Apple Inc.

Good afternoon and welcome to the Apple Q1 Fiscal Year 2025 Earnings Conference Call. My name is Suhasini Chandramouli, Director of Investor Relations. Today's call is being recorded. Speaking first today are Apple CEO Tim Cook, and he'll be followed by CFO Kevin Parekh. After that, we'll open the call to questions from analysts. Please note that some of the information you'll hear during our discussion today will consist of forward-looking statements, including, without limitation, those regarding revenue, gross margin, operating expenses, other income and expense, taxes, capital allocation, and future business outlook, including the potential impact of macroeconomic conditions on the company's business and results of operations. These statements involve risks and uncertainties that may cause actual results or trends to differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple's most recently filed annual report on Form 10-K and the Form 8-K filed with the SEC today, along with the associated press release. Apple assumes no obligation to update any forward-looking statements, which speak only as of the date they are made. I'd now like to turn the call over to Tim for introductory remarks.

Thank you, Suhasini. Good afternoon, everyone, and thanks for joining the call. Before I talk about our results, I'd like to take a moment to acknowledge the devastating wildfires that impacted the Los Angeles area this month. From our retail teams to Apple TV+, Apple Music, Fitness+, Beats, and more, LA is home to many of our team members. Our thoughts are with everyone who is beginning the road to recovery. For our part, we are contributing to the relief efforts, and we will continue to support our teams and the local community. Now, turning to the quarter. Today, Apple is reporting revenue of $124.3 billion for the December quarter, up 4% from a year ago and an all-time record. EPS also set an all-time record of $2.40, 10% higher year over year. We achieved all-time revenue records across the majority of the countries and regions we track, including the Americas, Europe, Japan, and the rest of Asia Pacific. We also continue to see momentum in emerging markets, setting all-time revenue records in a number of markets, including Latin America, the Middle East, and South Asia, among others. In services, we achieved an all-time revenue record, and in the past year, we've seen nearly $100 billion in revenue from our services business. I'm also pleased to announce that we reached a new record for our installed base with over 2.35 billion active devices. In October, we released the first set of Apple Intelligence features in U.S. English for iPhone, iPad, and Mac, and we rolled out more features and expanded to more countries in December. Now, users can discover the benefits of these new features and the things they do every day. They can use writing tools to help find just the right words, create fun and unique images with Image Playground and Genmoji, handle daily tasks and seek out information with a more natural and conversational Siri, create movies of their memories with a simple prompt, and touch up their photos with cleanup. We introduced visual intelligence with camera control to help users instantly learn about their surroundings. Users can also seamlessly access ChatGPT across iOS, iPadOS, and macOS. and we were excited to recently begin our international expansion with Apple Intelligence now available in Australia, Canada, New Zealand, South Africa, and the UK. We're working hard to take Apple Intelligence even further. In April, we're bringing Apple Intelligence to more languages, including French, German, Italian, Portuguese, Spanish, Japanese, Korean, and simplified Chinese, as well as localized English to Singapore and India. and will continue to roll out more features in the future, including an even more capable Siri. Apple Intelligence builds on years of innovations we've made across hardware and software to transform how users experience our products. Apple Intelligence also empowers users by delivering personal context that's relevant to them. And importantly, Apple Intelligence is a breakthrough for privacy and AI with innovations like Private Cloud Compute, which extends the industry-leading security and privacy of Apple devices into the cloud. Apple Intelligence opens up an exciting new frontier and is already elevating experiences across iPhone, iPad, and Mac. We're going to keep investing in innovation and in transformative tools that help users in their everyday lives. Let me now turn to our results for the quarter, starting with iPhone. iPhone revenue came in at $69.1 billion, reaching all-time iPhone revenue records in dozens of markets and regions. Our iPhone 16 lineup takes the smartphone experience to the next level in so many ways, and Apple intelligence is one of many reasons why customers are excited. With the A18-powered iPhone 16 and iPhone 16 Plus, users are getting a big boost in battery life and incredible camera experiences with camera control. Our amazingly powerful iPhone 16 Pro models go even further with larger-than-ever displays and a Pro camera system so advanced it can turn moments into masterpieces. In Mac, revenue was $9 billion for the December quarter, 16% higher year over year, driven by significant excitement around the world for our latest Mac lineup. The Mac is more than just a powerful tool. It's a launchpad to enable users to bring their best ideas and boldest creations to life. And there are so many reasons to choose Mac, from the breathtaking performance of the M4 family of chips to the groundbreaking and growing capabilities of Apple Intelligence. Every product in the Mac lineup offers something extraordinary, whether that's the super portable MacBook Air, the powerhouse MacBook Pro, the world's best all-in-one iMac, or the small wonder that is the Mac Mini, which is not only stunningly capable, but is our first carbon-neutral Mac. All of this is enabled by the unparalleled power of Apple Silicon. iPad revenue was $8.1 billion, up 15% from a year ago, driven by strong interest for our latest products. We love hearing from customers who are discovering for the first time the versatility of iPad, from the ultra-portable iPad Mini, built from the ground up for Apple intelligence, to the powerful M4 iPad Pro in a stunningly thin and light design. iPad is there for our users whenever they need it and wherever they go, and we are pleased to see so much excitement and enthusiasm for our lineup. wearables, home and accessories revenue came in at $11.7 billion. With its most advanced display yet and a thinner, more comfortable design, the all new Apple Watch Series 10 is the perfect companion to help users pursue their health and fitness goals this year. From the powerful vitals app, to more customizable activity rings, users have an ever-increasing set of innovative health tools at their fingertips in watchOS 11. Health innovation has long been a focus for us, and we're committed to continuing to advance this work because we know how much it matters to our users. We've introduced new hearing health features on AirPods Pro 2. And new sleep apnea notifications on Apple Watch are also helping users learn of a potentially serious condition that's thought to affect up to a billion people worldwide. During the quarter, we also brought Apple Vision Pro to even more countries, enabling more customers to discover the magic of spatial computing. Users are enjoying incredible immersive entertainment experiences and powerful new features and enhancements to Mac virtual display. Vision Pro is also supercharging the creative process, and the incredibly talented director, John M. Chu, recently shared how its extraordinary capabilities helped him bring the movie Wicked to life. Turning to services, we set an all-time revenue record of $26.3 billion for the December quarter, growing 14% from a year ago. We set all-time records in the Americas, Europe, and rest of Asia Pacific, and a December quarter record in Japan. Five years since launch, Apple TV Plus continues to be home to incredible storytelling that viewers love. There's nothing quite like the anticipation that comes when a fan favorite returns, and we were thrilled to debut the second season of Severance earlier this month. We have so much in store for our subscribers this year with new shows like The Studio and Your Friends and Neighbors. And we can't wait for the premiere of Formula One starring Brad Pitt on June 27th, which will take viewers inside the sport in a truly unprecedented way. We're excited that Apple TV Plus continues to draw attention and accolades. To date, Apple TV Plus productions have earned more than 2,500 nominations and 538 wins. During the quarter, we were also excited to launch a new Find My service that can help our users when they lose their luggage. For the first time, if you put an AirTag in your suitcase, you'll be able to share its location information with many major airlines so they can quickly track down your bags if they get lost. Turning to retail, our teams went above and beyond to help customers find the perfect gift throughout the holiday season. We also celebrated openings of new stores in China, Spain and the US. And we were excited to announce plans to connect with even more customers this year by adding a fifth store in the UAE and bringing our online store to Saudi Arabia this summer. We can't wait to welcome customers to the first of several flagship store locations in Saudi Arabia that were opening beginning in 2026. I just had the chance to visit both countries last month, and I had a great time meeting with customers and team members. There's an incredible energy and passion for technology in these growing markets. Every day, I get deeply moving notes about the many ways our technology is enriching our users' lives. I recently got a note from a customer who put his watch on his father's wrist when he feared something was wrong with him. The watch alerted them that the father was in AFib and they were able to get him to the hospital for potentially life-saving treatment. Another user put his new watch on for the first time and within 15 minutes was notified of a low heart rate that led to a necessary pacemaker. And there are so many touching notes around the profound impact of our new hearing health feature, like a recent user who told me it had changed her life, allowing her to take part in conversations with her children and grandchildren. These are the kind of stories that remind us of how profoundly important our work is, and it drives us to innovate each and every day. At Apple, the future is full of promise and potential. We're always searching across a world of possibilities, finding those places where we can do the most good and putting all of our energy and ingenuity into making something special. With that, I'll turn it over to Kevin.

Thanks, Tim, and good afternoon, everyone. I'm going to cover the results for the first quarter of our fiscal year. We are very pleased to report an all-time high for revenue, with December quarter revenue of $124.3 billion, up 4% year over year. We achieved all-time revenue records in the Americas, Europe, Japan, and rest of Asia Pacific, and grew in the vast majority of markets we track. Products revenue was $98 billion. up 2% year-over-year, driven by growth from iPad and Mac. Thanks to our incredible customer satisfaction and strong loyalty, our install base of active devices reached an all-time high across all products and geographic segments and is now over 2.35 billion active devices. Services revenue reached an all-time record of $26.3 billion, up 14% year-over-year. We grew in every geographic segment and achieved all-time records in both developed and emerging markets. Company gross margin was 46.9% at the high end of our guidance range and up 70 basis points sequentially, primarily driven by favorable mix. Products gross margin was 39.3%, up 300 basis points sequentially, primarily driven by favorable mix and leverage. Services gross margin was 75%, up 100 basis points sequentially, primarily driven by mix. Operating expenses of $15.4 billion landed at the midpoint of our guidance range and up 7% year over year. This strong business performance resulted in all-time records for both net income at $36.3 billion and diluted earnings per share of $2.40, up 10% year over year. Operating cash flow was also strong at $29.9 billion, which included the impact of the $11.9 billion we paid during the quarter in connection with the state aid decision. Now, I'm going to provide some more details for each of our revenue categories. iPhone revenue was $69.1 billion, roughly flat to the prior year. We grew in the majority of markets we track and reached all-time revenue records in several developed markets, including Canada, Western Europe, and Japan, and in emerging markets like Latin America, the Middle East, and South Asia. The iPhone active install base grew to an all-time high in total in every geographic segment. We also set an all-time record for upgraders. According to a recent survey from Kantar, during the December quarter, iPhone was a top-selling model in the U.S., urban China, India, the U.K., France, Australia, and Japan. We continue to see high levels of customer satisfaction in the U.S. at 96%, as measured by 451 research. Mac generated $9 billion in revenue, up 16% year over year. We saw strength across our lineup, from the new Mac Mini to the latest MacBook Air and MacBook Pro models. This incredible performance was broad-based, with double-digit growth in every geographic segment. With our latest advances in Apple Silicon and our fastest neural engine ever, customers are able to take advantage of the full capabilities of AI and Mac. The Mac install base reached an all-time high, and we saw double-digit growth for both upgraders and customers new to the Mac. Additionally, customer satisfaction in the U.S. was recently measured at 94%. iPad revenue was $8.1 billion, up 15% year-over-year, driven by the new iPad Mini and latest iPad Air. The iPad install base reached another all-time high, and over half of the customers who purchased an iPad during the quarter were new to the product. Customer satisfaction was at 96% in the U.S., based on the latest reports from 451 Research. Wearables, home, and accessories revenue was $11.7 billion, down 2% year over year. Customers are excited about the new AirPods 4 and the latest hearing health features in AirPods Pro 2. On watch, although we face a difficult compare against the watch Ultra 2 launch last year, the Apple Watch install base reached a new all-time high, with over half of customers purchasing an Apple Watch during the quarter being new to the product. Customer satisfaction for watch in the U.S. was reported at 94%. Our services revenue reached an all-time high of $26.3 billion, up 14% year-over-year. Services continues to see strong momentum, and the growth of our install base of active devices gives us great opportunities for the future. We also see increased customer engagement with our services offerings. Both transacting and paid accounts reached new all-time highs, with paid accounts growing double digits year-over-year. Paid subscriptions also grew double digits. We have well over a billion paid subscriptions across the services on our platform. We remain focused on improving the breadth and quality of our services offerings, from new games on Apple Arcade to exciting new programming on Fitness Plus, and the continued expansion of features like Tap to Pay, now live in 20 markets. Turning to enterprise, we have seen businesses continue to expand their deployments of our products and services. Deutsche Bank launched its Mac as Choice program for their developers and also issued the latest MacBook Air as a standard computer for their entire mortgage lending division. And we're excited to see leading enterprises such as SAP leverage Apple Intelligence in the U.S. with features like writing tools, summarize, and priority notifications to enhance both their employee and customer experiences. We also see strong demand in our emerging markets. For example, Zomato, a leading food ordering and delivery company in India, has deployed thousands of Macs across their workforce to foster innovation. Envision Pro continues to see more use cases in enterprise, with Cisco's new spatial meetings delivering a fully immersive video conferencing experience for remote collaboration and learning. Let me quickly summarize our cash position and capital return program. We ended the quarter with $141 billion in cash and marketable securities. We repaid $1 billion in maturing debt and decreased commercial paper by $8 billion, resulting in $97 billion in total debt. Therefore, net cash at the end of the quarter was $45 billion. During the quarter, we returned over $30 billion to shareholders. This included $3.9 billion in dividends and equivalents and $23.3 billion through open market repurchases of 100 million Apple shares. As usual, we will provide an update to our capital return program when we report results for the March quarter. As we move ahead into the March quarter, I'd like to review our outlook, which includes the types of forward-looking information that Suhasini referred to at the beginning of the call. The color we're providing today assumes that the macroeconomic outlook doesn't worsen from what we're projecting today for the current quarter. As the dollar is strengthened significantly, we expect foreign exchange to be a headwind and to have a negative impact on revenue of about 2.5 percentage points on a year-over-year basis. Despite that headwind, we expect our March quarter total company revenue to grow low to mid-single digits year-over-year. We expect services revenue to grow low double digits year-over-year. When you remove the negative impact of the foreign exchange headwinds I described earlier, the year-over-year growth rate would be comparable to that of the December quarter. We expect gross margin to be between 46.5% and 47.5%. We expect operating expenses to be between $15.1 billion and $15.3 billion. We expect OINE to be around negative $300 million, excluding any potential impact from the mark-to-market of minority investments, and our tax rate to be around 16%. Finally, today our Board of Directors has declared a cash dividend of $0.25 per share of common stock payable on February 13, 2025, to shareholders of record as of February 10, 2025. With that, let's open to call to questions.