diff --git a/.gitignore b/.gitignore index 94a9ba3..f791560 100644 --- a/.gitignore +++ b/.gitignore @@ -1,7 +1,3 @@ +*/.pyron/* */__pycache__/ -lore-generator/milvusdemo.db -lore-generator/.env -lore-generator/slides_files/ -*.db -*.html -*.lock \ No newline at end of file +*.env diff --git a/earnings-transcripts/README.md b/earnings-transcripts/README.md new file mode 100644 index 0000000..e21cfe7 --- /dev/null +++ b/earnings-transcripts/README.md @@ -0,0 +1,175 @@ +# Earnings call analysis + +This project uses outlines to extract structured data from earnings call transcripts. Specifying the information you wish to extract is done by specifying a Pydantic model. + +## Overview + +Many public companies hold earnings calls where they discuss their financial performance and outlook. These calls are transcribed and made available online. Earnings calls are a valuable source of information about a company's financial health and prospects, but are unfortunately not structured data. It can require manual effort to extract the information of interest. + +This project uses outlines to extract structured data from earnings call transcripts. All we need to do is specify the information we wish to extract in a Pydantic model, and the language model will extract the data for us. + +Data extracted can be hard numbers, such as revenue or net income, or it can be qualitative, such as earnings sentiment. We can even have the model reason about macroeconomic risks the company may face in future quarters. + +WARNING! Do not use this as financial advice. This is a proof of concept, and the +output should be verified by a human. Analyzing financial data is extremely difficult +and requires a thorough understanding of the company, the industry, and the +overall economy. Please consult a financial professional before making investment +decisions. + +## Usage + +This can be run locally (using `transcripts_local.py`) or on [Modal](https://modal.com/) using `transcripts_modal.py`. Modal is a cloud platform supporting GPUs. + +### Local + +1. Install the requirements: + ```bash + pip install -r requirements.txt + ``` +2. Run the script: + ```bash + python transcripts_local.py + ``` + +### Modal + +1. [Sign up](https://modal.com/signup) for a Modal account. +2. Install the Modal CLI: + ```bash + pip install modal + ``` +2. Set up your Modal key if you have not done so: + ```bash + modal setup + ``` +3. Run the script: + ```bash + modal run transcripts_modal.py + ``` + +1. Download the [data source](https://www.kaggle.com/datasets/tpotterer/motley-fool-scraped-earnings-call-transcripts) +2. Run `unpickle-earnings.py` to extract the transcrips to the `transcripts/` directory. This step adds metadata to each transcript, such as company name, ticker, date, quarter, and the transcript itself. + +## How it works + +We define a Pydantic model that specifies the information we wish to extract from the transcripts. This model is passed to the language model, which then extracts the data according to the schema. + +The schema is defined in `transcripts_common.py`. The default class is `EarningsCall`, which extracts + +- Company name and ticker +- Earnings call date and quarter +- Key takeaways from the call, a list of natural-language highlights +- An understanding of the financial metrics mentioned in the call +- Extracted financial metrics in a `FinancialMetrics` object +- Earnings sentiment, whether the call conveyed generally positive, neutral, or negative information about the company +- A detailed analysis of various risks the company faces + - Macroeconomic risks + - Financial risks + - Operational risks + - Strategic risks +- An investment recommendation, whether to buy, hold, or sell the company +- Review correctness, a self-critique by the language model of the extracted data. +- Whether data needs correction. The model will review the output and note any + issues it finds. This is useful to identify if the model made up numbers or + misinterpreted the data. + +```python +class Sentiment(str, Enum): + """ + Sentiment of the earnings call. + """ + POSITIVE = "positive" + NEUTRAL = "neutral" + NEGATIVE = "negative" + +class InvestmentRecommendation(str, Enum): + """ + Recommendation of whether to buy, hold, or sell the company's stock. + """ + BUY = "buy" + HOLD = "hold" + SELL = "sell" + +class FinancialMetrics(BaseModel): + """ + Financial metrics mentioned in the earnings call. This can be + extended to include other financial metrics as needed -- just + add them to the schema. + + We use Optional[thing] for all financial metrics because not all + earnings calls mention all of these metrics, and forcing the model + to include them when they do not exist will force the model to + make numbers up. + + It's useful to also specify units in the schema, otherwise the model + may use the units specified in the data. These can vary across companies. + """ + revenue_in_millions: Optional[float] = Field(description="Quarterly revenue in millions of dollars") + revenue_growth_in_percent: Optional[float] = Field(description="Revenue growth by quarter in percent") + net_income_in_millions: Optional[float] = Field(description="Quarterly net income in millions of dollars") + earnings_per_share: Optional[float] = Field(description="Quarterly earnings per share in dollars") + ebitda_in_millions: Optional[float] = Field(description="Quarterly EBITDA in millions of dollars") + free_cash_flow_in_millions: Optional[float] = Field(description="Quarterly free cash flow in millions of dollars") + +class EarningsCall(BaseModel): + """ + The main schema for the earnings call analysis. Using outlines to generate + this schema will extract all the information we request from an earnings + call transcript. + + To add any new information to the schema, just add a new field to this class + (or any child classes, like FinancialMetrics). + """ + company_name: str + company_ticker: str + earnings_call_date: str + earnings_call_quarter: str + key_takeaways: List[str] + + # Financial metrics + understanding_of_financial_metrics: str + financial_metrics: FinancialMetrics + + # Earnings sentiment + earnings_sentiment: Sentiment + + # Analysis of various risks + macroeconomic_risk_reasoning: str + financial_risk_reasoning: str + operational_risk_reasoning: str + strategic_risk_reasoning: str + + # Whether the analyst's prediction is a buy, hold, or sell + investment_recommendation: InvestmentRecommendation + + # Have the model review its own output for correctness + review_correctness: List[str] + + # Whether the text must be reprocessed + text_must_be_reprocessed: bool +``` + +Financial metrics extracted are + +- Revenue +- Revenue growth +- Net income +- Earnings per share +- EBITDA +- Free cash flow + +and can easily be extended to include other financial metrics. In the event that you expand the schema to include other financial metrics, you will need to update the prompt to ensure that the model understands the new metrics it needs to extract. + +## Limitations + +- The model is not perfect. It will sometimes make up numbers or misinterpret the data. +- The model may not understand the data it is extracting if it is not mentioned in the transcripts. For example, if a company announces a new product, but does not discuss its financial impact, the model will not be able to extract that information. + +## Future work + +- Add a second agent to review the output of the first agent. The `text_must_be_reprocessed` field is currently not used, but could be used to trigger a second agent to attempt a reprocessing of the text. + +## Contributing + +We welcome contributions to the project! Please open an issue or submit a pull request. + diff --git a/earnings-transcripts/requirements.txt b/earnings-transcripts/requirements.txt new file mode 100644 index 0000000..8a21ed0 --- /dev/null +++ b/earnings-transcripts/requirements.txt @@ -0,0 +1,98 @@ +accelerate==1.0.1 +aiohappyeyeballs==2.4.3 +aiohttp==3.10.10 +aiosignal==1.3.1 +aiostream==0.5.2 +airportsdata==20241001 +annotated-types==0.7.0 +anyio==4.6.2.post1 +async-timeout==4.0.3 +attrs==24.2.0 +certifi==2024.8.30 +charset-normalizer==3.4.0 +click==8.1.7 +cloudpickle==3.1.0 +datasets==3.0.2 +dill==0.3.8 +diskcache==5.6.3 +exceptiongroup==1.2.2 +fastapi==0.115.3 +filelock==3.16.1 +frozenlist==1.5.0 +fsspec==2024.9.0 +grpclib==0.4.7 +h2==4.1.0 +hpack==4.0.0 +huggingface-hub==0.26.1 +hyperframe==6.0.1 +idna==3.10 +interegular==0.3.3 +Jinja2==3.1.4 +jsonschema==4.23.0 +jsonschema-specifications==2024.10.1 +lark==1.2.2 +markdown-it-py==3.0.0 +MarkupSafe==3.0.2 +mdurl==0.1.2 +modal==0.64.224 +mpmath==1.3.0 +multidict==6.1.0 +multiprocess==0.70.16 +nest-asyncio==1.6.0 +networkx==3.4.2 +numpy==1.26.4 +nvidia-cublas-cu12==12.1.3.1 +nvidia-cuda-cupti-cu12==12.1.105 +nvidia-cuda-nvrtc-cu12==12.1.105 +nvidia-cuda-runtime-cu12==12.1.105 +nvidia-cudnn-cu12==9.1.0.70 +nvidia-cufft-cu12==11.0.2.54 +nvidia-curand-cu12==10.3.2.106 +nvidia-cusolver-cu12==11.4.5.107 +nvidia-cusparse-cu12==12.1.0.106 +nvidia-nccl-cu12==2.20.5 +nvidia-nvjitlink-cu12==12.6.77 +nvidia-nvtx-cu12==12.1.105 +outlines==0.1.1 +outlines_core==0.1.14 +packaging==24.1 +pandas==2.2.3 +propcache==0.2.0 +protobuf==4.25.5 +psutil==6.1.0 +pyarrow==17.0.0 +pycountry==24.6.1 +pydantic==2.9.2 +pydantic_core==2.23.4 +Pygments==2.18.0 +python-dateutil==2.9.0.post0 +pytz==2024.2 +PyYAML==6.0.2 +referencing==0.35.1 +regex==2024.9.11 +requests==2.32.3 +rich==13.9.3 +rpds-py==0.20.0 +safetensors==0.4.5 +shellingham==1.5.4 +sigtools==4.0.1 +six==1.16.0 +sniffio==1.3.1 +starlette==0.41.0 +sympy==1.13.3 +synchronicity==0.8.3 +tokenizers==0.20.1 +toml==0.10.2 +torch==2.4.0 +tqdm==4.66.5 +transformers==4.46.0 +triton==3.0.0 +typer==0.12.5 +types-certifi==2021.10.8.3 +types-toml==0.10.8.20240310 +typing_extensions==4.12.2 +tzdata==2024.2 +urllib3==2.2.3 +watchfiles==0.24.0 +xxhash==3.5.0 +yarl==1.16.0 diff --git a/earnings-transcripts/transcripts/AAPL-2022-Q1.txt b/earnings-transcripts/transcripts/AAPL-2022-Q1.txt new file mode 100644 index 0000000..4a2131d --- /dev/null +++ b/earnings-transcripts/transcripts/AAPL-2022-Q1.txt @@ -0,0 +1,518 @@ +Company name: AAPL-2022-Q1 +Company ticker: AAPL +Earnings call date: Jan 27, 2022, 5:00 p.m. ET +Earnings call quarter: 2022-Q1 +Earnings call transcript: +Prepared Remarks: + +Operator + +Good day, and welcome to the Apple Q1 FY 2022 earnings 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 Tejas Gala, director of investor relations and corporate finance. Please go ahead.  + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thank you. Good afternoon and thank you for joining us. Speaking first today is Apple's CEO, Tim Cook; and he'll be followed by CFO, Luca Maestri. 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 COVID-19 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 or information, which speak as of their respective dates. + +I'd now like to turn the call over to Tim for introductory remarks. + +Tim Cook -- Chief Executive Officer + +Thank you, Tejas, and good afternoon. Today, we are proud to announce Apple's biggest quarter ever. Through the busy holiday season, we set an all-time revenue record of nearly $124 billion, up 11% from last year and better than we had expected at the beginning of the quarter. And we are pleased to see that our active installed base of devices is now at a new record with more than 1.8 billion devices. + +We set all-time records for both developed and emerging markets and saw revenue growth across all of our product categories, except for iPad, which we said would be supply constrained. As expected, in the aggregate, we experienced supply constraints that were higher than the September quarter. Before I discuss our results in greater detail, I want to first acknowledge the toll that COVID continues to have on communities around the world. In many places, case counts are higher and health systems more strained than at any point throughout the pandemic. + +On behalf of all of us at Apple, I want to extend our deep gratitude to the scientists, doctors, nurses, and so many others on the front lines of combating COVID-19. This is our eighth quarter reporting results in the shadow of the pandemic. And while I can't say it gets any easier, I can say I'm incredibly proud of the way our teams have come together and continue to innovate on behalf of our customers. A few weeks ago, we marked the 15th anniversary of the day Steve revealed iPhone to the world. + +We knew that we had the beginnings of something fundamentally transformative, though none of us could have predicted the incredible and meaningful impact it would have on all of our lives. The creative spirit that made the first iPhone possible has thrived at Apple every day since. We never stop creating. We never stop innovating. + +You can see that spirit reflected throughout our products from the incredible performance and capability of our M1 chips to our powerful yet easily use operating systems to our unrivaled iPhone camera systems to the beauty and magic of AirPods. That's why each of our major products leads the industry in customer satisfaction for their respective category. People expect Apple to solve hard problems with easy-to-use products. And iPhone has never been more popular. + +During the December quarter, we set an all-time revenue record for iPhone, thanks to the strength of our incredible iPhone 13 lineup. This is the best iPhone lineup we've ever had, and the reaction from the press and our users have been off the charts. This past quarter, we also set another all-time revenue record for Mac, with customers eager to get their hands on an M1-powered MacBook Air, iMac, or MacBook Pro. We've been thrilled with the response from Pro users to the M1 Pro and M1 Max chips and to see how Apple silicon is blowing them away with its power, performance, and efficiency. + +Despite the constraints I mentioned earlier, our iPad lineup continues to be indispensable to tens of millions of people from teachers and students to artists and creators. Customers are eager to get their hands on our ninth generation iPad, which features a beautiful display and double the storage capacity, as well as the new iPad mini with its ultra-portable design. Wearables, Home, and Accessories, meanwhile, set an all-time revenue record. Customers are loving the Apple Watch Series 7 with its cutting-edge health and fitness tracking features. + +Nearly every day, I get notes from customers who share how a heart alert led to a life-saving appointment with the cardiologist. And more recently, I've been hearing from people who tell me that their Apple Watch saved their lives by calling 911 when they couldn't. As I've said, we're still in the early innings with our health work, but every day, I am encouraged by our positive impact. We are also making great advancements in audio and are seeing strong demand from customers as a result. + +The HomePod mini continues to earn praise for combining the intelligence of Siri with an immersive room-filling audio experience. And our customers have responded with a lot of excitement to the magic of spatial audio on AirPods, which packs the acoustics of a concert hall. As always, the deep integration of hardware, software, and services is a hallmark of everything Apple makes. It's a principle you can see at work in the introduction of SharePlay, a feature that offers a whole new way to create shared experiences by letting users watch and listen to their favorite content together on FaceTime. + +And we continue to invest in innovation across our services business, which set another all-time revenue record last quarter and performed even better than we had anticipated. The App Store continues to be an economic miracle for developers around the world and a safe and trusted place for consumers to discover their favorite apps. Since its launch, we have paid developers selling digital goods and services more than $260 billion, with 2021 setting a new record for their earnings. I'm also happy to report that in its first two years, Apple TV+ shows and movies have earned 200 award wins and more than 890 nominations. + +Among the powerful lineup are feature films like "The Tragedy of Macbeth," "CODA," and "Swan Song," along with many gripping new series coming up, including "Severance" and "The Afterparty." Each one is a tremendous credit to all the storytellers in front of the cameras and behind them who touched audiences all over the world. Fitness+, meanwhile, continues to inspire customers to reach their health and fitness goals. We recently introduced "Time to Run," an extension of our popular series "Time to Walk," as well as new collections of workouts and meditations to help users make more intentional training choices. Despite the pandemic, our retail businesses saw its highest revenue in Apple's history, and we also earned our highest ever customer satisfaction scores. + +That is a testament to the incredible adaptability our teams have shown as we've reimagined retail experience. I also want to take a moment to thank our retail employees and AppleCare teams for the deep care you've given to our customers as they look to get the most out of our products, learn new skills, or track down the perfect gift. We have always led with our values and with compassion and care and never has that been more needed than during the pandemic. Last quarter, we celebrated 10 years of our Employee Giving program, which we started to help our employees identify and support the causes they care most deeply about. + +We pledged to match their contributions to organizations doing important work at every level from their local food pantry to global humanitarian nonprofits. In the last decade, this program has contributed nearly $725 million to charitable organizations. We also celebrated 15 years of Apple's partnership with a global fund on (PRODUCT)RED, supporting their life-saving work to expand healthcare services in sub-Saharan Africa for people living with HIV/AIDS. With the support of our customers, we've now raised nearly $270 million to fund prevention, testing, and counselling services for people impacted by HIV/AIDS. + +And in keeping with our abiding belief in and commitment to education, we also launched a new partnership with the Boys & Girls Clubs of America. This initiative will help young people across the U.S. learn to code on iPad using our Everyone Can Code Curriculum. And we are continuing to drive innovations to help combat climate change. + +We are already carbon neutral across our own operations, and we are working intensely to meet our 2030 goal of carbon neutrality across our supply chain and the life cycle of our products. To celebrate Black History Month, we will be releasing a special edition Apple Watch Black Unity Braided Solo Loop and a matching Unity Lights Watch face. And through our racial equity and justice initiative, we are continuing to support organizations blazing trails to a more equitable world in our economies, our classrooms, and our criminal justice system. We recognize, as ever, that it takes all of us to confront our most profound challenges. + +And at Apple, we are determined to do our part. That includes our own work and inclusion and diversity, which we are advancing every day. Let me close by saying that despite the uncertainty of the world, there is one thing of which I am certain: Apple will continue to end every day and in every way to deliver on the promise of technology at its best. I will now turn it over to Luca to go over our quarterly results in more detail.  + +Luca Maestri -- Chief Financial Officer + +Thank you, Tim, and good afternoon, everyone. We are very pleased to report record financial results for the December quarter. We set an all-time revenue record of $123.9 billion, an 11% increase from a year ago. We reached new all-time records in the Americas, Europe, Greater China, and the rest of Asia-Pacific. + +And it was also an all-time record quarter for both products and services. On the product side, revenue was $104.4 billion, up 9% over a year ago, despite significant supply constraints. We grew in each of our product categories, except iPad, where supply constraints were particularly pronounced, and set all-time records for iPhone; Mac; and wearables, home and accessories. The strong level of sales performance, the unmatched loyalty of our customers, and the strength of our ecosystem have driven our current installed base of active devices to a new all-time record of 1.8 billion devices. + +The growth in the installed base were broad-based as we set all-time records in each major product category and in each geographic segment. Our services set an all-time revenue record of $19.5 billion, up 24% over a year ago, with December quarter records in every geographic segment. Company gross margin was 43.8%, up 160 basis points from last quarter due to volume leverage and favorable mix, partially offset by higher cost structures. Products gross margin was 38.4%, up 410 basis points sequentially, driven by leverage and mix. + +Services gross margin was 72.4%, up 190 basis points sequentially, mainly due to a different mix. Net income of $34.6 billion and diluted earnings per share of $2.10, both grew more than 20% year over year and were all-time records. Operating cash flow of $47 billion was also an all-time record. Let me get into more detail for each of our revenue categories. + +iPhone revenue grew 9% year over year to an all-time record of $71.6 billion despite supply constraints, thanks to a remarkable customer response to our new iPhone 13 family. We set all-time records in both developed and emerging markets, reached all-time high in the iPhone active installed base. And the latest survey of U.S. consumers from 451 Research indicates iPhone customer satisfaction of 98%. + +For Mac, revenue of $10.9 billion was an all-time record with growth of 25% year over year, driven by strong demand for our newly redesigned MacBook Pro powered by M1, despite supply constraints. We are one year into our transition to Apple silicon. And already, the vast majority of our Mac sales are from M1-powered devices, which helped drive a record number of upgraders during the December quarter. Our momentum in this category is very impressive as the last six quarters have been the best six quarters ever for Mac. + +iPad generated $7.2 billion in revenue, down 14% year over year due to very significant supply constraints, but customer demand was very strong across all models. Despite the supply shortages, our installed base of iPads reached a new all-time high during the quarter, thanks to a high number of customers that are new to iPad. In fact, around half of the customers purchasing an iPad during the quarter were new to the product. wearables, home and accessories set a new all-time record of $14.7 billion, up 13% year over year. + +And we set all-time revenue records in each geographic segment. We also continue to improve and expand our product offerings in this category to create unique experiences showcasing our deep integration of hardware, software, and services. In addition to an outstanding level of sales performance globally, Apple Watch continues to extend its reach, with over two-thirds of customers purchasing an Apple Watch during the quarter being new to the product. Turning to services. + +As I mentioned, we reached an all-time revenue record of $19.5 billion, up 24%, with all-time records for cloud services, for music, video, advertising, and payment services, and a December quarter record for the App Store. These impressive results reflect the positive momentum we are seeing on many fronts. First, as I mentioned before, our installed base has continued to grow and has reached an all-time high across each geographic segment and major product category. Next, we continue to see increased customer engagement with our services. + +The number of paid accounts on our digital content stores grew double digits and reached a new all-time high during the December quarter in every geographic segment. Also, paid subscriptions continue to show very strong growth. We now have more than 785 million paid subscriptions across the services on our platform, which is up 165 million during the last 12 months alone. And finally, we're adding new services that we think our customers will love, and we continue to improve the breadth and quality of our current service offerings. + +Just in this last quarter, we have added incredible new content on Apple TV+, on Fitness+ and Apple Arcade and a brand-new way to listen to music with Apple Music Voice. We also announced in November the beta program for Apple Business Essentials, a new service offering that brings together device management 24/7 support and iCloud storage to our small businesses, manage the end-to-end life cycle of their employees' Apple devices. We are very excited that many thousands of small business customers are already actively participating in the beta program. This announcement is just one of many ways we are expanding our support for enterprise and business customers. + +With the latest Macbook Pros that we've introduced last October, the new M1-powered Mac lineup has quickly become the preferred choice of Max among enterprise customers. Shopify, for example, is upgrading its entire global workforce to M1-powered MacBook Pro and MacBook Air. By standardizing on M1 Max, Shopify continues its commitment to providing the best tools to help its employees work productively and securely from anywhere. And Deloitte Consulting is expanding the deployment of the Mac Employee Choice program, including offering the new M1 MacBook Pro to empower their professionals to choose devices that work best for them in delivering consulting services. + +Let me now turn to our cash position. Due to our strong operating performance and holiday quarter seasonality, we ended the quarter with $203 billion in cash, plus marketable securities. We decreased commercial paper by $1 billion, leaving us with total debt of $123 billion. As a result, net cash was $80 billion at the end of the quarter. + +Our business continues to generate very strong cash flow, and we're also able to return nearly $27 billion to shareholders during the December quarter. This included $3.7 billion in dividends and equivalents and $14.4 billion through open market repurchases of 93 million Apple shares. We also began $6 billion accelerated share repurchase program in November, resulting in the initial delivery and retirement of 30 million shares. As we move ahead into the March quarter, I'd like to review our outlook, which includes the types of forward-looking information that Tejas referred to at the beginning of the call. + +Given the continued uncertainty around the world in the near term, we are not providing revenue guidance, but we are sharing some directional insights based on the assumption that the COVID-related impacts to our business do not worsen from what we are projecting today for the current quarter. We expect to achieve solid year-over-year revenue growth and set a March quarter revenue record despite significant supply constraints, which we estimate to be less than what we experienced during the December quarter. We expect our revenue growth rate to decelerate from the December quarter, primarily due to two factors. First, during the March quarter a year ago, we grew revenue by 54%. + +Remember that last year, we launched our new iPhones during the December quarter. While this year, we launched them during the September quarter. Due to the later launch a year ago, some of the associated channel inventory fill occurred during the March quarter last year. As a result of the different launch timing, we will face a more challenging year-over-year compare. + +Second, we expect foreign exchange to be a 3-point headwind when compared to the December quarter growth rate. We currently expect FX to have a negative impact on growth of 2 points in the March quarter, while it represented a 1-point benefit during the December quarter. Specifically related to services, we expect to grow strong double digits but decelerate from the December quarter performance. This is due to a more challenging compare because a higher level of lockdowns around the world last year led to increased usage of digital content and services. + +We expect gross margin to be between 42.5% and 43.5%. We expect opex to be between $12.5 billion and $12.7 billion. We expect OI&E to be around negative $150 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 $0.22 per share of common stock payable on February 10, 2022, to shareholders of record as of February 7, 2022. + +And with that, let's open the call to questions. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thank you, Luca. We ask that you limit yourself to two questions. Operator, may we have the first question, please?  + +Questions & Answers: + +Operator + +Absolutely. We'll take our first question from Katy Huberty with Morgan Stanley. Katy, please check your mute function, we weren't able to hear you. Hearing no response, we'll take our next question from Wamsi Mohan with Bank of America. + +Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst + +Yes, thank you. Your margins have clearly been very impressive. So I have one question each on product and one on services gross margins. On product gross margins, that's clearly benefiting from a very strong mix. + +So, Tim, I'm curious how sustainable do you think these mix trends are from the data that you see? And can you share any thoughts across how the Pro and Pro Max mix compared to prior cycles? And on the services side, if I could just ask that, too. When you look at the gross margins there, that's been really impressive. Can you give us some sense of where within services you're seeing particularly favorable mix trends? And how should investors think about the trajectory of these margins given some of the sizable investments you're making to drive very successful areas like content for TV+ as an example? Thank you. + +Tim Cook -- Chief Executive Officer + +Wamsi, it's Tim. In terms of the mix, you know, we don't comment directly on mix. But what I would tell you is that we saw strong demand across the iPhone 13 family. And in fact, we had several of the top-selling models in various markets, including the top five in the U.S. + +and Australia, the top four in Urban China, two of the top three in the U.K., three of the top four in France and Germany, and four of the top six in Japan. And certainly, based on some external data that I've seen, it does seem to say that we are gaining share as well. So we feel quite good about the momentum of iPhone. And I should add that we were constrained during the quarter. + +Luca Maestri -- Chief Financial Officer + +Wamsi, on the services side, you were asking about gross margin there. As you know, our services business in aggregate is accretive to overall company margin. And as you know, our services portfolio is very broad, and it contains businesses with very different margin profiles. The difference in margin profile is due in part to the nature of those businesses and in part to the way that we account for them, in some cases, we account on a net basis as opposed to a gross basis. + +And so as a result, the Services gross margin percentage over time will be influenced by the relative growth of the different businesses within the portfolio. We do not guide at the product and services level, but I think you've seen the guidance that we provided for the March quarter at the total company level, 42.5% to 43.5%, obviously very strong compared to our recent history. And so we're very pleased with that. + +Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst + +Thanks, Tim. Thanks, Luca. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks, Wamsi. Can we have the next question, please? + +Operator + +We'll take our next question from Kyle McNealy with Jefferies. + +Kyle McNealy -- Jefferies -- Analyst + +Hi, thanks very much. Congrats on the solid iPhone result. That's very good. I assume that you may have prioritized iPhone to the extent there may be similar components that are used for iPhone and iPad. + +Can you just level set me on that if that's not the case? And if it is, should we see a recovery in iPad as you move past your prime iPhone selling season and you may have better access to components or better supply as we move through the next few months of the year? + +Tim Cook -- Chief Executive Officer + +Yeah. Kyle, it's Tim. From a supply constraint point of view, as you recall, we said that in Q1, the December quarter, that would have constraints more than six, and we clearly did have constraints more than six. On March, we're saying that where we will have -- we will do better or have less constraints than we had in the December quarter. + +If you look at the commonality between different products, there is some. But generally, the challenge is on legacy nodes. And these legacy nodes are by supplier. And so it's much more focused on the supplier than anything else and versus us behind the curtain finding a place to take it. + +There's not -- none of that, but there is some of that. But largely, we have to take it where the shortages are. + +Kyle McNealy -- Jefferies -- Analyst + +OK. Great. Can you give us any other color on kind of the trajectory of iPad and, you know, what's impacting this quarter and where it might go in the March and the June quarter? + +Tim Cook -- Chief Executive Officer + +Yeah. The issue with iPad, and it was a very significant constraint in the December quarter, was very much on these legacy nodes that I had talked about. Virtually all of the problem was in that area. And so overall, we're not guiding by product constraint -- by product level. + +But at the -- but overall, we do see an improvement in the March quarter in terms of the constraints going down versus what they were in the December quarter. + +Kyle McNealy -- Jefferies -- Analyst + +OK, great, thanks so much. Congrats again on the solid results all around. + +Tim Cook -- Chief Executive Officer + +Oh, thanks very much. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thank you, Kyle. Can we have the next question, please? + +Operator + +Thank you. We'll take our next question from Shannon Cross with Cross Research.  + +Shannon Cross -- Cross Research -- Analyst + +Thank you very much. Tim, could you talk a bit about the Mac business? Looking back, it's up about 50% from the calendar 2019 revenue. You did almost $11 billion this quarter, and you're still working through the M1 transition. So can you talk about where you see the opportunity to gain share? What are really sort of the target markets that you think you can go after, you know, in order to grow this beyond, I think it was about $37 billion in the last 12 months? Thank you. + +And then I have a follow-up. + +Tim Cook -- Chief Executive Officer + +Yeah. Shannon, thank you for the question. Mac set an all-time revenue record at $10.9 billion for the quarter. That was up 25%. + +And as you point out, the last six quarters for the Mac have been the top six revenue quarters of all time. And what's further very good about this is, we set all-time revenue records in Americas, in Europe, and the rest of Asia Pacific. And we set a December quarter record in Greater China. And so it's not narrowed to a particular geographic area that we're doing well in. + +It's almost -- about almost across the board. The response is very much because of M1. And we got even more response with the MacBook Pro that we launched in the -- during the Q1 time frame. The -- both the upgraders, which we had a record number of upgraders for the December quarter, but also in markets like China, six out of the -- six out of 10 sales are people new to the Mac. + +And so it's powered by both upgraders and switchers. Customer satisfaction is off the charts. And so what I see this as is a -- that will -- a product that will be very successful in a number of different markets from education to business, to the creative industry and in all geographic markets. We're not limiting ourselves. + +Shannon Cross -- Cross Research -- Analyst + +Great. Thank you. And then, Luca, can you talk a bit more on services? Just obviously outperformed your guidance or your expectations, as well as certainly where we were at. Where were the -- what were the things that really outperformed? And maybe what trends are you seeing that is driving the extra revenue? Thank you. + +Luca Maestri -- Chief Financial Officer + +Yeah, Shannon. It was -- I mean it was really great on all fronts. We said December quarter records in every geographic segment. And then as I mentioned earlier, an all-time record for cloud, for music, for video, for advertising, for payment services. + +December quarter record in the App Store. So we've done, as you said, better than we were expecting at the beginning of the quarter. This overperformance has been spread around the world and spread around our services categories. And the reality is, this combination of factors, the fact that the installed base is growing, the fact that we continue to have more and more engagement of our customers on all the services -- paid subscriptions is a phenomenal story, right? We now have 785 million paid subs. + +We just -- we've increased 165 million in the last 12 months alone, right? And so all these things combined are really powering the business. Very, very pleased with the performance. + +Shannon Cross -- Cross Research -- Analyst + +OK. Thank you. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks. Can we have the next question, please? + +Operator + +We'll hear next from Katy Huberty with Morgan Stanley. + +Katy Huberty -- Morgan Stanley -- Analyst + +Thank you. Can you hear me OK? + +Luca Maestri -- Chief Financial Officer + +Now we can.  + +Tim Cook -- Chief Executive Officer + +Yes.  + +Katy Huberty -- Morgan Stanley -- Analyst + +OK. Good. So first question, just as it relates to some of the disruption you've seen on the component side, manufacturing and logistics over the past couple of years. Are you starting to rethink your broader supply chain strategy or the manufacturing footprint on the back of the significant disruption? Are you happy with the overall geographic exposure that you see in the supply chain today? + +Tim Cook -- Chief Executive Officer + +Katy, if you sort of step back and look at how we've done, our largest issue by far has been the chip shortage. That is industrywide and on these legacy nodes, as I had mentioned earlier. And I think our supply chain actually does very good considering the shortages because it's a fast-moving supply chain. The cycle times are very short. + +There's very little distance between a chip being fabricated and packaged and a product being -- going out of factory. And so no, I don't see that it makes a fundamental change in the supply chain.  + +Katy Huberty -- Morgan Stanley -- Analyst + +OK. And how are you thinking about the metaverse opportunity and Apple's role in that market? + +Tim Cook -- Chief Executive Officer + +Well, that's a big question. But we're a company in the business of innovation. So we're always exploring new and emerging technologies. And I -- you've spoken at length about how this area is very interesting to us. + +Right now, we have over 14,000 AR kit apps in the App Store, which provide incredible AR experiences for millions of people today. And so we see a lot of potential in this space and are investing accordingly. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks. Can we take the next question, please?  + +Operator + +Thank you. We'll take our next question from Amit Daryanani with Evercore. + +Amit Daryanani -- Evercore ISI -- Analyst + +I have two as well. I guess both up on the supply chain side, I think these continue to be fairly volatile. I'd love to get your perspective, if you feel, if things or supply chain issues are starting to alleviate or they still remain challenging. And then maybe I missed this, but could you perhaps tell us how much revenue was left on the table in December because of the supply chain issues? And how does that number shake up in March? + +Tim Cook -- Chief Executive Officer + +Yeah. Amit, what we've said in terms of December and March was that it's very difficult to estimate with great precision the constraints. But we said that they would be more than the Q4 or more than the September quarter, and we're saying that March will be less than the December quarter. And so that's the kind of verbiage that we placed around it. + +In terms of is it still challenging, yes, it is challenging. And for us, we pride ourselves on getting products to customers who really want them and try to do that in a fast basis. And so it's frustrating that we can't always do that at the speed that we would like. However, March is better than December. + +And so there's some encouraging sign there. We're not predicting with the [Inaudible] overall, obviously, because of the number of variables that go into such a prediction. + +Amit Daryanani -- Evercore ISI -- Analyst + +Fair enough. Tim, I think one of the topics investors can struggle a fair a bit with Apple is really just sort of understand visibility around your product road map, and I think some of your tech peers tend to be more vocal about their initiative. Some of them go change their name when they find an initiative. You folks are spending, I think, $23 billion on R&D in '21. + +So you're really spending a fair amount. And maybe without telling us the road map, could you just talk about how do you think about where to focus your R&D resources on? And to some extent, is the way to think about this R&D spend, how much of it is really done on things that are more evolutionary in products that are out in the marketplace versus things that we haven't seen yet are on potential new offerings?  + +Tim Cook -- Chief Executive Officer + +You know, we have a little different model. We tried to announce things when they're ready or close to ready and try to maintain an element of surprise in the air. And so that explains, hopefully, what we do with our roadmap. And I think that's proven successful for us. + +And other people can do it differently, of course. But it's been good for us over time to do that. So, we're going to continue to do that. In terms of deciding where we invest in, we look at areas that are sort of at the intersection of hardware, software, and services. + +And because we think that that's where the magic really happens, and it brings out the best in our home, and so there are areas that have more than piqued our interest, and we are investing in those. And you can tell through time that we've wrapped our R&D spend even more than we were before. And so, there's quite a bit of investment going into things that are not on the market at this point, as there always are. Thanks for the question. + +Amit Daryanani -- Evercore ISI -- Analyst + +Perfect. Thank you. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks. Can we have the next question, please? + +Operator + + Thank you. We'll hear next from David Vogt with UBS. + +David Vogt -- UBS -- Analyst + +Great. Thanks for taking my call and my question. I just wanted to dive in to your perspective on China and sort of the macroclimate there and how that sort of pertains to your business as we think about it going forward. And the reason why I'm asking is we've heard some concerns that current policies might have caused a pause in this market and smartphone inventory. + +Maybe more specifically the local vendors could be a little bit elevated going into Chinese New Year. So we just want to get your thoughts on what you're seeing in this market around, the sort of potential development, and then maybe touch on sell-in versus sell-through in that market. And then I have a follow-up. + +Tim Cook -- Chief Executive Officer + +Well, I can only comment on for us. Our sales grew 21% there in the last quarter, and we're very proud of that. I'll stay away and let other people be the economist and make the macro determinations. But what we're seeing there was super impressive with all-time revenue records and a record number of upgraders and strong double-digit growth in switchers on iPhone, which is very important to us. + +And as I've mentioned before, we had the top four selling phones in urban China. And so there's a lot of good there. And I would remind you that iPhone was constrained in the quarter. And so I'm not sure where the statements are coming around about inventory, and I can't comment on whether other people have more or not. + +I don't know the answer to that. Thanks for the question.  + +David Vogt -- UBS -- Analyst + +That's helpful, Tim. And then maybe just on the supply chain. You know, obviously, you've been managing it incredibly well over the last 12 to 18 months. And gross margins have actually performed relatively well, mix driven both between products and services. + +Can you help us think about sort of the quantifiable impact or maybe the costs that you're carrying due to the supply chain that may be sort of -- I don't want to use the word transitory, but we'd expect over the longer term that might be sort of abate a little bit and you'll get a little bit of a benefit as we get past some of these supply chain issues over the next 12 months or so? + +Tim Cook -- Chief Executive Officer + +We're seeing inflation, and it's factored into our gross margin and opex that Luca reviewed with you earlier. Logistics, as I've mentioned on a previous call, is very elevated in terms of the cost of moving things around. I would hope that at least a portion of that is transitory, but the world is -- the world has changed, and so we'll see. + +David Vogt -- UBS -- Analyst + +Thank you. + +Tim Cook -- Chief Executive Officer + +Yeah. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks. Can we get the next question, please? + +Operator + +Thank you. We'll take the question from Samik Chatterjee with J.P. Morgan.  + +Samik Chatterjee -- J.P. Morgan -- Analyst + +Oh, great, thanks for taking my question. I had a couple. The first question that I had was really on Apple TV+, and I know some of the other players in this market have talked about slowing subscriber growth as we exit the pandemic. So curious if you can share what trends you're seeing in Apple TV and Apple TV+ and how similar or dissimilar they are and how your content is maybe helping you on that aspect? And I have a follow-up. + +Tim Cook -- Chief Executive Officer + +We, you know, don't give out subscriber numbers for Apple TV+. What we do, do is give out a subscriber number for -- our subscription number for the total number of subscriptions that we had. And I think Luca mentioned earlier we ended the quarter at 785 million. And so we were incredibly pleased with that. + +That's a huge growth on a year-over-year basis of 165 million. And it counts, as you recall, both Apple branded and third party. In terms of how we're doing with TV+, we've been honored with 200 wins and 890 nominations. We're doing exactly like we had wanted to, giving storytellers a place to tell original stories and feel really good about where we are competitively and strategic position of the product.  + +Samik Chatterjee -- J.P. Morgan -- Analyst + +And if I can just follow up, and similarly on Apple, can you just help us think about when you think about the next few years, where are the biggest opportunities, either be it in terms of like geographies or either segments -- customer segments that you may not be tapping into currently and have an opportunity in. And thank you. + +Tim Cook -- Chief Executive Officer + +Well, putting aside any kind of thing that sits on our road map for a second in that area, which we obviously wouldn't talk about in the call, I would say that I think Apple Card has a great runway ahead of us. It was rated to the No. 1 midsized credit carding customer set by J.D. Power and is getting -- has fast become people's main credit card for many, many people. + +And the growth of Apple Pay has just been stunning. It's been absolutely stunning. And there's still obviously a lot more there to go -- and because there's still a lot of cash in the environment. And so I think that both of these and whatever else we might do have a great future ahead. + +Samik Chatterjee -- J.P. Morgan -- Analyst + +OK. Congrats on the results. + +Tim Cook -- Chief Executive Officer + +Thanks so much. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks. Can we have the next question, please? + +Operator + +Thank you. We'll take our next question from Chris Caso with Raymond James.  + +Chris Caso -- Raymond James -- Analyst + +Yes, thank you. Good evening. First question is just a little bit of help in interpreting the guidance. And if you could speak to the March quarter, perhaps in terms of seasonality and seasonal performance. + +And Luca, as you mentioned last year, because of the later launch of the phone that some of that came into the March quarter, and that was better than seasonal performance in March. Should we interpret because the supply constraints are easing somewhat as you go into the March quarter that we should see something similar that March quarter would get some better than seasonal performance? Is that the correct way to interpret your guidance? + +Luca Maestri -- Chief Financial Officer + +Well, you know, and we talked about it on a year-over-year basis because that's probably how most people look at it. And so just to recap what we said. First of all, we expect a record for the March quarter. We expect solid growth on a year-over-year basis. + +And -- but as Tim was saying, we still expect significant supply constraints but less than what we've seen in December. So I think on that basis, you can do the math around sequential. But given where we are in the environment, given the difficult compare both on iPhone, and as I mentioned on -- during my prepared remarks, on Services, we're very, very happy with the way we're guiding and the way the business is going right now. + +Chris Caso -- Raymond James -- Analyst + +OK. Thank you, sir. As a follow-up, a follow-up question is on perhaps the sustainability and repeatability of the growth in iPhone after two very good years, well-received product and the 5G upgrade cycle. And I think there was a point in time when perhaps there's a view from some that iPhone was x growth, and that's been proven wrong. + +Off of these very strong results, maybe you can speak to your level of confidence that iPhone continues to grow in the future and kind of what are the avenues for that growth. + +Tim Cook -- Chief Executive Officer + +Yeah. Hey, Chris, it's Tim. What I would say is that the iPhone has become an integral part of so many people's lives now more than ever. And the active installed base of iPhone continues to grow and is now at an all-time high. + +And during December, as we had mentioned, we had a record number of upgraders and grew switchers strong double digit, which I think speaks to the strength of the product. And that's all an adjacent to some -- an enormous customer satisfaction rating of 98% and are doing well throughout the geographies. And I've mentioned some of the geos that we track and how many units that we have on the top-selling model charts. And so -- and even though this is the second product announcement that has 5G in it, we're still really in the early innings of 5G, meaning if you look at the installed base and look at how many people are on 5G versus not, and we don't release those exact numbers, but you can do some math and estimate those. + +We maintain a very optimistic view on iPhone long term. + +Chris Caso -- Raymond James -- Analyst + +Thank you very much. + +Tim Cook -- Chief Executive Officer + +Yes, thank you. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks. Can we have the next question, please? + +Operator + +Thank you. We'll take our next question from Ben Bollin with Cleveland Research. + +Ben Bollin -- Cleveland Research Company -- Analyst + +Thank you for taking the question. Tim, I'm interested in how you think about the relationship between the total iOS installed base and then the subsequent performance you see within the services or the paid subscriptions. And a second part to that is, how do you look at the existing services business in terms of the growth you get from customers who are already subscribers versus completely net new or greenfield subscribers? + +Tim Cook -- Chief Executive Officer + +I think I'll let Luca comment on the second part of that. But if you back up and sort of look at how we're doing, even though we have 785 million subs, relative to the total number of products offered and the customers that's offered in, there's still a lot of room to grow there. And so I -- the way that I look at it is that we -- there's a lot more greenfield in front of us. + +Luca Maestri -- Chief Financial Officer + +And Ben, on the services engagement and how we think about customers, right, obviously, it's important for us that customers are engaged on our services platforms. And the ones that we have, we know that the more engaged they are, they're more likely to stay with Apple for the long term. So we just obviously track all those metrics, and they're very important for us. And that's why we continue to improve the quality of our offerings and the quantity over time. + +As you've seen, we launched a lot of new services. We obviously care a lot about new customers as well, and that's why we keep track of the installed base and a lot of other metrics on that front. It's very similar to what we do with products. I mean, also for products, we care a lot about upgraders. + +We care a lot about switchers. It's obviously the combination of the two that when you put it together, you know, provides the level of growth that you've actually seen in our services business. I mean the last 12 months, we've done over $72 billion of revenue on services. It's the size of a Fortune 50 company. + +It couldn't happen with our contribution from both existing and new customers.  + +Ben Bollin -- Cleveland Research Company -- Analyst + +Thank you. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thanks. Can we have the next question, please? + +Operator + +Thank you. We'll take our next question from Harsh Kumar with Piper Sandler. + +Harsh Kumar -- Piper Sandler -- Analyst + +Yeah, hey, guys. First of all, congratulations on stellar quarter in December and all the records that the Apple community has set. Tim, I had a question on the content on Apple TV. When we look at the Apple content that you guys put all on TV original content, it's typically very socially responsible and healthy, for example, at Ted Lasso. + +Has this, in effect, created a constraint or a hesitancy of some sort for Apple to go and purchase studios when they come up? Or have those decisions been primarily financial or otherwise?  + +Tim Cook -- Chief Executive Officer + +We don't make purely financial decisions about the content. We try to find great content that has a reason for being. And we love shows like Ted Lasso and several of the other shows as well that have a reason for existing and may have a good message and may make people feel better at the end of it. But we're -- but I don't view that we've narrowed our universe the things we're selecting from. + +There's plenty to pick from out there. And I think that we're doing a pretty good job of it as we speak.  + +Harsh Kumar -- Piper Sandler -- Analyst + +Fair enough. And then my follow-up was the Apple vision of healthcare in the future. So you guys have sort of cautiously approached healthcare with iWatch and iPhone. It's mostly a preventative sort of approach. + +It provides you updates. But do you see a situation down the line where Apple perhaps plays a more active role, either through the Watch or some of the device where perhaps a doctor or a hospital mandates that the watch we want for effectively for critical and vital monitoring? And I was curious if you could just give us some color on how you guys think about healthcare and iWatch in that confluence? + +Tim Cook -- Chief Executive Officer + +Well, the -- with the Apple Watch, there's literally not days that go by without me getting notes about someone that's received a health alert. Maybe it's to do with their cardiovascular health. Or more recently, a lot of people have told me that they fell and was knocked unconscious and couldn't respond and the watch responded for them to emergency contacts and emergency personnel. And so there's a lot that we're doing today. + +My sense has always been that there's more here. I don't want to get into a road map discussion in the call. But we continue to kind of pull the string and see where it takes us. But we're really satisfied with how we're doing in this area because we are fundamentally changing people's lives and, in some cases, saving people's lives. + +So it's an area of great interest. + +Harsh Kumar -- Piper Sandler -- Analyst + +Very helpful, Tim, thank you. + +Tim Cook -- Chief Executive Officer + +Thanks for the question. + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Thank you. A replay of today's call will be available for two weeks on Apple Podcasts, as a webcast on apple.com/investor and via telephone. The numbers for the telephone replay are 888-203-1112 or 719-457-0820. Please enter confirmation code 3599903. + +These replays will be available by approximately 5:00 p.m. Pacific Time today. Members of the press with additional questions can contact Josh Rosenstock at 408-862-1142. Financial analysts can contact me with additional questions at 669-227-2402. + +Thank you again for joining us.  + +Operator + +[Operator signoff] + +Duration: 54 minutes + +Call participants: + +Tejas Gala -- Director, Investor Relations, and Corporate Finance + +Tim Cook -- Chief Executive Officer + +Luca Maestri -- Chief Financial Officer + +Wamsi Mohan -- Bank of America Merrill Lynch -- Analyst + +Kyle McNealy -- Jefferies -- Analyst + +Shannon Cross -- Cross Research -- Analyst + +Katy Huberty -- Morgan Stanley -- Analyst + +Amit Daryanani -- Evercore ISI -- Analyst + +David Vogt -- UBS -- Analyst + +Samik Chatterjee -- J.P. Morgan -- Analyst + +Chris Caso -- Raymond James -- Analyst + +Ben Bollin -- Cleveland Research Company -- Analyst + +Harsh Kumar -- Piper Sandler -- Analyst + +More AAPL analysis + +All earnings call transcripts \ No newline at end of file diff --git a/earnings-transcripts/transcripts/NVDA-2023-Q3.txt b/earnings-transcripts/transcripts/NVDA-2023-Q3.txt new file mode 100644 index 0000000..b9993e7 --- /dev/null +++ b/earnings-transcripts/transcripts/NVDA-2023-Q3.txt @@ -0,0 +1,412 @@ +Company name: NVDA-2023-Q3 +Company ticker: NVDA +Earnings call date: Nov 16, 2022, 5:00 p.m. ET +Earnings call quarter: 2023-Q3 +Earnings call transcript: +Prepared Remarks: + +Operator + +Good afternoon. My name is Emma, and I will be your conference operator today. At this time, I would like to welcome everyone to the NVIDIA's third quarter earnings call. [Operator instructions] Simona Jankowski, you may begin your conference. + +Simona Jankowski -- Vice President, Investor Relations + +Thank you. Good afternoon, everyone, and welcome to NVIDIA's conference call for the third quarter of fiscal 2023. With me today from NVIDIA are Jen-Hsun Huang, president and chief executive officer; and Colette Kress, executive vice president and chief financial officer. I'd like to remind you that our call is being webcast live on NVIDIA's investor relations website. + +The webcast will be available for replay until the conference call to discuss our financial results for the fourth quarter and fiscal 2023. The content of today's call is NVIDIA's property. It can't be reproduced or transcribed without our prior written consent. During this call, we may make forward-looking statements based on current expectations. + +These are subject to a number of significant risks and uncertainties, and our actual results may differ materially. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's earnings release our most recent Forms 10-K and 10-Q and the reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, November 16, 2022, and based on information currently available to us. Except as required by law, we assume no obligation to update any such statements. + +During this call, we will discuss non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to GAAP financial measures in our CFO commentary, which is posted on our website. With that, let me turn the call over to Colette. + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Thanks, Simona. Q3 revenue was $5.93 billion, down 12% sequentially and down 17% year on year. We delivered record data center and automotive revenue. while our gaming and pro visualization platforms declined as we work through channel inventory corrections and challenging external conditions. + +Starting with data center. Revenue of $3.83 billion was up 1% sequentially and 31% year-on-year. This reflects very solid performance in the face of macroeconomic challenges new export controls and lingering supply chain disruptions. Year-on-year growth was driven primarily by leading U.S. + +cloud providers and a broadening set of consumer Internet companies for workloads such as large language models, recommendation systems and generative AI. As the number and scale of public cloud computing and Internet service companies deploying NVIDIA AI grows our traditional hyperscale definition will need to be expanded to convey the different end market use cases. We will align our data center customer commentary going forward accordingly. Other vertical industries, such as automotive and energy, also contributed to growth with key workloads relating to autonomous driving, high-performance computing, simulations and analytics. + +During the quarter, the U.S. government announced new restrictions impacting exports of our A100 and H-100 based products to China, and any product destined for certain systems or entities in China. These restrictions impacted third quarter revenue, largely offset by sales of alternative products into China. That said, demand in China more broadly remains soft, and we expect that to continue in the current quarter. + +We started shipping our flagship 100 data center GPU based on the new hopper architecture in Q3. A100-based systems are available starting this month from leading server makers including Dell, Hewlett Packard Enterprise, Lenovo and SuperMicro. Early next year, the first H-100 based cloud instances will be available on Amazon Web Services, Google Cloud, Microsoft Azure and Oracle Cloud Infrastructure. A100 delivered the highest performance and workload versatility for both AI training and inference in the latest MLPerf industry benchmarks. + +H-100 also delivers incredible value compared to the previous generation for equivalent AI performance it offers three x lower total cost of ownership while using five x fewer server nodes and 3.5 x less energy. Earlier today, we announced a multiyear collaboration with Microsoft to build an advanced cloud-based AI supercomputer to help enterprises train, deploy and scale AI including large state-of-the-art models. MacBook Azure will incorporate our complete AI stack, adding tens and thousands of A100 and A100 GPUs. Quantum 2 400 gigabit per second InfiniBand networking and the NVIDIA AI enterprise software suite to its platform. + +Oracle and NVIDIA are also working together to offer AI training and inference at scale to thousands of enterprises. This includes bringing to Oracle Cloud infrastructure, the full NVIDIA accelerated computing stack and adding tens of thousands of NVIDIA GPUs, including the A100 and H-100. Cloud-based high-performance in the company, new scale is adopting NVIDIA AI enterprise and other software to address the industrial scientific communities, rising demand for AI in the cloud. NVIDIA AI will bring new capability to rescale high-performance computing as a service offerings, which include simulation and engineering software used across industries. + +Networking posted strong growth driven by hyperscale customers and easing supply constraints. -- our new Quantum 240 gigabit per second InfiniBand and Spectrum Ethernet networking platforms are building momentum. We achieved an important milestone this quarter with VMware. And whose leading server virtualization platform, vSphere, has been rearchitected over the last two years to run on DPUs and now supports our BlueField DPUs. + +Our joint enterprise AI platform is available first on Dell PowerEdge servers. The BlueField DPU design win pipeline is growing and the number of infrastructure softer partners is expanding, including Arista, Check Point, Juniper, [Inaudible] Networks and Red Hot. The latest top 500 list of supercomputers released this week at Supercomputing '22 and has the highest ever number of NVIDIA-powered systems, including 72% of the total and 90% of new systems on the list. Moreover, NVIDIA powers 23 of the top 30 of the Green 500 list, demonstrating the energy efficiency of accelerated computing. + +The No. 1 most energy-efficient system is the Flat Iron Institute Henry, which is the first top 500 system featuring our H-100 GPUs. At GTC, we announced the NVIDIA Omniverse Computing System, or OVS, reference designs featuring the new L4 GPU based on the ADA Lovelace architecture. These systems are designed to build and operate 3D virtual world using NVIDIA Omniverse enterprise. + +NVIDIA OBX systems will be available from Inspur, Lenovo and Super Micro by early 2023. We Lockheed Martin and Jaguar Land Rover will be among the first customers to receive OVS systems. We are further expanding our AI software and services offerings with NVIDIA and Bio Nemo large language model services, which are both entering early access this month. These enable developers to easily adopt large language models and deploy customized AI applications for content generation, tech summarization, chatbox, co-development, protein structure and biomolecular property predictions. + +Moving to gaming. Revenue of $1.57 billion was down 23% sequentially and down 51% from a year ago, reflecting lower sell-in to partners to help align channel inventory levels with current demand expectations. We believe Channel inventories are on track to approach normal levels as we exit Q4. Sell-through for our gaming products was relatively solid in the Americas and EMEA and but softer in Asia Pac as macroeconomic conditions and covered lockdowns in China continued to weigh on consumer demand. + +Our new Ada Lovelace GPU architecture had an exceptional launch. The first ADA GPU, the GeForce RTX 4090 became available in mid-October and a tremendous amount and positive feedback from the gaming community. We sold out quickly in many locations and are working hard to keep up with demand. The next member of the ATA family, RTX 4080 is available today. + +The RTX 40 Series GPUs features DLSS 3, the neuro rendering technology that uses AI to generate entire frames for faster game play. Our third-generation RTX technology has raised the bar for computer graphics and help supercharge gaming. For example, the 15-year old classic game portal, now reimagined with full ray tracing and DLSS 3 has made it on Steam's top 100 most wish-listed gains. The total number of RTX games and applications now exceeds 350. + +There is tremendous energy in the gaming community that we believe will continue to fuel strong fundamentals over the long term. The number of simultaneous users on steam just hit a record of $30 million, surpassing the prior peak of $28 million in January. Activision's Call of Duty Modern Warfare 2 set a record for the franchise with more than $800 million in opening weekend sales. topping the combined box office openings of movie blockbusters, TopGun Maverick and Dr. + +Strains in the Multiverse of [Inaudible]. And this month's League of Legends World Championship in San Francisco sold out minutes with 18,000 esports fans packed the arena where the Golden State Warriors play. We continue to expand the GeForce NOW cloud gaming service. In Q3, we added over 85 games to the library, bringing the total to over 1,400. + +We also launched GeForce now on the new gaming devices, including Logitech, Cloud handheld, cloud gaming Chromebooks and Razor 5G Edge. Moving to Probi Revenue of $200 million was down 60% sequentially and down 65% from a year ago, reflecting lower sell-in to partners to help align channel inventory levels with the current demand expectations. These dynamics are expected to continue in Q4. Despite near-term challenges, we believe our long-term opportunity remains intact, fueled by AI simulation, computationally intensive design and engineering workloads. + +At GTC, we announced NVIDIA Omniverse Cloud Services, our first software and infrastructure as a service offering, enabling artists, developers and enterprise teams to design, publish and operate metaverse applications from anywhere on any device. Omniverse Cloud Services runs on Omniverse cloud computer, a computing system comprised of NVIDIA OBX for graphics and physics simulation. NVIDIA HDX for AI workloads and the NVIDIA graphics delivery network, a global scale, distributed data center network for delivering low-latency metaverse graphics on the edge. Leaders in some of the world's largest industries continue to adopt Omniverse. + +Home improvement retailer, Lowe's is using it to help design, build and operate digital twins for their stores. Charter Communications and advanced analytics company, heavy AI are creating Omniverse power digital twins to optimize Charter's wireless network. In Deutsche Bahn, operator of German National Railway is using Omniverse to create digital twins of its rail network and train AI models to monitor the network, increasing safety and reliability. Moving to automotive. + +Revenue of $251 million, increased 14% sequentially and 86% from a year ago. Growth was driven by an increase in AI automotive solutions as our customers drive or on-based production ramp, continue to scale. Automotive has great momentum and is on its way to be our next multibillion-dollar platform. Global cars unveiled the all-new flagship Volvo EX90 SUV powered by the NVIDIA Drive platform. + +This is the first model to use Volvo's software-defined architecture with a centralized core computer containing both drive Orin and DRIVEXaviar, along with 30 sensors. Other recently announced design wins and new model introductions include ton, auto, Neo, Polystar and [Inaudible]. At GTC, we also announced that NVIDIA Drive Super Chip, the successor to Orin in our automotive SoC road map, drive [Inaudible] delivers up to 2,000 tariff lots of performance and leverages technologies introduced in our Grace Hopper and ADA architectures. It is capable of running both the automated drive and in-vehicle infotainment systems. + +Simultaneously offering a LIFA performance while reducing cost and energy consumption. Driver will be available for automakers 25 models with Geely owned automaker, Zika as the first announced customer. Moving to the rest of the P&L. GAAP gross margin was 53.6% and and non-GAAP gross margin was 56.1%. + +Gross margins reflect $702 million in inventory charges largely related to lower data center demand in China, partially offset by a warranty benefit of approximately $70 million. Year-on-year, GAAP operating expenses were up 31%, and non-GAAP operating expenses were up 30%, primarily due to higher compensation expenses related to headcount growth and salary increases and higher data center infrastructure expenses. Sequentially, both GAAP and non-GAAP operating expense growth was in the single-digit percent, and we plan to keep it relatively flat at these levels over the coming quarters. We returned $3.75 billion to shareholders in the form of share repurchases and cash dividends. + +At the end of Q3, we had approximately $8.3 billion remaining under our share repurchase authorization through December 23. Let me turn to the outlook for the fourth quarter of fiscal 2023. We expect our data center revenue to reflect early production shipments of the A100, offset by continued softness in China. In gaming, we expect to resume sequential growth with our revenue still below end demand as we continue to work through the channel inventory correction. + +And in automotive, we expect the continued ramp of our Oren design wins. All in, we expect modest sequential growth driven by automotive, gaming and data center. Revenue is expected to be $6 billion, plus or minus 2%. GAAP and non-GAAP gross margins are expected to be $63.2 million and 66%, respectively, plus or minus 50 basis points. + +GAAP operating expenses are expected to be approximately $2.56 billion. Non-GAAP operating expenses are expected to be approximately $1.78 billion. GAAP and non-GAAP other income and expenses are expected to be an income of approximately $40 million, excluding gains and losses on nonaffiliated investments. GAAP and non-GAAP tax rates are expected to be 9%, plus or minus 1%, excluding any discrete items. + +Capital expenditures are expected to be approximately $500 million to $550 million. Further financial details are included in the CFO commentary and other information available on our IR website. In closing, let me highlight upcoming events for the financial community. We'll be attending the Credit Suisse conference in Phoenix on November 30. + +The rate Virtual Tech Conference on December 5 and and the JPMorgan Forum on January 5 in Las Vegas. Our earnings call to discuss the results of our fourth quarter and fiscal 2023 are scheduled for Wednesday, February 22. We will now open the call for questions. Operator, could you please poll for questions? + +Questions & Answers: + +Operator + +[Operator instructions] Your first question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open. + +Vivek Arya -- Bank of America Merrill Lynch -- Analyst + +Thanks for taking my question. Colette, just wanted to clarify first, I think last quarter, you gave us a sell-through rate for your gaming business at about $2.5 billion a quarter. I think you said China is somewhat weaker. So I was hoping you could update us on what that sell-through rate is right now for gaming. + +And then, Jen-Hsun, the question for you. A lot of concerns about large hyperscalers cutting their spending and pointing to a slowdown. So if, let's say, U.S. cloud capex is flat or slightly down next year, do you think your business can still grow in the data center and why? + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Yes. Thanks for the question. Let me first start with the sell-through on our gaming business. we had indicated, if you put two quarters together, we would see approximately $5 billion in normalized sell-through for our business. + +Now, during the quarter, sell-through in Q3 three was relatively solid. We've indicated that although China lockdowns continue to channel -- excuse me, challenge our overall China business. It was still relatively solid. Notebook sell-through was also quite solid. + +And desktop, a bit softer, particularly in that China and Asia areas. We expect though stronger end demand, though, as we enter into Q4, driven by the upcoming holidays, as well as the continuation of the ADA adoption. + +Jen-Hsun Huang -- President and Chief Executive Officer + +Vivek, our data center business is indexed to two fundamental dynamics. The first has to do with general purpose computing no longer scaling. And so, acceleration is necessary to achieve the necessary level of cost efficiency scale and energy efficiency scale so that we can continue to increase workloads while saving money and saving power. Accelerated computing is recognized generally as the path forward as general purpose computing slows. + +The second dynamic is AI. And we're seeing surging demand in some very important sectors of AIs in important breakthroughs in AI. One is called deep recommender systems, which is quite essential now to the best content or item or product to recommend to somebody who's using a device that is like a selfie or interacting with a computer just using voice. You need to really understand the nature, the context of the person making the request and make the appropriate recommendation to them. + +The second has to do with large language models. This is -- this started several years ago with the invention of the transformer, which led to Bert, which led to GP3, which led to a whole bunch of other models now associated with that. We now have the ability to learn representations of languages of all kinds. It could be human language. + +It could be the language of biology. It could be the language of chemistry. And recently, I just saw a breakthrough called Jeans LM, we just one of the first example of learning the language of human genomes. The third has to do with generative AI. + +You know that the first 10 years, we've dedicated ourselves to perception AI. But the goal of perception, of course, is to understand context. But the ultimate goal of AI is to make a contribution to create something to generate product. And this is now the beginning of the era of generative AI. + +You probably see it all over the place, whether they're generating images or generating videos or generating text of all kinds and the ability to augment our performance to enhance our performance to make productivity enhanced to reduce cost and improve whatever we do with whatever we have to work with, productivity is really more important than ever. And so, you could see that our company is indexed to two things, both of which are more important than ever, which is power efficiency, cost efficiency and then, of course, productivity. And these things are more important than ever. And my expectation is that we're seeing all the strong demand and surging demand for AI and for niche reasons. + +Operator + +Your next question comes from the line of C.J. Muse with Evercore. Your line is now open. + +C.J. Muse -- Evercore ISI -- Analyst + +Yeah, Good afternoon and thank you for taking the question. You started to bundle on NVIDIA enterprise now with the H-100. I'm curious if you can talk about how we should think about timing around software monetization? And how we should kind of see this flow through the model, particularly with the focus on the AI enterprise and Omnivere side of things? + +Jen-Hsun Huang -- President and Chief Executive Officer + +Yes. Thanks, CJ. We're making excellent progress in NVIDIA AI enterprise. In fact, you saw probably that we made several announcements this quarter associated with clouds. + +You know that NVIDIA has a rich ecosystem. And over the years, our rich ecosystem and our software stack has been integrated into developers and start-ups of all kinds, but more so -- more than ever, we're at the tipping point of clouds, and that's fantastic. Because if we could get NVIDIA's architecture and our full stack into every single cloud, we could reach more customers more quickly. And this quarter, we announced several initiatives, one has several partnerships and collaborations, one that we announced today, which has to do with Microsoft and our partnership there. + +It has everything to do with scaling up AI because we have so many start-ups clamoring for large installations of our GPU so that they could do large language model training and building their start-ups and scale out of AI to enterprise and all of the world's Internet service providers. Every company we're talking to would like to have the agility and the scale, flexibility of clouds. And so, over the last year or so, we've been working on moving all of our software stacks to the cloud are of our platform and software stacks to the cloud. And so, today, we announced that Microsoft and ourselves are going to standardize on the NVIDIA stack, for a very large part of the work that we're doing together so that we could take a full stack out to the world's enterprise. + +That's all software included. We, a month ago, announced the same similar type of partnership with Oracle. You also saw that rescale a leader in high-performance computing cloud has integrated NVIDIA AI into their stack. [Inaudible] has been integrated into GCP. + +And we announced recently Nemo, large language model and bionemo large language model to put NVIDIA software in the cloud. And we also announced Omniverse is now available in the cloud. The goal of all of this is to move the NVIDIA platform full stack off boarding the cloud so that we can engage customers much, much more quickly and customers could engage our software if they would like to use it in the cloud, it's per GPU instance hour if they would like to utilize our software on-prem, they could do it through software license. And so, license and subscription. + +And so, in both cases, we now have software available practically everywhere you would like to engage it. The partners that we work with are super excited about it because MBDA's rich ecosystem is global, and this could bring both new consumption into their cloud for both them and ourselves, but also connect all of these new opportunities to the other APIs and other services that they offer. And so, our software stack is making really great progress. + +Operator + +Your next question comes from the line of Chris Caso with Credit Suisse. Your line is now open. + +Chris Caso -- Credit Suisse -- Analyst + +Yes. Thank you. Good evening. I wonder if you could give some more color about the inventory charges you took in the quarter and then internal inventory in general. + +In the documentation, you talked about that being a portion of inventory on hand plus some purchase obligations. And you also spoke in your prepared remarks that some of this was due to China data centers. So if you can clarify what was in those charges. And then, in general, for your internal inventory. + +Does that still need to be worked down? And what are the implications if that needs to be worked down over the next couple of quarters? + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Thanks for the question, Chris. So as we highlighted in our prepared remarks, we booked an entry of $702 million for inventory reserves within the quarter. Most of that, primarily, all of it is related to our data center business, just due to the change in expected demand looking forward for China. So when we look at the data center products, a good portion of this was also the A100, which we wrote down. + +Now, looking at our inventory that we have on hand and the inventory that has increased, a lot of that is just due to our upcoming architectures coming to market. our ADA architecture, our hopper architecture and even more in terms of our networking business. We have been building for those architectures to come to market and as such to say. We are always looking at our inventory levels at the end of each quarter for our expected demand going forward. + +But I think we've done a solid job that we used in this quarter just based on that expectation going forward. + +Operator + +Your next question comes from the line of Timothy Arcuri with UBS. Your line is now open. + +Timothy Arcuri -- UBS -- Analyst + +Thanks a lot. Colette, can you -- I have a two-part question. First, is there any effect of stockpiling in the data center guidance? I ask because you now have the A800 that is sort of a modified version of the A100 with the lower data transfer rate. So one could imagine that customers might be stocking that while they can still get it. + +And I guess the second part of that is related to the inventory charge, can you just go into that a little bit more? Because last quarter, it made sense that you took a charge because revenue was less than you thought, but revenue came in pretty much in line. And it sounded like China was a net neutral. So is the charge related to just working A100 inventory down faster? Is that what the charges related to? + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Sure. So let me talk about the first statement that you indicated. Most of our data center business that we see is we're working with customers specifically on their needs to build out accelerated computing and AI. It's just not a business in terms of where units are being held for that. + +They're usually four very, very specific products and projects that we see. So I'm going to answer no. Nothing that we can see. Your second question regarding the inventory provisions. + +At the end of last quarter, we were beginning to see softness in China. We've always been looking at our needs long term. It's not a statement about the current quarter in inventory, as you can see. It usually takes two or three quarters for us to build product for the future demand. + +So that's always a case of the inventory that we are ordering. So now looking at what we've seen in terms of continued lockdowns, continued economy challenges in China it was time for us to take a hard look of what do we think we'll need for data center going forward and not leg for write-downs. + +Operator + +Your next question comes from the line of Stacy Rasgon with Bernstein. Your line is now open. + +Stacy Rasgon -- AllianceBernstein -- Analyst + +Hi, guys. Thanks for taking my question. Colette, I had a question on the commentary you gave on the sequentials. It kind of sounded like data center maybe had some China softness issues. + +You said gaming resumed sequential growth. But then you said sequential growth for the company driven by auto gaming and data center. How can all three of those grow sequentially if the overall guidance is kind of flattish? Are they all just like growing just a little bit? Or is one of them actually down? Like how do we think about the segments into Q4 given that commentary? + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Yes. So your question is regarding the sequentials from Q3 to our guidance that we provided for Q4. As we are seeing the numbers in terms of our guidance, you're correct, is only growing about $100 million. And we've indicated that three of those platforms will likely grow just a little bit. + +But our pro visualization business we think is going to be flattish and likely not growing as we're still working on correcting the channel inventory levels. to get to the right amount. It's very difficult to say which will have that increase. But again, we are planning for all three of those different market platforms to grow just a little bit. + +Operator + +Your next question comes from the line of Mark Lipacis with Jefferies. Your line is now open. + +Mark Lipacis -- Jefferies -- Analyst + +Hi. Thanks for taking my question. Jen-Hsun, I think for you, you've articulated a vision for the data center we're a solution with an integrated solution set of a CPU, GPU and DPU is deployed for all workloads or most workloads, I think. Could you just give us a sense of or talk about where is this vision in the penetration cycle? And maybe talk about Grace Grace's importance for realizing that vision, what will Grace deliver versus an off-the-shelf x86 where -- do you have a sense of where Grace will get embraced first or the fastest within that vision? + +Jen-Hsun Huang -- President and Chief Executive Officer + +Grace's data moving capability is off the charts. Grace also is memory coherent to our GPU, which allows our GPU to expand its effective GPU memory, fast GPU memory by a factor of 10. That's not possible without special capabilities that are designed between hopper and Grace and the architecture of Grace. And so, it was designed. + +Grace is designed for very large data processing at very high speeds. Those applications are related to, for example, data processing is related for recommender systems, which operates on petabytes of live data at a time. It's all hot. It all needs to be fast, so that you can make a recommendation within milliseconds to hundreds of millions of people using our service. + +It is also quite effective at AI training, machine learning. And so, those kind of applications are really terrific. We -- Grace, I think I've said before that we will have production samples in Q1, and we're still on track to do that. + +Operator + +Your next question comes from the line of Harlan Sur with J.P. Morgan. Your line is now open. + +Harlan Sur -- JPMorgan Chase and Company -- Analyst + +Good afternoon and thanks for taking my question. Your data center networking business, I believe, is driving about $800 million per quarter in sales, very, very strong growth over the past few years. Near term, as you guys pointed out, and the team is driving strong Nick and blue food attached to your own compute solutions like DGX and more partner announcements like VMware, but we also know that networking has pretty large exposure to general purpose cloud and hyperscale compute spending trends. So what's the visibility and growth outlook for the networking business over the next few quarters? + +Jen-Hsun Huang -- President and Chief Executive Officer + +Yes. If I could take that. First, thanks for your question. Our networking, as you know, is heavily indexed to high-performance computing. + +We're not -- we don't serve the vast majority of commodity networking. All of our network solutions are very high end, and they're designed for data centers that move a lot of data. Now, if you have a hyperscale data center these days, and you are deploying a large number of AI applications. It is very likely that the network bandwidth that you provision has a substantial implication on the overall throughput of your data center. + +So the small incremental investment they make in high-performance networking translates to billions of dollars of savings slightly in provisioning the service or billions of dollars more throughput, which increases their economics. And so, these days, with disaggregated and I application, AI provisioning and data centers, high-performance networking is really quite fantastic and it pays for itself right away. But that's where we are focused in high-performance networking and provisioning AI services in -- well, the AI applications that we focus on. You might have noticed that NVIDIA and Microsoft are building one of the largest AI infrastructures in the world. + +And it is completely powered by NVIDIA's InfiniBand 400 gigabits per second network. And the reason for that is because that network pays for itself instantaneously. The investment that you're going to put into the infrastructure is so significant that if you were to be dragged by slow networks, obviously, the efficiency of the overall infrastructure is not as high. And so, in the places where we focus networking is really quite important. + +It goes all the way back to when we first announced the acquisition of Mellanox. I think at the time, they were doing about a few hundred million dollars a quarter, about $400 million a quarter. And now we're doing what they used to do in the old days, in a year, practically coming up in a quarter. And so, that kind of tells you about the growth of high-performance networking. + +It is an indexed to overall enterprise and data center spend but it is highly indexed to AI adoption. + +Operator + +Your next question comes from the line of Aaron Rakers with Wells Fargo. Your line is now open. + +Aaron Rakers -- Wells Fargo Securities -- Analyst + +Thanks for taking the question. I want to expand on the networking question a little bit further. When we look at the Microsoft announcement today, we think about what Meda is doing on the AI footprint that they're deploying. Jen-Hsun, can you help us understand like where your InfiniBand networking sits relative to like traditional data center switching? And maybe kind of build on that, how you're positioning spectrum for in the market, does that compete against a broader set of opportunities in the Ethernet world for AI fabric networking? + +Jen-Hsun Huang -- President and Chief Executive Officer + +Yes. Thanks, Erin. The math is like this. If you're going to spend $20 billion on an infrastructure and the efficiency of that overall data center is improved by 10%. + +The numbers are huge. And when we do these large language models and recommender systems, the processing is done across the entire data center. And so, we distribute the workload across multiple GPUs, multiple nodes and it runs for a very long time. And so, the importance of the network can be overemphasized. + +And so, the difference of 10% in overall improvement in efficiency, which is very to achieve. The difference between NVIDIA's InfiniBand, the entire software stack with what we call Magnum IO, which allows us to do computing in the network itself. A lot of software is running in the network itself, not just moving data around. We call it in-network computing because a ton of software is done at the edge at the -- within the network itself. + +We achieved significant differences in overall efficiency. And so, if you're spending billions of dollars on the infrastructure, or even hundreds of millions of dollars of interest on the infrastructure. The difference is really quite profound. + +Operator + +Your next question comes from the line of Ambrish Srivastava with BMO. Your line is now open. + +Ambrish Srivastava -- BMO Capital Markets -- Analyst + +Hi. Thank you very much. I actually had a couple of clarifications. Colette, in the data center side, is it a fair assumption that compute was down Q-over-Q in the reported quarter because the quarter before, Mellanox or the networking business was up as it was called out. + +And again, you said it grew quarter over quarter. So is that a fair assumption? And then, I had a clarification on the USG band. Initially, it was supposed to be a $400 million, really going to what the government was trying to firewall. Is the A800 -- I'm just trying to make sure I understand it. + +Isn't that against the spirit of what the government is trying to do, i.e., firewall, high-performance compute? Or is A800 going to a different set of customers? + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Thank you for the question. So looking at our compute for the quarter is about flattish. Yes, we're seeing also growth growth in terms of our networking, but you should look at our Q3 compute is about flatters with last quarter. + +Jen-Hsun Huang -- President and Chief Executive Officer + +Ambrish, A800 hardware, the hardware of ensures that it always meets U.S. government's clear test for export control. And it cannot be customer reprogrammed or application reprogrammed to exceed it. It is hardware limited. + +It is in the hardware that determines 800s capabilities. And so, it meets the clear test in letter and in spirit. We raised the concern about the $400 million of A100s because we were uncertain about whether we could execute. The introduction of A800 to our customers and through our supply chain in time. + +The company did remarkable feeds to swarm this situation and make sure that our business was not affected and our customers were not affected. But A800 hardware surely ensures that it always meets U.S. government's clear tests for export control. + +Operator + +Your next question comes from the line of William Stein with Truist Securities. Your line is now open. + +William Stein -- Truist Securities -- Analyst + +Thank you. I'm hoping you can discuss the pace of 100 growth as we progress over the next year. We've gotten a lot of questions as to whether the ramp in this product should look like a sort of traditional product cycle where there's quite a bit of pent-up demand for this significant improved performance product and that there's supply available as well. So does this rollout sort of look relatively typical from that perspective? Or should we expect a more perhaps delayed start of the growth trajectory where we see maybe substantially more growth in, let's say, second half of '23. + +Jen-Hsun Huang -- President and Chief Executive Officer + +H-100 ramp is different than the A100 ramp in several ways. The first is that the TCO, the cost benefits, the operational cost benefits because of the energy savings because every data center is now Power Limited. And because of this incredible transformer engine that's designed for the latest AI models. The performance over Ampere is so significant that I -- and because of the pent-up demand for hopper because of these new models that are that I spoke about earlier, deep recommender systems and large language models and generative AI models. + +Customers are clamoring to ramp hopper as quickly as possible, and we are trying to do the same. We are all hands on deck to help the cloud service providers stand up the supercomputers. Remember, I is the only company in the world that produces and ships semi-custom supercomputers in high volume. It's a miracle to ship one supercomputer every three years. + +it's unheard of to ship supercomputers to every cloud service provider in a quarter. And so, we're working hand with every one of them, and every one of them are racing to stand up hoppers. We expect them to have hopper cloud services stood up in Q1. And so, we are expecting to ship some volume, we're expecting to ship production in Q4, and then we're expecting to ship large volumes in Q1. + +That's a faster transition than MPIR. And so, it's because of the dynamics that I described. + +Operator + +Your next question comes from the line of Matt Ramsay with Cowen. Your line is now open. + +Matt Ramsay -- Cowen and Company -- Analyst + +Yeah. Thank you very much. Good afternoon. I guess, Colette, I heard in your script that you had talked about maybe a new way of commenting on or reporting hyperscaler revenue in your data center business. + +And I wonder if you could maybe give us a little bit more detail about what you're thinking there and what sort of drove the decision? And I guess the derivative of that, Jen-Hsun, how -- that decision to talk about the data center business to hyperscalers differently. I mean, what does that mean for the business that is just a reflection of where demand is and you're going to break things out differently? Or is something changing about the mix of I guess, internal properties versus vertical industry demand within the hyperscale customer base. + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Yes, Matt, thanks for the question. Let me clarify a little bit in terms of what we believe we should be looking at when we go forward and discussing our data center business. Our data center business is becoming larger and larger and our customers are complex. And when we talk about hyperscale, we tend to talk about seven, eight different companies. + +But the reality is there's a lot of very large companies that we could add to that discussion based on what they're purchasing. Additionally, looking at the cloud, looking at our cloud purchases and what our customers are building for the cloud is an important area to focus on because this is really where our enterprise is where our researchers, where our higher education is also purchasing. So we're trying to look for a better way to describe the color of what we're seeing in the cloud and also give you a better understanding of some of these large installments that we're seeing in the hyperscales. + +Jen-Hsun Huang -- President and Chief Executive Officer + +Yes. Let me double click on what Colette just said, which is absolutely right. There are two major dynamics that's happening. First, the adoption of NVIDIA in Internet service companies around the world, the number and the scale by which they're doing it has grown a lot. + +Internet service companies. And these are Internet service companies that offer services, but they're not public cloud computing companies. The second factor has to do with cloud computing. We are now at the tipping point of cloud computing. + +Almost every enterprise in the world has both a cloud-first and a multi-cloud strategy. It is exactly the reason why all of the announcements that we made this year -- this quarter, this last quarter since GTC about all the new platforms that are now available in the cloud. a CSP, a hyperscaler is both -- are two things to us, therefore, a hyperscaler can be a sell to customer. They are also a cell with partner on the public cloud side of their business. + +Because of the richness of NVIDIA's ecosystem because we have so many Internet service customers and enterprise customers using NVIDIA's full stack. The public cloud side of their business really enjoys and values the partnership with us and the cell with relationship they have with us. And it's pretty clear now that for all of the hyperscalers, the public cloud side of their business will likely would very likely be the vast majority of their overall consumption. And so, because the world CSPs, the world's public clouds is only at the early innings of their enterprise to lifting enterprise to the cloud world it's very, very clear that the public cloud side of the business is going to be very large. + +And so, increasingly, our relationship with CSPs, our relationship with hyperscalers will -- will include, of course, continuing to sell to them for internal consumption but very importantly, sell with for the public cloud side. + +Operator + +Your next question comes from the line of Joseph Moore with Morgan Stanley. Your line is now open. + +Joseph Moore -- Morgan Stanley -- Analyst + +Great. Thank you. I wonder if you could talk to looking backward at the crypto impact. Obviously, that's gone from your numbers now, but do you see any potential for liquidation of GPUs that are in the mining network, any impact going forward? And do you foresee blockchain being an important part of your business at some point down the road? + +Jen-Hsun Huang -- President and Chief Executive Officer + +We don't expect to see blockchain being an important part of our business down the road. There is always a resell market. If you look at any of the major resell sites, eBay, for example, there are secondhand graphics cards for sale all the time. And the reason for that is because a 3090 that somebody bought today, is upgraded to a 4090 or 3090 by a couple of years ago, it was up are until 4090 today. + +That 3090 could be sold to somebody and enjoyed it sold at the right price. And so, the volume of -- the availability of secondhand and used graphics cards has always been there. And the inventory is never zero. and when the inventory is larger than usual, like all supply demand, it would likely drift lower price and affect the lower ends of our market. + +But my sense is that where we're going right now with ADA is targeting very clearly in the upper range, the top half of our market. And and early signs are, and I'm sure you're also seeing that the ADA launch was a home run. That we shipped a large volume of 4090s because as you know, we were prepared for it. And yet within minutes, they were sold out around the world. + +And so, the reception of 4090 and the reception of 4080 today has been off the charts. And that says something about the strength and the health and the vibrancy of the gaming market. So we're super enthusiastic about the ADA launch. We have many more ad products to come. + +Operator + +Your last question today comes from the line of Toshiya Hari with Goldman Sachs. Your line is now open. + +Toshiya Hari -- Goldman Sachs -- Analyst + +Great. Thank you so much for squeezing me in. I had two quick ones for Colette. On supply, I think there was some mixed messaging in your remarks. + +I think you talked about supply being a headwind at one point. And then, when you were speaking to the networking business, I think you talked about supply easing. So I was hoping you can kind of speak to supply if you're caught up to demand at this point. And then, secondly, just on stock-based compensation, pretty mundane topic I realize, but it is -- I think in the quarter, it was about $700 million. + +It's becoming a bigger piece of your opex. So curious how we should be modeling that going forward. + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Sure. When we look at our supply constraints that we have had in the past, each and every quarter, this is getting better Networking was one of our issues probably a year ago, and it has taken us probably to this quarter. and next quarter to really see our supply improved so that we can support the pipeline that we have for our customers that are -- now that's our supply. We've also made a discussion regarding our customers, supply constraints, issues when setting up a data center, even getting data center capacity has been very difficult. + +And therefore, that challenges them in their purchasing decisions as they're still looking for certain parts of that supply chain to come through. So that hopefully clarifies what we were talking about regarding two areas of supply. In our stock-based compensation, what we'll see, it's very difficult to predict what our stock-based compensation would be when it arrives. We have provided to our incoming employees but also once a year to our employees, and it's a single date in terms of when that is priced. + +So it's difficult to determine, but stock-based compensation is an important part of our employees' compensation and will continue to be. So we look at it from an overall compensation perspective. So up until now and when we do the focal, we'll see about the same size with a few additions for the reduced level of employee hiring that we have right now. + +Operator + +Thank you. I will now turn the call back over to Jen-Hsun Huang for closing remarks. + +Jen-Hsun Huang -- President and Chief Executive Officer + +Thanks, everyone. We are quickly adapting to the macro environment. Correcting inventory levels, offering alternative products to data center customers in China and keeping our opex flat for the next few quarters. Our new platforms are off to a great start and formed the foundation for our resumed growth. + +MRTX is reinventing 3D graphics with ray tracing and AI. The launch of [Inaudible] is phenomenal. Gamers waited in long lines around the world, 4090 stocks sold out quickly. Hopper, with its revolutionary transformer engine is just in time to meet the surging demand for recommender systems, large language models and generative AI. + +NVIDIA networking is synonymous with the highest data center throughput and enjoying record results. Oren is the world's first computing platform designed for AI-powered autonomous vehicles and robotics and putting automotive on the road to be our next multibillion-dollar platform. These computing platforms run NVIDIA AI and NVIDIA Omniverse, software libraries and engines that help the companies build and deploy AI to products and services. we this pioneering work and accelerated computing is more vital than ever. + +Limited by business, general purpose commuting has slowed to a crawl just as AI demands more computing. Scaling through general purchase computing alone is no longer viable, both from a cost or power standpoint. Accelerated computing is the path forward. We look forward to updating you on our progress next quarter. + +Operator + +[Operator signoff] + +Duration: 0 minutes + +Call participants: + +Simona Jankowski -- Vice President, Investor Relations + +Colette Kress -- Executive Vice President and Chief Financial Officer + +Vivek Arya -- Bank of America Merrill Lynch -- Analyst + +Jen-Hsun Huang -- President and Chief Executive Officer + +C.J. Muse -- Evercore ISI -- Analyst + +Chris Caso -- Credit Suisse -- Analyst + +Timothy Arcuri -- UBS -- Analyst + +Stacy Rasgon -- AllianceBernstein -- Analyst + +Mark Lipacis -- Jefferies -- Analyst + +Harlan Sur -- JPMorgan Chase and Company -- Analyst + +Aaron Rakers -- Wells Fargo Securities -- Analyst + +Ambrish Srivastava -- BMO Capital Markets -- Analyst + +William Stein -- Truist Securities -- Analyst + +Matt Ramsay -- Cowen and Company -- Analyst + +Joseph Moore -- Morgan Stanley -- Analyst + +Toshiya Hari -- Goldman Sachs -- Analyst + +More NVDA analysis + +All earnings call transcripts \ No newline at end of file diff --git a/earnings-transcripts/transcripts/RDFN-2022-Q1.txt b/earnings-transcripts/transcripts/RDFN-2022-Q1.txt new file mode 100644 index 0000000..61fafe6 --- /dev/null +++ b/earnings-transcripts/transcripts/RDFN-2022-Q1.txt @@ -0,0 +1,348 @@ +Company name: RDFN-2022-Q1 +Company ticker: RDFN +Earnings call date: May 05, 2022, 4:30 p.m. ET +Earnings call quarter: 2022-Q1 +Earnings call transcript: +Prepared Remarks: + +Operator + +Good day, and welcome to the Redfin Corporation's first quarter 2022 earnings call. Today's call is being recorded. At this time, I would like to turn the call over to Meg Nunnally, head of investor relations. Please go ahead. + +Meg Nunnally -- Head of Investor Relations + +Good afternoon, and welcome to Redfin's financial results conference call for the first quarter ended March 31, 2022. I'm Meg Nunnally, Redfin's head of investor relations. Joining me on the call today is Glenn Kelman, our CEO; and Chris Nielsen, our CFO. Before we start, note that some of our statements on today's call are forward-looking. + +We believe our assumptions and expectations related to these forward-looking statements are reasonable, but our actual results may turn out to be materially different. Please read and consider the risk factors in our SEC filings together with the content of today's call. Any forward-looking statements are based on our assumptions today, and we don't undertake to update these statements in light of new information or future events. We use a non-GAAP measure, adjusted EBITDA, when presenting our financial results. + +We encourage you to review the non-GAAP reconciliation in today's earnings release, which is available on our website at investors.redfin.com, for a complete understanding of this measure and its purpose. All comparisons made in the course of this call are against the same period in the prior year, unless otherwise stated. Lastly, we'll be providing a copy of our prepared remarks on our website by the conclusion of today's call, and a full transcript and audio replay will also be available soon after the call. With that, I'll turn the call over to Glenn. + +Glenn Kelman -- Chief Executive Officer + +Thank you, Meg, and hi to you, everyone. Redfin performed significantly better in the first quarter than expected. Overall revenue of $597 million was $37 million above the top of the range projected in our last earnings call. Our core business of brokering home sales or our employees and our partner agents generated $177 million in revenue, up 5% from the red-hot first quarter of 2021 and $6 million above the top of our range. + +Our net loss of $91 million was $24 million better than our most optimistic projection. Redfin typically has its largest loss of the year in the first quarter, as we pay for agents to meet customers who buy homes in the second and third quarters. We expect our net loss to improve significantly throughout the year. Gross profit was $73 million, up 71% year over year. + +After warning investors that we might not grow real estate services revenue in the first quarter of 2022, we gained 2 basis points of share compared to the first quarter of last year. Share gains improved from January to February to March, with shares reaching a new record of 1.25% in March. Share gains are likely to keep accelerating through 2022. With demand so volatile and now shifting even more rapidly from large coastal cities to the rest of America, we expect those gains to be less predictable from quarter to quarter, but to grow at historical rates from year to year. + +One reason to believe our share of home sales transactions will keep increasing is that our share of online listing searches has kept increasing. Year-over-year gains and average month -- Let me say that again. Year-over-year gains and average monthly visitors accelerated from 1% in the fourth quarter of 2021 to 11% in the first quarter of 2022. Redfin again grew traffic faster than its two main online rivals, Zillow.com and Realtor.com. + +Near-simultaneous breakthroughs this spring should broaden our reach even more. First, Redfin.com launched rental search. Second, we hooked up our site to a national listing feed that by year-end will let us show substantially every for-sale home in America. When today our coverage is limited to 91% of homes. + +An already massive competitive advantage, largely unchecked by competing brokers has widened. Our engineers aren't just driving demand from Redfin.com to our agents, but also arming those agents with better products to sell. The automation to support a 1% listing fee. The machine learning to give homeowners an immediate RedfinNow offer, and on-demand tours for buyers to see homes first. + +None of that matters without second to none sales execution. Our plan to improve our service is well known to investors. We hired more agents through the winter and limited the number of customers from our site who each agent could support. The markets that piloted this approach in 2020 and 2021 delivered better service and gain share faster than their peers. + +We funded the service improvement by reducing home buyers commission refund, keeping margins the same without hurting demand. Now, as the agents hired for a companywide rollout of this initiative sell their first homes, we expect to get that benefit across Redfin in 2022. Share gains will come not only from better sales programs, but better salespeople. Market uncertainty has made agents and other brokers eager to join Redfin. + +After two years of scrambling to add more than 1,000 agents each year, Redfin now has the time and space to invest more on the agents already here. Managers are training agents in person for the first time in two years, then making better and faster judgments about who will be able to guide our customers to victory in such an uncertain low inventory market. We expect to execute better in our core business, but it's equally important to discuss how all our businesses are coming together to drive sales. When we last spoke, Redfin was more pessimistic about the housing market than any of our peers. + +Predicting continued rate increases, economic pressures and hard times. We are more optimistic than ever about our strategy, which is to drive customer demand by building Redfin.com into a complete destination for real estate information, and to make more money from each customer by becoming a one-stop shop for buying or selling a home. For the first time, we're ready to talk about that strategy's results, not just its rationale. We need to do this because rising rates have put an even higher premium on profits when Redfin is in the midst of a transition to what we believe is a much more valuable company. + +At the start of the pandemic, about half our agents worked in large coastal markets, where home sales are now declining. In January, we abandoned a business we built from scratch, Redfin Mortgage, in favor of acquiring Bay Equity Home Loans. Revenues from our first acquisition, RentPath, were declining. In February, we projected our biggest quarterly loss ever. + +On March 23, we published RentPath rentals on Redfin.com, immediately generating thousands of inquiries per week for RentPath's property management customers. Even prior to this launch, RentPath revenues had increased month over month in February, then increased again in March. The number of listing service customers also increased month over month in March. RentPath hasn't had simultaneous month-over-month increases in revenue and customers since 2019. + +Even as RentPath decreased first quarter spending on lead generation by 25% year over year, rental inquiries for property management customers increased by 6%. We now expect RentPath revenues to increase quarter to quarter. We'll keep investing in RentPath's efforts to get more property management customers listing their properties in our network, but only as RentPath revenues keep strengthening. RentPath will be an important contributor in its own right, the profits we can generate from online home shoppers, but the strategic goal is bigger, to challenge the largest real estate sites for traffic. + +Of the top 10 US sites, only sites owned by Redfin and Zillow have our own large scale databases of rental listings. And with the arrival of a third competitor in CoStar, there's now a broad industry consensus that stand-alone rental sites or stand-alone home buying sites will struggle to compete. RentPath is how Redfin takes our shot, not just in incremental growth, but to become the No. 1 or No. + +2 destination for every search on every listing for rent or for sale in the US. The value of more online customers will compound as we make more money from each one. We've talked for years about the one-stop shop theory, but here again we have the first results. Redfin has owned Bay Equity for a month, and already on five different days, the rate at which Bay Equity has locked the interest rate on loans for Redfin customers has eclipsed Redfin Mortgage's five-year high. + +Based on this data, we expect 11% of the Redfin home buyers who close in June will borrow money from a Redfin lender. For all of 2021, that number was 6%. This success can build on itself, as Redfin agents who were cranky about Redfin Mortgage have raved about Bay Equity service. The differences in underwriting efficiency have been equally stark. + +Whereas Redfin Mortgage lost a couple of thousand dollars in gross profit for loan in 2021, Bay Equity earned thousands. Even as lending margins compress in 2022, we expect Bay Equity's gross profits from a home buyer to be similar to our brokerages. As rapidly rising rates eviscerate other lenders' earnings, our mortgage business will go from a major source of Redfin's 2021 losses to a major source of 2022 profit. These investments in a broader product portfolio are generating more gross profit, not just from home buyers, but from home sellers too. + +Even as the housing market turn, Redfin now generated almost as much gross profit in the first quarter as our brokerage. From the first quarter of 2021 to the first quarter of 2022, gross margins improved from 1.7% to 5.5%. This validates our seats as the iBuying will be most successful within a brokerage. First, because we're already equipped to sell the homes we buy. + +But second, because we can promote our agents to customers who ask about a cash offer, but end up hiring an agent. Over the last year, the rate at which we schedule listing consultations with homeowners who reject our cash offers has improved 17%. Turning iBuyer inquiries into consultations with the Redfin agent is crucial because our goal isn't to own more homes than pure-play iBuyers. We want to sell more homes. + +Owning properties is only as necessary to facilitate a sale. By making money from the service we offer customers, not from big bets on home price appreciation, we hope to earn investors' trust that Redfin now can become a steady source of net income. Heading into a more volatile phase of the housing market, we have curtailed volume, even though marketwide inventory is likely to stay low, an approach that favors durability of gross profits over riskier gains on sale. This discipline is part of a larger change at Redfin that is the final element of our strategy. + +We want to drive demand by building a larger online presence and improve monetization through a broader product portfolio. But none of that matters without an ironclad commitment to major net income improvements, not in the distant future, but now. This means that we'll run Redfin out of the cash register, with gross profits growing about twice as fast as overhead expenses, so that more than half our gross profit gains for 2023 fall to the bottom line. Since those gains are unpredictable, we're making changes in the current quarter, so that even if growth is low, net income can still improve. + +Future headquarters investors will follow not lead gross profit gains. Redfin will keep investing in advertising and our online audience, but given the progress we've made over more than a decade of building brokerage tools, we can support new products for our agents to sell mostly with the staff we already have. We're now assigning the cost of employees and programs to businesses like real estate services, mortgage, title, rentals, and properties, so we can measure not only each business's gross profits, but net income. We plan to share that segmentation with you in our next call. + +We expect this to show that real estate services subsidized all of our other businesses in 2021, but that mortgage and properties businesses will be profitable or roughly break even in 2022. A company that wants plan to make money in the distant future will generate cash from operations this year and net income in 2024. Redfin's strategy and competitive position have gotten better over the past year, but the housing market has gotten worse. We were fashionable, and now we're unfashionable. + +As we reminded you on the day of our initial public offering, we're used to that in a way that probably none of our competitors are. Our exec team came together in the depths of the great financial crisis and built our business on the certainty that another downturn could come. When talking about a business's ups and downs, it's common to say the endeavor is a marathon, not a sprint, but most marathoners are trying to complete the race, not compete in it. In your first marathon, you dread the point at which the suffering will become intense, but as you mature as a runner, you realize that everyone suffers and the point of maximum suffering is when those best prepared for it will win. + +What you once thought of as suffering time becomes winning time, but only if you seize the moment to leave one version of yourself behind and run toward what you want to be. Redfin has finish arrived at this moment in our race. At a time when shareholders have suffered grievous losses. It may seem crazy to say that now is Redfin's winning time, but it is. + +What we're running to is a bigger website, more revenue per customer, and significant profits. We're running not because of how good it'll feel when we stop, but because we were born to run and we plan to win. Take it away, Chris. + +Chris Nielsen -- Chief Financial Officer + +Thanks, Glenn. We posted solid results for the first quarter. Revenue and net income both came in better than the high end of our guidance. Top of funnel demand remained strong, although getting customers through to a close transaction remains a challenge and rising mortgage interest rates have begun to impact affordability. + +Our agents are still going strong, but we're carefully monitoring the macro backdrop. First quarter revenue is $597 million, up 123% from a year ago. Our rentals business, which we acquired subsequent to the first quarter of the prior year, generated $38 million of revenue and contributed approximately 14 percentage points to total revenue growth. Real estate services revenue, which includes our brokerage and partner businesses, generated $177 million in revenue, up 5% year over year. + +Brokerage revenue, or revenue from home sales closed by our own agents, was up 7%, on a 5% increase in brokerage transactions. Revenue from our partners was down 21%, on a 13% decrease in transactions and mix shift to lower value houses. The decline in partner transactions is the result of normalizing mix between our partner and brokerage business. Real estate services revenue per transaction was up 4% year over year. + +The properties segment, which consists primarily of homes sold through RedfinNow, generated $380 million in revenue, which was up from $93 million in revenue in the prior year. RedfinNow transactions grew 310%. In anticipation of scaling our mortgage business with acquisition of Bay Equity, which closed on April 1, we have begun reporting this business as a separate segment. Our mortgage segment generated $3 million in revenue in the first quarter, a decrease of 49% year over year. + +Finally, our other segment, which now includes title and other services, contributed revenue of $4 million, an increase of 20% year over year. Total gross profit was $73 million, up 71% year over year. Real estate services gross margin was 13.4%, down 10.6 percentage points year over year. This was driven by a 10.5 percentage-point increase in personnel costs and transaction bonuses. + +This decline was anticipated, and was due to a steeper ramp in agent hiring against lower seasonal volumes. Properties gross margin was up 380 basis points year over year in the first quarter, and this marked our fifth consecutive quarter of positive gross profits for the segment. The improvement was primarily attributable to a 320-basis point decrease in personnel costs as the business scaled, and an 80-basis point decrease in home selling expense. This improvement was offset by a 30-basis point increase in purchase, maintenance and capital improvement costs. + +Rentals gross margin was 81.1%. Mortgage gross margin was negative 89.1% for the first quarter, down from negative 2.8% a year ago. Other segment gross margin was negative 6.9%, down from positive 14.5% a year ago. Operating expenses were up $80.8 million year over year and represented 26% of revenue, down from 29% of revenue one year ago. + +$47.9 million of the increase was attributable to the acquisition of RentPath. Technology and development expenses increased by $22.0 million, as compared with the same period in 2021. The increase was primarily attributable to a $12.8 million increase from RentPath. The remaining increase was primarily attributable to a $5.9 million increase in personnel costs due to increased headcount. + +Total technology and development expenses represented 8% of revenue, down from 10% one year ago. Marketing expenses increased by $31.5 million, as compared with the same period in 2021. The increase was primarily attributable to an $11.0 million increase from RentPath. The remainder was primarily attributable to a $16.2 million increase in marketing media, as we were not running any mass media campaigns in the prior year, but were in the first quarter of 2022. + +Total marketing expenses represented 7% of revenue, up from 4% one year ago. General and administrative expenses increased by $21.6 million, as compared with the same period in 2021. The increase was primarily attributable to a $22.5 million increase from RentPath. Excluding these expenses from RentPath, general and administrative expenses decreased by $1.0 million. + +Total G&A expenses represented 10% of revenue, down from 14% one year ago. Restructuring expenses included in total operating expenses were $5.7 million, and there were no such expenses in the same period in 2021. These expenses were attributable to $4.2 million in severance and other costs associated with our mortgage restructuring, and $1.5 million in severance costs associated with our rentals restructuring. Net loss of $91 million beat the better end of our $122 to $115 million guidance range. + +Diluted loss per share attributable to common stock was $0.86, as compared with diluted loss per share attributable to common stock of $0.37 per share one year ago. As a supplement to our GAAP-based financial reporting, we are now also providing adjusted EBITDA, which is a non-GAAP financial measure. We believe adjusted EBITDA is useful for investors because it enhances period-to-period comparability of our financial statements on a consistent basis and provides investors with useful insight into the underlying trends of the business. Please see our press release or the MD&A section of our 10-Q for more information, as well as a reconciliation of adjusted EBITDA to net loss. + +We are also providing nine quarters of historical reconciliation calculations in our quarterly earnings slides, which are available on our investor relations website. Now turning to our financial expectations for the second quarter of 2022. Consolidated revenue is expected to be between $613 million and $650 million, representing year-over-year growth between 30% and 38%. We expect our real estate services segment to account for $249 million to $256 million of that revenue, and the properties segment to be between $256 million and $281 million. + +Rentals revenue is expected to be $38 million and rentals contribution to net loss is expected to be approximately $21 million. Mortgage revenue is expected to be between $68 million and $73 million, reflecting a full quarter of Bay Equity ownership, and contribution to net income is expected to be approximately $4 million. We are still determining the proper split between cost of revenue and operating expense, but our current expectation is for approximately $47 million for mortgage cost of revenue and $22 million of operating expenses in the second quarter. Going forward, we expect mortgage revenues will be impacted by industrywide volume, as well as our ability to drive attach rates with our brokerage business, but we generally expect the business to follow seasonal patterns in line with our brokerage business. + +Turning back to consolidated guidance for the second quarter, our consolidated net loss is expected to be between $72 million and $60 million, compared to total net loss of $28 million in the second quarter of 2021. We expect real estate services gross margin to decrease in the second quarter as compared with the same period in 2021. This compression is primarily due to changes we're making to lower agent loads and adjust compensation as described in our November earnings call. On a consolidated basis, this guidance includes approximately $61 million in total company marketing expense, $21 million of stock-based compensation, $17 million of depreciation and amortization, $4 million of interest expense, and $4 million of restructuring expenses. + +In addition, we expect to pay a quarterly dividend of 30,640 shares of common stock to our preferred stockholder. The guidance assumes, among other things, that no additional business acquisitions, investments, restructurings, or legal settlements are concluded and that there are no further revisions to stock-based compensation estimates. And now, let's take your questions. + +Questions & Answers: + +Operator + +[Operator instructions] And the first question today comes from Mark Mahaney of ISI. Mr. Mahaney, your line is open. + +Mark Mahaney -- Evercore ISI -- Analyst + +Sorry about that. I got two questions. But first, Glenn, you really should get a music soundtrack to back you up when you go through your prepared remarks. You've got so much enthusiasm, that's actually wonderful. + +The -- + +Glenn Kelman -- Chief Executive Officer + +I love the idea of a music soundtrack next quarter. Let's guide to that. + +Mark Mahaney -- Evercore ISI -- Analyst + +You can do it as you're cutting over to Chris and then you just tone it down. The market share increase of 2 bps year over year, that sounds really low to me, but it was at a comps issue. And I know you talked about how it was accelerating as you left, just talk through that. I assume that there's nothing unusual in that, but that number just seemed low. + +And then did spend a little time please talking about the rental opportunity and why you think Redfin is well-positioned for that. Thanks a lot. + +Glenn Kelman -- Chief Executive Officer + +Sure. Well, first of all on share, that is low compared to our traditional rate of 10 to 15 basis points per quarter -- or per year, excuse me. We gained that year over year every quarter. Is that the most confusing statement I have ever made? Our year-over-year gain is usually around 10 to 14 basis points, maybe 10 to 15 and this time it was 2. + +But we expect it to accelerate, as you noted, through the year. There are two reasons for it. One is that we're just ramping a large number of new agents, and the second is the demand is shifting from coastal markets where we've traditionally had more share, more presence to the south and the Sunbelt. So we think that we will gain share as these agents season and that's especially true in the places where we've hired the most agents like the southeast. + +As far as rentals, the rationale for rentals is pretty simple. We can't have people build a relationship with other websites through the first 30 years of their life, then start searching Redfin.com when it's time to buy a home. So the most reliable way to increase traffic has been to add rental listings. We are confident that we are going to keep increasing inventory and that revenues are also going to increase. + +That was not the case through 2021. But it now seems to be headed in the right direction. And the fact that that happened even before we added Redfin.com as a distribution source for this rental inventory is even more encouraging. Because the immediate reaction, when we did launch rentals on Redfin.com was to get thousands of inquiries every week to the property management customers RentPath had recruited. + +So I think the synergies are pretty straightforward that we have an audience that wants to see more inventory and RentPath had inventory that wanted to reach a broader audience. + +Mark Mahaney -- Evercore ISI -- Analyst + +OK. Thank you, Glenn. + +Operator + +And the next question comes from Ygal Arounian of Wedbush. + +Ygal Arounian -- Wedbush Securities -- Analyst + +Hey, good afternoon, guys. So first, Glenn, I guess, surprised by your tone. I was maybe expecting a little bit more cautiousness given what we've seen in the macro and rates. And so maybe you could just expand on your view a little bit. + +Last quarter, you guys were more about inventory levels. What are you seeing there? And then your thoughts on affordability and how that might impact the market as we go through the rest of the year? So let's start there. + +Glenn Kelman -- Chief Executive Officer + +Well, I think we've largely been vindicated, and our view of the housing market, we were probably more dour on it than anyone else. And that has come to pass. We are still very cautious about the housing market overall, but we think we're going to take significant share as we progress through 2022. And we feel the same way about mortgage attach rates and RedfinNow sales. + +So that's more a reflection of our business and our ability to progress through headwinds than anything else. What we're seeing consumers do in response to interest rate increases is sometimes stepping back, there's less homebuyer demand than there was, there were still inventory constrain. But often is not they're shifting their search. So we now have people who are looking in three or four different markets each at a different price tier. + +So we used to think of those people as investors. If someone's looking in both Raleigh, North Carolina, in Shreveport, Louisiana, and in Tampa Bay, Florida, clearly, that must be an investor. But really, it's a regular consumer who's completely agnostic about location, as interest rates go from 3% to 4%, to 5% and beyond. Instead of being able to afford less house, they go to a place where home prices are lower generally. + +So that has provided significant liquidity in the market. It used to be that when housing became less affordable, someone in San Francisco would look further afield by commuting 60 minutes, 90 minutes, and at some point, they were just unwilling to take the drive. But now there is no commute. So I think that provides some buffer in the market. + +But there's no question that there are headwinds, and there's no question that the housing market is going through some kind of correction. It's just that we think inventory will still be the main issue except in a handful of markets. And just based on our own data about tours and offers and mortgages and everything else, we think we can beat the rap and keep taking share. + +Ygal Arounian -- Wedbush Securities -- Analyst + +OK. So during the quarter, you guys put out a bunch of blogs and press releases about -- and signals kind of slowing or weakening. But then your traffic actually accelerated and looks to be stepping up. Can you talk about maybe a little bit more detail around the traffic? Presumably, the rentals hit in April, so it wasn't really an impact yet. + +What do you say on the traffic side that's putting you in a better place? + +Glenn Kelman -- Chief Executive Officer + +On the traffic side, some of this is just an improvement in ranks against our competitors. So the same number of people might be searching for real estate, but Redfin is getting more of them. It is worth noting, however, that traffic decelerated through the quarter. So even though we went from 1% in Q4 to 11% in Q1, I shouldn't quote it from memory, but it kind of went down from 11% to 10% to 9% or something like that through the quarter. + +So there will be a slowing of traffic for Redfin.com and for the industry overall. We just think one reason we'll take brokerage share is because we've been taking search share, so we've been getting more than our fair share of demand and we've just needed agents in the right places within North America to season and get ready to handle that level of demand. So, the market may be cooling, but we hope to take more share. + +Ygal Arounian -- Wedbush Securities -- Analyst + +OK. Just real quick, then one last follow up on that. The [Inaudible] ability as some sort of essential [Inaudible] where we are now or somewhere maybe close to it rates and HPA keep going up from where we are right now. Thanks. + +Glenn Kelman -- Chief Executive Officer + +Could you repeat the question? Did you hear the question? + +Ygal Arounian -- Wedbush Securities -- Analyst + +Sure. Just on [Inaudible] If rates go up, you know, they've shot up a lot. If they go up a little bit more from here, if HPA goes up a little bit more from here, where we're bubble territory and becomes kind of existential type of crisis for the housing market. Are we close to that? Or do you not think that that's the case, because of mobility? Thank you. + +Glenn Kelman -- Chief Executive Officer + +I do think that mobility buffers at some that when homes become too expensive in Austin, Texas, people look in San Antonio, and when San Antonio becomes too expensive, they look in El Paso. That is a legitimate phenomenon that we're seeing, where the range of places that people are looking has broadened significantly. The other factor you should consider is how much rents are going up. So, normally, if the spread between buying a house and renting one gets too large, people just decide, you know what, I'm going to rent for one more year. + +But with rents going up too, people feel the pressure behind them to find a place to live, even if it's not the city they originally had in mind. So I'm not here hyping the market. I've never done that. I never will. + +We are worried about the overall economy. We are worried about the housing market, we think there will be a significant setback, and the number of homes sold in the United States in 2022 compared to 2021. And we've been careful about our RedfinNow purchases, because we know that it's a fool's Gambit, trying to figure out where prices are going to land this summer, especially because the home buying season is probably going to be short. But if you're asking about what's happening now, we are still inventory constrained. + +There's only a few markets like Seattle, Denver, Tacoma, parts of California, where homes are sitting on the market, and they're only sitting just a little bit. The final thought is just that when people talk about a bubble, they talk about speculation where you're not buying the asset because you actually want it. But this is not a bubble in that strict sense, because the need for housing is profound, emotional and deep. People want to live in their own home. + +These are not just investors buying a house. And so I don't think people are over their skis on their mortgage. I don't think we're going to see a major increase in foreclosures. That means the inventory is probably going to stay low for structural reasons. + +And you're not going to see a massive collapse in prices. There's always that possibility, but it'd be very surprising to me. + +Ygal Arounian -- Wedbush Securities -- Analyst + +All right. Thanks, Glenn. I appreciate all the color and commentary. + +Operator + +The next question comes from Naved Khan of Truist. + +Robert Zeller -- Truist Securities -- Analyst + +Hey, guys, this is Robert Zeller on for Naved. Thanks for taking the questions. In the prepared remarks, I think you spoke about you're going to be integrating a new listing fee to show most of the homes available for sale in the US versus you guys just being able to show 91% today, if I heard that correctly. Can you just expand on that a little bit? I mean, can you guys turn this on like immediately, and do other brokerages have access to that as well? And then how does the shift from coastal markets to markets in the South and the Sunbelt regions affect volume growth and margin implications for the rental and iBuying units? Do you guys kind of see this as headwinds or tailwinds for Redfin? Thank you. + +Glenn Kelman -- Chief Executive Officer + +Got it. Well, I'll talk about the first question, and Chris, I'd welcome your comments on the second one. It is a national feed, when prior to this we had gone from one city to another. Each city has a cooperative of real estate agents who decide to share listings. + +It's called the multiple listing service. Each has its own rules about what you can publish. And we would integrate with that multiple listing services programming interface. Now with this national feed, we still have to observe different local rules about what can and can't be displayed. + +But this provider of listings, simplifies some of the technical integration. So we expect it will take us still the balance of the year to get the last 9%. But that was a very long tail. At first, you start integrating with the Washington DC Multiple Listing Service, which is massive. + +But eventually, you're going to Wyoming and it's onesie-twosie. And this makes that process much easier. And if we've learned anything, the most reliable lever for increasing traffic is adding inventory. There are two ways to add inventory. + +By adding a new type of inventory such as rental listings, or by expanding to new places. But when you do that, you get a new entry in the index, you're competing for listings, where before you hadn't. And if I were running another website, and that wasn't available to me, when we were trying to accelerate traffic without being able to expand anywhere new or add any new type of inventory, that would be hard. This is a major lever for growth. + +And so we think that part of it is just very direct, that adding listings adds traffic. And the other part is more over the top that we just haven't been a completely national brand. And there's a premium to being a national brand. Wherever you go, you can look on Redfin.com and the listing will be there. + +That hasn't been true and we need to make it true. And I think there's a real benefit to that right now, for your question about a shift in customer interests from the coastal markets to broader places, which is we're just really glad to have this inventory in smaller markets where people have been looking, will be looking for homes, maybe even more so than they have in the past. That shift, just as it relates to the business, is probably most impactful in terms of where we're hiring agents and where we will be hiring agents. And that's just that -- that's where the biggest opportunities are. + +It probably means we'll have more hiring in what have been smaller markets for us in more central markets in the South, as opposed to these larger coastal markets. There's not much of an impact here though that relates to our RedfinNow business. That business is nationwide spread out. And there's not a meaningful difference in terms of how we would think about the margins at location by location. + +That is more related to our execution in those local markets, as opposed to something specific on market conditions. + +Chris Nielsen -- Chief Financial Officer + +And that's something that's changed. One concern I had about Redfin five or 10 years ago, it works in San Francisco, but how are you going to make it work in San Antonio, Texas, when home prices are so much lower? And now mobility has partially solved that problem, equalizing prices across the United States to a degree. But we've also just figured out different staffing models for those markets. Our closed rates are higher in the smaller markets than they are in the major coastal markets. + +So even though it's still a lower priced home, the margins are more similar than you'd expect. + +Robert Zeller -- Truist Securities -- Analyst + +OK. Great. Thank you. + +Operator + +The next question comes from John Campbell of Stephens Inc. + +John Campbell -- Stephens Inc. -- Analyst + +Hey, guys, good afternoon. The lead agent count -- maybe this is for Chris. But on the lead agent count, that was a bit ahead of us of what we had modeled the real estate services, or the real estate revenue. Guidance was a little bit below us. + +And I'm guessing, based on Glenn's commentary, I think he has probably factored in a little bit more of the negative housing outlook. So I'm just hoping you can maybe unpack that. Maybe start off with how you're thinking about transactions per agent? And then maybe also just high level thoughts on how the real estate rev per transaction is going to grow? + +Chris Nielsen -- Chief Financial Officer + +Yeah. So we certainly hired into the year with an expectation of how the market was going to play out and provide commentary with mortgage interest rates up. I do think that that has had an impact on the guidance that we've provided in the second quarter, that you just can't plough through as much uncertainty as some potential homebuyers might have at this point in time. And so, really, that's the combination I think that I would call out there. + +Glenn, is there anything you'd add to that? + +Glenn Kelman -- Chief Executive Officer + +No. + +John Campbell -- Stephens Inc. -- Analyst + +OK. And then on the lawsuit settlement, I know you guys really can't get into that much, but I felt like that was a kind of unfair development for you guys. I mean, your model is basically designed to only serve a certain price points with your lead agents and there's nothing else to read into that. I think we all get that. + +I guess the regulators didn't. But coming away from all that, Glenn, did you foresee any changes in how the business operates just in regards to maybe how you direct customers between the core brokerage and partner channel? + +Glenn Kelman -- Chief Executive Officer + +Well, first of all, the regulators didn't have an opinion on it. It was settled before they reached a verdict. We feel that it's very clear across a free market that price is the only fair way to decide which customers you can and can't serve. If someone walks into a grocery store with $0.89, they can buy a can of beans. + +And if they don't have the $0.89, they can't. It has nothing to do with the color of their shirt or the color of their skin. So we settled the case for less than what it cost us to litigate it. If I sound pugnacious about it, I am. + +I care very much about the mission of this company. Part of that mission is to make housing more fair. We have always been committed to that and we always will be. Now, having said that, I do not think this is going to change the economics of the business much. + +We did agree that in certain neighborhoods, we would sell homes at a loss. We have always done that as part of our mission, we will do it a little bit more. It's a good thing to suck it up for a more just society. But we just had to be careful about how much we suck it up because we're also trying to make money. + +Operator + +[Operator instructions] Our next question comes from Tom Champion of Piper Sandler. + +Tom Champion -- Piper Sandler -- Analyst + +Hi. Good afternoon, guys. Thanks for taking the questions. Maybe dovetailing with the prior question. + +Can you talk a little bit about agent compensation and how much is salary based and fixed relative to transactions based and success based? Just in light of the kind of urgency and greater priority around profits and the size of the agent count that it's gotten to with the market at this point. And then I'm curious, Glenn, if you could just share any thoughts about what Jon Ziglar has been doing at RentPath? Maybe the changes that he has instilled in the business and any additional expectations for what we might see out of the rental side of the business going forward? Thanks. + +Glenn Kelman -- Chief Executive Officer + +Sure. So the first question about agent compensation, maybe 20% of the agent's compensation is salary, and the rest is upside. And that provides ample opportunity for the agent to earn hundreds of thousands of dollars a year. Some of our top agents earn $700,000-$800,000 a year. + +So we feel like they have every incentive to go out and get it. And right now, other agents are very anxious to work for us. We have had no problem recruiting top talent. That was a real issue last year. + +And we were straight up with you about it, but it sure isn't now. So we expect our agents to be absolutely hungry for the business, and to do whatever it takes to put the customer first and get the deal done. As for Jon Ziglar and his plan of attack, it's really had two prongs. One is to get sales going again. + +And it took him a few months to do that, but that's pretty darn fast. He started in August or September. And here we are February and March, we're getting month-over-month increases for the first time in three years. So that makes every other decision easier. + +But at the same time, he's just been really aggressive about understanding where we allocate our resources. So there have been some restructuring costs that you see. Some of those are related to RentPath, some of the restructuring was because we bought Bay Equity. But he has wasted no time whatsoever. + +He's a competitive monster. And he's someone we know will just keep driving sales. And by the way, that's important, just to add some color to that, because building an enterprise sales force isn't something that many people here at Redfin know how to do. We are a consumer company. + +And RentPath in just a different way is running a two-sided marketplace, where not only do they have to talk to consumers looking for rentals, but they have to talk to businesses running apartment buildings. So it's a really valuable skill. + +Operator + +And there are no further questions at this time. + +Meg Nunnally -- Head of Investor Relations + +Thanks, Kevin. We can go ahead and wrap up the call now. + +Glenn Kelman -- Chief Executive Officer + +Thanks, everybody. See you next quarter. + +Operator + +[Operator signoff] + +Duration: 46 minutes + +Call participants: + +Meg Nunnally -- Head of Investor Relations + +Glenn Kelman -- Chief Executive Officer + +Chris Nielsen -- Chief Financial Officer + +Mark Mahaney -- Evercore ISI -- Analyst + +Ygal Arounian -- Wedbush Securities -- Analyst + +Robert Zeller -- Truist Securities -- Analyst + +John Campbell -- Stephens Inc. -- Analyst + +Tom Champion -- Piper Sandler -- Analyst + +More RDFN analysis + +All earnings call transcripts \ No newline at end of file diff --git a/earnings-transcripts/transcripts_common.py b/earnings-transcripts/transcripts_common.py new file mode 100644 index 0000000..01f9a5f --- /dev/null +++ b/earnings-transcripts/transcripts_common.py @@ -0,0 +1,251 @@ +from enum import Enum +import json +from pathlib import Path +from typing import List, Optional, Tuple +from pydantic import BaseModel, Field +from tqdm import tqdm + + +class Sentiment(str, Enum): + """ + Sentiment of the earnings call. + """ + POSITIVE = "positive" + NEUTRAL = "neutral" + NEGATIVE = "negative" + +class InvestmentRecommendation(str, Enum): + """ + Recommendation of whether to buy, hold, or sell the company's stock. + """ + BUY = "buy" + HOLD = "hold" + SELL = "sell" + +class FinancialMetrics(BaseModel): + """ + Financial metrics mentioned in the earnings call. This can be + extended to include other financial metrics as needed -- just + add them to the schema. + + We use Optional[thing] for all financial metrics because not all + earnings calls mention all of these metrics, and forcing the model + to include them when they do not exist will force the model to + make numbers up. + + It's useful to also specify units in the schema, otherwise the model + may use the units specified in the data. These can vary across companies. + """ + revenue_in_millions: Optional[float] = Field(description="Quarterly revenue in millions of dollars") + revenue_growth_in_percent: Optional[float] = Field(description="Revenue growth by quarter in percent") + net_income_in_millions: Optional[float] = Field(description="Quarterly net income in millions of dollars") + earnings_per_share: Optional[float] = Field(description="Quarterly earnings per share in dollars") + ebitda_in_millions: Optional[float] = Field(description="Quarterly EBITDA in millions of dollars") + free_cash_flow_in_millions: Optional[float] = Field(description="Quarterly free cash flow in millions of dollars") + +class EarningsCall(BaseModel): + """ + The main schema for the earnings call analysis. Using outlines to generate + this schema will extract all the information we request from an earnings + call transcript. + + To add any new information to the schema, just add a new field to this class + (or any child classes, like FinancialMetrics). + """ + company_name: str + company_ticker: str + earnings_call_date: str + earnings_call_quarter: str + key_takeaways: List[str] + + # Financial metrics + understanding_of_financial_metrics: str + financial_metrics: FinancialMetrics + + # Earnings sentiment + earnings_sentiment: Sentiment + + # Analysis of various risks + macroeconomic_risk_reasoning: str + financial_risk_reasoning: str + operational_risk_reasoning: str + strategic_risk_reasoning: str + + # Whether the analyst's prediction is a buy, hold, or sell + investment_recommendation: InvestmentRecommendation + + # Have the model review its own output for correctness + review_correctness: List[str] + + # Whether the text must be reprocessed + text_must_be_reprocessed: bool + + +# Prompting function +def prompt_for_earnings_call(transcript: str) -> str: + return f""" + <|im_start|>system + You analyze earnings calls. + + Please begin your review by reading the transcript. + + After this, please + + Identify the company name and ticker symbol. + + Identify the earnings call date and quarter. + + Identify the key takeaways from the call, as a list. This should identify + key financial information. + + Describe your understanding of the financial metrics mentioned in the call. Which are + referenced, which are not? Are any metrics referring to other time periods, + such as year-over-year growth? Are the metrics growth or absolute values? + + Identify the financial metrics mentioned in the call. If no metric is mentioned, + set the value to null. + + Financial metrics include + - Quarterly revenue in millions of dollars + - Revenue growth in percent by quarter + - Quarterly net income in millions of dollars + - Earnings per share in dollars + - EBITDA in millions of dollars + - Free cash flow in millions of dollars + + Identify the earnings sentiment. This should indicate whether the earnings call + conveyed generally positive, neutral, or negative information about the company. + + Produce a detailed analysis of the macroeconomic risks that the company faces. + Review the transcript for any statements by management about macroeconomic risks, + and use these to produce a detailed analysis of the macroeconomic risks that the + company faces. Feel free to speculate to the extent that the transcript does not + provide enough information, or use your own intuition if necessary. + + Describe the firm's exposure to macroeconomic risks, using "low", "medium", + or "high". The exposure is the extent to which the company is affected by + macroeconomic risks, and should be informed by the analysis of macroeconomic + risks. Exposure should take the firm's business model into account, as well + as any descriptions of current market conditions. + + As if you were a world-class analyst, reason through whether you would recommend + buying, selling, or holding the company's stock. This should be a list of steps + that lead to the conclusion, and should include reasoning about the company's + financial health, macroeconomic risks, and other factors. + + Conclude your recommendation analysis with a single word: "buy", "hold", or "sell". + + Finally, review the JSON output for correctness. Identify any issues with the + review process, such as incorrect data points, incorrect calculations, etc. + + If any issues are found, set the `text_must_be_reprocessed` field to true. + + You produce output in a valid JSON schema, following this format: + + {EarningsCall.model_json_schema()} + + <|im_end|> + <|im_start|>user + + Please analyze the following transcript: + + {transcript} + + <|im_end|> + <|im_start|>assistant + """ + +def generate_earnings_calls(model, transcripts: List[str], batched: bool = False) -> List[EarningsCall]: + """ + Generate earnings calls from transcripts. + + Args: + language_model: The language model to use for generation. + transcripts: The transcripts to generate earnings calls for. + batched: Whether to use batched inference. Batched inference is faster + but more memory intensive. Defaults to False. + + Returns: + A list of EarningsCall objects. + """ + import outlines + generator = outlines.generate.json(model, EarningsCall) + + # For batched inference. This is very VRAM intensive for long earnings calls, + # so use sparingly. + if batched: + earnings_calls = generator([prompt_for_earnings_call(transcript) for transcript in transcripts]) + else: + # One at a time inference. This is slow but memory efficient. + earnings_calls = [ + generator(prompt_for_earnings_call(t)) + for t in tqdm(transcripts, desc="Processing transcripts") + ] + + # Return the earnings data + return earnings_calls + +def load_transcripts(transcripts_dir: Path) -> Tuple[List[str], List[str]]: + """ + Load all transcripts from a directory. Returns a tuple containing + the list of transcripts and the list of transcript paths. + """ + # Load all text files in the transcripts directory + transcripts = [] + transcript_paths = [] + for file_path in transcripts_dir.glob('*.txt'): + with open(file_path, 'r') as f: + transcripts.append(f.read()) + transcript_paths.append(str(file_path)) + + return transcripts, transcript_paths + +def save_earnings_calls(earnings_calls: List[EarningsCall], transcript_paths: List[str]): + """ + Save earnings calls to CSV and JSON files. + """ + + # Convert to an array of json objects + json_data = [earnings_call.model_dump() for earnings_call in earnings_calls] + + # Save all earnings calls to a single JSON file + with open('all_earnings_calls.json', 'w') as f: + json.dump(json_data, f, indent=2) + + # Create a CSV file with selected data from the earnings calls + import csv + + csv_file_path = 'earnings_summary.csv' + + with open(csv_file_path, 'w', newline='') as csvfile: + # Define the CSV headers in lowercase with words separated by underscores + headers = [ + 'company_ticker', 'company_name', 'earnings_call_quarter', 'investment_recommendation', + 'revenue_in_millions', 'revenue_growth_in_percent', 'net_income_in_millions', 'earnings_per_share', + 'ebitda_in_millions', 'free_cash_flow_in_millions', 'earnings_sentiment', + 'text_must_be_reprocessed', 'original_filepath' + ] + + writer = csv.DictWriter(csvfile, fieldnames=headers) + writer.writeheader() + + # Iterate through the JSON data, extract headers, and write to CSV + for call, filepath in zip(json_data, transcript_paths): + row = { + 'company_ticker': call['company_ticker'], + 'company_name': call['company_name'], + 'earnings_call_quarter': call['earnings_call_quarter'], + 'investment_recommendation': call['investment_recommendation'], + 'revenue_in_millions': call['financial_metrics']['revenue_in_millions'], + 'revenue_growth_in_percent': call['financial_metrics']['revenue_growth_in_percent'], + 'net_income_in_millions': call['financial_metrics']['net_income_in_millions'], + 'earnings_per_share': call['financial_metrics']['earnings_per_share'], + 'ebitda_in_millions': call['financial_metrics']['ebitda_in_millions'], + 'free_cash_flow_in_millions': call['financial_metrics']['free_cash_flow_in_millions'], + 'earnings_sentiment': call['earnings_sentiment'], + 'text_must_be_reprocessed': call['text_must_be_reprocessed'], + 'original_filepath': filepath + } + writer.writerow(row) + + print(f"CSV file '{csv_file_path}' has been created with the earnings call data.") diff --git a/earnings-transcripts/transcripts_local.py b/earnings-transcripts/transcripts_local.py new file mode 100644 index 0000000..6ec0796 --- /dev/null +++ b/earnings-transcripts/transcripts_local.py @@ -0,0 +1,44 @@ +from enum import Enum +from typing import List, Optional +import outlines +from pathlib import Path + +from transcripts_common import ( + EarningsCall, + generate_earnings_calls, + prompt_for_earnings_call, + load_transcripts, + save_earnings_calls +) + +from pydantic import BaseModel, Field + + + +def main(): + # Specify the language model to use + language_model = "microsoft/Phi-3.5-mini-instruct" + + # Load the language model + model = outlines.models.transformers( + language_model, + device="cuda" + ) + + # Get the directory of the current script + script_dir = Path(__file__).parent + + # Path to the transcripts directory + transcripts_dir = script_dir / 'transcripts' + + # Load the transcripts + transcripts, transcript_paths = load_transcripts(transcripts_dir) + + # Generate the earnings calls + earnings_calls = generate_earnings_calls(model, transcripts) + + # Save the earnings calls + save_earnings_calls(earnings_calls, transcript_paths) + +if __name__ == "__main__": + main() diff --git a/earnings-transcripts/transcripts_modal.py b/earnings-transcripts/transcripts_modal.py new file mode 100644 index 0000000..d197742 --- /dev/null +++ b/earnings-transcripts/transcripts_modal.py @@ -0,0 +1,88 @@ +from enum import Enum +import json +from typing import List, Optional + +import tqdm +from modal import Image, App, gpu +from rich import print +import os + +from pydantic import BaseModel, Field + +from transcripts_common import EarningsCall, generate_earnings_calls, load_transcripts, prompt_for_earnings_call, save_earnings_calls + +# This creates a modal App object. Here we set the name to "outlines-app". +# There are other optional parameters like modal secrets, schedules, etc. +# See the documentation here: https://modal.com/docs/reference/modal.App +app = App(name="outlines-app") + +# Specify a language model to use. This should be the huggingface repo/model name. +LANGUAGE_MODEL = "microsoft/Phi-3.5-mini-instruct" + +cuda_version = "12.4.0" # should be no greater than host CUDA version +flavor = "devel" # includes full CUDA toolkit +operating_sys = "ubuntu22.04" +tag = f"{cuda_version}-{flavor}-{operating_sys}" + + +# Set up the Modal image with the necessary libraries and our huggingface token. +outlines_image = Image.debian_slim(python_version="3.11").pip_install( + "outlines==0.1.1", + "transformers", + "datasets", + "accelerate", + "sentencepiece", + "torch", +).env({ + # This will pull in your HF_TOKEN environment variable if you have one. + 'HF_TOKEN':os.environ['HF_TOKEN'] +}) + +# This function imports the model from Hugging Face. The modal container +# will call this function when it starts up. This is useful for +# downloading models, setting up environment variables, etc. +def import_model(): + import outlines + outlines.models.transformers( + LANGUAGE_MODEL, + ) + +# This line tells the container to run the import_model function when the +# container starts. +outlines_image = outlines_image.run_function(import_model) + +# Define a function that uses the image we chose, and specify the GPU +# and memory we want to use. +@app.function(image=outlines_image, gpu=gpu.H100(), timeout=1200) +def generate( + transcripts: List[str], +): + import outlines + model = outlines.models.transformers( + LANGUAGE_MODEL, + device="cuda" + ) + return generate_earnings_calls(model, transcripts) + +@app.local_entrypoint() +def main( +): + import os + import json + from pathlib import Path + + # Get the directory of the current script + script_dir = Path(__file__).parent + + # Path to the transcripts directory + transcripts_dir = script_dir / 'transcripts' + + # Load the transcripts + transcripts, transcript_paths = load_transcripts(transcripts_dir) + + # Generate the earnings calls + earnings_calls = generate.remote(transcripts) + print(f"Generated {len(earnings_calls)} earnings calls") + + # Save the earnings calls + save_earnings_calls(earnings_calls, transcript_paths) diff --git a/earnings-transcripts/unpickle_earnings.py b/earnings-transcripts/unpickle_earnings.py new file mode 100644 index 0000000..6116298 --- /dev/null +++ b/earnings-transcripts/unpickle_earnings.py @@ -0,0 +1,24 @@ +import pickle +import os + +with open('motley-fool-data.pkl', 'rb') as file: + # Load the object from the file + loaded_object = pickle.load(file) + +print(loaded_object.head()) + +# Make names +loaded_object['name'] = loaded_object['ticker'] + '-' + loaded_object['q'] + +# Create the transcripts directory +os.makedirs('transcripts', exist_ok=True) + +# Go through each row and save it to transcripts/{name}.txt +for index, row in loaded_object.iterrows(): + with open(f'transcripts/{row["name"]}.txt', 'w') as file: + file.write("Company name: " + row['name'] + "\n") + file.write("Company ticker: " + row['ticker'] + "\n") + file.write("Earnings call date: " + str(row['date']) + "\n") # date is sometimes a list + file.write("Earnings call quarter: " + row['q'] + "\n") + file.write("Earnings call transcript: " + "\n") + file.write(row['transcript'].replace('\n', '\n\n'))