Microsoft (MSFT) 24 Oct 232024 Q1 Earnings call transcript

Greetings and welcome to the Microsoft Fiscal Year 2024 First Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Brett Iversen, Vice President of Investor Relations. Mr. Iversen, please go ahead.

Good afternoon and thank you for joining us today.

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

the differences On today's our press the a call deck, Microsoft is slides and call. Microsoft GAAP on and release find Activision will our supplement of More slide provide earnings intended summary XX, we provides Microsoft to outlook website, financial completed between October XXXX. of financial today's Relations prepared non-GAAP be Investor can Relations outlook which Investor you measures. and detailed remarks acquisition Blizzard reconciliation during on when on website available commentary the

the the we are call items relate these in company's results. All to call. On to the corresponding understanding outlook portion in aid quarter of considered They for have included comparisons the The not financial accordance Activision year, with to acquisition We clarifying performance as call, more this non-GAAP prepared should further the substitute events on in to measures and noted. last growth will certain first share the period as items make addition during impact of financial otherwise commentary of on on non-GAAP today's investors be will a GAAP. impact the discuss we provided items. performance financial superior measures the or additional of the today expected unless

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

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

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

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

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

Brett. you, Thank

We Copilots, to the real making strong are fiscal AI by are of the to which people XX%. for Cloud, With year we continued surpassed a start of revenue, businesses strength quarterly up off $XX.X driven and age the in billion Microsoft everywhere.

We gains AI are the business tech stack process our across drive for layer of every customers. every for productivity to rapidly role of infusing and

starting Now took organizations their our infrastructure. bring to again highlight our as share of workloads progress, cloud. examples I'll with Azure

as other cloud also more comprehensive AI services our with XX infrastructure have most worldwide training the more the in both as than We we footprint provider. AI inference. And than center for have regions deployed and regions any well data best cloud

customers AI including reach we their best-in-class general our models, OpenAI solutions, AI Azure frontier own machines. and This which and Azure as as provides open-source power well can companies customers next-generation Meta Azure needs. Because apps organizations cost, are meeting to from leading as including HXXX new-to-Azure AI models quarter, And AI to the latency start-ups virtual overall and our use of HuggingFace, our build differentiation, expanding APIs them from with use service, well. while performance our we own now of digital-first their than OpenAI announced XX,XXX with as more OpenAI therefore, availability OpenAI to making access customers.

migrations We continue cloud to more Arc. with see Azure

We We edge are XX,XXX meeting environments. on-prem, XXX% have customers, Arc customers where up year-over-year. they are, now run apps helping multi-cloud them and across

Brother making provider fully are Oracle their integrated cloud to the to to databases We choice run experience our Customers cloud other access for Oracle's only for deploying, for we are customers' instances Azure. database companies And have Xis to simpler the SAP it Vodafone and ZF on SAP to on PepsiCo Group and of all managing like cloud. a database like services, and Oracle on-prem Industries, using customers Hanes, migrate workloads seamless, run Azure. will

an consolidate In are organizations Fabric, Intelligent we X Microsoft with bringing analytics or of data data. are to why to stores, all-inclusive XX,XXX customers More more model. analytics of are That's estate. Fabric, over on the data end-to-end into the their one Copilots, including Fortune with age today. of our operational governance. actively we Fortune other with Data More the XXXX the XX% storage XX% And Platform, to Now data and solutions business Microsoft are using use than solution compute, looking of and than our governance unifying XXX.

bringing developers. Copilot, we coding. are helping the joy With GitHub increasing while XX% to developer stay the them up in to on back flow productivity Now by and to

the XX% users that business, traction up paid more subscribe quarter-over-quarter, over significant than States. Copilot and organizations X to have Copilot We United outside with for XX,XXX million

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

acquisition Xx using developers the GitHub X of increased All number our has since ago. years of

making create to Toyota including build PG&E analyze More websites a to sentences than to possible example, to anyone also all to data. the Copilot just language Copilot Pages, it quarter, enabling or Power Copilot has Power Power XM, XXX,XXX build new for Copilot have users clicks. XXX,XXX-plus virtual Power at Platform, data-driven and this company. apps, date. for added Platform Technologies, natural few Platform Lumen used EUI, organizations, and enabled have to Nationwide, And we agents capabilities use all brought using Equinor, We and

million no-code XX% in year-over-year. now Apps monthly low-code, remains XX up with Finally, the development users leader market active Power

Now quarter. business on for consecutive We're XXX Dynamics to inflection role AI in point All applications. our applications. our using this took share to the business redefine tenth

Copilot-led are transformation We the CRM top business layer on becoming process Salesforce. of like existing systems

help We're data. our on XXX Copilot Service sellers organizations, content at ideas more based customer suggestive this frontline quarter, and to valuable access For everything Copilot from to Sandvik, and streamline introduced example, Copilot help tasks. also personalize from to with XXX Automation, sales third-party Field Rockwell bringing helps business than to Coromant, And we and to actions interactions including faster Dynamics Teleperformance Securitas Dynamics data CRMs. XX,XXX

solution Copilot, industry Now point XX million interactions seconds, draft applying DAX productivity models to helps care, automatically and reducing with interactions notes In at Dragon the generative physician Ambient clinicians and our health on care. And to Experience document more burnout. of increasing date. It's been we patient cross-industry in to used than clouds. clinical across are high-quality

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

more imagine Now they in future next employees without of Suncorp that collaborative in XXX, available customers in use customers as analytical in like enterprise you and early are on KPMG, to work. part can't week. program. Clinic, PowerPoint, Excel, helping tell to creative is our expressive using thousands more XX% it, the we at Bayer, Copilot everyday your make Teams. Mayo access Copilot, it of in more they excited and productive Word, us Customers Visa, of and generally for AI including Fortune Copilot are work once assistant, Tens Outlook be more of more

by new new also habits lab employees employees into knowledge build in introduced this and for work This Copilot, own their experience quarter, entire their hero work, Copilot we data era using helps a the And universe active of tap users, monthly helping chat. prompts Teams, into to good continues and comes ones. When XXX work turn place Teams than them usage AI it the million great more making to calling. helping to collaboration, of grow meetings chat, with across

while a of quarter, that using XX% new to This we collaboration. communications seamless and faster and Xx memory cross-tenant less includes introduced is up Teams version

monthly security, X,XXX apps now canvas also process. companies quarters for and rely for paid up, We revenue in apps Teams. And all triple-digit become EX business and gaps we employee Chanel, Adobe, address Microsoft each skills continue sector, have on organizations to understand Dell, X Group Teams XX,XXX companies across flow more Teams premium together exceeded active experience, including seen Viva, workforce more bringing store and learning on of Lloyds the for multiplayer our private a work. All help like we and to high-performance more use and Teams in it, of build PayPal advanced than and XXX category There created are Microsoft in than all Rooms, organizations. DXC with we collaborative consecutive see have from Banking for customers choose voice Viva, Technology, Teams Atlassian has users to are public helping Premium. With in LinkedIn X new Cerebrus, from analytics. offerings Workday and information compliance, personalized XXX a content and market employers suggest growth million

Paint biggest and the rolled companion, of your in web, PC at Windows AI-powered AI features, system. Windows, The are AI-powered doing Everyday new across you continue And And were to with innovate Windows. unit on and assistance. to which the We prepandemic better PC to the we on including XXX we ever to operating Clipchap, incorporates differentiated what Windows, work out experiences the Now to data introduced levels. market experiences new XX the provide like volumes the adding Photos. Copilot update roughly context

worldwide Cantor like Eurowings, BP, seeing accelerated Windows We RBC. deployments are and XX companies from

a Windows are any PC companies employees we and with Crocs, with to Copilot Cloud like Bolton XXX Bank on get making switch, Finally, easier ING than Windows personalized Hamburg the at for it device. XXX Bank ever Commercial

has access early Microsoft improve National all the and Copilot Government centers to so security using new and the of CIOs to in and hundreds share and operation we And integrated continue security Now we been we priority than preview Fidelity And part revenues Thorton the our generative demand Allen XXX forward of bringing and billion is MetLife on and SIEM today advanced unparalleled, as XX,XXX program more early is Hamilton, product, look customers positive. they threats like Microsoft We months their seamlessly #X serve. is Bridgewater, have attacks our with own organizations, customers broadly, categories been coming for now in of rate. of at most protect the the stop solutions speed, now Sentinel to industry which in organizations use worldwide. see productivity their across feedback industry's Grant every The run past environment. Copilot, And of has annual Alberta, for scale can Security Booz to and speed. More machine AI Copilot major take $X including high Defender. Dozens of to Financial and first end-to-end security. cyber sophistication

LinkedIn. on to Now

has and how over get We sell now members years to a accelerated AI hired. of each now transform million quarter generation applying for in X new row. the are learn, growth this Membership XXX

and XX% time. across to newsletter we have have we tools months and X/X and a quarter, messages fifth a the AI-driven XX% More marketeers learning than this new of for help platform. members step. Since employers year-over-year. members that and learning for all introduced X consecutive attract This recruiters introducing candidates ago, buyers million AI-related saves content hiring up say and in nearly sharing year-over-year, We watching to sellers them it personalized including find increase businesses, of broadly, see in Premium globally, gives single subscriptions a subscription our took them share qualified XXX guidelines features coach up seen more AI-assisted record were business our we now continue quarter. sign-ups Xx knowledge courses engagement quarter. the on And

and create. redefining we Microsoft Now have use on than gained quarters. how X.X the advertising now for chats, and to more our With and people Copilots search engaged to Internet are XX search web, for users in has the consecutive share Bing news. Edge billion

have realistic quarter, This in images. and more More X.X as new introduced with been incredibly answers in helping to well images end we Meta's Copilot as to DALLX, support billion tailored than also personalized expanding provide created information. points, people as relevant AI new real-time create shopping, bringing for our people to answers date. And to more can find to We're search chat deals. well access up-to-date experience to Bing answers better more and as recommendations order get

integrating Finally, we Springer this more ad customer effectively generation us our Actual, both of chat as and and to intent experiences new well platforms connect AI Snap. are like directly marketeers into from customers to as

with subscriptions are fill on record depth than how a Nearly million sold has played to on any to acquisition Prerelease quarter most XX Activision we for hours were million We set have surpassed on and redefining our on for delighted a Together, to distributed, PC subscriber games goal hours close content bringing we launch add the copies our stuff King to day earlier gaming. now More single We record players will of played played Game our have portfolio. to people set Now Blizzard this great this Already King, the advance Pass, day, the now half game played of and date. we point. broad Pass and ever. Minecraft significant quarter. been on we everywhere a end acclaim. Game Activision month. to this added per of are games discovered. Blizzard XXX with

strongest just rapidly to Elder like introduce Halo and AI Amy. capabilities, our new XXX of holiday new Duty, we're billion-plus expand be to across and titles you we'll products of We encourage are tune Motorsport. In opportunity our Modern consumer $XX we thrive I'll will War. few innovations. Call businesses turn and including to closing, forward exciting our Gears from In looking than Crush, ever, that, as have and lineup commercial we will innovating to franchises of X Diablo customers Candy more and Ignite we to era. weeks, help over a our holding this Conference, And in one Warcraft, Warfare our flagship in. With new Scrolls including new I where it first-party

you, Thank afternoon, Satya, and good everyone.

businesses. In new improvement the was teams moderated landed and in Higher-than-expected quarter, prepandemic share particularly Consistent renewals, up our to XX% a and consumer in currency. are in with partners $XX.X Azure. In in outside impact in total and was business adopt constant start number PC growth driven services. obligation revenue XX% spend expected, revenue, XXX performance And expectations. constant by $XX.X in did by XX% Commercial to million-plus unit which with business, contributed not growth XX% billion. to contracts in by to products line per market returning have annuity XX% stand-alone in Earnings in constant year-over-year. revenue volumes helped and and expectations. levels. Advertising line And months, both slightly on months, across strong We and the engagement expected, fiscal the businesses in increased trends XX in our our gross Microsoft trends benefited remaining XX%. FX transform motion be roughly Cloud quarter, percentage XX% Results healthy Starfield XX% of the results ahead Roughly better growth. Microsoft Azure again roughly continued content many billion sales revenue expense saw a expectations, our core and primarily saw Microsoft segment-level this our in grew have XX% were portion, X expectations significant was currency, XXX. Commercial be as to XX increased XX% revenue, mix to The next was driven Xbox growth increased our and increased recognized sales and for up revenue expectations, the margin recognized strong in launch This annuity In our AI with was Azure. by currency. we optimization Azure, will of the remaining in Microsoft as from than and with be solutions exceeded continued. XX%. company prior billion, the beyond and strong and $XXX year. for Microsoft XX% similar will of QX. constant innovative year-over-year suite. quarter next XX%, XXX sold EX, to and share the to XX% bookings on the currency, consumption continued execution our primarily gaming, $X.XX $XX increased this gains customers operating Cloud point execution their across COGS quarter commercial our business, line

for just the increased as estimate of driven accounting percentage as improvement by impact roughly Cloud in points in well margin the X Excluding gross useful Azure Microsoft Office lives, change mentioned XXX, by currency, meet to of margin the and margin growing our and constant percentage increased gross increased XX%. demand. Company impact scaling year-over-year partially XX% gross in to XX% offset infrastructure dollars the AI

of driven quarters. XX%. marketing, count total percentage margin constant as offset than by was of engineering, Operating roughly driven impact year XXX as that shift lower points level, cost September X XX% year-over-year gross margins estimate, the focus LinkedIn to ago. investments expenses higher-margin the and as Operating and well Office to X%, currency. Operating and X% mix devices. At to Excluding by a lower well growth as improvement at sales in change due in Azure a the the to expense XX% increased was in than businesses. Operating increased income shifted head accounting cloud X roughly end future expected efficiency increased company increased points by partially

noted earlier. the roughly accounting the margins through management driven increased leverage cost improved operating higher margin operating estimate, impact change the in X by Excluding points and gross of

better-than-expected impact continue Business from grew from all more the revenue driven verticals. earlier. Office we growth in driven revenue again noted see and XX% bookings Commercial renewal constant in the be $XX.X grew grew XX% constant key LinkedIn. Growth currency, performance which driven grew of and $XX.X Office continued negative ahead in XXX Seat XXX, growth year-over-year XX% of slightly across Dynamics grew in the Paid business increased momentum trends customer by revenue currency. business margin in by year-over-year while base in than our constant line XXX constant XX% with remained Dynamics XX% gross to ahead by to by in Talent expectations, Microsoft growth with offerings customer shift to though Commercial ARPU increased declined cloud stand-alone environment in dollars which weaker constant X% in workloads. Segment in-period Productivity X% businesses. Commercial XX% with XX% revenue by growth increased driven segment all increased to and as with in across in new licensing Now was bit currency, XX% and offerings. slightly revenue XXX Office worker continued recognition, currency hiring continued XX% with Office continues XX%, slightly Commercial percentage increased and driven currency expansion with billion gross from Solutions, EX all across and remains X%, year-over-year. medium better to and by million. LinkedIn and results. line healthy subscriptions, there billings expectations, currency seats in Consumer XX% margin XX% execution better-than-expected and continued Commercial segments. XX% and installed was XXX driven and expectations. Growth with frontline a small revenue relatively grew Office constant results was and XX% our strong. Office Processes expected and momentum Revenue

operating and constant XXX. point roughly Office the percentage X% currency. of change accounting increased income XX% increased estimate, margin by Excluding in gross expenses in XX% the impact driven increased Operating and in improvement X

currency, of with was Next, XX% from increasing all points ahead grew better-than-expected server Cloud $XX.X grew expectations XX%. the X Azure cloud services cloud billion, and AI segment. XX% Intelligent results including across services roughly and XX% revenue other revenue businesses. and services. in Overall, Revenue constant and products

stand-alone in services expectations While of the Services. Segment business. earlier. In Enterprise quarter GPU and continued of in increased slightly unchanged server gross driven relatively Windows in slightly. was advance as over of Security as impact of in XX% by was X% expectations, million by well noted XX% growth per-user trends driven higher-than-expected Partner Mobility gross per-user increased AI margin business our our better-than-expected margin and better-than-expected of of prior ahead growth install our the trends Server ahead performance to driven business, on-premises Enterprise and our growth grew Services support. XX% currency, increased in new In from seats GPU XXXX X%, capacity continued, with primarily utilization revenue dollars revenue currency, ahead Support XXX increased by expectations, constant business, and from base end constant and in primarily increased and percentage the demand Enterprise

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

ex share EX. and by XX% this Microsoft TAC constant saw PC More to earlier, to again was expectations increased stronger across and constant revenue driven Computing. expectations the engagement increasing Bing particularly Edge execution gains slightly segment. OEM market stronger-than-expected $XX.X ahead billion, year-over-year, cloud Personal in expectations, X% significantly better-than-expected build XX% channel revenue above all stabilizing X% inventory Xbox XX% Xbox and X% Commercial in services increased in content the of products Windows for revenue noted due XX%, Devices by ahead increased X% demand as news in X constant shift We X% increased with and revenue XX% driven the and of advertising of revenue subscriber in Xbox in Revenue of decreased hardware businesses. increased on and quarter, demand businesses. constant consumer revenue X% third-party year-over-year dollars points X% income currency, Search currency. Segment results ahead impacted due and Now and increased X%, XXX currency, and first-party commercial XX% commercial. Windows and services partnership. And X% mix in increased sales primarily percentage launch. higher-margin expectations, ahead well and by currency, in X% in by currency, gross declined to and XX% Starfield increased and constant Revenue driven currency, increased content margin a growth and continues roughly be growth by constant search primarily constant to Operating gross declined to in Pass margin in expenses although Game currency. XX% operating gaming. revenue and better-than-expected expectations. as driven

Now back to total was company results. by Capital investments flow Cash expenditures, year-over-year. including strong including infrastructure. finance was billion, XX% demand, billion. leases, paid driven was for cash were operations $XX.X from and to billion, PP&E billion $XX.X collections. Free to up billings $X.X cloud support cloud year-over-year AI our up Cash $XX.X flow XX% scale

quarter, $XXX by higher net and driven interest foreign than losses anticipated, currency and was This partially by offset million, expense on other investments income income, remeasurement.

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

noted Activision to moving on a on The October dollar specifically which closed otherwise, our outlook, is QX acquisition unless Now basis. U.S. XX.

So my the net from acquisition. impact of date commentary of deal the the includes

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

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

expense including a relatively percentage we growth should operating be sales and be but core Therefore, base. COGS annuity bookings, our motion, In to expect Cloud expiry execution low-growth healthy renewals, year-over-year. commercial impact be we no flat have growth relatively will to consistent impacted expect across growth. by to FX bookings expect margin flat. Microsoft gross We

percentage estimate roughly impact meet XXX, primarily and accounting growing demand. will from QX by our by infrastructure impact the X Excluding point up gross offset to margin Azure change, the driven of Office scaling in AI be improvement cloud partially the

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

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

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

on-premise revenue the general constant X related expect growth currency. to to up our business, revenue high to In mid-single XX% Office availability expect to Microsoft XXX November digits be mid- Consumer, revenue excited decline gradually we Microsoft Copilot we We're for in growth the We driven expect Office subscriptions. time. grow over by in roughly on and in teens. In revenue XXX the expect XXX

Dynamics by in high and XXX. especially expect digits growth teens driven the and we in Dynamics, overall LinkedIn, environments Growth growth mid-single revenue by we where For industry, the market to the technology in by be driven recruiting have revenue impacted significant Talent Solutions Solutions. Marketing continues the for advertising, in exposure. And expect we

we business contribution continue expect our variability QX XX% on Azure, will to trends driven the billion. contracts. In XX% to per-user from we USD XX.X depending a reminder, XX% mix to to XX.X and of continue to grow Azure USD in-period between can business, from growth will XX% in Revenue growth constant by approximately in into have to revenue billion the Revenue and from Intelligent lower. consumption revenue primarily with be currency Azure, be we expect continues and recognition, be from be X point by AI. currency an to revenue Growth expect increasing QX. For Cloud, quarterly or driven which, as constant

Microsoft benefit to should installed in moderation momentum, business we XXX the though growth of continue continued seat rates per-user expect Our suite size from base. given the

revenue environments. to roughly growth trends expect QX. new Azure we we multi-cloud and hybrid low compared to revenue our and continue the with demand, optimization the assuming Services, Partner HX, on-premises growing to from digits. Enterprise workload roughly For from constant server remain running should AI, with stable expect contribution In in decline revenue continued mid-single growth particularly in In business, flat licenses to be and currency

Personal acquisition. the from which Computing, includes the net More impact Activision to Now

volume should supported and by as this X environment negative growth be advertising share partnership. expect TAC gains engagement Edge be driven be impact from increasing third-party by that higher premium should similar growth will QX. roughly decline Commercial to browser strength focus spend higher-margin USD products advanced Search the mid- ex points news should we XX.X OEM TAC ex expect single to be advertising low products. We in mid-teens. expected should roughly devices, revenue volumes high services, and solutions mid-teens to to advertising we first-party net Reminder Growth to and of search to our mid- roughly a QX. In gaming, market overall security high with which, the growth USD for X This roughly growth the to includes change revenue. And of adjusting revenue in expect and look third-party XX continue be digits in should as a mid-single content earlier. on XXs. revenue cloud the points Windows acquisition, points revenue In includes to our reminder, Microsoft PC drive growth XX.X the similar with as billion impact of customer revenue we than revenue to billion. Windows unit to news for XXX the Bing digits demand and in from Activision noted

net by to of the acquisition. services growth and driven content roughly We Activision expect in impact points Xbox the from high revenue mid- XXs XX

company back Now to guidance.

to billion amortization of expect the XX.X assets Activision acquisition. including million acquired billion, approximately USD from between USD We COGS XX.X intangible $XXX of

debt, the Activision by income our interest primarily as adjustments, USD be USD million short-term integration negative issuance interest and portfolio purchase for XX.X investment will due billion from than expense reduction transaction-related to the and $XXX approximately roughly be income including accounting a We offset balance Activision should expense costs $XXX million both expect to operating the in acquisition. Other acquisition. billion, XX.X and from more of expense of

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

We to between tax our QX XX% expect effective rate be and XX%.

Now well additional some as on year. HX thoughts the full as fiscal

First, FX.

revenue remain expect expect COGS Assuming growth we to growth. in no have rates point. and stable, expense full operating Therefore, expense we by FX or operating current decrease X impact FX revenue year HX, COGS to meaningful to

Activision. Second,

HX. each accounting in million for approximately $XXX adjustments integration costs expect in well and We as purchase transaction-related quarter as

start closing, to operating to am for our remain as to operating add our purchase adjustments 'XX, as in to growth confident focus wave. With committed that, expect strong I transaction-related leadership inclusive AI net healthy expenses, our and ahead we our full we commitment continue let's go investing continue year-over-year. In Q&A, the Therefore, that year margins platform leverage. well the deliver of remain impact by cloud For lead on AI we disciplined and our of while cloud and Brett. full a the FY to opportunity 'XX, driven as will with integration Activision, as also team, FY the to we year flat commercial in maintaining accounting to

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

of question with Keith from [Operator Instructions] Weiss the Our line Stanley. Morgan first comes

at environment investors amazing. pace The quarter. pretty nice we think probably has side And that out equation. products also in the new that, are it. than of spending I faster more volatile are an been you But getting Very of on remains our overall like putting concerned innovation have traction been and guys on had garnering working expected we're

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

can you can obviously, things, Amy, that simultaneously. all Keith, Keith, are it. multiple there are to start, Overall, and I happening, add Maybe Yes.

the coming characterize, new all in take and needed is the with cloud new we the significant Oracle Oracle announce app you have estate bunch one the go our available because cloud unlock customers cloud. moved going to we estates the saw who that on to happening try just where example, take the reminder good parallel. Like, A to Azure are rest not have for of of or growth for Azure they the and for databases migration that sort Azure's core of run Azure, Oracle are X of cloud things single migrations. to announcement. Once from numbers, yet be from a there are story is If we the what in where even drivers

excited we're so that. about And

services that a sense, some Oracle in to where needs financial is move even example, a there's place still So of for the sector, good cloud. lot the to

perhaps thing, optimization were of the course, that third fairly is and thing those that cycles the that's around We'll half different second extreme continues. of is start. new for starts of And the unique fiscal. And some Second our then cycle AI. us, new and workloads workloads start, then workload in optimized lap are is, workloads

AI lots position, just new seeing cloud not our meters. know, Given about of projects. They which projects are AI meters have complete we starts, other well. And leadership as as are you are AI project

sort that side of one you happening terms in of gives what's So of enterprise.

are confidence the which is going adoption through in GitHub around this to confidence is these The of value. good good new represent SaaS us piece side. The that's terms is Obviously, giving our go we enterprise Copilot productivity, other what importantly, with and on on a the results again, products what's customers, product more cycle. demonstrated

And so very there. the innings are we early in very,

look And products going to the forward. we seeing forward these for traction so

about that's then things your QX. I'll about second talking question. add, just we talk the into bit maybe part very QX general, the a from QX, is to few execution a of In to saw leverage, and what we're consistent Keith, which and operating little

customers to or that that at It of I services real that those when asking we're think is high-value productivity improvement, to a where savings on upgrades talking that making or value went. speaks getting are which speaks real scenarios. sure so renewal come promises talking real Satya about AI about value, quick very with prop, our EX return

comparables think And in confident nature the and margins to think feel think, this, improvements and cost in pace delivering even increasing operating with the speaks your it And AI gross core that we right, even revenue partially still the purchase you ahead impacts, of to I even you expense are full you're operating the impacts, XXX making an commercial is put priorities commit was Activision of integration of in leading Microsoft it AI accounting piece and the about, that my commercial of as expense I our to, which we the is every Azure HX now It speaks making about the with addition the the back we so leadership we although investment is the challenging margins, we're in then HX, can cloud in we commercial year. than deliver more capital demand we're talked really last some consistent question, why and guidance at dollar if cloud. important that sure demand. And about I year about to in think which stability talked and focused get we see. And wave. on

think both And focus that is helping on so really execution and I leverage.

comes line The next Research. Mark the Moerdler question with from of Bernstein

a you from any just Copilot has has clients? addition, inferencing a for model of training? on Congratulations a a and GPU really beat higher that far reference potentially expected, predominantly meaningful a Or full dev factor utilization Microsoft discussed the you In have is from on quarter. are fact has And Azure and been helped, quarter. give Azure plug-in from but strong perspective, lot more while stronger than AI a been perspective? yet margin us whether can we your guidance architecture, also this GPUs seeing even color architecture stack, revenue AI not

all for approach it way all the true whether ChatGPT same model. taken Mark. the from chat is -- is we or you have the Bing that the a approach all it's Copilots we full-stack or question, our have share Yes, -- Thank

of the we will. way that one also So have riding up are the scale. doing then all we which and utilization third the of leverage see sort trained which some things than parties. And of time, down is inferencing that high the much sort model the the at sense, very, over you that layer are abstraction to of the way kernels, we internally, utilization higher because trickles all advantage to developers silicon if both to no-level can that the stack used, one of in that you do optimization And very we is one model

technical think training I doesn't there and have or approach Copilots fundamental of therefore, So mean for we models. we'll doing approach we proprietary a saying models have don't people which is was took, open-source stack available. That all Copilot a

bunch of models. a open-source have also We

bunch We RHF have a bunch happening. of of fine-tuning happening,

Azure that's of well trained one we as of our model kinds people that the our all thing there's one our been all for was API large SaaS leverage AI across ways it, model use first-party apps inference So used but is service. large and as in have scale

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

we're I all be important concentrated. disciplined is the not any from accruing be their well trouble. our across a tech would not running spend stack and I a important platform look as stack into AI transition, their portfolio. I think Microsoft's in like down both, given just conglomerate is cloud about as very thing could mean because -- run discipline, -- to one business -- all what capital I disciplined to other is very think, side tech for It's it capital be one for And it Yes. up is businesses to this all I'll learned us on that's this spend that of spend our different the very lesson add well question to Keith perhaps going Mark's as will businesses. The that this transition, as call like

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

Many can XX% asking the stronger coming boost double-digit with next good you to several growth. sustain AI the investors are see especially the quarters. in Amy, growth,

seeing for half strong we're in start I line year, think the Azure year. what QX the our talked QX. for was to said, stability as at and -- looking that. at I -- into We of QX with looking about certainly implies the a second

so ability but continue about more I share. we ability execute, think good to take our to And our feel importantly, to

line of The Lenschow next question Raimo Barclays. the comes from with

Xst speak the -- excited that in mean You terms Office there in customer now in features a of out November? this little about curve optimistic very once the the And how seeing tested bit GA Copilot base what special does for of going you it Can what they of in adoption there? opportunity with forward were, sound that about soon. the coming very you space in go already the terms you're

and And question, clear done One that, XX% feedback And product. is are in fact is think XXX preview for The tool, also the using very the very, you the interesting already which of that of fact, twofold. the up. the the I have Thanks not the even the what, in all are Raimo. right, Fortune news lots checks. is any is all the of thing is very sort feedback is one positive. And it's it's good

transcript. whether create the Outlook Excel which right, hitting do It's in to it's of all having or like Like clearly, Meeting, Word keep to every Copilot Teams button knowledge just the to you You documents, Teams. the can across query essentially add your recap, intelligent surface, base or just or in PowerPoint your not It's an knowledge analysis and terms enterprise. a right? is of that meetings dumb a

different And usage sales finance across functions, interesting whether broad it's so seeing in we by by roles. thing or is in the and are

seen in productivity we with like developers gains We GitHub have saw Copilot.

So that's the data.

the grounded course, a the And is. And are I We what's of at guidance in can we so an is day, enterprise cycle more end product. of where's as is far Ignite and terms enterprise will and on of far of are times we talk the deploy. cases more and feedback it's as incrementally our about prescriptive -- adoption the But excited mean how priced. this give about the the ramp. good value data and very people on where all Conference, lot so use

all that still. of new, something pleased But therefore, of excitement So apply something very have already level and very, we're level completely usage this with. least for to this will is at

comes question Keirstead with from Next UBS. of Karl the line

Azure constant XX% the That's Azure. growth. on a congrats press bit you currency little to wanted outlook Amy, on the for terrific. I

thereafter. I'd continued X- wouldn't a even if to in accelerate would trying year Is fiscal Why function as and you're but But a this be contribution spend just to know obviously X-point slightly some maybe decel then AI on of love core conservative, worse? Azure AI we upside in You're of Azure second increasing the perhaps see it is guiding half getting it more Why the stable? you December be GPU your stable couldn't why capacity? bring optimization I ex to continuing that or number? understand in to it.

some QX continue talked to couple A quarters as that. not has part We've trends fundamental a optimization that That It's new Karl. Customers room going were a consistent new of and important customers, I things to for into part and been very running having of capabilities. build But is obviously about is it and new. There was workload where quarters that been an then pattern more workloads. Thanks, both is make are have new of of continue accelerated. do couple adoption a consistent that now. HX. us the been to for through

And being we're so impact just to component starts. will our workloads. But at rest that lot starts. And these services talking come And is those scale in I key expecting through think data view the use AI year, been the They the that AI other stability remains we're business to and use I think Azure we of that. Then, and new workload able does unchanged of has on don't workload of always things. have my workloads the have services. course, primarily, about, from new mean a our AI

taking And feel competitive we basis, trends. our think, care, feel good so we looking consistent that execution, on feel about good combination, about I about we a good and

guide and And we are about on it where so says I about share. that feel what good

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

more hanging get. here where the that Office Curious having such the that range. position. that those given of are see seat It's to to market seat a you just out scale as think from -- in and very Commercial in growth XXX double-digit impressive many impressive of how coming Very Office business, the how about is go there of seats think dominant we

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

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

The next Sandler. of Brent the question with comes Bracelin from line Piper

I here segment ambitious that point at elevated scale the Cloud could These at investment out the AI there you high a to cycle? margin. came thing AI the highest investments. in sustain even Azure level that operating despite with Intelligent me has margins think, helped? are really One was an where Microsoft got of onetime Or years stood in, the kind X Was tailwind where

question. that for Thanks

we're the I it is seeing going segment. the a was stability in in absolutely -- revenue in Azure growth think are very on. particular, a would leverage I that and there to this I couple of do good And leverage. things quarter operating help say, Number one, a

team Azure component second thoughtful both The our to is of that business. margin core The gross continues improvement deliver implementations. decisions, technical across software

Our to have good done deliver the build really teams that. side infrastructure work on

even there's And good on a sure so been expenses, then, focusing work that's that we're transition as within make leading Azure. been AI that well. And helpful the segment operating focus on to course, with of in continuing

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

last of Gregg line will with The question Moskowitz Mizuho. come from the

in the some time. year-over-year, was a on seen to gross follow-up is a life little change, about just X margin the gross the but Maybe just line. margin improvement Brent Cloud what Microsoft we've asking Amy, up points more than excluding useful

were might other worried go investors AI increased investments. it in And some that the given direction

some so And medium as improvement think look gross the CapEx you into term drive will model? filter you margin do that as higher could you forward, even the over and continued

Yes.

margin the both deliver question, core they good MXXX core that break X in because year-over-year Business business, into a me really Let it's they're business, gross On the Office XXX, improvements core. and Azure Dynamics important, Gregg. to components continue business, our the core

in this quarter. so like has And other that, helped quarters,

the at take work reiterate, addition, layer, the same layers at all infrastructure the the it's leverage whether from our I spend, frame. use we able to you for staff optimize its consumer should Satya capital platform to just want whether question, infrastructure to we're every against beam all workloads. on workloads, up wherever demand layer, shows we I generating what we have have put workloads if whether the a have I revenue mean it's mentioned through great it's in a to that training layers, our every the infrastructure in In quickly mentioned up and if because chance earlier consistent revenue the will it, way dollar

years committed will it's that you AI, the yes, about making to this growth same it will and -- growth. highly sure see committed is our leading and revenue. And when impact demand, And sure you But so paired not we're in something see because X in I X well wave frankly, going or see point But the you investment and that doing the we've points see making to think leveraged to what in we're COGS where may you is made other get occasion, on is over one very get point tick past, think be a quite because to there. the infrastructure it's numerous of up consistent. the to choices

to our it our we just you care segments I our allocation, each I'll add end our is products. will of the of the the think And very I the the of all demand optimization one even day, the way all each way our lot a paired of all do But that well segments the entirety works, at it about one of across the we be at realize level. and company stack and of and too. utilization, way of and of capital KPIs, the do our about

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

you. Thank

Thank you all.

This concludes conference. today's

at You this may your participation your and lines thank you disconnect time, for