Apple’s CEO on the company’s 2018 Q4 earnings

Apple's fourth-quarter results for 2018 are in. Here's our transcript of the call.

Apple CEO Tim Cook and CFO Luca Maestri spoke with analysts during the company's Q4 2018 earnings call. Here's our ongoing live transcript of their remarks! If you want more info on Apple's results, we recommend checking out the awesome charts from Six Colors.

Cook's opening remarks

Tim Cook

Good afternoon, everyone and thanks for joining us. I just got back from Brooklyn where we marked our fourth major launch event of the year. In addition to being a great time, it put an exclamation point at the end of a remarkable fiscal 2018. This year, we shipped our two-billionth iOS device, celebrated the 10th anniversary of the App Store, and achieved the strongest revenue and earnings in Apple's history. In fiscal year '18, our revenue grew by $36.4 billion. That's the equivalent of a Fortune 100 company in a single year. And we're capping all that off with our best September quarter ever. Revenue was $62.9 billion ahead of our expectations. That's an increase of 20% over last year and our highest growth rate in three years. We also generated record Q4 earnings with 41% year over year growth in EPS. Record results from iPhone, services, and wearables drove our momentum and we produced strong double-digit revenue growth in all of our geographic segments.

It was a big year and a big quarter for iPhone. Q4 revenue was up 29% over last year an increase of over $8 billion to a new September quarter record fueled by continued momentum for iPhone 8, 8 Plus, and X, and the very successful launch of iPhone XS and iPhone XS Max. These latest devices are our most advanced iPhone's ever with the industry's first 7 nm A12 Bionic chip, with an Apple-designed 8-core Neural Engine capable of executing an astounding 5 trillion operations per second. The A12 Bionic is many years in the making and a huge technological leap forward. It sets the iPhone experience far apart from the competition using real-time machine learning to transform the way we experience photos, gaming, augmented reality, and more. It makes full use of the dual-camera system that shoots Portrait Mode photos with Smart HDR and dynamic depth of field. And Face ID is even faster. The response has been powerful. As one reviewer put it, "iPhone XS and XS Max are the perfect blend of design and craftsmanship as well as seamlessly intuitive user experience." We're not done yet. Just last week we began shipping iPhone XR, bringing the latest iPhone breakthroughs to even more users. With an all-screen glass and aluminum design and the most advanced LCD in a smartphone, the product reviews have been overwhelmingly positive.

iOS 12 has gotten off to an incredible start — it's been installed on more systems in its first month than any version of iOS ever. iOS 12 is delivering systemwide performance enhancements, Siri shortcuts, and new tools to help people reduce interruptions and manage screen time for themselves and their kids. Siri shortcuts, in particular, is already deeply integrated with some of the most popular apps out there. Whether you're tracking your workouts or rushing to catch a flight, you can be sure all of your most relevant apps are working together with Siri in the driver's seat. iOS 12 also features ARKit 2, a major upgrade to our augmented reality engine. ARKit 2 makes possible simultaneous multi-user experiences and real-world object incorporation. Our developer community is really running with this technology. From gaming to shopping, we're seeing great new use cases emerge. iOS devices deliver the best AR experiences of any products on the market today and with the announcement of our new iPad Pro this week, we've made that gap even wider. More powerful than the vast majority of PC laptops, the new iPad Pro is unrivaled in its versatility and performance. When paired with a beautifully refined Apple Pencil and a new streamlined full-size Smart Keyboard, iPad Pro will extend its lead as the ultimate creativity and productivity device. And finally, just this week, we delivered the highly anticipated Group FaceTime functionality to all FaceTime-enabled devices.

For services, it was our best quarter ever with revenue of $10 billion. Excluding the impact of a favorable one-time accounting adjustment of $640 million a year ago, our services growth was 27%. We set new Q4 records in all of our geographic segments and new all-time revenue records for the App Store, cloud services, Apple Care, Apple Music, and Apple Pay. We also continue to see strong growth in paid subscriptions, reaching over 330 million in our ecosystem. I want to spotlight the exceptional performance of Apple Pay, which is by far the number-one mobile contactless payment service worldwide. Transaction volume tripled year over year, and to put that into perspective Apple Pay generated significantly more transactions than even PayPal Mobile with over four times the growth rate. As a testament to accelerating U.S. growth, Costco completed the rollout of Apple Pay to over 500 US warehouses last quarter, while Neiman Marcus is now accepting Apple Pay at over 40 stores across the country. With these additions, 71 of the top 100 merchants and 60 percent of all US retail locations support Apple Pay. We continue to invest in our strategy to replace the wallet with the recent launch of student ID passes at several major US universities. And 10 months following its launch, Apple Pay Cash is the highest-rated mobile peer-to-peer service by Consumer Reports based on exceptional payment authentication and data privacy.

We set an all-time quarterly record for Mac revenue thanks to strong performance in MacBook Pro and the impact of the back-to-school season. In September we delivered macOS Mojave, bringing powerful new features to Mac like Dark Mode, Stacks, and a completely redesigned Mac App Store. Considered alongside the release of iOS 12, watchOS 5, and a new tvOS, macOS Mojave tells a powerful story of the seamless integration of world-class hardware, software, and services that define the Apple ecosystem. As I mentioned at the beginning of the call, earlier this week we announced exciting updates to the Mac lineup. The all-new MacBook Air brings a stunning Retina Display, Touch ID, the latest processors, and an even more portable design to the world's most beloved notebook. We also unveiled the biggest update ever to Mac Mini, the small yet muscular desktop that powers everything from the music and sound effects at Broadway shows to the developers who build some of the most popular apps in the App Store. The new Mac Mini boasts an amazing five times faster performance than before.

With revenue growth over 50%, it was another record quarter for wearables, which includes Apple Watch, AirPods, and Beats products. With the highest customer satisfaction in the industry, Apple Watch has become an essential part of people's lives. The customer response to the Apple Watch Series 4 has been overwhelmingly positive, driven by its all new design, larger display, faster performance, fall detection, enhanced cellular reception, and electrical heart sensor. Later this year the ECG app will be available to Apple Watch Series 4 customers in the US, giving them the ability to take an electrocardiogram any time right from their wrists. And for US customers with Apple Watch Series 1 and later, watchOS will soon enable periodic checks for irregular heart rhythms that may be suggestive of A-Fib. These are unprecedented and potentially life-changing features, showing how Apple Watch is not only an indispensable communication and fitness companion, but also an intelligent guardian for your health. More broadly we see this as just one further example of the kind of contribution we can make in the health space and we look forward to making more in the future.

We are proud to bring HomePod to new customers. I was in Spain last week as HomePod became available there and in Mexico. HomePod delivers the highest fidelity audio quality working together with an Apple %Music subscription to stream over 50 million songs into any room of your home.

Our retail team posted record Q4 results to conclude their biggest year ever. They are transforming our stores into places where customers come to connect, learn, and be inspired together with people from their community. Our Today at Apple sessions are a terrific example of what that looks like in practice. We hosted over 250,000 Today at Apple sessions this quarter connecting aspiring creators with local photographers, illustrators, and other experts who can help them get the most out of their devices. Apple stores also hosted 74,000 kids at Apple Camp. The relationship Apple has with our customers is about more than just making a purchase. With the recent addition of beautiful new stores in Italy, Japan, China, and in just a few weeks Thailand, we will have 506 stores where we can further those relationships, almost half of which are outside the United States.

Before I turn the call over to Luca, I'd like to touch on two items that may not show up in our financial statements but are just as integral to Apple's mission and our commitment to making the world a better place. First, education. More than 5,000 schools, community colleges, and technical colleges worldwide are now using Everyone Can Code, our free coding curriculum. Ideas, creativity, and passion for technology's potential aren't limited by zip code or country and we don't think opportunity should be either. We're also excited educators in more than 350 schools around the world have started working with Everyone Can Create, the free collection of tools and project guides we introduced this Spring, designed to help unleash kids' creativity throughout their school day with the help of iPad.

Next is the environment. This was a milestone year for Apple's commitment to our planet. In April we announced that 100% of our global operations are powered by renewable energy. We also made progress in doing the same in our supply chain. And just this week we announced that the enclosures of new products like MacBook Air and iPad Pro will be made from 100% recycled aluminum, a strong, durable, and beautiful new alloy designed by Apple. This is a great example of how a commitment to do right on the issues that matter can drive once-unimaginable innovation, new ways of approaching old problems, and beautiful solutions that set us apart.

I'd like to thank all of our employees, customers, developers, and business partners for helping us deliver outstanding results across our fiscal 2018. We are headed into the holidays with our strongest product lineup ever and we could not be more bullish about Apple's future. And now Luca has more details to share with you on the September quarter. Luca.

Luca Maestri provides more detail on the quarter

Luca Maestri

Thank you, Tim. Good afternoon, everyone. We are extremely pleased to report record results for our September quarter, which capped a tremendously successful Fiscal 2018, a year in which we saw double-digit revenue growth in every geographic segment and established new revenue and earnings records in every single quarter. Revenue in the fourth quarter was $62.9 billion, up 20% and more than $10 billion over last year, with strong double-digit growth in each of our geographic segments and record Q4 revenue in the Americas, in Europe, Japan, and rest of Asia Pacific. In fact, we said new revenue records in almost every market we tracked with especially strong growth in Germany, Italy, Sweden, Switzerland, Japan, and Korea, all major markets where revenue growth was 25% or higher. We also set new fourth quarter revenue records for iPhone and wearables and new all time records for services and Mac. Gross margin was 38.3%, flat sequentially in line with our expectations, as leverage from higher revenue offset seasonal transition costs. We set new September quarter records for net income, EPS, and cash flow from operations. Net income was $14.1 billion, up $3.4 billion or 32% over last year. Diluted earnings per share were $2.91, up 41%. Cashflow from operations was $19.5 billion, up $3.8 billion from a year ago. iPhone revenue grew 29% with growth of more than 20% in every geographic segment. iPhone ASP was $793, compared to $618 a year ago driven by strong performance of iPhone X, 8, and 8 Plus as well as the successful launch of iPhone XS and XS Max in the September quarter this year, while we launched iPhone X in the December quarter last year. We sold 46.9 million iPhones during the quarter with growth of 20% or more in several markets including Japan, Australia, New Zealand, Sweden, Norway, Chile, and Vietnam. Customer satisfaction with iPhone continues to be outstanding and it's the highest in the industry. The latest survey of US consumers from 451 Research indicates customer satisfaction of 98% for iPhone 10, 8, and 8 Plus combined. And among business buyers who plan to purchase smartphones in the December quarter, 80% plan to purchase iPhones.

Turning to services, it was our best quarter ever in total and virtually in every market around the world with revenue of $10 billion. A year ago we had a one-time $640 million favorable impact to services revenue due to an accounting adjustment, and taking that into account, our services growth in Q4 this year was 27%. As Tim mentioned, we reached new all-time quarterly revenue records for many services categories and we are well on our way to achieve our goal to double our fiscal 2016 services revenue by 2020. We now have over 330 million paid subscriptions on our platform, an increase of over 50% versus a year ago. We are very pleased not only with the growth but also with the breadth of our subscription business. In fact 30,000 third-party subscription apps are available on the App Store today and the largest of them all represents less than 0.3% of our total services revenue.

Next, I'd like to talk about the Mac. We saw great response to our new MacBook Pro models that we launched in July, with strong double-digit revenue growth driving an all-time quarterly record for Mac revenue. We were especially pleased with Mac momentum in emerging markets, with strong growth in Latin America, in India, the Middle East and Africa, and Central and Eastern Europe. At over 100 million units, our active installed base of Macs is at an all-time high and the majority of customers purchasing Macs in the September quarter were new to Mac.

We sold 9.7 million iPads during the quarter, gaining share in nearly every market we track, based on the latest estimates from IDC. We generated iPad growth in a number of key regions around the world including Latin America, Europe, Japan, India, and South Asia. Among customers around the world purchasing iPads during the quarter, nearly half were new to iPad and our active installed base of iPad reached a new all-time high. NPD indicates that iPad had 68 percent share of the U.S. tablet market in the September quarter, up from 64 percent share a year ago. And the most recent consumer survey from 451 Research measured iPad customer satisfaction ratings of 96 percent for both iPad and iPad Pro and among business customers who plan to purchase tablets in the December quarter, 74 percent plan to purchase iPad.

Other products revenue grew 31 percent to a new September quarter record with an increase of over $1 billion compared to a year ago thanks to wearables growth of over 50 percent and the strong performance of Apple TV in addition to the introduction of HomePod earlier this year. As we look back across fiscal 2018, we have made great progress in the enterprise market where iOS is transforming how business gets done across multiple industries. In fact, over 450 airlines and 47 of the top 50 around the world have adopted iOS to help pilots fly safer, more efficient flights and many airlines are also using iOS to support better customer experiences and improve maintenance operations. We're also making great strides in the retail sector where nine of the top 10 global retailers use iOS devices to transform their customer and employee experiences. We are seeing industry-wide adoption of iOS by thousands of retailers, from neighborhood boutiques to many of the best-known retailers in the world. Deployment of iOS devices is growing steadily as retailers replace their traditional point of sale systems and use custom iOS apps on iPhone and iPad to provide highly personalized shopping experiences.

Our success in enterprise is supported by our key partnerships. Since launching our first strategic partnership with IBM, 240 large customers have signed mobile-first for iOS deals. Additionally earlier in the year we introduced two new technology offerings: IBM Watson services for CoreML and the IBM cloud developer console for Apple that are enabling businesses to combine machine learning and cloud for a new generation of dynamic smart apps for millions of Salesforce developers to build their own native apps with a new Salesforce mobile SDK for iOS. And finally, we recently announced Apple Business Manager, a new way for IT teams to deploy Apple devices at scale. The response from companies around the world has been tremendous with over 40,000 companies currently enrolled.