Q1 2024 Microsoft Corp Earnings Call

Greetings and welcome to the Microsoft fiscal year, 2024 first quarter earnings Conference call.

Speaker 1: Greetings and welcome to the Microsoft Fiscal Year 2024 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.

At this time all participants are in a listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker 1: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker 1: As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Brett Iverson, Vice President of Investor Relations. Mr. Iverson, please go ahead.

As a reminder, this conference is being recorded.

I would now like to turn the call over to your host Brett Iverson, Vice President of Investor Relations. Mr. Roberson. Please go ahead.

Speaker 2: Good afternoon and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer, Amy Hood, Chief Financial Officer, Alice Jolin, Chief Accounting Officer, and Keith Oliver, Corporate Secretary and Deputy General Counsel.

Good afternoon, and thank you for joining us today.

The call with me are Satya, Nadella, Chairman and Chief Executive Officer.

Amy Hood, Chief Financial Officer.

Alice Jelen, Chief Accounting Officer.

Keith Oliver Corporate Secretary and Deputy General Counsel.

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.

Speaker 2: On the Microsoft Invest 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 the reconciliation of differences between GAAP and non-GAAP financial measures.

Speaker 2: More detailed Outlook slides will be available on the Microsoft Advesh relations website when we provide Outlook commentary on today's call.

More detailed outlook slides will be available on the Microsoft Investor Relations website, when we provide outlook commentary on today's call.

Speaker 2: Microsoft completed the acquisition of Activision Blizzard on October 13, 2023. We will share more on the expected impact of the Activision acquisition during the Outlook commentary portion of today's call. On this call, we will discuss certain non-GAAP items.

Microsoft completed the acquisition of Activision Blizzard on October 13th 2023, we will share more on the expected impact of the Activision acquisition during the outlook commentary portion of today's call.

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

Speaker 2: 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.

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.

Speaker 2: They are included as additional clarifying items to aid investors in further understanding the company's first quarter performance in addition to the impact these items and events have on the financial results. All growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted. We will also provide growth rates in constant currency when available as a framework for assessing how our underlying business is performed, excluding the effect of foreign currency rate fluctuations.

They are included as additional clarifying items to aid investors in further understanding of the company's first quarter performance. In addition to the impact these items and events have on the financial results all growth comparisons we make on the call today relate to the corresponding period of last year unless otherwise noted.

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.

Speaker 2: where growth rates are the same in constant currency, we'll refer to the growth rate only.

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

Speaker 2: We will post our prepare remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast.

We will post our prepared remarks to our website immediately following the call.

Till 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.

Speaker 2: If you ask a question, it will be included in our live transmission, in the transcript, and in any future use of the recording. You can replay the call and view the transcript on the Microsoft Invest Relations website.

In the transcript and in any future use of the recording.

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

Speaker 2: During this call, we will be making forward-looking statements, which are predictions, projections, or other statements about future events.

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

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

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.

Speaker 2: Actual results could materially differ because of factors discussed in today's earnings press release in the comments made during this conference call and in the risk factor section of reform 10k, forms 10q 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 Sajja.

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 Brett.

Speaker 3: Thank you, Brett. We are off to a strong start to the fiscal year, driven by the continued strength of Microsoft Cloud, which surpassed $31.8 billion in quarterly revenue, up 24%. With co-pilots, we are making the age of AI real for people and businesses everywhere. We are rapidly infusing AI across every layer of the tech stack and for every role in business process to drive productivity gains for our customers.

Off to a strong start to the fiscal year driven by the continued strength of Microsoft cloud, which surpassed $31 $8 billion in quarterly revenue up 24% with co pilots, we are making the age of AI real for people and businesses everywhere we are.

Rapidly infusing AI across every layer of the tech stack and for every rolling in business process to drive productivity gains for our customers.

Speaker 3: Now I'll highlight examples of our progress starting with infrastructure. Azure again took share as organizations bring their workloads to our cloud. We have the most comprehensive cloud footprint with more than 60 data center regions worldwide, as well as the best AI infrastructure for both training and in-

Now I'll highlight examples of our progress starting with infrastructure.

Again took share as organizations bring their workloads to our cloud we.

We have the most comprehensive cloud footprint with more than 60 data center regions worldwide as well as the best AI infrastructure for both training and inference.

Speaker 3: And we also have our AI services deployed in more regions than any other cloud provider. This quarter we announced the general availability of our next generation H100 virtual machine.

And we also have our AI services deployed in more regions than any other cloud provider. This quarter, we announced the general availability of our next generation H 100 virtual machines.

Speaker 3: Azure AI provides access to best-in-class frontier models from open AI and open-source models, including our own, as well as from Meta and Hugging Face, which customers can use to build their own AI apps while meeting specific cost, latency, and performance needs.

<unk> provides access to best in class Frontier models from open AI and open source models, including our own as well as from meta and hugging face, which customers can use to build their own apps, while meeting specific cost latency and performance needs.

Speaker 3: Because of our overall differentiation, more than 18,000 organizations now use Azure OpenAI Service, including new to Azure.

Because of our overall differentiation more than 18000 organizations now use Azure open AI service, including new to Azure customers and we are expanding our reach with digital first companies with open AI Apis as leading AI startups use open AI to power AI solutions, therefore, making them azure customers as well.

Operator: Greetings, and welcome to the Microsoft fiscal year 2024 first quarter earnings conference call. At this time, all participants are in no listen only mode. A question and answer session will follow the formal presentation.

Speaker 3: And we are expanding our reach with digital first companies with open AI APIs as leading AI startups use open AI to power their AI solutions, therefore making them Azure customers as well.

Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Speaker 3: We continue to see more cloud migrations with Azure Arc. We are meeting customers where they are helping them run apps across on-prem, edge, and multi-cloud environment.

We continue to see more cloud migrations with Azure arc, we are meeting customers, where they are helping them run apps across on Prem edge and multi cloud environments. We now have 21000 customers up 140% year over year via the only other cloud provider to run Oracle database services, making.

Brett Iversen: I would now like to turn the call over to your host, Brett Iversen, Vice President of Investor Relations. Mr. Iversen, please go ahead.

Speaker 3: We now have 21,000 Arc customers up 140% year over year.

Brett Iversen: Good afternoon, and thank you for joining us today. On the call with me are Satya Nadella, Chairman and Chief Executive Officer, Amy Hood, Chief Financial Officer, Alice Jollan, Chief Accounting Officer, and Chief Dulliver, Corporate Secretary and Deputy General Counsel. 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 provide the reconciliation of differences between gap and non-gap financial measures. More detailed outlet slides will be available on the Microsoft Investor Relations website when we provide Outlook Commentary on today's call.

Speaker 3: We are the only other cloud provider to run Oracle's database services, making it simpler for customers to migrate their on-prem Oracle databases to our cloud. Customers like PepsiCo and Vodafone will have access to a seamless, fully integrated experience for deploying, managing, and using Oracle database instances on Azure.

It's simpler for customers to migrate their on Prem Oracle databases two oclock.

Customers like Pepsi co at Vodafone will have access to a seamless fully integrated experience for deploying managing and using Oracle database instances on Asia.

Speaker 3: And we are the cloud of choice for customers SAP workloads to companies like brother industries, hands, size and ZF group all run SAP on Azure.

And we are the cloud of choice for customers SAP workloads to companies like brother industries Hain, the eyes and that group all run on Azure.

Speaker 3: Now on to data. In the age of co-pilots, organizations are looking to consolidate their data estate. That's why with our Microsoft Intelligent Data Platform, we're bringing together operational data stores, analytics, and governance.

Now on to data in the age of co pilots organizations are looking to consolidate their data state that's why with the Microsoft intelligent data platform, we are bringing together our operational data <unk> analytics and governance more than 73% of the fortune 1000 used three or more of our data solutions today and with Microsoft.

Brett Iversen: Microsoft completed the acquisition of Activision Blizzard on October 13, 2023. We will share more on the expected impact of the Activision acquisition during the Outlook Commentary portion of today's call. On this call, we will discuss certain non-gap items. The non-gap financial measures provided should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with gap. They are included as additional clarifying items to aid investors in further understanding the company's first quarter performance in addition to the impact these items and events have on the financial results.

Speaker 3: More than 73% of the Fortune 1000 use three or more of our data solutions today. And with Microsoft Fabric, we're unifying compute, storage, and governance into one end-to-end analytics solution with an all-inclusive business model. More than 16,000 customers are actively using Fabric, including over 50% of the Fortune 500.

Fabric, we are unifying compute storage and governance into one end to end analytics solution with an all inclusive business model more than 16000 customers are actively using fabric, including over 50% of the fortune 500, now want to developers with Github co pilot we are increasing.

Speaker 3: Now on to developers. With GitHub Copilot, we are increasing developer productivity by up to 55% while helping them stay in the flow and bringing the joy back to coding. We have over 1 million paid Copilot users, and more than 37,000 organizations have subscribed to Copilot for Business, up 40% quarter over quarter, with significant traction outside the United States.

A productivity by up to 55%, while helping them stay in the flow and bringing the joy back to coding.

Brett Iversen: All growth comparisons we make on the call today relate 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 business is 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 have over 1 million paid copilot users at more than 37000 organizations that subscribe to co pilot for business up 40% quarter over quarter with significant traction outside the United States. This quarter, we added new capabilities with Github copilot chat, which are already being used by both digital natives.

Speaker 3: This quarter we added new capabilities with GitHub Copilot Chat, which are already being used by both digital natives like Shopify, as well as leading enterprises like Maersk and PwC to supercharge the productivity of their software development.

Like shopify as well as leading enterprises like Maersk and Pwc to supercharge the productivity of that software developers.

Brett Iversen: We will post our prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being broadcast 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 recording. You can replay the call and see the transcript on the Microsoft Invest Relations website.

Speaker 3: all up the number of developers using GitHub has increased 4x since our acquisition five years ago.

All up the number of developers using get up has increased forex since our acquisition five years ago.

Speaker 3: We've also brought co-pilot to Power Platform, enabling anyone to use natural language to create apps, build virtual agents and analyze data. More than 126,000 organizations, including 3M, Equinox, Lumen Technologies, Nationwide, PG&E, and Toyota have all used co-pilot and Power Platform to date. EY, for example, is enabled co-pilot for all 170,000 plus Power Platform users at the company.

We have also brought copilot to power platform, enabling anyone to use natural language to create apps build virtual agents and analyzed data more than a 126000 organizations, including three in Ecuador, lumen technologies nationwide <unk> and Toyota have all used copilot and power platform to date UI for example has enabled.

Brett Iversen: During this call, we will be making four-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 and today's earnings press release in the comments made during this conference call and in the risk factor section of our form 10K, forms 10Q, and other reports and filings with the Securities and Exchange Commission.

Copilot for all 170000, plus power platform users at the company.

Speaker 3: And this quarter, we added new co-pilot capabilities to power pages, making it possible to build data-driven websites using just a few sentences or clips.

This quarter, we added new copilot capabilities to Paula pages, making it possible to build data driven websites using just a few sentences all clicks finally power apps remains the market leader in low code No code development now with 20 million monthly active users up 40% year over year.

Speaker 3: Finally, Power Apps remains the market leader in low-code, no-code development, now with 20 million monthly active users, up 40% year-over-year. Now I want to—

Satya Nadella: We do not undertake any duty to update any four-looking statement and with that, I'll turn the call over to Satya. Thank you, Brett. We are off to a strong start to the fiscal year driven by the continued strength of Microsoft Cloud, which surpassed $31.8 billion in quarterly revenue up 24%. With co-pilots, we are making the age of AI real for people and businesses everywhere. We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers, partners.

I want to business applications.

Speaker 3: All up, Dynamics 365 took share for the 10th consecutive quarter. We're using this AI inflection point to redefine our role in business applications. We're becoming the co-pilot-led business process transformation layer on top of existing CRM systems like Salesforce. For example, our sales co-pilot helps sellers at more than 15,000 organizations including Rockwell Automation, Sandvik, Coromant.

All up dynamics 365 took share for the 10th consecutive quarter.

Using this AI inflection point to redefine our role in business applications. We are becoming the copilot led business process transformation there on top of existing CRM systems like Salesforce. For example, our sales copilot help sellers that more than 15000 organizations, including Rockwell automation sandwich carra mapped sick.

Speaker 3: secure tasks, and teleperformance, personalized customer interactions based on data from third-party CRMs. We're also bringing Copilot to Dynamics 365 to help with everything from suggested actions and content ideas, to faster access to valuable business data. And this quarter, we introduced Copilot and Dynamics 365 Field Service to help streamline frontline tasks.

Satya Nadella: Now I'll highlight examples of our progress starting with infrastructure. Azure again took share as organizations bring their workloads to our cloud. We have the most comprehensive cloud footprint with more than 60 data center regions worldwide as well as the best AI infrastructure for both training and inference. And we also have our AI services deployed in more regions than any other cloud provider. This quarter we announced the general availability of our next generation, H100 Virtual Machines.

<unk> to us and tell our performance personalized customer interactions based on data from third party CRM. We're also bringing copilot to dynamics 365 to help with everything from suggestive actions and content ideas to faster access to valuable business data and this quarter, we introduced copilot and dynamics 365 field.

Service to help streamline frontline test now.

Speaker 3: No one to industry and cross-industry clouds. In healthcare, our Dragon Abian experience solution helps clinicians automatically document patient interactions at the point of care. It's been used across more than 10 million interactions today.

Now on to industry and cross industry clouds in healthcare, our dragon ambient experience solution helps clinicians automatically document patient interactions at the point of care, it's being used across more than 10 million interactions to date and with tax copilot. We are applying generated AI models to draft high quality clinical notes.

Satya Nadella: Azure AI provides access to best-in-class frontier models from OpenAI and Open Source models including our own, as well as from meta and hugging face, which customers can use to build their own AI apps while meeting specific cost, latency and performance needs. Because of our overall differentiation, more than 18,000 organizations now use Azure OpenAI service including new to Azure customers. And we are expanding our reach with digital first companies with OpenAI APIs as leading AI startups use OpenAI to power the AI solutions therefore making them Azure customers as well.

Speaker 3: And with DAX co-pilot, we are applying generative AI models to draft high quality clinical notes in seconds, increasing physician productivity, and reducing burnout. For example, A-CREAM helped a leading provider in Southeast United States credits DAX co-pilot with helping its physicians each save up to 40 minutes per day in documentation time.

Second increasing physician productivity and reducing burnout for example, atrium health, a leading provider in southeast United States credit stacks copilot with helping its physicians each save up to 40 minutes per day in documentation time, we're also introducing healthcare data solutions in Microsoft fabric, enabling providers like north.

Speaker 3: We're also introducing healthcare data solutions in Microsoft Fabric, enabling providers like Northwestern Medicine and SingHealth to unify health data in a secure, compliant way.

The rest in medicine, and sing helped to unify health data in a secure compliant way and with our Microsoft cloud for sovereignty, which will become generally available by the end of the calendar year, we offer industry, leading data sovereignty and encryption controls meeting the specific needs of public sector customers around the world.

Satya Nadella: We continue to see more cloud migrations with Azure Arc. We are meeting customers where they are helping them run apps across on-prem, edge and multi-cloud environments. We now have 21,000 Arc customers up or 140 percent year over year. We are the only other cloud provider to run Oracle's database services making it simpler for customers to migrate their on-prem Oracle databases to our cloud. Customers like PepsiCo and Vodafone will have access to a seamless fully integrated experience for deploying, managing and using Oracle database instances on Azure. And we are the cloud of choice for customers SAP workloads to companies like Brother Industries, Haynes, Zeiss and ZF Group all run SAP on Azure.

Speaker 3: And with our Microsoft Cloud for Sovereignty, which will become generally available by the end of the calendar year, we offer industry leading data sovereignty and encryption controls, meeting the specific needs of public sector customers around the world.

Good.

Speaker 3: Go on to future work. Copilot is your everyday AI.

So onto future work co pilot is your everyday AI assistant, helping you be more creative and word more analytical and excel in more expressive and powerpoint more productive and outlook in more collaborative and teams tens of thousands of employees at customers like Bayer KPMG Mayo clinic, Suncorp and visa.

Speaker 3: helping you be more creative in Word, more analytical in Excel, more expressive in PowerPoint, more productive in Outlook, and more collaborative in Teams.

Speaker 3: tens of thousands of employees at customers like Bayer, KPMG, Mayo, Clinic, SunCorp and Visa, including 40% of the fortune 100 are using co-pilot as part of our Early Access Program.

Including 14% of the Fortune 100 are using co pilot as part of our early access program cuts.

Speaker 3: Customers tell us that once they use Copilot, they can't imagine work without it. And we are excited to make it generally available for enterprise customers next week. This quarter, we also introduced a new hero experience in Copilot helping employees tap into their entire universe of work, data, and knowledge using chat. And the new Copilot Lab helps employees build their own work habits for this era of AI by helping them turn good prompts into great ones.

Customers tell us that once they use co pilot the economy margin walk without it and we're excited to make it generally available for enterprise customers next week. This quarter. We also introduced a new hero experiencing copilot, helping employees tap into the entire universe of work data and knowledge using chat and the new co pilot.

Satya Nadella: Now on to data. In the age of co-pilots organizations are looking to consolidate their data states. That's why with our Microsoft Intelligent Data Platform we are bringing together operational data stores, analytics and governance. More than 73 percent of the Fortune 1000 use three or more of our data solutions today. And with Microsoft Fabric we are unifying compute, storage and governance into one end-to-end analytics solution with an all-inclusive business model. More than 16,000 customers are actively using fabric including over 50 percent of the Fortune 500.

Lab helps employees build their own work habits for this era of AI by helping them done good problems integrate ones.

Speaker 3: When it comes to Teams, usage continues to grow with more than 320 million monthly active users, making Teams the place to work across chat, collaboration, meetings, and calling.

When it comes to team usage continues to grow with more than 320 million monthly active users, making teams the place to work across chat collaboration meetings and calling.

Speaker 3: This quarter, we introduced a new version of Teams that is up to two times faster while using 50% less memory and includes seamless cross-tenant communications and collaboration.

This quarter, we introduced a new version of a team that is up to two times faster, while using 50% less memory and includes seamless cross tenant communications and collaboration.

Satya Nadella: Now on to developers. With GitHub co-pilot we are increasing developer productivity by up to 55 percent while helping them stay in the flow and bring the joy back to coding. We have over 1 million paid co-pilot users in more than 37,000 organizations that subscribe to co-pilot for business up 40 percent quarter over quarter with significant traction outside the United States. This quarter we added new capabilities with GitHub co-pilot chat which are already being used by both digital natives like Shopify as well as leading enterprises like Merst and PWC to supercharge the productivity of their software developers.

Speaker 3: We've seen nine consecutive quarters of crippled digit revenue growth for teams rooms and more than 10,000 big customers now use teams premium.

<unk> seen nine consecutive quarters of triple digit revenue growth for teams rooms, and more than 10000 paid customers now use teams premium.

Teams has also become a multiplayer catalysts for business process that are more than 2000 apps and teams store and collaborative apps from Adobe Atlassian at work. They each exceeded 1 million monthly active users on teens and with Veeva, we've created a new market category for our employee experience, helping companies like Dell.

Speaker 3: Teams has also become a multiplayer canvas for business processes that are more than 2,000 apps in Teams Store and collaborative apps from Adobe, Atlassia and work they each exceeded one million monthly active users on Teams. And with Viva, we have created a new market category for employee experience, helping companies like Dell, Lloyd's Banking Group and PayPal build high performance organizations.

Banking group and Paypal build high performance organizations with skills, and we are bringing together information from Microsoft 365, and Linkedin to help employers understand workforce gaps and suggest personalized learning content to address at all in the flow of work all up we continue to see.

Satya Nadella: All of the number of developers using GitHub has increased 4x since our acquisition five years ago. We've also brought Copilot to Power Platform, enabling anyone to use natural language to create apps, build virtual agents and analyze data, more than 126,000 organizations, including 3M, Equinox, Lumen Technologies, Nationwide, PG&E, and Toyota have all used Copilot and Power Platform to date. EY, for example, has enabled Copilot for all 170,000 plus Power Platform users at the company.

Speaker 3: With skills in VR, we are bringing together information from Microsoft 365 and LinkedIn to help employers understand workforce gaps and suggest personalized learning content to address it all in the flow.

Speaker 3: All up, we continue to see more organizations choose Microsoft 365 and companies across private and public sector, including Cerebris, Chanel, DXC Technology, all rely on our premium E5 offerings for advanced security, compliance, voice and analytics.

More organizations choose Microsoft 365, and companies across private and public sector, including set a gross Chanel Dfc technology, all rely on our premium <unk> offerings for advanced security compliance voice and analytics.

Satya Nadella: And this quarter we added new Copilot capabilities to power pages, making it possible to build data-driven websites using just a few sentences or clicks. Finally, Power Apps remains the market leader in low-code, no-code development, now with 20 million monthly active users up 40% year-over-year.

No one to windows.

Speaker 3: The PC market unit volumes were at roughly pre-pandemic levels. And we continue to innovate across windows adding differentiated AI-powered experiences to the operating.

The PC market unit volumes, what roughly pre pandemic levels and we continue to innovate across windows, adding differentiated AI powered experiences through the operating system. We wrote off the biggest update to windows 11 ever with 150, new features including new AI powered experiences like clip chap paint and photos and we introduced <unk>.

Speaker 3: We wrote out the biggest update to Windows 11 ever with 150 new features, including new AI-powered experiences like clipchamp, paint and photos. And we introduced Copilot and Windows, the everyday AI companion, which incorporates the context of the web, your work data, and what you are doing on the PC to provide better assist.

Satya Nadella: No one to business applications. All up, Dynamics 365 took share for the 10th consecutive quarter. We're using this AI inflection point to redefine our role in business applications. We are becoming the Copilot-led business process transformation layer on top of existing CRM systems like Salesforce. For example, our sales Copilot helps sellers at more than 15,000 organizations, including Rockwell Automation, Sandwick, Coromant, Securitas, and Teleperformance personalized customer interactions based on data from 3rd party CRM.

Copilot and windows, the everyday AI companion, which incorporates the context of the web Youll walk data and what you are doing on the PC to provide better assistance, we're seeing accelerated windows 11 deployments worldwide from companies like BP Euro rings, Cantor and RBC <unk>.

Speaker 3: We are seeing accelerated Windows 11 deployments worldwide from companies like BP, Eurowings, Cantor, and RBC.

Speaker 3: Finally, with Windows 365 boot and switch, we're making it easier than ever for employees at companies like Crocs, Hamburg Commercial Bank, and the ING Bank to get a personalized Windows 365 Cloud PC with Copilot on any device.

Finally, with Windows, 365, boot and switch, we're making it easier than ever for employees at companies like Crocs have the commercial bank. The <unk> Bank do get a personalized windows 365 cloud PC with co pilot on any device.

Satya Nadella: We're also bringing Copilot to Dynamics 365 to help with everything from suggestive actions and content ideas to faster access to valuable business data. And this quarter we introduced Copilot in Dynamics 365 Field Service to help streamline frontline tasks. No healthcare, our drag and admin experience solution helps clinicians automatically documentation interactions at the point of care. It's been used across more than 10 million interactions to date. And with DAX Copilot, we are applying generative AI models to draft high quality clinical notes in seconds, increasing physician productivity and reducing burnout.

Now I want to security.

Speaker 3: The speed, scale, and sophistication of cyber attacks today is unparalleled, and security is the number one priority for CIOs worldwide.

The speed scale and sophistication of cyber attacks today is unparalleled and security is the number one priority for Cio's worldwide, we see high demand for security copilot, the industry's first and most advanced generative AI product, which is now seamlessly integrated with Microsoft 365 defend up dozens of.

Speaker 3: We see high demand for security co-pilot, the industry's first and most advanced generative AI product, which is now seamlessly integrated with Microsoft 365 Defender. Dozens of organizations, including Bridgewater, Fidelity National Financial and Government of Alberta, have been using co-pilot in preview and early feedback has been positive.

Nations, including Bridgewater Fidelity National financial and government developed but have been using copilot and preview and early feedback has been positive and we look forward to bringing copilot to hundreds of organizations in the coming months as part of the new early access programs. So they can improve the productivity of their own security operation centers.

Speaker 3: And we look forward to bringing co-pilot to hundreds of organizations in the coming months as part of the new early access program so they can improve the productivity of their own security operation centers and stop threat at machine speed.

Satya Nadella: For example, Atrium Health, a leading provider in Southeast United States credits DAX Copilot with helping its physicians each save up to 40 minutes per day in documentation time. We're also introducing healthcare data solutions in Microsoft Fabric, enabling providers like Northwestern Medicine and Thing Health to Unify health data in a secure compliant way. And with our Microsoft Cloud for Sovereignty, which will become generally available by the end of the calendar year, we offer industry leading data sovereignty and encryption controls, meeting the specific needs of public sector customers around the world.

And stop threats at machine speed.

Speaker 3: More broadly, we continue to take share across all major categories we serve, and our CEM, Microsoft Sentinel, now has more than 25,000 customers and revenue surpassed $1 billion annual run rate. And customers in every industry like Booz Allen Hamilton, Grant Thornton and MetLife use our end-to-end solutions to protect their environment.

More broadly we continue to take share across all major categories with.

Microsoft Sentinel now has more than 25000 customers and revenue surpassed $1 billion annual run rate and customers in every industry like Booz Allen Hamilton Grant Thornton and Metlife use our end to end solutions to protect their environments.

Speaker 3: No one to LinkedIn. We are now applying this new generation of AI to transform how the 985 million members learn Salon Get Higher.

Now onto Linkedin, we are now applying this new generation of AI to transform how the 985 million members love sell let's get hired men.

Satya Nadella: No one to future work. Copilot is your everyday AI assistant, helping you be more creative in word, more analytical in Excel, more expressive in PowerPoint, more productive in outlook and more collaborative in teams. Tens of thousands of employees at customers like Bayer, KPMG, Mayo Clinic, SunCorp and Visa, including 40% of the Fortune 100 are using Copilot as part of our early access program. Customers tell us that once they use Copilot, they can't imagine work without it.

Speaker 3: Membership growth has now accelerated each quarter for over two years in a row. This quarter we introduced new AI driven features across all of our businesses, including a learning coach that gives members close nice content guidelines and toolstale employers fine qualified candidates and sellers and marketeers attract buyers in a single step.

Membership growth has now accelerated each quarter for over two years in a row. This quarter, we introduced new AI driven features across all of our businesses, including our learning coach that gives members personalized content guidelines and tools to help employers.

<unk> qualified candidates and sellers in the market.

Buyers in a single step.

Speaker 3: Since introducing AI-assisted messages for recruiters five months ago, three-fourths of them say it saved them time. And we have seen a nearly 80% increase in members watching AI-related learning courses this quarter.

Since introducing AI assisted messages for recruiters five months ago, three fourths of them say it saves them time, and we have seen a nearly 18% increase in members watching AI related learning courses this quarter.

Satya Nadella: And we are excited to make it generally available for enterprise customers next week. This quarter, we also introduced a new hero experience in Copilot, helping employees tap into their entire universe of work, data and knowledge using chat. And the new Copilot lab helps employees build their own work habits for this era of AI by helping them turn good prompts into great ones.

Speaker 3: More broadly, we continue to see record engagement and knowledge sharing on the platform. We now have more than 450 million newsletter subscriptions globally, up 3x year over year. Premium subscription signups were up 55% year over year, and our hiring business took share for the fifth consecutive quarter.

More broadly we continue to see record engagement and knowledge sharing on the platform. We now have more than 450 million newsletter subscriptions globally up three <unk> year over year premium subscription sign ups were up 55% year over year, and our hiring business took share for the fifth consecutive quarter.

Satya Nadella: When it comes to teams, usage continues to grow with more than 320 million monthly active users making teams the place to work across chat, collaboration, meetings and calling. This quarter, we introduced a new version of teams that is up to two times faster while using 50% less memory and include seamless cross-tenant communications and collaboration. Version. We've seen nine consecutive quarters of triple-digit revenue growth for teams rooms and more than 10,000 paid customers now use teams premium.

Speaker 3: Now on to search advertising and news with our copilot for the web. We are redefining how people use the Internet to search and create being users have engaged in more than 1.9 billion chats and Microsoft Edge is now gained share for 10 consecutive quarters.

On the search advertising and news with our co pilot for the web we are redefining how people use the internet to search and create being users have engaged in more than $1 9 billion chats and Microsoft edge has now gained share for 10 consecutive quarters. This quarter, we introduced new personalized answers as well as support for Dolby three.

Speaker 3: This quarter we introduced new personalized answers as well as support for Dolly 3, helping people get more relevant answers and to create incredibly realistic images. More than 1.8 billion images have been created today.

Helping people get more relevant balances and to create incredibly realistic images more than a $1 8 billion images have been created to date.

Satya Nadella: Teams has also become a multi-player canvas for business process that are more than 2,000 apps in team store and collaborative apps from Adobe, Atlassia, and work they each exceeded 1 million monthly active users on teams. And with Viva, we have created a new market category for our employee experience helping companies like Dell, Lloyd's Banking Group, and PayPal build high-performance organizations. With skills in Viva, we are bringing together information from Microsoft 365 and LinkedIn to help employers understand workforce gaps and suggest personalized learning content to address it, all in the flow of work. All up, we continue to see more organizations choose Microsoft 365 and companies across private and public sector, including Cerebrus, Channel, DXC technology, all rely on our premium E5 offerings for advanced security, compliance, voice, and analytics.

Speaker 3: And with our co-pilot in shopping, people can find more tailored recommendations and better deals. They're also expanding to new endpoints, bringing Bing to meta the eye chat experience in order to provide more up-to-date answers, as well as access to real-time search information.

And with our copilot and shopping people can find more tailored recommendations and better deals there.

Also expanding to new endpoints, bringing being met as AI chat experience in order to provide more up to date answers as well as access to real time search information.

Speaker 3: Finally, we're integrating this new generation, of AI directly into our ad platforms, to more effectively connect marketers to customer intent and chat experiences both from us, as well as customers like actual Springer and Snap. Now on to gaming.

Finally, we are integrating this new generation of AI directly into our AD platforms to more effectively connect market tier two customer intent and chat experiences both from us as well as customers like actual Springer and snap.

Now on to gaming.

Speaker 3: We were delighted to close our acquisition of Activision Blizzard King earlier this month. Together, we will advance our goal of bringing great games to players everywhere on any endpoint. Already with Game Pass, we are redefining how games are distributed, played, and discovered. We set a record for our play per subscriber this quarter.

We were delighted to close our acquisition of Activision Blizzard and King earlier. This month together, we will advance our goal of bringing great games to players everywhere on any endpoint already with game pass. We're redefining how games are distributed played and discovered we set a record for hours played a subscriber this quarter.

We really staff feel this quarter to broader claim more than 11 million people have played the game to date nearly half of the hours played have been on PC and on launch day, we set a record for the most game pass subscriptions added on a single day ever.

Speaker 3: We released Starfield this quarter to broad acclaim. More than 11 million people have played the game to date. Nearly half of the hours played have been on PC, and on launch day we set a record for the most Game Pass subscriptions added on a single day ever.

Satya Nadella: No one to Windows. The PC market unit volumes were at roughly pre-pandemic levels, and we continue to innovate across Windows adding differentiated AI-powered experiences to the operating system. We wrote out the biggest update to Windows 11 ever with 150 new features, including new AI-powered experiences like ClipChamp, Paint, and Photos, and we introduced Copilot in Windows, the everyday AI companion which incorporates the context of the web, your work data, and what you are doing on the PC to provide better assistance.

Speaker 3: Minecraft has now surpassed 300 million copies sold, and with Activision Blizzard King, we now add significant depth to our content portfolio.

Mike Kraft has now surpassed 300 million copies sold and with Activision Blizzard King we now adds significant depth to our content portfolio. We will have $13 billion plus franchises from candy crush Diablo and Halo to Warcraft elder scrolls at gears of war and we're looking.

Speaker 3: We will have $13 billion plus franchises from Candy Crush, Diablo, and Halo to Warcraft, Elder Scrolls, and Gears of War.

Satya Nadella: We are seeing accelerated Windows 11 deployments worldwide from companies like BP, Eurowings, Cantor, and RBC. Finally, with Windows 365 boot and switch, we are making it easier than ever for employees at companies like Crox, Hamburg Commercial Bank, and the ING Bank to get a personalized Windows 365 Cloud PC with Copilot on any device.

Speaker 3: And we're looking forward to one of our strongest first-party holiday lineups ever, including new titles like Call of Duty, Modern Warfare 3, and Forza Motorsport.

Forward to one of our strongest first part of your holiday lineups ever including new titles like call of duty modern warfare three AD forms the motorsport in closing we are rapidly innovating to expand our opportunity across our consumer and commercial businesses as we help our customers thrive in this new era in just a few weeks we will be.

Speaker 3: In closing, we are rapidly innovating to expand our opportunity across our consumer and commercial businesses as we help our customers thrive in this new era. In just a few weeks, we will be holding our flagship Ignite conference, where we will introduce more than 100 new products and capabilities, including exciting new AI innovations. I encourage you to tune in. With that, I'll turn it over to Amy. Thank you.

Holding our flagship ignite conference, where we will introduce more than 100, new products and capabilities, including exciting new AI innovation. So I encourage you to tune in with that I'll turn it over to Amy.

Satya Nadella: No one to security. The speed, scale, and sophistication of cyber attacks today is unparalleled, and security is the number one priority for CIOs worldwide. We see high demand for security Copilot, the industry's first and most advanced generative AI product, which is now seamlessly integrated with Microsoft 365 Defender. Dozens of organizations, including Bridgewater, Fidelity National Financial, and Government of Alberta, have been using Copilot in preview and early feedback has been positive. And we look forward to bringing Copilot to hundreds of organizations in the coming months as part of the new early access program so they can improve the productivity of their own security operations centers and stop threats at machine speed.

Thank you Satya and good afternoon, everyone.

Speaker 4: This quarter revenue was $56.5 billion, up 13% and 12% in constant currency. Ourings per share was $2.99 and increased 27% and 26% in constant currency. Consistent execution by our sales teams and partners drove a strong start to the fiscal year. Results exceeded expectations and we saw share games again in this quarter across many businesses. Customers adopt our innovative solutions to transform their businesses.

This quarter revenue was $56 5 billion.

13% and 12% in constant currency.

<unk> per share was $2 99, and increased 27% and 26% in constant currency consistent execution by our sales teams and partners drove a strong start to the fiscal year results exceeded expectations and we saw share gains again this quarter across many businesses as customers adopt our integrated solutions.

To transform their businesses.

Satya Nadella: More broadly, we continue to take share across all major categories we serve, and our same Microsoft Sentinel now has more than 25,000 customers in revenue surpassed $1 billion annual run rate. And customers in every industry like Boozal and Hamilton, Grant Thornton, and MetLife use our end-to-end solutions to protect their environments.

Speaker 4: In our commercial business, the trends from the prior quarter continued. We saw healthy renewals, particularly in Microsoft 365 E5, and growth of new business continued to be moderated for standalone products sold outside the Microsoft 365 suite. In Azure, as expected, the optimization trends were similar to Q4. Higher than expected AI consumption contributed to revenue growth in Azure.

In our commercial business the trends from the prior quarter continued we saw healthy renewals, particularly in Microsoft $365, five and growth of new business continued to be moderated for standalone products sold outside the Microsoft 365 suite.

Azure as expected.

Optimization trends were similar to Q4.

Higher than expected AI consumption contributed to revenue growth in Azure.

Satya Nadella: No one to link in. We are now applying this new generation of AI to transform how the nine hundred and eighty-five million-membered loans that let's get higher. Corp, LinkedIn. Membership growth has now accelerated each quarter for over two years in a row. This quarter we introduced new AI driven features across all of our businesses, including a learning coach that gives members personalized content guidelines and tools to help employers find qualified candidates and sellers and marketers attract buyers in a single step.

Speaker 4: And our consumer business, PC Market Unit Volumes, are returning to pre-pandemic levels.

In our consumer business PC market unit volumes are returning to pre pandemic levels advertising spend roughly in line with our expectations and in gaming strong engagement helped by the star felt much benefited Xbox content and services.

Speaker 4: Advertising spend landed roughly in line with our expectations and in gaming strong engagement helped by the Starfield launch benefited Xbox content and services.

Speaker 4: Commercial bookings increased 14% and 17% in constant currency in line with expectations, primarily driven by strong execution across our core annuity sales motions, with continued growth in the number of $10 million plus contracts for both Azure and Microsoft 365.

Bookings increased 14% and 17% in constant currency in line with expectations, primarily driven by strong execution across our core annuity sales motion with continued growth in the number of $10 million plus contracts for both Azure and Microsoft 365, commercial remaining performance obligation increased 18%.

Satya Nadella: Since introducing AI assisted messages for recruiters five months ago, three-fourths of them say it saves them time. And we have seen a nearly 80% increase in members watching AI-related learning courses this quarter. More broadly, we continue to see record engagement and knowledge sharing on the platform. We now have more than 450 million newsletters subscriptions globally up 3X year-to-year premium subscription signups were up 55% year-to-year and our hiring business took share for the fifth consecutive quarter.

Speaker 4: Commercial remaining performance obligation increased 18% to $212 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 15% year over year. The remaining portion, which will be recognized beyond the next 12 months, increased 20%. And this quarter, our annuity mix was 96%.

$212 billion.

45% will be recognized in revenue in the next 12 months up 15% year over year, the remaining portion which will be recognized beyond the next 12 months increased 20% and this quarter, our annuity mix was 96%.

Speaker 4: FX did not have a significant impact on our results and was roughly in line with our expectations on total company revenue, segment-level revenue, COGS, and operating expense growth.

FX did not have a significant impact on our results and was roughly in line with our expectations on total company revenue segment level revenue Cogs and operating expense growth.

Satya Nadella: Now I want to search advertising and news. With our Copilot for the web, we are redefining how people use the Internet to search and create. Ding News News has engaged in more than 1.9 billion chats and Microsoft Edge has now gained share for 10 consecutive quarters. This quarter we introduced new personalized answers as well as support for Dolly 3, helping people get more relevant answers and to create incredibly realistic images. More than 1.8 billion images have been created today.

Speaker 4: Microsoft Cloud Revenue was $31.8 billion in Group 24% and 23% in Constant currency, ahead of expectations.

Microsoft Cloud revenue was $31 8 billion and grew 24% and 23% in constant currency ahead of expectations, Microsoft Cloud gross margin percentage increased slightly year over year to 73% point and better than expected primarily driven by improvement in Azure.

Speaker 4: Microsoft Cloud Grows Margin Percentage increased slightly year-over-year to 73%, a point better than expected, primarily driven by improvement in Azure. Excluding the impact of the change in accounting estimate for useful lives, Microsoft Cloud Grows Margin Percentage increased roughly two points, driven by the improvement just mentioned in Azure, as well as Office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demands.

Including the impact of the change in accounting estimate for useful lives Microsoft cloud gross margin percentage increased roughly two points driven by the improvement just mentioned and Azure as well as office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demand company.

Satya Nadella: And with our Copilot in shopping, people can find more tailored recommendations and better deals. They're also expanding to new endpoints, bringing Bing to meta AI chat experience in order to provide more up-to-date answers as well as access to real-time search information. Finally, we are integrating this new generation of AI directly into our ad platforms to more effectively connect market tiers to customer intent and chat experiences both from us as well as customers like actual Springer and Snap.

Speaker 4: Company gross margin dollars increased 16% and 15% in constant currency, and gross margin percentage increased to over year to 71%. If good in the impact of the change in accounting estimate, gross margin percentage increased roughly three points, driven by the improvement in Azure and Office 365, as well as sales and shift to higher margin businesses.

Company gross margin dollars increased 16% and 15% in constant currency and gross margin percentage increased year over year to 71%, excluding the impact of the change in accounting estimate gross margin percentage increased roughly three points driven by the improvement in Azure and office 365, as well as sales mix shift to higher margin businesses.

Speaker 4: Operating expenses increased 1%, lower than expected, due to cost efficiency focus as well as investments that shifted to future quarters. Operating expense growth was driven by marketing, LinkedIn, and cloud engineering, partially offset by devices. At a total company level, headcount at the end of September was 7% lower than a year ago.

Operating expenses increased 1% lower than expected due to cost efficiency focus as well as investments that shifted to future quarters operating expense growth was driven by marketing Linkedin and cloud engineering, partially offset by devices at.

Satya Nadella: Now on to gaming.

Satya Nadella: We were delighted to close our acquisition of Activision Blizzard King earlier this month. Together, we will advance our goal of bringing great games to players everywhere on any endpoint. Already with Game Pass, we are redefining how games are distributed played and discovered. We set a record for hours played for subscriber this quarter. We really starfield this quarter to broader claim. More than 11 million people have played the game to date. Nearly half of the hours played have been on PC and on launch day, we set a record for the most Game Pass subscriptions added on a single day ever.

At a total company level head count at the end of September was 7% lower than a year ago.

Speaker 4: Operating income increased 25% and 24% in constant currency. Operating margins increased roughly five points year over year to 48%. Excluding the impact of the change in accounting estimate, operating margins increased roughly six points, driven by improved operating leverage through cost management and the higher gross margin noted earlier. Now to our segment results.

Operating income increased 25% and 24% in constant currency operating margins increased roughly five points year over year to 48%, excluding the impact of the change in accounting estimate operating margins increased roughly six points driven by improved operating leverage through cost management and the higher gross margin noted earlier now.

To our segment results revenue from productivity and business processes was $18 6 billion and grew 13% and 12% in constant currency ahead of expectations driven by better than expected results in office 365, commercial and Linkedin.

Satya Nadella: Minecraft has now surpassed 300 million copies sold and with Activision Blizzard King, we now add significant depth to our content portfolio. We will have $13 billion plus franchises from Candy Crush, Diablo, and Halo to Warcraft, Elder Scrolls, and Gears of War. We are looking forward to one of our strongest first-party holiday line-ups ever including new titles like Call of Duty, Modern Warfare 3, and Forza Motorsport.

Speaker 4: Revenue from productivity and business processes was $18.6 billion and grew 13% and 12% in constant currency, ahead of expectations, driven by better-than-expected results in Office 365 Commercial and LinkedIn.

Speaker 4: Office Commercial Revenue, group 15% and 14% in Concentre Concentre Concentre Concentre Concentre Concentre Office 365, Commercial Revenue, increased 18% and 17% in Concentre Concentre Concentre Concentre Concentre slightly better than expected, with a bit more interior revenue recognition while buildings were made relatively in line with expectations.

Office commercial revenue grew 15% and 14% in constant currency office 365, commercial revenue increased 18% and 17% in constant currency slightly better than expected with a bit more in period revenue recognition. While billings remained relatively in line with expectations growth continues to be driven by healthy renewal execution and ARPA.

Satya Nadella: In closing, we are rapidly innovating to expand our opportunity across our consumer and commercial businesses as we help our customers thrive in this new era. In just a few weeks, we will be holding our flagship Ignite conference where we will introduce more than 100 new products and capabilities, including exciting new AI innovations. I encourage you to tune in.

Speaker 4: Growth continues to be driven by healthy renewal execution and ARPU growth, as E5 momentum remains strong. Paid Office 365 commercial seats grew 10% year-over-year, with installed-based expansion across all customer segments.

<unk> growth and <unk> momentum remains strong paid office 365 commercial seats grew 10% year over year with installed base expansion across all customer segments seat growth was again, driven by our small and medium business and frontline worker offerings with continued impact from the growth trends in new Standalone business noted earlier.

Speaker 4: Seat growth was again driven by our small and medium business and frontline worker offerings, with continued impact from the growth trends and new standalone business noted earlier.

Amy Hood: With that, I will turn it over to A. Thank you, Satya, and good afternoon, everyone. This quarter revenue was $56.5 billion of 13% and 12% in constant currency. Earnings per share was $2.99 and increased 27% and 26% in constant currency. Consistent execution by our sales teams and partners drove a strong start to the fiscal year. Results as customers adopt our innovative solutions to transform their businesses. In our commercial business, the trends from the prior quarter continued.

Speaker 4: Office commercial licensing declined 17% in line with a continued customer shift to cloud offering.

Office commercial licensing declined 17% in line with the continued customer shift to cloud offerings.

Speaker 4: Office Consumer Revenue increased 3% and 4% in constant currency with continued momentum in Microsoft 365 subscriptions which grew 18% to 76.7 million.

Office consumer revenue increased 3% and 4% in constant currency with continued momentum in Microsoft 365, subscriptions, which grew 18% to $76 7 million.

Speaker 4: LinkedIn revenue increased 8% ahead of expectations, driven by slightly better than expected performance across all businesses. Growth was driven by talent solutions, though we continued to see negative year-over-year bookings there from the weaker hiring environment and key verticals.

Linkedin revenue increased 8% ahead of expectations driven by slightly better than expected performance across all businesses growth was driven by talent solutions.

Continued to see negative year over year bookings there from the weaker hiring environment in key vertical.

Speaker 4: Dynamics Revenue grew 22% and 21% in constant currency, driven by Dynamics 365, which grew 28% and 26% in constant currency, with continued growth across all workloads.

Dynamics revenue grew 22% and 21% in constant currency driven by dynamics, 365, which grew 28% and 26% in constant currency with continued growth across all workloads.

Amy Hood: We saw healthy renewals, particularly in Microsoft 365 E5 and growth of new business continued to be moderated for standalone products sold outside the Microsoft 365 suite. In Azure, as expected, the optimization trends were similar to Q4. Higher than expected AI consumption contributed to revenue growth in Azure. In our consumer business, PC market unit volumes are returning to pre-pandemic levels. Avertising spend landed roughly in line with our expectations and in gaming, strong engagement helped by the start field launch, benefited Xbox content and services.

Speaker 4: Segment gross margin dollars increased 13% and gross margin percentage increased slightly year over year. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly one point driven by improvement in Office 365. Operating expenses increased 2% and operating income increased 20% and 19% in constant currency. Next, the Intelligent Cloud Segment.

Segment gross margin dollars increased 13% and gross margin percentage increased slightly year over year.

Excluding the impact of the change in accounting estimate gross margin percentage increased roughly one point driven by improvement in office 365, operating expenses increased 2% and operating income increased 20% and 19% in constant currency next the intelligent cloud segment.

Speaker 4: Revenue was $24.3 billion, increasing 19% and ahead of expectations, with better-than-expected results across all businesses.

Revenue was $24 3 billion increase.

Increasing 19% and ahead of expectations with better than expected results across all businesses overall server products and cloud services revenue grew 21%.

Amy Hood: Commercial bookings increased 14% and 17% in constant currency in line with expectations, primarily driven by strong execution across our core annuity sales motions with continued growth in the number of $10 million plus contracts for both Azure and Microsoft 365. Commercial remaining performance obligation increased 18% to $212 billion. Roughly 45% will be recognized in revenue in the next 12 months, up 15% year over year. The remaining portion, which will be recognized beyond the next 12 months, increased 20%.

Speaker 4: Overall, server products and cloud services revenue grew 21%, Azure and other cloud services revenue grew 29% and 28% in constant currency, including roughly three points from AI services.

As you and other cloud services revenue grew 29% to 28% in constant currency, including roughly three points from AI surfaces.

Speaker 4: While the trends from prior quarter continued, growth was ahead of expectations, primarily driven by increased GPU capacity and better than expected GPU utilization of our AI services.

While the trends from prior quarter continued growth was ahead of expectations, primarily driven by increased GPU capacity and better than expected GPU utilization of our AI services as well as slightly higher than expected growth in our per user business and our.

Speaker 4: as well as slightly higher than expected growth in our peruser business.

Speaker 4: In our per-user business, the enterprise mobility and security install base grew 11% to over 259 million seats. With continued impact from the growth trends in new standalone business noted earlier.

User business.

Amy Hood: And this quarter, our annuity mix was 96%. FX did not have a significant impact on our results and was roughly in line with our expectations on total company revenue, segment level revenue, COGS and operating expense growth. Microsoft Cloud revenue was $31.8 billion and grew 24% and 23% in constant currency ahead of expectations. Microsoft Cloud gross margin percentage increased slightly year over year to 73%. The point better than expected, primarily driven by improvement in Azure.

<unk> mobility and security install base grew 11% to over 259 million seats with continued impact from the growth trends in new Standalone business noted earlier.

Speaker 4: In a raw premises server business, revenue increased 2% ahead of expectations, driven primarily by demand in advance of Windows Server 2012 and of support.

And our on premises server business.

<unk> increased 2% ahead of expectations, driven primarily by demand in advance of Windows server 2012 and to support.

Speaker 4: Enterprise and partner services revenue increased 1% and was relatively unchanged in constant currency, ahead of expectations, driven by better than expected performance in enterprise support services.

Enterprise and partner services revenue increased 1% and was relatively unchanged in constant currency ahead of expectations driven by better than expected performance in enterprise support services segment.

Speaker 4: Segment gross margin dollars increased 20% and 19% in constant currency, and gross margin percentage increased slightly. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly two points driven by the improvement in Azure noted earlier, even as we scale our AI infrastructure to meet growing demand. Operating expenses increased 2% and 1% in constant currency. Operating income grew 31% and 30% in constant currency.

Amy Hood: Excluding the impact of the change in accounting estimate for useful lives, Microsoft Cloud gross margin percentage increased roughly two points driven by the improvement just mentioned in Azure as well as Office 365 partially offset by the impact of scaling our AI infrastructure to meet growing demand. Company gross margin dollars increased 16% and 15% in constant currency, and gross margin percentage increased to over year to 71%. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly three points driven by the improvement in Azure and Office 365, as well as sales mixed shift to higher margin businesses.

Segment gross margin dollars increased 20% and 19% in constant currency and gross margin percentage increased slightly.

Excluding the impact of the change in accounting estimate gross margin percentage increased roughly two points driven by the improvement in Azure noted earlier, even as we scale our infrastructure to meet growing demand.

Operating expenses increased 2% and 1% in constant currency operating income grew 31% and 30% in constant currency.

Speaker 4: Now, to more personal computing, revenue was 13.7 billion dollars increasing 3% and 2% in constant currency above expectations, but better than expected results across all businesses. Windows OEM revenue increased 4% year over year, significantly ahead of expectations, driven by stronger than expected consumer channel inventory builds, and the stabilizing PC market demand noted earlier, particularly in commercial.

Now to more personal computing revenue was $13 $7 billion, increasing 3% and 2% in constant currency above expectations with better than expected results across all businesses Windows OEM revenue increased 4% year over year significantly ahead of expectations driven by stronger than expected consumer channel inventory build.

Amy Hood: Operating expenses increased 1% lower than expected due to cost efficiency focus as well as investments that shifted to future quarters. Operating expense growth was driven by marketing, LinkedIn and cloud engineering, partially offset by devices. At a total company level, headcount at the end of September was 27% lower than a year ago. Operating income increased 25% and 24% in constant currency. Operating margins increased roughly 5.0 over a year to 48%. Excluding the impact of the change in accounting estimate, operating margins increased roughly 6 points, driven by improved operating levers through cost management, and the higher gross margin noted earlier.

And the stabilizing PC market demand noted earlier, particularly in commercial.

Speaker 4: Windows Commercial Products and Cloud Services Revenue increased 8%, driven by demand for Microsoft 365 E5. Devices Revenue decreased 22%, ahead of expectations, due to stronger execution in the commercial segment.

Those commercial products and cloud services revenue increased 8% driven by demand for Microsoft $365 five devices revenue decreased 22% ahead of expectations due to stronger execution in our commercial segment.

Searching news advertising revenue ex Tac increased 10% to 9% in constant currency slightly ahead of expectations. We saw increased engagement on being an edge share gains again this quarter, although search revenue growth continues to be impacted by a third party partnerships and in gaming revenue increased 9% and 8% in constant currency.

Speaker 4: Search and news advertising revenue XTAC increased 10% and 9% in constant currency, slightly ahead of expectations. We saw increased engagement on Bing and edge share games again this quarter. Although search revenue growth continues to be impacted by a third party partnership. Ending game. Revenue increased 9% and 8% in constant currency, ahead of expectations, proven by better than expected subscriber growth in Xbox Game Pass, as well as first party content, primarily due to the star field launch.

Amy Hood: Now to our segment results. Revenue from productivity and business processes was $18.6 billion and grew 13% and 12% in constant currency, ahead of expectations, driven by better than expected results in Office 365 commercial and LinkedIn. Office commercial revenue grew 15% and 14% in constant currency. Office 365 commercial revenue increased 18% and 17% in constant currency, slightly better than expected, with a bit more interior revenue recognition while buildings were made relatively in line with expectations.

Ahead of expectations, driven by better than expected subscriber growth and Xbox game pass as well as first party content, primarily due to the start of field launch Xbox content and services revenue increased 13% and 12% in constant currency Xbox hardware revenue declined, 7% and 8% constant currency.

Speaker 4: Xbox Content and Services revenue increased 13% and 12% in constant currency, and Xbox hardware revenue declined 7% and 8% in constant currency.

Speaker 4: Segment grows margin dollars, increased 13% and 12% in constant currency, and grows margin percentage increased roughly 5.0 over year, driven primarily by sales mixed shift to higher margin businesses.

Segment gross margin dollars increased 13% and 12% in constant currency and gross margin percentage increased roughly five points year over year, driven primarily by sales mix shift to higher margin businesses.

Amy Hood: Growth continues to be driven by healthy renewal execution and output growth, as E5 momentum remains strong. Paid Office 365 commercial seats grew 10% year over year, with installed basic expansion across all customer segments. Seat growth was again driven by our small and medium business and front line worker offerings, with continued impact from the growth trends and new standalone business noted earlier. Office commercial licensing declined 17% in line with a continued customer shift to cloud offerings.

Speaker 4: Operating expenses declined 1% and operating income increased 23% and 22% in constant currency. Now back to total company results.

Operating expenses declined 1% and operating income increased 23% and 22% in constant currency now back to total company results.

Speaker 4: Capital expenditures, including finance leases, were $11.2 billion to support cloud demand, including investments to scale our AI infrastructure. Cash paid for PP&E was $9.9 billion. Cash flow from operations was $30.6 billion, up 32% year-over-year, driven by strong cloud billings and collections.

Capital expenditures, including finance leases were $11 $2 billion to support cloud demand, including investments to scale, our AI infrastructure cash paid for PP&E was $9 9 billion.

Cash flow from operations was $36 million up 32% year over year, driven by strong cloud billings and collections free cash flow was $20 7 billion up 22% year over year.

Amy Hood: Office consumer revenue increased 3% and 4% in constant currency, with continued momentum in Microsoft 365 subscriptions, which grew 18% to 76.7 million. LinkedIn revenue increased 8% ahead of expectations, driven by slightly better than expected performance across all businesses. Growth was driven by talent solutions, though we continued to see negative year over year bookings there from the weaker hiring environment and key verticals. Dynamics revenue grew 22% and 21% in constant currency, driven by Dynamics 365, which grew 28% and 26% in constant currency, with continued growth across all workloads.

Speaker 4: Free cash flow was $20.7 billion of 22% over year.

Speaker 4: Disquarter, other income and expense was $389 million, higher than anticipated driven by interest income, partially offset by net losses on investments and foreign currency remeasurement. Our effective tax rate was approximately 18%. And finally, we returned $9.1 billion to shareholders through share repurchases and dividends.

This quarter other income and expense was $389 million higher than anticipated driven by interest income, partially offset by net losses on investments and foreign currency Remeasurement, our effective tax rate was approximately 18% and finally, we returned $9 1 billion to shareholders through share repurchases and dividend.

Yes.

Speaker 4: Now moving to our Q2 Outlook, which is less specifically noted otherwise, is on a US dollar base-up.

Now moving to our Q2 outlook, which unless specifically noted otherwise is on a us dollar basis.

Amy Hood: Segment growth margin dollars increased 13% and gross margin percentage increased slightly year over year. Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly one point driven by improvement in Office 365, operating expenses increased 2% and operating income increased 20% and 19% in constant currency.

Speaker 4: The activation acquisition closed on October 13th. So my commentary includes the net impact of the deal from the date of acquisition.

Activision acquisition closed on October 13th So my commentary includes the net impact of the deal from the date of acquisition.

Speaker 4: Our outlook includes purchase accounting impact, integration and transaction related expenses based on our current understanding of the purchase price allocation and related deal accounting. The net impact includes adjusting for the movement of Activision Content from our prior relationship as a third party partner to first party. Now to FX based on current rates, we expect FX to increase total revenue and segment level revenue growth by approximately one point.

Our outlook includes purchase accounting impact of integration and transaction related expenses based on our current understanding of the purchase price allocation and related deal accounting. The net impact includes adjusting for the movement of Activision content from a prior relationship as a third party partner to first party now to FX.

Amy Hood: Next, the intelligent cloud segment. Revenue was $24.3 billion, increasing 19% and ahead of expectations with better than expected results across all businesses. Overall, server products and cloud services revenue grew 21%, Azure and other cloud services revenue grew 29% and 28% in constant currency, including roughly three points from AI services. While the trends from prior quarter continued, growth was ahead of expectations, primarily driven by increased GPU capacity and better than expected GPU utilization of AI services, as well as slightly higher than expected growth in our per user business.

Based on current rates, we expect FX to increase total revenue and segment level revenue growth by approximately one point.

Speaker 4: We expect FX to have no impact to COGS and operating expense growth.

Expect FX to have no impact to Cogs and operating expense growth and.

Speaker 4: and commercial bookings. We expect consistent execution across our coronuity sales motion, including healthy renewals, that growth will be impacted by a low growth, X-Bree base. Therefore, we expect bookings grow to be relatively flat.

In commercial bookings, we expect consistent execution across our core annuity sales motion, including healthy renewals, but growth will be impacted by a low growth expiry base. Therefore, we expect bookings growth to be relatively flat.

Microsoft Cloud gross margin percentage to be relatively flat year over year, excluding the impact from the accounting estimate change Q2 cloud gross margin percentage will be up roughly one point, primarily driven by improvement in Azure and office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demand, we expect capital expenditures to.

Speaker 4: Microsoft Cloud Gross Margin Percentage should be relatively flat year-over-year. Excluding the impact from the accounting estimate change, Q2 Cloud Gross Margin Percentage will be up roughly one point, primarily driven by improvement in Azure and Office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demand.

Amy Hood: In our per user million seats, with continued impact from the growth trends and new standalone business noted earlier. In our on-premises server business, revenue increased 2%, ahead of expectations, driven primarily by demand in advance of Windows Server 2012 and of support. Enterprise and partner services revenue increased 1%, and was relatively unchanged in constant currency, ahead of expectations, driven by better than expected performance and enterprise support services. Segment grows margin dollars, increased 20% and 19% in constant currency, and gross margin percentage increased slightly.

Speaker 4: We expect capital expenditures to increase sequentially on a dollar basis, driven by investments in our cloud and AI infrastructure.

Increased sequentially on a dollar basis, driven by investments in our cloud and AI infrastructure.

Speaker 4: As a reminder, there can be normal quarterly spend variability in the timing of our cloud infrastructure buildup. Next, to set...

As a reminder, there can be normal quarterly spend variability and the timing of our cloud infrastructure buildup.

Next to segment guidance in <unk>.

Speaker 4: In productivity and business processes, we expect revenue to grow between 11 and 12 percent, or $18.8 to $19.1 billion. Growth in constant currency will be approximately one point lower.

Road activity and business processes, we expect revenue to grow between 11% and 12% or 18, 8% to $19 1 billion U S dollars growth in constant currency will be approximately one point lower.

Amy Hood: Excluding the impact of the change in accounting estimate, gross margin percentage increased roughly 2 points, driven by the improvement in Azure noted earlier, even as we scale our AI infrastructure to meet growing demand. Operating expenses increased 2% and 1% in constant currency, operating income, grew 31% and 30% in constant currency.

In office commercial revenue growth will again be driven by office 365 with seat growth across customer segments, and our <unk> growth through <unk> five we expect office 365 revenue growth to be up roughly 16% in constant currency. We're excited from Microsoft 365, Copilot General availability on November 1st and expect the related revenue to grow gradually.

Amy Hood: Now, to more personal computing, revenue was 13.7 billion dollars increasing 3% and 2% in constant currency, above expectations, but better than expected results across all businesses. Windows OEM revenue increased 4% year over year, significantly ahead of expectations, driven by stronger than expected consumer channel inventory builds, and the stabilizing PC market demand noted earlier, particularly in commercial. Windows commercial products and cloud services revenue increased 8% driven by demand for Microsoft 365 E5.

Overtime and our on premise business, we expect revenue to decline in the mid to high teens.

Speaker 4: In Office Consumer, we expect revenue growth in the mid-single digits, driven by Microsoft 365 subscriptions.

In office consumer we expect revenue growth in the mid single digits, driven by Microsoft 365 subscriptions.

Speaker 4: For LinkedIn, we expect revenue growth in the mid single digits, driven by talent solutions and marketing solutions. Growth continues to be impacted by the overall market environments for recruiting and advertising, especially in the technology industry where we have significant exposure. And in Dynamics, we expect revenue growth in the high teens driven by Dynamics 365.

<unk>, we expect revenue growth in the mid single digits, driven by talent solutions and marketing solutions growth continues to be impacted by the overall market environment for recruiting in advertising, especially in the technology industry, where we have significant exposure.

And in dynamics, we expect revenue growth in the high teens driven by dynamics 365 for intelligent cloud, we expect revenue to grow between 17, and 18% or 25, one to $25 4 billion U S dollars revenue growth in constant currency will be approximately one point lower revenue will continue.

Amy Hood: Devices revenue decreased 22% ahead of expectations due to stronger execution and the commercial segment. Search and news advertising revenue XTAC increased 10% and 9% in constant currency, slightly ahead of expectations. We saw increased engagement on Bing and edge share games again this quarter, although search revenue grows continues to be impacted by a third party partnership. Ending game revenue increased 9% and 8% in constant currency ahead of expectations, driven by better than expected subscriber growth in Xbox Game Pass, as well as first party content, primarily due to the starfield launch.

Speaker 4: For Intelligent Cloud, we expect revenue to grow between 17% and 18%, or $25.1 to $25.4 billion. Revenue growth in constant currency will be approximately 1 point lower. Revenue will continue to be driven by Azure, which, as a reminder, can have quarterly variability primarily from our per-user business and from end-period revenue recognition, depending on the mix of contracts.

<unk> 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 in Azure, we expect revenue growth to be 26% to 27% in constant currency with an increasing contribution from AI.

Speaker 4: In Azure, they expect revenue growth to be 26 to 27% in constant currency with an increasing contribution from AI.

Speaker 4: Growth continues to be driven by Azure consumption business, and we expect the trends from Q1 to continue into Q2. Our per-user business should continue to benefit from Microsoft 365 Suite momentum, though we expect continued moderation in seat growth rates given the size of the installed base.

Growth continues to be driven by Azure consumption business and we expect the trends from Q1 to continue into Q2, our per user business should continue to benefit from Microsoft 365 suite momentum.

Amy Hood: Xbox content and services revenue increased 13% and 12% in constant currency, and Xbox hardware revenue declined 7% and 8% in constant currency. Segment gross margin dollars increased 13% and 12% in constant currency, and gross margin percentage increased roughly 5.0 over year, driven primarily by sales mixed shift to higher margin businesses.

We expect continued moderation in seat growth rates given the size of the installed base for H, two assuming the optimization and new workload trends continue and with the growing contribution from AI, We expect azure revenue growth in constant currency to remain roughly stable compared to Q2.

Speaker 4: For H2, assuming the optimization and new workload trends continue, and with the growing contribution from AI, we expect Azure revenue growth and constant currency to remain roughly stable compared to Q2.

Amy Hood: Operating expenses declined 1% and operating income increased 23% and 22% in constant currency, now back to total company results. Capital expenditures including finance leases were 11.2 billion dollars to support cloud demand, including investments to scale our AI infrastructure, cash paid for PP&E with 9.9 billion dollars. Cash flow from operations was 30.6 billion dollars of 32% year over year, driven by strong cloud billing and collections. Free cash flow was 20.7 billion dollars of 22% year over year.

Speaker 4: And our on-premises server business, we expect revenue growth to be roughly flat with continued hybrid demand, particularly from licenses running in multi-cloud environments.

Our on premises server business, we expect revenue growth to be roughly flat with continued hybrid demand, particularly from licenses running in multi cloud environments.

Speaker 4: and an enterprise and partner services, revenue should decline load to mid-single digits. Now to more personal computing, which includes the net impact from the Activision acquisition. We expect revenue of 16.5 to 16.9 billion US dollars. Windows OEM revenue growth should be mid to high single digits with PC market unit volumes expected to look roughly similar to Q1.

And in enterprise and partner services revenue should decline low to mid single digits.

Now to more personal computing, which includes the net impact from the Activision acquisition.

We expect revenue of $16 five to 16.9 billion U S dollars windows OEM revenue growth should be mid to high single digits with PC market unit volumes expected to look roughly similar to Q1.

Amy Hood: Disquarter, other income and expense was 389 million dollars, higher than anticipated driven by interest income, partially offset by net losses on investments and foreign currency remeasurement. Our effective tax rate was approximately 18%. And finally, we returned 9.1 billion dollars to shareholders through share repurchases and dividends.

Speaker 4: In devices, revenue should decline in the mid-teens as we continue to focus on our higher margin premium product.

And devices revenue should decline in the mid teens as we continue to focus on our higher margin premium products.

Speaker 4: In Windows commercial products and cloud services, customer demand for Microsoft 365 and our advanced security solutions should drive revenue growth in the low to mid-teens.

In Windows commercial products and cloud services customer demand for Microsoft 365, and our advanced security solutions should drive revenue growth in the low to mid teens.

Amy Hood: Now, moving to our Q2 Outlook, which is less specifically noted otherwise, is on a US dollar basis. The activation acquisition closed on October 13th. So my commentary includes the net impact of the deal from the date of acquisition. Our Outlook includes purchase accounting impact, integration and transaction related expenses based on our current understanding of the purchase price allocation and related deal accounting. The net impact includes adjusting for the movement of activation content from our prior relationship as a third party partner to first party.

Speaker 4: Search and news advertising ex-tech revenue growth should be mid-single digits, with roughly four points of negative impact from a third-party partnership. Growth should be driven by volume strength, supported by edge browser share gains, and increasing Bing engagement, as we expect the advertising spend environment to be similar to Q1. Reminder that this ex-tech growth will be roughly four points higher than overall search and news advertising revenue.

Search and news advertising ex Tac revenue growth should be mid single digits with roughly four points of negative impact from a third party partnership.

Growth should be driven by volume strength supported by edge browser share gains and increasing being engagement as we expect the advertising spend environment to be similar to Q1.

Reminder, that this ex Tac growth will be roughly four points higher than overall search and news advertising revenue.

Speaker 4: and in gaming. We expect revenue growth in the mid to high 40s. This includes roughly 35 points of net impact from the Activision acquisition, which as a reminder includes adjusting for the third party to first party content change noted earlier. We expect Xbox content and services revenue growth in the mid to high 50s, driven by roughly 50 points of net impact from the Activision acquisition. Now back to company guidance.

And in gaming, we expect revenue growth in the mid to high Forty's. This includes roughly 35 points of net impact from the Activision acquisition, which as a reminder includes adjusting for the third party to first party content change noted earlier, we expect Xbox content and services revenue growth in the mid to high Fifty's driven by roughly 50 points of net impact from the acquisition.

Amy Hood: Now, to FX. Based on current rates, we expect FX to increase total revenue and segment level revenue growth by approximately one point. We expect FX to have no impact to COGS and operating expense growth in commercial bookings. We expect consistent execution across our core nudie sales notion, including healthy renewals, that growth will be impacted by a low growth expiry base. Therefore, we expect bookings growth to be relatively flat. Microsoft Cloud Gross Margin percentage should be relatively flat year over year, excluding the impact from the accounting estimate change, Q2 Cloud Gross Margin percentage will be up roughly one point, primarily driven by improvement in Azure and Office 365, partially offset by the impact of scaling our AI infrastructure to meet growing demand.

Acquisition now back to company guidance, we expect Cogs between $19 four to $19 6 billion U S dollars, including approximately $500 million of amortization of acquired intangible assets from the Activision acquisition, we expect operating expense of $15 $5 to $15 $6 billion, including approximately 400.

Speaker 4: We expect COGS between $19.4 to $19.6 billion U.S. dollars, including approximately $500 million of amortization of acquired intangible assets from the Activision acquisition. We expect operating expense of $15.5 to $15.6 billion U.S. dollars, including approximately $400 million from purchase accounting adjustments, integration, and transaction-related costs from the Activision acquisition.

$1 million from purchase accounting adjustments integration and transaction related cost from the Activision acquisition.

Speaker 4: Other income and expense should be roughly negative $500 million as interest income will be more than offset by interest expense, primarily due to a reduction in our investment portfolio balance and the issuance of short-term debt, both for the Act Division acquisition. As a reminder, we are required to recognize gains or losses on our equity investments, which can increase quarterly volatility. We expect our Q2 effective tax rate to be between 19 and 20

Other income and expense should be roughly negative $500 million of interest income will be more than offset by interest expense, primarily due to a reduction in our investment portfolio balance and the issuance of short term debt both for the Activision acquisition.

Amy Hood: We expect capital expenditures to increase sequentially on a dollar basis, driven by investments in our cloud and AI infrastructure. As a reminder, there can be normal quarterly spend variability in the timing of our cloud infrastructure build up next to segment guidance in productivity and business processes. We expect revenue to grow between 11 and 12% or 18.8 to 19.1 billion US dollars growth and constant currency will be approximately one point lower. An office commercial revenue growth will again be driven by Office 365 with seat growth across customer segments and our food growth through E5.

As a reminder, we are required to recognize gains or losses on our equity investments, which can increase quarterly volatility.

We expect our Q2 effective tax rate to be between 19% and 20%.

Speaker 4: Now, some additional thoughts on H2 as well as the full fiscal year.

Now some additional thoughts on <unk> as well as the full fiscal year.

First FX.

Speaker 4: Assuming current rates remain stable, we expect FX to have no meaningful impact to full-year revenue, COGS, or operating expense growth. Therefore, in H2, we expect FX to decrease revenue, COGS, and operating expense growth by one point.

Assuming current rates remain stable, we expect FX to have no meaningful impact to full year revenue cons or operating expense growth. Therefore, NH two we expect FX to decrease revenue Cogs and operating expense growth by one point.

Amy Hood: We expect office 365 revenue growth to be up roughly 16% in constant currency. We're excited for Microsoft 365 Copilot General Availability on November 1st and expect our related revenue to grow gradually over time. In our on-premise business, we expect revenue to decline in the mid to high teens. In Office Consumer, we expect revenue growth in the mid single digits driven by Microsoft 365 subscriptions. For LinkedIn, we expect revenue growth in the mid single digits driven by talent solutions and marketing solutions.

Second activation.

Speaker 4: We expect approximately $900 million for purchase accounting adjustments as well as integration and transaction-related costs in each quarter in H2.

We expect approximately $900 million for purchase accounting adjustments as well as integration and transaction related costs in each quarter and H two.

For our full FY 'twenty four we remain committed to investing for the cloud and AI opportunity. While also maintaining our disciplined focus on operating leverage therefore, as we add the net impact of Activision inclusive of purchase accounting adjustments as well as integration and transaction related expenses, we can.

Speaker 4: For our full FY24, we remain committed to investing for the cloud and AI opportunity, while also maintaining our disciplined focus on operating leverage. Therefore, as we add the net impact of Activision, inclusive of purchase accounting adjustments, as well as integration and transaction related expenses, we continue to expect full year operating margins to remain flat year over year.

Amy Hood: Growth continues to be impacted by the overall market environments for recruiting and advertising, especially in the technology industry where we have significant exposure. And in dynamics, we expect revenue growth in the high teens driven by dynamics 365. For intelligent cloud, we expect revenue to grow between 17 and 18% or 25.1 to 25.4 billion US dollars. Revenue growth in constant currency will be approximately one point lower revenue will continue to be driven by Azure, which as a reminder can have quarterly variability primarily from our per user business and from entry revenue recognition, depending on the mix of contracts.

Can you to expect full year operating margins to remain flat year over year.

In closing.

Speaker 4: With our strong start to FY24, I'm confident that as a team, we will continue to deliver healthy growth in the year ahead, driven by our leadership in commercial cloud and our commitment to lead the AI platform wave. With that, let's go to Q&A, Brett.

With our strong start to FY 'twenty four I am confident that as a team we will continue to deliver healthy growth in the year ahead.

<unk> by our leadership in commercial cloud and our commitment to lead the AI platform wave 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 ask only one question. So.

Speaker 2: Thanks, Amy. We'll now move over to Q&A. Out of respect for others on the call, we request that participants please ask only one question. Joe, can you please repeat that?

Amy Hood: In Azure, we expect revenue growth to be 26 to 27% in constant currency with an increasing contribution from AI. Growth continues to be driven by Azure consumption business and we expect the trends from Q1 to continue into Q2. Our per user business should continue to benefit from Microsoft 365 sweet momentum, though we expect continued moderation in seat growth rates given the size of the installed days. For H2, assuming the optimization and new workload trends continue and with the growing contribution from AI, we expect Azure revenue growth in constant currency to remain roughly stable compared to Q2. In our on-premises server business, we expect revenue growth to be roughly flat with continued hybrid demand, particularly from licenses running in multi cloud environments.

Joe can you please repeat your instructions.

Yes.

Speaker 1: Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the

Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please pull for questions.

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

Speaker 1: And our first question comes from the line of Keith Weiss with Morgan Stanley . Please proceed.

Speaker 5: Excellent. Thank you for taking the questions and a very nice quarter. The pace of innovation you guys have been putting out has been pretty amazing. And the new products are garnering traction probably faster than than we've expected on our side of the equation. But we're also working in a overall spending environment that remains volatile at best. And I think investors are getting more concerned on it. So two questions on this one.

Excellent. Thank you for taking the question.

Very nice quarter.

The pace of innovation you guys have been putting out has been pretty amazing.

Amy Hood: And in enterprise and partner services, revenue should decline low to mid single digits now to more personal computing, which includes the net impacts from the Activision acquisition. We expect revenue of 16.5 to 16.9 billion US dollars. Windows OEM revenue growth should be mid to high single digits with PC market unit volumes expected to look roughly similar to Q1. In devices, revenue should decline in the mid teams as we continue to focus on our higher margin premium products, and Windows Commercial Products and Cloud Services, Customer Demand for Microsoft 365, and our Advanced Security Solutions, should drive revenue growth in the low to mid-teens.

New products Guarneri traction.

Faster than we've expected on our side of the equation, but we're also working in a overall spending environment remains volatile and I think investors are getting more concerned on it. So two questions on this one.

Speaker 5: Based on sort of the new products and the innovation, do you think you guys can sustain the type of commercial growth that we saw in Q1 as we go through the year, or is the environment too tricky for that? And then when it relates to investment, Amy, you've been able to keep overall op ex growth very low and it was very low this quarter. At some point, should we be thinking about a return to a more aggressive investment behind all this product innovation?

Based on sort of the new products and the innovation do you think you guys can sustain the type of commercial growth that we saw in Q1 as we go through the year or is the environment too tricky for that and then when it relates to investment Amy.

<unk> been able to keep overall opex growth very low and was very low this quarter at some point should we be thinking about a return to a more aggressive investment behind all this product innovation.

Amy Hood: Search and news advertising X-TAC revenue growth should be mid-single digits, with roughly four points of negative impact from a third party partnership. Growth should be driven by volume strength, supported by edge browser sharegames, and increasing being engagement, as we expect the advertising spend environment to be similar to Q1. Reminder that this X-TAC growth will be roughly four points higher than overall search and news advertising revenue. And in gaming, we expect revenue growth in the mid to high forties.

Speaker 6: Maybe I can start, Keith, and you can add to it.

Yes, maybe I can start Keith.

And you can add to it.

Speaker 6: Overall, there are multiple things that keep they're all happening obviously simultaneously. If you just take Azure and try to characterize.

Overall, there are multiple things keep they're all happening obviously simultaneously if you just take agile.

<unk> tried to characterize.

Speaker 6: where's the growth for Azure coming from or what sort of drivers for Azure numbers. There are three things all happening in parallel. Like, for example, take cloud migrations. A good reminder of

Whereas the growth for azure coming from or what sort of drivers for Azure numbers. There are three things all happening in parallel with like for example, take cloud migrations. A good reminder of where we are and even the core cloud migration story is the new Oracle announced.

Speaker 6: where we are and even the core cloud migration story is the new Oracle announcement.

Amy Hood: This includes roughly 35 points of net impact from the Activision acquisition, which as a reminder includes adjusting for the third party to first party content change noted earlier. We expect Xbox content and services revenue growth in the mid to high fifties driven by roughly 50 points of net impact from the Activision acquisition.

Speaker 6: uh... you know once we announced that the oracle databases are going to be available on a show we saw a bunch of unlocks on new customers uh... who have a significant oracle estate that have not yet moved uh... to the car because they needed to run the rule with the rest of the app estate in one single cloud and uh... so we're excited about that showing in some sense even the financial services sector for example the group play you know place where there's a lot of oracle that do need to move to the cloud

Once we announced that the Oracle databases are going to be available on Azure, we saw a bunch of unlocked from new customers.

Who have significant Oracle S states that have not yet moved to the cloud because they needed to rendezvous with the rest of the at this stage in one single cloud and so we are excited about that so in some sense, even the financial services sector for example, as a group.

Amy Hood: Now back to company guidance. We expect COGS between 19.4 to 19.6 billion US dollars, including approximately 500 million dollars of amortization of acquired intangible assets from the Activision acquisition. We expect operating expense of 15.5 to 15.6 billion US dollars, including approximately 400 million dollars from purchase accounting adjustments, integration and transaction related costs from the Activision acquisition. Other income and expense should be roughly negative 500 million dollars, as interest income will be more than offset by interest expense, primarily due to a reduction in our investment portfolio balance, and the issuance of short term debt, both for the Activision acquisition. As a reminder, we are required to recognize gains or losses on our equity investments, which can increase quarterly volatility. We expect our Q2 effective tax rate to be between 19 and 20%.

Place, where theres a lot of Oracle thats two needs to move to the cloud second thing of course is the.

Speaker 6: Second thing, of course, is the workload start, then workloads get optimized, and then new workloads start. And that cycle continues, will lap some of those optimization cycles.

The workload start then workloads get optimized and then new workload start and that cycle continues.

We will lap some of those optimization of <unk>.

<unk>.

Speaker 6: that were fairly extreme perhaps in the second half of our fiscal.

We're fairly extreme perhaps in the.

The second half of our fiscal.

Speaker 6: And the third thing is, for us, that's unique and different is new workload starts are on AI. Given our leadership position, we are seeing complete new project starts, which are AI projects. And as you know, AI projects are not just about AI meters. They have lots of other cloud meters as well. So that sort of gives you one side of what's happening in terms of enterprise.

And the third thing is for US that's unique and different is new workload starts around AI, given our leadership position we have seen.

A complete new project starts.

Hi projects and as you know AI projects are not just about AI meters. They have lots of other cloud meters as well so that sort of gives you one side of whatsapp.

Amy Hood: Now, some additional thoughts on H2, as well as the full fiscal year. First, FX. Assuming current rates remain stable, we expect FX to have no meaningful impact to full year revenue COGS are operating expense growth. Therefore, in H2, we expect FX to decrease revenue COGS and operating expense growth by one point. Second, Activision. We expect approximately $900 million for purchase accounting adjustments, as well as integration and transaction related costs in each quarter in H2.

What's happening in terms of enterprise.

Speaker 3: The other piece is on the fast side. Obviously again, this is a new product that's going to go through the enterprise adoption cycle. The zones around productivity, which we demonstrated with GitHub co-pilot, is what's giving us good confidence and our customers more importantly, good confidence around what these products represent in terms of value. And so we are in the very, very early in Eastern, so we look forward to seeing the traction for these products going forward.

The other pieces on the SaaS side, obviously again this is a new product that's going to go through the enterprise adoption cycle.

Resolves around productivity, which we demonstrated with get up co pilot.

What's giving us good confidence in our customers more importantly, good confidence around what these products represent in terms of value and so we are in the very very early innings, there and so we look forward to see the traction for these products going forward.

Amy Hood: For our full FY24, we remain committed to investing for the cloud and AI opportunity, while also maintaining our discipline focus on operating leverage. Therefore, as we add the net impact of Activision, inclusive of purchase accounting adjustments, as well as integration and transaction related expenses, we continue to expect full year operating margins to remain flat year over year.

Speaker 4: Keith, maybe just a few things to add and then I'll talk a little bit about the operating leverage, which is the second part of your question.

Keith maybe just a few things to add and then I'll talk a little bit about the.

The operating leverage which is the second part of your question.

Speaker 4: In general, we saw very consistent execution from Q4 to Q1, and that's what we're talking about into Q2. I think that speaks to our value prop, which is where Sakya went. It speaks to making sure that customers are getting a very quick return on value, real productivity improvement, real savings, so that when...

In general we saw very consistent execution from Q4 into Q1, and that's what we're talking about into Q2.

I think that speaks to our value prop, which is where you want it speaks to making sure that customers are getting a very quick return on value real productivity improvements real savings so that win.

Amy Hood: In closing, with our strong start to FY24, I am confident that as a team, we will continue to deliver healthy growth in the year ahead, driven by our leadership and commercial cloud and our commitment to lead the AI platform wave.

Speaker 4: We're asking at renewal, or talking about E5 upgrades, or talking about AI services, that those come with real promises of high-value scenarios. And so I think that is an important piece as you think about, you know.

We're asking at renewal or we're talking about a five upgrades are talking about AI services that those come with real promises of high value scenarios and so I think that is an important piece as you think about.

Brett Iversen: With that, let's go to Q&A, Brett. Thanks, Amy. We'll now move over to Q&A.

Brett Iversen: Out of respect for others of the call, we request that participants please ask only one question. Question, so can you please repeat your instructions? Yes, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad, and a confirmation telephone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, we'll look both for questions.

Stability in commercial demand and then if you think about.

Speaker 4: stability in commercial demand. And then if you think about the nature of your question, you know, it was partially why I talked about in my full year guidance that now even with the addition of Activision and purchase accounting impacts, integration impacts, we still feel confident we can deliver.

The nature of your question.

<unk> talked about in my full year guidance that now even with the addition of Activision and purchase accounting impacts integration impacts.

Still feel confident we can deliver.

Speaker 4: Consistent operating margins to last year and it speaks to I think

Consistent operating margin.

Last year and it speaks to I think.

Speaker 4: some of the improvements we're making in Azure and even Microsoft 365 gross margins, even in the core of the commercial cloud.

Some of the improvements we're making.

And Azure and even Microsoft 365 gross margins even in the core of the commercial cloud.

Keith Weiss: And our first question comes from the line of Keith Weiss with Morgan Stanley, please proceed. Excellent, thank you for taking the questions and a very nice quarter. The pace of innovation you guys have been putting out has been pretty amazing, and this new product's a coronary traction, probably faster than than we've expected on our side of the equation. But we're also working in an overall spending environment that remains volatile at that.

It speaks to the pace at which we are delivering AI revenue with the increasing costs expense and capital investment ahead.

Speaker 2: with the demand we see. And although you're right, our operating expense comparables in H2 get more challenging than in H1, we're really focused on making sure that every dollar we put and commit is back to the priorities we talked about, which is commercial cloud leadership and leading the AI wave. And so I think that focus is really helping on both execution and leverage. Excellent, thank you guys. Thanks, Keith. Joe, next question, please. The next question.

With the demand, we see and although you are right, our operating expense comparables and age to get more challenging than an H one.

Keith Weiss: And I think investors are getting more concerned on it, so two questions on this. One, based on sort of the new products and the innovation, do you think you guys can sustain the type of commercial growth that we saw on queue one as we go through the year, or the environment too tricky for that? And then when it relates to investment, Amy, you've been able to keep overall OpEx growth very low in a very low disc order.

We're really focused on making sure that every dollar we put and commit is back to the priorities, we talked about which is commercial cloud leadership and leaving the AI wave and so I think that focus is really helping on both execution and leverage.

Excellent. Thank you guys.

Speaker 7: Thanks so muchaudience. Thank you guys. Thanks.

Thanks, Keith Joe next question. Please.

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

Speaker 1: The next question comes from the line of Mark Mordler with Bernstein Research. Please proceed.

Keith Weiss: At some point, should we be thinking about a return to a more aggressive investment behind all this product innovation? Maybe I can start Keith and Amy, you can add to it. Overall, there are multiple things that are all happening obviously simultaneously. If you just take Azure and try to characterize where the growth for Azure coming from, or what sort of drivers for Azure numbers, there are three things all happening in parallel.

Speaker 8: Thank you very much and congratulations on a really strong quarter. AI has been far stronger than expected, beat your guidance for Azure this quarter, and while you discussed higher utilization and more GPUs have helped,

Thank you very much and congratulations on a really strong quarter.

AI has been for a stronger than expected beat your guidance for Azure this quarter and while you discussed higher utilization and more Gpus of health has the fact that Microsoft has a full AI Dev stack co pilot reference architecture and plug into architecture been a meaningful factor not just from a revenue perspective.

Speaker 8: Has the fact that Microsoft has a full AI dev stack, co-pilot reference architecture and plugin architecture been a meaningful factor, not just from a revenue perspective, but also even potentially from a margin perspective? In addition, can you give us any color on whether Azure GPU is predominantly model training or are we seeing a lot of inferencing yet from clients?

But also even potentially from a margin perspective and in addition can you give us any color on whether Azure Gpus predominantly model training or are we seeing a lot of inputs to get from clients.

Keith Weiss: For example, take Cloud Migrations, a good reminder of where we are, and even the core Cloud Migration story is the new Oracle announcement. Once we announced that the Oracle databases are going to be available on Azure, we saw a bunch of unlocks from new customers who have a significant Oracle estate that have not yet moved to the cloud because they needed to run the rule with the rest of the app estate in one single cloud.

Speaker 9: Thanks. No, thank you for the question, Mark.

Thanks.

Thank you for the question Mark.

Speaker 6: Yeah, it is true that we have, you know, the approach we have taken is a full stack approach all the way from

Yes. It is true that we have the approach we have taken as a full stack approach all the way from.

Speaker 6: whether it's ChatGPT or Bing Chat or all our co-pilots all share the same model. So in some sense, one of the things that we do have is very, very high leverage of the one model that we used, which we trained, and then the one model that we are doing inferencing at scale.

Whether it's chat gvg or.

Or.

Being chat or rollout co pilots all share the same model. So in some sense one of the things that we do have is very very high leverage.

Keith Weiss: We're excited about that, so in some sense, even the financial services sector, for example, is a good place where there's a lot of Oracle that students need to move to the cloud. Second thing, of course, the workload start, then workload get optimized, and then new workload start. That cycle continues, we'll lap some of those optimization cycles that were fairly extreme perhaps in the second half of our fiscal. And the third thing is for us, that unique and different, is new workload start that on AI, given our leadership position, we are seeing complete new project start, which are AI projects.

One model that we used which we train and then the one model that we are doing infancy at scale.

Speaker 6: And that advantage sort of trickles down all the way to both utilization internally, utilization of third parties.

And that advantage sort of trickles down all the way to both utilization internally utilization of third parties.

Speaker 6: And also, over time, you can see that sort of stack optimization all the way to the silicon, because the abstraction layer to which the developers are writing is much higher up than low-level.

And also over time, you can see that sort of stack optimization, all the way to the silicon because the abstraction layer to which the developers.

Writing as much high it up.

Then low level.

Speaker 3: So therefore, I think there is a fundamental approach we took, which was a technical approach of saying we'll have co-pilots and co-pilot stack all available. That doesn't mean we don't have

Cardinals, if you will so therefore I think there is a fundamental approach we took which was a technical approach of saying we will have co pilots and copilot stack all available that doesn't mean, we don't have.

Keith Weiss: And as you know, AI projects are not just about AI meters, they have lots of other cloud meters as well, so that sort of gives you one side of what's happening in terms of enterprise. The other piece is on the fast side, obviously again, this is a new product that's going to go through the enterprise adoption cycle. The results are on productivity, which we demonstrated with GitHub Co-Pilot, is what's giving us good confidence and our customers more importantly, good confidence around what these products represent in terms of value.

<unk>.

People doing training.

For open source model is our proprietary models. We also have a bunch of open source models, we have a bunch of fine tuning up a bunch of items that Jeff happening. So there's.

Speaker 4: kinds of ways people use it, but the thing is we have scale leverage of one large model that was trained and one large model that's being used for inference across all our first party staff app as well as our API in our Azure AI service. And the reason Mark that's important is that it means even beyond the point Satyumay is that when it comes to our ability to leverage the infrastructure that we're building at.

There is all kinds of ways people use it but.

The thing is we have scale leverage of one large model that was trained in one large model that's being used for insurance across all our first party SaaS apps as well as our API in our Azure AI service.

Keith Weiss: And so, we are in the very very early in Eastern, so we look forward to seeing the traction for these products going forward. Key, maybe just a few things to add, and then I'll talk a little bit about the operating leverage, which is the second part of your question. In general, we saw very consistent execution from Q4 to Q1, and that's what we're talking about in Q2. I think that speaks to our value prop, which is where it's off you went.

Speaker 10: And the reason more

And the reason Mark.

Speaker 4: that's important is that it means, even beyond the point Satya made, is that when it comes to our ability to leverage the infrastructure that we're building out.

That's important as it means even beyond the point you made is that when it comes to our ability to leverage the infrastructure that we're building out.

Speaker 3: we don't really have a preference in terms of how people are utilizing that infrastructure, whether it's through all the means that Satya mentioned, it gives us a good opportunity to see quick conversion into revenue. Yeah, I mean, one other thing I'd just add to perhaps Mark's question as well as Keith's is in this platform transition, I think it's very important.

We don't really have a preference in terms of how people are utilizing that infrastructure, whether it's through all the means that Satya mentioned it gives us a good opportunity to see quick conversion into revenue.

Keith Weiss: It speaks to making sure that customers are getting a very quick return on value, real productivity improvement, real savings, so that when we're asking at Renewal, or talking about E5 upgrades, or talking about AI services, that those come with real promises of high value scenarios. And so I think that is an important piece, as you think about, you know, stability and commercial demand. And then if you think about the nature of your question, you know, it was partially why I talked about in my full year guidance, that now even with the addition of Activision and purchase accounting impacts, integration impacts, we still feel confident we can deliver consistent operating margins to last year.

One other thing I would just add to perhaps Mark's question as well as Keith says this platform transition I think is very important.

Speaker 3: for us to be very disciplined on both.

For us to be very disciplined on both.

Speaker 3: I'll call our tech stack as well as our capital spend all to be concentrated. The lesson learned from the cloud side.

Our tech stack.

As well as our capital spend in order to be concentrated the lesson learned from the cloud side.

Speaker 8: We're not running a conglomerate of different businesses. It's all one tech stack up and down Microsoft's portfolio. And that, I think, is going to be very important. Because that discipline, given what the spend will look like for the day I transition, any business that's not disciplined about their capital, spend accruing across all their businesses, could run into trouble. Extremely helpful, thank you so much.

We're not running a conglomerate of.

<unk> businesses, it's all one.

Tech stack up and down.

Microsoft's portfolio and that I think is going to be very important because that discipline given what the spend like it will look like for the AI transition any business thats not disciplined about the capital spend accruing across all of their businesses.

Run into trouble.

Extremely helpful. Thank you so much.

Thanks, Mark Joe next question. Please.

Speaker 1: The next question comes from the line of Brent Till with Jeffries. Please proceed.

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

Keith Weiss: And it speaks to, I think, some of the improvements we're making in Azure, and even Microsoft 365 grows margins, even in the core of the commercial cloud. It speaks to the pace at which we are delivering AI revenue with the increasing cost expense and capital investment ahead with the demand we see. And although you're right, our operating expense comparable in H2 get more challenging than in H1, you know, we're really focused on making sure that every dollar we put and commit is back to the priorities we talked about, which is commercial cloud leadership and leading the AI way. And so I think that focus is really helping on both execution and leverage.

Speaker 11: Thanks, Amy. Good to see the 12% growth. Many investors are asking, can you sustain double digit growth, especially with a stronger AI boost coming in the next several quarters?

Thanks, Amy good to see the 12% growth many investors are asking.

Can you sustain double digit growth, especially with the stronger AI boost coming in the next several quarters.

Speaker 4: You know, I think looking at our, as I said, Q1 was a strong start to the year. Q2 certainly implies that we talked about stability for Azure into the second half of the year looking at an inline with what we're seeing for Q2. And so I think we feel good about our ability to execute but more important and important merit ability to continue to take share.

I think looking at our as I said Q1 was a strong start to the year Q2 is certainly implies that we've talked about stability for azure into the second half of the year looking at and in line with what we're seeing for Q2, and so I think we feel.

<unk> good about our ability to execute but more importantly, our ability to continue to take share.

Yes.

Satya Nadella: Excellent. Thank you, guys. Thank you, Jill.

Brett Iversen: Next question, please.

Thanks, Brent Joe next question please.

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

Speaker 1: The next question comes from the line of Raymo Lenshow with Barclays. Please proceed.

Mark Moerdler: The next question comes from the line of Mark Mordler with Bernstein Research. Please proceed. Thank you very much and congratulations on a really strong quarter. AI has been for stronger than expected, be your guidance or Azure this quarter.

Speaker 12: Hey, thank you. You sound very optimistic about the opportunity in the office base with the co-pilot coming out now very soon. Can you speak a little bit about what you're seeing there in the castor and beta test that is already in terms of how excited they were, the special featurester and what does it mean in terms of adoption curve for their ad going forward once you go to GA in 1st of November . Thank you.

Thank you you sound very optimistic about the opportunity in the <unk>.

Office space with co pilots coming out very soon can you speak a little bit about what youre seeing there in the NIM.

Satya Nadella: And while you discuss higher utilization and more GPUs have helped, has the fact that Microsoft has a full AI depth stack, co-pilot reference architecture and plug-in architecture been a meaningful factor, not just from a revenue perspective, but also even potentially from a margin perspective. In addition, can you give us any color and weather, Azure GPUs predominantly model training, or are we seeing a lot of inference again from clients? Thanks. No, thank you for the question, Mark.

Customer and beta test that is already in terms of how excited we are.

Special features and what does it mean in terms of adoption curve for that going forward. Once you go okay and first of November. Thank you.

Speaker 3: No, thanks. Good question, Remo. The good news is twofold. One is the fact that, you know, what, it's 40% of the Fortune 100 are already in the preview and are using the product, and I think you all have also done lots of checks, and the feedback is very, very positive. And in fact, you know, the interesting thing is it's not any one tool, right, which is

Thanks.

Question Raimo.

The good news.

Is two fold one is the fact that.

What it's 40% of the Fortune 100 are already in the preview.

Satya Nadella: Yeah, it is true that we have, you know, the approach we have taken is a full stack approach all the way from whether it's chat GPG or Bing chat or all our co-pilot's all share of the same model. So in some sense, one of the things that we do have is very, very high leverage of the one model that we used, which we trained, and then the one model that we are doing, inferencing at scale.

And are using the product and I think you all know votes have done lots of checks.

The feedback is very positive and in fact.

The interesting thing is it's not any one tool right which is the.

The feedback even.

Speaker 3: sort of is very clear that it's the all up, you just keep hitting the copilot button across every surface, right? Whether it's in Word to create documents, in Excel to, you know, do analysis, or PowerPoint, or Outlook, or Teams, like that clearly the Teams meeting, which is an intelligent recap, right? It's not just a dumb transcript. It's like having a knowledge base of all your meetings that you can query and add to essentially the knowledge terms of your enterprise. And so we are seeing.

Sort of.

It's very clear that it's the all up you just keep hitting the copilot button across every surface, whether it's inward to create documents in excel.

Do analysis, Powerpoint or outflow got teams like that clearly the team's meaning.

Satya Nadella: And that advantage sort of trickles down all the way to both utilization, internally utilization of third parties, and also over time you can see that sort of stack optimization all the way to the silicon, because the abstraction layer to which the developers are writing is much higher up than low level kernels, if you will. So therefore, I think there is a fundamental approach we took, which was a technical approach of saying we'll have co-pilot's and co-pilot's stack all available.

Which is an intelligent recap ready it's not just a dumb transcript, it's like having a knowledge base of volume meetings that you can query and.

And add to essentially the knowledge terms, if you were to enterprise and so we are seeing broad usage across.

Speaker 3: broad usage across, and the interesting thing is by different functions, whether it's in finance or in sales.

And the interesting thing is by different functions, whether it's in finance are in sales.

Speaker 3: Fight by roles. We're seeing productivity gains like we saw

By roles, we are seeing productivity gains like we saw.

Speaker 3: with developers and GitHub. So that's the data. We are very excited about our ignite conference where we will talk a lot more about all of the use cases and what's where's the value and you know give more prescriptive guidance on how people can deploy. But so far so good as far as the data is and the feedback is. And of course this is an enterprise product. I mean at the end of the day we are grounded on enterprise cycle times in terms of adoption and RAM.

With developers and get up co pilot. So that's the data we are really excited about our ignite conference, where we will talk a lot more about all of the use cases and what is the value end.

Satya Nadella: That doesn't mean we don't have people doing training for open source models or proprietary models. We also have a bunch of open source models. We have a bunch of fine tuning happening, a bunch of our LHF happening. So there's all kinds of ways people use it, but the thing is we have scale leverage of one large model that was trained, and one large model that's being used for inference across all our first-party SaaS apps, as well as our API in our Azure AI service.

Give more prescriptive guidance on how people can deploy but.

So far so good as far as the data is and the feedback is and of course. This is an enterprise product I mean at the end of the day, we are grounded on enterprise cycle times in terms of adoption and ramp.

Speaker 3: And it's incrementally priced, so therefore, that all will apply still. But, you know, at least for something completely new, to have this level of usage already and this level of excitement is something we're very, very pleased with.

And it's incrementally priced.

Satya Nadella: And the reason Mark that's important is that it means even beyond the point Satya made is that when it comes to our ability to leverage the infrastructure that we're building out, we don't really have a preference in terms of how people are utilizing that infrastructure, whether it's through all the means that Satya mentioned. It gives us a good opportunity to see a quick conversion into revenue.

Therefore that all will apply still but.

At least for us something completely new.

To have this level of usage already in this level of excitement is something we're very very pleased with.

Thank you.

Thanks, Joe next question please.

Speaker 1: The next question comes from the line of Carl Kirsten with UBS. Please proceed.

The next question comes from the line of Karl Keirstead with UBS. Please proceed okay. Great. Thanks, Amy Congrats on the 28% constant currency Azure growth. That's terrific I wanted to press you a little bit on the outlook for Azure, you're obviously guiding to a one to two point diesel in December and then stable there.

Speaker 1: Okay, great. Thanks, Amy. Congrats on the 28% concurrency Azure growth. That's terrific. I wanted to press you a little bit on the outlook for Azure. You're obviously guiding to a one to two point decel in December .

Satya Nadella: Yeah, we know one other thing I would just add perhaps Mark question as well as Keith is in this platform transition. I think it's very important for us to be very disciplined on both, I'll call our tech stack as well as our capital spend all to be concentrated. The lesson learned from the cloud side is this we're not running a co-glomerate of different businesses. It's all one tech stack up and down, Microsoft put folio and that I'm going to talk about I think is going to be very important because that discipline given what the spend like it will look like for the day I transition any business that's not discipline about their capital spend of crewing across all their businesses could run into trouble. Extremely helpful. Thank you so much. Thanks, Warren.

Speaker 13: and then stable thereafter. But why would it be stable? Why wouldn't it accelerate in the second half of your fiscal year if?

After but why would it be stable why wouldnt it accelerate in the second half of your fiscal year. If the contribution is increasing as you bring on more GPU capacity is this a function of perhaps.

Speaker 13: The AI contribution is increasing as you bring on more GPU capacity. Is this a function of perhaps continued core XAI?

<unk> core X AI.

Speaker 13: Azure spend optimization, you know, continuing or maybe even getting slightly worse. Why couldn't we see some upside in that Azure number? I know you're trying to be conservative, but I'd just love to understand it. Thanks so much.

As your spend optimization, continuing or maybe even getting slightly worse why couldnt, we see some upside in that Azure number I know you are trying to be conservative, but I would just love to understand it. Thanks so much.

Thanks, Karl a couple things as I talked about Q2, and then into <unk>.

Speaker 4: Thanks, Carl. A couple things, as I talked about, Q2 and then into H2. We've been very consistent that the optimization trends have been consistent for us through a couple of quarters now. Customers are going to continue to do that. It's an important part of running workloads that is not new. They're obviously where some quarters where it was more accelerated. But that is a pattern.

We've been very consistent that the optimization trends have been consistent for us through.

Brent Thill: Joe, next question please. The next question comes from the line of Brent Till with Jeffries, please proceed. Thanks, Amy. Good to see the 12% growth. Many investors are asking can you sustain double digit growth, especially with a stronger AI boost coming in the next several quarters. I think looking at our, as I said, Q1 was a strong start to the year. Q2 certainly implies that we talked about stability for Azure into the second half of the year looking at an in line with what we're seeing for Q2. And so I think we feel good about our ability to execute but more importantly our ability to continue to take share. Thanks, Brent. Joe, next question please.

Couple of quarters now customers are they're going to continue to do that it's an important part of running workloads that is not new.

There, obviously were some quarters, where it was more accelerated.

But that is a pattern.

Speaker 10: that is and has been a fundamental part of having customers both make new room for new workload adoption and continue to build new capabilities. And so, I think that impact remains through the rest of the year. And my view is unchanged on that. And then, of course, I think the key component has always been new workload starts.

That is has been funded.

Of having customers both make new room for new workload adoption and continue to build new capabilities and so on.

I think that impact remains through the rest of the year.

My view is unchanged on that and then of course I think the key component has always been new workload starts and at the scale, we're talking about being able to have stability.

Speaker 4: And at the scale we're talking about being able to have stability.

Speaker 4: in our Azure business does mean that we will have a lot of new workload starts. And primarily we're expecting those to come from AI workloads. But AI workloads don't just use our AI services. They use data services and they use...

In our Azure business. It does mean that we will have a lot of new workload starts and primarily we're expecting those to come from AI workloads that are workloads don't just use our AI services they use.

Raimo Lenschow: The next question comes from the line of Rainbow Lenshow with Barclays, please proceed. Hey, thank you. You sound very optimistic about the opportunity in the office base with the co-pilot coming out now very soon. Can you speak a little bit about the, what you're seeing there in the customer base that tested this already in terms of how excited they were with the special feature. And what does it mean in terms of adoption curve for that going forward once you go to GA and first of November.

Data services and these other things and so that combination I think looking on a competitive basis, we feel good about our execution and feel good about taking share and we feel good about consistent trends.

Speaker 14: And so that combination, I think, looking on a competitive basis, we feel good about our execution, we feel good about taking share, and we feel good about consistent trends. And so I feel good about that guide and what it says about where we are on share. Okay, terrific, thanks.

So I feel good about that guide and what it says about where we are on sure. Okay terrific. Thanks.

Thanks, Karl Joe next question. Please.

The next question comes from the line of Brad Sills with Bank of America. Please proceed.

Raimo Lenschow: Thank you. No, thanks. The question, Rainbow Lens. The good news is twofold. One is the fact that, you know, what is 40% of the Fortune 100 are already in the preview and are using the product like you all have also done lots of checks. And the feedback is very, very positive. And in fact, you know, the interesting thing is it's not any one tool, right, which is the feedback even sort of is very clear that it's deep all up.

Wonderful thanks, so much.

Impressive to see the office 365 commercial seat growth hanging in here in that double digit range is very impressive just given the scale of that business. We think of offices, having such a dominant market position I'm curious, how you think about where that seed is coming from and how many more of those seats are out there to go get.

Speaker 4: Thanks for that question. Maybe I'll take that copy if you want to add. In general, our seacross has

Thanks for that question and maybe I'll take that and talk to you. If you if you want to add.

In general our secret tests.

It does come from all segments, but with a particular.

Raimo Lenschow: You just keep hitting the co-pilot button across every surface, right, whether it's in word to create documents in Excel to, you know, do analysis or PowerPoint or outlook or teams. Like that clearly the teams meeting, which is an intelligent recap, right? It's not just a dumb transcript. It's like having a knowledge base of all your meetings that you can query and and add to essentially the knowledge terms of your enterprise. And so we are seeing broad usage across. And the interesting thing is by different functions, whether it's in finance or in sales, by roles. We're seeing productivity gains like we saw with developers and GitHub co-pilot. So that's the data.

And small and mid size businesses as well as what we call the frontline worker opportunity and that have been I would say looking back a number of quarters.

The majority of our seat growth is gone.

While obviously, it's slowed a bit to your point I think the fact that we're still able to add seats at this level speaks to the broadening nature of what Microsoft 365 means it's more applicable to more people and so I think many people have thought Oh my goodness.

Speaker 4: To your point, I think the fact that we're still able to add seats at this level speaks to the broadening nature of what Microsoft 365 means.

Got a lot.

Our customers already and we look and say how many people when you expand what Microsoft 365 means whether it's security or it means analytics or it means teams. It means lots of things in an expanding definition it applies to more types of workers and frankly.

Satya Nadella: We are very excited about our ignite conference where we will talk a lot more about all of the use cases and what's where the value and, you know, give more prescriptive guidance on how people can deploy. But so far so good as far as the data is in the feedback is. And of course, this is an enterprise product. I mean, at the end of the day, we are grounded on enterprise cycle times in terms of adoption and RAM.

The value is such especially on the small business front.

It's to the point, where I think people feel like it's a great way to spend even.

And that spend money they have.

It remains a pretty compelling offer.

Thank you.

Satya Nadella: And it's incrementally priced. So therefore that all will apply still. But, you know, at least for something completely new to have this level of usage already and this level of excitement is something very, very pleased with. Thank you. Thanks, Raimo.

Thanks, Brad Joe next question please.

Karl Keirstead: Show the next question, please.

The next question comes from the line of Brent bracelets with Piper Sandler. Please proceed.

Thank you. Good afternoon, one thing that really stood out to me was the intelligent cloud segment operating margins. These came in I think at the highest level in six years. Despite elevated AI investments was there a one time tailwind here that that helped or are you at the point where azure.

Amy Hood: The next question comes from the line of Karl Kiersten with UBS, please proceed. Okay, great. Thanks, Amy. Congrats on the 28% Concentre Currency Azure growth. That's terrific. I wanted to press you a little bit on the outlook for Azure. You're obviously guiding to a one-to-two point diesel in December and then stable thereafter. But why would it be stable? Why wouldn't it accelerate in the second half of your fiscal year if the AI contribution is increasing as you bring on more GPU capacity?

The comment to the scale, where Microsoft could sustain high margins, even with an ambitious AI investment cycle.

Amy Hood: Is this a function of perhaps continued core XAI? Azure spend optimization, you know, continuing or maybe even getting slightly worse? Why couldn't we see some upside in that Azure number? I know you're trying to be conservative, but I'd just love to understand it. Thanks so much. Thanks, Carl.

Speaker 4: You know, thanks for that question. I think there are a couple things going on. And I do, I would say in particular, you know, this was a very good leverage quarter in that segment.

Thanks. Thanks for that question I think there are a couple of things going on and I do I would say in particular.

This was a very good leverage quarter in that segment.

Number one the <unk>.

<unk> revenue growth and the stability, we're seeing and it absolutely is a help to operating leverage.

Speaker 4: The second component of that is in our core Azure business. The team continues to deliver thoughtful, gross margin improvement across both technical decisions, software implementations, our teams on the infrastructure build side have done really good work to deliver that. And so that's been helpful as well.

Component of that is in our core Azure business. The team continues to deliver thoughtful gross margin improvement across both technical decision software implementations our teams on the infrastructure build side.

Amy Hood: A couple of things as I talked about Q2 and then into H2. You know, we've been very consistent that the optimization trends have been consistent for us through a couple of quarters now. Customers are going to continue to do that. It's an important part of running workloads. That is not new. There obviously were some quarters where it was more accelerated. But that is a pattern that has been a fundamental part of having customers both making sure that it's not new.

Have done really good work to deliver that and so that's been helpful as well.

Speaker 10: And then of course, on operating expenses, there's been a good focus on continuing even within that segment to make sure we're focusing that work on leading in the AI transition with Azure. And so you're right, even as we're investing in AI infrastructure, which will and should show up as revenue, it'll also show up in COGS and still deliver good margin. But this does have a slightly, as I talked about earlier, easier comp.

And then of course on operating expenses there has been a good focus on continuing even within that segment to make sure. We're focusing network leading in the AI transition with Azure and so youre right, even as we're investing in AI infrastructure, which will and should show up as revenue. It will also show up in Cogs.

Amy Hood: There obviously were some quarters where it was more accelerated. But that is a pattern that has been a fundamental part of having customers both making a new room for new workload adoption and continue to build new capabilities. And so I think that impact remains through the rest of the year. And my view is unchanged on that. And then of course, I think the key component has always been new workload starts. And at the scale we're talking about being able to have stability in our Azure business does mean that we will have a lot of new workload starts.

Yes.

And still deliver good margin, but this does have a slightly as I talked about earlier.

Your comp in Q1 and Q2, given it was some of our highest growth operating expense quarters in our company's history a year ago.

Speaker 14: in Q1 and Q2, given it was some of our highest growth operating expense quarters in our company's history a year ago. It makes sense. Thank you.

Makes sense. Thank you.

Thanks Brent.

Joe we have time for one last question.

And the last question will come from the line of Gregg Moskowitz with Mizuho. Please proceed.

Speaker 1: And the last question, will come from the line of Greg Moskowitz with Mizzouho. Please proceed.

Speaker 11: Okay, thank you very much for taking the question. And maybe just a follow-up to what Brent was just asking about, but on the growth margin line.

Okay. Thank you very much for taking the question maybe just a follow up to what Frank was just asking about but on the gross margin line.

Speaker 11: Amy, the Microsoft Cloud grows margins up to two points year over year, excluding the use for light change.

Amy Hood: And primarily we're expecting those to come from AI workloads. But AI workloads don't just use our AI services. They use data services and they use other things. And so that combination, I think looking on a competitive basis, we feel good about our execution. We feel good about taking share and we feel good about consistent trends. And so I feel good about that guy and what it says about where we are on share. Okay. Terrific thanks.

The Microsoft Cloud gross margins up two points year over year, excluding the useful life change a little more improvement that we've seen in some time and some some investors were worried that it might go in the other direction given increased AI investments and so as you look forward do you think that you could drive some continued gross margin improvement over the medium term and even <unk>.

Brett Iversen: Carl, Joe next question please.

Speaker 11: a little more improvement than we've seen in some time, and some investors were worried that it might go in the other direction given increased AI investment.

Speaker 11: And so, as you look forward, do you think that you could drive some continued growth margin improvement over the medium term and even as higher cap-axle will filter into the model? Thanks.

Higher Capex will filter into the model. Thanks.

Speaker 10: Let me break that into two components, because they're both important, and is there really good question, Greg. On our core business, the core Azure Business, the core Office 365, M365 Business Dynamics Business.

Yeah, Let me, let me break that into two components, because they're both important and it's a really good question Greg.

Brad Sills: The next question comes from the line of Brad Sills with Bank of America. Please proceed. Oh, wonderful. Thanks so much. Very impressive to see the Office 365 commercial seat growth hanging in here in that double digit range. It's very impressive just given the scale of that business we think of offices having such a dominant market position. And curious how you think about where that seat is coming from and how many more of those seats are out there to go get.

On our core business the core Azure business, the core office, $365 and 365 business dynamics business.

Sure.

Speaker 4: they continue to deliver gross margin year-over-year improvements in the poor. And so that, like in other quarters, has helped this quarter. In addition...

They continue to deliver gross margin year over year improvements in the core.

So that like in other quarters has helped this quarter.

In addition.

Let's talk you mentioned earlier in a question and I just want to take every chance to reiterate it.

Brad Sills: Thanks for that question. Maybe I'll take that coffee if you want to add. In general, our seat growth does come from all segments, but with a particular strength and small and in-size businesses as well as what we call the frontline worker opportunity. And that has been, I would say, looking back a number of quarters where the majority of our seat growth has gone. And while obviously it's slowed a bit to your point, I think the fact that we're still able to add seats at this level speaks to the broadening nature of what Microsoft 365 needs.

You have a consistent infrastructure.

From the platform all the way up through its layers that every capital dollar we spend.

We optimize revenue against that.

We will have great leverage because wherever demand shows up in the layers, whether it's at the SaaS layer, whether it's at the infrastructure layer, whether it's for training workloads.

We're able to quickly put our infrastructure to work generating revenue.

On our being workloads I Should've mentioned, all the consumer workloads use the same frame.

And so when you think about our investment in AI, yes. It was.

Brad Sills: It's more applicable to more people. And so I think many people have thought, oh my goodness, you know, you've got a lot of customers already. And we look and say how many people when you expand what Microsoft 365 means, whether it's security, or it means analytics, or it means teams. There's lots of things in an expanding definition. It applies to more types of workers. And frankly, the value is such, especially on the small business front, where it's to the point where I think people feel like it's a great way to spend even the spend money they have. This remains a pretty compelling offer. Thank you.

Amy Hood: Brad, two next question, please.

Because we're committed to leading this wave and see demand.

You will see that impact in Cogs growth.

But what we're committed to doing is making sure it's highly leveraged and making sure you see the same growth in revenue and I think.

On occasion, you may see something pick up one or two points of the other one not quite get there but.

The point is it's going to be very well prepared.

Because of the choices, we've made over the past frankly numerous years to get to a point where that infrastructure is consistent and I would just add that it will be very well pad at the company level.

Brent Bracelin: The next question comes from the line of Brent Braseland, with Piper Samler, please proceed. Thank you, good afternoon. One thing that really stood out to me was the intelligent cloud segment operating margins. These came in, I think, at the highest level in six years despite elevated AI investments.

Sure.

I realize all of you cared a lot about each one of our segments and each one of our Kpis and I do too, but at the end of the day, our stack and the way. It works the way we do our capital allocation. The way, we think about even the optimization of the demand to utilization is across the.

Amy Hood: Was there a one-time tailwind here that helps or are you at the point where Azure has got to come to scale where Microsoft could sustain high margins even with an ambitious AI investment cycle? You know, thanks for that question. I think there are a couple things going on and I would say in particular, this was a very good leverage quarter in that segment. Number one, the Azure revenue growth and the stability we're seeing in it.

The entirety of all of our segments and all of our products.

Very helpful. Thank you.

Thanks, Greg 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 soon.

Thank you.

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

Amy Hood: Absolutely, is a health operating leverage. The second component of that is our core Azure business. The team continues to deliver thoughtful growth margin improvement across both technical decisions, software implementations, our teams on the infrastructure build side had done really good work to deliver that and so that's been helpful as well. And then of course, on operating expenses, there's been a good focus on continuing even within that segment to make sure we're focusing that work on leading in the AI transition with Azure.

Okay.

Sure.

Okay.

Okay.

Yeah.

Yeah.

Okay.

Okay.

Okay.

Yes.

Amy Hood: And so you're right, even as we're investing in AI infrastructure which will and should show up as revenue, it'll also show up in COGS and still deliver good margin. But this does have a slightly, as I talked about earlier, easier comp in Q1 and Q2, given it was some of our highest growth operating expense quarters in our company's history a year ago. Makes sense. Thank you. Thanks, Brent.

Brett Iversen: Duo, we have time for one last question.

Greg Moskowitz: Another last question. We'll come from the line of Greg Moskowitz with Mizzouho. Please proceed.

Amy Hood: Okay, thank you very much for taking the question. And maybe you just have to follow up to what Brent was just asking about but on the growth margin line. Amy, the Microsoft Cloud growth margins up to two points a year every year, excluding the useful life change. A little more improvement than we've seen in some time and some investors were worried that it might go in the other direction, given increased AI investments. And so, as you look forward, do you think that you could drive some continued growth margin improvement over the medium term and even as higher catbacks? We'll filter into the model. Thanks.

Amy Hood: Let me break that into two components because they're both important and there's a really good question, Greg. On our core business, the core Azure business, the core Office 365, M365 business, dynamics business, they continue to deliver growth margin, year over year improvements in the core. And so, that, like in other quarters, has helped this quarter. In addition, what Tapia mentioned earlier in a question, and I just want to take every chance to reiterate it, if you have a consistent infrastructure from the platform all the way up through its layers, that every capital dollar we spend, if we optimize revenue against it, we will have great leverage because wherever demand shows up in the layers, whether it's at the SaaS layer, whether it's at the infrastructure layer, whether it's for training workloads, we're able to quickly put our infrastructure to work generating revenue.

Amy Hood: On our being workloads, I mean, I should have mentioned all the consumer workloads use the same frame. And so when you think about our investment in AI, yes, it will because we're committed to leading this way and see demand, you will see that impact in COBS growth. But what we're committed to doing is making sure it's highly leveraged and making sure you see the same growth in revenue. And I think on occasion you may see something take up one or two points of the other.

Amy Hood: You know, and not quite get there, but the point is it's going to be very well paired because of the choices we've made over the past, frankly, numerous years to get to a point where that infrastructure is consistent and I just add that it'll be very well paired at the company level. You know, I realize all of you can't a lot about each one of our segments and each one of our KPIs and I do too.

Amy Hood: But at the end of the day, our stack and the way it works, the way we do our capital allocation, the way we think about even the optimization of the demand to utilization is across the entirety of all of our segments and all of our products.

Greg Moskowitz: Thanks, Craig.

Brett Iversen: 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 soon. Thank you. This concludes today's conference. You may disconnect your lines at this time and thank you for your participation. Thank you.