Apple Inc.
AAPL10-Q,quarter ended Mar 30, 2024,filed May 3, 2024,Original on SEC.gov (opens in a new tab)
3 of 3 checkable figures match the filing, 4 of 4 risk excerpts located in the filing text
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The Print
Apple reported Q2 FY2024 net income of $23.6B ($1.53 diluted EPS) on total net sales of $90.8B, down 4.3% YoY, as a 10% decline in iPhone sales offset 14% growth in Services.
Total net sales decreased 4.3% YoY to $90.8B from $94.8B. Per the MD&A, iPhone net sales decreased due to lower net sales of Pro models, iPad net sales decreased due primarily to lower net sales of iPad Pro and iPad 9th generation, and Wearables, Home and Accessories decreased due primarily to lower net sales of Wearables and Accessories. Services net sales increased due primarily to higher net sales from advertising, the App Store and cloud services. Total gross margin percentage rose to 46.6% from 44.3%, which management attributes to a different Services mix, while Products gross margin percentage was relatively flat. Operating income declined to $27.9B from $28.3B as total operating expenses rose to $14.4B from $13.7B, with R&D growth driven primarily by increases in headcount-related expenses.
- Total net sales fell 4.3% YoY to $90.8B, with Products down 9.5% to $66.9B while Services rose 14.2% to $23.9B.
- Total gross margin percentage expanded to 46.6% from 44.3%, as Services gross margin percentage rose to 74.6% from 71.0%.
- Net income declined 2.2% YoY to $23.6B; diluted EPS of $1.53 compared with $1.52, with the weighted-average diluted share count down to 15.46B from 15.85B.
- Greater China net sales decreased 8% YoY to $16.4B, which management attributes primarily to lower net sales of iPhone and iPad.
Results That Matter
- Total net sales
- Current period
- $90.8B
- Prior period
- $94.8B
- Change
- −4.3%
Total net sales decreased 4.3% YoY, with lower iPhone, iPad and Wearables, Home and Accessories net sales partially offset by higher Services and Mac net sales. - Services net sales
- Current period
- $23.9B
- Prior period
- $20.9B
- Change
- +14.2%
Services net sales increased due primarily to higher net sales from advertising, the App Store and cloud services. - iPhone net sales
- Current period
- $46.0B
- Prior period
- $51.3B
- Change
- −10.5%
iPhone net sales decreased due to lower net sales of Pro models. - Gross margin
- Current period
- $42.3B
- Prior period
- $42.0B
- Change
- +0.7%
Gross margin rose slightly as Services gross margin increased, partially offset by lower Products gross margin. - Total gross margin percentage
- Current period
- 46.6%
- Prior period
- 44.3%
- Change
- +2.3 ppts
Total gross margin percentage expanded, which management attributes to a different Services mix. - Operating income
- Current period
- $27.9B
- Prior period
- $28.3B
- Change
- −1.5%
Operating income declined as total operating expenses rose to $14,371M from $13,658M, with R&D growth driven primarily by increases in headcount-related expenses. - Net income
- Current period
- $23.6B
- Prior period
- $24.2B
- Change
- −2.2%
Net income declined 2.2% YoY alongside the lower operating income and a higher effective tax rate of 15.8% versus 14.9%. - Diluted earnings per share
- Current period
- $1.53
- Prior period
- $1.52
- Change
- +0.7%
Diluted EPS rose slightly despite lower net income, as the weighted-average diluted share count declined to 15,464,709 thousand from 15,847,050 thousand. - Basic earnings per share
- Current period
- $1.53
- Prior period
- $1.53
- Change
- 0.0%
Basic EPS was unchanged as the decline in net income was offset by a lower weighted-average basic share count.
| Metric | Current Period | Prior Period | Change | Investor Takeaway |
|---|---|---|---|---|
| $90.8B | $94.8B | −4.3% | Total net sales decreased 4.3% YoY, with lower iPhone, iPad and Wearables, Home and Accessories net sales partially offset by higher Services and Mac net sales. | |
| $23.9B | $20.9B | +14.2% | Services net sales increased due primarily to higher net sales from advertising, the App Store and cloud services. | |
| $46.0B | $51.3B | −10.5% | iPhone net sales decreased due to lower net sales of Pro models. | |
| $42.3B | $42.0B | +0.7% | Gross margin rose slightly as Services gross margin increased, partially offset by lower Products gross margin. | |
| 46.6% | 44.3% | +2.3 ppts | Total gross margin percentage expanded, which management attributes to a different Services mix. | |
| $27.9B | $28.3B | −1.5% | Operating income declined as total operating expenses rose to $14,371M from $13,658M, with R&D growth driven primarily by increases in headcount-related expenses. | |
| $23.6B | $24.2B | −2.2% | Net income declined 2.2% YoY alongside the lower operating income and a higher effective tax rate of 15.8% versus 14.9%. | |
| $1.53 | $1.52 | +0.7% | Diluted EPS rose slightly despite lower net income, as the weighted-average diluted share count declined to 15,464,709 thousand from 15,847,050 thousand. | |
| $1.53 | $1.53 | 0.0% | Basic EPS was unchanged as the decline in net income was offset by a lower weighted-average basic share count. |
Earnings Quality & Cash Conversion
Reported net income of $23,636M includes other income/(expense), net of $158M versus $64M in the prior-year quarter, and a provision for income taxes of $4,422M at a 15.8% effective tax rate versus 14.9%. The filing does not define an adjusted or ex-item earnings total.
Red flag
Value Drivers & Capital Allocation
“The Company issues unsecured short-term promissory notes pursuant to a commercial paper program. The Company uses net proceeds from the commercial paper program for general corporate purposes, including dividends and share repurchases.”
Filing statement
Period net income attributable to the parent / period-end equity, not annualized: 31.9% (prior at 2023-04-01: 38.9%); period net income attributable to the parent / period-end assets, not annualized: 7.0%.
Forward Signals
No quarterly or full-year financial guidance is provided in the filing. The filing states that the Company believes its cash balances, cash generated by ongoing operations and continued access to debt markets will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.
Known trends
- The Company believes, in general, gross margins will be subject to volatility and downward pressure.
- Macroeconomic conditions, including inflation, interest rates and currency fluctuations, have directly and indirectly impacted, and could in the future materially impact, the Company’s results of operations and financial condition.
- The Company will adopt ASU 2023-07 in its fourth quarter of 2025 using a retrospective transition method and ASU 2023-09 in its fourth quarter of 2026.
Subsequent events
- On May 2, 2024, the Board of Directors authorized an additional program to repurchase up to $110 billion of the Company’s common stock.
- On May 2, 2024, the Board of Directors raised the quarterly cash dividend from $0.24 to $0.25 per share, beginning with the dividend to be paid during the third quarter of 2024.
Risks
Excerpts are the filing’s own words; each heading is the start of its excerpt. Selected excerpts are not a complete risk inventory.
the Company is subject to civil antitrust lawsuits in the U.S. alleging monopolization or attempted…
the Company is subject to civil antitrust lawsuits in the U.S. alleging monopolization or attempted monopolization in the markets for “performance smartphones” and “smartphones” generally in violation of U.S. antitrust laws
Although the Company’s compliance plan is intended to address the DMA’s obligations…
Although the Company’s compliance plan is intended to address the DMA’s obligations, it has been challenged by the Commission and may be challenged further by private litigants.
the Company earns revenue from licensing arrangements with other companies to offer their search…
the Company earns revenue from licensing arrangements with other companies to offer their search services on the Company’s platforms and applications, and certain of these arrangements are currently subject to government investigations and legal proceedings
As of March 30, 2024, the Company had manufacturing purchase obligations of $34.2 billion…
As of March 30, 2024, the Company had manufacturing purchase obligations of $34.2 billion, with $34.1 billion payable within 12 months.
4 of 4 excerpts located in the filing text
Segments
| Segment | Revenue | Operating Income | Revenue Change | Commentary |
|---|---|---|---|---|
| Americas | $37.3B | $15.1B | -1.4% | Management states net sales were relatively flat, with lower net sales of iPhone and iPad offset by higher net sales of Services, and a net favorable year-over-year impact from the strength in foreign currencies relative to the U.S. dollar. |
| Europe | $24.1B | $10.0B | +0.7% | Management states net sales were relatively flat, with higher net sales of Services offset by lower net sales of iPhone, and a net unfavorable year-over-year impact from the weakness in foreign currencies relative to the U.S. dollar. |
| Greater China | $16.4B | $6.7B | -8.1% | Management attributes the decrease primarily to lower net sales of iPhone and iPad, with the weakness in the renminbi relative to the U.S. dollar having an unfavorable year-over-year impact; iPhone revenue represented a moderately higher proportion of net sales in Greater China. |
| Rest of Asia Pacific | $6.7B | $2.8B | -17.2% | Management attributes the decrease primarily to lower net sales of iPhone. |
| Japan | $6.3B | $3.1B | -12.7% | Management attributes the decrease primarily to lower net sales of iPhone, with the weakness in the yen relative to the U.S. dollar having an unfavorable year-over-year impact. |
Balance Sheet & Liquidity
Leverage: Identified debt as of 2024-03-30 (carrying amount): long-term debt including current maturities of $102.6B; noncurrent long-term debt of $91.8B; current portion of long-term debt of $10.8B. Not separately reported in this filing's standardized data: short-term borrowings. Total debt, net debt and debt-to-equity are therefore not stated.
Liquidity: Cash and cash equivalents were $32.7B, current marketable securities $34.5B and non-current marketable securities $95.2B as of March 30, 2024. The Company states it believes its balances of cash, cash equivalents and unrestricted marketable securities, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.
Working capital: Current assets $128.4B vs. current liabilities $123.8B (current ratio 1.04x). Prior reported balance sheet as of 2023-09-30: $143.6B vs. $145.3B (0.99x).
Maturities & covenants
- As of March 30, 2024 and September 30, 2023, the Company had outstanding fixed-rate notes with varying maturities for an aggregate carrying amount of $102.6 billion and $105.1 billion, respectively (collectively the “Notes”).
- As of March 30, 2024 and September 30, 2023, the fair value of the Company’s Notes, based on Level 2 inputs, was $91.6 billion and $90.8 billion, respectively.
- As of March 30, 2024, the maximum length of time over which the Company is hedging its exposure to the variability in future cash flows for term debt–related foreign currency transactions is 18 years.
Notable Footnotes
| Item | Impact |
|---|---|
| Deferred revenue | Total deferred revenue was $12.6B as of March 30, 2024 versus $12.1B at September 30, 2023; the Company expects 64% to be realized in less than a year. |
| Restricted marketable securities | $14.0B of total marketable securities was restricted from general use, related to the European Commission decision finding that Ireland granted state aid to the Company, and other agreements. |
| Vendor concentration | Two vendors individually represented 10% or more of total vendor non-trade receivables, accounting for 47% and 19% as of March 30, 2024. |
| Contingencies | Management states no material loss beyond recorded accruals is at least reasonably possible for asserted legal and other claims. |
| Unrecognized share-based compensation | Total unrecognized compensation cost related to outstanding RSUs was $24.7B, expected to be recognized over a weighted-average period of 2.7 years. |
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