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Apple Earnings Call Transcripts: Apple CEO Tim Cook on the company’s Q1 2022 earnings

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Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company’s Q1 2022 earnings call. Here’s our ongoing live transcript of their remarks! If you want some quick analysis on Apple’s results, we recommend checking out these excellent charts from Six Colors.

Cook’s opening remarks

bobble tim cook
Tim Cook

Thank you, Tajius, and good afternoon. Today we are proud to announce Apple’s biggest quarter ever. Through the busy holiday season, we set an all time revenue record of nearly $124,000,000,000, up 11% from last year and better than we had expected at the beginning of the quarter, And we are pleased to see that our active install base of devices is now at a new record with more than 1.8 billion devices. We set all time records for both developed and emerging markets and saw revenue growth across all of our product categories except for iPad, which we said would be supply constrained. As expected, in the aggregate, we experienced supply constraints that were higher than the September quarter. Before I discuss our results in greater detail, I want to first acknowledge the toll that COVID continues to have on communities around the world. In many places, case counts are higher and health systems more strained than at any point throughout the pandemic. On behalf of all of us at Apple, I want to extend our deep gratitude to the scientists, doctors, nurses and so many others on the front lines of combating COVID-19. This is our 8th quarter reporting results in the shadow of the pandemic, and while I can’t say it gets any easier, I can say I’m incredibly proud of the way our teams have come together and continue to innovate on behalf of our customers.

A few weeks ago, we marked the 15th anniversary of the day Steve revealed iPhone to the world. We knew that we had the beginnings of something fundamentally transformative. Though none of us could have predicted the incredible and meaningful impact it would have on all of our lives. The creative spirit that made the first iPhone possible has thrived at Apple every day since. We never stop creating, we never stop innovating. You can see that spirit reflected throughout our products from the incredible performance and capability of our M1 chips, to our powerful yet easy to use operating systems, to our unrivaled iPhone camera systems, to the beauty and magic of AirPods. That’s why each of our major products leads the industry in customer satisfaction for their respective category. People expect Apple to solve hard problems with easy to use products. An iPhone has never been more popular. During the December quarter, we set an all time revenue record for iPhone thanks to the strength of our incredible iPhone 13 line up. This is the best iPhone line up we’ve ever had and the reaction from the press and our users have been off the charts. This past quarter, we also set another all time revenue record for Mac with customers eager to get their hands on an M1 powered MacBook Air, iMac, or MacBook Pro.

We’ve been thrilled with the response from Pro users to the M1Pro and M1 Max chips and to see how Apple silicon is blowing them away with its power, performance and efficiency. Despite the constraints I mentioned earlier, our iPad lineup continues to be indispensable to tens of millions of people, from teachers and students to artists and creators. Customers are eager to get their hands on our 9th generation iPad which features a beautiful display and double the storage capacity as well as the new iPad mini with its ultra portable design. Wearable home and accessories meanwhile set an all time revenue record. Customers are loving the Apple Watch Series 7 with its cutting edge, health and fitness tracking features. Nearly every day I get notes from customers who share how a heart alert led to a life saving appointment with a cardiologist. And more recently I’ve been hearing from people who tell me that their Apple Watch saved their lives by calling 911 when they couldn’t. As I’ve said, we’re still in the early innings with our health, but every day I am encouraged by our positive impact. We are also making great advancements in audio and are seeing strong demand from customers as a result.

The HomePod mini continues to earn praise for combining the intelligence of Siri with an immersive, room filling audio experience. And our customers have responded with a lot of excitement to the magic of Spatial Audio on AirPods, which packs the acoustics of a concert hall. As always, the deep integration of hardware, software and services is a hallmark of everything Apple makes. It’s a principle you can see at work in the introduction of SharePlay, a feature that offers a whole new way to create shared experiences by letting users watch and listen to their favorite content together on FaceTime. And we continue to invest in innovation across our services business, which set another all time revenue record last quarter and performed even better than we had anticipated. The App Store continues to be an economic miracle for developers around the world and a safe and trusted place for consumers to discover their favorite apps.

Since its launch, we have paid developers selling digital goods and services more than $260,000,000,000, with 2021 setting a new record for their earnings. I’m also happy to report that in its first two years, Apple TV+ shows and movies have earned 200 award wins and more than 890 nominations. Among the powerful lineup are feature films like The Tragedy of Macbeth, Coda, and Swan Song, along with many gripping new series coming up, including Severance and The After Party. Each one is a tremendous credit to all the storytellers in front of the cameras and behind them who touched audiences all over the world.

Fitness+, meanwhile, continues to inspire customers to reach their health and fitness goals. We recently introduced Time to Run, an extension of our popular series Time to Walk, as well as new collections of workouts and meditations to help users make more intentional training choices. Despite the pandemic, our retail businesses saw its highest revenue in Apple’s history, and we also earned our highest ever customer satisfaction scores. That is a testament to the incredible adaptability our teams have shown as we’ve reimagined retail experience. I also want to take a moment to thank our retail employees and Apple Care teams for the deep care you’ve given to our customers as they look to get the most out of our products, learn new skills, or track down the perfect gift. We have always led with our values and with compassion and care, and never has that been more needed than during the pandemic.

Last quarter, we celebrated 10 years of our Employee Giving program, which we started to help our employees identify and support the causes they care most deeply about. We pledge to match their contributions to organizations doing important work at every level, from their local food pantry to global humanitarian nonprofits. In the last decade, this program has contributed nearly $725,000,000 to charitable organizations. We also celebrated 15 years of Apple’s partnership with the Global Fund on Project Red, supporting their life saving work to expand healthcare services in SubSaharan Africa for people living with HIV AIDS. With the support of our customers, we’ve now raised nearly $270,000,000 to fund prevention, testing and counseling services for people impacted by HIV AIDS.

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And in keeping with our abiding belief in and commitment to education, we also launched a new partnership with the Boys and Girls Club of America. This initiative will help young people across the US learn to code on iPad using our Everyone Can Code curriculum and we are continuing to drive innovations to help combat climate change. We are already carbon neutral across our own operations and we are working intensely to meet our 2030 goal of carbon neutrality across our supply chain and the life cycle of our products. To celebrate Black History Month, we will be releasing a special edition Apple Watch Black Unity Braided Solo Loop and a matching Unity Lights watch face. And through our Racial Equity and Justice Initiative, we are continuing to support organizations blazing trails to a more equitable world in our economies, our classrooms and our criminal justice system.

We recognize as ever that it takes all of us to confront our most profound challenges and at Apple, we are determined to do our part. That includes our own work in inclusion and diversity, which we are advancing every day. Let me close by saying that despite the uncertainty of the world, there is one thing of which I am certain: Apple will continue to innovate every day and in every way to deliver on the promise of technology at its best. I will now turn it over to Luca to go over our quarterly results in more detail.

This story is developing…

Luca Maestri’s detail on the quarter

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Luca Maestri

Thank you, Tim and good afternoon, everyone. We are very pleased to report record financial results for the December quarter. We set an all time revenue record of 123.9 billion and 11% increase from a year ago. We reached new all time records in the Americas, Europe, greater China, and the rest of Asia Pacific, and it was also an all time record quarter for both products and services. The product side revenue was 104.4 billion, up 9% over a year ago. Despite significant supply constraints, we grew in each of our product categories except iPad, where supply constraints were particularly pronounced, and set all time records for iPhone, Mac and wearable and home accessories. The strong level of sales performance, the unmatched loyalty of our customers, and the strength of our ecosystem have driven our current installed base of active devices to a new all time record of 1.8 billion devices.

The growth in the installed base was broad based as we set all time records in each major product category and in each of that segment. Our services set an all time revenue record of 19.5 billion, up 24% over a year ago, with December quarter records in average geographic segment. Company gross margin was 43.8%, up 160 basis points from last quarter due to volume leverage and favorable mix, partially offset by higher cost structures. Product gross margin was 38.4%, up 410 basis points sequentially, driven by leverage and makes services. Gross margin was 72.4% of 190 basis points sequentially, mainly due to a different mix.

Net income of 34.6 billion and diluted earnings per share of $2.10 both grew more than 20% year over year and were all time records. Operating cash flow of 47 billion was also an all time record. Let me get into more detail for each of our revenue categories. iPhone revenue grew 9% year over year to an all time record of 71.6 billion despite supply constraints. Thanks to a remarkable customer response to our new iPhone 13 family, we set all time records in both developed and emerging markets, reached an all time high in the iPhone active installed base and the latest survey of US consumers from 451 research indicates iPhone customer satisfaction of 98%.

For Mac, revenue of 10.9 billion was an all time record, with growth of 25% year over year, driven by strong demand for our newly redesigned MacBook Pro powered by M1. Despite supply constraints, we are one year into our transition to Apple silicon, and already the vast majority of our Mac sales are from M1 powered devices, which helped drive a record number of upgraders during the December quarter. Our momentum in this category is very impressive, as the last six quarters have been the best six quarters ever for Mac.

iPad generated 7.2 billion in revenue, down 14% year over year due to very significant supply constraints, but customer demand was very strong across all models. Despite the supply shortages, our installed base of iPads reached a new all time high during the quarter, thanks to a high number of customers that are new to iPad. In fact, around half of the customers purchasing an iPad during the quarter were new to the product. Wearable and home accessories set a new all time record of 14.7 billion up 13% year over year and we set all time revenue records in each geographic segment. We also continue to improve and expand our product offerings in this category to create unique experiences showcasing our deep integration of hardware, software and services. In addition to an outstanding level of sales performance globally Apple Watch continues to extend its reach with over two thirds of customers purchasing an Apple watch during the quarter, being new to the product.

Turning to services as I mentioned we reach an all time revenue record of 19.5 billion up 24% with all time records for cloud services, for music, video, advertising and payment services and a December quarter record for the App Store. These impressive results reflect the positive momentum we’re seeing on many fronts.

First, as I mentioned before our installed base has continued to grow and has reached an all time high across each geographic segment and major product category. Next we continue to see increased customer engagement with our services. The number of paid accounts on our digital content stores grew double digits and reached a new all time high during December quarter in every geographic segment.

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Also paid subscriptions continue to show very strong growth. We now have more than 785,000,000 paid subscriptions across the services on our platform, which is 165,000,000 during the last twelve months alone. And finally we’re adding new services that we think our customers will love and we continue to improve the breadth and quality of our current service offerings. Just in this last quarter we have added incredible new content on Apple TV+ on Fitness+ and Apple Arcade and a brand new way to listen to music with Apple Music Voice. We also announced in November the beta program for Apple Business Essentials.

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