Q3 2023 Microsoft Corp Earnings Call

April 25, 2023

Now I'd like to turn the conference over to your host right.

Yes.

[music].

<unk> Vice President of Investor Relations. Please go ahead.

Good afternoon, and thank you for joining us today.

On the call with me are <unk>, Chairman and Chief Executive Officer Amy.

Amy Hood, Chief Financial Officer Alan.

<unk> Chawla, Chief Accounting Officer, and Keith Dolliver, Deputy General Counsel.

Yeah.

Sure.

On the Microsoft Investor Relations website, you can find our earnings press release and financial summary, slide deck, which is intended to supplement our prepared remarks during today's call and provides a reconciliation of differences between GAAP and non-GAAP financial measures.

[music].

Additionally, new this quarter more detailed outlook slides will be available on the Microsoft Investor Relations website, when we provide outlook commentary on today's call.

Okay.

[music].

On this call, we will discuss certain non-GAAP items.

The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP.

They are included as additional clarifying items to aid investors in further understanding the company's third quarter performance. In addition to the impact these items and events have on the financial results.

All growth comparisons we make on the call today.

<unk> to the corresponding period of last year, unless otherwise noted.

We will also provide growth rates in constant currency when available as a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.

Where growth rates are the same in constant currency, we will refer to the growth rate only.

We will post our prepared remarks to our website immediately following the call until the complete transcript is available.

Today's call is being webcast live and recorded if you ask a question. It will be included in our live transmission in the transcript and in any future use of the reporting.

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

Yes.

During this call we will be making forward looking statements, which are predictions projections or other statements about future events.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could materially differ because of factors discussed in today's earnings press release.

In the comments made during this conference call and in the risk factors section of our Form 10-K forms 10-Q, and other reports and filings with the Securities and Exchange Commission, we do not undertake any duty to update any forward looking statements and with that I'll turn the call over to Satya.

Thank you very much Bret the Microsoft cloud delivered over $28 billion in quarterly revenue up 22% and 25% in constant currency, demonstrating our continued leadership across the tech stack.

We continue to focus on three priorities.

First helping customers use the breath and depth of the Microsoft cloud to get the most value out of their digital spend.

Second investing to lead in the new AI across our solution areas and expanding our Tam and driving operating leverage aligning our cost structure with our revenue growth now.

Now I'll highlight examples of our progress starting with infrastructure Azure took share as customers continue to choose our ubiquitous computing fabric from cloud dredge, especially as every application becomes AI powered.

We have the most powerful AI infrastructure and is being used by our partner open AI as relevant media, a leading AI startup like adapt an inflection to train large models.

Our Azure opening <unk> brings together, our advanced models, including chat GPT in GPT full with the enterprise capabilities.

Asia from Coursera and gradually to Mercedes Benz and shell, we now have more than 2500, Azure open AI service customers up Phoenix quarter over quarter.

Speaker 1: Is being recorded. I would now like to turn the conference over to your host, Bret iveron, Vice President of Investor Relations. Please go ahead.

It does have on the financial results.

All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted.

Speaker 2: Good afternoon and thank you for joining us today while theiccall with me our sasin andela, Chairman and Chief Executive Officer. Amy hood, Chief Financial Officer. alicejlla, Chief accounting Officer and Chief belver, Deputy general counsel.

Last week epic system shed that it was using azure opening I service to integrate this next generation of AI.

We will also provide growth rates in constant currency when available as a.

<unk>, leading EHR software.

Framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.

Azure also powers open AI API and we are pleased to see brands like Shopify and snap use the API to integrate open AI models.

Speaker 3: On the Microsoft Investor Relations website, you can find our earnings press release and financial summary slide deck, which is intended to supplement our prepared remarks during today's call and provides a reconciliation of differences between GAAP and non-GAAP financial measures.

Where growth rates are the same in constant currency, we will refer to the growth rate only.

Broadly we continue to see the world's largest enterprises migrate key workloads to our cloud unit move out for example went all in on Azure This quarter in one of the largest ever cloud migrations in the consumer goods industry.

We will post our prepared remarks to our website immediately following the call until the complete transcript is available.

Today's call is being webcast live and recorded.

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

Speaker 3: Additionally new this quarter: more detailed outlook slides will be available on the Microsoft inbesttor Relations website when we provide outlook. Commentary on today's call.

Ikea retail <unk> Bank Global Bank, Telstra and Wolverine worldwide, all use Azure arc to Ron agile services across on premise edge in multi cloud environments. We now have more than 15000, Azure our customers up over 150% year over year, and we are extending our.

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

Speaker 3: From this call, we will discuss certain non-GAAP items.

During this call we will be making forward looking statements, which are predictions projections or other statements about future events.

Speaker 3: The non-GAAP financial measures provided should not be considered as a substitute for or superior to the measures of financial performance prepared accordance with GAAP. There are included as additional clarifying items to aid investors in further understanding the company's third quarter performance, in addition to the impact these items and events have on the financial results.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Infrastructure, two five <unk> network edge with Azure for operators, we are the cloud choice for telcos and at <unk> last month, AT&T Deutsche Telecom Singtel and Telefonica all shared how they are using our infrastructure to modernize and monetize their networks now onto data.

Actual results could materially differ because of factors discussed in today's earnings press release.

And the comments made during this conference call and in the risk factors section of our Form 10-K forms 10-Q, and other reports and filings with the Securities and Exchange Commission, we do not undertake any duty to update any forward looking statements.

Speaker 3: All growth comparisons we make on the call today relate to the corresponding period of last year, unless otherwise noted.

Our intelligent data platform brings together databases analytics and governance, so organizations can spend more time, creating value and less on integrating that data estate Cosmos DB is the go to database powering the world's most demanding workloads at any scale open AI relies on Cosmos DB to.

Speaker 3: We will also provide growth rates in constant currency, when available, as a framework for assessing how our underlying businesses performed, excluding the effect of foreign currency rate fluctuations.

And with that I'll turn the call over to Satya.

Thank you very much Bret the Microsoft cloud delivered over $28 billion in quarterly revenue up 22% and 25% in constant currency, demonstrating our continued leadership across the tech stack.

Speaker 2: Where groupbates are the same in constant currencies. We will refer to the growth rate only.

<unk> scale that chat GPT service, one of the fastest growing consumer apps ever enabling high reliability and low maintenance. The NBA is cosmos DB doing just more than 10 million data points per game, helping teams optimize their gameplay and.

Speaker 3: We will post our prepared remarks to our website immediately following the call, until the complete transcript is available.

We continue to focus on three priorities.

Helping customers use the breath and depth of the Microsoft cloud to get the most value out of their digital spend.

Speaker 3: Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript and in any future use of the reporting.

And we are taking share with our analytics solutions companies like BP Canadian tire marks <unk> Spencer and T. Mobile all rely on our end to end analytics to improve speed to insight.

Second investing to lead in the new AI across our solution areas and expanding our Tam and third driving operating leverage aligning our cost structure with our revenue growth now.

Speaker 3: You can replay the call and be the transcript on the Microsoft invtor Relations website.

Speaker 3: During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events.

Now on to developers from visual studio to Github, we have the most popular tools to help every developer go from idea to code and code to cloud all while staying in their flow today, 76% of the fortune 500 use github to build ship and maintained software and we get a copilot the first at scale AI developer.

Speaker 2: These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Speaker 3: Actual results could materially differ because the factors discussed in today's earnings press release, in the comments made during this conference call and in the risk factors section of our Form 10-K , Form 10 -q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement and with that I'll turn the call over to saka.

We have the most powerful AI infrastructure and is being used by our partner open AI as relevant video and leading AI startups like adapt an inflection to train large models.

All we are fundamentally transforming the productivity of every developer from novices two experts in three months since we made co pilot for business broadly available over 10000 organizations have signed up including the likes of Coca Cola and GM as well as duolingo and Mercado Libre, all of which credit copilot with <unk>.

Our Azure open AI sluggish brings together advanced models, including Chap GPT in GPT full with the enterprise capabilities of Azure from Coursera and gradually to Mercedes Benz and shell. We now have more than 2500, Azure open AI service customers up Phoenix quarter over quarter.

Speaker 4: Thank you very much, Bret. The Microsoft cloud delivered over $28 billion in quarterly revenue, up 22% and 25% in constant currency, demonstrating our continued leadership across the DEX stack.

Creasing the speed for their developers.

We're also bringing next generation AI to power platform. So anyone can automate workflows create apps or web pages build virtual agents and analyzed data using only natural language more than 36000 organizations have already used existing AI powered capabilities in power platform and with our new co pile.

Just last week epic system shed that it was using azure at open AI service to integrate this next generation of AI with its industry, leading EHR software.

Speaker 4: We continue to focus on three priorities.

Speaker 4: First helping customers use the breadth and depth of the microoft cloud to get the most value out of their digital spend. Second, investing to lead in the new AI wave across our solution areas and expanding attam. And third, driving operating leverage, aligning our cost tructure with our revenue growth. Now I'll highlight examples of our progress, starting with infrastructure.

Youre also powers open AI API and we are pleased to see brands like Shopify and snap use the API to integrate open AI models.

And power apps, we're extending these capabilities to end users, who can interact with any app through conversation instead of clicks.

More broadly we continue to see the world's largest enterprises migrate key workloads to our cloud unit movement. For example went all in on Azure This quarter in one of the largest ever cloud migrations in the consumer goods industry.

All up we now have nearly 33 million monthly active users of power platform up nearly 50% year over year.

No.

Speaker 4: Az ure took share as customers continue to choose our ubiquitous computing fabric from cloud to edge, especially as every application becomes AI PO. We have the most powerful AI infrastructure and is being used by our partner open-ai, as well as in videia and leading AI start up like adapt in inflection to train large models.

Now onto business applications from customer experience and service to finance and supply chain. We continue to take share across all categories. We serve as organizations like Asahi CH Robinson E on Franklin Templeton choose our AI powered business applications to automate simulate and predict every business process.

Ikea retail <unk> Bank Global Bank, Telstra and motoring worldwide, all use Azure arc to run agile services across on premise edge in multi cloud environments. We now have more than 15000, Azure our customers up over 150% year over year and we are extending.

And function and we are going further with dynamics 365, co pilot, which works across CRM and ERP systems to bring the next generation of AI to employees in every job function, reducing burdensome task like manual data entry content generation and not taking.

Speaker 4: Our Azure OpenAI service brings together advanced models including chapgppt and gpt fourall with the enterprise capabilities of Azure, from core, FLA and grammarle to Mercedes bends and Shell. We now have more than 2500 Azure OpenAI service customers uptenx quarter-over-quarter. Just last week Epic system share that it was using Azure OpenAI service to integrate this next generation of AI with its industry-leading EHR software.

Our infrastructure two five <unk> network edge with Azure for operators, we are the cloud of choice for telcos and at <unk> last month, AT&T Deutsche Telecom Singtel and Telefonica all shared how they are using our infrastructure to modernize and monetize their networks now onto data.

Now onto our industrial and cross industry solutions, our cloud for sustainability is seeing strong adoption from companies in every industry, including BBC, Nissan and PCL as they deliver on their respective environmental commitment.

Our intelligent data platform brings together databases analytics and governance, so organizations can spend more time, creating value and less on integrating data estate Cosmos DB is the go to database powering the world's most demanding workloads at any scale open AI relies on cosmos DB to diner.

Speaker 4: Azure also powers open aapiapi and we are pleased to see brands like Shopify and snap use the API to integrate open AI's models.

Cogs for healthcare was front and center at him last week as we expanded our offerings repairs and added new AI powered capabilities for providers.

<unk> scale that chap GPT service, one of the fastest growing consumer apps ever enabling high reliability and low maintenance.

Speaker 4: More broadly, we continue to see the world's largest enterprises migrate key workloads to our cloud. unilevever, for example, went all in on Azure, the squarter in one of the largest ever cloud migrations in the consumer goods industryi retail, Ng bank, robal bank, testra and moing worldwide. All Azure are to run Azure services across on premise, edge andmulti cloud environments.

We showcased the first fully automated clinical documentation application nuanced Dax express, which will bring GPT four to more than 550000 existing users of Dragon medical and at Hanover, Massa manufacturing trade show Siemens shared how it will use a teams app integrated with Azure.

The NBA is cosmos DB doing just more than 10 million data points per game, helping teams optimize their gameplay and.

And we are taking share with our analytics solutions companies like BP Canadian tire marks and Spencer T mobile all rely on our end to end analytics to improve speed to insight.

Open AI service to optimize factory workflows now on to future work, Microsoft <unk> co pilot combines next generation AI with business data and the Microsoft graph and Microsoft 365 applications, removing the drudgery and unleashing the creativity of work.

Speaker 4: We now have more than 15 thousand Azure are cotomers, up over one hundred fifty percent yearro we and we are extending our infrastructure to five G network edge. With Azure for operators, we are the clouded choice for telcos and at MWC last month, a mt joy to TelCom sink, TE and telephoneica all shared how they are using our infrastructure to modernize and monetizee their networks.

Now on to developers from visual studio to <unk>, we have the most popular tools to help every developer go from idea to code and code to cloud all while staying in their flow today, 76% of the fortune 500 use github to build ship and maintained software and we'd get a co pilot the first at scale AI developer.

Pilot works alongside uses embedded in the Microsoft 365 applications millions use everyday and it also powers business chat, which uses natural language to surface information and insights based on business content and context, we have been encouraged by early feedback and look forward to bringing these experiences to more users and becoming more.

All we are fundamentally transforming the productivity of every developer from novices two experts in three months since we made co pilot for business broadly available over 10000 organizations that signed up including the likes of Coca Cola and GM as well as duolingo and Mercado Libre, all of which credit co pilot with <unk>.

Speaker 4: Now on to data. Our intelligent data platform brings together databases, analytics and governance So organizations can spend more time creating value and less time integrating their data. Est Cosmos DB is that go to database, powering the world's most demanding workloads than any scale open. Ai relies on Cosmos DB to dynamically scale that. Chp gpt service- one of the fastest growing consumer apps ever, enabling high reliability and low maintenance.

Yes.

Teams usage is at an all time high and surpassed 300 million monthly active users this quarter and we once again took share across every category from collaboration to chat to meetings to calling as we add value for existing customers and win new ones like ABN Amro with Jaguar land Rover matter.

Creasing the speed for their developers.

From Unisys and Vodafone.

We announced a new version of team delivered up to two times faster performance, while using 50% less memory. So customers can collaborate more efficiently and prepare for experiences like copilot.

Speaker 4: The NBA uses Cosmos DV to injust more than one million data points for game, helping teams optimize their gameplay, and we are taking share with our analytics solutions. Companies like B? P, Canadian ENT marks and spend T mobile all rely on our end to end analytics stream improve speed to insight.

And power apps, we're extending these capabilities to end users, who can interact with any app through conversation instead of clicks.

Teams is also expanding our Tam nearly 60% of our enterprise teams customers by teens fallen rooms or premium team's fone is the undisputed market leader in cloud, calling helping our customers reduce costs with a three year ROI of over 140% teams rooms revenue more than doubled.

We now have nearly 33 million monthly active users of power platform up nearly 50% year over year.

Speaker 4: Now on to developers. From visual studio to giub, we have the most popular tools to help every developer go from idea to code and code to cloud, all while staying in their flow. Today, 76% of the Fortune 500 use Gi up to build, ship and maintain software. And with Gi up co-pilot- the first as scale AI developer tool- we fundamentally transforming the productivity of every developer from novices to experts in three months, since we make co-pilot for business broadly available.

No.

We are and teams premium meats enterprise demand for AI powered features like intelligent recap now generally available. It's one of our fastest growing modern work products ever with thousands of paid customers just two months and with Microsoft Veeva, We've created a completely new suite for employee experience.

And function and we are going further with dynamics 365, co pilot, which works across CRM and ERP systems to bring the next generation of AI to employees in every job function using burdensome task like manual data entry content generation and mill taking.

Speaker 4: Over one thousand organizations that signed up, including the liines of Coca-Cola and GM, as well as geolingo and meracado Libra, all of which credit co-pilot with increasing the speed for their developers.

We were brings together gold's communication learning workplace analytics and employee feedback across industries companies like Dell Master card and SCS using <unk> to help their employees thrive.

Speaker 4: We're also bring next-generation AI to power platform, So anyone can automate workflows, create apps or web pages, build virtual agents and analyze data using only natural language. More than 36 thousand organizations have already used existing AI power capabilities in power platform and with our new co-pilot and power apps, we're extending these capabilities to end users, who can interact with any apps through conversation instead of clicks.

Now on to our industrial and cross industry solutions, our cloud for sustainability is seeing strong adoption from companies in every industry, including BBC, Nissan and PCL as they deliver on their respective environmental commitment.

Last week, we announced copilot for Riva offering leaders, a new way to build a high performance teams by prioritizing both productivity and employee engagement and we will sales we've extended the platform to specific job functions, helping sellers apply lodge language models to our CRM and Microsoft 365.

Cogs for healthcare was front and center at him last week as we expanded our offerings repairs and added new AI powered capabilities for providers.

We showcased the first fully automated clinical documentation application nuance Dax express, which will bring GPT for water more than 550000 existing users of Dragon medical and at Hanover, Massa manufacturing trade show Siemens shared how it will use a teams app integrated with Azure.

Data so that they can automatically generate content like customer male.

Speaker 4: All up. We now have nearly 33 million monthly actitor users of power platform up nearly 50% year-over-year. No one to business applications, from customer experience and service to finance and supply chain. We continue to take share across all categories. We serve as organizations like asahi, ch robsonand Eron Franklin, templeton shoes, our AI powerwered business applications to automate, simulate and predict every business process and function.

All of this innovation is driving growth across Microsoft 365, Ferrovial Goldman Sachs Novo Nordisk and Rogers all chose <unk> to empower their employees with our best in class productivity apps, along with advanced security compliance voice and analytics.

Open AI service to optimize factory workflows now on to future work. Microsoft 365, co pilot combines next generation AI with business data and the Microsoft graph and Microsoft 365 applications, removing the drudgery and unleashing the creativity of work.

Now onto Windows, while the PC market continues to face headwinds, we again saw a record monthly active windows devices and higher usage compared to pre pandemic. We're also seeing accelerated growth in windows 11, commercial deployments over 90% of the Fortune 500 are currently trialing or have deployed windows.

Speaker 4: And we are going further with dynamic qics by copilot, which works across CRM and ERP systems to bring the next generation of AI to employees in every job function're using burddensome TAS like manual data entry, content generation and note taking.

Pilot works alongside uses embedded in the Microsoft <unk> five applications millions use everyday and it also powers business chat, which uses natural language to surface information and insights based on business content and context, we've been encouraged by early feedback and look forward to bringing these experiences to more users and becoming more.

Love It.

And with Windows six five in Azure virtual desktop we continue to transform how employees at companies like Mazda nationwide access windows.

Speaker 4: Now on to our industry and cross-industry solutions. Our cloud for sustainabilility is seeing strong adoption from companies in every industry, including bdc, nisad and TCL, as they deliver on their respect and environmental commitments. Our cloud for health care was front and center at hys last week as we expanded our offerings for pays and added new AI powered capabilities for providers.

All up over one third of our enterprise customer base has purchased cloud delivered windows to date and new Windows 365, frontline extends the power and security of cloud PC to shift workers for the first time.

Months.

Now on to security.

Prehensile AI powered solutions spanning all clouds and all platforms give the agility advantage back to defenders. Among analysts we are the leader in more categories than any other provider and we once again took share across all major categories. We serve and we continue to introduce new products and functionality to further protect custom.

Speaker 4: reshowcase the first fully AI automated clinical documentation application, nuance dacs express, which will bring GP forward to more than 55 thousand existing users of Dragon medical. And at Hanover mass manufacturing trade show, Sean shared how it will use a team's app integrated with Azure open AI service to optimize factory workflows. Now on to future work.

From Unisys and Vodafone.

We announced a new version of teams delivered up to two times faster performance, while using 50% less memory. So customers can collaborate more efficiently and prepare for experiences like copilot.

With security Copilot, we are combining large language models with the domain specific model informed by our threat intelligence and $65 trillion daily security signals to transform every aspect of the sock productivity and.

Teams is also expanding our Tam nearly 60% of our enterprise teams customers by teams formed rooms or premium team's fone is the undisputed market leader in cloud, calling helping our customers reduce costs with a three year ROI of over 140% teams rooms revenue more than doubled.

Speaker 4: Microsoft three 6- five co pilot combines next generation AI with business data in the microoft graph and microoft 6: five applications, removing the drudgery and unleashing the creativity or work. Copilot works alongside users embeded in the microoft 6- five applications- millions us every day, and it also powers business CHP, which uses natural language to surface information insci based on business content and context.

And we also added new governance controls and policy protections to better secure identities along with resources. The access nearly 720000 organizations now use azure active directory up 33% year over year.

Year over year and teams premium meats enterprise demand for AI powered features like intelligent recap now generally available. It's one of our fastest growing modern work products ever with thousands of paid customers just two months and with Microsoft Veeva, We've created a completely new suite for employee experience.

And all up nearly 600000 customers now have four or more security workloads up 35% year over year underscore.

Speaker 5: We've been encouraged by early feedback and look forward to bring these experiences to more users in the coming months.

Underscoring our end to end differentiation.

Speaker 4: Team's usage is at an all-time high and surpassed three million monthly active users this quarter, and we once began to share across every category, from collaboration to chat, to meetings to calling, as we add value for existing customers in men, new ones like ABN Amer or jaguwell, lanro or mattress Form, unices and verafon.

<unk> and Qualcomm for example, both chose a full security stack to ensure the highest levels of protection and visibility across their organizations now on to Linkedin.

We were brings together gold's communication learning workplace analytics and employee feedback across industries companies like Dell Master card and SCS using veeva to help their employees thrive just last week, we announced co pilot for Riva offering leaders, a new way to build a high performance.

We once again saw record engagement is more than 913 million members done to the professional social network to connect lung cell and get higher.

Schemes, but prioritizing both productivity and employee engagement and we will sales we've extended the platform to specific job functions, helping sellers apply large language models.

Member growth accelerated for the seventh consecutive quarter as we expanded to new audiences. We now have 100 million members in India up 19%.

Speaker 4: We announced a new version of teams that delivers up to two X faster performance while using 50% less memories, So customers can collaborate more efficiently and prepare for experiences like copilot.

And as Gen Z enters the workforce, we saw 73% year over year increase in the number of students sign ups in this persistently tight labor market Linkedin talent solution continues to help hires connected job seekers and professionals to build the skills they need to access opportunity.

<unk> and Microsoft 365 data, so that they can automatically generate content like customer male.

Speaker 4: Teams is also expanding our tam- nearly 60% about enterprise teams customers by teams phone rooms or premium teams. Phone is the undisputed market leader. And cloud calling helping our customers reduce cost with a three ri of over 140%. Teams rooms revenue, more than double V and teams premium meats. Enterprise demand for AI powered features like intelligent recaps, now generally available.

Our hiring business took share for the third consecutive quarter. The excitement around AI is creating new opportunities across every function for marketing sales and finance to software development and security Linkedin is increasingly where people are going to non discussing the op level their skills with more than 100 AI courses.

Now onto Windows, while the PC market continues to face headwinds, we again saw a record monthly active windows devices and higher usage compared to pre pandemic.

Speaker 4: It's one of our fastest growing modern work products ever, with thousands of paid customers. Just two months in, with Microsoft River, we have creared a completely new suite for employee experience. We were bring to together together gold communication learning, workplace analytics and employee feedback across industries. Companies like down, masast card and F SES are using the to help their employees drive.

We're also seeing accelerated growth in Windows 11, commercial deployments over 90% of the Fortune 500 are currently trialing or have deployed windows 11, and with Windows six five in Azure virtual desktop we continue to transform how employees at companies like Mazda nationwide access windows.

And we've introduced new AI powered features including writing suggestions for member profiles and job descriptions and collaborative articles.

Finally linked and marketing solutions continues to be a leader in <unk> digital advertising, helping companies deliver the right message to the right audience on a safe trusted platform.

Speaker 5: Just last week we announced copiloot for River, offering leaders a new way to build high performance teams for prioritizing both productivity and employee engagement. And with wever sales, we have extended the platform to specific job functction, helping sellers apply large language models to their CRM andmicrosoft three 6, five data so that they can automatically generate content, like customer mailall this innovation is driving growth across Microsoft six 5, the rovo Goldman facts, no orders and Rogers, all chs E five to empower that employees with our best in class productivity apps, along with advanced security compliance, voice and analytics.

All up over one third of our enterprise customer base has purchased cloud delivered windows to date and new Windows 365, frontline extends the power and security are cloud PC to shift workers for the first time.

More broadly we continue to expand our opportunity in advertising our exclusive partnership with Netflix brings differentiated premium video content to all AD network and our new co pilot for the web is reshaping daily search and web habits two months since the launch of new being an edge. We are really encouraged by user feedback and usage.

Now on to security.

Our comprehensive AI powered solutions spanning all clouds and all platforms give the agility advantage back to defenders. Among analysts we are the leader in more categories than any other provider and we once again took share across all major categories. We serve and we continue to introduce new products and functionality to further protect.

Patents all up being is more than 100 million daily active users, we are winning new customers on windows and mobile daily installs of the <unk> mobile App have grown Forex since launch, we're making progress in share gain edge took share for the eighth consecutive quarter and being once again grew share in the United States.

Customers with security Copilot, we are combining large language models with the domain specific model informed by our threat intelligence and 65 trillion daily security signals to transform every aspect of the sock productivity.

We continue to innovate with first of their kind AI powered features including the ability to set the tone of chat and create images from text from powered by <unk> over 200 million images have been created date and we see that when people use these new AI features that engagement with being an edge goes up.

Speaker 5: Now on to Windows. While the PC market continues to face headwinds, we again saw record monthly active Windows devices and higher usage compared to prepandemic. We're also seeing accelerated growth in windos 11 commercial deployments. Over 90% of the Fortune 500 are currently trialing or have deployed Windows 11 and with window 306, five and AZ ure virtual desktop we continue to transform our employees at companies like masda and nationwide access Windows.

And we also added new governance controls and policy protections to better secure identities along with resources. They access nearly 720000 organizations now use azure active directory of 33% year over year.

As we look towards a future where chat becomes a new way for people to seek information consumers have real choice in business model and modalities with Azure powered chat entry points across being edge windows and open AI chat GPT.

And all up nearly 600000 customers now have four or more security workloads up 35% year over year underscore.

Speaker 4: All up. Over one third of our enterprise customer base has purchased cloud-delivered Windows to date and new window 300 and six-five sunline extends the power security of cloud bcs to shift to workers for the first time.

Underscoring our end to end differentiation.

We look forward to continuing this journey in what is a generational shift in the largest software category search now on to gaming.

<unk> and Qualcomm for example, both chose a full security stack to ensure the highest levels of protection and visibility across their organizations now onto Linkedin.

Rapidly executing on our ambition to be the first choice for people to play great gains whenever however, and wherever they want.

Speaker 5: Now on to security.

We once again saw record engagement is more than 930 million members turned to the professional social network to connect learn cell and get Hyatt member.

Speaker 5: Our comprehensive I power solutions spanning all cls and all platforms give the agility advantage back to defenders among analysts. We are the leader in more categories than any other provider and we once again to share across all major categories we serve and we continue to introduce new products and functionality to further protect customers. With security copilot, we are combining large language models with the domain specific model, informed by our threat intelligence and 65 trillion daily security signals to transform every aspect of the sock productivityand.

We set third quarter records for monthly active users and monthly active devices across our content and services business. We are delivering on our commitment to offer game was more ways to experience the games. They love our revenue from subscriptions reached nearly $1 billion. This quarter. This quarter. We also brought PC game pass through.

Member growth accelerated for the seventh consecutive quarter as we expanded to new audiences. We now have 100 million members in India up 19%.

And as Gen Z enters the workforce, we saw 73% year over year increase in the number of students sign ups in this with system really tight labor market Linkedin talent solution continues to help hires connected job seekers and professionals to build the skills they need to access opportunity.

<unk> new countries nearly doubling the number of markets we are available.

Great content remains the flywheel behind our growth we have now surpassed $500 million lifetime unique users across our first party titles and have never been more excited about our pipeline of gains, including the fourth quarter launches of Minecraft legend and Red Bull.

Speaker 5: We also added new governance controls and policy protections to betterro securured identities, along with resources they access. Nearly 72 thousand organizations now use as you active directly- up 33% year-over-year- and all of nearly six thousand customers now have four or more security workloads- up 35% year-over-year, underscoring our end-to-end differentiation.

In closing we are focused on continuing to raise the bar on our operational excellence and performance as we innovate to help our customers maximize the value of their existing technology investments and thrive in the new era of AI in a few weeks' time, we'll hold our build conference where we will share how we are building the most powerful AI platform for <unk>.

And we have introduced new AI powered features including writing suggestions for member profiles and job descriptions and collaborative articles.

Speaker 5: Ey and quaccomm, for example. Both shows are four security stack to ensure the highest levels of protection visibility across their organizations now want to linkin. We once again saw record engagement as more than 93 million members turned to the professional social network to connect learn, cell and get hired. Member groww up accelerated for the seventh consecutive quarter as we expanded to new audiences.

<unk> and I encourage you to tune in.

Finally, Linkedin marketing solutions continues to be a leader in <unk> digital advertising, helping companies deliver the right message to the right audience on a safe trusted platform.

Could not be more energized about the opportunities ahead and with that let me turn it over to Amy.

Thank you Satya and good afternoon, everyone.

Third quarter revenue was $52 $9 billion at 7% and 10% in constant currency earnings per share was $2 45, and increased 10% and 14% in constant currency.

Speaker 4: We now have one million members in India, up 19%, and as Gen Z enters the workforce, we saw 73% year-over-year increase in the number of student signups.

Our results exceeded expectations driven by focused execution from our sales teams and partners in our commercial business revenue was up 19% in constant currency.

Patents all up being is more than 100 million daily active users, we are winning new customers on windows and mobile daily installs of the being mobile app have grown forex since launch, we're making progress in share gain edge took share for the eighth consecutive quarter and being once again grew share in the United States.

Better than expected renewal strength, including across Microsoft 365, which also benefited windows commercial given the higher in period revenue recognition and office 365, Standalone products, we saw improvement in new business growth, while growth trends in EMS and windows commercial Standalone products remained consistent with Q2.

Speaker 5: In this consistently tight labor market. Linked in talent solution continues to help hire connected job seekers and professionals to build the skills they need to access opportunity. Our hiring business took share for the third consecutive quarter. The excitement around AIS creating new opportunities across every function: for marketing, sales and fans to software development and security.

We continue to innovate with first of their kind AI powered features including the ability to set the tone of chat and create images from text prompt powered by <unk> over 200 million images have been created date and we see that when people use these new AI features their engagement with being an edge goes up.

<unk>.

In Azure.

<unk> continued to exercise, some caution and optimization and new workload trends from the prior quarter continued as expected.

Speaker 4: Linking is increasingly where people are going to learn, discuss in up-level their skills. That more than one one daya courses.

In our consumer business PC demand was a bit better than we expected, particularly in the commercial segment, which benefited windows OEM surface, even as channel inventory levels remain elevated.

Speaker 5: And we have introduced new AI powered features, including writing suggestions for member profiles and job descriptions and collaborative articles.

Speaker 5: Finally LinkedIn marketing solutions continues to be a leader in B two B digital advertising, helping companies deliver the right message to the right audience on a safe, trusted platform. More broadly, we continue to expand our opportunity in advertising. Our exclusive partnership with Netflix brings differentiated, premium video content to our ad network, and our new co-pilot for the web is reshaping daily search and web habits.

Typically impacted results.

Advertising spend landed in line with our expectations.

We have seen share gains in Azure dynamics teens security edge and bank.

We look forward to continuing this journey in what is a generational shift in the largest software category search now on to gaming.

We continue to focus on delivering high value as well as new innovative solutions to our customers, including next generation AI capabilities.

Rapidly executing on our ambition to be the first choice for people to play great gains whenever however, and wherever they want.

Speaker 5: two months since the launch of new being an edge. We are ready, encouraged by user feedback and usage patterns, all up being more than one million daily AC users. We are winning new customers. On Windows and mobile day, installed of the big mobile app have grown fore X and launch. We are making progress in share games, edge to share for the eighth consecutive quarter and being once again blue share in the United States.

<unk> bookings increased 11% and 12% in constant currency on a strong prior year comparable with a declining expiry base and three points of unfavorable impact from the inclusion of nuance in the prior year.

Better than expected result was driven by strong execution across our renewable sales motions mentioned earlier.

Commercial remaining performance obligation increased 26% to $196 billion, roughly 45% will be recognized in revenue in the next 12 months up 18% year over year. The remaining portion will be recognized beyond the next 12 months increased 34%.

Speaker 5: We continue to innovate with first of their kind AI powered features, including the ability to set the tone of chat and create images from text promms powered by dolly. Over two hundred million images have been create date and we see that when people use these new AI features, their engagement with being Anand edge goes up. As we look towards a future where chat becomes a new way for people to seek information, consumers have real choice in business model and modalities.

<unk> new countries nearly doubling the number of markets we are available.

Great content remains the flywheel behind our growth we have now surpassed $500 million lifetime unique users across our first party titles and have never been more excited about our pipeline of games, including the fourth quarter launches of Minecraft legend and Red Bull.

This quarter, our annuity mix was again, 96%.

FX impact on total company revenue segment level revenue and operating expense growth was as expected FX decreased cogs growth by two points, one point favorable expectations Michael.

In closing we are focused on continuing to raise the bar on our operational excellence and performance as we innovate to help our customers maximize the value of their existing technology investments and thrive in the new era of AI in a few weeks' time, we'll hold a build conference where we will share how we are building the most powerful AI platform for <unk>.

Speaker 5: With AZ, your powered chat entry points across being edge Windows and open AI chat PTT. We look forward to continuing this journey in what is a generational cheft in the largest software category. Search now want to gaming. We are rapidly executing on our ambition to be the first choice for people to play greatade games whenever however, and wherever they want.

Microsoft Cloud revenue was $28 5 billion and grew 22% at 5% in constant currency slightly ahead of expectations, Microsoft cloud gross margin percentage increased roughly two points year over year to 72% we are.

<unk> and I encourage you to tune in.

Ahead of expectations, driven by cloud engineering efficiencies, excluding the impact of the change in accounting estimate of lives Microsoft cloud gross margin percentage decreased slightly driven by lower as our margin.

Not be more energized about the opportunities ahead and with that let me turn it over to Amy.

Thank you Satya and good afternoon, everyone.

Third quarter revenue was $52 9 billion up 7% and 10% in constant currency earnings per share was $2 45, and increased 10% and 14% in constant currency.

Speaker 5: We set third quarter records for monthly active users and monthly active devices across our content and services business. We are delivering on our commitment to offer gamers more ways to experience the games they love. Our revenue from subscriptions reached nearly $1 billion this quarter. This quarter we also brought PC game PAS to fourty new countries, nearly doubling the number of markets we are available.

Company gross margin dollars increased 9% and 13% in constant currency, including two points due to the change in accounting estimate gross margin percentage increased year over year to 69%.

Our results exceeded expectations driven by focused execution from our sales teams and partners in our commercial business revenue was up 19% in constant currency.

The impact of a change in accounting estimate gross margin percentage decreased slightly driven by a lower mix of OEM revenue.

Operating expense increased 7% and 9% in constant currency about $300 million lower than expected operating expense growth is driven by roughly two points from the nuances Andrew acquisition as well as investments in cloud engineering and Linkedin.

Speaker 5: Great content remains the fly wheel behind our growth. We have nowounced thesurpast five million lifetime unique users across our first party titles and have never been more excited about our pipeline of gains, including the fourth quarter launches of Minecraft, legend and redfall.

At a total company level head count at the end of March was 9% higher than a year ago.

Speaker 5: In closing, we are focused on continuing to raise the bar on our operational excellence and performance as we innovate to help our customers maximize the value of their existing technology investments and thrive in the new era of AI. In a few weeks time, we'll hold our build conference, where we will share how we are building the most powerful I platform for developers, and I encourage you to tune in.

Sure.

And Azure.

<unk> continued to exercise, some caution and optimization and new workload trends from the prior quarter continued as expected.

Operating income increased 10% and 15% in constant currency, including four points due to the change in accounting estimate operating margins increased roughly one point year over year to 42% <unk>.

In our consumer business PC demand was a bit better than we expected, particularly in the commercial segment, which benefited windows OEM surface, even as channel inventory levels remain elevated.

Excluding the impact of the change in accounting estimate operating margins decreased slightly increased slightly in constant currency.

Speaker 4: I could not be more energized about the opportunities ahead, and with that let me turn it over to Amy.

Now to our segment results.

Tivoli impacted results.

From productivity and business processes was $17 5 billion and grew 11% and 15% in constant currency ahead of expectations, primarily driven by better than expected results in office commercial office commercial revenue grew 13% and 17% in constant currency office 365 commercial revenue in fiscal <unk>.

<unk> spend and in line with our expectations.

Speaker 4: Thank you, saapia ended. Good afternoon everyone. Our third quarter revenue was $62.9 billion of 7% and 10% in constant currency. Earnings per share was $2 in 45 cent and increased 10% and 14% in constant currency. Our results exceed expectations, driven by focused execution from our sales teams and partners, and our commercial business revenue of 19% in constant currency.

We have seen share gains in Azure dynamics teens security edge and bank.

We continue to focus on delivering high value as well as new innovative solutions to our customers, including next generation AI capabilities.

14% and 18% in constant currency slightly better than expected with a strong renewal execution mentioned earlier and <unk> momentum.

Speaker 4: We felt better than expected. Renewal strength, including across Microsoft 365, which also benefited Windows commercial, given the higher end period revenue recognition and office 3: 65 stand-alone products with saw improvement in new business growth, while growth trends and emms and Windows commercial stand-alone products remain consistent with Q2.

Paid office 365 commercial seats grew 11% year over year to over $382 million with installed base expansion across all workloads and customer segments.

Better than expected result was driven by strong execution across our renewable sales motions mentioned earlier.

Growth was again, driven by our small and medium business and frontline book our offering.

Office commercial licensing declined 1% and increased 5% in constant currency better than expected with 11 points of benefit from transactional strength in Japan.

Speaker 4: In Azure, customers continued to exercise some caution as optimization and new workload trends from the prior quarter continued as expected.

Office consumer revenue increased 1% and 4% in constant currency with continued momentum in Microsoft 365, subscriptions, which grew 12% to $65 4 million.

This quarter, our annuity mix was again, 96%.

Speaker 4: In our consumer business. Ptc demand was a bit better than we expected, particularly in the commercial segment, which benefited when's OEM and surface, even as channel inventory levels remain elevated, which negatively impacted results.

FX impact on total company revenue segment level revenue and operating expense growth was as expected FX decreased cogs growth by two points, one favorable expectations micra.

Revenue increased 8% and 10% in constant currency driven by growth in talent solutions.

<unk> revenue grew 17% and 21% in constant currency, driven by dynamics, 365, which grew 25% and 9% in constant currency with healthy growth across all workloads.

Speaker 4: Advertising spend landed in line with our expectations.

The Microsoft Cloud revenue was $28 5 billion and grew 22% to 25% in constant currency slightly ahead of expectations, Microsoft cloud gross margin percentage increased roughly two points year over year to 72% were.

Speaker 4: We have seen share gains and Azure dynamics, teenss security edge and Bing as we continue to focus on delivering high value as well as new innovative solutions to our customers, including next-generation AI capabilitiescommercial bookings increased 11% and 12% in costant currency on a strong prior year, comparable with a declining x-free base and three points of unfavorable impacts from the inclusion nuanceced in the prior year.

Segment gross margin dollars increased 14% to 18% in constant currency and gross margin percentage increased roughly two points year over year, excluding the impact of the change in accounting estimate gross margin percentage increased slightly driven by improvements in office 365, partially offset by sales mix shift to cloud offerings.

Company gross margin dollars increased 9% and 13% in constant currency, including two points due to the change in accounting estimate gross margin percentage increase year over year to 69%.

Speaker 4: The better than expected result was driven by strong execution across our renewal sales motions mentioned earlier.

Operating expenses increased 4% and 5% in constant currency and operating income increased 20% and 27% in constant currency, including four points in the change in accounting estimate.

Speaker 4: Commercial remaining performance obligation increased 26% to $196 billion. Roughly 45% will be recognized in revenue in the next 12 months of 18% year-over-year. The remaining portion was we recognized beyond the next 12 months, increased 34% and this quarter our nuity mix was again 96 percentand.

The impact of a change in accounting estimate gross margin percentage decreased slightly driven by a lower mix of OEM revenue.

Next the intelligent cloud segment.

Revenue was $22 1 billion, increasing 16% and 19% in constant currency slightly ahead of expectations overall server products and cloud services revenue increased 17% and 21% in constant currency Azure cloud services revenue grew 27% and 31% in concert.

Operating expense increased 7% and 9% in constant currency at about $300 million lower than expected.

Waiting expense growth was driven by roughly two points from the nuances Andrew acquisitions as well as investments in cloud engineering and Linkedin.

Speaker 4: Fx impact on total company revenue. Segment level revenue and operating expense growth was as expected. Fx decreased coods growth by two pointints. One point: favorable expectations.

At a total company level head count at the end of March was 9% higher than a year ago.

Currency.

User business enterprise mobility, and security installed base grew 15% to nearly $250 million.

Operating income increased 10% and 15% constant currency, including four points due to the change in accounting estimate operating margins increased roughly one point per year to 42%.

Speaker 4: Microsoft cloud revenue was $28.5 billion, grew 22% - twenty-fivetwo percent in constant currency, slightly ahead of expectations. Microsoft cloud gross margin percentage increased roughly two points year-over-year to 72% point ahead of expectations, driven by cloud engineering efficiencies, including the impact of the change in accounting estimate creis lives.

In our on premises server business revenue decreased 2% and was relatively unchanged in constant currency with continued demand for our hybrid offerings, including Windows server and sequel server running in multi cloud environments offset by transactional licensing.

<unk> the impact of the change in accounting estimate operating margins decreased slightly increased slightly in constant currency.

Now to our segment results.

Enterprise services revenue grew 6% to 9% in constant currency with better than expected performance across the enterprise support services and Microsoft consulting services.

Revenue from productivity and business processes was $17 5 billion and grew 11% and 15% in constant currency ahead of expectations, primarily driven by better than expected results in office commercial office commercial revenue grew 13% and 17% in constant currency.

Speaker 4: Microsoft cloud gross margin percentage decreased slightly, driven by lower AZ ure margin. Company gross margin dollars increased 9% and 13% in constant currency, including two points due to change in accounting estimate. Gross margin percentage increasedyear-over-year to sixty 9%, including the impact of the change. Accounting estimate gross margin percentage decreased slightly, driven by a lower mix of OEM revenue.

Segment gross margin dollars increased 15% and 18% in constant currency and gross margin percentage decreased slightly excluding the impact of the change in accounting estimate gross margin percentage declined roughly three points driven by sales mix shift to azure and the lower Azure margin earlier.

365, commercial revenue increased 14% and 18% in constant currency slightly better than expected with the strong renewal execution mentioned earlier and <unk> momentum.

Operating expenses increased 19% and 20% in constant currency, including roughly three points of impact the nuance acquisition.

Speaker 4: Operating expense increased 7% and 9% in constant currency, about $3 million lower than expected. Operating expense growth was driven by roughly two points from a nuance and vandor acquisitions, as well as investments in cloud engineering and link in. At a total company level, headcount at the end of March was 9% higher than a year ago.

Paid office 365 commercial seats grew 11% year over year to over $382 million with installed base expansion across all workloads and customer segments.

Our net income grew 13% and 17% in constant currency with roughly six points from the change in accounting estimate.

Growth was again, driven by our small and medium business and frontline book our offering.

Now to more personal computing revenue was $13 3 billion decreasing 9% and 7% in constant currency with better than expected results across all businesses.

Office commercial licensing declined 1% and increased 5% in constant currency better than expected with 11 points of benefit from transactional strength in Japan.

Speaker 4: Operating income increased 10% and fifteenen percent in constant currency, including four points. Due to the change in accounting estimate, operating margins increased ruckily one point year over year to fourty 2%. Excluding the impact of the change in accounting estimates, operating margins decreased slightly and increased slightly in constant currency.

Windows OEM revenue decreased 28% year over year and devices revenue decreased 30% and 26% in constant currency both ahead of expectations.

Office consumer revenue increased 1% and 4% in constant currency with continued momentum in Microsoft 365, subscriptions, which grew 12% to $65 4 million.

We saw better than expected PC demand as noted earlier, particularly in the commercial segment, which has higher revenue per license.

<unk> revenue increased 8% and 10% in constant currency driven by growth in talent solutions.

Speaker 4: Now to our segment results. Revenue from productivity and business processes was sevente $5 million in grew, 11% and 15% in constant currency, ahead of expectations, primarily driven by better than expected results in office commercial. Office commercial revenue grew 13% and 17% in constant currency. Office 65 commercial revenue increased 14% and 18% in constant currency, slightly better than expected, with the strong renewal execution mentioned earlier and e five momentum.

Although results continue to be negatively impacted by elevated channel inventory levels.

<unk> revenue grew 17% and 21% in constant currency, driven by dynamics, 365, which grew 25% and 9% in constant currency with healthy growth across all workloads.

Windows commercial products and cloud services revenue increased 14% and 18% in constant currency significantly ahead of expectations, primarily due to the strong renewal execution with higher input that women emission noted earlier.

Search and news advertising revenue ex Tac increased 10% and 13% in constant currency, including two points from the <unk> acquisition.

Else were driven by higher search volume with share gains again, this quarter for our edge browser globally and being in the U S.

Speaker 4: Paid office 3, 65 commercial seat screw 11% year-over-year to over three hundred and eighty-two million was installed bas expansion across all workloads and customer segments. Seat growth was again driven by our small and beedum business and front F worker offering.

Operating expenses increased 4% and 5% in constant currency and operating income increased 20% and 27% in constant currency, including four points in the change in accounting estimate.

And in gaming revenue declined 4% and 1% in constant currency ahead of expectations, Xbox hardware revenue declined 30% and 28% in constant currency on a high prior year comparable that benefited from increased console supply Xbox content and services revenue increased 3% and 5% in constant currency.

Next the intelligent cloud segment.

Speaker 4: alk's commercial licensing declined 1% and increased 5% in constant currency, better than expected, with 11 points of benefits from transactional strength in Japan.

<unk> driven by better than expected monetization and third party and first party content and growth in Xbox and path.

Speaker 4: Off consumer revenue increased 1% and 4% in constant currency, with continued momentum in Microsoft 3: 65 subscriptions, which gre 12% to 65 point four million linked in revenue, increased 8% and 10% in constant currency, driven by growth in talent solutions.

Segment gross margin dollars declined, 9% and 5% in constant currency and gross margin percentage increased slightly year over year operating expenses declined 5% and 3% in constant currency, even with three points of growth from the <unk> acquisition operating income decreased 12% and 7% in constant currency now.

Currency.

User business enterprise mobility, and security installed base grew 15% to nearly $250 million.

Speaker 4: Dynamics revenue grew 17% and 21% in constant currency, driven by dynamics three and 65, which was 25% in 29% in constant currency, with healthy growth across all workloads.

In our on premises server business revenue decreased 2% and was relatively unchanged in constant currency with continued demand for our hybrid offerings, including Windows server and peoples server running in multi cloud environments offset by transactional licensing.

At the total company results.

Capital expenditures, including finance leases were $7 8 billion to support cloud demand cash paid for PP&E was $6 6 million.

Speaker 4: Segment gross margin dollars increased 14% in 18% in constant currency and gross margin percentage increased rly two point year -over-year, including the impact of the change in accounting estimates. Gross margin percentage increased slightly driven by improvement in office 3: 65, partially offset by sales mix. Shift to cloud offerings. Operating expenses increased 4% and 5% in constant currency and operating income increased 20% in 20- seven percent stant currency, including four points due to the change in accounting estimates.

Enterprise services revenue grew 6% to 9% in constant currency with better than expected performance across the enterprise support services and Microsoft consulting services.

Cash flow from operations was $24 4 billion.

Down 4% year over year.

Our strong cloud billings and collections as well as lower supplier payments were more than offset by a tax payment related to the R&D capitalization provision and employee payments primarily related to head count growth and an increase in employee compensation.

Speaker 4: Next, the intelligent cloud segment: revenue was 20- two point one million dollars, increasing 16% and 19% in constant currency, slightly ahead of expectations. Overall, several products and cloud services revenue increased seventeteen percent in 20- one percent in constant currency. Az ure and other cloud services revenue from 20- seven percent and 31% in constant currency in our cur user business, enterprise mobility and security installed base grou: 15% to nearly 25 million feets.

Free cash flow was $17 $8 billion down 11% year over year, excluding the impact of this tax payment cash flow from operations increased 1% and free cash flow declined 5%.

Operating expenses increased 19% and 20% in constant currency, including roughly three points of impact the nuance acquisition.

This quarter other income and expense of $321 million higher than anticipated driven by net gains on foreign currency Remeasurement, our effective tax rate was approximately 19%.

Our net income grew 13% and 17% in constant currency with roughly six points from the change in accounting estimate.

Now to more personal computing revenue was $13 $3 billion decreased to 9% and 7% in constant currency with better than expected results across all businesses.

And finally, we returned $9 $7 million to shareholders through share repurchases and dividends.

Now moving to our Q4 outlook.

Windows OEM revenue decreased 28% year over year and devices revenue decreased 30% and 26% in constant currency both ahead of expectations.

Unless specifically noted otherwise is on a U S dollar basis.

Speaker 4: In our on-premises server business revenue decreased 2% and, with relatively unchanged in constant currency, the continued demand for our hybrid offerings, including Windows server and sequel server running and multticloud environments, offset by transactional licensing.

My commentary for <unk>.

Quarter in FY 'twenty four does not include any impact from acquisition as we continue to work towards closing in fiscal year 2023 subject to obtaining required regulatory approvals.

We saw better than expected PC demand as noted earlier, particularly in the commercial segment, which has higher revenue per license. Although results continue to be negatively impacted by elevated channel inventory levels.

Speaker 4: Enterprise services revenue was 6% in 9% in constant currency was better than expected performance across the price support services and Microsoft' consulting services segment. Gross margin dollars increased 15% and 18% in constant currency and gross margin percentage decreased slightly, including the impact of the change in accounting estimate. Gross margin percentage declined rusly three points driven by sales mix shift to Azure and the lower AZ ure margin moed earlier.

Now the FX.

Based on current rates, we expect FX to decrease total revenue growth by approximately two points with no impact Cogs, our operating expense growth within the segment, we anticipate roughly two points of negative FX impact on revenue growth in productivity and business processes.

And intelligent cloud and roughly one point in more personal computing.

Search and news advertising revenue ex Tac increased 10% and 13% in constant currency, including two points from the <unk> acquisition results were driven by higher search volume with share gains again this quarter for edge browser globally and being in the U S and in gaming revenue declined 4% and 1% in constant currency ahead of <unk>.

Overall.

Our outlook has many of the trends we saw in Q3 continue through Q4.

Speaker 4: Operating expenses increased 19% and 20% in constant currency, including roughly three points of impact from the Nuance acquisition. Operating income was 13% in 17% in constant currency, with roughly six points from the change in accounting estimates.

In our largest quarter of year.

Customer demand for our differentiated solutions, including our AI platform and consistent execution across the Microsoft cloud to drive another quarter of healthy revenue growth.

Spectation Xbox hardware revenue declined, 30% and 28% in constant currency on a high prior year comparable that benefited from increased console supply Xbox content and services revenue increased 3% and 5% in constant currency driven by better than expected monetization and third party and first party content.

Speaker 4: Now to more personal computing. Revenue was $13.3 billion, decreasing 9% and 7% in constant currency, with better than expected results across.

Last year, we had.

Our largest commercial bookings quarter ever with a material volume of large multiyear commitments.

Speaker 6: All businesses.

Speaker 4: Windows OEM revenue decreased 28% year-over-year and devices revenue decreased 30% and 26% in constant currency, both ahead of expectations.

On that comparable we expect growth to be relatively flat, we expect consistent execution across our core annuity sales motions with strong renewals and continued commitments to our platform as we focus on meeting customers' changing contract.

And growth in Xbox impact.

Segment gross margin dollars declined, 9% and 5% in constant currency and gross margin percentage increased slightly year over year.

Speaker 4: We saw better-than-expected PC demand as moed earlier, particularly in the commercial segment, which has higher revenuue per license, although results continue to be negatively impacted by elevated channel inventories levels.

Which includes shorter term quick time to value contracts in this dynamic environment, our key focus remains on delivering customer value.

Operating expenses declined 5% and 3% in constant currency, even with three points of growth from US Andrew acquisition operating income decreased 12% and 7% in constant currency.

Speaker 4: windothose commercial products. Cloud services revenue increased 14% in 18% in conpstant currency, significantly ahead of expectations, primarily due to the strong renewal execution, the higher in paragraph re new re emission noted earlier.

Microsoft Cloud gross margin percentage should be up roughly two points year over year, driven by the accounting estimate change noted earlier, excluding that impact Q4 cloud gross margin percentage will be relatively flat as improvements in office 365 will offset lower asset margin and the impact of scaling our AI.

Now back to total company yourself.

Yes.

Capital expenditures, including finance leases were $7 8 billion to support cloud demand cash paid for PP&E was $6 6 billion.

Speaker 4: Search and news advertising revenue. attx increased 10% and 13% in constant currency, including two points from xander. Acquisition results were driven by higher research volume, with share gains- again this quarter of our edge browser globally and being in the? U's and gaming revenue declined 4% and 1% in constant currency, ahead of expectations. Xbox hardware revenue declined 30% and 28% in constant currency on a high prior year comparable.

Cash flow from operations was $24 4 billion.

Down 4% year over year.

Restructure to meet growing demand.

And strong cloud billings and collections as well as lower supplier payments were more than offset by a tax payment related to the R&D capitalization provision and employee payments primarily related to head count growth and an increase in employee compensation.

We expect capital expenditures to have a material sequential increase on a dollar basis driven by investments in Azure AI infrastructure.

Under there can be normal quarterly spend variability and the timing of our cloud infrastructure build out.

Next the segment guidance.

Free cash flow was $17 $8 billion down 11% year over year, excluding the impact of this tax payment cash flow from operations increased 1% and free cash flow declined 5%.

Speaker 4: That benefited from increased console supply. Xbox content and services revenue increased 3% and 5% in constant currency, driven by better than expected monetization and third party and first party content and Board in Xbox. The impact.

In productivity and business processes, we expect revenue to grow between 10, and 12% in constant currency or 17, 9% to $18 2 billion U S dollars and office commercial revenue growth will again be driven by office 365 seat growth across customer segments and growth through <unk> five.

This quarter at our.

Income and expense of $321 million higher than anticipated driven by net gains on foreign currency re measurement of our effective tax rate was approximately 19%.

Speaker 4: Segment gross margin dollars declined 9% and 5% in constant currency and gross margin percentage increased slightly year-over-year operating expenses declined 5% and 3% in constant currency. Even with three points of growth from the Vander acquisition, operating income decreased 12% and 7% in constant currency. Now back to total results.

We expect office 365 revenue growth to be roughly 16% in constant currency and our on premise business, we expect revenue to decline in the low <unk>.

And finally, we return.

$9 $7 billion to shareholders through share repurchases and dividends.

Now moving to our Q4 outlook.

This consumer we expect revenue growth in the mid single digits, driven by Microsoft 365 subscription or the <unk> 10 is that mid single digit revenue growth driven by talent solutions with continued strong engagement on the platform and in dynamics, we expect revenue growth in the mid to high teens driven by continued growth in dynamics three.

Unless specifically noted otherwise is on a U S dollar basis.

My commentary for the next quarter in FY 'twenty four does not include any impact from acquisition as we continue to work towards closing in fiscal year 2023 subject to obtaining required regulatory approvals.

Speaker 4: ccapital expenditures, including finance leases, were $7.8 billion to support to cloud demand. Cash paid for P with $6.6 billion. Cash flow operations was $24.4 billion, down 4% year-over-year, as strong cloud billings and collections, as well as lower supplier payments, were more than offset by a tax payment related to the rnd capitalization provision and employee payments primarily related to headcount growth and an increase in employee compensation.

65 for.

Now FX based.

For intelligent cloud, we expect revenue to grow between 15, and 16% in constant currency or 23, 6% to $23 9 billion U S dollars.

On current rates, we expect FX to decrease total revenue growth by approximately two points with no impact Cogs, our operating expense growth within this segment, we anticipate roughly two points of negative FX impact on revenue growth in productivity and business processes.

Revenue will continue to be driven by Azure, which as a reminder, can have quarterly variability primarily from our per user business and from in period revenue recognition, depending on the mix of contracts.

Speaker 4: Free cash flow was $17.8 billion, down 11% year-over-year. Excluding the impact of this tax payment, cash flow operations increased 1% and free cash flow declined 5%.

And intelligent cloud and roughly one point in more personal computing.

Overall.

Our outlook has many of the trends we saw in Q3 continue through Q4.

And Azure fixed.

We expect revenue growth to be 26% to 27% in constant currency, including roughly one point from AI services growth continues to be driven by our azure consumption business and we expect the trends from Q3 to continue into Q4 as noted earlier.

In our largest quarter of year.

Customer demand for our differentiated solutions, including our AI platform and consistent execution across the Microsoft cloud to drive another quarter of healthy revenue growth.

Speaker 4: This quarter, other income and expense was $321 million higher than anticipated, driven by net gains on foreign currency. Remeasurement barfect tax rate was approximately 19% and finally, we returned $9.7 million to shareholders through share repurchases and dividends.

Our per user business should continue to benefit from Microsoft 365 suite momentum, though we expect continued moderation in growth rates given the size of the installed base and our <unk>.

Last year, we had.

Our largest commercial bookings quarter ever with a material volume of large multiyear commitments.

Speaker 4: Now moving to our Q4 outlook which, unless specifically noted otherwise, is on a? U's dollar basis.

On premises server business, we expect revenue to decline low single digits as demand for our hybrid solutions, including Windows server and sequel server running in multi cloud environments will be more than offset by unfavorable FX impact and enterprise services.

Speaker 4: My commentary for the next quarter in FY and 24 does not include any impact from acquisition as we continue to work toward closing in fiscal year 2023, subject to obtaining required regulatory approvals. Now to FX.

Needs to be relatively unchanged year over year as growth in enterprise support services will be offset by a decline in Microsoft consulting services and more.

Which includes shorter term quick time to value contracts in this dynamic environment, our key focus remains on delivering customer value.

Personal computing, we expect revenue of $13 three 5% to $13 75 billion U S.

Speaker 7: Based on current rates, we expect FX to decrease total revenue growth by approximately two points with no impact to COGS or operating expense growth within segments. We anticipate roughly two points of negative FX impact on revenue growth in productivity and business processes and intelligent cloud and roughly one popoint and more personal computing.

<unk>.

PC demand should be similar to Q3 and given channel inventories still remains elevated our revenue will lag the overall market growth as it continues to normalize therefore, when does the OEM and devices revenue should both declined in the low to mid twenties and windows commercial products and cloud services revenue declined low to mid single.

Speaker 4: Overall our outlook have many of the trends we saw in Q3 continue through Q4, in our largest quarter of year. We expect customer demand for our differentiated solutions, including our AI platform and consistent execution across the Microsoft cloud, to drive another quarter of healthy revue growth.

Infrastructure to meet growing demand.

We expect capital expenditures to have a material sequential increase on a dollar basis driven by investments in Azure AI infrastructure.

Digits, while we expect healthy annuity billings growth driven by continued customer demand for Microsoft 365, and our advanced Security solutions. A reminder, that our quarterly revenue growth can have variability primarily from in period revenue recognition, depending on the mix of contracts.

Under there can be normal quarterly spend variability and the timing of our cloud infrastructure build out.

Next the segment guidance.

Such a news advertising ex Tac revenue growth should be approximately 10% roughly five points higher than the overall search and news advertising revenue driven by growth in first party revenue similar to Q3.

Speaker 4: Last year we had our largest commercial bookings quarter ever, with a material volume of large multiyear commitments. On that comparable, we expect growth to be relatively flat. We expect consistent execution across our core and uity sales motions with strong renewals and continued commitments to our platform as we focus on meeting customers' changing contract aid, which include shorter-term quick, time-to-value contracts.

And in gaming, we expect revenue growth in the mid to high single digits, We expect Xbox content services revenue growth in the low to mid teens, driven by third party and first party content as well as Xbox game pass.

We expect office 365 revenue growth to be roughly 16% in constant currency and our on premise business, we expect revenue to decline in the low thirties.

Speaker 8: In this dynamic environment, our key focus remains on delivering customer value.

Now back to company guidance.

In office consumer we expect revenue growth in the mid single digits, driven by Microsoft 365 subscription or the <unk> 10 is that mid single digit revenue growth driven by talent solutions with continued strong engagement on the platform and in dynamics.

Cogs to grow between three and 4% in constant currency or $16 8 million to $17 billion U S dollars and operating expense to grow approximately 2% in constant currency of $15 one to $15 2 billion.

Speaker 4: Microsoft cloud gross margin percentage should be up roughly two points year-over-year driven by the accounting estimate change noted earlier. Excluding that impact, Q4 cloud gross margin percentage will be relatively flat as improvements in Office 365 will offset the lower Azure margin and the impact of scaling our AI infrastructure to meet growing demand.

Revenue growth in the mid to high teens, driven by continued growth in dynamics 365.

Other income and expense to be roughly $300 million of interest income is expected to more than offset interest expense. As a reminder, they are required to recognize mark to market gains or losses on our equity portfolio, which can increase quarterly volatility.

For intelligent cloud, we expect revenue to grow between 15, and 16% in constant currency or 23, 6% to $23 9 billion U S dollars.

Speaker 4: We expect capital expenditures to have a material sequential increase on a dollar basis, driven by investments in Azure AI infrastructure. Reminder: there can be normal quarterly spend variability and the timing of our cloud infrastructure build-out. Next, the segment guidance.

We expect our Q4 effective tax rate to be in line with our full year rate of approximately 19%.

And finally.

As a reminder for Q4 cash flow.

To make a $1 $3 billion cash tax payment related to the R&D capitalization provision.

Speaker 4: Productivity and business processes. We expect revenue to grow between 10 and 12% in constant currency, or 17.9 to 8- 18.2 billion U's dollars in office. Commercial revenue growth will again be driven of our office 3: 65 the seek growth across customer segments and arc the growth.

And Azure.

Now I'd like to share some closing thoughts as we look to the next fiscal year.

So our leadership position as we begin this AI era, we remain focused on strategically managing the company to deliver differentiated customer value.

Speaker 9: twent E five.

Our per user business should continue to benefit from Microsoft 365 suite momentum, though we expect continued moderation in growth rates given the size of the installed base and our <unk>.

Well as long term financial growth and profitability.

Speaker 4: We expect Office 365 revenue growth to be roughly 16% in constant currency. In our on-premises business we expect revenue decline in the low thirtycent.

As with any significant platform shift it starts with innovation.

And we are excited about the early feedback and demand signal for the AI capabilities, we've announced to date.

On premises server business, we expect revenue to decline low single digits as demand for our hybrid solutions, including Windows server and sequel server running a multi cloud environment will be more than offset by unfavorable FX impact and.

Speaker 4: And office consumer. We expect revenue growth in the mid-single digit driven by Microsoft for 65 subscription.

We'll continue to invest in our cloud infrastructure, particularly AI related spend.

Speaker 8: Or then we expect mid single-dig direrevenue growth driven by talent solutions, with continued strong engagement on the platform and in dynamics. We expect revenue growth in the mid- to high teens driven by continued growth in dynamics.

We scale with the growing demand driven by customer transformation and.

In enterprise services.

And we expect the resulting revenue to grow over time.

Revenues to be relatively unchanged year over year in growth enterprise support services will be offset by a decline in Microsoft consulting services and more personal computing, we expect revenue of $13 three 5% to $13 75 billion U S dollars.

As always.

Speaker 9: Three hundred and sixty five.

We remain committed to aligning cost and revenue growth to deliver disciplined profitability.

Speaker 4: For intelligent cloud expect revenue to grow between 15 and 16% in constant currency, or 23.6 to 23.9 billion U's dollars. Revenue will continue to be driven by AZ which, as a reminder, can have quarterly variability, primarily from our user business and from in period revenue recognition, depending on the mix of contracts.

Therefore.

While the scaled capex investments will impact Cogs growth.

PC demand should be similar to Q3 and given channel inventories still remains elevated our revenue will lag overall market growth as it continues to normalize therefore, when does the OEM and devices revenue should both declined in the low to mid twenties and windows commercial products and cloud services fabrication declined low to me.

Expect FY 'twenty for operating expense growth to remain low.

As a team.

We are continually focused on pivoting our resources aggressively to the future.

As we execute at a high level in the moment to deliver value to our customers.

Speaker 4: In Azure. We expect rev the growth to be 26% to twenty-y-seven percent in constant currency, including roughly one point per AI. Services growth continues to be driven by our Azure consumption business and we expect the trends from Q3 to continue into Q4. As noted earlier, our per user business should continue to benefit from Microsoft three hundred and sixty-five ssuite momentum, though we expect continued moderation and growth rate given the size of the installed base.

That balance has enabled the company to successfully lead across a number of platform shifts over a number of decades.

Mid single digits, while we expect healthy annuity billings growth driven by continued customer demand for Microsoft 365, and our advanced Security solutions. A reminder, that our quarterly revenue growth can have variability primarily from in period revenue recognition, depending on the mix of contracts.

Therefore, we are committed to leading the AI platform wave and making the investments to support it with.

Such a news advertising ex Tac revenue growth should be approximately 10%.

With that let's go to Q&A Brett.

Thanks, Amy we'll now move over to Q&A out of respect for others on the call. We request that participants. Please only ask one question Joe.

Five points higher than the overall search and news advertising revenue driven by growth in first party revenue similar to Q3.

Speaker 4: In our on-premise server business. We expect revenuue to decline low single digits as demand for our hybrid solutions, including window server and peopleel server running a multi-cloud environment, will be more than offset by unfavorable FX impact and enterprise services revenues to be relatively unchanged year-over-year and growth in enterprise support services will be offset by a decline in Microsoft consulting services in more personal computing.

Joe can you please repeat your instructions.

And in gaming, we expect revenue growth in the mid to high single digits.

Yes.

Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue. You May Press Star two if you would like to remove your question from the queue.

Xbox content and services revenue growth in the low to mid teens, driven by third party and first party content as well as Xbox game pass.

Now back to company guidance.

Expect cogs to grow between three and 4% in constant currency or $16 8 billion to $17 billion U S dollars and operating expenses to grow approximately 2% in constant currency or $15, one to $15 $2 billion.

For participants using speaker equipment that may be necessary to pick up your handset before pressing the star keys.

Speaker 4: We expect revenue of 13 to 13.75 billion U's dollars.

One moment, please while we poll for questions.

Speaker 10: Pc demand should be similar to Q3 and, given channel inventoryries still remains elevated, our revenue will lag overall market growth as it continues to normalize. Therefore, when the OEM and devices revenue should both declineed in the low to mid- 20 and when those commercial products and cloud services revenution should decline low to idsingle digits while we expect healthy annuity billings growth driven by continued customer demand for Microsoft three hundred and sixty-five and our advanced security solutions.

Our first question comes from the line of Keith Weiss with Morgan Stanley. Please proceed.

Excellent. Thank you guys for taking the question and congratulations on really a fantastic set of results and what we all know to be still difficult environment out there.

It really illustrates Microsoft and bandages and often a lot of these technology innovations that you guys have been talking about.

We expect our Q4 effective tax rate to be in line with our full year rate of approximately 19%.

Speaker 8: Our reminder that our quarterly revenue growth and have variability primarily from inperiod revenue recognition depending on the mix of contracts.

Wanted to ask you your question that I get probably more often than anything else and one that I frankly don't have a good answer too and that's around the open AI partnership and particularly the accounting for that partnership. So I was hoping you could give us a little bit of color about how.

And finally.

As a reminder for Q4 cash flow.

To make a $1 $3 billion cash tax payment related to the R&D capitalization provision.

Speaker 4: Search of news advertising, xtech revenue growth should be approximately 10%, roughly five points higher than the overall search and news advertising revenue driven by growth in first-party revenue is similar to Q3 and in gaming, expect revenue growth in the mid- to high single digits. Expect Xbox content services revenue growth in the lowad to mid-teens, driven by third-party and first-party content, as well as Xbox game pass.

Now I'd like to share some closing thoughts as we look to the next fiscal year.

Now whether or not revenues flowing from it.

So our leadership position as we begin this AI era, we remain focused on strategically managing the company to deliver a differentiated customer value.

And from Microsoft.

On the Capex side of the equation, whether there's any impact just could you give us a better understanding of how to do something around that relationship is working.

Well as long term financial growth and profitability.

Thanks Keith.

In some ways, let me, let me start by saying.

As with any significant platform shift it starts with innovation.

It's a great partnership we are proud to have worked together for a number of years.

And we are excited about the early feedback and demand signal for the AI capabilities, we've announced to date.

Speaker 4: Now back to company guidance.

Speaker 4: Expect tos to grow between three ill and 4% in constant currency, or 16.8 cent to 17 billion U's dollars, and operating expense to grow approximately 2% in constant currency, or 15.1 to fifteen point two billion U's dollars.

Leading to some of the announcements that you've heard us make more recently.

We'll continue to invest in our cloud infrastructure, particularly AI related spend.

And we talked about the foundation of our partnership campaigns that when we both are successful the.

We scale with the growing demand driven by customer transformation and.

And we expect the resulting revenue to grow overtime.

The other benefit.

Speaker 4: Other income expense could be roughly as $3 million of interest income is expected to more than offset interest expense. As a reminder, they're required to recognize mark-to-market gains or losses on our equity portfolio, which can increase quarterly volatility.

When we grow and help them and when they grow and helped us.

As always.

We remain committed to aligning cost and revenue growth to deliver disciplined profitability.

Specifically to your question on how does it show up.

Easiest.

Therefore.

In this situation.

While the scaled capex investments will impact Cogs growth.

Do you think about them with a customer of ours like any other customer who would use.

Speaker 8: We expect our Q4 effective tax rate to be in line with our full year rate of approximately 19%, and.

Expect FY 'twenty for operating expense growth to remain low.

Speaker 4: And finally, as a reminder for Q4 cash flow, we expect to make a $1.3 billion cash tax payment related to the rnd capitalization provision.

The azure infrastructure in our Azure AI services.

As a team.

We are continually focused on pivoting our resources aggressively to the future.

In service are supporting their end customers.

As we execute at a high level in the moment to deliver value to our customers.

So when they do that like any other customer who has a commercial relationship with us.

Speaker 4: Now I'd like to share some closing thoughts as we look to the next fiscal year.

That balance has enabled the company to successfully lead across a number of platform shifts over a number of decades.

We recognized revenue.

On that behalf, that's probably the simplest frame keys that I hope that's helpful.

Speaker 4: With our leadership position as we begin this aiera. We remain focused on strategically managing the company to deliver differentiated customer value as well as long-term financial growth and profitability.

Yes, that's super helpful. I appreciate that.

Therefore, we are committed to leading the AI platform wave and making investments to support it with.

Thanks, Keith Joe next question. Please.

Our next question comes from the line of Mark <unk> with Bernstein Research. Please proceed.

With that let's go to Q&A Brett.

Speaker 4: As with any significant platform shift, it starts with innovation.

Thanks, Amy we'll now move over to Q&A out of respect for others on the call. We request that participants. Please only ask one question Joe.

Congratulations on the quarter and the guidance and thanks for taking my question.

Speaker 4: And we're excited about the early feedback and demand signal for the AI capabilities we have announced to date.

I'd like to drill into Azure and more specifically azure Ias past consumption.

Joe can you please repeat your instructions.

Speaker 8: We will continue to invest in our CL infrastructure, particularly AI-related spend, as we scale with the growing demand driven by customer transformation, and we expect the resulting revenue to grow over time.

Paas consumption has really stepped down recently and it's important to understand the macro versus macro and optimization that will readout, whether it's going to rebound quickly or is there a more fundamental issue in other words is this simply purely macro and everyone is stepping back a little bit and they're going to hit the pedal as soon as this comes back.

Yes.

Ladies and gentlemen, if you relate to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is on the question queue. You May Press Star two if you would like to remove your question from the queue.

Speaker 11: As always.

Speaker 8: We remain committed to aligning cost and revenue growth to deliver disciplined profitability. Therefore, while the scaled CapEx investments will impact cood growth, we expect FY 24 operating expense growth to remain low.

For participants using speaker equipment that may be necessary to pick up your handset before pressing the star keys.

Or is there something more fundamental that is drawing driving corporate maybe to step back and that that slowdown could sustain even when the it spending rebounds.

One moment, please while we poll for questions.

Our first question comes from the line of Keith Weiss with Morgan Stanley . Please proceed.

Speaker 12: As a team.

Excellent. Thank you guys for taking the question and congratulations on really a fantastic set of results and what we all know to be still difficult environment out there.

Thanks, Marc for the question, maybe I'll make.

Speaker 4: We have continually focused on pivoting our resources aggressively to the future, as we execute at a high level in the moment to deliver value to our customers.

Three comments.

And it's also important I think.

To distinguish between what I would say backhaul absolute performance and relative performance because I think.

It really illustrates Microsoft advantages and often a lot of these technology innovations that you guys have been talking about.

Speaker 4: That balance has enabled the company to successfully lead across a number of platform shifts over a number of decades.

And that is perhaps a good way to think about how we manage our business first as optimizations.

Let me answer your question that I get probably more often than anything else and one that I frankly don't have a good answer to and thats around the open AI partnership and particularly the accounting for that partnership. So I was hoping you could give us a little bit of color about how.

Speaker 8: Therefore we are committed to leading AI platform wave and making the investments to support it. With that, let's go to QA Bret.

To continue in fact, we are focused on it we incent our people to help our customers with optimization because we believe in the long run that's the best way to secure the loyalty and long term contracts with customers. When they know they can count on a cloud provider like us to help them continuously optum.

Speaker 13: Thanks damie. Will now move over to Q A. out of respect for others on the call, we request that participants please only ask one question. Joe, can you please repeat your instructions?

Now whether or not revenues flowing from it.

And from Microsoft.

On the Capex side of the equation, whether there's any impact just could you give us a better understanding of how to do something around that relationship is working.

There was that sort of the fundamental benefit of public cloud.

Speaker 1: Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad and the confirmation to will indicate your line is on the question Q. you may press star two if you would like to remove your question Form in Q for participants using speaker equipment and may be necessary to pick up your handset before pressing the starkeys.

Every opportunity to prove that out with customers in real time.

Thanks Keith.

In some ways, let me, let me start by saying.

The second thing I'd say is.

It's a great partnership we're proud to have worked together for a number of years.

We do have new workloads stock because if you think about it during the pandemic. It was all about new workloads and scaling workloads, but pre pandemic there was a balance between optimizations and new workloads. So what we're seeing now.

Leading to some of the announcements that you've heard us make more recently.

Speaker 3: one moment. Please will we pull for questions.

And we've talked about the foundation of our partnership campaigns that when we both are successful the.

Speaker 3: Our first question comes from the line of Keith weis with morgden Stanley. Please proceed.

Is the new workload stock. In addition, highly intense optimization driven that we have.

The other benefit.

Speaker 2: So So thank you guys for taking the question that Congratulations on really a fantastics that are results and what we all know to be a still difficult environment out there. Think you really illustrates some Microsoft and bandages and also a lot of the technology indications that you guys have been talking about. I wanted to ask you a question that I get probably more often than anything else and one that I frankly don't have a good answer to, and that's the open AI partnership, in particularly the counting for that partnership.

When we grow and help them and when they grow and helps us.

But.

Perhaps more of a relative statement because some of the work we've done in AI, even in the last couple of quarters. We are now seeing Conor.

Specifically to your question on how does it show up.

Easiest.

In this situation.

Do you think about them with a customer of ours like any other customer who would use.

Invitations, we never had whether it's coming to you and just opening.

If you think about the consumer tech companies that are all spending essentially either meters.

The azure infrastructure in our Azure AI services.

Because they are gone through open AI and are using their API. These were not customers of azure at all.

In service of supporting their customers.

So when they do that like any other customer who has a commercial relationship with us.

Second even Azure open AI API customers are all new and the workload conversations whether it be to see conversations in financial services or drug discovery on or none of the side. These are all new workloads that we really were not in the game in the past where as we know are so those are the three comments I would make multiple times.

We recognize revenue.

Speaker 2: So it's hoping you to give us a little bit of color about how- whether or not revenue flowing from it both AI, Microsoft on the cathpex side equation ther's any fashes- we could give us a better understanding of how be counting around that relationship is working.

On that behalf, that's probably the simplest frame keys that I hope that's helpful.

Yes, that's super helpful. I appreciate that.

Thanks, Keith Joe next question. Please.

Our next question comes from the line of Mark <unk> with Bernstein Research. Please proceed.

Absolute macro but more importantly, I think what is.

Speaker 14: Thanks Keith.

Speaker 8: In some ways, let me, let me start raying.

Congratulations on the quarter and the guidance and thanks for taking my question.

Our relative market position and how it's being changed.

Speaker 8: It's a great partnership. We're proud to work together for a number of years, leading to some of the announcements that you've heard us make more recently and we talked about. The foundation of our partnership contains that when we both are successful, the other benefits. When we grow, it helps them, and when they grow, it helps us.

Maybe one.

I'd like to drill into Azure and more specifically azure Ias past consumption.

I would add to those comments is we.

We've been through.

<unk> Paas consumption has really stepped down recently and it's important to understand the macro versus macro optimization that will readout, whether it's going to rebound quickly or is there a more fundamental issue in other words is this simply purely macro and everyone is stepping back a little bit and they're going to hit the pedal as soon as this comes back.

Almost a year.

Where that pivot that satya talked about from.

We are starting tons of new workloads, we'll call that the pandemic time to this transition post.

Speaker 8: But specifically to your question on how does it show up. You know it's easy to easiest in this situation to think about them with a customer of ours, like any.

And we're coming to really to anniversary of that starting and so the focus point, we're continuing to see that optimization.

Or is there something more fundamental that is drawing driving corporate maybe to step back and that that slowdown can sustain even when the spending rebounds.

But at some point, we're close just can't be optimized.

Speaker 8: Other customer who would use the AZ infrastructure and our AZ a I services in service of supporting their and customers and so when they do that, like any other customer who has a commercial relationship with us, we recognize revenue on that behalf. That's probably with the simplest frame heat that I hope is helpful.

Much further and when you start to anniversary that.

Thanks, Marc for the question, maybe I'll make.

Could you do see that it gets a little bit easier in terms of the comps the comps year over year, and so you didn't see that in a little bit of our guidance.

Three comments.

And it's also important I think.

To distinguish between what I would say backhaul absolute performance and relative performance because I think.

Some of that impact from a year over year basis.

And that is perhaps a good way to think about how we manage our business first as optimizations.

That was incredibly helpful. I really do appreciate it. Thank you for the color and again congratulations on what's happening.

Speaker 2: Yeah that's super helpful. I appreciate that.

To continue in fact, we are focused on it.

Speaker 2: Thanks kei Joe. Next question Please.

Thanks, Mark Joe next question. Please.

Went up people to help our customers with optimization, because we believe in the long run that's the best way to secure the loyalty and long term contracts with customers when they know they can count on a cloud provider like us.

Speaker 3: Our next question comes from the line of Mark morglare with Bernstein research. Please proceed.

Yes.

Our next question comes from the line of Brent Thill with Jefferies. Please proceed.

Speaker 3: Congratulations of the quarter and guidance and thanks for taking my question. I'd like to drill into AZ ure and more specifically, AZ ure I past consumption. I past consumption is really stepped down recently and it's important to understand the macro vers: a macro optimization that will rebound ther it's going to rebound quickly. Or is there more fundamental issue?

Thanks on co pilot monetization can you just give us a sense of.

How much shows up.

Help them continuously optimize their workforce, that's sort of the fundamental benefit of public cloud.

We're going to see and then ultimately is there a simple price lift that you think you can get through co pilot say 10, 20, 30% above where you saw the regular <unk>.

Taking every opportunity to prove that out with customers in real time, the second thing I'd say is.

Components of this.

Suite or is it is it too hard to factor in thank you.

We do have new workloads start because if you think about it during the pandemic. It was all about new workloads and scaling workloads, but pre pandemic there was a balance between optimizations and new workloads. So what we're seeing now is.

Speaker 15: In other words, is it simply purely macro and everyone is stepping back a little bit and they'regoing to H the pedal as soon as this comes back? Or is there something more fundamental that is drawing driving corporate maybe to step back and that that slowed down to sustain when the IT spending rebounds? Thank you.

Okay.

Overall, we do plan to monetize a separate set of meters across all of the tech stack, whether theyre consumption meters per user.

Is the new workloads stock. In addition, highly intense optimization driven that we have.

Subscription copilot, that's priced in it is there.

Speaker 3: It's my for the question. Maybe I'll make three commentsand it's also important, I think, to distinguish between what I would say is: Mac roor, have some performance and relative performance, because I think- and that's perhaps a good way- think about how we manage on this first is: optimizations do continue. In fact, we are focused on it. We incentend up people to help our customers with optimization because we believe in the long run, that's the best way to secure the loyalty and long term contracts with customers when they know that they can count on the cloud provider like us to help them continues.

That's a good example of incrementally.

But.

Perhaps more of a relative statement because of some of the work we've done in AI, even in the last couple of quarters, we earn a fee.

Monetize the prices some they're out there and others to be price because they are in preview mode, but you can expect us to do what we've done to get up copilot it pretty much across the board.

Invitations, we never had whether it's coming to you and just open AI VPI right. If you think about the consumer tech companies that are all spending essentially either meters.

Yes, Brent a best way of thinking about this is when we believe we're adding a lot of value and frankly, that's what the co pilots are doing.

Because they are gone through open AI and are using their API. These were not customers of azure at all.

And some productivity improvement.

You can expect that we will have a list price for those and youll be able to look at that as we get to release in <unk> at this point and get help copilot. It is a great example.

Second even though Azure open AI API customers are all new and the workload conversations whether it be to seek observations in financial services or drug discovery on another side. These are all new workloads that we really were not in the game in the past rated we now are so those are the three comments I would make bulk tonnage.

Thanks.

Thanks, Joe.

Joe We have next question please.

Our next question comes from the line of Raimo <unk> with Barclays. Please proceed.

Speaker 3: We optimize their workload. That's sort of the fundamental benefit of public cloud and we are taking every opportunity to prove that out with customers in real time. The second thing I'd say is we do have new workloads started because if you think about it doing the pandemic, it was all about new workloads and scaling workloads.

Hey, Thank you congrats from me as well.

Absolute macro but more importantly, I think what is.

Just staying on the theme in more thinking about the.

Our relative market position and how it's being changed.

The gross margin impact on <unk> can you just can you maybe.

Maybe the one.

Talk a little bit about like how you see the cost of compute.

I would add to those comments is we do.

Speaker 5: But prepandemic. Those are a balance between optimversations and new workloads. So what we're seeing now is the new workload startck in addition to highly intense optimizations. With that we have the third, perhaps more of a relative statement because of some of the work we've done in a I, even in the last couple of qusters, we are our see conversations we never had.

And for AI workloads versus kind of the classic workflows and how do you think that will evolve over time. Thank you.

Then through our.

Almost a year, where that pivot that satya talked about from.

Yes.

One is.

We're starting tons of new workloads, we'll call that the pandemic time to this transition post.

Clearly the accelerated.

Compute is what gets used to drive AI.

And the thing that we are very very focused on is to make sure.

Coming to really the anniversarying of that starting and so does that at this point, we're continuing to set optimization.

We get very efficient in the usage of those resources as you think about sort of what the hyperscale or not.

But at some point workloads just can't be optimized.

Speaker 3: Whether it's coming through you and just open a I a I right if you think about the consumer tech companies that are all spinning essentially I readers because they are gone to open a I and are using the a I, these were not customers or raure. Second, even as to open a I a I, customers are all you when the workload conversations, whether it's been to C conversations in financial services or drug discovery on other side, these are all new workloads that we really were not in the game in the past, whereas we now are.

As bracken stack sort of hardware.

Further and when you start to anniversary that.

<unk> software to optimize the performance of a given workload and in fact heterogeneous workloads in a given set of hardware and so we have many knobs that will continuously cost continued drive to drive optimization.

Do you see that it gets a little bit easier in terms of the comps the comps year over year, and so you didn't see that in a little bit of our guidance.

So some of that impact from a year over year basis.

And do you see it even in the even for a given generation of a large model, where we start and go through the cost footprint to where we ended in the cost for <unk>, even in a period of a quarter changes. So you can expect us to do what we've done a little bit of a decade plus of the public cloud to bring the benefits.

That was incredibly helpful. I really do appreciate it. Thank you for the color and again congratulations on what's happening.

Thanks, Mark Joe next question. Please.

Speaker 5: So those are the three commonies that make, both in terms to absolute macro, but more importantly I think, what is our relative market position and how it's being changed.

Our next question comes from the line of Brent Thill with Jefferies. Please proceed.

Thanks Arne.

Copilot monetization can you just give us a sense of.

I think continuous optimization of our Cogs.

Speaker 10: Mark maybe the one thing I would add to those comments is: we've been through.

How much shows up.

To a diverse set of workloads. The other thing I would mention is that.

We're going to see and then ultimately.

Is there a simple price lift that you think you can get through co pilot say 10, 20, 30% above where you saw the regular components of sweeter.

There are workloads like one of the reasons why that why we got together with open AI primarily was.

Speaker 16: Almost a year where that pivot that satia talked about, from where starting tons of new workloads will' call that the pandemic time to this transition- posted and we're coming to really the anniversary of that starting. And so, to your point, we're continuing to set optimization, But at some point workloads just CAn't be optimized.

We came out and said this type of workload, whether it's training or an entrance workload is going to be much more generally relevant for us not just in the context of AI and so you can see us apply it in other context as well.

Suite or is it is it too hard to factor in thank you.

Hi.

Overall, we do plan to monetize a separate set of meters across all of the tech stack, whether theyre consumption meters per user.

And then when we talked a bit about this.

Subscriptions copilot thats priced at it is there is been a profile. That's a good example of incrementally.

When we talked about the new edge and the new Bang.

Speaker 8: Much further and when you start to anniversary that, you do see that it gets a little bit easier in terms.

With analyst and I think one of the important things to keep in mind with fatty is pointing to is that it's not really just.

Monetize the prices so they're out there and others ought to be price because they are in preview mode, but you can expect us to do what we've done to get a co pilot pretty much across the board.

Speaker 8: The the com, the comps year-over-year.

The cost of Azure and the ability to optimize across the Azure workloads.

Speaker 8: And so you didn' see that in a little bit.

Speaker 17: More guidance.

Speaker 8: Some of that impact from a year-over-year basis.

Really even our first party workloads and apps that are built on.

Yes, Brent a best way of thinking about this is when we believe we're adding a lot of value and frankly, that's what the co pilots are doing.

Speaker 15: That was incredibly helpful. I really do appreciate. Thank you for the color and again, Congratulations on what's happening.

On the same on the same platform and we're able because we are a hyper scaler and because we have a large commercial cloud first party as well as consumer apps.

Speaker 2: Thanks Mark Joe. Next question Please.

And some productivity improvement you can expect that we will have a list price for those and youll be able to look at that as we get to release and decisive point and get help from how it is a great example.

Speaker 1: ernard's question comes from the line of brenvill with jeffreys. Please proceed.

That our first party, we're able to take advantage of that.

Speaker 18: Thinks on copilot monetization. Can you just give us a sense of how much shows up where we're going to see in then ultimately, is there a simple price listft that you think you can get through? Coal pilot say 10%, twent Y, 30% above where you saw the regular components of a sweeter. Is it too hard to factor inthankyou.

Thanks.

<unk> and GPU utilization AI services utilization across the stack and so it's not just sort of horse hockey why that's even a broader benefit.

Joe We have next question please.

Our next question comes from the line of Raimo <unk> with Barclays. Please proceed.

Being a hyper scaler.

Thank you congrats from me as well.

Thank you.

Thanks for that Joe.

Staying on the AI team and more thinking about the.

Joe next question please.

Our next question comes from the line of Keith Bachman with BMO. Please proceed.

The gross margin impact on AGA can you just can you maybe talk a little bit about like how you see the cost of compute.

Good afternoon. Good evening. Thank you for taking the question you may want to address this.

Speaker 19: I think overall we do plan to monetize a separate set of meters across all of the tech stack, whether their consumption meters of per user subscriptions, the coofilile of that's price and it is there is get up Co. that's a good example of incrementally how we monetize. The prices are there out there and others are to be priced because they're in prev mode.

For AI workloads versus kind of the classic workflows and how do you think that will evolve over time. Thank you.

<unk> if I could.

Prepared remarks, you comment.

You thought that operating expense growth would be willing to just maybe flush.

Yes, a couple of it one is clearly the accelerated.

With some broader comments.

Compute is what gets used to drive AI.

Susan could you talk about.

You see any kind of directional color on how you see gross margins evolving given mix and particularly supporting generative AI and or any other comments that might help shape, our thinking as we begin to look at the operating margin.

And.

The thing that we are very very focused on is to make sure.

But we get very efficient in the usage of those retailers. So as you think about sort of what the hyperscale. It on not just the rack and stack sort of hardware.

Speaker 5: But you can expect us to do what we've done to get up coofpilot very much across the Board.

Speaker 8: Yeah So best way of thinking about this is when we believe we're adding a lot of value- and frankly that's what the copilots are doing- and some productivity improvement. You can expect that we will have a list price for those and you'll be able to look at that as we get to release. And this point.

<unk> software to optimize the performance of a given workload and in fact heterogeneous workloads in a given set of hardware and so we have many knobs that we will continuously cost continued drive to drive optimization.

For the next fiscal year. Thank you.

Thanks Keith.

We had a good opportunity to explain a bit about how I think about where we are.

Speaker 4: Give up. copal is a great example.

Which is.

Speaker 20: Thanks.

When you look at all of the businesses we're in.

And you see it even in the even for a given generation of a large model, where we start and go through the cost footprint to where we end in the cost for <unk>, even in a period of a quarter changes. So you can expect us to do what we've done over the decade plus of the public cloud to bring the benefits.

Speaker 2: Please tren, here we have next question Please.

And we look about our competitiveness in those businesses.

Speaker 1: earnext question comes from the line of rainmo RHEL with baray. Please proceed. Thank you conrect, from me as well and just stay on me. The high team and more thinking about the goals: margin impact on azaddress. Can you just, can you maybe little talk a little bit about like how you see the cost of computde high workloads versus kind of the classic workload and how do you think that will evolve over timethankyou.

And then just wanted to have you started to comment a bit about our relative performance versus absolute.

And I'll tell you that the energy and focus we put right now is on relative performance and share gains.

As a continuous optimization of our Cogs.

Right now.

We have the largest commercial cloud.

To a diverse set of workloads. The other thing I would mention is that.

With increasing commitments by customers.

There are workloads like one of the reasons why that why we got together with open AI primarily was.

With.

New workloads, new Tam opportunities that youre talking about with customers and our focus is going to be and will be on continuing to take a growing share of that while we continue to focus on our customer success and getting a ton of value out of what.

Speaker 5: A couple is one is clearly the accelerated our compute what get used to drive eye and the thing that we are very very focused on is to make sure but we get it very efficient in the usage of those resources you think about sort of what the P scale and we not just drack and back sort of hardware they use software to optimize the performance of a given workload and in fact heterogeneous workloads and given set of hardware and so we have many NOS that will continuously continue to drive to drive optimization across and you see it even in the you know even for a given generation of a large model where we started the cost foot to where we end in the cost OT in a period of a quarter changes So you can expect us to do what we've done over the decade plus of the public cloud to bring the benefits of a continuous optimization of our CGS to diverse set of workloads the other thing I' mentioned is that there are workloads now like one of the reasons why the truck why we got together with open a eye primarily would.

We came out and said this type of workload, whether it's training or inference workloads is going to be much more generally relevant for us not just in the context of AI and so you can see our supply it in other context as well.

And remember we talked a bit about this.

We are selling whether that the five product that Microsoft 365, whether thats windows 365 to help.

When we talked about the new <unk> Bang.

With analyst and I think one of the important things to keep in mind with fat is pointing to is that it's not really just.

Maybe it's on.

Compute costs in PC cost whether it's.

Working across the Azure Azure stack and so with that opportunity.

The cost of Azure and the ability to optimize across the Azure workloads.

In our consumer business.

Really even our first party workloads and apps that are built right are built on the same on the same platform and we're able because we are a hyper scaler and because we have a large commercial cloud first party as well as consumer apps.

The largest number of active devices. We've had in windows that are still being used more being able to focus on edge share and being share and gaming.

Bringing yet to the PUC as well as across the mobile. These are the opportunities that we focus on as we think about next year.

That our first party, we're able to take advantage of that and GPU utilization AI services utilization across the stack and so it's not just sort of restocking why that's even a broader benefit.

So if we feel like and I view that we are well positioned to continue to take share in so many key places.

As being a hyper scaler.

Then I would say, great and we want to be able to focus on.

Thank you.

Thanks, Rob.

Joe next question please.

Investing in AI, which I talked about will increased cost growth, but we're committed.

Speaker 5: We came out it and said: this type of workload, whether it's a training or an infant workload, is going to be much more generally relevant for us, not just in the context to reali, and so you can see our'd supply it in other context as well.

Our next question comes from the line of Keith Bachman with BMO. Please proceed.

To making sure we have healthy profitability by keeping operating expenses low.

Good afternoon. Good evening. Thank you for taking the question you may want to do with this.

<unk> if I could.

And so what really this past year has been about what really what Q3 start to show is our willingness to pivot to the future to make sure. We can keep all those commitments the thoughtfulness and so while I know that's not giving specificity.

In your prepared remarks, you commented as you thought.

Speaker 8: And rea. We talked a bit about this.

Operating expense growth would be lower so just maybe flush.

Speaker 8: When we talked about the new edge in a new bang with Analyst and I think one of the important things to keep in mind which thought IA is pointing to is that it's not really just the cost of Azure and the ability to optimize across the Azure workloads it's that really even our first party workload and apps that are built right are built on the same on the same platform and we're able because we are a hyperscalar and because we have a large commercial fou first party as well as consumer apps like being that our first party we're able to take advantage of that and G P utilization a I services utilization across the stack and so it's not just.

With some broader comments excuse me could you talk about that.

How you see any kind of directional color on how you see gross margins evolving given mix and particularly supporting generative and or any other comments that might help shape.

Is in fact, how we think about long term success and being well positioned in big markets, taking share in those markets committing to make sure we're going to leave this wave <unk> focused.

Focused on gross margin improvements, where we can some of them will come in AI over time, given our commitment to the build out we will charge for those AI capabilities and then ultimately will deliver operating profit yes.

Thinking as we begin to look at the operating margin.

For the next fiscal year. Thank you.

Thanks, Keith this is probably a good opportunity to explain a bit about how I think about where we are.

Yes.

Add to it during these periods of transition.

Which is.

The way I think.

If you look at all of the businesses we're in.

Shareholders May want to look at is what's the opportunity set ahead, we have a differentiated play to go after that opportunity set which we believe we have both the opportunity set in terms of Tam is big.

And we look about our competitiveness in those businesses and then as far as the have you started to comment a bit about our relative performance versus absolute.

Speaker 8: Sort of more. Cy wanted even it up browater. Benefit of being a hyperscalar.

Speaker 21: Thank you.

I will tell you that the energy and focus we put right now is on relative performance and share gains.

Speaker 22: Thanks trave a jo. Your next question, Please.

And our differentiation at the very start of the cycle we feel.

Speaker 1: Our expression comes from the line of Keith Bachman with pmmo. Please proceed.

Right now.

We have the largest commercial cloud.

We have a good lead and we have differentiated offerings up and down the stack.

Speaker 23: Good afternoon, good evening. Thank if we taking the question and you wanted to yourar at this to you. If I cur on, you prepared the marks you come in that you thought that operating expense growth would be whereless. Can to just maybe flush that out with some broader econments ex use you could you talk about how you see any kind of directional color on how you see gross margins evolving, given mix and particularly supporting generated AI and or any other comments that might help shape all thinking as we begin to look at the operating margin for the next fiscal yearthank.

With increasing commitments by customers.

And so therefore, that's the sort of approach we're going to take which is how do we maximize the return of that starting position for you all as shareholders long, that's sort of where we look at it and we'll manage the P&L carefully driving operating leverage in.

With.

In a disciplined way, but not being shy of investing.

Where we need to invest in order to grab the long term opportunity and so obviously youll see share gains because the.

We are selling whether that the five products with Microsoft 365, whether thats windows 365 to help me.

The usage for us.

Dan GM, then Op, Inc. <unk> classic P&L flow.

<unk>.

But we feel good about our position.

Compute costs in PC cost whether it's.

Many thanks for the answer.

Speaker 24: Thanks heith this is probably a good opportunity to explain a bit of.

Working across the Azure Azure stack and so with that opportunity.

Thanks, Keith So next question please.

Speaker 16: How I think about where we are.

Our next question comes from the line of Karl Keirstead with UBS. Please proceed.

Yes.

Speaker 25: Which is you look at all of the businesses we're in and we look about our competitiveness in those businesses, and this is courseth I. you started to comment a bit about our relative to performance versus absolute.

In our consumer business.

The heart.

We've had a lot of questions on AI and Azure, So maybe just to round. It out just on the office 365 business.

Largest number of active devices, we've had in windows that are still being used more being able to focus on edge share and being share and gaming.

16.

16% constant currency guide for June not really seeing much seat degradation. Despite obviously a tight labor market. So it's proven to be very resilient could you just unpack the sensitivity to that head count reduction given that.

Speaker 8: And I'll tell you that the energy and focus we put right now is on relative performance and share gain.

Bringing yet to the PUC as well as across the mobile. These are the opportunities that we focus on as we think about next year and so if we feel like and I view that we are well positioned.

Speaker 8: Right now we have the largest commercial cloud.

Across your customer base at least slower rate of hiring just given that this is a enormous seat based business. It doesn't seem to be showing up maybe you could just help us understand what's driving that continued seat growth and how durable that is.

Speaker 4: With increasing commitments by customers.

Continue to take share in so many key places.

Speaker 26: With.

Then I would say, great and we want to be able to focus on <unk>.

Speaker 10: Your workloads, you.

Speaker 27: T opportunities that some you're talking about with customers, and our focus is going to be and will be on continuing to take a growing share of that. Well, we continue to focus on our customers success and getting a ton of value out of what we are selling, whether that the e 5- five product of Microsoft three hundred and sixty 5, whether that's Windows three hundred and sixty five to help maybe it's on compute cost and P C cost, whether it's working across the Azure AZ your stack, and so that opportunity plus and our consumer business.

Investing in AI, which I talked about will increase cost growth, but we're committed.

Yes, Thanks, Karl I think I would step back and say we have seen I mean.

To making sure we have healthy profitability by keeping operating expenses low.

The office 365 suite, but broadly the Microsoft 365 fleet adds a ton of value for users and so.

And so what really this past year has been about what really what Q3 start to show is our willingness to pivot to the future to make sure. We can keep all those commitments the socket list and so while I know that's not giving specificity.

If you think about the users and on a global basis, we've been able to add users, which you continue to see.

He'll have in frontline scenario and in F&B opportunity.

Is in fact, how we think about long term success is being well positioned in big markets, taking share in those markets committing to make sure. We're going to leave this wave focused on gross margin improvements, where we can some of them will come in AI over time, given our commitment to the build out we will charge for those.

To continue to grow and in the enterprise, where we are a basic productivity tool.

The labor market is still tight in those places.

Speaker 8: The heart, the largest number of active devices we've had in Windows. They're still being used more. Being able to focus on edge share and being share and gaming bring it to the P? C as well as across to mobile. These are the opportunities that we focus on as we think about next year, and so if we feel like- and I do- that we are well positioned to continue to take share in so many key places, then I'd say great, and we want to be able to focus on investing in AI, which are talked about will increase COGS growth, but we're committed.

And we continue to see customers committed to the value, they're getting and so this is not something that I think our focus has really been on continuing to get healthy renewals continue to add new products that renewal, where it makes sense to save customers money and increase value and so I think thats. The story of the resilience, you're seeing and of course.

Capabilities, and then ultimately will deliver operating profit yes.

Yes.

Add to it during these periods of transition.

The way I think.

Shareholders May want to look at is what's the opportunity set ahead.

We did have a good <unk> five quarter, which are starting to see and it helps on arco.

We have a differentiated play to go after that opportunity set which we believe we have both the opportunity set in terms of Bam is big.

Thanks, Karl Joe next question. Please.

Your next question comes from the line of Richie Deloria with RBC. Please proceed.

And our differentiation at the very start of the cycle we feel.

Speaker 4: To making sure we have healthy profitability by keeping operating expenses low. And so what really this past year has been about? What really? What Q3 arts to show is our willingness to pivot to the future to make sure we can keep all those.

Waterfall highest at the high end.

Have a good lead and we have differentiated offerings up and down the stack.

Thanks, So much for taking my question nice to see continued resilience in the business I wanted to get back to the topic of AI, but think maybe a little bit longer term.

And so therefore, that's the sort of approach we're going to take which is how do we maximize the return of that starting position for you all as shareholders long term, that's sort of where we look at it and we'll manage the P&L carefully driving operating leverage in it.

How are you thinking about the potential for regulation around AI some of the concerns around data and customer privacy and governance and what do you think you can do to maybe 12.

Speaker 8: Commitments of scullisted. So while I know that's not giving specificity, it is in fact how we speak about.

Disciplined way, but not being shy of investing.

Some of those fears that governments and customers and organizations have around that thanks.

Speaker 28: Long-term success.

Where we need to invest in order to grab the long term opportunity and so obviously, we use fee shared.

Speaker 7: Is being well positioned in big markets, taking share in those markets, committing to make sure we're going to leave this wave things focused on gross margin improvements where we can. Some of them will come in AI over time. Given our commitment to the buildout, we will charge for those AI capabilities and that ultimately.

Yes. Thanks for the question. So overall, we've taken the approach that we.

The usage for us.

Dan GM, then Op, Inc. <unk> classic P&L flow.

We're not waiting for regulation to show up we are taking an approach where the unintended consequences of any new technology is something that from day. One we think about it first class and build into our engineering process.

But we feel good about our position.

All right many thanks for the answer.

Thanks, Keith So next question please.

Speaker 4: Will deliver operating profit. Yes, have interested. Add to recurwing these bidders of transition.

Our next question comes from the line of Karl Keirstead with UBS. Please proceed.

Speaker 29: The way I think for a shareholders you know want to look at is: what's the opportunity set ahead? We have a differentiated play to go after that opportunityities set, which we believe we have both the opportunity set in terms. The themam is big and our differentiation at the very start of a cycle we feel we have a good lead and we have differentiated offerings up and down the stack.

All of the safeguard will work for example in 2016 is when we put out the Atkins supposed to be translated VII principles into a set of internal standards that then are further trial.

We've had a lot of questions on AI and Azure, So maybe just to round. It out just on the office 365 business.

Vision into an implementation process that then.

Old ourselves.

Two internal audit essentially so that's the framework we have.

We have achieved.

Achieve AI officer, who is responsible for both thinking of what the standards are and then the people who even help us internally.

Across your customer base at least slower rate of hiring just given that this is a enormous seat based business it doesn't seem to be showing up.

Speaker 5: And so therefore, that's the sort of approach we've want to take, which is how do we maximize the return of that starting position for you all, the shareholders, long term? That's sort of where we look at it and we manage the pn L carefully drive driving, operating leverage in a disciplined way, but not being shot of investing where we need to invest in order to grab the long term opportunity.

Maybe you could just help us understand what's driving that continued seat growth and how durable that is.

Our following both the process and so we feel really good in terms of us being able to create trust and the systems we.

Yes, Thanks, Karl I think I would step back and say we have seen I mean.

<unk> put out there and so we will obviously engage with any regulation that comes up in any jurisdiction.

The office 365 fleet, but broadly the Microsoft 365 fleet adds a ton of value for users and so.

But quite honestly, we think that.

Speaker 5: And so obviously we use the shared, the usage for then G M then are being right, like the classic pn L flow, but we feel good about opposition.

The more that is 80 form of.

If you think about the users and a global base, we've been able to add users that you continue to see.

Frost.

As a differentiated position and AI I think we stand to gain from that.

He'll have in frontline scenario at an SMB opportunity.

Speaker 23: himany, thanks for the answer.

Alright wonderful thank you so much.

Speaker 2: Thank keep your next question, Please.

To continue to grow and in the enterprise, where we are a basic productivity tool.

Thanks, Rajiv Joe we have time for one last question.

Speaker 1: Our next question comes from in the line of called kirstead with ubbs. Please proceed.

And our last question will come from the line of Michael <unk> with Wells Fargo. Please proceed.

The labor market is still tight in those places.

Speaker 23: wellthank. We've had a lot of questions on AI and AZ, ure So maybe just around it out. Just on the Office 365 business am 16% constant currency guide for June not really seeing much seat degradation despite obviously a tight labor market. So it's proving to be very resilient. Could you just unpack the sensitivity to that headcount reduction, given that across your customer base at least slower rate of hiring, just given that this is a enormous seat base business, it doesn't seem to be showing up.

Hey, great. Thanks, I appreciate you squeezing me in I wanted to ask a question on the consolidation play that Microsoft is positioned for a given that's something we hear clearly top of mind for ICP decision makers currently.

Clear place there across security infrastructure apps and other areas. So just be great to hear your view on the Microsoft consolidation playbook in the current environment. If there are certain areas you are particularly focused on are seeing the most traction around thank you.

We did have a good <unk> five quarter winter starting to see and it helps on on <unk>.

Speaker 23: Maybe you could just help us understand what's driving that continued seat growth and how durable that is.

Thanks, Karl Joe next question. Please.

Yes, I mean, I'll start and maybe you can add.

I think we're in a reference within the context of Microsoft 305, and office 365, but fundamentally what we are focused on is making sure that the customers are able to derive the value of our offerings right, whether it's the Microsoft three six light sweet value, which is significant whether it was <unk> five.

The next question comes from the line of Richie Deloria with RBC. Please proceed.

Speaker 4: That thanks, Carl. I think I would step back and say we have seen, I mean the Officer 65 sweet, but broadly the Microsoft forree 65 fweleet as a ton of that.

Wonderful highest that they have.

Thanks, So much for taking my question and Thats just a continued resilience in the business I wanted to get back to the topic of AI, but think maybe a little bit longer term.

Speaker 30: For users.

Speaker 8: And so, if you think about the users and on the global base, we've been able to add users which you continue to see we still have in the frontline scenario and it's SM B opportunity to continue to grow. And in the enterprise, where we are a basic productivity tool, know the labor market is built tight in most places and we continue to see customers committed to the value they're getting, and so this is not something that I think our focus has really been on: continueing to get healthy renewals, continue to add new products, that renewal where it makes sense to save customers money and increase value, and so I think that's that the story of the resilience you're seeing.

How are you thinking about the potential for regulation around AI some of the concerns around data and customer privacy and governance and what do you think you can do it with maybe.

And we want to make sure that our.

Sure.

Theyre getting deployed they're getting used and that's obviously going to lead to our share gains in many cases the same thing in security that's a place where this quarter you saw some good results from us.

Some of those fears that governments and customers and organizations have around that thanks.

And same on up and down the stack across Azure.

Yes, Thanks, Richard for the question. So overall, we've taken the approach that we are not waiting for regulation to show up we are taking an approach where the unintended consequences of any new technology is something that from day. One we think about is first class and build it.

Right. So when you think about it.

AI.

Adam you have an AI application is not just an AI model in fact chat GBT South is a great example, Chad GBT for example, users Cosmos DB.

As the core database and so therefore, we want to make sure that our services as their competitive again.

Into our engineering process.

All of the safeguard for work for example in 2016 is when we put out the AI principles, we translate the VIP principles into a set of internal standards that then are further translated into an implementation process that Dan we hold ourselves.

Speaker 4: And of course we did have a good.

Get used to gather up whether it's at the Ias lay out in the past.

Speaker 16: E five quarter, which you're starting to see an helpalth fund on ARPU.

Yes.

And maybe one thing I would add Michael is that I know the question is consolidation, but another aspect of that is that some of the new business process automation work, that's going to get done.

Speaker 13: Please Carl goda's question Please.

Speaker 1: Next question comes from the line of rishhi jaloria, with rdc, Please proceed.

Two internal audit essentially so that's the framework we have we have achieve AI officer, who is responsible for both thinking of what the standards are and then the people who even help us internally.

Whether that's the dynamics workloads that we've talked about it also will benefit from having AI services available on Azure from having the core azure capabilities as well.

Speaker 1: Waterfall high up the I. I thanks unmuch for taking my question and that' just continue. Resilience in the business. I want to get back to the topic of a I, but think maybe a little bit longer term. How are you thinking about the potential for regulation around AI, some of the concerns around data and customer privacy and governments, and what are you think you can do to maybe twell some of those fears that governments and customers and organizations have around that?

Actually some front end stuff that people are buying in Microsoft 365.

Our following both the process and so we feel really good in terms of us being able to create trucks in the systems.

These leaps in a new way.

And so I think maybe it's not the traditional definition of consolidation, but when people look and say what vendor as a lot of value and has the tools.

<unk> put out there and so we will obviously engage with any regulation that comes up in any jurisdiction.

That we need and in many instances already own to be able to do this business process work I think we have a great great value and frankly, probably leading tools in almost every vertical.

But quite honestly, we think that.

Speaker 5: Thank the question. So overall, we've taken the approach that we are not waiting for regulation to show up. We are taking an approach where the unintended consequences of any new technology- something that, from day 1, we think about as first class and build into our engineering process- all the safeguard.s- So what, for example, in 2016, is when we put out the a principles, be translated: the principles into a set of internal standards that then fther translated into an implementation process that then we hold ourselves to internal audit essentially.

The more that is 84 of.

Frost.

As a differentiated position and AI I think we stand to gain from that.

Great. Thanks, Michael.

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

Alright wonderful thank you so much.

I appreciate it Joe we have time for one last question.

Thanks, so much.

And our last question will come from the line of Michael <unk> with Wells Fargo. Please proceed.

Hey, great. Thanks, I. Appreciate you squeezing me in I wanted to ask a question on the consolidation play that Microsoft disposition forgiven, that's something we hear clearly top of mind for ICP decision makers currently.

Speaker 5: So that's the frame, what we have. We have Chief AI Officer, who is sort of responsible for both thinking of what is the standards on, and then the people who even help us internally audit our following of the process, and so we see very good in terms of us being able to create trust in the systems we put out there, and so we will obviously engage with any regulation that comes up in a jurisdiction.

Yes, I mean, I'll start and maybe you can add.

I think we're in a reference within the context of Microsoft 305, and office 365, but fundamentally what we are focused on is making sure that the customers are able to derive value out of our offerings right, whether it's the Microsoft three six light sweet value, which is significant with <unk> five.

Speaker 5: But, quite honestly, we think that the more there is any form of trust as a differentiated off position in the I, I think we stand to gain from that.

And we want to make sure that our.

Sure.

Speaker 1: Al wonderful. Thank you so much.

Speaker 22: pthreeicsheet. Here we have talked for one last question.

And the same are up and down the stack across Azure.

Speaker 1: Then our last question will come from the line of Michael Ting with Wells Fargo. Please proceed.

Right. So when you think about it.

AI.

Adam you have an AI application is not lost on AI model in fact chat GBT South is a great example, Chad GBT for example, users Cosmos DB.

Speaker 23: A great thanks. Appreciate these PLE me. I want to ask the questionquesting on the consolidation play that Microsoft posion forgiven- that's something we hear clearly com a mind for our CT decision makers. Currently you clear plays there across security infrastructure apps in other areas. So we'd just be great to hear you VIE on the Microsoft consolidation playbook and the current environment and if there are certain areas here're particularly focused on or seeing the most tracture around.

As the core database and so therefore, we want to make sure that our services as their competitive again.

<unk> used together, whether it's at the layout of the passenger airlines SaaS there.

And maybe one thing I would add Michael is that I know the question of consolidation, but another aspect of that is that some of the new business process automation work, that's going to get done.

Speaker 31: Thank you.

Speaker 32: Yeah I' not suddenly, you can add, think we're in referen ly in the context of icrosof three 6, five and off three six 5, but fundamentally what these really focused on is making sure of the customers are able to derive the value. All of our offerings, whether it's the microoft three 6, five sweet value which is significant, whether it's C, three or 5, and we want to make sure that are.

Whether thats the dynamics workloads that we've talked about it also will benefit from having AI services available on Azure from having the core azure capabilities as well.

Actually some front end stuff that people are buying in Microsoft 365.

These loops in a new way.

And so I think maybe it's not the traditional definition of consolidation, but when people look and say what vendor as a lot of value and has the tools.

Speaker 3: You know, they're getting deployed, they're getting used and that's obviously going to lead to our share games in many cases, the same thing in security. That's a place towhere this quarter you saw some good be lots from us and same or up and down the stack across Asure right. So when you think about a I, the anatomy of an a I application is not lost.

That we need and in many instances already own to be able to do this business process work I think we have a great great value and frankly, probably leading tools in almost every vertical.

Great. Thanks, Michael.

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

Speaker 5: An a I model, in fact, ch B d- selfll is a great example. char B D, for example, you problemers D be as their core database and so therefore we want to make sure that our services as their competitive get used. Gather whether it's said the I layer of the past, lay ER, the as there.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Speaker 10: And maybe one thing I would add Michael, is that I know the question of consolidation, but another aspect of that is that some of the new business process automation work that's going to get done- whether that's the dynamics workflows that we've talked about, is also- will benefit from having AI services available. And as.

Okay.

Sure.

Yes.

Okay.

Yes.

Okay.

[music].

Speaker 16: From having the core as your.

Speaker 4: Capabilities as well as well actually, some front end stuff that people were buying in Microsoft 365 to close these loops in a new way. And so I think maybe it's not the traditional definition of consolidation, But when people look and say what vendor has a lot of value and has the tools that we need- and in many instances already own- to be able to do this business process work, I think we have a great greatate value and frankly, probably leading tools in almost every vertical.

Okay.

Yes.

[music].

Okay.

Speaker 2: Great Thank you you, Michael. That wraps up the queumic pcourseion of today's earnings call. Thank you for joining today and we look forward to speaking with all we said. Thank you all. Thanks so much.

Q3 2023 Microsoft Corp Earnings Call

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