Q3 2012 Earnings Call Transcript

Transcript Call Date 10/25/2012

Operator: Good day everyone, and welcome to the Third Quarter 2012 Financial Results Teleconference. At this time, all participants are in a listen-only mode. After the 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 - IR: Hello and welcome to our Q3 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, October 25, 2012 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'll 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 J. Szkutak - SVP and CFO: Thanks, Sean. I'll begin with comments on our third quarter financial results. Trailing 12 month operating cash flow increased 8% to $3.37 billion. Trailing 12 month free cash flow decreased 31% to $1.06 billion. Return on invested capital was 10%, down from 17%. ROIC trailing 12 month free cash flow divided by average total assets minus current liabilities excluding the current portion of long-term debt over five quarter end.

The combination of common stock and stock-based awards outstanding was 469 million shares consistent with 469 million shares. Worldwide revenue grew 27% to $13.81 billion or 30% excluding the $348 million unfavorable impact from year-over-year changes in foreign exchange. We're grateful to our customers who continue to take advantage of our low prices, vast selection and shipping offers.

Media revenue increased to $4.6 billion, up 11% or 14% excluding foreign exchange. EGM revenue increased to $8.56 billion up 36% or 39% excluding foreign exchange. Worldwide EGM increased to 62% of worldwide sales, up from 58%. Worldwide paid unit growth was 39%. Active customer accounts exceeded 188 million. Worldwide active seller accounts were more than 2 million. Seller units represented 41% of paid units.

Now, I'll discuss operating expenses excluding stock-based compensation. Cost of sales was $10.32 billion or 74.7% of revenue compared with 76.5%. Fulfillment, marketing, technology and content and G&A combined was $3.26 billion or 23.6% of sales, up approximately 251 basis points year-over-year.

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