $XX.X between given base. includes and base expect In In the GitHub, Intelligent Computing, and More Personal growth billion healthy PC installed $X.XX expect revenue which and our Cloud, across expect market. we we growth between moderate the should revenue Azure, with businesses billion. OEM $X.XX commercial services billion. per-user per-user billion growth will consumption though be we Pro line size of $XX.X in revenue the

to devices the results growth should Surface the X. rate of a due moderate in launch QX In prior be revenue year impact growth included Search similar low gaming, services, prior comparable expect with continued comparable. revenue reminder, durable that we the Pro cloud expect to Surface, X with including well of we as commercial to year. of and strength, expect volume. Surface In prior-year products ex-TAC Windows Laptop a One In and And growth remainder should as for and year non-Pro, dynamics of accelerate, the the a we similar to As QX. comparables throughout X. Xbox strengthened recently benefit OEM launched

strength. benefit a growth QX, similar third-party continued to plus be with overall services from and should title platform Software

Now company back to results. our

offset to And finally investment billion full expense. COGS year million of tax $XX.X expect billion should to Other be approximately slightly $XX.X the We partially and income of $XX gains rate of XX%. as operating income be $X.X effective expect we estimate QX interest $X.X expenses billion interest and and billion. are our by above expense to

few a on fiscal year. the comments Now

First FX.

rates a X revenue to with remain decrease by point. current expense expect in X approximately HX. should offset HX growth and operating COGS full-year growth stable, Assuming we any in benefit FX headwind point

We operating are in strategic Second, expenses. invest commitment priorities creation. our value unchanged driving in remain key to long-term to that

GitHub a With to priority, line as Growth roughly to X%. X%. the we GitHub excluding our be of roughly expect of with in expenses grow expected now guidance operating prior addition is strategic

Third, included investments a accounting Margin full direct be up Even technology on coupled with margin our GitHub execution. result the of in our right is GAAP we in operating trends the of focused with to now slightly expect year-over-year. impact continue operating our margin. leverage consistent purchase guidance, to

For CapEx, rate year continue even moderate we meet to for cloud growth we expect as our the for to demand services. the

to Regarding And that, to offset to though pace, roughly Mike, of let's go by committed we share effective year full Q&A. the an the variability. tax quarterly to year. we finally, it's expect with GitHub acquisition, the quarterly consideration beyond fiscal buyback normal the remain end expected continue fully the incremental in rate stock issue the transaction And to be XX% with

[0JNPYG-E Michael Spencer]

We'll Operator, repeat your you Thanks, Q&A. can instructions? to over now move Amy. please

Operator

you. Thank

question Please of Our your first proceed line with question. with Heather from the coming Sachs. Bellini is Goldman

Heather Bellini

the continue Intelligent give impacting if in to rates? little effect might into and Thank quarter the just how us quarter here. message question. Thank be last the defy in particular Cloud those wondering I'm Satya, your And for Great. products just cloud much server could the I you a Amy you very bit look a gravity services, growth segment, at pricing sense and Azure the also, now of ahead Azure and much if them that of us Hybrid drive with you that the beginning Benefit spending have helped you. be of at But might also changes effect. how can went share you're into going may

Satya Nadella

start in you're is what around fundamentally what can architectural Amy mean, major you advantage and is I'll One question. I technology right. seeing are think two have. the then add. for think overall we hybrid, Heather Thanks advantages Sure. I an KPI I that

as and is loops stopgap think We are it's that's even most are just road about workloads. the hybrid don't map. but distributed together a new for this of shaping very And workloads, coming the we as some the not for cloud. together some we edge the importantly where to the think And place where where we feedback So of and good leading. move work seeing computing a future old our significant cloud

is The pointed out you I us things you Windows and SQL in as very, second business both which see are that. for thing, well are a we for question, think advantage. as have The very unique Server your to as Azure model benefits

the server and is which see standalone of whether technology is expected growth, in the the KPI what the it's it's I So combination and the business advantage stronger. very we even the is model advantage results, and what strong Azure

least would So answer I I think that's that how at question.

Amy E. Hood

to question, went it's that the say impact some points. in into specific I'd QX, price increases the of And couple of effect your on a Heather, of

I to if you would you've that a couple on off XX% a overall on of that the the performance, very map that The is architecture number, So take very matches impact over-rotate is that good of points Satya's a believe seen topic. I technology aligned it. road not plus the sort model business even point,

Heather Bellini

Thank very Great. much. you

Michael Spencer

question we'll Operator, please. Heather. the Thanks, take next

Operator

from Keith The proceed is Thank question coming the Weiss Please with line question. your with of next Stanley. you. Morgan

Keith Eric Weiss

a into your quarter question very little efficiency capital and to guys. here bit. around Thank Excellent. cloud you for nice I dig assets taking the wanted

came stuff? better about of can it sort particular against gross margins like of coming Can you're so you is of Is in. that? slowing if that talked of you of sort get of Azure not businesses? the of talk is sort the bit. Azure the better the there capital? sort higher-level This quarter sort it much Is database intensity to in, pricing sort of like of you down CapEx kind nicely. as compute capital core the mean services just of to to Is what's this you continuing little improve understand how really about more I move driving productivity you in cement, in a us help trending us Like will, terms broadly in but pouring sort expansion? in growth cloud

Satya Nadella

but business my think are Keith. to not say span XXX fact I great this also edge XXX. of the I would building or we're about future efficiency our platform everything, is question, intelligent It's this a to even at Azure and intelligent Microsoft game that added in way capital the cloud, commentary streaming to time, what doing only which Dynamics we we the

are is For and it. of the the which platform of structures spans that businesses across you really what margin represented time, there one Microsoft all first in these see all

So versus these customers What uniqueness Hybrid that about the mean by Cosmos as lot lies. seeing term. fantastic getting the But have said well uniqueness that's two if with is just you Data One pieces, our Data on what estates the because you efficiency that from think in would that's Benefits competitive, a Warehouse is full year-over-year with like create I I services that value unique And one compatibility DB are margins Azure I absolutely become proposition is as is both Azure, whether by in term as worth it's SQL on as any say for itself. as and where I in that you're think we caught on long context very, Amy thing things very side think the things. Server where capital Lake. think good long focus Azure the is whether the is right. end-to-end a that's Microsoft's that of I the very I it's the individual database well capital capability. efficiency of one huge even measured a up service its who mean, higher-level database especially place progress,

AI know, starts traction. good as first where where and you place one place that's So one with that's seeing are project any we data,

Michael Spencer

Keith. move question. Operator, to the Thanks, next we'll

Operator

from next with coming The proceed you. the Winslow question your with Thank Philip question. Please of Wells line Fargo. is

Philip Winslow

question Office. guys, congrats another increase wanted great just on my of I Amy, talking between from consumer, But if and quarter. called XXX Office out continued that's the that just on to And in price positives focus seat and Hey. up. Obviously, revenue commercial the on Thanks, growth. just two. coming for you growth at look growth gap side, strong both commercial on those the there's just both I and still especially some

year how think where expect think give and here, you of of just just then full update sort and SKUs, you us as of especially of about sort multiple of kind you you're and about to cycle how stand guess maybe terms just I you life progress? you obviously, where kind we've if in of So metrics the are got think here sort an of these the

Amy E. Hood

as also management and motion to the Protection up actually bit commercial Advanced Sure. that sales little in value And well KPI. but Microsoft proposition encompasses I'm with going that And The Threat a because comments as EMS and Office shows Windows both XXX. expand about is the that really security XXX my broader what than is Office proposition, really Windows motion sales is value services our value XXX.

the movement EX in voice, I when have bucket together, There's to for seeing EX Microsoft to look collab. meetings, and have. users to users opportunity frontline we to room the what pull. analytics, you've see got of in continue the that new up at room which many to growth, And in great So that in value the had value, which security feel go us we've within before. XXX user of continue these in not you demand comes is customer you first-line good see on about We the continued we're across we've think And segments. including workloads to I those think that good to and number continue got and ARPU, access move or

look that are number. if your at at So but in to trends same Office, growth look question EMS if shows you commercial many Windows were or itself you in ways the growth the

Satya Nadella

of success when we all small the as successful globe. that the spite past, seat well in one the the our the of the across ARPU achieved may have in even we never add just business in growth workloads things to comes I'd it and as penetrating were definitely And that with of growth,

that you dimension as another that's So see play out well.

Philip Winslow

Awesome. Thanks.

Michael Spencer

Thanks, Great. please. thanks, Phil. to Operator, next the Yeah, question Phil. move we'll

Operator

you. Lenschow question. proceed your is from Please the of with line The coming with Raimo next question Thank Barclays.

Raimo Lenschow

service. Hey, of Grail xCloud kind the little have little subscription that you of that to you focus Can a a delivered bit? all With on thanks the is about been you to the you involved kind from want in being deliver bit Holy and innovation have like go whole talk as about dreaming can gaming to in industry where it. the for Satya, you. cloud starting able for now? eventually you cloud, taking Thank the announced something it the that

Satya Nadella

a critical Sure. have you is a But think before as well. I around get I'll means having is to most streaming, That that the platform are when platform that monetize and already need gaming it where about there. to you the gamers a community has say thing

and we in So when in of what's the of or best-in-class KPIs you the reflected see and Whether the community gaming that's and saw third-party key some quarter, Xbox foundation monetization capabilities. games monetization games, it's first-party some in the are the strength that's Xbox. has you that the of results.

position, strength sure structural we that are to community. the make given going increasing that we So of the keep

cloud with it. is of PC You see we big do that. we that be And Minecraft sequence Pass you'll see platforms going streaming the going then Game Obviously, that. just advantage. increasing is, is bringing And massive and more already that the of a have intensity streaming a even of to advantage with have the element and the natural all to community of a us to

what doing Xbox so in bear the workloads all that And one with ensuring we're Azure, obviously xCloud best bring going of to is it. we're to and Azure networking, for

I is our and It, content And community how really gives for streaming. platform I most that is will we that have us monetizing think to and reach, am even course, core of permission it. the think that's I about what the what increase So the excited see usage. about but

Raimo Lenschow

you. right. Thank All Okay.

Michael Spencer

please Great. move next the to Raimo. we'll please. Thanks, question, Operator,

Operator

you. Thank

proceed line Please Our with Lowe next question is with coming from UBS. the Jennifer of your question.

Jennifer Swanson Lowe

soon. the might And few hug your GitHub given might them into Microsoft sense basis, versus closely was now not closed how some working on solicit with and using know maybe belt you months is developers be you what the yet do opportunities I aren't that as entity field? to in a are a competing regular outreach it have do yet. a Microsoft customers very Great. closing developer the got self-sustaining to of have GitHub, that a a opportunities discuss to bit with an to you've opportunity under you the since But Thank leaving be that just with of closely you of obviously now sort platforms? ecosystem more but GitHub technologies little kind from those can feedback It's mentioned you. announced communities active that

Satya Nadella

Sure.

always tech developer one productivity think cared and we've the said, some forward. a We there GitHub frankly, are SaaS a quite time which you excited developers other and when perhaps all, And is, for closing. going an primarily of especially excited opportunities this It's us, GitHub world end of as as at We're its always to because about developer like to is the this I'm end. not question. of I've the goes for own, means First about is thank industry on outside more the digital. very big

community, ethos That that are and it source the developer to already on do which about sure tooling, GitHub, And fact want open many GitHub. that do trust something make team that But we the I earned and we everything and of on we earning so Azure GitHub that grounded our of being all or are adoption. one owners Nat we very maintaining GitHub will that that and core. elsewhere, a are services at what will the we developer do good will be in inherit around the projects to not that of because think developers said, why necessary therefore products be and to our at is ensure that's number for priority we has job

opportunity is mention to class of we The making win, that, second the say, to are new also progress. would I I'll thing me developers,

we in of we are lot developers that in progress, community. at elite have basically with sense, that to a fact, surprised was which where made we I to article In was growing pleasantly said sure to Hacker And least when hard in reading that in is comes make Azure community News, Amazon is that this morning see some a I been working a to it popularity. have neck that news even as neck represented

dimensions. on work more making to have we're do, but we So progress all

Jennifer Swanson Lowe

Great. Thank you.

Michael Spencer

Operator, next the we'll please. to Jen. move Thanks, question,

Operator

with Thanks and and great much the Credit market, at Securities look on it's the from very environment cited lot Brad give you environment IT your question. as you. and here how that clear next (USA) happening Microsoft-specific in spending you of as Thank execution your congrats persists Alan from a strong Zelnick from in view you pipelines year. and Credit do and benefit the long is Suisse. comments, Suisse start the Amy, your The are a the line various Please what your indicators a LLC very Zelnick proceed see - continued all a coming with the question to on confidence? But success you results well. signals the of have there's you Brad

Amy E. Hood

I Brad, to the do and look interactions customers is in Thanks, at we're this In tend the way expansive. with we question. for like general, have and the they're markets we the feel

Whether I feel Dynamics worldview on that that like. in what a that is like XXX the feel deliver that's businesses of the processes need part tech I customer-focused we're the ROI talked investing when it's to at technology, and the hearing we've customers, the signal places. hear Satya for desire and customers adopt looks and we're high signal built a business we're just to in drive budget right can And matter like. will look we no new discussed, and that intensity for back our look ultimately from in that the XXX, Microsoft can needs so, IT and like is gaming actually the on whether that do with that that what views we're applications And Satya right the frankly businesses them, market business value I about, this

we'll as Credit (USA) Thank - LLC both to value, feel we Brad grow think good Alan that and in opportunity Zelnick Fantastic. the Suisse our long Securities you. providing on as I so share take about And focus market.

Michael Spencer

Operator, Thanks, Brad. to Yeah, next thanks question. Brad. please we'll move

Operator

next question your question. with coming proceed Pritchard with Thank from Citi. Walter Please of The you. is the line

Walter H. Pritchard

Azure, bit could year. outlook been for growth if the a Thanks. you about wondering know Amy, volatile. I I'm rate's the talk

the for trajectory Maybe year? we're (XX:XX) play relative to I that strong QX growth understand think now pretty the including business. a you how seeing right us expect you to Azure had you the out could help

Amy E. Hood

Sure.

in Let actually did a better minutes me Azure, on couple as in on like We mentioned, again bookings QX. we saw QX just I that. spend

as valuable exist there. best as benefits make obviously of encouraging the look year. are on we product the tend terms, rest to think you certainly to is all-up Azure focus to a know Server server so a go-forward value But basis And the their the single that and they the with really Windows that's as customers about I because to on for I own SQL KPI and commitment hybrid Azure Server want move proposition if on to to a customer –

And missing portfolio. through so, is overall if go-to-market customer the fact our and we start we're that other, think product the I to method focus the actually one or number on

out year. as confidence a the probably talked imagine plus that for that confident my in Azure might Azure tend I signal demand so, KPI hybrid to teens be of overall I And with in strong about rest bookings QX of when in and you coming in was I the growth QX good than high more

Walter H. Pritchard

Thank Great. Amy. you,

Michael Spencer

we'll Operator take the please. next Walter. question Thanks,

Operator

Thank you.

line is Murphy the with from with proceed of Our question next coming Mark JPMorgan. your question. Please

Mark R. Murphy

as growth about had Amy, in could you in mentioned you I larger commitments grew portfolio longer-term Thank bookings commercial quarter, you, time, flattish talking and bookings yet the you and your this quarter was add agreements. congrats. last were will and XX%. that my ex-free increased volatility But the to increasing see commercial were

a new you way. volatility bookings, the in with expansions and bookings repeated and very think the don't comment about presumably that powerful renewals, the think I I the same performance

curious, just going forward? the potential help you could on and in also I'm the maybe either performance volatility us dots direction connect that for So

Amy E. Hood

question. Sure, thank you. That's a great

but in of again larger which flat to Azure the out to a in actually base we volatility we've good commitments we done large because contracts base, bookings on a Azure. bookings was expiry which some see your reasons quite will You laid the changing saw and before, these performance And by quarter long-term the this for added growth, it contracts good. point, saw that expiry also number XX%

you'll means that what unearned. in because you're see some as commercial that won't volatility hybrid see it you to also in in land specifically some so unearned, going whenever And much is, volatility and see strength,

performance. is we I to bigger you're of So do do what try in-quarter, just bookings. on as QX, how those and which larger if the we are gets impact on about of feel key all did those. we them do are sheet I in the balance them do commercial the of triangulate our frankly of do and how business I did bigger points and in data see some I did how good But revenue Azure, to deals in about we the overall And some both between think is like really volatility the three, on-prem and unearned and in all going did

Mark R. Murphy

you. Thank

Michael Spencer

please. Great. question Thanks, Mark. Operator, we'll move to the next

Operator

next proceed from you. coming Thank with The with MacMillan Markets. Capital the your question is line of Ross Please question. RBC

Ross MacMillan

Thanks so Amy. Maybe two much. for

you sort about how wondered some current back think of we just takes come the the we if against we comps, on and that of the year teens we've I on high through and first framework if as elevated this Windows, was KPI Azure a better because server number And that the XX corporate Pro the obviously wondered cycle? Thanks. puts that about fiscal lot think refresh think then such I you on I side, that could seen strength quarter. plus could And is actually help of on should Just Win of that us still year? just, products, half the think for cycle. up But the tougher and

Amy E. Hood

Sure.

performance on good On me QX quarter and to that a the number. I a and then some bit be and see strength in question we the longer Pro, commercial, Windows for And me OEM answer give let together. going my on really a confidence I Windows make gives I'll higher strong in strength first in obviously through say seen signs and will them continue XX KPI, update security, in commitment product also of on ways The growth I so Pro commercial But to longer before the also that us. XX server growth that teens and commercial it we've Windows we've and the strength good commitment. manageability quarter of to in and see generally seen, me high the mirrors separately to strength continues would you're in modern some refresh, signal together think the hardware software this

lot XX We continue to to of experience us is in of Windows customers for five watch so signal good for value. as the and XX about to a expect really upgrade away, good It's with continue in support for comps of But Pro do and segment. critical demand hardware quarters and market ask is HX to it the demand move support. that end increasingly when have we'll end And and a bigger the them the I terrific with. to we That to point, them signal I Windows we don't upgrades the signal benefits. match some should, in is to good very agree diminish they which to modern slightly get would want because realize your

continue they upgrade then excel. if even to opportunity you in signal to the for us a so that demand And big Office comp, tougher process our think sell Microsoft and XXX XXX have opportunity and I to deployments as do a to is

Ross MacMillan

much. Thanks so

Michael Spencer

take last it Great. our We'll Thanks, Ross. Operator, now please. this will question. be

Operator

Thank you.

Please question Brad line from with final Reback your the is proceed with of coming question. Our Stifel.

Brad Robert Reback

think for just Thanks. do potential or do you Okay, going there business about development Satya. the how a as you need thanks Maybe tuck-ins? versus the to forward, Dynamics Satya, much. organic very one acquisition weigh larger small

Satya Nadella

what overall, need for we good the that's be advantage us. business of process much is doing become on business things suite At the have I there applications LinkedIn well both represent Dynamics in for a Dynamics with architectural again very modular, happening combination very out gives with ability the Yeah. opportunity built it's modern, feel platform application I where think all I They I there it's XXX differentiated. time, an And the us think what's is the marketplace in we're business more that customers about power serve our the differently. very do and to – XXX. I automation. there need ahead things as is for as in mean same more And It's them fact extensible ways this to And participation applications. very, digital, in side. the that the about more thing that in is, as for

and there our outside. is primary look a that's in at comes feel So focus. fundamental to category opportunities when models in well technology, when both to time we shift ride that. always a the positioned it But We'll we're real business

Brad Robert Reback

Great. Thanks very much.

[0JNPYG-E Michael Spencer]

That the wraps Brad. up with us today portion you Thanks, joining to Q&A for you call. all we Thank earnings soon. and forward speaking of today's look for

find can details Microsoft You additional website. Investor at Relations the

Satya Nadella

you all. Thank

Amy E. Hood

Thanks all.

Satya Nadella

Thank you.

Operator

and you Ladies today's you this thank we your concludes your may at for this disconnect participation gentlemen, and time. lines Again conference.

Michael Spencer	Microsoft Corp.
Satya Nadella	Microsoft Corp.
Amy E. Hood	Microsoft Corp.
[0JNPYG-E Michael Spencer]
Heather Bellini	Goldman Sachs & Co. LLC
Keith Eric Weiss	Morgan Stanley & Co. LLC
Philip Winslow	Wells Fargo Securities LLC
Raimo Lenschow	Barclays Capital, Inc.
Jennifer Swanson Lowe	UBS Securities LLC
Brad Alan Zelnick	Credit Suisse Securities (NYSE:USA) LLC
Walter H. Pritchard	Citi Investment Research (Europe)
Mark R. Murphy	JPMorgan Securities LLC
Ross MacMillan	RBC Capital Markets LLC
Brad Robert Reback	Stifel, Nicolaus & Co., Inc.

Microsoft (MSFT) 24 Oct 182019 Q1 Earnings call transcript