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pww.comAmazon.com Inc., Q1 2015 Earnings Call, Apr 23, 2015 - NasdaqGS:AMZN

NasdaqGS:AMZN

Phil Hardin [Executives] 💬

During the Q1 2015 Earnings Call for Amazon.com, Inc., Phil Hardin, the Director of Investor Relations, made the following statements:

  1. Opening Remarks:

    • Greeted everyone and welcomed them to the Amazon.com Q1 2015 Financial Results Teleconference.
    • Provided instructions for participants and informed them that the call was being recorded.
    • Introduced himself and mentioned that he would be turning the call over to Brian Olsavsky and Tom Szkutak for opening remarks.

  2. Introduction to Call:

    • Indicated that Tom Szkutak, the CFO, and Brian Olsavsky, the Vice President and CFO of the Global Consumer business, would be present.
    • Noted that they would be available for questions after their prepared remarks.

  3. Forward-Looking Statements:

    • Stated that the discussion and responses to questions reflect management’s views as of the date of the call, April 23, 2015.
    • Mentioned that actual results may differ materially and directed listeners to additional information about factors that could impact financial results, including in the press release and SEC filings.
    • Encouraged listeners to have the press release in front of them during the call.

  4. Non-GAAP Financial Measures:

    • Noted that during the call, they would discuss certain non-GAAP financial measures.
    • Directed listeners to the press release, slides accompanying the webcast, and SEC filings for additional disclosures regarding these measures, including reconciliations with comparable GAAP measures.

  5. Comparisons:

    • Stated that unless otherwise noted, all comparisons made during the call would be against results for the comparable period of 2014.

  6. Transition to Brian Olsavsky:

    • Turned the call over to Brian Olsavsky to begin with comments on the first quarter financial results.

  7. Transition to Questions:

    • After Brian Olsavsky's presentation, thanked him and moved on to the Q&A portion of the call.
    • Requested the operator to remind listeners how to initiate a question.

These statements represent the contributions of Phil Hardin during the earnings call.

Brian T. Olsavsky [Senior VP & CFO] 💬

Brian T. Olsavsky, Senior Vice President and Chief Financial Officer, discussed various aspects of Amazon's Q1 2015 performance and provided insights into the company’s financial results and strategies. Here’s a detailed summary of his comments:

Opening Remarks

  • Operating Cash Flow: Trailing 12-month operating cash flow increased 47% to $7.84 billion.
  • Free Cash Flow: Trailing 12-month free cash flow increased to $3.16 billion.
  • Capital Expenditures: Trailing 12-month capital expenditures were $4.68 billion.
  • Return on Invested Capital (ROIC): ROIC is 14%, up from 9%.
  • Common Stock and Stock-Based Awards: The combination of common stock and stock-based awards outstanding was 483 million shares, compared with 476 million a year ago.

Worldwide Revenue

  • Growth: Worldwide revenue grew 15% to $22.72 billion or 22% excluding the $1.3 billion unfavorable impact from year-over-year changes in foreign exchange.
  • Paid Unit Growth: Worldwide paid unit growth was 20%.
  • Active Customer Accounts: Approximately 278 million. Excluding customers who only had free orders in the preceding 12-month period, worldwide active customers were approximately 260 million, up from approximately 230 million in the comparable prior-year period.
  • Active Seller Accounts: More than 2 million.
  • Seller Units: Represented 44% of paid units.

Operating Expenses

  • Cost of Sales: $15.40 billion or 67.8% of revenue, compared with 71.2%.
  • Fulfillment, Marketing, Technology, and Content, and G&A: Combined $6.62 billion or 29.1% of sales, up approximately 290 basis points year-over-year.
  • Fulfillment: $2.67 billion or 11.7% of revenue, compared with 11.3%.
  • Tech and Content: $2.52 billion or 11.1% of revenue, compared with 9.2%.
  • Marketing: $1.05 billion or 4.6% of revenue, compared with 4.3%.

Segment Results

  • North America Segment:
    • Revenue: Grew 24% to $13.41 billion.
    • Media Revenue: Grew 5% to $2.97 billion.
    • EGM Revenue: Grew 31% to $10.25 billion, representing 76% of North America revenues.
    • Segment Operating Income: Increased 79% to $517 million, a 3.9% operating margin.
  • International Segment:
    • Revenue: Decreased 2% to $7.74 billion. Excluding the $1.3 billion year-over-year unfavorable foreign exchange impact, revenue growth was 14%.
    • Media Revenue: Decreased 12% to $2.32 billion or increased 2% excluding foreign exchange.
    • EGM Revenue: Grew 4% to $5.38 billion or 21% excluding foreign exchange.
    • Segment Operating Loss: Was $76 million compared to a loss of $33 million in the prior-year period.
  • Amazon Web Services (AWS) Segment:
    • Revenue: Grew 49% to $1.57 billion.
    • Segment Operating Income: Increased 8% to $265 million, a 16.9% operating margin.

Consolidated Segment Operating Income (CSOI)

  • Increase: Increased 41% to $706 million or 3.1% of revenue, up approximately 60 basis points year-over-year.

GAAP Operating Income

  • Comparison: GAAP operating income was $255 million compared to $146 million in the prior-year period.

Net Loss

  • GAAP Net Loss: $57 million or negative $0.12 per diluted share compared with a net income of $108 million and $0.23 per diluted share.

Balance Sheet

  • Cash and Marketable Securities: Increased $5.12 billion year-over-year to $13.78 billion.
  • Inventory: Increased 10% to $7.37 billion; inventory turns were 8.8, down from 9.1 turns a year ago.
  • Accounts Payable: Increased 13% to $11.92 billion; accounts payable days increased to 70 from 68 in the prior year.

Guidance

  • Q2 2015:
    • Net Sales: Expected to be between $20.6 billion and $22.8 billion or growth of between 7% and 18%.
    • GAAP Operating Income or Loss: Expected to be between a $500 million loss and a positive $50 million of income compared to a $15 million loss in the second quarter of 2014.
    • Consolidated Segment Operating Income: Expected to be between $100 million and $650 million compared to $404 million in the second quarter of 2014.

Other Comments

  • Prime Now: Expanded to 7 cities with more on the way. Customers are enjoying the 1-hour and 2-hour delivery of tens of thousands of daily essential products.

  • Fulfillment Centers: Ended the year with 109 fulfillment centers around the world, with updates to be provided throughout the year.

  • Investments in China: Doubling down on providing authentic international products, with initiatives like the Amazon global store and the Tmall flagship store.

  • India: Significant investment, with a focus on sellers and connecting them to grow their online businesses.

  • Third-Party Sellers: FBA (Fulfillment by Amazon) continues to grow, becoming a larger part of the third-party mix.

  • Marketplace Fees: FBA and third-party fulfillment continue to grow well and are a significant part of the third-party mix.

  • Guidance for Q2 2015: Wide range provided due to inherent unpredictability and factors such as exchange rate fluctuations, global economy, and consumer spending.