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Q42012 Earnings Call

January 29, 2013 5:00 pm ET


Sean Boyle - Vice President of Investor Relations

Thomas Szkutak - Chief Financial Officer, Senior Vice President


Scott Devitt - Morgan Stanley

Douglas Anmuth - JPMorgan

Brian Pitz - Jefferies

Mark Mahaney - RBC Capital Markets

Heath Terry - Goldman Sachs

Gene Munster - Piper Jaffray

Brian Nowak - Nomura

Ross Sandler - Deutsche Bank

Justin Post - Merrill Lynch

Tom Forte - Telsey Advisory Group

Ken Sena - Evercore Partners

Anthony Diclemente - Barclays

Rohit Kulkarni - Citi

Benjamin Schachter - Mcquarrie

Jordan Rohan - Stifel Nicolaus



Good day everyone, and welcome to the fourth quarter 2012 financial results teleconference. At this time, all participants are in a listen-only mode. After today's presentation, we will conduct a question-and-answer session. Today's call is being recorded.

For opening remarks, I will be turning the call over to the Vice President of Investor Relations, Mr. Sean Boyle. Please go ahead.

Sean Boyle

Hello and welcome to our Q4 2012 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 and responses to your questions reflect management's views as of today, January 29, 2013 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 conference 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 2011. Now, I will turn the call over to Tom.

Thomas Szkutak

Thanks, Sean. I will begin with comments on our fourth quarter financial results. Trailing 12 month operating cash flow increased 7% to $4.81 billion. Trailing 12 month free cash flow decreased 81% to $395 million. Trailing 12 months capital expenditures were $3.79 billion.

This amount includes $1.4 billion in purchases of our previously leased corporate office space as well as property for development of additional corporate office space located in Seattle, Washington which we purchased in the fourth quarter. The increase in capital expenditures reflects additional investments in support of continued business growth consisting of investing in technology infrastructure including Amazon Web Services and additional capacity to support our fulfillment operations.

Return on invested capital was 4%, down from 22%. ROIC is TTM free cash flow divided by average total assets minus current liabilities excluding the current portion of long-term debt over five quarter ends. The combination of common stock and stock-based awards outstanding was 470 million shares compared with 460 million shares one year ago.

Worldwide revenue grew 22% to $21.27 billion or 23% excluding the $178 million unfavorable impact from year-over-year changes in foreign exchange. We are grateful to our customers who continue to take advantage of our low prices, vast selection and shipping offers. Media revenue increased to $6.51 billion, up 8% or 10% excluding foreign exchange. EGM revenue increased to $13.93 billion, up 28% or 29% excluding foreign exchange. Worldwide EGM increased to 65% of worldwide sales, up from 63%. Worldwide paid unit growth was 32%. Active customer accounts exceeded 200 million. Worldwide active seller accounts were more than 2 million. Seller units represented 39% of paid units.

Now, I will discuss operating expenses excluding stock-based compensation. Cost of sales was $16.14 billion, or 75.9% of revenue, compared with 79.3%. Fulfillment, marketing, technology and content in G&A combined was $4.45 billion, or 20.9% of sales, up approximately 293 basis points year-over-year. Fulfillment was $2.2 billion, or 10.3% of revenue compared with 9.3%. Tech and content was $1.22 billion, or 5.7% of revenue, compared with 4.5%. Marketing was $833 million, or 3.9% of revenue compared with 3.3%.

Now, I'll talk about our segment results, and consistent with prior periods, we do not allocate segments, our stock-based compensation or other operating expense line item. In the North America segment, revenue grew 23% to $12.17 billion. Media revenue grew 13% to $2.9 billion. EGM revenue grew 24% to $8.5 billion, representing 70% of North America revenues, up from 69%. North America segment operating income increased 114% to $608 million, a 5% operating margin.

In the international segment, revenue grew 21% to $9.09 billion. Adjusting for the hundred $83 million year-over-year unfavorable impact from foreign exchange, revenue growth was 23%. Media revenue grew 5% to $3.61 billion, or 7% excluding foreign exchange and EGM revenue grew 35% to $5.43 billion, or 37% excluding foreign exchange. EGM now represents 60% of international revenues, up from 54%.

International segment operating income decreased 61% to $70 million a, 0.8% operating margin. Excluding the unfavorable impact from foreign exchange, International segment operating income decreased 56%.

CSOI increased 47% to $678 million, or 3.2% of revenue, up approximately 54 basis points year-over-year. Unlike CSOI, our GAAP operating income includes stock-based compensation expense and other operating. GAAP operating income increased 56% to $405 million, or 1.9% of net sales.

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