Apple Inc. 2023 Q1 Quarterly Report Summary

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Statements of Operations:

• Apple’s total net sales decreased by 5% YoY, from $123.9B in Q1 2021 to $117.2B in Q1 2022.
• Products net sales decreased by 8% YoY, from $104.4B in Q1 2021 to $96.4B in Q1 2022.
• Services net sales increased by 6% YoY, from $19.5B in Q1 2021 to $20.8B in Q1 2022.
• Gross margin decreased by 7% YoY, from $54.2B in Q1 2021 to $50.3B in Q1 2022.
• Net income decreased by 13% YoY, from $34.6B in Q1 2021 to $30.0B in Q1 2022.

Statements Of Comprehensive Income:

• Net income for Q4 2022 was $29.998 billion, a decrease of 13% compared to Q4 2021.
• Apple reported a total other comprehensive loss of $1.803 billion in Q4 2022.
• The change in foreign currency translation resulted in a net loss of $14 million in Q4 2022 compared to a net loss of $360 million in Q4 2021.
• The change in unrealized gains/losses on derivative instruments resulted in a net loss of $2.754 billion in Q4 2022 compared to a net gain of $455 million in Q4 2021.
• The change in unrealized gains/losses on marketable debt securities resulted in a net gain of $965 million in Q4 2022 compared to a net loss of $1.185 billion in Q4 2021.

Balance Sheets:

• Total assets decreased by 1.7% from September 24, 2022 to December 31, 2022.
• Cash and cash equivalents decreased by 13% from September 24, 2022 to December 31, 2022.
• Marketable securities increased by 24% from September 24, 2022 to December 31, 2022.
• Accounts receivable, net decreased by 16% from September 24, 2022 to December 31, 2022.
• Total liabilities decreased by 4.0% from September 24, 2022 to December 31, 2022.

Statements Of Shareholders’ Equity:

• Total shareholders’ equity at the beginning of the quarter was $50.67 billion, and at the end of the quarter was $56.73 billion.
• Common stock and additional paid-in capital at the end of the quarter was $66.4 billion, which increased by 13% compared to the same period last year.
• Retained earnings at the end of the quarter were $3.24 billion, decreased by 78% compared to the same period last year.
• Accumulated other comprehensive loss at the end of the quarter was $12.91 billion, which increased by 1,293% compared to the same period last year.
• Dividends and dividend equivalents declared per share or RSU were $0.23, which increased by 5% compared to the same period last year.

Statements Of Cash Flows:

• Cash generated by operating activities decreased by 27.6% to $34.0 billion.
• Cash used in investing activities decreased by 91.0% to $1.4 billion.
• Cash used in financing activities increased by 26.2% to $35.6 billion.
• Net cash provided by operating activities was $34.0 billion, a decrease of 27.6% YoY.
• Cash, cash equivalents and restricted cash ending balances were $22.0 billion, a decrease of 43.2% YoY.

Note 1 – Summary of Significant Accounting Policies

• The financial statements include Apple and its wholly owned subsidiaries.
• Management made estimates and assumptions that affect the reported amounts.
• Certain prior period amounts have been reclassified to conform to current period presentation.
• Apple’s fiscal year ends on the last Saturday of September and spans 52 or 53 weeks.
• Basic earnings per share for the three months ended December 31, 2022 was $1.89 and diluted earnings per share was $1.88. Approximately 89 million restricted stock units were excluded from the computation of diluted earnings per share for the three months ended December 31, 2022 because their effect would have been antidilutive.

Note 2 – Revenue

• Net sales for Apple Inc. decreased by 5% from $123.9 billion to $117.2 billion for the three months ended December 31, 2022 and December 25, 2021, respectively.
• iPhone sales decreased by 8% from $71.6 billion to $65.8 billion, Mac sales decreased by 29% from $10.9 billion to $7.7 billion, and iPad sales increased by 30% from $7.2 billion to $9.4 billion for the same period.
• Wearables, Home and Accessories sales decreased by 8% from $14.7 billion to $13.5 billion, and Services sales increased by 6% from $19.5 billion to $20.8 billion for the same period.
• The Company’s proportion of net sales by disaggregated revenue source was generally consistent for each reportable segment in Note 9, except in Greater China where iPhone revenue represented a moderately higher proportion of net sales.
• As of December 31, 2022, the Company had total deferred revenue of $12.6 billion and expects 63% of total deferred revenue to be realized in less than a year.

Note 3 – Financial Instruments

• Apple has $165.5 billion in cash, cash equivalents, and marketable securities as of December 31, 2022, a decrease of $3.6 billion from September 24, 2022.
• The majority of marketable securities are corporate debt securities, totaling $68.5 billion.
• Marketable securities included $13.6 billion and $12.7 billion as of December 31, 2022 and September 24, 2022, respectively, that were restricted from general use.
• The fair value of non-current marketable debt securities, by contractual maturity, ranges from less than 1 year to over 10 years.
• Apple’s marketable securities are categorized as Level 1 or Level 2, with Level 2 securities having fair value estimates based on observable inputs other than quoted prices in active markets.

Note 4 – Condensed Consolidated Financial Statement Details

• Inventories increased by 38.1% from September 24, 2022 to December 31, 2022.
• Property, plant, and equipment, net increased slightly by 1.8% from September 24, 2022 to December 31, 2022.
• Other income/(expense), net decreased by 59.2% from December 25, 2021 to December 31, 2022.
• Interest and dividend income increased by 33.5% from December 25, 2021 to December 31, 2022.
• Interest expense increased by 44.7% from December 25, 2021 to December 31, 2022.

Note 5 – Debt

• Apple issues short-term unsecured promissory notes called Commercial Paper for general corporate purposes, including dividends and share repurchases.
• As of December 31, 2022, the Company had $1.7 billion of Commercial Paper outstanding, compared to $10.0 billion as of September 24, 2022.
• For the three months ended December 31, 2022, the Company had net repayments of Commercial Paper of $8.2 billion.
• The Company had outstanding fixed-rate notes with varying maturities for a carrying amount of $109.4 billion as of December 31, 2022, compared to $110.1 billion as of September 24, 2022.
• The fair value of the Company’s Notes was $98.0 billion as of December 31, 2022, compared to $98.8 billion as of September 24, 2022, based on Level 2 inputs.

Note 6 – Shareholders’ Equity

• Apple repurchased 133 million shares of its common stock for $19.0 billion during Q1 2023
• The share repurchase program is authorized by the Board of Directors
• The program does not require the company to acquire a minimum amount of shares
• Shares may be repurchased through privately negotiated and/or open market transactions
• The repurchase program complies with Rule 10b5-1 under the Securities Exchange Act of 1934.

Note 7 – Benefit Plans

• Apple granted 82,123 restricted stock units (RSUs) in Q1 2023, with a total aggregate fair value of $30.3 million.
• 47,298 RSUs vested, while 2,958 RSUs were canceled during the quarter.
• The fair value of RSUs on their respective vesting dates was $6.8 billion and $8.5 billion for Q1 2023 and Q1 2022, respectively.
• Share-based compensation expenses increased to $2.9 billion in Q1 2023, up from $2.3 billion in Q1 2022.
• The total unrecognized compensation cost related to outstanding RSUs and stock options was $25.5 billion as of December 31, 2022, which Apple expects to recognize over a weighted-average period of 3.0 years.

Note 8 – Commitments and Contingencies

Unconditional Purchase Obligations:

• Unconditional purchase obligations require future purchase of goods or services.
• The obligations include supplier arrangements, licensed content, and distribution rights.
• Total future payments under noncancelable unconditional purchase obligations are $14.7 billion.
• The payments are spread across years 2023-2027 and thereafter.
• The highest payment is in 2026 at $6.6 billion.

Contingencies:

• The Company is subject to legal proceedings and claims.
• These claims have arisen in the ordinary course of business and are not fully resolved.
• The outcome of litigation is uncertain.
• According to management, there is not a reasonable possibility of a material loss.

Note 9 – Segment Information and Geographic Data

• Net sales decreased in all regions compared to the same quarter last year, with the Americas region experiencing the largest decline of 4.3%.
• Operating income also decreased in all regions compared to the same quarter last year, with the Americas region experiencing the largest decline of 8.7%.
• The Company’s total segment operating income for the quarter decreased by 8.6% compared to the same quarter last year.
• Research and development expenses increased by 22.1% and other corporate expenses decreased by 9.9% compared to the same quarter last year.
• No additional information was provided regarding the reasons for the declines or changes in expenses.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Performance

• The gross margin for products decreased by $4.5 billion from 2021 to 2022 due to lower volumes and weakness in foreign currencies relative to the US dollar.
• The gross margin percentage for products decreased by 1.4% from 2021 to 2022 due to the weakness in foreign currencies relative to the US dollar.
• The gross margin for services increased by $586 million from 2021 to 2022 due to higher net sales.
• The gross margin percentage for services decreased by 1.6% from 2021 to 2022 due to the weakness in foreign currencies relative to the US dollar and higher costs.
• The future gross margins of the company may be volatile and subject to downward pressure.

Operating Expenses 

• The research and development expense increased by $1.4 billion from 2021 to 2022 primarily due to increases in headcount-related expenses.
• The selling, general and administrative expenses increased by $158 million from 2021 to 2022 primarily due to increases in headcount-related expenses.
• The total operating expenses as a percentage of total net sales increased by 2% from 2021 to 2022.

Provision for Income Taxes 

• The provision for income taxes decreased by $986 million from 2021 to 2022.
• The effective tax rate for 2022 was lower than the statutory federal income tax rate due to a lower effective tax rate on foreign earnings, tax benefits from share-based compensation, and the US federal R&D credit, partially offset by state income taxes.
• The effective tax rate for 2022 was lower than 2021 due to a higher US federal R&D credit, lower state income taxes, and a lower effective tax rate on foreign earnings, offset by lower tax benefits from share-based compensation.

Liquidity and Capital Resources

•  The company believes that its balances of cash, cash equivalents, and unrestricted marketable securities will be sufficient to satisfy its cash requirements and capital return program over the next 12 months and beyond.
• The company had $1.7 billion of Commercial Paper outstanding as of December 31, 2022, all of which was payable within 12 months.
• The company had manufacturing purchase obligations of $55.1 billion as of December 31, 2022.
• The outsourcing partners acquire components and build products based on demand information supplied by the company, which typically covers periods up to 150 days.

Note: Figures and percentages are in comparison to the corresponding period in the previous year, unless stated otherwise.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

• As of the first three months of 2023, there have been no significant changes to Apple Inc.’s market risk. Investors should refer to the company’s 2022 Form 10-K for a discussion of the company’s exposure to market risk, found in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”

Item 4. Controls and Procedures

• Apple’s management has evaluated the effectiveness of the company’s disclosure controls and procedures as of December 31, 2022.
• They concluded that the disclosure controls and procedures were effective in providing reasonable assurance that required information is recorded, processed, and reported within specified time periods.
• There were no changes in the company’s internal control over financial reporting during Q1 2023 that materially affected, or are likely to affect, the company’s internal control over financial reporting.
• Investors can have confidence in Apple’s internal control systems and the accuracy of the company’s financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

• Apple Inc. is involved in a legal dispute with Epic Games over antitrust violations and breach of contract regarding the App Store operation. The Northern California District Court ruled in favor of Apple on nine out of ten counts, but found that certain App Store Review Guidelines violated California’s unfair competition law and issued an injunction. Epic Games has appealed the decision and Apple has filed a cross-appeal.
• Apple Inc. is also involved in other ongoing legal proceedings and claims that have arisen in the normal course of business. The company settled certain matters during the first quarter of 2023, but the outcome of litigation is uncertain and adverse legal resolutions could materially affect the company’s financial condition and operating results.

Item 1A. Risk Factors

• The Company has identified potential risks to its business, reputation, results of operations, financial condition, and stock price.
• These risks are described in detail in Part I, Item 1A of the 2022 Form 10-K under the heading “Risk Factors.”
• If any of these risks materialize, it could have a material and adverse effect on the Company’s business, reputation, results of operations, financial condition, and stock price.
• There have been no material changes to the Company’s risk factors since the 2022 Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

• During the last three months of 2022, Apple repurchased a total of 132.8 million shares of common stock for approximately $41.7 billion.
• The shares were purchased through a combination of open market and privately negotiated transactions.
• These repurchases were part of the company’s publicly announced share repurchase program.
• As of December 31, 2022, the company had $48.3 billion remaining under the current authorization.
• The share repurchase program does not obligate the company to acquire a minimum amount of shares.

Item 3. Defaults Upon Senior Securities

• There are no reported defaults upon senior securities in the latest results from Apple Inc.

Item 4. Mine Safety Disclosures

• As of the latest quarterly report, there were no mine operations owned by Apple Inc. Therefore, there are no Mine Safety Disclosures to report.

Item 5. Other Information

• Katherine L. Adams, Timothy D. Cook, Luca Maestri, Deirdre O’Brien, and Jeffrey Williams each had equity trading plans in place during the three months ended December 31, 2022
• The plans were in accordance with Rule 10b5-1(c)(1) under the Exchange Act
• An equity trading plan preestablishes the amounts, prices, and dates (or formula for determining them) of future purchases or sales of the Company’s stock, including sales of shares acquired under the Company’s employee and director equity plans
• The plans allow these officers to conduct trades even when they may be in possession of material nonpublic information
• These plans are designed to help avoid concerns about insider trading by providing a structured approach to trading in the Company’s securities.

Item 6. Exhibits

The Exhibits section includes various forms and certifications related to executive compensation and financial reporting.

• The CEO and CFO have certified compliance with rules 13a-14(a) / 15d-14(a).
• There are forms for CEO restricted stock unit awards and performance awards under the 2022 Employee Stock Plan.
• Section 1350 certifications by the CEO and CFO are included.
• Inline XBRL documents are provided for the condensed consolidated financial statements and cover page of the 10-Q report.