Q1 2011 Earnings Call
April 26, 2011 5:00 pm ET
Robert Eldridge -
John Felton -
Thomas Szkutak - Chief Financial Officer and Senior Vice President
Sandeep Aggarwal - Caris & Company
Scott Devitt - Morgan Stanley
Steve Weinstein - Pacific Crest Securities, Inc.
Brian Pitz - UBS Investment Bank
Spencer Wang - Crédit Suisse AG
Youssef Squali - Jefferies & Company, Inc.
Kenneth Sena - Evercore Partners Inc.
Benjamin Schachter - Macquarie Research
James Friedland - Cowen and Company, LLC
Charles Munster - Piper Jaffray Companies
Colin Sebastian - Lazard Capital Markets LLC
Matt Nemer - Wells Fargo Securities, LLC
James Mitchell - Goldman Sachs Group Inc.
Heath Terry - Canaccord Genuity
Jason Helfstein - Oppenheimer & Co. Inc.
Mark Mahaney - Citigroup Inc
Jeetil Patel - Deutsche Bank AG
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Hello and welcome to our Q1 2011 Financial Results Conference Call. Joining us today are Tom Szkutak, our CFO; and Rob Eldridge, our VP of Investor Relations. 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, April 26, 2011, 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.
Now, I'll turn the call over to Tom.
Thanks, John. I'll begin with comments on our first quarter financial results. Trailing 12 months operating cash flow increased 9% to $3.03 billion. Trailing 12 months free cash flow decreased 18% to $1.9 billion. Return on invested capital of 24%, down from 45%. ROIC [return on invested capital] as TTM [trailing 12 months] free cash flow is 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 awards outstanding was 466 million shares compared with 463 million shares.
Worldwide revenue grew 38% to $9.86 billion or 36%, excluding the $144 million favorable impact from year-over-year changes in foreign exchange rates. We're grateful to our customers who also continue to take advantage of our low prices, vast selection and shipping offers.
Media revenue increased to $3.96 billion, up 15% or 13%, excluding foreign exchange rates. EGM [Electronics and other General Merchandise] revenue increased to $5.59 billion, up 59% or 57% excluding foreign exchange. Worldwide EGM increased to 57% of worldwide sales, up from 49%. Worldwide unit growth was 51%.
Active customer accounts exceeded 137 million. Worldwide active seller accounts were more than 2 million. Seller units were 33% of total units.
Now, I'll discuss the operating expenses excluding stock-based compensation. The cost of sales was $7.61 billion or 77.2% of revenues compared with 77.1%. Fulfillment, marketing, technology and content and G&A combined was $1.78 billion or 18.1% from sales, up 234 basis points year-over-year. Fulfillment was $831 million or 8.4% of revenue compared with 7.4%. Tech and content was $580 million or 5.3% of revenue compared with 4.5%. Marketing was $320 million or 3.2% of revenue compared with 2.7%.
Now, I'll talk about our segment results, and consistent with prior periods, we do not allocate the segments, our stock-based compensation or other operating expense line items. In the North America segment, revenue grew 45% to $5.47 billion. Media revenue grew 18% to $1.89 billion. EGM revenue grew 63% to $3.3 billion, representing 60% of North America revenues, up from 54%. North America segment operating income increased 6% to $290 million, a 5.3% operating margin.
In the International segment, revenue grew 31% to $4.39 billion. Adjusting for the $141 million year-over-year favorable foreign exchange impact, revenue growth was 27%. We estimate that the international revenue growth rate was negatively impacted by approximately 500 basis points following the earthquake and subsequent events in Japan.
Media revenue grew 13% to $2.07 billion or 9% excluding foreign exchange, and EGM revenue grew 54% to $2.29 billion or 49% excluding foreign exchange. EGM now represents 52% of international revenues, up from 44%.
International segment operating income decreased 25% to $175 million, a 4.0% operating margin. Excluding the favorable impact from foreign exchange, International segment operating income decreased 28%.
CSOI [consolidated operating income] decreased 8% to $465 million or 4.7% of revenue, down 239 basis points year-to-year. Excluding the $7 million favorable impact from foreign exchange, CSOI decreased 9%.
Unlike CSOI, our GAAP operating income includes stock-based compensation and other operating expense. GAAP operating income decreased 18% to $322 million or 3.3% of net sales.
Our income tax expense was $89 million in Q1 or a 29% rate for the quarter. The tax provision for Q1 2011 includes income tax expense for approximately $8 million related to a discrete item in the quarter. GAAP net income was $201 million or $0.44 per diluted share compared with $299 million and $0.66 per diluted share.