Club holding Apple (AAPL) reported strong fiscal third-quarter results after the closing bell Thursday. Revenue rose 1.9% year-over-year to $82.96 billion, edging out expectations of $82.5 billion. Earnings of $1.20 per share, came in ahead of the $1.16 per share consensus. With the help of better-than-expected gross margin performance, operating income of $23.08 billion outpaced expectations of $22.5 billion. Gross margin came in at 43.26% versus the 42.61% expected. Bottom line Apple had a strong quarter as the company realized less supply-side headwinds than expected. They did not give a specific number. (Remember, after its Q2 release, the company warned that supply issues may lower sales between $4 billion to $8 billion.) Shares rose nearly 3% in after-hours trading. One could nitpick a few misses in the Products category and less than expected Services sales. But with the incredibly difficult macroeconomic environment, supply constraints that management is still contending with, and Covid shutdowns in China during the quarter, the reported results were nothing short of impressive. These small misses are easily overshadowed by those better-than-expected gross margin results, the iPhone active install base reaching a new all-time high across all geographic segments, and very strong cash flow generation. Cash flow is one of the most important metrics for Apple investors given the company’s “net cash neutral overtime” policy. While guidance was more qualitative than quantitative, it appears to have been in line to maybe a bit less than expected. However, there were plenty of positive takeaways, including supply chain dynamics seemingly improving faster than expected; the company’s ecosystem is as strong as ever as indicated by installed base dynamics; and a balance sheet flush with cash, which means it can weather an economic downturn better than just about anyone on the planet. As a result, we reiterate our “own it, don’t trade it” mantra. Companywide Q3 results Operating cash flow of $22.89 billion outpaced expectations of $19.78 billion and marked a June quarter record. After backing out payments of about $2.1 billion for the acquisition of property, plant and equipment, free cash flow of roughly $20.79 billion exceeded the $17.75 billion expected. As a result of the strong cash generation, Apple ended the quarter with $179.31 billion in cash and marketable securities on the balance sheet and nearly $60 billion net cash position after backing out about $120 billion of debt. We always pay close attention to Apple’s cash flow for two reasons. First, as is the case with all companies, comparing it to net income can tell us the quality of earnings. Higher quality earnings have more actual cash backing them. In Apple’s case, free cash flow exceeds net income, indicating very high quality. Second, Apple has a policy of being “net cash neutral over time,” meaning that ultimately, if the cash isn’t used for acquisitions or organic growth investments, it makes its way back to us, the shareholders, in the form of buybacks and dividends. To this point, Apple returned over $28 billion to shareholders in the reported quarter including $21.7 billion via buybacks and $3.8 billion via dividends. Additionally, management declared a 23-cent per share dividend payable on Aug. 11 to shareholders of record as of Aug. 8. Q3 Segment Results Services sales rose 12% to $19.60 billion, a bit short versus the $19.72 billion consensus though they do represent a June quarter record; while Products revenue of $63.36 billion came in ahead of the $62.34 billion consensus. Services gross margin came in at 71.5% while Products gross margin came in at 34.5%, demonstrating once again why growth in the Services segment is such a huge factor for earnings growth over time – not to mention the support it provides the valuation multiple placed on those earnings due to the recurring nature of Services sales. Digging into the Services segment, management noted on the conference call that “transacting accounts, paid accounts, and accounts with paid subscriptions all grew double digits year-over-year.” Apple now has over 860 million paid subscriptions across its services, up over 160 million versus the year ago period. Breaking the down the results within the Products segment, device sales were as follows: iPhone: $40.67 billion versus $38.71 billion expected. iPad: $7.22 billion versus $6.87 billion expected. Mac: $7.38 billion versus $8.9 billion expected. Wearables, Home and Accessories: $8.08 billion versus $8.78 billion expected. Apple’s installed base of active devices once again reached an all-time high in all product categories and geographic segments. As members know, we always keep an eye out for this commentary on the call as the installed base is the outlet through which Apple can sell its service subscriptions and buildout its ecosystem. On the call, management called out a “June quarter record for both revenue and switchers to iPhone.” Regarding Mac and iPad sales, while the team noted that strong demand remains, sales of both products were held back by supply constraints. That said, both products still managed to achieve an all-time high installed base. Nearly half of Mac buyers were new to the product while over half of iPad buyers were new to the product. The installed base of devices in the Wearables, Home and Accessories category also reached an all-time high with over two-thirds of Apple Watch buyers being new to the product. Guidance As has been the case since the start of the Covid pandemic, management refrained from providing quantitative guidance, instead opting to provide some “directional insights” based on an assumption that Covid-related impacts do not worsen. On sales, management commented that they expect annual revenue growth to accelerate in the September quarter versus the June quarter, despite a 6% headwind from foreign exchange dynamics. The Street was looking for 7.7% topline growth in the September quarter coming into the print. On the Products front, the team expects supply constraints to ease in the September. As for Services, while revenue is expected to grow, the pace is expected to decelerate sequentially due to “macroeconomic factors and foreign exchange.” The Street was looking for a slight acceleration in Services growth. But it took the comment in stride. Additionally, September quarter gross margin was guided to be in the range of 41.5% to 42.5%, versus 43.1% expected. The sequential decline is due to negative foreign exchange and product mix dynamics that will be partially offset by improved operating leverage. Operating expenses are expected to be between $12.9 billion and $13.1 billion while other expenses are expected to be about $100 million. (Jim Cramer’s Charitable Trust is long AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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