Amazon.com, Inc.

Thank you for standing by. Good day, everyone, and welcome to the Amazon.com first quarter 2023 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, Dave Files. Thank you, sir. Please go ahead.

Hello, and welcome to our Q1 2020 Joining us today to answer your questions is Andy Jassy, our CEO, and Brian Osowski, our CFO. 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. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2022. Our comments and responses to your questions reflect management's views as of today, April 27, 2023 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 and subsequent filings. During this call, we may 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. Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates, changes in global economic and geopolitical conditions, and customer demand and spending, including the impact of recessionary fears, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce and cloud services, and the various factors detailed in our filings with the SEC. Our guidance assumes, among other things, that we don't conclude any additional business acquisitions, restructurings, or legal settlements. It's not possible to accurately predict demand for our goods and services, and therefore our actual results could differ materially from our guidance. And now I'll turn the call over to Brian.

Thank you for joining today's call. As Dave mentioned earlier, I am joined today by Andy Jassy, our CEO. Before we move on to take your questions, I'll make some comments regarding our Q1 results. Let's begin with revenue. For the first quarter, our worldwide net sales were $127.4 billion, up 9% year-over-year, or 11%, excluding approximately 210 basis points of unfavorable impact from changes in foreign exchange rates. This was above the top end of our guidance range. Overall, we are pleased with the growth that we're seeing in worldwide stores businesses, including quarter-over-quarter revenue acceleration in the international segment, which has helped by easing macroeconomic pressures in Europe. Across the geographies we serve, customers appreciate our focus on staying sharp on pricing, having strong selection, and easier and easier convenience, including delivery speeds, which continue to improve throughout the first quarter. That said, the uncertain economic environment and ongoing inflationary pressures continue to be a factor, and we believe it's continuing to drive cautious spending across consumers. This means our customers are looking to stretch their budgets further and are focused on value. We saw moderated spending on discretionary categories, as well as shifts to lower-priced items and healthy demand in everyday essentials such as consumables and beauty. Third-party sellers, including businesses who elect to utilize fulfillment by Amazon for their storage and shipping services, are a key contributor to the selection offered to customers. We also continue to invest meaningfully in brand protection efforts, including industry-leading technology, so that sellers can trust we will provide a great selling experience free from bad actors. Sellers comprised 59% of overall unit sales in Q1, up from 55% one year ago. We also saw strong engagement in our advertising services, with revenue up 23% year-over-year, excluding the impact from changes in foreign exchange rates. In particular, our sponsored product and brand offerings remain a key driver of growth, as we work with advertisers to help customers make more informed purchase decisions. Our teams remain focused on delivering performance to our comprehensive and flexible measurement capabilities, along with insights that allow advertisers the ability to measure their return on their advertising spend and help them grow their business. In AWS, net sales were $21.4 billion in the first quarter, up 16% year over year, and representing an annualized sales run rate of more than $85 billion. Given the ongoing economic uncertainty, customers of all sizes and all industries continue to look for cost savings across their businesses, similar to what you've seen us doing at Amazon. As expected, customers continue to evaluate ways to optimize their cloud spending in response to these tough economic conditions in the first quarter. And we are seeing these optimizations continue into the second quarter, with April revenue growth rates about 500 basis points lower than what we saw in Q1. As a reminder, we're not trying to optimize for any one quarter or year. We're working to build customer relationships and a business that will outlast all of us. Therefore, our AWS sales and support teams continue to spend much of their time helping customers optimize their AWS spend so that they can better weather this uncertain economy. This customer orientation is built into our DNA and how we think about our customer relationships and business over the long term. Now let's shift to worldwide operating income. For the first quarter, we reported $4.8 billion in operating income, above the top end of our guidance range. This operating income was negatively impacted by an estimated employee severance charge of approximately $470 million in Q1, including $270 million related to AWS. As we finalized our annual planning process and considered the ongoing economic environment, we made the difficult decision to eliminate 9,000 roles. impacting our AWS business as well as Twitch, devices, advertising, and our human resources teams. In Q1, our year-over-year growth in stores revenue and unit sales outpaced growth in both our fulfillment expense and our outbound shipping costs. Inflationary pressures continue to ease quarter over quarter, primarily driven by reductions in line haul shipping rates, as well as lower diesel fuel and electricity costs. We also built on the progress we made throughout 2022 in improving productivity in our fulfillment network through continued process and tech improvements. We exited Q4 with a good balance of labor throughout the network and leveraged that throughout Q1 with customer demand patterns remaining more stable compared to Q1 of last year. As labor availability has stabilized and inventory supply chain challenges have moderated, we're able to implement some significant structural changes to transition our U.S. fulfillment network to a regionalized model. We believe these improvements put us in a good position to improve both delivery speed and our cost to serve customers over time. We reported overall net income of $3.2 billion in the first quarter. While we primarily focus our comments on operating income, I'd point out that this net income includes a pre-tax valuation loss of $467 million included in non-operating expense. from our common stock investment in Rivian Automotive. As we've noted in recent quarters, this activity is not related to Amazon's ongoing operations, but rather to quarter-to-quarter fluctuations in Rivian's stock price. Turning to cash flows, we remain focused on building long-term sustainable growth in free cash flow, including our efforts towards a strong cash flow creative working capital cycle. Our operating cash flow for the trailing 12 months and in March 31st increased to $54.3 billion, up 38% versus the comparable period year over year. Besides the cash benefit of improved profitability year over year, we've also seen supply chains easing up and made progress to improve our inventory purchasing and payment cycles, which in turn has a positive impact on working capital. Now let's turn to our capital investments. We define our capital investments as the combination of CapEx plus equipment finance leases. For the full year 2023, we expect capital investments to be lower than our $59 billion investment level in 2022, primarily driven by an expected year-over-year decrease in fulfillment network investments. We're continuing to invest in infrastructure to support AWS customer needs, including investments to support large language models and generative AI. Before we open the call up for your questions, I'll hand it over to Andy to share some high-level perspectives on the first quarter.