- Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the Microsoft Fiscal Year 2023 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Investor President, Vice Iversen, Relations. Brett Thank you.

begin. may You

Brett Iversen

us Good joining afternoon, thank you and today. for

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

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

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

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

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

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

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

Satya Nadella

want through economic to you, guiding Thank principles us changing outline that I these Brett. start, are To the times.

world's where will drive technology First, we as digital categories trend a increase. secular the percentage continue behind will to that long-term invest of GDP will

our finally, And affecting our Second, so quarterly XX% fiscal managing value in constant revenue, cost up constant With we the the we highlight out our cyclical on we'll we do expect me spend, progress consumer year, broader that current XX% let in prioritize business. business digital can as quarter, manage trends context, exceeded that billion with trends and the commercial Microsoft With grow currency structure. of Azure. XX% based this disciplined more helping to our at around this currency. through Cloud again they our will their most with be customers get $XX in less. in And starting that, continuing,

to more environments. on-premises, number double Arc now ago. year the edge infrastructure and align the We they increasing With build than risk Azure less applications their have with way seeing innovate We're than Fargo Wells like costs to mitigate and customers more It us chain constraints. around with do best today. Moving to is Arc, more with services, and cloud also already including containerized have. to organizations can customers, Azure a multi-cloud X,XXX and turn organizations energy demand for the supply spend them run helps more across

We run like all companies Volvo on Thabani, are choice Re’s, Cars, Azure. Munich the SAP of Sodexo, cloud, customers' SAP the for in workloads platform

making only cloud. FedEx, an companies. and to capabilities the for cloud infrastructure, running their are companies companies most with possible to And we're direct provider including regulated to We use it GE Confidential with industries, Oracle Marriott RBC, and to secure like Computing, sensitive enabling from Cloud in Oracle highly bring access both applications Azure databases the

UBS to it its Azure. of Just more move last said applications than XX% week, will

helping customers. And service workloads. SQL provide Now both the a of Earlier stack to the power of amounts siloed customers massive we database on month, into that AI, data Azure together Intelligent the provides manage time. to with Azure models like learning, apps, govern standardizing most advanced workloads OpenAI demanding XM With Cosmos integration the cut Azure and govern models. supports DALL-E and tax customers Mercedes-Benz in for data the postscript is helping making ML apply a complete turning AI. no the cases fabric, In relational scale. machine breakthrough first this to industry-leading platforms first service, cloud we Microsoft are image SQL, brought Data are model limitless Mattel for powering deploy, use our data world's generation bringing like we organizations commercial helping solutions. and and our Platform, the associated like offer to data. DB supports database DB Cosmos process go-to provider to at world's most Customers now

All quarters ML revenue more than in four increased for a of, Azure has row. XXX%

Now on developers. to

chose improve to and on most GitHub their is its into times. advanced any for platform never for ethos GitHub More America security offering applications. complete acquisition, cloud three Toyota North Four And developer's the developers security this cloud most build to developer since secure organizations the now its directly $X applications. many have million been helping any by annual quarter than years the posture people help use to service billion We our build software stronger. revenue. features now native at in recurring bringing XX is first developers has build workflow. up critical of platform the GitHub's

to on Power Now Platform.

Brown-Forman, is money like the Walmart and analytics. business leader in AI-powered and save and T-Mobile competition, market time. natural turn for the And has end-to-end processes the automation, workflows. Power to intelligence monthly power XX% reporting and hours customers on save agents standardize helping tools, up of with growing in cloud time and process spanning leader companies ago. into digitize suite advanced thousands BI to that intelligence. employee in virtual business Mass, is going further market Automate and manual compared million with business robotic new our users, automate are has more capabilities of We Low-Code/No-Code we're the tool tools Low-Code/No-Code Power nearly being language by active million Power monthly than faster than as XX used Apps active is a and than like seven and companies year Komatsu, more users is

on continue chain, Dynamics XXX. to serve. we customer Now experience to share service we across categories all From and and finance take supply to

our For than supply information And operations, to and centralize XXX,XXX business solutions use efficiencies. gaining Cargo guest example, its cost growth its CBRE up to field more Tillamook applications. using Lufthansa increase visibility. chose at Darden shipments. organizations improving and both our service chain is All us related is frequency now customer its restaurants. scaling spend is optimizing and

on Now Industry Solutions. to

experiences and cloud Bank chose We Queensland for of customers. cross-industry industry our of are services our financial seeing its increased for new to clouds. adoption digital deliver

start their solution off Our as organizations cloud is to track to use footprint. fast like a for Telstra the environmental sustainability

encounters New productivity, the which provide improves emissions, Scope updates quickly we record at their automatically intelligence growth Nuance hard-to-measure patient part, an Physicians healthcare, it's insights seeing in to and point us broader becoming our carbon X documents by on-ramp healthcare our solutions, offerings. are dramatically and in on ambient driven, care. tell of DAX DAX

IT. every to today's call, XXX Microsoft standard is of enable connected is all meet, world digitally new as and Now people the recommendations. Viva of complexity in how of XXX facto new to Teams systems and app for cost business. cloud-first thrive Microsoft collaborate brings as to third-party essential and the on and personalized of the has that ways type of XXX, Microsoft work. well millions reducing our work de work, collaboration apps people for together chat, worker Teams productivity content, platform distributed hundreds supports The uniquely with become do and employees Microsoft

four we buy within we Teams they we PSTN increased are are platform our or interact X,XXX Phone retaining and Teams who a engagement, with quarters active times average process. the grown time Teams five features pandemic, business spends users typical or custom running do provides day, number Phone. over users Teams customers Teams the seeing for have who increased too. per becoming and user emerge commercial users chat for have increased In e-mail, best-in-class average. more gained digits year-over-year. of than and more by within Users XX% calling. use today Teams a from third-party a enterprise users over Teams use in also Teams is the the As enterprise of and nearly on XX% year-over-year, ubiquitous month in applications XX% Teams row. Rooms in Monthly double

to hardware in-person including category Cisco's Microsoft devices We are a And space help for bringing ecosystem, now peripherals, manage will hybrid which new to creating Places Rooms the and natively. evolve run Teams a with are growing we and work. organizations and Teams

calendar meet Places for will do like and the can collaborate, orchestrates where. Just when people same Outlook

Microsoft this additional Rabobank advanced innovation security O'Lakes completely and also and reclaim employee salespeople offerings monthly meeting analytics. options enterprise are for time for Viva across at SES has is continue Leaders million companies role-specific driving growth addressing into Premium, needs. Unilever. to Land now advanced Viva turn premium users to voice across and at their meet every CRM Teams All We've customer suite our by to and system. Mae announced intelligent from Fannie and companies also we bringing is compliance, We industry recaps. new than Finastra, like XXX. their Outlook Microsoft And interactions more demands like built which directly security, to our a in Viva, like Crayon EX Sales PwC and extending meeting Teams helping for Adobe, platform, active features XX experience

the commercial the from XX the PC example, usage X during users we shipments Despite to deployments were All monthly XX,XXX, to Windows L'Oreal And XX% growth. they to Accenture, employees' months Windows. PCs, and Windows to deployed has Windows PCs ago. on larger time seeing active than more are XX,XXX XX there And X.X% for deployed than average, has ago, Now continues years their up, of in XXX,XXX system see on more are and more nearly than Windows Windows spending Windows operating XX. on pre-pandemic. just XX X.X up employees. quarter, are devices drop

our secure estate. and to we their customers Fuji up to spanning a security More are integrated increased of and device more with security workloads iHeartMedia of identity across XX% BP also when to Now company as be sophisticated, XX% only than more and save from and XX% the industry who every our now Technologies to organizations across privacy stack, tools SIM We're both every ING are customers. digital XDR and the Lumen organizations they year-over-year. top end-to-end use organization. year-over-year. XXX,XXX become Bank, customers cloud-native Film solutions, our have innovating choosing to compliance, than with security. More entire platforms. Sentinel consolidate increased year-over-year. all purchased XX% continues up number can Security priority for four and The clouds threats EX And security, protect and to management They number

provides across in entire clouds. help secure on-premise posture identity security Defender governance user comprehensive cycle DevOps for directories. cloud-based and now the capabilities New And both Entra life and manage

There We Now XXX in more among million up nearly than now engagement the on are newsletters once to than Xx at the increasing year-over-year. on pace again saw growth Xx our members, as more LinkedIn. XXX States. record international million with subscriptions United to LinkedIn,

courses and flow existing navigator professional the integrations sizes better in the they skills this XX employees to launched quarter, XXX their deal of work. with companies understanding to our providing months, million directly New evaluating partners Members access certificates soon between by increase on earn customer helping able We Learning last And over added Viva from invest helped sellers next-generation up the EduBrite, XX% profiles rates LinkedIn and by be in platform. their sales win trusted and the acquisition interest. directly also to will year-over-year. of

we BXB past with Advertising, LinkedIn the expanded platform More any continues for Finally, advertising. nearly offer Solution to Xx year. geographies trusted in serve we innovation advertiser provide looking innovate. Marketing or ROI marketeer and broadly, leading Microsoft by a We've our to digital over

And price save our share money. new driven to a month, surface exclusively technology comparison are will we're consuming expanding We built-in are ad Xx launch And more personalized gain daily Start, browser ad-supported of first content tools billion our Edge, to date. to with record as of its is our and year brought and data additional plan we auto ownership continues revenue sales. seeing the compared markets. Edge an usage next retailers third-party and Users media on to feed content omni-channel features And inventory. We Start to for Windows also quarter, relationships. powered by shopping the more use own Bing savings in people of generate group XX ago. looking subscription PromoteIQ to our their and platform coupon fastest-growing offer this $X than by we while maintaining customer like Netflix Windows.

gaming. onto Now

stack year-over-year. More saw million they played we're the to and and S And Quest. closing, half Meta devices as best ecosystem buyers value growth Game we in well our ecosystem. the have strength transforming to with a the Game gaming, across used as We we for distributed, on to Xbox are gamers adding Logitech support games increased to handhelds We holidays, organization, every hand the of our towards are In like we all and the discipline. of by and Pass in device. we XX as Razor Series gaming on the how stream across service date. are nearly adding new over console. S, than Pass And headwinds, execution increasing our subscriptions operational are driven with world also platforms Amy. whenever And from as wherever tech help cloud games to on the new Series XXX% And look execute usage offer innovating ultimate facing entire With any it is intensely our ambition technology while people excellence and focusing that, viewed. tailwind. players reach we're to want I'll to digital PC new

Amy Hood

everyone. good you, afternoon, Thank and Satya,

demand adjusted up XX% in the the continued in our fiscal to revenue a constant Driven business, line consumer the weaken quarter end even which Earnings in trends Our through of also Windows when OEM currency. saw as Surface and In further fiscal quarter we in billion, the tax many X% per net impacted with Solutions. weakened the we reductions deteriorated macro and search for was XX% September, $X.XX, impacted LinkedIn by expectations dynamic delivered first businesses. start Marketing fourth for and first XXXX. quarter share QX. our of news the strong was year from our execution advertising to $XX.X year, and later a in which PC quarter, benefit spend, in environment, in market currency XX% And our of customer increased constant advertising solid and

Commercial many a of declined our bookings in gains our As as XX% expiry growth constant offerings saw from on Satya, you Microsoft commercial heard in flat overall increased XX% businesses. share currency base. currency with across in a well and as demand we business, for strong constant cloud X%

point in recognized remaining revenue to XX will beyond one XX%. portion, impacted expectations. currency XX results year-over-year, in mix impact, and continue our XX% growth $XXX number by months, FX large the XX% next from line to than Commercial XX% in Microsoft billion. renewal performance be XX% FX bookings the deal we long-term XXX recognized months, annuity obligation XX% company $XX constant all came the XXX plus EX. year-over-year. contracts of up year-over-year the increased and to The increased strong Microsoft was next with half and in we million More Roughly across driven sizes. see and Azure the in Excluding increased remaining of execution, growth which

decreased dollar, revenue by points, and decreased and level, three With growth growth US the intelligent total processes revenue and at stronger business and the company segment five by FX six FX personal points. computing more productivity points by revenue cloud

percentage Microsoft decreased COGS three Cloud points. gross increased FX points margin by two Additionally, year-over-year roughly to operating growth expense XX%. and

change well XX% and increased in and we cloud invest margin, costs. At Azure gross mentioned, in just XX% X to to lives, percentage expense a of sales estimate Operating as X% higher grew point headcount Nuance respectively. XX% accounting estimate, latest year-over-year acquisitions, dollars Excluding continue Azure by percentage Nuance. decreased key points shift areas and margin lower roughly the decreased driven and Company decreased driven growth by in X Nuance percentage in total for increased the cloud, due in useful as LinkedIn, XX% constant Xandr by closed sales constant slightly margin Operating earlier change sales. margin impact and included XX%, to gross roughly which in primarily in X% Microsoft decreased year-over-year, last margin points, energy investments of customer excluding shift and engineering, Azure mix to as year-over-year increased company gross income the constant currency, cloud accounting impact margins points and one currency, gross lower commercial deployment. the XX% QX, noted and margin roughly and currency, mix to level, Headcount X driven from XX%. to and QX the operating the roughly

operating noted impact, of declined to unfavorable the by in Excluding cloud, earlier. year-over-year X shift lower margins sales the Nuance mix FX accounting the and points driven roughly Azure margin impact estimate, change

expected, XX% for than driven by X% by across we XXX was which XX% offerings, currency, in saw although million. in Office X% XX% deal constant Now currency, as currency. by and increased Office EX better-than-expected renewal of constant worker Microsoft revenue LinkedIn. our in in XX% and workloads this currency, in XXX to in Office by Dynamics and in Solutions, LinkedIn currency. commercial ARPU EX. currency, frontline XX% productivity XX% point in and the from percentage grew and currency, and offset Microsoft XX% commercial all $XX.X and as constant Dynamics increased ahead revenue in strong roughly higher trends Demand with XX% in a value results. expectations, billion our ahead small constant quarter. which Revenue revenue driven base and and of year-over-year. customer in strong Segment segment consumer and results better-than-expected XX% XXX, and business driven subscriptions, XX% momentum business growth constant in compliance slightly grew segments, Office and revenue grew momentum impact the again XX% grew continued drove medium commercial margin currency, earlier. expectations, driven commercial and was $XX.X and processes in of weakness of well Talent dollars better XX% constant advertising expansion revenue by to Office noted X% gross execution XX% year-over-year, from seats increased new increased Growth XX% outside solutions margin voice gross EX. and with partially grew from XXX Paid security, noted driven by installed constant XXX moderation and XX% grew constant grew X marketing continued earlier.

and Excluding change Operating and due decreased increased to accounting to of and in estimate. XX% estimate, points shift driven in in currency, cloud currency, XX% the constant X margin the XX% latest expense offerings. percentage by change sales impact including in XX% slightly, increased latest income accounting the constant operating gross mix

with billion, Overall, segment. constant expectations. currency, on-premises and XX% with Services driven products Segment Enterprise flat, while Cloud the slightly gross in in services the cloud business, ahead optimize point customers and Revenue new increased better-than-expected decreased by Server installed and moderation and revenue XX% demand, continued X% workloads enterprise XX% growth, including server and XX% in constant services annuity increasing of Intelligent in cloud currency, earlier. base new Azure by revenue services. percentage by workloads. X we was constant server grew constant X% business, user driven currency, in help other grew our and and increased in $XX.X currency, the ahead security in launch. grew hybrid XX% XX% Azure Next, XX% deal moderation constant was increased as XX% revenue lower currency. and In the line seats, per continued In expected, about to enterprise consumption SQL driven and they the over slightly. mobility support than prioritize and XX% in margin constant currency, XXXX million noted revenue gross from our expectations, XX% purchasing XXX of margin dollars impact current

change in three latest margin Operating and percentage higher in impacting Azure and Excluding XX% in currency, nine sales margins. from roughly from impact increased XX% Azure accounting gross grew the including with impact roughly mix in energy constant operating the of expenses driven costs income estimate, of shift points latest roughly declined and points, favorable currency the to by XX% XX% And eight accounting of constant change estimate. Nuance. points impact

$XX.X weakness grew more decreased in X% OEM Personal Surface line revenue with and to slightly Windows in billion but decreased Computing. with Now OEM to and gaming XX% Revenue year-over-year currency, overall, offset expectations by consoles. year-over-year. in upside constant

margin in search we from ex expectations, again and double-digit from five gained XX% increased increased Search Excluding with saw volumes impact market revenue, as by XX demand Devices declined revenue Windows ad Commercial for by XX% content the in in console And TAC, year, revenue X% offset points constant Xbox and grew driven currency. and up ahead an of and hours line well in increased in first-party sales. Hollands declines XX% deferral by cloud content September. lower last in services constant expectations, this higher driven and sales. news headwinds Xbox offset X% as partially during currency, XX% impact constant and from gaming, had consumer third-party content and share declines by services even where in driven X% in Edge roughly XX%, and declined by noted a revenue constant currency, in quarter. engagement noted Xandr in in slightly as expectations, better-than-expected market revenue was we constant driven currency, partially Xbox in X% the declined mix X% five browser points benefiting currency, currency, dollars Pass margin and percentage subscriptions. grew Surface large margin in impact line driven revenue in X% deterioration businesses. acquisition. in to increase X% products X% and year-over-year the of and constant demand Operating Game expectations, line in in Segment sales lower currency, and Xandr Windows expenses shift XX% and with operating earlier. constant grew advertising constant increased PC earlier. by with roughly EX growth currency, by XX% driven constant X% and by gross driven gross income decreased And by and deal, the grew currency. hardware in of low decreased X% revenue Microsoft monetization, X% XXX

Capital cash company were paid including for total results. to expenditures, billion, leases $X.X billion. and back PP&E finance Now was $X.X

based property down of were year-over-year, Our signals. which payment $XX.X was demand usage cloud data offset cash Cash center investments than strong billion, the collections, billion, by from billings continue to in X% intangible down XX% flow by to flow was transfer related $XX.X QX on more 'XX. completed driven and be of FY tax year-over-year. operations strong Free and a customer

of [indiscernible] X%, tax was operations free impact unchanged year. flow from and payment, this cash cash the Excluding flow grew relatively

driven million, interest expense expense net mostly offset remeasurement. and income by losses by was which and income, $XX other on foreign interest was quarter, currency This

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

otherwise, unless to is for noted any on a of still we our year. US expect the My AC by outlook, commentary, not dollar [ph] the from next full which, fiscal moving QX which Now, impact division, the end and year include close specifically quarter, does basis. both to

FX. First,

current the decrease With by points. revenue dollar approximately three by on expect and and expense total growth points FX now rates, growth and we decrease based stronger total COGS to operating US five approximately to

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decrease timing the basis with on our percentage In impact, spend dollar infrastructure to shift we expect and Azure margin, quarterly Azure points that in margin a due lower impact roughly variability sequential Nuance. driven of Excluding higher gross to a QX energy by will revenue the cost, two increase from build-out. mix capital normal expenditures, cloud primarily

will to guidance. XXX, or segment USD growth Productivity by to to currency In XX% expect growth and Processes, Business Next, again billion revenue Commercial, growth In XX% grow we ARPU driven XX.X across and billion. USDXX.X EX. seat revenue segments be from with in Office between and customer constant Office

XXX revenue a quarter we to be expect constant Microsoft growth more decline subscription basis. to by unfavorable XXX decline our In Office to on-premises on currency mid-XXs. expect revenue as last to be revenue similar offset FX We Office low to In digits Consumer, mid-single in business, we expect growth the than will impact. to low

LinkedIn, to in constant currency, And the XXX. share in double spend mid-teens expect in by the low advertising results we to in high engagement or low on growth driven will impacted in growth constant currency. and continued revenue platform, mid or in expect continued single-digit growth gains digits revenue by strong hiring, XXs low Dynamics, a we although in the slowdown Dynamics resulting For be

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

from QX We though low rate a single high earlier. in some low impact Windows to digits, US$ driven More strong to to decline on-premise be And currency Microsoft the in And be billion OEM, be with FX hybrid more demand Enterprise of including from In revenue SQL will given enterprise XXs. strong launch, we XXXX to installed revenue digits, by trends expect our In lower expect revenue our the growth than X expect US$ sequentially to on by impact. we we single the purchasing Services, solutions, in the momentum, in per business, annuity growth we driven revenue by as suite to roughly XXX continue revenue user we expect be Azure Server decline points revenue expect for XX.X size growth to basis. from in by business In base. our support. Azure billion. benefit of the expect should will XX.X noted growth offset server constant Personal moderation unfavorable the Computing, continue consumption,

revenue to first-party year drive In and Game year, roughly advertising, revenue for in in mid-teens, faster TAC, Windows digits or ex products security in in by in news with a subscribers. a line we Pass Devices, inclusion and In points the first-party decline should Microsoft market XX prior constant low advertising Excluding XXX decline PC comparable. Xbox the driven by segment. again, prior strong in mid-single roughly approximately overall particularly growing revenue currency. and news mid-XXs, That advanced to PC offset decline commercial customer demand mid-teens last Search strong low reflecting the to year the And growth and XX%, the double cloud both of against gaming, title services, and revenue, grow in from impact launches, several market. should X and revenue growth in low included should demand expect our the Xandr. the digits partially commercial search deferral solutions would than the comparable, revenue Windows

We Xbox the mid-teens. to services decline revenue in content to and low expect

back to Now company guidance.

in grow US$ to US$ be US$ COGS and XX% expect billion billion, between operating be X% billion to XX.X currency XX.X between and billion. constant between expense and and to US$ grow XX.X currency, or constant or and We XX.X in X% XX% to between

billion $X.X as of to to portfolio, as As and XX%. are can income key equity income growth is flow, FX minimal. we and through on headcount XX% continue investment rate gains And or reflected offset in as and mark-to-market related we a total QX reminder, this $XXX a recognize be should QX losses million, finally, in equity provision our expected cash growth more for make roughly focus July of And volatility. our as Further increase than to our not which effective X, capitalization QX and quarterly we tax enacted we tax effective in expense. a And R&D Other areas, number. to should interest XXXX expense XXXX. interest to cash be between TCJA are the required expect movements sequentially expect reminder, payment be to

the year. some Now on full fiscal thoughts

First, currency revenue company COGS rates, growth points. operating expect expense FX. full should growth. Based five-point we now At level, basis. increased see to the our the three Revenue our in income decrease XX% we That continue for and partially now by Microsoft declines by FX And offset will current to be in cloud driven around driven offerings. business, year currency and PC strong demand by approximately roughly expect revenue market. on growth will constant a a growth operating by constant the we commercial on total double-digit be headwind growth

the market the Therefore, strategic in margins cyclical and OEM customers expect long-term Cloud, business investment change, in have the as LinkedIn PC with expense our to we more approach Dynamics as these invest year-over-year. to materially our to Teams, And continue Security, and $XXX investing be we to solving and year. expect the areas On core nature operating take energy strategic excluding flat opportunities million innovations cost, continue in With revenue the to conditions. down environment, where problem the market, of year to of ever share PC year-over-year. markets be gain customers. well impact remainder we our of it And roughly margins through this we and Windows operating growth the internally. lower OEM a of currency in roughly will the to than continue a high growth basis, first you in moderate while our growth continue a we such our help of OEM XXX the expect to as of revenue impact do results less, operating maintain same expected constant levels latest the critical to with Windows US provide point lower and quarter regardless dollars accounting as XXXX FY incremental favorable do for should greater we see In we the over closing, to margins our is to more our expected than now

growing we investments to over Brett? the on year. significant we've focus While headcount the Q&A. let's that, With of made go productivity last

Brett Iversen

Jesse, we now in Q&A. of please the repeat request Out We'll ask to one participants Amy. your to for others Thanks, you question. respect our only over instructions? can call, please move

Operator

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

Keith Weiss

question, obviously below This a to for bit Azure the about environment. a came your a results But question me guys of now is percentage and and lot difficult on guidance. it taking what's where impressive row in Excellent. for ask minds. in two is Thank Amy, constant pains this a investors' point. very quarters I you a A currency think growth little what's in question a

I what on we that to address at it? that think glide could path of should that's you conservatism should And think is applied a volatility how investor is or would ease. the forecast? think minds those, for forecast? it inherent the investors harder business go-forward in the we put whole about year? lot there more you I an Have And think are about If Azure growth worrying like how of about wondering about just basis, in a sort --

Amy Hood

all as that, question, even on I the And point I is and know did growth we of point the me see we and is want our what a or those the do growing some to because to real focus budgeted we generally what, helping you course, And continued been in but point is every the That asking I is are line about making still I customer say appreciate point with and it, and went there, as, was, across them Keith. and we've to by A on workloads. are that we heard sales with budgets how me And across geos. through would focus point, macroeconomic here ultimately, where you've say inherent which quarter. is got focus quarter it value more as success do when going a what growth mostly see a number. we've because worse. growing. expected. and we rate there still been number, And Thanks, it with very by also growth segments through a heard is bring volatility say it still both one better, the customers, And focus, sure is and to you've that on a optimizations we complicated spend quarter of optimize all that their large customers proactively teams to environment

customers want the still workloads, you And But on customers prepare This still optimizations also how that nuance for yet digitization. and new that a tends of that that grow, But as on workloads. most focus more to seeing to it customer I This be do more, have help share focused so that all we our and then your that growth. build you're is it's workload one helps partner. drive and may partners help well. still make I this help leverage gains segment is that you on. customers say, segment, company or the optimize this room needs efficiently and loyalty to way back step can say, be build you problems. of that midsized small to partners the there was business, market same teams one segments. If to rely saw the tailwind is those know customers and your the and you in if solve run of still do is bit want in We would the them through are so well, the growth point. I think it and ultimate you still seen rely inside to the people that, I to We across

this And to opportunity continuing and most infra, if I will us look success, help there don't whether solutions know, customer happen, this you... probably for invest that optimize mind top exciting hear better have even I that in to is about even I whether as to able data an make the whether technology. forward, think in be as it's And exist TAM AI against. it's to remain that some across so engineering people I of do to think you inherent will in remains Satya, it's frankly optimizations, here, in volatility talk number. us to

Satya Nadella

I Yeah. a is add, seeing. kind I point profile that's to that obviously, here mean, growth is of would largest with where Amy, I is number, our think have your this thing large the the that you're rates on only investment good volatility we, TAM the

spend, proactively So doing think is shareholders long And them optimize us optimize for term. helping going for this the behalf I particular our which right I we're it. to we are their loyalty, period, as in for a on long-term think customer on going to focused thing to be – but stay company

Keith Weiss

you guys. Thank Outstanding.

Brett Iversen

Thanks, Keith. Jesse, next question, please.

Operator

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

Mark Moerdler

I'd Azure specifically. you. like last on Thank to the follow-up question on

growth, et something the RPO guiding the optimization? quarter, good that you're How that going strong So else think Is of cetera? should we sequential factor given next in got slowing about further business. specific to the that's it that you've component bookings, fact here? of the guidance, on in Is

Amy Hood

Mark. I'll you're – Thanks, right.

customers mentioned reiterate we're that bookings of that saw, we is which and RPO good had means have the long-dated go goes that as having what quarter, you're And really ahead referring seeing intact. number is growth. that, the and within remain part we to did Let sign growth, we me and this to you what commitments to, Satya to invest continue to would call here the platform, plans which that very

optimization that also you're pattern. are talking the to those that not of and be some guide and one-to-one matched sort volatility. a new And so includes it about does we that, the in workload result And consistent it's may and about, up includes And both seeing see starting. also

I Mark that really is well, other of that of was we some focused the of because these getting per as before right, because on large it, loss we're piece talk terms of is consumption didn't and numbers in The per on user headwinds there seat seeing business.

very a going there's here large things of as you So base. on couple said, again, a Mark

It's user workloads. as also not to just it's well. work So the per optimization new some

Mark Moerdler

I Thank appreciate Okay. it. you.

Brett Iversen

Thanks, Jesse, Mark. next please. question

Operator

next with The Thill your Please Jefferies. from question with question. proceed is Brent

Brent Thill

that continued. time, out, weakness. you It first quarter, SMB called the sounds last for Amy, like

are And enterprise? what many Can get above this that filter it now you're did higher up worse if quarter? you into see the seeing about questioning think talk you did SMB? I

Amy Hood

about bit Maybe this Microsoft little is a Brent. Thanks, talk to a chance XXX.

on-time was good better on based ago. people seen had expirations speaks were we we are think can QX, because we it the in talk XXX. it that And was very value saw QX XXX, that's think, execution. than year where what saw, did you frankly, than impact not I we've seeing place in QX. In We although I see a what different Microsoft there SMB frankly market about specifically the a in in renewal to, renewals Microsoft continued

good getting both good EX. That's we They're consistent. about. saw And are range on deals time. think done a done feel I getting upsell and a within discount that done we So to getting

that, -- in So in the fact, it, summary. it about if Where to you of -- forming referred to we talked we, frankly, deal a that moderation, I sort about think think of SMB, basis tended saw well in, small market, And QX good to seeing it to we've selling new above companies. to tended in talked before, and tended be as midsized I what that's new be your are and into Brent around value what a is, it which we be also through end we that little referred to. point, put fact, bit, And smaller of the had EX. some about partner, I to the as

our SKU Windows. We've value terms QX got that the security landed So impact, to a better in in in EX a where job of lot of is EX a core great We We It's place way really there is. in SKU, this is I for we packaging do EX. some value a added work macro well. same think, really and also, value can there's landing do EX which but auto some proposition. is a on to

with what there consistent, as I inconsistent get seems than well. at better more frankly, some we is that, think, saw. can pretty frankly, And macro, execution there we some So is

Brent Thill

Thank you.

Brett Iversen

Thanks, Brent. please. next Jesse, question

Operator

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

Mark Murphy

in inferencing anything if in as inflection some you quarter? something designer seeing Yes. per higher then, maybe first to enabling is Thank GitHub a to it can thinking What Satya, that generation quarter, I'm in or capabilities through of do try many Are innovate that's the impact your dimensionalize your to can OpenAI an that your to costs. so essentially wondering like quick of that follow-up, energy Copilot we the this period? you, image market? this the and it’s something margins $XXX then inferring Amy, million did And lower due else? you at Azure kind there mention of you incremental the And manage is to you or breakthroughs, we're AI product. be very and of to much. relationship rapidly

Satya Nadella

Thanks for the question.

fact, network, the progress important is of it the OpenAI First, or out in used yes, differentiated, models the come of then has built And foundation the to us. in very what's critical. seeing very making. capability critical parties way the together order been of large-scale we training which platform And our support productized you're then, Azure, that's partnership And of or these a part OpenAI models been inside that call whether to Copilot match. first-party being That's we the in supercomputing has what as inside course, highly by course, particular, Perhaps, it's computing third Azure both like is of partnership for sort Mattel. Design of GitHub applications, even services. it's the own driven, these OpenAI

very And so, excited about that. we're

to talk of We sort comes more have a lot universe. it when GitHub of sort about

are Copilot, see And huge area The think fantastic has to start. advances this which in innovating it's I going product, of be AI it's, in whether comment models. is you you'll mentioned on off an of these the fact, arrived. overall, that's investment. of GitHub AI But terms because corporate Platform, part of to another all a every area clearly is we more Power

place we of our layer for and or first-party applications So, models. those yes, sells inference and a so I and I that of AI model an getting is parties use training the think are have where at platforms think AI differentiated better the infrastructure third capability for because

Amy Hood

me your provide energy cost, of see that. help to question big to bit a try We as of And there. did little not let on

$XXX over million for it's said, the I year. As

quarter. not it's X. remainder be you think Some if it, I QX, was decent to of XXX-ish a want but assumption that It's it of QX a for the exact, And would the that in year. majority in of through be but think will about the somewhere

Mark Murphy

you. Thank

Satya Nadella

question Chessie, next Mark. Thanks, please.

Operator

is Please the question Keirstead coming next UBS. with from line question. with of proceed your Our Karl

Karl Keirstead

margins. meet throttle to the mind to back given side. they'll bit on counter Windows I'd pressure? not as Great. mix It that bit through a flat talking margins, elected OpEx drift now to you you more sales enable to for not experiencing you're looks weakness the Why little Amy, so OpEx Windows ask you've Okay. to guidance you a months lower. back decisions? Clearly, three little that just Do the love a ago on like throttle

Amy Hood

benefits it of little think seeing important not about Thanks, how saw think investment terms potentially little is over Karl. years, that bottom opportunity the is cyclical growth. we we pandemic, to substantial more, that bit call, favorability shared And over line, period. PC to And we're we past The but let the and I in it's market. did invest I substantially cyclical. because and some to continuing me share years for and And where we of couple and a a on great spend had couple during a a the fell chose and increased because you against that margins of it the time market

be so And are the Windows that ability than see overall, higher opportunity in usage, that's tough back same the to it year. going to a is us And a to now for for base, the grow for us. way the But still good it's I PCs installed our headwind it was.

have that opportunity specifically way of let have we and the fall that because And to customers some I that And business think about a commercial share, a And you we to line the we stay been confidence, it's the you in type TAMs opportunity the Satya has to so exciting. have most important of gain consistent to market saw have same down this it's bottom in talked your right? it with in when hand. the surge, our steady important to gain when

cost. let environment responding are say not is though the not it macro around also as Now, we me to

also, at the a material closed Nuance our closed in decline QX focused is which about way lap lot in investing moving it months. use sure the OpEx the the the commented, do When invest, be possible, come those, most at minimal. of It to head that over added QX going we count in we're growth and we've those most and make It's we got we going to we inside headcount investment. lap investments to will We headcount that. sequential end areas. you highest some the where QX. from to said Xandr make will want And sure headcount in will QX. I XX we're productive a company, be would on We And Karl. frankly, and about end As We've we've to, HX, see important of made of things. we past

our we And have us also some good that will productivity lap by year key then, and the I in that You see of headcount areas. last made we'll improvements from start headcount to surges see focus. feel the

I and what to do And macro. we're say, I an things, we'll stay consistent, the that's ability absolutely, so it's and respond to possible It's to to those want doing. think both

Karl Keirstead

you. Thank Okay.

Brett Iversen

Thanks, please. Karl, Jessie, question next

Operator

of Our Brad next Sills is your Bank coming America. Please with from with question question proceed

Brad Sills

lot question. Thanks of wanted I subscriber Wonderful. growth. question here driven growth is Office the a taking A by for ask to about my Commercial.

This quarter, from? time? from coming XX%. XXX growth for growth XX% you example, over subscribers that we Could subscribers million constant you're subscriber us shift the already of mix currency, where Could incremental away remind over think towards of potentially I ASP subscribers. see

EX collaboration versus ASP the on color with with the any Thank of runway the increment see more EX, you're over security works and subscriber much. so just just from coming from all you So growth the analytics, that time? Where coming and C might doing we is growth from?

Amy Hood

than it's new business frontline that value to There's Thanks, then investors for continued which some to focus And scenarios, really continue you expected. add Brad. that's seat growth, adding I on small we're because grow, It's on a worker question Viva, can to and the relevancy, and the things new of you've whether had us to add much and ways continuing enable focusing think, whether to Teams. we're seats. size it frankly, things actually we're should see add growth, good then because many longer to in

vision don't to I of want And say or. has it so this again, be, to

the continue to SKU, you EX is added think can And on value EX we've been sure us what suite seat will lower seeing. growth, to move still I making as people continue value, that you'll and we've end where which to we well. focus the of see So some see

time, on frankly, right, it over bit And growth And bit, quarter. ASPs you and then move the little little depends see you'll long up. seat mix, so a each see, term a will show

You saw a little more ARPU in QX.

there's that little saw But and EX things, both You had do in those of that a now think with some QX. I room couple felt way less to in for do to years. a QX I execution actually

Brad Sills

to Thanks, Amy. Great hear.

Brett Iversen

Jesse, Thank, question, next Brad. please.

Operator

line with of Gregg proceed Please Mizuho. the coming with Our next your question question. is from Moskowitz

Gregg Moskowitz

curious you. on magnitude the Thanks foresee a two term. Satya different variables demand near I'm Okay. of as Azure, how to or Amy, over medium cloud follow-up you on computing the

being a to largely spend, are impact being Thank some as a factors, the in be do lot the first the the of variable the spiking the cloud. cost energy former you willingness and to the economic see second than of as on expecting these latter? customers offsetting facilitator or you. The for pressures Do to perhaps you more more something prominent

Satya Nadella

will that Yeah. macro to is their everybody build. going optimize I is, mean it see mean way the we overall,

large fact, of as Amy swaths number of In to for even is our them said, our proactively job customer-facing sort oe#X optimize. help organizations

with our “do fact, In helping lined incentives less”. in up our success with customer them, more teams are customers

way with is what to align from the thing, best though, customer a one of demand side. to for that's spend to the cloud. uncertain them their So sort perspective, The is move

the see of prop the we So cloud. value

cloud winner risk. big the So all will risk taking public the because public cloud, businesses be offset helps in of this of demand

today, you as risk around supply side, is other or The described the costs. chain energy

so And an more way is in fact, efficient, against energy and best to move that's energy another cloud. one the hedge cost to we, to

what innings early little to in for because happens is at gain that's all and look about of a share think this period think – we're cloud where a us, we where the of say, So this bit you as I adoption. still cloud,

that to And going build it, loyalty. so into set customer long-term might want we invest but just and

Gregg Moskowitz

Very helpful. you. Thank

Brett Iversen

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

Operator

you. Thank

from with your coming question. is proceed the Brent Please Our Sandler. final Piper line of Bracelin question with

Brent Bracelin

on the out has profitable model next taking for This segments crossed rolling on? very segment years and year earlier the powered ambitions to that was large given ad-supported over advertising these by five Helpful Microsoft are Microsoft, cloud. historically not to broader Thanks. billion, Microsoft Thanks wanted I focused what maybe year. very three to afternoon. Netflix is here, this color a think, question pivot Good advertising. here. that I $XX

Satya Nadella

Thanks the question. for

both core leadership yeah, ROI, We Engage and around we market will two position reach, business feel we be has cyclically BXB – impacted, LinkedIn grow. and operated, And space. our I'll I LinkedIn One to advertising it. the continue as very back, it clearly are have quality well is, continues but call invest position of of that got to elements our it, comes advertising, a to premium positioned. where that will course, We'll that in LinkedIn owned feel well --

on. we again, second The place very where is point the focused are, very,

starting owned First, operated. with our and

over the pandemic. So on have the about when grown devices talk by Windows active XX% we overall

opens those to opportunities you is big the growth. it and it's tick the of whether some One things Feed. are operated right, us inventory, Search, see and And up that for it the of Bing whether is own our

share are the browser. takers We in

really and partner, grow first to are the changed now the look Netflix growth. -- then we're We third-party our we're feed. third-party going structurally base to about takers are to And successful of platform. on our Netflix, engagement going ad we terms those and top And installed excited to the we're that, share in in of the things make but a leverage grow of continue of on business terms with that that's are high

be and printed LinkedIn; top feed; three as ad network. as our own well would those areas: third-party the advertising, So search both

Brett Iversen

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

Amy Hood

Thank you.

Satya Nadella

you very Thank much.

Operator

Ladies you. this your Thank gentlemen, participation, and your does for today's disconnect at thank may teleconference. you time. this conclude lines you We and

Microsoft (MSFT) 25 Oct 222023 Q1 Earnings call transcript