MSFT - Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen thank you for standing by. Welcome to the Microsoft Fiscal Year 2022 Third 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. [Operator Instructions] As a reminder, this conference is being recorded. pleasure Relations. your my General Brett now Investor Manager, is to host, introduce Iversen, It you. Thank

may You begin.

Brett Iversen

Good us today. and afternoon thank you for joining

the Chief are Executive On Keith Dolliver, Chief me Chairman Counsel. and with Chief General and Accounting Satya Officer; Officer; Officer; Financial Nadella, Hood, Deputy Alice Jolla, Amy call

financial and and Relations you measures. prepared find have They with financial of slide intended items supplement addition GAAP our our the in specified, or which the items otherwise additional to metrics refer relate the deck, the year results. further on make clarifying of will between in noted. press considered release period the performance events the measures unless non-GAAP we On is are All aid differences these as of third we last reconciliation website, otherwise on superior Microsoft earnings be during for provides impact call GAAP. today’s the call the non-GAAP corresponding investors on in remarks Investor summary company’s to comparisons understanding can the and financial Unless measures accordance non-GAAP a financial not provided included and to substitute performance should as prepared to today call. financial quarter The to to growth

fluctuations. growth assessing rate We refer to will currency will underlying our how businesses in rate for growth available, also of constant only. performed, the framework foreign same provide growth the we a rates when in rates constant the as currency, excluding effect are currency, Where

is webcast call until to our available. live remarks and immediately the Today’s post the is our following will prepared We recorded. complete transcript being call website

recording. a included transcript, live it question, in the future any in If the our use be of ask you and in transmission, will

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

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

Satya Nadella

third $XX strength record driven Cloud, of revenue, Thank which continued year-over-year. up Microsoft you, a It by the Brett. the quarter, surpassed was billion in XX%

and forward, less. economic resilience, Going output. key the more our build tech opportunity we be stack, and help will as are customers world’s the differentiate, that input we powers expanding the share Across digital taking with technology do

highlight examples, Azure. Now starting I’ll with

We the to a every across and computing help are anywhere. workloads building distributed organization edge fabric the manage cloud run, and mission-critical build,

And customers days. This than simplify quarter, accelerate migrations. still helped more cloud their early new we and it’s ever

applications are to And cloud. Lufthansa, Chevron, leader Kraft And doubled The seeing Tier Boeing, geography. segment, in all Fujitsu, Atos, deals mission-critical our transformations. digital year-over-year. Azure to accelerate Woolworths all winning Westpac, more and SAP more strategic from Azure. seeing cloud are commitments, industry, of industry $XXX their are Leaders Overall, to are infrastructure who to Heinz, and US larger, growth chose across we’re every Bank, consumption than from Bridgestone, million-plus customer the and We industry, in we leaders, the including number recent Azure their migrated X customers’ moving every workloads Azure we workloads. all workloads Blackrock, for in months. SAP market to

data AI. and to Now,

transactions Purview, clouds. increased DB language organizations content in AI adoption Service into like likely industry doubled end-to-end row. In to governance bringing is we’re in like for for to data unique which predict fabric. companies stack with increased strong most seeing with Deutsche Azure, our we And reviews capabilities into number data platform. our sell. quarter as continue and turn Synapse XXX% EY, are across data monthly volume strong over advanced AI, best-in-class customized one shoppers. usage models a volume operational enterprise inference help companies databases, and Azure The From and the data analytics, integrated platforms service And brings in of to govern, the the Cosmos to every Our year-over-year Open helping data Machine more Boerse their are CarMax Azure using protect, year-over-year. together customers than of PepsiCo of data and estate manage using we of see Learning. customer year-over-year, products requests XX% third

well starts more Studio, Azure to tools. most Now, new project GitHub the the most million developer have active including GitHub. we and is From and world’s GitHub with Visual use independent Fortune has to tools. monthly increasing every of XXX startups, than our Fortune loved XXX. DevOps the developer developers most the as as Studio both enterprises. established developer And among SaaS Visual usage service. users, Increasingly, and XX% XX of comprehensive

unified is software. more example, ship, build, Enterprise Mercedes for XX,XXX GitHub using fact, to platform to than a In development Benz, employees maintain and for provide

Platform. and opportunities code And experts has leader billion MINE-it past adds $X than acquisition XXX,XXX the and Power up of one automation at for organizations identify leading revenue in customers. in bottlenecks businesses, of the code/no industry. it app making the to XX% Platform is capabilities, become new every more helping process process mining the growing on in and Power surpassed twelve months, business for over Now, fastest our efficiency. scale. Power has market development, suite Power year-over-year, productivity Power Platform BI domain operational Apps low

XXX. overall. Now, Dynamics than faster the applications to growing business is Dynamics XXX market

Barrel like in are and a Unilever and and deliver to companies predict customer service. drive chain example, more consistent turning and to engagement supply Businesses Dynamics constraints XXX Siemens happen. Cracker they helping For disruptions and personalized we world before like Heineken of are

optimize help differentiating operations usher helping Reality such and applications XXX, new Connected new And companies transform We Dynamics IOT, every by innovation Microsoft our Synapse metaverse era applications. we’re together process. Mixed a six of Teams, business collaborative industrial technologies the in Twins, to further value. comes are their are and Cloud leading and to that industry, Spaces, Digital to in it using to bringing time industry When the clouds, customers speed function as

will center to enterprise and insights different normalize of expertise Services apply both excited about clinical, And Cleveland Nuance, workflow. disparate systems our to Healthcare the into integrate clouds. the clinician with data and the Our to company’s Health acquisition deep Cloud opportunity Data the growth of Nuance’s accelerate at introduced imaging, to for and use Azure solution HIMSS from AI business, month, our unify our medtech was data. I’m industry Clinic we front where last and

Solutions market, year-over-year. consecutive million on accelerating open learn, on the the growth. and market LinkedIn. LinkedIn Reshuffle, a LinkedIn using XX%. to sixth once In Now, grow, again the labor revenue get saw skills-first of connect, than number hired. seeing to skills professionals Talent We emerge. more Amid was on dynamic has doubled roles hires used XX%, fill up record as filters platform quarter The companies this XXX labor increased marking engagement, Great we’re to of

million XX% thrive and to they now And platform and high establish subscribe continues business members Solutions turning are to to as creators communities, XX ROI. quarter alone. their grow content we to over tools passionate like increasingly about. up Marketing one offer newsletter are voices Newsletters LinkedIn, their past at reach least advertisers the to on Our the using share

than Microsoft most with advanced Microsoft And organization, and is digital most XXX are that frontline, only calls, the Teams meetings, from Now, on and Microsoft, their every process to from the XXX chat, relying the business entire and No to this the and The work, meet is organizations and to automation. have last that and two enterprises better for to boardroom to to solution proven needs organization SMBs customers connects Teams partners. Teams. Teams. run positioned a collaboration, company on business. with platform used fabric years the need

can compared single identity, never meetings been XX%, point complexity Our higher. XXX has comprehensive usage customers much Teams approach as reduces and solutions. and a of as patchwork save collaboration, productivity, to Microsoft costs.

Teams meet hybrid Kingdom, the National with with Phone, enables Teams Microsoft Operator engines Service business CBRE, Health and United Front business to the and of built seeing Rooms innovations the bridging Phone office, the leading We’re and is Operator Row. to Zendesk, of every third-party Rooms, the growth for remotely apps gap into in platform Teams, people work. bring app existing more Teams demands working in every new to with segment, between And small Teams than XX is bringing apps businesses industry, like apps. we’re and including million Viva those Cerner, & custom Essentials. work Teams Teams with in available of Teams Viva. have collaborative the adding at flow Xx service in Blum, minutes within process calling companies Spencer. like to store. active Asana organizations over Total has monthly Teams. are Connect From Connect X,XXX And companies line the the their easily directly CVS quarter-over-quarter. growth including Marks very there And Health, increased users

solicit tool sector, engagement employee ensuring XXX. premium and leaders and LinkedIn’s across Family advanced receive EX All added innovation private and actionable the more compliance, we Telefonica quarter, and Government, choosing to Organizations this feedback growth the including are analytics. This American is our offerings Insurance, can security, for easily voice, Queensland increasingly employee insights. Viva, across Microsoft driving Glint public

Windows. XX highest the enabling With scores full Azure faster computing adopting is the the experience of employee any to play. to of than been With The last of continues Windows than share. The system. million PCs and device. time we’re any XX, continue never on businesses to PCs. and see take a of release. operating stream More relevant the more eight of are number to life, enterprises previous version quarters, SES, Windows Windows have like Xerox use at is each Windows computers, Windows XXX, power shipped as bringing in Lands’ spent pace quality the to and to of on cases Now, to has XXX The amount work, we End, Windows increasing the PC any

like Azure and shopping, their curating learning, and to everyday and privacy cloud and our tasks, Desktop. Virtual with searching, gaming, content In is person and between browsing consumer, services every integrations and built-in. between and to XXX security and to to make organizations we click. on-premise switch it services with help virtualization Sage And Cloud continue a will Thornton, Windows single their the local PC PC XX Grant Windows shift the AIG, possible Windows with help key New to with to from all

seeing We active XXX feed, are monthly strong of Start. with our users content personalized Microsoft million engagement, nearly

As usage opportunities emerge are to advertisers. and as continues we we shop flywheel content, save gain creators, as Edge, to as a for people securely. content and between new seeing well grow, continues help as our we Microsoft And share browser, commerce, money generate consumption,

other for is In Citrix, Ukrainian the government, driving comprehensive their threat native industry’s to growth. our infrastructure. and security the And Directory This management Intune disrupt keep And protection keep we transformation. cyber spanning market new we by signals across In year-over-year. cloud permissions for share Business, a support platforms, expanding the has end-to-end Multi-cloud, identity, devices and continue more deliver Active grew segments This every design solutions monthly undisputed Now, Microsoft the provide with helps compliance, only multi-platform Azure across sector security to protected XX% is Android, Windows, undergoing number build of to customers with secure. million leader now which than is product over by the to Fujitsu, three been differentiation security, we as by security. Security top critical public approach. including In all our device market digital the top overall privacy, businesses Defender day. world XXX small management, events, multi-cloud active us clouds security, central sell. for the organization into rely management, To is our are the each users. we’re more as XXX,XXX, in than and intelligence recent every iOS our clouds. up, trillion Pizza, partners else platforms. secure, we to trust in nearly XX identity, we over who And threat Domino’s and informed have and year-over-year our security capability on of a attacks priority well protect Petronas, ecosystem, XX,XXX with during solutions innovation number customers with cloud industry. multi-cloud anyone we All Heineken, grew provider agencies. who we XX% to and

to on gaming. Now,

play want. with are accessible how consoles, To played, to consoles than in time. on people UK, and power taken S Our globally the Simulator redefining Series and quarter and ambition And when, is for quarters are Flight viewed. United among our games Cloud titles, Canada, million most and gamers PCs X Western Gaming, Europe. two tablets, they low-spec date, of gen leader our and where Many this phones, Xbox popular and With market now to for are are we a the have games. row States, distributed, in how, XX streamed have we Xbox more including share we the next the first

before. more console, includes of from over for have the hours studios all third-party cloud ever up and hundreds grow been titles played sizes XX%. library than across past and months, including are with PC Pass games. And Azure, games by their to host, we building publishers game Game XX best build, subscribers the Our Billions of now of

New players platforms. where connect fiscal across become a a help capabilities closing, we development are increased year XX%. and In company. entering digital revenue date to gaming era will to to speed new company every time Azure

on massive durable to us of opportunities models, capture a over hand and business built I’ll it With the digital that, tech position Amy. portfolio stack, Our ahead. well diverse businesses common to

Amy Hood

everyone. you, and Thank afternoon, Satya, good

that was included currency. $X.XX XX% increased quarter the up benefit currency fiscal in This tax quarter, when adjusted XX% XXXX. XX% provided share and Several Earnings guidance financial constant earnings items call. impacted XX% revenue per January from performance of billion, constant was were and for the in the and on in third not year our $XX.X our

on outlook X. Nuance First, include the today acquisition across March impact from and Nuance. closed results QX comments My QX the which

share, revenue transaction rates. $XXX results and purchase noted Within including driver of include integration, material unless Our results, million growth per negative accounting, not was impact $X.XX Nuance and a expenses. specifically in our otherwise, to earnings related a

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As and revenue a per were respectively. million share, $XXX result, and by impacted EPS $X.XX negatively

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of income, growth. hybrid Our another excellent are demand delivered strong and results with in across mentioned driven across together earlier. of as for and ahead we our annuity significantly motions. quarter bookings business, and EPS XX% platform commercial than quarter usage higher our XX% increased revenue, line teams sales constant increased execution that cloud expectations core partners operating of currency, again well bottom offerings we expected execution Commercial services commitment better In the our differentiated by our our by top as strong for to and drove sales our healthy as Satya and

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company to level. Now back the

dollars slightly X As by total throughout expectations. the and margin percentage XX%. to quarter. XX% noted to favorable decreased earlier, company FX X strengthened operating the increased X Gross line X and U.S. in by expectations, dollar decreased in points, X with points, revenue XX% expectations, expense COGS decreased decreased margin unfavorable to by constant and growth point year-over-year point, currency point gross

of areas impact increased in total as shifted a our to quarters and constant in growth primarily percentage of the grew than we the margins margin Nuance. the constant Excluding driven X invest continue of engineering, addition and slightly XX% points to in in and increased slightly and XX% expected currency, year-over-year headcount such X XX% point key cloud estimate, cloud were by operating as LinkedIn, gross approximately XX% approximately XX%. services of included earlier. year-over-year noted increased accounting XX% Operating At change and deployment, future from that offset currency the partially lower inclusion Operating customer Nuance. in expense sales, as improvement increased by level, income investments to company

X the operating year-over-year. Excluding estimate, margins the points of accounting expanded impact change roughly in

million. strength as on XX% well and levels engagement record expected Segment than stronger with in increased grew by and earlier and in the lower results XX.X in continued grew revenue with XX% impacts XXX increased XX% worker XX% were Microsoft currency, on a XX% through in Office commercial constant in currency, lower by Dynamics. of bit and Russia, XX% in and commercial as growth of revenue in FX, higher in grew factors Talent grew constant constant XX% mix workloads And our which segment consumer our ahead constant million, segments, seats recognition. gross percentage XX% results billion with Office constant currency currency lower Office and Revenue performance better Office XX% continued seats in in-period and offset margin driven and constant frontline was XXX as commercial licensing and than LinkedIn, XXX currency, subscriptions, XX% margin revenue was XXX, Productivity were Marketing XX% in grew XX% Office on expected focus transition, expected line revenue base and continued purchased in XX% as expected, our XX% small as in discussed currency. and expected Solutions and our across driven dollars continued a XX% and from Microsoft revenue. EX platform. Office than Office relatively Paid the ARPU by constant as we and contracts and offerings. recent customer than increased XX% unchanged LinkedIn nearly faster of with although expectations, all higher than which consumer XX% Office lower the Solutions in XX% down year-over-year. $XX.X nearly to to XX% commercial results. installed grew in XX% Now expansion Open from Dynamics was business driven Business in XXX medium and of gross market well Dynamics from momentum XXX XX% Processes and Better well investments. currency, the currency, constant Licensing substantially XXX. incremental grew than to XXX, revenue expectations. across by as and by momentum commercial year-over-year execution in constant currency driven revenue

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server healthy and offset ahead and Azure grew earlier. of our Nuance consumption-based by Enterprise in growth In of offerings point. XX% decreased base did ahead FX In and increased constant the Services. $XXX by X% of increased cloud impact services change cloud million roughly and in Azure by revenue currency, services were approximately Open grew dollars other by the expectations. expected, currency and XX% currency. the cloud grew Nuance X% driven X The X% growth business, Licensing The security server enterprise continued XX% services of in greater ahead Overall, of rate. and in rate. Segment revenue on constant transition products rate the of impacted and XX% Nuance seats. XX% point constant growth mentioned currency, currency margin services. results Nuance by and XX% constant of constant the premises not not our XX% growth services per-user offerings hybrid increased than constant inclusion driven for to professional strength gross Services Support demand Enterprise partially The our driven X currency and million in constant on-premises gross Excluding revenue expectations XXX constant expectations, X% revenue year-over-year. inclusion the the inclusion our percentage margin in change business, currency over currency, mobility installed in server did and

and the increased income partially XX% in margin by offset with Azure. X percentage operating the mix currency. of the and increased grew roughly Excluding XX% estimate, in impact shift change point and constant improvements in gross sales expense constant XX% currency Operating accounting to XX% Azure in

in increased than benefiting better from X% impact currency. and an comparable, XX% prior percentage currency. decreased during and consoles of with of by strength cloud revenue in performance by increased margin lower expected, a Segment increasing revenue More XX% XX% XX% OEM Revenue commercial. products with billion, grew commercial Windows license. X% currency XX% we Microsoft PC search expected And and even grew in services Now driven and hardware below higher recognition. in X% constant high Xbox driven XX% XX% and higher on per Windows in grew increase services approximately margin than revenue XX% Operating in as strength in as market, by the the constant revenue offset gross and in-period Gaming, of in income and revenue XX% from increased in and consumer better than search Surface in and Surface. and constant March demand benefit some and expenses continued increased advertising XX%, Personal mix volumes constant greater constant in above by news platform, for it XX% remains currency. even a contracts lower expected, revenue offset revenue XX% year pre-pandemic currency, of Ukraine. $XXX commercial dollars revenue in driven in slightly. war expected. Computing. has headwinds currency drove revenue ahead currency, engagement increased million which supply the X% by driven increased levels. with gross segment expectations X% greater currency, FX and from revenue in constant by grew constant operating growth partially as XXX than XX% and to content constant expectations, was in and Windows XX% quarter XX% constant expectations, XX% above channel, the better ex-TAC Search expected constant of than decreased and across was and in Xbox currency, $XX.X in currency, saw

was were Cash Cash line to finance from was paid and the offset operations chain. Capital in expectations. Free billion, Now manage builds we uncertainty billings billion, inventory expenditures flow total higher billion, with hardware strong including for partially leases in XX%. back up XX% collections cloud $X.X as were $XX.X supplier supply by related was flow $X.X continued increasing cash payments as to results. billion. $XX.X company PP&E

quarter was income and This investment including than our currency on gains on EPS $XXX quarter, negative this portfolio, net remeasurement. net growth. last investment X-point losses foreign on lower to year, and declines net by losses drove Equity investments, other on market anticipated losses losses million, driven mark-to-market net equity compared negative year-over-year impact a expense

XX%. and And $XX.X finally, through tax dividends. returned effective repurchases share approximately Our shareholders billion to rate was we

to we our few before turn Now, outlook, reminders. a

dollar to stronger and FX growth expense operating expect approximately revenue now First, growth with total company total approximately decrease decrease point. on the U.S. to X based by points FX; rates, and by current X COGS and we

points on revenue the X Cloud FX and we Within Computing. anticipate impact points roughly Processes Productivity growth Business More and and in segments, X in negative of Intelligent Personal

Second, my full remarks impact Nuance the for next the quarter a quarter acquisition. include from of

the and minimal our with Third, operating revenue continue we $XXX a to impact roughly anticipate QX million war to on in expenses. on in impact business Ukraine impact

we the of Next, account have taken outlook. into China in current our impact shutdowns in

hardware. our production reach shutdowns that OEM, Windows May impact into would extended However, Xbox further across and negatively Surface, outlook

largest strong quarter the expect growth and Finally, turn against annuity our should comparable. basis. the healthy base, outlook. is year growth. consistent our specifically across let’s of give, to in strong prior place, to QX drive outlook year we expiry increased execution a market a of execution motions, the core and solution customer to our portfolio, QX commitment we strong unless otherwise, noted In quarter position, our on demand a growing platform In drive USD differentiated revenue commercial With that another our bookings, across sales context

As a should always be growth drives bookings contracts, their of rate. reminder, margin percentage down long-term which the growing in X our unpredictable year-over-year. mix larger in point more Cloud Microsoft quarterly volatility are roughly increased gross Azure timing,

continue we percentage increase roughly Capital meet increase point we by gross growing cloud to of a for our in QX sequential our on to offset impact accounting expenditures, continued a improvement as driven expect a across demand X partially cloud margin services estimate, Azure. basis the the change revenue Excluding by dollar invest will global to services. mix shift

to Commercial, guidance; Processes, Office revenue segment driven by and healthy customer Business between billion with revenue XXX we be In in Office ARPU and EX. Productivity growth growth growth seat $XX.X expect again billion. thru will and Next across $XX.XX segments

we expect digits, to two growth subscriptions. to revenue expect basis. a by be expect on-premises constant to the similar In point grow In business, in or a revenue high sequentially lower we single by consumer, Office revenue We currency Microsoft XXX quarter. XXX last decline on our to Office driven

strong in growth last and For expect we driven quarter. the expect by on the market the LinkedIn, similar job we in high-XXs revenue growth platform. Dynamics, to healthy And engagement revenue

For and on reminder between by have from contracts. be per-user revenue business Revenue $XX.XX $XX.X which variability driven the revenue Intelligent will of to depending and our expect Azure Cloud in-period mix billion quarterly a primarily recognition we from continue as billion. can

We in year we we the from expect Computing, high digits. licensing more period by revenue included and to our currency expect our Enterprise between in though will on-premises X billion points digits recognition, FX consumption prior in the Azure revenue In with billion. revenue size weakness bit as earlier. rates than constant moderation by Azure growth single from points given offset decline to revenue segment higher impact be at which suite basis growth a in benefit to business. for well the per-user more revenue lower the our Microsoft by X as program XXX growth And will growth revenue to Personal momentum, benefit low-to-mid of continue Services, U.S. server we our the contracts to continued business level. strong growth hybrid the with the more comparable, be transition driven on roughly transactional offerings be noted a be as demand on expect in single In of sequentially expect base. in installed expect continue strong And from business, should $XX.XX than we $XX.XX dollar

Windows driven consoles. commercial-led which decline mid-to-high in the and digits advanced from grow constrained Xbox shift engagement supply. supply demand for OEM, approximately in expect cloud expect As by higher. in to digits. mentioned by revenue in XX%. In OEM Microsoft negatively guidance lower China, revenue XXX market the of we low-to-mid-single QX Search constraints products drive customer our revenue And we digits to reflects the license should where revenue should Windows Surface, the revenue services, digits. growth in Surface the low-double in year-over-year low-double In growth advertising as and impacted growth driven the hour’s news solutions and per earlier, console have our we In Gaming, well continued current for and shutdowns commercial security PC single a expect In as is ex-TAC,

mid-single to hours pre-pandemic Xbox to expect higher are revenue remain though services digits expected than and engagement We levels. decline content

back to guidance. company Now

$XX.X useful expect expense operating $XX.X COGS of quarter of of resulting change to in another $XX.X billion to life. $XX.X the excluding We margin billion billion and expansion in operating billion

our million further We on expense equity in in be income market reflecting QX remeasurement based rest to of negative number. conditions and movements the and reflected through FX this to not FX $XX Similar are April. guidance, impact expect other

quarterly As required recognize And a effective our be on reminder, we expect are portfolio, to losses gains we or to rate increase which approximately XX%. volatility. can our equity mark-to-market tax QX

are growth. in close strong as complex to even that the a macro the expect share gains, With year. growth, key improved invest sustaining have that FYXX, We more we in the areas we environment, margins consistency revenue delivered to operating same with and throughout

us look track of and operating we many we and high toward gives diverse that continued revenue income record will As our our to confidence value delivering growth. growth drive markets durable healthy across double-digit customers FYXX,

go lets Brett to Now, Q&A.

Brett Iversen

Amy. Thanks

others instructions. you only respect Q&A. the We move for on ask repeat to please the will one we Out question. of Jesse, partisans over please request call now can your

Operator

first with Stanley. Morgan with question from is question. your proceed Instructions] Keith Our [Operator Weiss Please coming Absolutely.

Keith Weiss

there. results. does Excellent. going tough seem pretty backdrop. stock we market It a out think inflation, to the the taking there’s we a Thank And conflict rates, much interest climate perspective, about a a, really be Definitely Europe you right guys think now. in if see so about but question, is on we what for and from impressive difficult

that well. You the I is guys Azure scale operating acceleration in at mean, are super awesome. truly

us customers? given are is I’m and so accelerated with really XXX that you you of durability the this how macro if in the help impressive Is garner healthy And most question durability if this so it give results. put for kind see comments in confidence this confidence into to confidence the that the that out in little volatile you quarter, maybe I of the to are But in seeing not FYXX, bit you environment? insight out of and a give what what having growth mistaken gives this growth to backlog? conversations think have more Office those Maybe backdrop the going are could Is give as commercial guide, could you put you some guys what us it do well is? us where investors investors the

Satya Nadella

our the from well. when competitiveness to all up the to for able as I’ll franchises as and how comes levels of Keith, our at cloud well way the sort consumer just three of as of start. stack example, the it to all tech infrastructure base one are SaaS applications maybe monetize Maybe Yes, commercial we install the is

less out these increasingly feel take to of you have in made X that offerings places of have I leadership. there we cloud the I to are our I’d across say is when you of that it point win. share. where have we commercial pandemic both which places, if macro-headwind we the for coming means price stack. on the any So and more price mean, our grain significant competitive is, so value case, also in advantages And many these we comes

micro I the the thing or an matter this The projects only we is productivity not having past projects transformation or force inflationary interesting don’t find the environment, of are because The challenges even macro to software. these businesses perhaps have that are IT budgets the hear for in transformation to example. way conversations cuts, of deflationary our customers. looking for second place no, some or with from whether anything, is they’re seen to is for of improve automation accelerate is thing I I going their digital in their technology for automation if level demand

micro second here us At trying different. mean, the macro. are forecast thing the the that’s of that’s thing though, to I tone day So the of none end

competing in how want CapEx. by whether that’s outlays, basis and competitive, we our driving end And terms double. or TAMs is doing. of the all share the in as of secular of we we are so think keep spend on we from our to kind be usage, GDP large, of a OpEx just tech that are a to percentage So a it’s comes view that’s what confidence where is driving going We the decade of

add I know that. if to So to you want Amy, don’t if

Amy Hood

think opportunity. frequently I is, think Satya, long–term I used I thing add might language the quite on always only focused and we’ve I this think the

can early, digital to And and You we’re to you’re go from after lot quite about talking a a – perspective, there’s TAM it that left the of say a go it type talked the TAM is from still. transitions focused productivity still value of as would I also, an on. from that enhancements about transformation made. be left real perspective, automation and that

answer of for And I the giving to where think are and and the investing good the right certainly I continuity from. talking, the basis that think very so from has you confidence would say also been I our point, for and your execution is I opportunity But is this long-term sales partner outcome the that a – we’re long-term is side. where

Keith Weiss

Outstanding. Great quarter.

Brett Iversen

Thanks, Keith, next question Jesse, please.

Operator

Absolutely.

coming with Brent Jefferies. is Our your with questions. next from question proceed Please Thill

Brent Thill

chain you that the same been is closer rate more your are your you’ve adding past? methodology constraints us any this Thanks. or on that of or considerations the supply Amy in you guidance into guidance, giving changing

Amy Hood

the constraints, production which to which specifically related I is guidance are the specifically of more you did on I same constraint the supply and to give talking I in a were personal from May, there would generally computing tried of shutdowns as most clarity a try with to best follow the chain of into extend I be we’re that do negative further assume the knowledge note China. about lot shutdowns principle supply the production follow, today. that my those in impact segment position. where I to

the As production you at OEM then is recognized revenue business, well and it’s Xbox for as the of as know, Surface consoles on that sell-in. point a

even production in quarter. earlier on have can may delays impact the So obviously big

to and outside consistent I of we’re that in make – to do my with guidance it is it. So with transparent how I’ve reasonably like how that watching tried I guidance, the

Brent Thill

Thanks. Great.

Brett Iversen

Thanks, next question Brent. Jesse, please.

Operator

from Our next Bernstein Mark proceed comes question questions. Research. with with your Moerdler Please

Mark Moerdler

Thank how guidance, much think And expected. to than going to stop, and quarter little we Congratulations people Where Office hopefully frontline just any very the on you going but had EX it’s in sense the the of growth of is you. forward much. strength now, you do on I a you EX? the into going are strong give the come from like industry. the probably not I’d think just more of which more to across up-sell look can opportunity not us to help Thank at users? but help from bit to sizing

Amy Hood

this good start priced skews, has EX it transition little EX a the that mask we’re those Maybe past into transitions you that was Very say, earlier in Seat segments still The quite improvement, what EX. the anything. while and often I from was did be as of show Satya similar frontline That to would you the question all does specifically want SMB. across the would if answering opportunity. in we’re from ARPU lower add, to Mark, analytics especially you I’ll in terms value add Microsoft the worker that tend suite. that broadly, growth and is the answer saw few. to whether value the ARPU transition. nature in in say, whether to I And again forward about in quarter I given bit to growth whether improvement seat expansion seeing that around there going as, of in EX, add worker, Windows. it’s more whether that security, value think, compliance, And is first think XXX, it’s in which if even available customers thing components and is the SMB. really the phone, as of mentioned is noted more ARPU it’s you specifically adds his room that as in through as Satya frontline his certainly I then still you The and for comments both EX transitions would well

Satya to to value is that. give there think segment. we high continue us that execute that can in offering anything add would optimism some you and to I I if tends that well are don’t we know

Satya Nadella

really mean, the have sold that emerging fundamentals past. pretty SMB then time Essentials, new penetrate here is Teams this whether markets think, mean, I are we where add markets never it’s I No, the growth, well, that emerging strong can markets. growth fit growth, still, the I’d anything EX that Amy. feel we’ve we products also like I worker, first you the frontline I even just in And counted value very, the engines very peak probably again, that Teams everywhere. can that point is about one like And is are drive strong in about, a Windows usage and we we Phones, sort it And things you even of a time we seeing growth like Teams is Rooms, I’d our data this all thing XXX Viva also from. say that talked particular. are the in the see

is that’s other the that’s to so thing, and and driving priority. And deployment going definitely will we optimize be our usage for

Mark Moerdler

Thank you Congrats. really it. appreciate I much. very

Brett Iversen

next Jesse, please. question, Mark. Thanks

Operator

Our question with with next from Karl UBS. proceed Please Keirstead your comes question.

Karl Keirstead

server even your your in to Or cloud seen you. off feel your in tilt we’re License transactional the Okay, suggest you on-prem of the where guidance transitioning Thank broader and before? characterize issue you starting Microsoft a great. see too. Amy, maybe from would bit as describe the Office to specific, Open Is you faster which weakness, comments, out see something you program? than quarter that’s in see there called in some little like do your customers we on-prem can a that we that we’ve March it products, in segment as might a you

Amy Hood

they the Thanks, felt Karl. normally valuable, very anymore, That’s say have a we from just X very can longer this it’s a different and X. that planned really does a onboard we transact all the to good partner we on-prem feel it quarter on question. way executed cloud than needed sure impacted to and would change would a like that and have seen not it so want I significant. Think that it transitions. community have tilt in does a the This people and transact. January those those community put in for such And had this cloud. broad, server, partners as the to this the really in migrate and frankly, even as to Office the We’ve program. January of where on workloads make we And was taking change or in move little point plan, normal vast. of the of And as very workloads us to your for terms way they is to any

with it’s that I sure think to QX. make comfortable partners going the to that So, And I than take new impact get do are know to we to longer going important us to see continue thought, hard system, in teams we’re working which us. the is

Karl Keirstead

it. Got

Satya Nadella

super And that the only good Microsoft I’d change is add this is and for thing partners, the both long-term. the customers

Amy Hood

Absolutely.

Satya Nadella

want but do to there execution we ahead, is benefits this because So, it everybody.

Karl Keirstead

Thanks Satya. it. Got

Brett Iversen

Jesse, next Karl. Thanks please. question,

Operator

Mark Our next with JPMorgan. with question Murphy from comes proceed Please question. your

Mark Murphy

to Yes. actually Thank that you consumption very companies a software commented ago. months their have much. few Satya slow infrastructure activity started of handful

show trajectory the that curious And to in Azure resilience. what view health of and fact, your products of you resiliency the or to OpenAI Services, strength your kicking Azure as some perhaps in and such contributing and Cognitive allowing Synapse Azure is in newer number? see I’m And better do so,

Satya Nadella

a what consumption and with grow, is which they they right, what seeing I that Yes, and grow say happens they what meters, classic Karl [ph] we is new. is again and mean, are existing both I’d then optimized get

walk and I all small that of, amount And quarter-over-quarter. growth up, sort have is Amy look it from from will segments, if coming referenced is thing enterprise, right? it always it’s so, is. So And all that at regions? some business even of coming volatility we But one

of workloads it’s the at look coming from. type also We

and stack looks if comments is are where other side, your infrastructure walk on the you workloads, the on of those. the and in I seeing think big And all so I had it moving. X point healthy And we many workloads to some X Tier up SAP Tier workloads

another that’s on second past where say we have value. is I’d The services differentiated DevFest and thing the area our

data an And mean analytics and dealing increasingly fully fabric, something of more who that’s complete drivers important, integrated one that. privacy fully engine see because differentiation growth that with that only can find a into So that probably going governance fabric the operational and store store for this I be a is to the are be from governance. into there. good run the that’s on sure, integrated Data regulation on the have I I our and be data think being AI of our is thing to more and you from right? I guys going to long and mean, really divorced we end growth the bigger we operational your new coming become is one

a AI the the even very offer finally I look have there’s there. today, and also numbers essentially kicking. that’s is there. differentiated growth growth just we They’re small a of com inference at when talked but about total – meter, very I some compute So The

quarter-over-quarter, see will depending which some we think I overall, cyclicality, So customers. on

we pay people bills fact, to Microsoft reduce customer In should. and which at we

cloud still their cyclicality we’re sort drive compute operational efficiencies we So and on to terms given how may overall in infrastructure cloud of that product. see to optimizations very and and of sort happen, is as but users, early migrates the essentially of world the

Mark Murphy

Thank you.

Brett Iversen

Thanks, Mark. Jesse, next question, please.

Operator

Goldman next Please your question. Sachs. with Our Kash comes from question proceed Rangan with

Kash Rangan

spectacular GDP of five, to point this that would Thank have Satya, this years quarter. fast yourself, doubling predicted years a this about the percentage comments Congrats time and on relative over as I on very growing say really so. a besides particularly tech big maybe or your you Nobody could and you clearly next six back. have Azure at be in eight talked so seven, much.

look opportunity more is thesis So digital on tech out has GDP you you forward, your Thank the Microsoft build of and what much. part you percentage to so therefore in stack of tech gain word think the a underrepresented as do you as as doubling.

Satya Nadella

the Kash value tech the I better. be What layers can thing always as is happens something far whenever XXx I at that created can enterprise as with go three at mean tell, I gets least of that infrastructure, all back stack.

GDP multi-edge, next a going the infrastructure spend creation tech double. So when be generation leaders, we one massive remaining as for that’s example, talk about multi-cloud, a of the EV of percentage of to

database, – our everything super important. that’s of from So Azure, our Azure, all where that’s

not sort other words, logic one AI. core other this age business is, the is It’s of written In The of being by being software. is written.

So when what future I use lies how gets written. that’s look co-pilot, therein at, the all when the I of up business logic get

as as that’s today you businesses, layer the see training, be And both one be whether integrate business happens so a us Windows, to in once me me, this you’ll supercomputers, different AI it’s by to will me, Azure because where place to inference and the written inference they’re layer, what consider to training two distributed where the well developers. happens, up where it’ll then just all And across fabric. light

another that’s created point, get layer enterprise that And the I place tons always MetaWare, biggest that’ll whether focused side with IoT with I course happens will on. be even happens will that those things with industrial what so digital and the all on are what twins think be ones over we is think And time. one. the of the value it’s there’s where inflection of the UI then So next

into translated three in. call these things are the ways that are what and we customer we So investing workloads our at least areas solution

Kash Rangan

much. so you Thank Fascinating.

Brett Iversen

Thanks, Kash. please. Jesse, next question,

Operator

comes Fargo. question Wells next question. Our from with with your Turrin Michael proceed Please

Michael Turrin

strengths job afternoon. you good growth stand and commercial with taking out. and booking results. the Azure question Thank there, the great Hey, for

targets longer-term in strategic a You step the approach mentioned couple how helps Azure QX, scale. approach cloud growth you’ve Can Nuance Thank And appreciated. of over anything add cloud framing that referenced you still expand is commentary past the can quarters, a suggest in how around impressive or the you. times deals on at the industry those down there? of well growth as you just few maybe the large impact the to visibility expected deal but very the addition business and greatly

Amy Hood

then sort Nuance and want start with I how Satya, maybe comments to overall, and address – long-term can do contracts. your of on you larger the

Satya Nadella

Yes. Sure.

made. things. being couple the a are is commitments of strategic quick Just One on that

of workloads. them at a good are very, we about and feel so both of working We the time, workload very sort type at

in infrastructure optimized the – exciting that on In thing a we the that that’s have migration won Tier seen today Microsoft the Azure. workloads is migrating, bunch is are type workloads client have run Azure any that of most server there running of X never being may of and we fact, on on but a I

platform getting even is large layer see as So enterprise thing that’s we Nuance, that’s applications in On we that for healthcare center. or AI exciting it’s these deals. win driven the the deployed, for a thing contact the Nuance these are that me, strategic whether is in

about Microsoft we excited part So of very are the being Nuance family. now

GDP, and grow see is where that. aggressively physician go forward really impact like sort the needed these things innovative there tackling much I solutions and is large pretty us You’ll burdens our of to percentages in the innovate we think what like solutions healthcare both are issues exercising of with of like looking new

Amy Hood

beginning the we in commercial specifically Michael, in And see maybe that contract, and to the volatility absolutely you’re I impact bookings mention can both long-term of because right. large of context it. outside customer them value. Azure of often way tend some deliver between But think work and really, the it’s a commitment that I to phone of is start together about to we of to this us think the call, maybe the

bit they’re you opportunity for value sure sure with the solved. a create comes almost to specifically We it’s with top is that to call Azure our usage we’re customer. make that workload way, making delivering And need of the the effective were customers. by we in inferring I we’ve and possible think And problems go tackling that that’s hardest the and resources resources by investments to most dollars that that the deployment it they made opportunity workload, spending make so the and success what funnel

and talk it the of the the across solutions creates a is in we’re make make commitment And that so create, Satya that inside to happen them company about you’re the terms has all about the right workloads I of customers the to today. frankly do workloads say, they talked want volatility tackling to sure what beginning

Michael Turrin

points highlight. much. complimentary also Thanks great The very

Brett Iversen

Jesse, last one we Michael. Thanks, question. for time have

Operator

Thank you.

Keith your come Please proceed question with final Our from will BMO. question. with Bachman

Keith Bachman

the the is it year, supply you up to may not as parts. out to the business? related PC about Windows but wanted the In particular, market, market. Hi, helped side course is PC the on wondering was on over How outlook are if look you more you see focus important you of I comment and PC opportunities your XXX. really related the you speak demand two comment of by that many have mixing the durability given you Microsoft thanks. the the the into if if strength And the part the fundamentals thinking equation. break on also up, what for Many of market equation, calendar keep of could so But side I of thanks. side the the to you

Satya Nadella

So let me…

Amy Hood

I’ll on. don’t and you Why start add

Satya Nadella

Perfect.

So I is Microsoft the commercial think is XXX. on think that understood socket well Windows for I side, the it’s

have value, tremendous Amy We referenced earlier. this

our pro business. and customer with about we super productivity, good In comes, Windows that’s it’s commercial sat fact, XXX, we just launched when well. adoption value Windows the security, XX resonating it rates The whether it’s feel whether

pandemic, coming on out consumer on the has side, focused the the on the the commercial side. gone And usage So the again it of we’ll stay up. intensity

areas just had. the us my about of stuff type XXX you of million we usage, not users remarks – right? one in I think about for So the So focus some that’s with is the is talked Microsoft the of when where engaging that of start, engagement

a so then, we browser with it’s of we room have gaming there, have subscription productivity room whether or the And share installed suites. large whether attaches the or And base it’s significant significant there. growth, course, now, a

cases least at the kind future. are important I lives a what what category in discovered So immediate do is and the is increased. increased. think how demand at anything, I will But to definitely, I the use of pandemic. very there the usage go through. PC intensity remains we’ll think, of we’ve during that structurally if be number people’s that’s And cyclical we is of look going And

Amy Hood

Exactly.

your cycle. transition side. the seen definitely would in thing side, a I commercial of driven add pandemic, think demand the part that on demand consumer the We’ve of from, be to the I a one demand we I transitioned would have say, middle

see that be case, the how do second obviously, half And wait transition We’ve I that. of think that quarter shapes to is more the in to so then we’ll even the I this expect second the And and be expect row. seen of up. QX the year

Keith Bachman

Congratulations. thanks. Many Okay.

Amy Hood

you. Thank

Brett Iversen

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

Amy Hood

Thanks, everyone.

Satya Nadella

Thank you, everyone.

Operator

Ladies today’s this time. your at conclude again, disconnect you for lines participation may we Once this you and will teleconference. your and gentlemen, thank

Microsoft (MSFT) 27 Apr 222022 Q3 Earnings call transcript