Apple Inc. (NASDAQ:AAPL)
Q4 2014 Results Earnings Conference Call
October 20, 2014, 05:00 PM ET
Nancy Paxton – Senior Director of Investor Relations
Tim Cook – CEO
Luca Maestri – SVP and CFO
Shannon Cross – Cross Research
Bill Shope – Goldman Sachs
Katy Huberty – Morgan Stanley
Toni Sacconaghi – Sanford Bernstein
Steven Milunovich – UBS
Ben Reitzes – Barclays
Gene Munster – Piper Jaffray
Keith Buckman – Bank of Montreal
Good day, everyone, and welcome to the Apple Incorporated Fourth Quarter Fiscal Year 2014 Earnings Release Conference Call. Today’s call is being recorded.
At this time, for opening remarks and introductions, I would like to turn the call over to Nancy Paxton, Senior Director of Investor Relations. Please go ahead.
Nancy Paxton – Senior Director of Investor Relations
Thank you. Good afternoon, and thanks everyone for joining us today. Speaking first today is Apple’s CEO, Tim Cook; and he will be followed by CFO, Luca Maestri, and after some final remarks we’ll open the call for 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 margins, operating expenses, other income and expense, taxes and future products.
Actual results or trends could differ materially from our forecast. For more information, please refer to the risk factors discussed in Apple’s Form 10-K for 2013, the Form 10-Q for the first three quarters of fiscal 2014, 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 or information, which speak as of their respective dates.
And I’d now like to turn the call over to Tim for introductory remarks.
Tim Cook – CEO
Thanks, Nancy. Good afternoon, everyone and thanks for joining us. Since we spoke in July, it’s been an exciting and very busy time, so we have lots of great things to talk about today.
Just last month, we launched the biggest advancements in iPhone’s history with iPhone 6 and iPhone 6 Plus. These iPhones are the best we have ever created and customers absolutely love them.
Our operational team has done an extraordinary job executing the manufacturing ramp throughout the entire supply chain. Today we’ve launched in 32 countries including China and our new iPhones will be shifting in 69 countries and territories by the end of this month, making this our fastest and most successful iPhone launch ever.
Demand for the new iPhones has been staggering and geographically broad-based markedly higher in every single country where we’ve launched compared to the iPhone 5s a year ago.
We’re working hard to fill orders as fast as possible and we’re on track to be in more than 115 countries by the end of December.
Last month we introduced two new categories; the first is Apple Pay, an entirely new way to pay for things in stores and in apps. It makes mobile payments easier, more secure and more private. Apple Pay went live today and now making purchases and participating stores happens with just a touch of a finger.
Paying within apps is as easy as selecting Apple Pay and placing a finger on Touch ID. Today Apple Pay supports credit and debit cards from the three major payment networks and the top U.S. banks and over 500 additional banks have signed on and will be supporting Apple Pay beginning this year and early next year. Apple Pay is being supported by many of the nation’s top retailers and we continue to sign more retailers.
The second new category is Apple Watch, our most personal device ever and one that has already captured the world’s imagination. We can’t wait to get Apple Watch to customers beginning in early calendar 2015. We’ll be providing more details on Apple Watch as we get closer to the shipment day.
Last week we launched the new iPad Air 2 and iPad Mini 3 with innovations that make them dramatically better than previous generation and the stunning new iMac with a Retina 5K display.
We released iOS 8 last month and our customers are enjoying new ways to use their iPhone, iPad or iPod Touch with intuitive new features and groundbreaking security.
Last week, we also released OS X Yosemite, with an all new design and continuity features that deliver an even more fluid experience across all of our iOS devices and Mac.
These introductions reflect years of innovation and hard work by teams all across Apple and they demonstrate the seamless integration of hardware, software and services that provides unparallel user experiences for our customers. These are things that only Apple can do.
We’ve also communicated and demonstrated our commitment to respecting and protecting users’ privacy with strong encryption and strict policies that govern how our data is handled.
Today we’re also reporting very strong results for Apple’s fourth fiscal quarter. We generated our strongest revenue growth rate in seven quarters far surpassing our expectations we communicated in July and establishing a new record for Apple’s September quarter revenue.
We’re also reporting gross margin of 38% compared to 37% last year, leading to a very strong EPS growth of 20%. Fueled by the launch of iPhone 6 and 6 Plus and strong demand for our previous iPhone models, we set a new September quarter record for iPhone with revenue growth of 21% year-over-year.
Demand for iPhone was strong across all geographies with global unit sell-through growth of 26% and we exited the quarter with significant backlog for both iPhone 6 and 6 Plus.
We established an all-time quarterly record for Mac sales with revenue growing 18% year-over-year, thanks in particular to the very strong performance of our portables.
We’re especially proud of our Mac results considering the overall contraction of the global PC market this year and we achieved our highest quarterly market share since 1995.
We also set an all time record for the App Store revenue, thanks to the tremendous momentum and ongoing success of our developer community. App Store revenue grew 36% over last year and cumulative app downloads have now topped 85 billion.
These results bring to a close a record breaking fiscal 2014. Over the last four quarters, our products and services have generated a $183 billion in revenues, an increase of $12 billion over last year. We sold 243 million iOS devices and 19 million Macs, both all time highs.
Our revenue from iTunes software and services reached $18 million, which was more than the annual sales of two thirds of the companies in the Fortune 500 and we generated $6.45 in earnings per share, which is 14% higher than last year and also set a new record.
We made big investments in our business and have continued to expand our global footprint. Today we have 437 Apple retail stores in 15 countries and our partners are selling Apple products in hundreds of thousands of locations around the world.
We’re continuing to invest in developing markets where revenues approached $50 million in fiscal year ’14, up 16% over last year and twice the rate of growth of the company overall.
We [forged] (ph) a landmark partnership with IBM to provide a new generation of mobile enterprise application designed with our products legendary ease of use and backed by IBM’s cloud services and data analytics.
Our partnership aims to redefine the way work is done, address key industry mobility challenges and sparked true mobile-led business change.
Developer teams have been working closely to develop the first wave of Mobile First solutions and these solutions will be ready for customers beginning next month across six sectors; banking, government, insurance, retail, travel and transportation and telecommunication.
We brought tremendous new talent and technology into Apple through 20 acquisitions in fiscal ’14 including seven alone in the September quarter. We closed the Beats transition in July and we’re off to a great start with some wonderful plans we’ll share with you in the future.
Our strong results continue to generate significant cash and we’re extremely happy that this has enabled us to make substantial investments in Apple’s future, while retaining — while returning cash to our shareholders.