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Q1 2010 Earnings Call

April 22, 2010 5:00 pm ET


Rob Eldridge - IR

Tom Szkutak - SVP and CFO


Colin Sebastian - Lazard Capital Markets

James Mitchell - Goldman Sachs

Douglas Anmuth - Barclays Capital

Youssef Squali - Jefferies & Co.

Brian Pitz - UBS

Mark Mahaney - Citi

Scott Devitt - Morgan Stanley

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Justin Post - Bank of America/Merrill Lynch

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Good day everyone and welcome to the First Quarter 2010 Financial Results Conference. (Operator Instructions) At this time I would like to turn the call over to Mr. Rob Eldridge. Please go ahead sir.

Rob Eldridge

Hello, and welcome to our Q1 2010 financial results conference call. Joining us today is Tom Szkutak, our CFO. We will be available for questions after our prepared remarks.

The following discussion or responses to your questions reflect management's views as of today, April 22, 2010, only and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC including our most recent annual report on Form 10-K.

As you listen to today's call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter.

During this call, we will discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast and our filings with the SEC, each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.

Finally, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2009. Now, I'll turn the call over to Tom.



Thanks Rob, I will begin with comments on our financial results. Trolling 12 month free cash grew 62% to $2.32 billion. Return on invested capital is 45% up from 41%. ROIC is TTM free cash flow, divided by average total assets, minus current liabilities excluding the current portion of long term debt over 5 quarter ends.

The combination of common stock and stock based towards outstanding 463 million shares compared with 447 million. World wide revenue grew 46% to $7.13 billion or 42% excluding the $185 million payable impact from year-over-year changes in foreign exchange rates.

We are grateful to our customers who continue to take advantage of our low prices. Bad selection and pre-shipping offers including Amazon Prime. Media revenue increased to $3.43 up 26% or 22% excluding foreign exchange rates. ETM revenue increased to $3.51 billion of 72% or 68% excluding FX. World wide EGM increased to 49% of world wide sales up from 42%.

World wide unit growth was 40%; active customer accounts exceeded a 114 million. And for the first time this number includes our Amazon China customer accounts. World-wide active seller accounts were approximately $2 million of 22%. Sold units were 31% of total units. Consolidated gross profit grew 42% to $1.63 billion and gross margin decreased 62 basis points up to 22.9%.

We no longer present gross profit as our consolidated statement of operations as we believe income from operations is more meaningful measure due to the diversity of our product categories and services. Our focus is on growing operating profit dollars rather than maximizing margin percentages.

Now I will discuss operating expenses, excluding stock based compensation. Fulfillment in marketing tech and content and G&A combined was $1.12 billion or 15.8% of sales down 115 basis points year-over-year. Fulfillment was $528 million or 7.4% of revenue compared with 8.3%.

Tech and content was $319 million or 4.5% of revenue compared with 4.9%. Marketing was $196 million or 2.7% of revenue, up from 2.5% in the prior year. Now I will talk about our segment results and consistent with prior periods, we do not allocate the segments or stock based compensation or other operating expense line items.

In North America segment, revenue grew 47% to $3.78 billion. Media revenue grew 22% to $1.6 billion. EGM revenue grew 72% to $2.02 billion, representing 54% of North America revenues, up from 45%. North America segment operating income increased 81% to $273 million, or 7.2% operating margin.

In the international segment, revenue grew 45% to $3.35 billion. Revenue growth was 37%, adjusting for the $175 million year-over-year favorable FX impact during the quarter.

Media revenue grew 29% to $1.83 billion or 23% excluding FX. And EGM revenue grew 68% to $1.49 billion or 61% excluding FX. EGM now represents 44% of international revenues, up from 38%.

International segment operating income increased 37% to $234 million, a 7% operating margin. Excluding the favorable impact from foreign exchange rates international segment operating income increased 26%. CSOI grew 58% to $507 million or 7.1% of revenue up 53 basis points year-over-year. Excluding the $15 million favorable impact from foreign exchange rates, CSOI grew 53%.

Unlike CSOI, our GAAP operating income includes stock-based compensation expense and other operating expense. GAAP operating income grew 62% to $394 million or 5.5% of net sales. Our income tax expense was $100 million in Q1 or a 25% rate for the quarter. GAAP net income was $299 million of course, $0.66 per diluted share compared with $177 million and $0.41 per diluted share.

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