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600
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AMZN
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2024-08-01 17:30:00
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Amazon.com, Inc.
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Andy Jassy : Thanks, Dave. Today, we're reporting $148 billion in revenue, up 11% year-over-year, excluding the impact from foreign exchange rates. Operating income was $14.7 billion, up 91% year-over-year, and trailing 12-month free cash flow adjusted for equipment finance leases was $51.4 billion, up 664% or $44.7 billion year-over-year. As I think about what matters to customers long-term and, therefore, to Amazon, there's a lot to like about what we're seeing. Starting with AWS, year-over-year revenue growth accelerated again from 17.2% in Q1 to 18.8% in Q2. We're continuing to see three macro trends drive AWS growth. First, companies have completed the significant majority of their cost optimization efforts and are focused again on new efforts. Second, companies are spending their energy again on modernizing their infrastructure and moving from on-premises infrastructure to the cloud. This modernization enables builders to save money, innovate at a more rapid clip, and drive productivity in most companies' scarcest resources, developers. This is the flip I've talked about in the past, where the vast majority of global IT spend today is on-premises, and we expect that to keep inverting over time. With the broadest functionality, the strongest security and operational performance, and the deepest partner ecosystem, AWS continues to be customers' partner of choice and the biggest beneficiary of this flip from on-premises to the cloud. And third, builders and companies of all sizes are excited about leveraging AI. Our AI business continues to grow dramatically with a multi-billion dollar revenue run rate despite it being such early days, but we can see in our results and conversations with customers that our unique approach and offerings are resonating with customers. At the heart of this strategy is a firmly held belief, which we've had since the beginning of AWS, that there is not one tool to rule the world. People don't want just one database option or one analytics choice or one container type. Developers
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2024-08-01 17:30:00
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Amazon.com, Inc.
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tool to rule the world. People don't want just one database option or one analytics choice or one container type. Developers and companies not only reject it, but are suspicious of it. They want multiple options for flexibility and to use the best tool for each job to be done. The same is true in AI. You saw this several years ago when some companies tried to argue that TensorFlow would be the only machine learning framework that mattered, and then PyTorch and others overtook it. The same one model or one-chip approach dominated the earliest moments of the generative AI boom, but we have a lot of data to suggest this is not what customers want here either. And our AWS team is determined to deliver choice and options for customers. You can see this philosophy in the primitive building blocks we're building at all three layers of the Gen AI stack. At the bottom layer, which is for those building generative AI models themselves, the cost to compute for training and inference is critical, especially as models get to scale. We have a deep partnership with NVIDIA and the broadest selection of NVIDIA instances available, but we've heard loud and clear from customers that they relish better price performance. It's why we've invested in our own custom silicon in Trainium for training and Inferentia for inference. And the second versions of those chips, with Trainium coming later this year, are very compelling in price performance. We're seeing significant demand for these chips. These model builders also desire services that make it much easier to manage the data, construct the models, experiment, deploy to production, and achieve high-quality performance, all while saving considerable time and money. That's what Amazon SageMaker does so well, including its most recently launched feature called HyperPods that changes the game and networking performance for large models. And we're increasingly seeing model builders standardized on SageMaker. While many teams will build their own models, lots of others will leverage
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602
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AMZN
| 2
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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seeing model builders standardized on SageMaker. While many teams will build their own models, lots of others will leverage somebody else's frontier model, customize it with their own data and seek a service that provides broad model selection and great generative AI capabilities. This is what we think of as the middle layer, what Amazon Bedrock does and why Bedrock has tens of thousands of companies using it already. Bedrock has the largest selection of models, the best generative AI capabilities in critical areas like model evaluation, guardrails, RAG and agenting, and then makes it easy to switch between different model types and model sizes. Bedrock has recently added Anthropic's Claude 3.5 models, which are the best performing models on the planet. Meta's new Llama 3.1 models and Mistral's new Large two models. And Lama's and Mistral's impressive performance benchmarks in open nature are quite compelling to our customers as well. At the application or top layer, we're continuing to see strong adoption of Amazon Q, the most capable generative AI powered assistant for software development and to leverage your own data. Q has the highest known score and acceptance rate for code suggestions, but it does a lot more than provide code suggestions. It tests code, outperforms all other publicly benchmarkable competitors on catching security vulnerabilities and leads all software development assistants on connecting multiple steps together and applying automatic action. It also saves development teams time and money on the muck nobody likes to talk about. For instance, when companies decide to upgrade from one version of a framework to another, it takes development teams many months, sometimes years, burning valuable opportunity costs and churning developers who hate this tedious, though important work. With Q's code transformation capabilities, Amazon has migrated over 30,000 Java JDK applications in a few months, saving the company $260 million and 4,500 developer years compared to what it would have otherwise
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603
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AMZN
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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in a few months, saving the company $260 million and 4,500 developer years compared to what it would have otherwise cost. That's a game changer. And think about how this Q transformation capability might evolve to address other elusive but highly desired migrations. During the past 18 months, AWS has launched more than twice as many machine learning and generative AI features into general availability than all the other major cloud providers combined. This team is cooking, but we're not close to being done adding capabilities for our customer's usage base. For perspective, we've added over $2 billion in advertising revenue year-over-year and generated more than $50 billion in revenue in the trailing 12 months. Sponsored ads drive the majority of our advertising revenue today and we see further opportunity there. Even with this growth, it's important to realize we're at the very beginning of what's possible in our video advertising. In May, we made our first appearance at the upfronts and were encouraged by the agency and advertiser feedback on the differentiated value we offer across our content, reach, signals, and ad tech. With ads and prime video, the exciting opportunity for brands is the ability to directly connect advertising that's traditionally been focused on driving awareness, as is the case for TV, to a business outcome, like product sales or subscription signups. We're able to do that through our measurement and ad tech, so brands can continually improve the relevance and performance of their ads. While ads have become the norm in streaming video, we aim to have meaningfully fewer ads than linear TV and other streaming TV providers. And of course, for customers preferring an ad-free experience, we offer that option for an additional $2.99 a month. In our stores business, we saw growth of 9% year-over-year in the North America segment and 10% year-over-year in the international segment. A few notes on our North America revenue growth rate. First, last quarter's leap day added about 100 basis points of
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604
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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segment. A few notes on our North America revenue growth rate. First, last quarter's leap day added about 100 basis points of year-over-year growth. Second, we're seeing lower average selling prices, or ASPs, right now because customers continue to trade down on price when they can. More discretionary higher ticket items, like computers or electronics or TVs, are growing faster for us than what we see elsewhere in the industry, but more slowly than we see in a more robust economy. And our continued faster delivery speed is earning us more of our customers' everyday essentials business. Third, our seller fees are a little lower than expected given the behavior changes we've seen from our latest fee changes. While some of these issues compress short-term revenue, we generally like these trends. While consumers are being careful on price, our North America unit growth is meaningfully outpacing our sales growth as our continued work on selection, low prices, and delivery is resonating. So far this year, our speed of delivery for prime customers has been faster than ever before, with more than 5 billion units arriving the same day or next day. As more customers experience our fast delivery, they look to Amazon for more of their shopping needs, and the continued acceleration of our everyday essentials business is an example of this phenomenon. On seller fees, lowering apparel fees has spurred substantial year-over-year unit growth in apparel. And the incentive we've given sellers to send their items to multiple Amazon inbound facilities so they can save money where they save us effort and money is getting more traction than we even hoped. These collective developments will benefit customers in the form of better selection, lower prices, and faster delivery speed. There's no shortage of ideas aimed in improving the experience for stores' customers. For instance, we're adding even more value to Prime, recently introducing free restaurant delivery in many of our geos, expanding Amazon's PharmacyRx pass to Medicare
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605
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AMZN
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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to Prime, recently introducing free restaurant delivery in many of our geos, expanding Amazon's PharmacyRx pass to Medicare members. This is a benefit that gives subscribers all you can consume access to the most common generic medications for just $5 a month, and offering a grocery subscription to help save on grocery items when shopping our U.S. and UK fresh stores. As we pursue these initiatives, we remain focused on lowering our cost to serve. We have a number of opportunities to further reduce costs, including expanding our use of automation and robotics, further building out our same-day facility network, and regionalizing our inbound network. With more optimal inbound inventory placement, we expect to enable faster speeds, consolidate more orders in one box, and reduce inventory transfers once items reach a fulfillment center. These cost improvements won't happen in one quarter or one fell swoop. They take technology and process innovation with a lot of outstanding execution, but we see a path to continuing to lower our cost to serve, which as we've discussed in the past, has very meaningful value for customers in our business. As we lower our cost to serve, we can add more low ASP selection that we can support economically, which coupled with our fast delivery, puts Amazon in the consideration set for increasingly more shopping needs for customers. A few other comments about areas in which we're investing. We remain very bullish on the medium to long-term impact of AI in every business we know and can imagine. The progress may not be one straight line for companies. Generative AI especially is quite iterative, and companies have to build muscle around the best way to solve actual customer problems. But we see so much potential to change customer experiences. We see it in how our generative AI-powered shopping assistant Rufus is helping customers make better shopping decisions. We see it in how our AI features that allow customers to simulate trying apparel items or changing the buying experience. We see
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606
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AMZN
| 2
| 2,024
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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see it in how our AI features that allow customers to simulate trying apparel items or changing the buying experience. We see it in how our generative AI listing tool is enabling sellers to create new selection with a line or two of text versus the many forms previously required. We see it in our fulfillment centers across North America where we're rolling out Project Private Investigator, which uses a combination of generative AI and computer vision to uncover defects before products reach customers. We see it in how our generative AI is helping our customers discover new music and video. We see it in how it's making Alexa smarter. And we see it in how our custom silicon and services like SageMaker and Bedrock are helping both our internal teams and many thousands of external companies reinvent their customer experiences and businesses. We are investing a lot across the board in AI, and we'll keep doing so as we like what we're seeing and what we see ahead of us. We also continue to like the progress in Prime Video. Our storytelling is resonating with our hundreds of millions of monthly viewers worldwide, and the 62 Emmy nominations Amazon MGM Studios recently received is another supporting data point. We recently debuted titles like Fallout, the second most watched original title ever for Prime Video, The Idea of You, which attracted nearly 50 million viewers worldwide in the first two weeks on Prime Video, and Season 4, The Boys, which reached number one on Prime Video in 165 countries in its opening two weeks. And we continue to see momentum in live sports. We recently announced 11-year landmark deals with the NBA and the WNBA. When combined with our original films and shows, partner streaming services, licensed content, and rent or buy titles, Prime Video continues to evolve into the best destination for streaming video. And for Project Kuiper, our low-Earth orbit satellite constellation, we're accelerating satellite manufacturing at our facility in Kirkland, Washington. We've announced a distribution
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607
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AMZN
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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we're accelerating satellite manufacturing at our facility in Kirkland, Washington. We've announced a distribution agreement with Vrio, who distributes direct TV Latin America and Sky Brazil to offer Project Kuiper's satellite broadband network to residential customers across seven countries in South America, and we continue to feel significant demand for the service from enterprise and government entities. We expect to start shipping production satellites late this year and continue to believe this could be a very large business for us. I could go on, but we'll stop here. There's a lot to feel optimistic about over the next several years and the team collectively remains focused on continuing to invent and deliver for our customers in the business. With that, I'll turn it over to Brian for a financial update.
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AMZN
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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Brian Olsavsky : Thanks, Andy. Let's start with our top line financial results. Worldwide revenue was $148 billion, an 11% increase year-over-year, excluding the impact of foreign exchange. This equates to a $1 billion headwind from foreign exchange in the quarter, which is about $300 million higher than we'd anticipated in our Q2 guidance range. Worldwide operating income nearly doubled year-over-year to $14.7 billion, which was $700 million above the high end of our guidance range. Across all of our segments, we remain focused on managing costs in a way that allows us to continue innovating and investing in areas that we think could move the needle for our customers. Starting with the North American international segments, customers continue to respond positively to our focus on low prices, broad selection, and fast shipping offers. We delivered at our fastest speeds ever so far this year, which helps drive strength in areas like our everyday essentials. These include items like non-perishable foods, as well as health, beauty, and personal care items. And Prime members continue to increase their shopping frequency while growing their spend on Amazon. Overall unit sales grew 11% year-over-year, which is consistent with our growth rates in Q1 after you adjust for the approximately 100 basis point impact of leap year. North America segment revenue was $90 billion, an increase of 9% year-over-year. And international segment revenue was $31.7 billion, an increase of 10% year-over-year, excluding the impact of foreign exchange. North America segment operating income was $5.1 billion, an increase of $1.9 billion year-over-year. Operating margin was 5.6%, up 170 basis points year-over-year, and down 20 basis points quarter over quarter. If we look at profitability of the core North America stores business, we actually improved our margin again quarter-over-quarter in Q2. The overall North America segment operating margin decreased slightly due to increased Q2 spend in some of our investment areas, including Kuiper,
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609
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AMZN
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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segment operating margin decreased slightly due to increased Q2 spend in some of our investment areas, including Kuiper, where we're starting to manufacture satellites we'll launch into space in Q4. We saw improvements in our cost to serve, driven by our efforts to place inventory more regionally, closer to where our customers are. This resulted in more consolidated shipments, with higher units per box shipped. We also saw packages traveling shorter distances to customers, and this also led to better on-road productivity in our transportation network. Our international segment was profitable again in Q2, with operating income of $300 million, an improvement of $1.2 billion year-over-year. Operating margin was 0.9%, up 390 basis points year over year. This increase is primarily driven by our established countries, as we improve our cost structure with better inventory placement and more consolidated shipments. Additionally, our emerging countries continue to expand their customer offerings, leverage their cost structure, and invest in expanding prime benefits. We are pleased with the overall progress of these countries as they make strides on their respective paths to profitability. Advertising remains an important contributor to profitability in the North America and international segments, and we saw strong growth on an increasing larger revenue base this quarter. We continue to see opportunities that further expand our offering in areas that are driving growth today, like sponsored products, as well as newer areas, like Prime Video ads. Moving next to our AWS segment, revenue is $26.3 billion, an increase of 18.8% year-over-year, excluding the impact of foreign exchange. AWS now has an annualized revenue run rate of more than $105 billion. During the second quarter, we saw continued growth across both generative AI and non-generative AI workloads. We saw companies turn their attention to newer initiatives, bring more workloads to the cloud, restart or accelerate existing migrations from on-premises to the
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610
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AMZN
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2024-08-01 17:30:00
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Amazon.com, Inc.
| 18,749
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to newer initiatives, bring more workloads to the cloud, restart or accelerate existing migrations from on-premises to the cloud, and tap into the power of generative AI. AWS operating income was $9.3 billion, an increase of $4 billion year-over-year. It's driven by our continued focus on cost control, including a measured pace of hiring. Additionally, AWS operating margin includes an approximately 200 basis point favorable impact from the change in the estimated useful life of our servers that we instituted in Q1. As we've long said, we expect AWS operating margins to fluctuate over time, driven in part by the level of investments we're making at any point in time. We remain focused on driving efficiencies across the business, which enables us to invest to support the strong growth we're seeing in AWS, including generative AI. Now let's turn our attention to capital investments. As a reminder, we define these as a combination of CapEx plus equipment finance leases. For the first half of the year, CapEx was $30.5 billion. Looking ahead to the rest of 2024, we expect capital investments to be higher in the second half of the year. The majority of the spend will be to support the growing need for AWS infrastructure as we continue to see strong demand in both generative AI and our non-generative AI workloads. For the third quarter, specifically, I'd highlight a few seasonal factors to keep in mind. First, we hosted another successful Prime Day in mid-July. It was our 10th Prime Day and was our largest ever. Prime members globally saved billions of dollars on deals across every product category. From a profitability perspective, we've historically seen a headwind to operating margin in Q3, driven by Prime Day deals, as well as the marketing spend surrounding the event. Additionally, in Q3, we also begin to ramp up our capacity to handle Q4 holiday volumes in our fulfillment network. And lastly, we expect an increase in digital content cost quarter-over-quarter from the return of our NFL Thursday Night Football. We
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2024-08-01 17:30:00
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Amazon.com, Inc.
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we expect an increase in digital content cost quarter-over-quarter from the return of our NFL Thursday Night Football. We remain heads down, focused on driving a better customer experience. We believe putting customers first is the only reliable way to create lasting value for our shareholders. With that, let's move on to your questions.
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2024-08-01 17:30:00
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Amazon.com, Inc.
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Operator: At this time, we will now open the call up for questions. [Operator Instructions] And our first question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.
Eric Sheridan: Thanks so much for taking the question and thanks for all the detail and the prepared remarks. Maybe a two-parter on AWS. There's been a theme during the last couple of weeks of earnings of the potential to over-invest as opposed to under-invest in AI as a broad theme. I'm curious, Andy, if you have a perspective on that in terms of thinking about elements of capitalizing on the theme longer term against the potential for pace or cadence of investment on AWS as a segment. And the second part would be coming back to your comments on custom silicon. How do you feel about custom silicon, both from a pace of investment and then more broadly, how you think about it as a return profile on a pivot to more custom silicon in your portfolio over the medium to long term? Thanks so much.
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2024-08-01 17:30:00
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Amazon.com, Inc.
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Andy Jassy : Thanks, Eric. I'll take them in order. I think on the question about investment in AWS and on the AI side, I think where I'd start is, I think one of the least understood parts about AWS over the last 18 years has been what a massive logistics challenge it is to run that business. If you think about the fact that we have about 35 regions and think of a region as multiple -- a cluster of multiple data centers and about 110 availability zones, which is roughly equivalent to a data center, sometimes it includes multiple. And then if you think about having to land thousands and thousands of SKUs across the 200 AWS services in each of those availability zones at the right quantities, it's quite difficult. And if you end up actually with too little capacity, then you have service disruptions, which really nobody does because it means companies can't scale their applications. So most companies deliver more capacity than they need. However, if you actually deliver too much capacity, the economics are pretty woeful and you don't like the returns of the operating income. And I think you can tell from having -- we disclosed both our revenue and our operating income in AWS that we've learned over time to manage this reasonably well. And we have built models over a long period of time that are algorithmic and sophisticated that land the right amount of capacity. And we've done the same thing on the AI side. Now AI is newer. And it's true that people take down clumps of capacity in AI that are different sometimes. I mean -- but it's also true that it's not like a company shows up to do a training cluster asking for a few hundred thousand chips the same day? Like you have a very significant advance signal when you have customers that want to take down a lot of capacity. So while the models are more fluent, it's also true that we've built, I think, a lot of muscle and skill over time in building these capacity signals and models. And we also are getting a lot of signal from customers on what they need. I think that
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2024-08-01 17:30:00
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Amazon.com, Inc.
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these capacity signals and models. And we also are getting a lot of signal from customers on what they need. I think that it's -- the reality right now is that while we're investing a significant amount in the AI space and in infrastructure, we would like to have more capacity than we already have today. I mean we have a lot of demand right now. And I think it's going to be a very, very large business for us. On the custom silicon point, yeah, it's really interesting what's happened here. And it's also -- our strategy and approach here has been informed by running AWS for 18 years. When we started AWS, we had and still have a very deep partnership with Intel on the generalized CPU space. But what we found from customers is that they -- when you find a -- an offering that is really high value for you and high return, you don't actually spend less, even though you're spending less per unit, you spend less per unit, but it enables you and free you up to do so much more inventing and building for your customers. And then when you're spending more, you actually want better price performance than what you're getting. And a lot of times, it's hard to get that price performance from existing players unless you decide to optimize yourself for what you're learning from your customers and you push that envelope yourself. And so we built custom silicon in the generalized CPU space with Graviton, which we're on our fourth model right now. And that has been very successful for customers and for our AWS business is it saves customers about -- up to about 30% to 40% price performance versus the other leading x86 processors that they could use. And we saw the same trend happening about five years ago in the accelerator space in the GPU space, where the products are good, but there was really primarily one provider and supply was more scarce than what people wanted. And people -- our customers really want improved price performance all the time. And so that's why we went about building Trainium, which is our training chip and
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2024-08-01 17:30:00
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Amazon.com, Inc.
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want improved price performance all the time. And so that's why we went about building Trainium, which is our training chip and Inferentia, which is our inference chip, which we're on second versions of both of those, they will have very compelling relative price performance and in a world where it's hard to get GPUs today, the supply is scarce and all the schedules continue to move over time. Customers are quite excited and demanding at a high clip. Our custom silicon, and we're producing it as fast as we can. I think that's going to have very good return profile just like Graviton has and I think it will be another differentiating feature around AWS relative to others.
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2024-08-01 17:30:00
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Amazon.com, Inc.
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Operator: And our next question comes from the line of Brian Nowak with Morgan Stanley. Please proceed with your question.
Brian Nowak : Thanks for the questions. I have two. So the first one I wanted to ask about in the second quarter, the retail gross margins that we're trying to do the monkey math, look a little weaker than expected. Was there any extra pressure on retail gross margins because of discounting? Or is that where Kuiper is? Or sort of how do we think about some of the drivers of retail gross margins in the quarter at shipping? And the second one, Andy, in the past, you talked about cost to serve improvement and sort of getting the North America margins back to pre-pandemic levels. Can you just remind us again sort of the internal philosophy about executing on that? Is there a time line to deliver on that? Sort of how are you sort of balancing showing that profitability improvement over the next couple of years versus pressing on new investments like Kuiper and perhaps reinvesting some of those profits over the next couple of years?
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2024-08-01 17:30:00
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Amazon.com, Inc.
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Andy Jassy : Brian, let me start with the first question on North America margins. So if you look at the segment operating margins, we did decrease 20 basis points sequentially from Q1 to Q2. I'll remind you that we have - see the annual step-up in stock-based compensation at the end of Q1 each year, and that added about $1.8 billion of stock-based comp expense in Q2 versus Q1. So that's impacting to some extent, all three segments. But even with that stock-based comp step up, the stores part of the North America segment, increase the margin again last quarter. So we're continuing to see strong improvements in cost to serve as well as improvement in speed, added selection, better safety. So a lot of the key areas that we're hitting on are strong. What you're seeing for the segment is that some of our investment areas had a tick up in expenses and investment in Q2 versus Q1. And that's not unheard of. Q1 is usually the lightest investment quarter, things like Prime Video and devices have less investment going on in those quarters. But the one thing I'd point out, I think we mentioned it is Kuiper stepping up a bit in Q2 versus Q1 as we start to build satellites that we'll launch in Q3 and Q4 this year. And your second question, Brian, I continue and the team continues to believe that we have the opportunity to expand the margin in our stores business. And as I've said on a number of the calls that we've done, it's not going to happen in one quarter, it's not going to happen in one fell swoop, it's going to take work over a long period of time. But I think that one of the silver linings, if you will, about year and half ago in the ricochet of the pandemic and all the growth that we had and the cost to serve challenges that we had was, it really forced us to reevaluate everything in the network. And really, even our most closely felt beliefs over a long period of time. And what it did was unveiled a number of opportunities that we believe we have to keep driving cost to serve down. And the first one that you've
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Amazon.com, Inc.
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unveiled a number of opportunities that we believe we have to keep driving cost to serve down. And the first one that you've seen play out over the last year or so has been the regionalization of the U.S. network. And I think one thing to remember about that is that while it's had even bigger impact than maybe we theorized when we first architected it, we're still not done fully honing it. There's a lot of ways that we continue to optimize that U.S. regionalization that we think will continue to bear lower cost to serve. But at the same time, we found a number of other areas where we believe we can take our cost down while also improving the customer experience. One of the great things about regionalization was it not only took our cost to serve down, but it meaningfully changed the speed with which we're able to get items to customers. And so we have a number of those other opportunities. Another example of that is regionalizing our inbound network, which is also going to lower our cost to serve and get items more close to end users and diminish the amount of time it takes to get them to customers. We have a number of things that we're working on that allow us to combine more units per box, which lowers our costs as well and a lot of customers like that better because it's better for the environment, having more units per box. So I think we have a lot of opportunities to continue to take down our cost to serve. And strategically and philosophically, just two other things as you were alluding to that question. I think that from our perspective, as we're able to take cost to serve down, it means that we're able to afford to have more selection that we're able to offer to customers. And there are a lot of lower ASP items there, average selling price items that we don't stock because they're not economic to stock with our current cost to serve. But as we work hard to make progress like we are on lowering our cost to serve, that allows us to add more selection. And we see this time in and time out that we -- when we
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on lowering our cost to serve, that allows us to add more selection. And we see this time in and time out that we -- when we add more selection, customers actually consider us for more of their purchases and spend more with us down the line. I think the other thing, too, I would tell you is that I don't see it as being binary in any way, nor have I really ever seen it this way in the history of the company. I've been here 27 years. But we don't think of it as we can either be investing or we can be working on trying to take our cost to serve down. We believe we can do both. If you think about the examples you gave, the stores business and the Kuiper business are -- they're just different people working on those businesses. So our stores team is going to continue to work really hard on expanding selection and keeping prices low and speeding up our delivery times and driving our cost to serve down while our Kuiper team is working on how to figure out how to help the 400 million to 500 million households around the world who don't have broadband connectivity get that connectivity and allow them to do a lot of the things we take for granted today with broadband connectivity. So they're not going to be binary. We're going to work on them both at the same time.
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Operator: And our next question comes from the line of Mark Mahaney with Evercore. Please proceed with your question.
Mark Mahaney : Hey, thanks so much. Two questions. AWS, those three factors that are causing that kind of acceleration in Q2 and recovery in growth rates from a year ago, those sound sustainable? Is there any reason that we shouldn't see sort of ongoing acceleration at some level through the back half of the year? And secondly, I just want to ask about a small segment of pharmacy. It seems to me like at least anecdotally I seem to lean more into marketing for that and survey work suggests to us that there's kind of greater consumer interest in that. Just talk about where that business is for you? And is it at a point where you feel like you move beyond early adoption and are leaning into kind of getting more mass Amazon customer adoption? Thank you.
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Andy Jassy : On the AWS question, it's always hard to predict what the growth rates are going to be, and it's a relatively large business at $105 billion revenue run rate at this point. But I do think that we have seen the lion's share of the cost optimization happen. And I also do believe that pre-pandemic, we were on this March where most companies are trying to figure out how to modernize their infrastructure, which really means moving from on-premises to the cloud because they can save money and invent that more quickly and get better developer productivity. And then the pandemic happen and people were in survival mode and then a difficult economy came and people are trying to save money. And we just see people going back to asking themselves, why aren't we taking this low hanging fruit here. I mean it makes -- I don't want to run my own data centers. I can actually be more cost-effective and invent more quickly from my customers if I'm using the cloud. And AWS with just a lot more functionality, stronger operational performance and security, which really matters to customers as well and a deeper partner ecosystem continues to be the partner of choice as people are moving to the cloud. And I think the generative AI component is in its very early days. It's -- as I said, we kind of sometimes look at it and say that it's interesting that we have a multibillion-dollar revenue run rate already in AI, and it's so early. But if we look at the amount of demand that we have from customers right now, it's very significant. So I think all three of those things have a chance and will likely continue over time. And we'll see where that growth rate nets out over the next number of years. I think that -- the one other thing I would say about that, too, Mark, is that -- the business today, as I mentioned, it's a $105 billion revenue run rate business, about 90% of the global IT spend is still on premises. And if you believe that equation is going to flip, which I do, there's a lot of growth ahead of us in AWS as the leader
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And if you believe that equation is going to flip, which I do, there's a lot of growth ahead of us in AWS as the leader in all those dimensions I mentioned. But I also think that generative AI itself and AI as a whole it's going to be really large. I mean it is not something that we originally factored when we were thinking about how large AWS could be and unlike the non-AI space, where you're basically taking all of this infrastructure that's been built on premises over a long period of time and working with customers to help them migrate it to the cloud, which is a lot of work, by the way. In the generative AI space, it's going to get big fast and it's largely all going to be built from the get-go in the cloud, which allows the opportunity for those businesses to continue to grow. On the pharmacy side, I think you're right that you're seeing that business continue to grow and to get more resonance with customers. And I think it was always a relatively natural extension for us to build a pharmacy offering from our retail business. But I think a lot of what you see in the business has grown really quickly, a lot of what you've seen is that the work that the team has done on the customer experience over the last 18 months has really paid off. Customers love the customer experience of Amazon Pharmacy. And especially, by the way, when you think about the experience and the speed and ease with which you can order versus walking into a pharmacy in a physical store, if you walk into pharmacies and -- in cities today, it's a pretty tough experience with how much is locked behind cabinets, where you have to press a button to get somebody to come out and open the cabinets for you and a lot of shop lifting going on in the stores. So the combination of what's happening in the physical world and how much improved we've made our pharmacy experience is driving a lot of customer resonance and buying behavior. I think also you see us continuing to expand there. We expanded our RxPass package and program to Medicare members,
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behavior. I think also you see us continuing to expand there. We expanded our RxPass package and program to Medicare members, that program allows customers and members to be -- Prime members to be able to get up to 60 common medications for just $5 a month. And we continue to launch same-day delivery of medications to cities. We have them in 8 cities, including Los Angeles and New York today with plans to expand to more than a dozen cities by the end of the year. So we're seeing a lot of growth there, and we're very optimistic about it.
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Operator: And our next question comes from the line of Brent Thill with Jefferies. Please proceed with your question.
Brent Thill : On AWS, I'm curious if you had a backlog number you could share for the quarter. And I guess, Andy, when you think about getting the data state ready, I know AI today is early, but when you see most of these companies are having to move to public cloud, are you seeing a step-up in return to workloads moving to get ready for this day to stay even if they're not ready to adopt AI? What are you seeing in those sales motions? Thank you.
Dave Fildes : This is Dave. I'll just start off just to give you the backlog figure. So at the end of the second quarter, it was $156.6 billion. So that's up about 19% year-over-year.
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Andy Jassy : On the second part of your question, Brent, what I would say is that it's true in analytics, but it's even maybe more so true in AI, which is that it's quite difficult to be able to do AI effectively if your data is not organized in such a way that you can access that data and run the models on top of them and then build the application. So when we work with customers, and this is true both when we work directly with customers as well as when we work with systems integrator partners, everyone is in a hurry to get going on doing generative AI and one of the first questions that we ask is show us where your data is, show us what your data lake looks like, show us how you're going to access that data. And there's very often work associated with getting your data in the right shape and in the right spot to be able to do generative AI. Fortunately, because so many companies have done the work to move to the cloud, there's a number of companies who are ready to take advantage of AI, and that's where we've seen a lot of the growth. But also it's worth remembering that again, remember the 90% of the global IT spend being on premises, there are a lot of companies who have yet to move to a cloud, who will, and the ability to use AI more effectively is going to be one of the many drivers in doing so for them.
Operator: And the next question comes from the line of John Blackledge with TD Cowen. Please proceed with your question.
John Blackledge : Great. Two questions. First, the AWS op income margins were strong, again, mid-30% area. Just kind of what were the key drivers? And how should we think about AWS margins in the back half of the year? And then the international op income margin stepped down a bit Q-over-Q. Just curious about that. Thank you.
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Brian Olsavsky : Yeah. Thank you, John. Let me start with AWS profitability. So yes, the margin is in the mid-30% range in Q2. It's up from the mid-20% range last year. So you're seeing the impact of a number of cost reductions that we've made and efficiencies we've driven in the business. There's also an adjustment that we made to the useful life of servers that happened in Q1. Talked about last quarter, that contributed about 200 basis points of margin year-over-year. So we continue to work on the cost structure. But again, as we've said in the past, these operating margin will fluctuate and be lumpy quarter-to-quarter. We are -- continue to work to build new products that attract new customers and work on our efficiencies. Second question was?
John Blackledge : International segment margin.
Dave Fildes : Yeah, this is Dave. Just real quick on that. You mentioned we're about $300 million profit for the quarter. That is up about 390 basis points year-on-year from a margin perspective. And as we talked about in the past, there's a number of countries that different stages of existence and maturity there. And so I think you're seeing continued progress, certainly on a year-over-year basis with both our established countries. So the UK, Germany and Japan in particular, being sizable contributors to that business, continued improvement and build out there, similar to the factors we talked about with the U.S., focused on operational efficiency while expanding the customer experience. And then in the emerging countries, as we've said over the past several quarters, we launched about 10 countries over the last seven years really focused on, again, expanding that customer experience, building out the Prime member benefits while building scalable solutions for customers. And so I think in both that established and emerging areas, seeing good progress year-over-year in working for further improvement there.
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Operator: And our final question will come from the line of Doug Anmuth with JPMorgan. Please proceed with your question.
Doug Anmuth : Thanks for taking the questions. You factored in some macro indiscretionary pressures into your 2Q guide, especially in Europe, and I think you called out computers, electronics and maybe TVs in 2Q as well. I’m just curious, were the macro trends generally as you expected? Or did you see softening through the quarter? And kind of how does that influence your 3Q outlook? And then separately, Brian, can you help us quantify the incremental investment around Kuiper that you talked about? Thank you.
Brian Olsavsky : Yeah, sure. Thank you, Doug. The macro factors, if I step back, I think Andy discussed it earlier as well. We're seeing a lot of the same consumer trends that we have been talking about for the last year. Consumers being careful with their spend, trading down, looking for lower ASP products, looking for deals. That continued into Q2, and we expect it to continue into Q3. We're seeing signs of it continuing in Q3. The difference in Q2 was that, again, we had very strong unit volume growth. We actually slightly accelerated when you adjust for leap year in North America unit growth in Q2. So the drop in revenue sequentially -- revenue growth sequentially was tied to ASP and both continuation of existing trends, but also as we talked about growth in our everyday essentials business and categories. So while we think we are selling a number of higher ticket items, certainly and holding up well in the market itself, certainly not as strong as it's been in a normalized economy. And -- so it's -- lower ASP products are more of the mix right now. And we like that because, again, our speed allows us to deliver, especially everyday essentials, quickly, and we'd like to be in the consideration set for consumers on those items. We're not going to quantify Kuiper today, but thank you for your question.
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Dave Fildes : And thanks for joining us today on the call and for your questions. A replay will be available on our Investor Relations website for at least three months. We appreciate your interest in Amazon and look forward to talking with you again next quarter.
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Operator: Thank you for standing by. Good day, everyone, and welcome to the Amazon.com First Quarter 2024 Financial Results Teleconference. [Operator Instructions] Today's call is being recorded.
And for opening remarks, I will be turning the call over to the Vice President of Investor Relations, Mr. Dave Fildes. Please go ahead.
Dave Fildes: Hello, and welcome to our Q1 2024 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, 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 2023.
Our comments and responses to your questions reflect management's views as of today, April 30, 2024, 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.
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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, cloud services and new and emerging technologies, 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 Andy.
Andrew Jassy: Thanks, Dave. Today, we're reporting $143.3 billion in revenue, up 13% year-over-year, excluding the impact from foreign exchange rates; $15.3 billion in operating income, up 221% year-over-year or $10.5 billion; and $48.8 billion in trailing 12-month free cash flow adjusted for equipment finance leases, up $53.2 billion year-over-year. We remain focused on driving better experiences for our customers while also delivering efficiency improvements. Our financial results are an encouraging reminder of the progress we're making.
Starting with our stores business, despite having hundreds of millions of items and the broadest selection available, we remain intensely focused on adding even more selection. One way is to continue adding brands we know our customers want. For instance, in the U.S., we recently welcomed Clinique and 2 Gen Z fashion favorites, Parade and Cider, and announced a collaboration with Hardly Ever Worn It in Europe to offer customers pre-owned items from luxury brands.
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Another way to drive selection is to make it easier for our third-party sellers to add their products to our store. We've recently launched a new generative AI tool that enables sellers to simply provide a URL to their own website, and we automatically create high-quality product detail pages on Amazon. Already, over 100,000 of our selling partners have used one or more of our gen AI tools. We remain focused on making sure we're offering everyday low prices, which we know is even more important to our customers in this uncertain economic environment.
As our results show, customers are shopping but remain cautious, trading down on price when they can and seeking out deals. In Q1, we helped customers save with shopping events worldwide, including our first big spring sale in Canada and the U.S. We also held spring deal days in Europe and our Ramadan event in Egypt, Saudi Arabia, and the UAE. Delivery speed really matters to customers, and we've continued to get faster while improving our safety performance. In this past Q1, we delivered to Prime members at our fastest speeds ever. In March, across our top 60 largest U.S. metro areas, nearly 60% of Prime members orders arrived the same or next day. And globally, in cities like Toronto, London, and Tokyo, about 3 out of 4 items were delivered the same or next day.
Faster delivery times have another important effect. As we get items to customers this fast, customers choose Amazon to fulfill their shopping needs more frequently, and we can see the results in various areas, including how fast our Everyday Essentials business is growing and the continued increase in Prime member purchase frequency and total spend with us. Over the past year, we've talked about how our regionalization efforts have helped lower our cost to serve. We've continued to inspect our fulfillment network for additional opportunities and are working on several areas where we believe we can lower costs even further while also improving customer experience.
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One example of this is our work to increase the consolidation of units into fewer boxes. As we further optimize our network, we've seen an increase in the number of units delivered per box, an important driver for reducing our cost. When we're able to consolidate more units into a box, it results in fewer boxes and deliveries, a better customer experience, reduces our cost to serve, and lowers our carbon impact.
Another prominent example is our efforts to revamp our U.S. inbound fulfillment architecture to allow for better inventory placement closer to our customers. This will be an iterative process throughout the year as we work with sellers and retail partners, and teams are making good progress on their plans.
Advertising performance remained strong, with ad sales up 24% year-over-year, excluding the impact of foreign exchange. The strength in advertising was primarily driven by sponsored products, supported by continued improvements in relevancy and measurement capabilities for advertisers. We still see significant opportunity ahead in our sponsored products as well as areas where we're just getting started like Prime Video ads. Prime Video ads offers brands value as we can better link the impact of streaming TV advertising to business outcomes like product sales or subscription sign-ups, whether the brands sell on Amazon or not. It's very early for streaming TV ads but we're encouraged by the early response.
Moving to AWS. Year-over-year revenue growth accelerated to 17.2% in Q1, up from 13.2% in Q4. It's useful to remember that year-over-year percentages are only relevant relative to the total base from which you start. And given our much larger infrastructure cloud computing base, at this growth rate, we see more absolute dollar growth again quarter-over-quarter in AWS than we can see elsewhere.
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We're seeing a few trends right now. First, companies have largely completed the lion's share of their cost optimization and turned their attention to newer initiatives. Before the pandemic, companies were marching to modernize their infrastructure, moving from on-premises infrastructure to the cloud to save money, innovated at a more rapid rate, and to drive more developer productivity. The pandemic and uncertain economy that followed distracted from that momentum, but it's picking up again. Companies are pursuing this relatively low-hanging fruit in modernizing their infrastructure.
And with the broadest functionality by a fair bit, deepest partner ecosystem and strong security and operational performance, AWS continues to be their strong partner of choice. Our AWS customers are also quite excited about leveraging gen AI to change the customer experiences and businesses. We see considerable momentum on the AI front where we've accumulated a multibillion-dollar revenue run rate already.
You heard me talk about our approach before, and we continue to add capabilities at all 3 layers of the gen AI stack. At the bottom layer, which is for developers and companies building models themselves, we see excitement about our offerings. We have the broadest selection of NVIDIA compute instances around, but demand for our custom silicon, Trainium and Inferentia, is quite high given its favorable price performance benefits relative to available alternatives. Larger quantities of our latest generation Trainium2 is coming in the second half of 2024 and early 2025.
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Companies are also starting to talk about the eye-opening results they're getting using SageMaker. Our managed end-to-end service has been a game changer for developers in preparing their data for AI, managing experiments, training models faster, lowering inference latency, and improving developer productivity. Perplexity.ai trains models 40% faster than SageMaker. Workday reduces inference latency by 80% with SageMaker, and NatWest reduces its time to value for AI from 12 to 18 months to under 7 months using SageMaker. This change is how challenging it is to build your own models, and we see an increasing number of model builders standardizing on SageMaker.
The middle layer of the stack is for developers and companies who prefer not to build models from scratch but rather seek to leverage an existing large language model, or LLM, customize it with their own data and have the easiest and best features available to deploy secure high-quality, low-latency, cost-effective production gen AI apps. This is why we built Amazon Bedrock, which not only has the broadest selection of LLMs available to customers but also unusually compelling model evaluation, retrieval augmented generation, or RAG, to expand model's knowledge base, guardrails to safeguard what questions applications will answer, agents to complete multistep tasks, and fine-tuning to keep teaching and refining models.
Bedrock already has tens of thousands of customers, including adidas, New York Stock Exchange, Pfizer, Ryanair and Toyota. In the last few months, Bedrock's added Anthropic's Claude 3 models, the best-performing models in the planet right now; Meta's Llama 3 models; Mistral's various models, Cohere's new models and new first-party Amazon Titan models. A week ago, Bedrock launched a series of other features, but perhaps most importantly, Custom Model Import. Custom Model Import is a sneaky big launch as it satisfies a customer request we've heard frequently and that nobody has yet met.
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As increasingly more customers are using SageMaker to build their models, they're wanting to take advantage of all the Bedrock features I mentioned earlier that make it so much easier to build high-quality production-grade gen AI apps. Bedrock Custom Model Import makes it simple to import models from SageMaker or elsewhere into Bedrock before deploying their applications. Customers are excited about this, and as more companies find they're employing a mix of custom-built models along with leveraging existing LLMs, the prospect of these 2 linchpin services in SageMaker and Bedrock working well together is quite appealing.
The top of the stack are the gen AI applications being built. And today, we announced the general availability of Amazon Q, the most capable generative AI-powered assistant for software development and leveraging company's internal data. On the software development side, Q doesn't just generate code. It also tests code, debugs coding conflicts, and transforms code from one form to another. Today, developers can save months using Q to move from older versions of Java to newer, more secure and capable ones. In the near future, Q will help developers transform their .NET code as well, helping them move from Windows to Linux.
Q also has a unique capability called Agents, which can autonomously perform a range of tasks, everything from implementing features, documenting, and refactoring code to performing software upgrades. Developers can simply ask Amazon Q to implement an application feature such as asking it to create an add to favorites feature in a social sharing app, and the agent will analyze their existing application code and generate a step-by-step implementation plan, including code changes across multiple files and suggested new functions. Developers can collaborate with the agent to review and iterate on the plan, and then the agent implements it, connecting multiple steps together and applying updates across multiple files, code blocks and test suites. It's quite handy.
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On the internal data side, most companies have large troves of internally relevant data that resides in wikis, Internet pages, Salesforce, storage repositories like Amazon S3 and a bevy of other data stores and SaaS apps that are hard to access. It makes answering straightforward questions about company policies, products, business results, code, people, and many other topics hard and frustrating. Q makes this much simpler. You can point Q at all of your enterprise data repositories and it will search all this data, summarize logically, analyze trends, engage in dialogue with customers about this data.
We also introduced today a powerful new capability called Q Apps, which lets employees describe a natural language what apps they want to build on top of this internal data and Q Apps will quickly generate that app. This is going to make it so much easier for internal teams to build useful apps from their own data.
Q is not only the most functionally capable AI-powered assistant for software development and data but also setting the standard for performance. Q has the highest-known score and acceptance rate for code suggestions, outperforms all other publicly benchmarkable competitors and catching security vulnerabilities, and leads all software development assistants on connecting multiple steps together and applying automatic actions. Customers are gravitating to Q, and we already see companies like Brightcove, British Telecom, Datadog, GitLab, GoDaddy, National Australia Bank, NCS, Netsmart, Slam, Smartsheet, Sun Life, Tata Consultancy Services, Toyota, and Wiz using Q, and we've only been in beta until today.
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I'd also caution folks not to overlook the security and operational performance elements of these gen AI services. It's less sexy but critically important. Most companies care deeply about the privacy of the data in their AI applications and the reliability of their training and production apps. If you've been paying attention to what's been happening in the last year or so, you can see there are big differences between providers on these dimensions. AWS has a meaningful edge, which is adding to the number of companies moving their AI focus to AWS.
We expect the combination of AWS' reaccelerating growth and high demand for gen AI to meaningfully increase year-over-year capital expenditures in 2024, which given the way the AWS business model works is a positive sign of the future growth. The more demand AWS has, the more we have to procure new data centers, power and hardware. And as a reminder, we spend most of the capital upfront. But as you've seen over the last several years, we make that up in operating margin and free cash flow down the road as demand steadies out. And we don't spend the capital without very clear signals that we can monetize it this way.
We remain very bullish on AWS. We're at $100 billion-plus annualized revenue run rate, yet 85% or more of the global IT spend remains on-premises. And this is before you even calculate gen AI, most of which will be created over the next 10 to 20 years from scratch and on the cloud. There is a very large opportunity in front of us. We also continue to make strong progress on our newer investments. Our emerging international stores are growing and moving towards profitability. Our third-party logistics business offering services like Buy with Prime, Amazon shipping and multichannel fulfillment continues to grow well.
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We just launched a Prime delivery grocery benefit that lets customers receive free unlimited grocery delivery for just $9.99 a month, which is great value and customers are responding accordingly. Later this year in Manhattan, we're launching a new smaller Whole Foods market concept called Whole Foods Market Daily Shops. Prime Video continues to produce compelling content, with Fallout being our latest big hit on the heels of a very successful Road House movie, with strong customer engagement in our original and partner content.
Our health services business is growing robustly as customers are loving our pharmacy customer experience, and we've launched same-day delivery of prescription medications to customers in 8 cities, including Los Angeles and New York City, with plans to expand to more than a dozen cities by the end of the year, with customers now getting first fill medications 75% faster year-over-year nationwide. And Kuiper is getting closer to having its production satellites in space and entering our commercial beta.
There's a lot of invention happening across our business, and I'm super grateful to all our employees for their hard work and ingenuity. I'll close by sharing that I'm enthusiastic about how we started this year. We have a lot of opportunity in front of us in every one of our businesses to make our customers' lives better and easier.
With that, I'll turn it over to Brian for a financial update.
Brian Olsavsky: Thanks, Andy. Starting with our top line financial results. Worldwide revenue was $143.3 billion, representing a 13% increase year-over-year, excluding the impact of foreign exchange and near the top end of our guidance range. I'd like to highlight a couple of points to help you interpret our growth rates. First, we saw an impact from leap year in Q1, which added approximately 120 basis points to the year-over-year quarterly revenue growth rate.
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Second, while I typically talk about growth rates, excluding the impact of year-over-year changes in foreign exchange, we did see an unfavorable impact from global currencies weakening against the U.S. dollar, more than we had planned in Q1. This led to a $700 million or 50 basis point headwind to revenue relative to what we guided. Excluding this FX headwind, we would have exceeded the top end of our guidance range. Worldwide operating income was $15.3 billion, which was our highest quarterly income ever, and it was $3.3 billion above the high end of our guidance range.
This was driven by strong operational performance across all 3 reportable segments and better-than-expected operating leverage, including lower cost to serve. The impact on operating income from our Q1 FX rate headwind was negligible. I'll speak more to our profitability trends in a moment. In the North America segment, first quarter revenue was $86.3 billion, an increase of 12% year-over-year. In the international segment, revenue was $31.9 billion, an increase of 11% year-over-year, excluding the impact of foreign exchange.
We remain focused on the inputs that matter most to our customers: selection, price, and convenience. During the quarter, around the world, we helped customers save with our shopping events. We added selection, including premium and luxury brands, and we delivered our fastest speeds ever for Prime members. Third-party sellers continue to be an important part of our offering. Third-party seller services revenue increased 16% year-over-year, excluding the impact of foreign exchange. We saw strong 3P unit growth, coupled with increased adoption of our optional services, such as fulfillment and global logistics. For the quarter, third-party seller unit mix was 61%, up 200 basis points year-over-year.
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Shifting to profitability, North America segment operating income was $5 billion, an increase of $4.1 billion year-over-year. Operating margin was 5.8%, up 460 basis points year-over-year. We saw improvements in our cost to serve, including continued benefit from our work to regionalize our operations, savings from more consolidated customer shipments, and improved leverage driven by strong unit growth and lower transportation rates. In our international segment, operating income was $903 million, an improvement of $2.2 billion year-over-year. Operating margin was 2.8%, up 710 basis points year-over-year. This is primarily driven by our established countries as we improve cost efficiencies through network design enhancements and improved volume leverage. Additionally, we saw good progress in our emerging countries as they expand their customer offerings and make strides on their respective journeys to profitability.
Looking ahead, we see several opportunities to further lower cost to serve and improved profitability in our worldwide stores business while still investing to improve the customer experience. Within our fulfillment network, we are focused on investing in our inbound network, streamlining and standardizing process paths, and adding robotics and automation. These improvement opportunities will take time. However, we have a solid plan in place and we like the path we're on. Advertising remains an important contributor to profitability in North America and international segments. We see many opportunities to grow our offerings, both in the areas that are driving growth today like sponsored products and in areas that are newer, like streaming TV ads.
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Moving to AWS. Revenue was $25 billion, an increase of 17% year-over-year, and AWS is now a $100 billion annualized revenue run rate business. Excluding the impact from leap year, AWS revenue increased approximately 16% year-over-year. During the first quarter, we saw growth in both generative AI and non-generative AI workloads across a diverse group of customers and across industries as companies are shifting their focus towards driving innovation and bringing new workloads to the cloud.
Additionally, we continue to see the impact of cost optimizations diminish. While there always be a level of ongoing optimization, we think the majority of the recent cycle is behind us, and we're likely closer to a steady state of these optimization efforts. AWS operating income was $9.4 billion, an increase of $4.3 billion year-over-year. As a reminder, these results include the impact from the change in the estimated useful life of our servers, which primarily benefits the AWS segment. We made progress in managing our infrastructure and fixed costs while still growing at a healthy rate, which has resulted in improved leverage.
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As we've said in the past, over time, we expect the AWS operating margins to fluctuate, driven in part by the level of investments we are making in the business. We remain focused on driving efficiencies across the business, which enables us to invest to support the strong growth we're seeing in AWS, including generative AI, which brings us to capital investments. As a reminder, we define these as the combination of CapEx plus equipment finance leases. In 2023, overall capital investments were $48.4 billion. As I mentioned, we're seeing strong AWS demand in both generative AI and our non-generative AI workloads, with customers signing up for longer deals and making bigger commitments. It's still relatively early days in generative AI and more broadly, the cloud space, and we see sizable opportunity for growth. We anticipate our overall capital expenditures to meaningfully increase year-over-year in 2024, primarily driven by higher infrastructure CapEx to support growth in AWS, including generative AI.
Turning to our revenue guidance for Q2. Net sales are expected to be between $144 billion and $149 billion or to grow between 7% and 11% compared with the second quarter of 2023. We saw an unfavorable impact from year-over-year changes in foreign exchange in our Q1 results, and we expect that headwind to grow in the second quarter. Our Q2 net sales guidance anticipates an unfavorable foreign exchange impact of approximately 60 basis points. As part of our guidance considerations, we also continue to keep an eye on consumer spending and macro level trends, specifically in Europe where it appears to be a bit weaker relative to the U.S. Operating income is expected to be between $10 billion and $14 billion in Q2. This estimate includes the impact of our seasonal step-up in stock-based compensation expense, driven by the timing of our annual compensation cycle.
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I want to thank our customers, our partners, and our teammates around the world for a very strong start to the year, and we're excited to build on this momentum. We'll remain focused on streamlining and prioritizing projects in a way that allows us to continue inventing for customers in a cost-effective way. With that, let's move on to your questions.
Operator: [Operator Instructions] Our first question comes from the line of Doug Anmuth with JPMorgan.
Douglas Anmuth: Probably for both Andy and Brian. Historically, Amazon has shifted between periods of heavy investment and then margin expansion back into heavier investment, but you now have a much bigger base of gross profit and overall operating income. As you think about gen AI and capital intensity or grocery or Kuiper or health care, is there anything from an investment perspective that could materially impact profitability going forward in your view?
Brian Olsavsky: Doug, yes, we have historically always mentioned that. You have seen like a pendulum shift sometimes between profitability and investment. I think we're at the stage now where we're doing both at the same time continually, so we are more apt to talk about the specific investments that we're making and how that might impact our short-term outlook. So if you look at the progress we've made on operating income and free cash flow over really the last 18 months, a lot of it's driven by improvements in our stores business, lower cost to serve. We've talked about regionalization efforts and how that's moving into inbound areas now.
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Advertising has been growing strong and AWS has been strong. And you saw AWS margins increased 800 basis points sequentially off Q4. A lot of that's driven by cost controls and expanding revenue on the top line and lower cost structure throughout the company. We do see, though, on the CapEx side that we will be meaningfully stepping up our CapEx and the majority of that will be in our -- to support AWS infrastructure and specifically generative AI efforts. So I would expect that, that will increase -- it will increase depreciation, definitely in that segment.
On the -- well, we're talking about CapEx. Right now, in Q1, we had $14 billion of CapEx. We expect that to be the low quarter for the year. As Andy said earlier, we are seeing strong demand signals from our customers and longer deals and larger commitments, many with generative AI components. So those signals are giving us confidence in our expansion of capital in this area.
And as he also mentioned, we've done this for 18 years. We invest capital and resources upfront. We create capacity very carefully for our customers. And then we see the revenue, operating income and free cash flow benefit for years to come after that, with strong returns on invested capital. So a little bit of a long-winded answer to your question. But yes, we have -- the main issue that we'll see in the near term is additional CapEx and we've talked about that.
And we continue to see strong CapEx performance in our stores business. Most of that will be related to modest capital or capacity increases, in addition to our same-day fulfillment network and some Amazon Logistics upgrades to the fleet. But for the most part, what you'll see is really going to be on the AWS side.
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Andrew Jassy: Yes, I just would add briefly, just to summarize. I understand where the question is coming from, Doug. And I think we're in a position to do both is the short answer. I think there's actually an opportunity in our existing large businesses in the stores business along with advertising and AWS. There's a lot of growth in front of us. And I think we're investing in a meaningful way. But I think we also -- we've been pretty consistent about don't believe that we're at the end of what we can do in terms of improving our cost structure on the store side.
Yes, I think there are really unbelievable growth opportunities in front of us. And I think what people sometimes forget on the AWS side, it's a $100 billion revenue run rate business, that we're still 85-plus percent of the global IT spend is on premises. And if you believe that equation is going to flip, which we do, it means we have a lot of growth in front of us, and that's before the generative AI opportunity, which I don't know if any of us have seen a possibility like this in technology in a really long time, for sure, since the cloud, perhaps since the Internet.
And unlike in the cloud where so much -- there's a lot of work to be done to move from on-premises to the cloud, people do it and they get value out of it, which is why they modernize their infrastructure. But it's work. All of this generative AI set of workloads, which will transform every experience they're going to be built from scratch on the cloud largely. And so it's just tremendous opportunities there along with some of the other areas that we're investing that are really early stage. So I think it's both for us.
Operator: And our next question comes from the line of Ross Sandler with Barclays.
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Operator: And our next question comes from the line of Ross Sandler with Barclays.
Ross Sandler: Somewhat related question on CapEx intensity in AWS. So I think the CEO of Anthropic has said that I think the next generation of models cost in the neighborhood of $1 billion to train. This would be like Claude 4, I guess, high end. And then the generation after that might be as much as $10 billion to train. So is this something that you feel like the industry will do on top of AWS? Do you feel like Olympus and some of the stuff you're doing in-house needs to kind of stay at the state-of-the-art, or can others do that? And then how much did all this training have an impact on the acceleration that you saw in 1Q for AWS revenue?
Andrew Jassy: Well, Ross, I would tell you that we have seen kind of 3, I'll call it, macro trends that I think are contributing to AWS' performance, at least in the last quarter. I think first of all, I think the lion's share of cost optimization is behind us. So I think companies will be smart and have learned a lot over the last number of months in how they run their infrastructure in the cloud. But I think the lion's share of the cost optimization is behind us. And I think people have moved to newer initiatives that I would, at a macro level, describe as modernizing their infrastructure and then trying to drive value at a generative AI.
On the former, I think we were on this march before the pandemic, where most companies were trying to figure out how to move from on-premises to the cloud because it's more cost-effective and it's faster to innovate and they get real developer productivity. And then when the pandemic hit and people were in survival mode and the uncertain economy, you let people save costs wherever they could, and they got distracted on that. But they're back to pursuing and figuring it out because it's low-hanging fruit for them, and we see very significant growth in that space.
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And at the same time, we're seeing very significant momentum in people trying to figure out how to run their generative AI on top of AWS. I mentioned we have a multibillion-dollar revenue run rate that we see in AI already, and it's still relatively early days. And I think that there's -- at a high level, there's a few things that we're seeing that's driving that growth. I think first of all, there are so many companies that are still building their models. And these range from the largest foundational model builders like Anthropic, you mentioned, to every 12 to 18 months or building new models.
And those models consume an incredible amount of data with a lot of tokens, and they're significant to actually go train. And a lot of those are being built on top of AWS, and I expect an increasing amount of those to be built on AWS over time because our operational performance and security and as well as our chips, both what we offer from NVIDIA. But if you take Anthropic, as an example, they're training their future models on our custom silicon on Trainium. And so I think we'll have a real opportunity for a lot of those models to run on top of AWS.
I think the thing that people sometimes don't realize is that while we're in the stage that so many companies are spending money training models, once you get those models into production, which not that many companies have, but when you think about how many generative AI applications will be out there over time, most will end up being in production when you see the significant run rates. You spend much more in inference than you do in training because you train only periodically, but you're spinning out predictions and inferences all the time.
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And so we also see quite a few companies that are building their generative AI applications to do inference on top of AWS. And a lot of it has to do with the services. And the primary example we see there is how many companies, tens of thousands of companies, already are building on top of Amazon Bedrock, which has the largest selection of large language models around and a set of features that make it so much easier to build a high-quality, cost-effective low latency, production-grade generative AI applications.
So we see both training and inference being really big drivers on top of AWS. And then you layer on top of that the fact that so many companies, their models and these generative AI applications are going to have their most sensitive assets and data. And it's going to matter a lot to them what kind of security they get around those applications. And yes, if you just pay attention to what's been happening over the last year or 2, not all the providers have the same track record. And we have a meaningful edge on the AWS side so that as companies are now getting into the phase of seriously experimenting and then actually deploying these applications to production, people want to run their generative AI on top of AWS.
Operator: And the next question comes from the line of Brian Nowak with Morgan Stanley.
Brian Nowak: I have 2. The first one is on cost to serve. I appreciate all the color in the shareholder letter and even tonight on cost to serve. Andy, maybe could you just help us quantify a little more how to think about some of your North Star cost to serve goals over the next couple of years? And what could that mean for potential accompanying reasonable ranges of outcomes for North America retail margins through all of that?
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And then the second one, if cost to serve does improve, I think it should lead to significant incremental cash flow even with more CapEx. So just remind us again how you sort of think through the philosophy of returning capital to shareholders in addition to continuing to invest for the long run?
Brian Olsavsky: Brian, this is Brian. I will start with your second question. So as far as dividends or buybacks or any other capital structure moves, we don't have anything to share with you on that today. But I'll reacquaint you with our general philosophy. So our first priority is to invest in -- to support the growth opportunities and long-term investments within our businesses. And generally, we still have many opportunities to put that capital to use that would generate meaningful returns, especially as you heard in generative AI.
So we're very -- we have a great deal of passion on that and conviction on that as well. We are reaching a different stage of free cash flow. As you mentioned, we had negative free cash flow for 2 years, '21 and '22, immediately after the pandemic as we had doubled the size of our operations network and had a lot of other expenses. That was followed by 2023 when we had our largest -- our highest free cash flow ever. And those trends have carried into Q1. So we feel good about the free cash flow. We are, again, still anticipating higher CapEx this year.
The other thing that we're doing with cash flow right now is we're repaying some of the debt that we had taken on during that negative free cash flow period. We have reached a high watermark at the end of Q1 last year. And since then and then through this year, we'll pay that down over $25 billion. So that's our first priority as well as 2024 capital expenditures. But otherwise, nothing to share on that front.
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I'll tee up, Andy, on the stores profitability because I know there's always generally the comment about how high can operating margins go and how do they compare to historic trends. And I think the same still holds. We look back to before the pandemic, and we say, first, we can achieve those operating margins even without the impact of advertising. And we're not quite there yet. But we're not limiting ourselves to that. We're looking for ways to, again, turn over every rock, look at every process and everything that we do on the logistics side and see how can we get our cost structure down and how can we get speed up and selection up. So it is working on a lot of fronts there, but cost is certainly front and center as we meet and improve customer experience.
Operator: And the next question comes from the line of Youssef Squali with Truist Securities.
Youssef Squali: Andy, on logistics, in September, you launched Amazon supply chain. Can you just help us understand the opportunity you see there? Where are you in that journey to build logistics as a service on a global basis? And does that require a step function increase in CapEx?
Andrew Jassy: Yes. Thanks for the question, Youssef. I think that it's interesting what's happening with our -- the business we're building in third-party logistics. And it really kind of, in some ways, mirrors some of the other businesses we've gotten involved in, AWS being an example of it, even though it's -- they're very different businesses in that we realized that we had our own internal need to build a bunch of these capabilities.
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And we figured that there were probably others who had those same needs and we decided to build services out of them. So as our business has grown, it turns out to be pretty hard work to actually import items from overseas, get them through customs and through the border and then ship them from that point to various facilities. And then it turns out that you don't want to store those facilities in fulfillment centers because that space is really scarce. So you'd like to have them in upstream storage facilities that are very inexpensive. And then you'd like to have a way to be able to know when your more scarce supply in the fulfillment centers needs replenishment and be able to do it automatically from those upstream storage facilities.
And so all of those were capabilities that we had to build for ourselves to be able to operate our stores business in the way that we wanted to and that our sellers wanted to. And so we built that capability for ourselves first and then we opened up those services as individual services to our sellers. And so we help sellers, we have a service that allows them to get items through the border and through customs. We have a service that allows them to ship from customs to various facilities, whether they're our own or their separate ones.
We allow them to store items in our upstream low-cost warehouses that they can either automatically replenish into our fulfillment centers where we ship or they can move to other facilities that they have. We have a service that lets them -- where we'll ship either to our end customers if they're selling on Amazon or to their end customers. We obviously have Buy with Prime, where we enable our Prime customers to be able to buy from our third-party Buy with Prime sellers websites, which increases their conversion 25% versus what they would do on their own, and it's a great benefit for our Prime customers.
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And then I would say that supply chain with Amazon is really an abstraction on top of those individual building block services I just mentioned that makes it easier for customers to have the whole end-to-end supply chain integrated. That collective set of businesses is growing very significantly. It's already what I would consider a reasonable sized business. And I think it's just really early days. It is not something that we anticipate being a giant capital expense driver for us.
We have to build a lot of those capabilities anyway to handle our stores business, and we think we can -- it will be a modest increase on top of that to accommodate third-party sellers. But are third-party sellers find high value in us being able to manage those components for them versus having to do it themselves and they save money in the process.
Operator: And our next question comes from the line of Justin Post with Bank of America.
Justin Post: I thought I'd ask a couple of growth drivers that you mentioned. First, grocery, it seems like you're still changing the threshold for free delivery or the subscription prices. Just can you say at all how much that's contributing to your gross right now and do you think you're over the hump? Or are you optimistic this can be a really big category for you? And then maybe a little bit extra on Prime Video ramp, how that ramp went versus your expectations? And do you think that could be a meaningful contributor to ad revenues going forward?
Andrew Jassy: Yes. I'll take them in opposite order just on Prime Video ads. Very early days, just launched a few months ago. It's off to a really good start. I think advertisers are excited about being able to expand their ability to advertise with us in video beyond Twitch and Freevee to Prime Video shows and movies. I think they also find that the relevancy and the measurability of that type of advertising and Prime Video ads is unique for them. So it's off to a very good start, it's early days, but we're optimistic there.
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On grocery, I would tell you that we continue to be optimistic about what we're doing in grocery. We have a very large grocery business. It's kind of got a few different components. And we have a very, very significant nonperishables grocery business much the same way that the mass merchandisers entered this business 30 or 40 years ago. These are consumables and canned goods and pet food and health care and beauty products. That continues to grow at a very rapid rate.
And we have an organic grocery business in Whole Foods Market, which is the pioneer in that space. And that business continues to grow very nicely. We're introducing a new smaller format in the fall in Manhattan and the Whole Foods Market Daily Shops idea. We've worked very hard on the profitability trajectory over the last 18 months and like the way that, that has taken shape. And then if you want to have -- do you want to serve as many grocery missions as we aim to serve. You have to have a perishables business and a mass physical presence. And that's what we've been working on with Amazon Fresh.
We've launched our V2 format in physical stores over the last few months, primarily in Chicago and Southern California. We like the early results a lot. They're really meaningfully better in almost every dimension. It's still early, and there's some things to work through, but we like what we're seeing there. And then we have to decide the best way to roll those out over time.
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And as you mentioned, Justin, we just launched a Prime benefit for grocery, which is all-you-can-eat delivery for $9.99 a month, which if you order once from Whole Foods a month, it pays for itself, or once from Amazon Fresh for orders under $40, it pays for itself. It's a very valuable offering for our Prime members, and it's off to a great start. So we have a lot -- in my opinion, we have lots of ways that we can continue to help customers satisfy their grocery needs. And we have some building blocks that I think might also change how people split up their grocery orders over time. But I continue to be optimistic that, that's going to continue to grow for us.
Operator: And our final question will come from the line of Ron Josey with Citi.
Ronald Josey: Maybe, Andy, I wanted to ask on international profitability, just after 1Q's 2.8% margin. Talk just about where we are in terms of international getting or to consistent profitability. We're following a similar trajectory as North America in terms of benefiting from regionalization shift, and we saw what average distance of each package traveled actually came down by 25 kilometers and whatnot. And if you could provide any insights on maybe how inbound fulfillment architecture might add to just continued benefits on faster shipping, same-day, next day, et cetera.
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Brian Olsavsky: Thank you, Ron. I'm going to start with this one on international profitability. So yes, in the quarter, our operating income was $902 million. And if you've watched that, we've seen a steady progression in operating income in our international segment, it's up $2.2 billion year-over-year. So we like the trend there. It breaks down into a few areas. I would say the established countries of Europe, Japan, as well as the U.K. are following a lot of the same trajectory as in the United States. They are profitable in their own right. They are adding selection, they're adding new features like grocery there, adding to their Prime benefits, and a lot of the work that we do in the United States carries over there.
The second group is the emerging countries. And of course, we've launched 10 new countries in the last 7 years. Each of those has its own particular trajectory on profitability. The first thing we see there is having a good customer experience, having people sign up for Prime. A lot of times, our Prime Video benefits help with that. Then work on our cost structure as we get scale, add advertising and other things. And eventually, what we see is a breakeven -- countries breakeven and then they make positive income and free cash flow and are more of a contribution to the -- positive contribution to the international segment. So we're seeing both the emerging and the established improving, and we like the trajectory. And I think you'll see more of as we move forward.
Andrew Jassy: Yes. I would add a few things. I mean, I'm again quite bullish on our international stores business. It's already a very large business. We've added a number of countries that are on the right trajectory, as Brian just indicated, and it's going to be a big, profitable business for us. And I really like the direction it's headed.
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I'll take also just the second part of your question just really around continuing to take -- to work on cost structure. I'd say, first of all, on the regionalization side, which we've talked a lot about the last year, it may sound a little boring to talk about because we talked about it a lot of times. But I'd just tell you that we're not done there. A lot of the work that we've done, we still have opportunities to refine, to get more value out of that. And a lot of what we learned on the regionalization side in the U.S. was in part inspired from what we saw in Europe, which, in many ways, is set up as a regional network because of the nature of how close those countries are to one another.
And I would say we have also learned lessons from what we've done in the U.S. that we're going to be able to apply to our international operations as well. I think we see additional opportunities in all sorts of places. A good example of which is just how and where we inbound items to. The architecture we've had set up has largely had people inbounding to a couple of places. And then we took -- we spent a lot of effort and time and expense in breaking those down and shipping them to lots of other places.
And we believe we're going to be much more efficient in how we use the inbound network and how we partner with our sellers. Part of what we did with our change in seller fees, we lowered the outbound fees in a meaningful way, but then we added an incentive for our sellers to inbound into locations that allow us to be more cost following and allow both our sellers and us to enjoy in those cost savings when we're able to do so. And we're seeing very optimistic signs there, too.
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I think we're still early with respect to how we can continue to optimize the number of units per box, which has all sorts of good benefits. And then I'd just also say that it's been really interesting to watch the same-day facilities evolution in our fulfillment network. And I think a lot of people have made the assumption over the last few years that faster speeds are going to mean higher cost, and that is not the case if you build the infrastructure with the right building blocks the way we have over the last couple of years.
And our same-day facilities are our least expensive facilities in the network. We still have a fraction of the number of those that we will have in the U.S. that we'll have in other parts of the world, which will, again, both change our cost structure while increasing speed. So I don't think we're at the limits of what we can do. It's not going to all happen in 1 year. We're going to be working hard at this and inventing at this for several years, but I think we have a lot of upside in front of us.
Dave Fildes: Thank you for joining us on the call today and for your questions. A replay will be available on our Investor Relations website for at least 3 months. We appreciate your interest in Amazon and look forward to speaking with you again next quarter.
Operator: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Operator: Thank you for standing by. Good day, everyone, and welcome to the Amazon.com First Quarter 2025 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. And for opening remarks, I will be turning the call over to the Vice President of Investor Relations, Mr. Dave Fildes. Thank you, sir. Please go ahead.
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Dave Fildes: Hello and welcome to our Q1 2025 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO; and Brian Olsavsky, 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 2024. Our comments and responses to your questions reflect management's views as of today, May 1, 2025 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, tariff and trade policies, 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, cloud services and new and emerging technologies, and the various factors detailed in our filings with the SEC. Our guidance assumes, among other things. So, we don't conclude any additional business acquisitions, restructurings, or
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SEC. Our guidance assumes, among other things. So, 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 Andy.
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Andy Jassy: Thanks, Dave. Today we're reporting $165.7 billion in revenue, up 10% year-over-year, excluding the impact from foreign exchange rates. Operating income is $18.4 billion up 20% year-over-year and trailing 12 month free cash flow is $25.9 billion. We're pleased with our continued business progress, but more importantly with our pace of innovation and additional improvement in our customer experiences. In our stores business, we once again saw strong consumer resonance in our continued work on selection value and shipping speed. Our broad selection offers customers choice across their shopping journeys. We welcome well-known brands such as Oura Rings, Michael Kors, and The Ordinary, as well as a new shopping experience with Saks that offers a refined luxury assortment of fashion and beauty items from brands like Dolce&Gabbana, Balmain, Erdem, Giambattista Valli, and Jason Wu Collection. As always, we're working to keep prices low. And with this being an uncertain moment for consumers, it's even more important than it typically is. In Q1, we held deal events worldwide to help customers save over $500 million across the Big Spring Sale in the U.S. and Canada, Spring Deal Days in Europe, and Ramadan/Eid Sale events in Egypt, Saudi Arabia, Turkey, and UAE. Prime members will have more opportunities to save throughout the year including at our eleventh Prime Day event in July. Over the past few years, we've made significant progress in making our fulfillment network more efficient and cost effective. We've shared many times that an important turning point was regionalizing our national fulfillment network into regional hubs. By stocking items closer to where customers live, we're able to deliver more orders faster often in fewer packages and at lower delivery costs. The next challenge was getting as many items as possible into these regional nodes. Our inbound network which is how we get items to each fulfillment center hadn't been architected to leverage this new regionalization structure. So, we
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is how we get items to each fulfillment center hadn't been architected to leverage this new regionalization structure. So, we redesigned it and just rolled out a new inbound architecture that expands the share of products that we can place in each fulfillment center improving delivery speeds and lowering our cost to serve. In the first quarter, we once again set new delivery speed records with our fastest delivery ever for Prime members around the world and we delivered more items in the same day or next day in Q1 than any other quarter in our history. Looking ahead, we'll continue to refine our newly redesigned inbound network, build out our same day delivery sites and add additional robotics and automation throughout our buildings. You'll also see us expand the number of delivery stations that we have in rural areas of the U.S. So, we can get items to people who live in less densely populated areas much more quickly. I thought I'd share a few thoughts on the prospect of heightened tariffs on our stores business. Obviously none of us knows exactly where tariffs will settle or when. We haven't seen any attenuation of demand yet. To some extent, we've seen some heightened buying in certain categories that may indicate stocking up in advance of any potential tariff impact. We also have not seen the average selling price of retail items appreciably go up yet. Some of this reflects some forward buying we did in our first-party selling and some of that reflects some advanced inbounding our third-party sellers have done, but a fair amount of this is that most sellers just haven't changed pricing yet. Again, this could change depending on where tariffs settle. Amazon is not uniquely susceptible to tariffs. As it relates to China, retailers who aren't buying directly from China are typically buying from companies who themselves are buying from China, marking these items up, rebranding and selling to U.S. Consumers. These retailers are buying the product at a higher price than Chinese sellers selling directly to U.S.
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to U.S. Consumers. These retailers are buying the product at a higher price than Chinese sellers selling directly to U.S. consumers in our marketplace. So, the total tariff will be higher for these retailers than for China Direct Sellers. It's also sometimes easy to forget what Amazon sells. We're not mostly selling high average selling price items, but we certainly sell a bunch. In the first quarter, our Everyday Essentials grew more than twice as fast as the rest of our business and represented one out of every three units sold in the U.S. and Amazon. Even if you exclude Whole Foods Market and Amazon Fresh, Amazon is one of the largest grocers in the U.S. with over $100 billion in gross sales last year. People are buying a lot of their everyday essentials at Amazon. We also have extremely large selection, hundreds of millions of unique SKUs, which means we're often able to weather challenging conditions better than others. When there are periods of discontinuity, substantial unexpected product trends emerge. Think about the pandemic, when items like masks and hand sanitizer became big sellers. When you have the broadest selection like we do and 2 million plus global sellers like we do, you're better positioned to help customers find whatever items matter to them at lower price points than elsewhere. Finally, when there are uncertain environments, customers tend to choose the provider they trust most. Given our really broad selection, low pricing and speedy delivery, we have emerged from these uncertain areas with more relative market segment share than we started and better set up for the future. I'm optimistic this could happen again. Moving to a few words on Amazon Ads, we're working hard to be the best place for brands of all sizes to grow their business. We are pleased with the strong growth on a very large base generating $13.9 billion of revenue in the quarter and growing 19% year-over-year. We're seeing strength across our broad portfolio of full funnel advertising offerings that help advertisers reach
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We're seeing strength across our broad portfolio of full funnel advertising offerings that help advertisers reach an average ad supported audience of more than 275 million in the U.S. alone. This includes our top of funnel efforts to drive brand awareness to bottom of funnel offerings where we measure outcomes at the point of conversion. Amazon Ads provides brands with tools to reach targeted audiences in our own entertainment properties such as Prime Video, Twitch and IMDB, in live sports such as NFL, NBA and NASCAR, audio content such as Amazon Music and Wondery and of course in our store as well as many other external sites such as Pinterest and BuzzFeed. All of our audience and measurement capabilities work for the ads we deliver across premium third party publishers through Amazon DSP and our secure clean rooms provide advertisers the ability to analyze data, produce core marketing metrics and understand how their marketing performs across various channels. We continue to see a lot of opportunity to further expand our full funnel capabilities for brands. AWS grew 17% year-over-year in Q1 and now sits at a $117 billion annualized revenue run rate. We continue to help organizations of all sizes accelerate their move to the cloud, helping to modernize their infrastructure, lower costs and speed up innovation. We signed new AWS agreements with companies including Adobe, Uber, Nasdaq, Ericsson, Fujitsu, Cargill, Mitsubishi Electric Corporation, General Dynamics Information Technology, GE Vernova, Booz Allen Hamilton, NextEra Energy, Publicis Sapient, Elastic, Netsmart, and many others. It's useful to remember that more than 85% of the global IT spend is still on premises, so not in the Cloud yet. It seems pretty straightforward to me that this equation will flip in the next 10 to 20 years. Before this generation of AI, we thought AWS had the chance to ultimately be a multi $100 billion revenue run rate business. We now think it could be even larger. If you believe your mission is to make customers' lives easier
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revenue run rate business. We now think it could be even larger. If you believe your mission is to make customers' lives easier and better every day and you believe that every customer experience will be reinvented with AI, you're going to invest very aggressively in AI and that's what we're doing. You can see that in the thousand plus AI applications we're building across Amazon. You can see that with our next generation of Alexa named Alexa+. You can see that in how we're using AI in our fulfillment network, robotics, shopping, Prime Video and advertising experiences. And you can see that in the building blocks AWS is constructing for external and internal builders to build their own AI solutions. We're not dabbling here. We're very intentionally giving builders the broadest possible capabilities at every level of the AI stack cost effectively to use AI expansively across their businesses. At the bottom layer for those building models, our new custom AI chip Trainium 2 is starting to lay in capacity in larger quantities with significant appeal and demand. While we offer customers the ability to do AI in multiple chip providers and will for as long as I can proceed, customers doing AI at any significant scale realize that it can get expensive quickly. So, the 30% to 40% better price performance that Trainium 2 offers versus other GPU based instances is compelling. For AI to be as successful as we believe it can be, the price of inference needs to come down significantly. We consider this part of our mission and responsibility to help make it so. At the middle layer for those wanting to leverage frontier models to build Generative AI apps, Amazon Bedrock is our fully managed service that offers a choice of high performing foundation models with the most compelling set of features that make it easy to build high quality Generative AI applications. We continue to iterate quickly on Bedrock adding Anthropic's Claude 3.7 Sonnet hybrid reasoning model, their most intelligent model to date and Meta's Llama 4 family of
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adding Anthropic's Claude 3.7 Sonnet hybrid reasoning model, their most intelligent model to date and Meta's Llama 4 family of models. We were also the first cloud service provider to make DeepSeek R1 and Mistral AI's Pixtral Large generally available as a fully managed model. And of course, we offer our own Amazon Nova state-of-the-art foundation models in Bedrock with the latest premier model launching yesterday. They deliver frontier intelligence and industry leading price performance and we have thousands of customers already using them including Slack, Siemens, Sumo Logic, Coinbase, FanDuel, Glean, and Blue Origin. A few weeks ago, we released the Amazon Nova Sonic, the new speech-to-speech foundation model that enables developers to build voice-based AI applications that are highly accurate, expressive, and human-like. Nova Sonic has lower word error rates and higher win rates over other comparable models for speech interactions. The technology was also abuzz by the potential of agents. To-date virtually all the agentic use cases have been of the question-answer variety. Our intention is for agents to perform wide-ranging complex, multi-step tasks by organizing a trip for setting the right temperature or music ambience in your house for dinner guests, or handling complex IT tasks to increase business productivity. There haven't been action-oriented agents like this until Alexa+. It was a technology to build these agents a still quite primitive and accurate, and requires constant human supervision. We just released a research preview of Amazon Nova Act, a new AI model trained to perform actions within a web browser, and it enables developers to breakdown complex workflows into reliable atomic commands like search, or checkout, or answer questions about the stream. It also enables them to add more detailed instructions to these commands, where needed, like don't accept the insurance upsell. Nova Act aims to move the current state-of-the-art accuracy of multi-step agentic actions from 30% to 60%, to 90-plus
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upsell. Nova Act aims to move the current state-of-the-art accuracy of multi-step agentic actions from 30% to 60%, to 90-plus percent with the right set of building blocks to build these action-oriented agents. And the very top of the stack of the applications, this past quarter Q, the most capable generative AI assistance for accelerating software development, and leveraging your own data, plus a lightening-fast new agentic coding experience within the command line interface that could execute complex workflows autonomously. Customers are loving this. We also made generally available Give That Dudo with Amazon Q, enabling AI agents to assist multi-step tasks such as new feature development, code-based upgrades, or Java 8 and 11, while also offering code review and unit testing, all within the same familiar Give That platform. Our AI business has a multibillion dollar annual revenue run rate, continues to grow triple-digit year-over-year percentages, and is still in its very early days. While there is good reason for the high optimism about AI, I conclude my AWS comments with the reminder that there's still so much on-premises infrastructure yet to be moved to the cloud. Infrastructure modernization is much less actually to talk about the AI. The fundamental to any company's technology and invention capabilities to develop their productivity is speed and cost structure. If a company is to realize the full potential of AI, they are going to need their infrastructure and data in the cloud. I want to briefly mention a few other items. As I've referenced a couple of times, in Q1, we introduced Alexa+. Our next-generation of Alexa personal assistant was meaningfully smarter and more capable than our prior self, can both answer virtually any question and to take actions, and is free with Prime or available to non-Prime customers for $99 a month. We are just starting to roll this out in the U.S., and we'll be expanding to additional countries later this year. People are really liking Alexa+ thus far. We are excited and
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and we'll be expanding to additional countries later this year. People are really liking Alexa+ thus far. We are excited and honored to be part of a joint venture that will be creating next-generation of the esteemed James Bond film franchise. We recently named the producer Amy Pascal and David Heyman to produce the next James Bond movie. Additionally, just a couple of days ago, Project Kuiper reached a significant milestone by launching our first satellite into orbit, with more being launched soon, and we expect to begin offering service to customers later this year. I'm proud of what our teams around the world have delivered. We are excited about what we are inventing and working on, as we speak. And with that, I'll turn it over to Brian for our financial update.
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Brian Olsavsky: Thanks, Andy. I'll begin with our top line financial results. Worldwide revenue was $155.7 billion, a 10% increase year-over-year, excluding the impact of foreign exchange. This equates to $1.4 billion headwind from foreign exchange year-over-year in the quarter. Worldwide operating increase was $18.4 billion, approximately $400 million above the high-end of our guidance range. These results include one-time charges that impact North America and international operating income that I'll discuss in a moment. First, let's start with the net sales results for these segments. In the North America segment, first quarter revenue was $92.9 billion, an increase of 8% year-over-year. Our International segment revenue was $33.5 billion, also an increase of 8% year-over-year, excluding the impact of foreign exchange. Worldwide paid units were 8% year-over-year. Our priority is to provide value to our customers across our businesses. In the first quarter, we held multiple deal events around the world, which drove strong customer engagement. We saw broad-based strengths across our key business inputs, including record delivery speeds for Prime members, enabled by improved inventory placement. Our vast selection gives customers choice across various price points, particularly in categories like grocery, which includes everyday essentials. These are the items that people purchase most frequently. We partner with millions of independent sellers from around the world. These selling partners are important contributors to our broad selection, and worldwide third-party selling unit mix was 61% in Q1, consistent with Q1 of last year. Shifting to profitability, North America segment operating income was $5.8 billion, and international segment operating income was $1 billion, with operating margins of 6.3% in North America and 3% internationally. As I mentioned earlier, during the quarter, we've recorded one-time charges related to some historical customer returns that have not yet been resolved and some costs to
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we've recorded one-time charges related to some historical customer returns that have not yet been resolved and some costs to receive inventory that was pulled forward into Q1 ahead of anticipated tariffs. Without these charges, North America and international operating margins would have been approximately 90 basis points and 70 basis points higher, with operating margins of 7.2% for North America and 3.7% for international. We are pleased with how our teams continue to execute and deliver for customers. In Q1, our newly re-architected inbound network drove productivity in our fulfillment and transportation network, leading to better inventory placement and higher units per package, and as a result, lower delivery costs. Beyond Q1, we have a number of initiatives underway to continue improving our cost structure, such as fine-tuning our inbound network, building out our same-day delivery sites, expanding our rural delivery network, and adding robotics and automation to our facilities. Better inventory placement remains a top priority. Better placement drives more in-stock selection, reduces travel distances, and speeds up delivery. And having inventory in the right place at the right time increases the likelihood that multiple items can be combined in a package, which helps reduce packaging and cost. Although progress won't always be linear, we have a good plan to continue to drive improvement over time. Shifting to advertising, advertising remains an important contributor to profitability in the North America and International segments. Advertising revenues grew 19% year-over-year. We're pleased with the accelerating growth on an increasingly large base. We're seeing strong adoption across our full-funnel advertising offering, as brands appreciate our ability to connect them with customers. We'll also continue to invest in other long-term opportunities. These efforts have the potential to be important to customers and Amazon in the future, including Kuiper, where we had our first launch of our
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the potential to be important to customers and Amazon in the future, including Kuiper, where we had our first launch of our production-designed satellites earlier this week. And we'll be launching more satellites throughout the year. We're closely monitoring the macroeconomic environment, including the impact of tariffs. We're planning for various outcomes, and we've taken a number of actions to protect the customer experience. We're doing everything we can to keep our prices low for customers in a way that makes economic sense. Moving next to our AWS segment, revenue was $29.3 billion in Q1, an increase of 17% year-over-year. AWS now has an annualized revenue run rate of more than $117 billion. During the first quarter, we continue to see growth in both Generative AI business and non-Generative AI offerings. As companies turn their attention to newer initiatives, bring more workloads to the cloud, restart or accelerate existing migrations from on-premises to the cloud, and tap into the power of Generative AI. AWS operating income was $11.5 billion and reflects our continued growth, coupled with our focus on driving efficiencies across the business. As we've said before, we expect AWS operating margins to fluctuate over time, driven in part by the level of investments we're making at any point in time. We plan to bring on an increasing amount of capacity in the back half of the year. Now, turning to our cash CapEx, which was $24.3 billion in Q1. The majority of the spend is to support the growing need for technology infrastructure. This primarily relates to AWS as we invest to support demand for our AI services, and increasingly in custom silicon like Trainium, as well as tech infrastructure to support our North America and international segments. We're also investing in our fulfillment and transportation network to support future growth and improve delivery speeds and our cost structure. This investment will support growth for many years to come. While we primarily focus our comments on operating income, I'd
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This investment will support growth for many years to come. While we primarily focus our comments on operating income, I'd like to point out that our first quarter net income of $17.1 billion includes a pre-tax gain of $3.3 billion, included in non-operating income, and it relates to our investment in Anthropic. This activity is not related to Amazon's ongoing operations, but rather the result of the conversion of a portion of our convertible notes to non-voting preferred stock. Turning to Q2 guidance, as a reminder, our guidance considers a range of possibilities and takes into account Q1 results, trends in quarter day results, and expectations around the macroeconomic environment. Q2 net sales are expected to be between $159 billion and $164 billion. We estimate the year-over-year impact of changes in foreign exchange rates based on current rates, which we expect to be a headwind of approximately 10 basis points in the quarter. As a reminder, global currencies can fluctuate during the quarter. Q2 operating income is expected to be between $13 billion and $17.5 billion. This estimate includes the impact of our seasonal step-up in stock-based compensation expense in Q2, driven by the timing of our annual compensation cycle. The external environment remains complex, and as we have done throughout our history, we are focused on the inputs that we can control to protect the customer experience. We will work hard to remain the place customers trust for sharp prices, broad selection, and convenience. We'll remain focused on driving a better customer experience, and we still believe putting customers first is the only reliable way to create lasting value for our shareholders. With that, let's move on to your questions.
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Operator: Thank you. At this time, we will now open the call up for questions. [Operator Instructions] Please hold while we poll for questions. And the first question comes from the line of Ross Sandler with Barclays. Please proceed with your question.
Ross Sandler: Great. I think I'm going to leave the China questions to others, and focus on AWS and kind of AI. So, Andy, it seems like you've been bringing on a lot more P5 GPU instances since February from what it looks like to kind of support all these new AI workloads. So, how would you characterize in the first quarter and maybe here in the second quarter, the kind of supply/demand imbalance that you talked about before around AI workloads? And when do you think that AWS will be in a position to kind of capture enough AI revenue to drive acceleration? Is that something that could happen this year? Do you see that more like next year, given your capacity constraints? Thank you very much.
Andy Jassy: Thanks, Ross. I would say that we've been bringing on a lot of P5s, which is a form of NVIDIA chip instances, as well as landing more and more Trainium 2 instances as fast as we can. And I would tell you that our AI business right now is a multi-billion dollar annual run rate business that's growing triple-digit percentages year-over-year. And we, as fast as we actually put the capacity in, it's being consumed. So, I think we could be driving -- we could be helping more customers and driving more revenue for the business if we had more capacity. We have a lot more Trainium 2 instances, and the next generation of NVIDIA's instances landing in the coming months. I expect that there are other parts of the supply chain that are a little bit jammed up as well at motherboards and some other componentry. And some of that is just because there is so much demand right now, but I do believe that the supply chain issues and the capacity issues will continue to get better as the year proceeds.
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Operator: And the next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.
Eric Sheridan: Thanks so much for taking the question. Maybe I could ask a two-parter. First, in terms of strategy Andy, how do you think about positioning the company for the medium term, given all the levels of uncertainty out there about how the global trade environment might shift in the coming months? What do you see as the key strategic priorities that will allow the company to sort of be able to capitalize one way or another, depending on various elements of outcome? And how do you prioritize those investments in the months ahead? And then with respect to the one-quarter forward operating income guide, is there anything in there from a cost side that we should be thinking about as purely aligned with those types of investments against the trade landscape that might not repeat either later into this year or next year? Thanks so much.
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Andy Jassy: Thanks, Eric. It's hard to tell what's going to happen with tariffs right now. It's hard to tell where they're going to settle and when they're going to settle. And so, a lot of what we're thinking about short and medium term actually turns out to be what we think about long-term too, which is, how do we actually have the broadest possible selection for customers at the lowest possible prices? And there's maybe never been a more important time in recent memory than trying to keep prices low, which we're heads down, pretty maniacally focused on, and then get things to people quickly and take care of customers. And that is the heart of what we're doing. And you can see different initiatives that we've taken within those priorities. We've done some forward buys of inventory where we're the first-party seller. Our third-party sellers have pulled forward a number of items so that they have inventory here as well. And those are all -- we're encouraging that because we're trying to keep prices as low as possible for customers. I think also, when you have as broad selection as we have, and we have much broader selection than other retailers, it means that when you've got this continuity, like we may potentially have, you're better able to help customers find what they want, no matter what those trends are. And I mentioned in my opening comments about what happened in the pandemic, and you can bet there are going to be things that we don't anticipate that customers really value and want that are different. It could be as simple, by the way, as just favoring other brands that maybe people didn't know about before, but where they have a more favorable price equation for customers. And I think when you've also got -- another thing that people forget is that when you've got 2 million-plus sellers, they're not all going to take the same strategy if there ends up being higher tariffs. I mean, there are going to be plenty of sellers that decide to pass on those higher costs to end consumers, but they're going to --
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there are going to be plenty of sellers that decide to pass on those higher costs to end consumers, but they're going to -- we have a lot of sellers in lots of different countries, and not all of them are going to pursue the same tack. And so, I think when you've got larger diversity like we have, we have a better chance of some of those sellers deciding that they're going to capture share, and they're not going to pass on all or any of those tariffs to customers. And so, I think customers are going to have a better chance of finding variety on selection and on lower prices when they come here. And the last thing I would say is that we have been in a number of our businesses, but just I'd say over the last 6 years or so, we have been diversifying where we produce things over a long period of time. We had, I would say, a meaningfully higher concentration of where we produced components for AWS or devices in China than we have now, where we've diversified meaningfully over that time. And we just thought that was wise to do so. And so, those are some of the ways that we're trying to make sure that we are protecting our customers over the short, medium, and long-term. But it turns out that most of those are the things that we focus most on, which is really broad selection for ultimate choice, really low prices, and very fast delivery.
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Brian Olsavsky: Eric, I'll take your question on the guidance, and especially on operating income. I think that was your question, and the cost that might be in Q2. The thing I'd point to again is what I mentioned earlier, the stock-based comp always steps up generally in Q2 versus Q1, and then resets a rate that carries through for the next four quarters. You can look at historic trends to get an idea of that. Secondly, we do have some additional Kuiper launch costs in Q2. You saw a launch happen this week. And a reminder that we expense those launch costs until the point of commercialization, which a plan is to have that be later in this year.
Operator: Thank you. And the next question comes from the line of Justin Post with Bank of America. Please proceed with your question.
Justin Post: Great. Thanks. I'll go back to AWS. I know in the past you said revenues can be lumpy. Can you explain why they might fluctuate up and down if it's beyond just capacity? And you see the competitors with some pretty good growth rates. How do you think about the difference there? Obviously, your dollar growth is very good, but how do you think about the difference there versus some of your competitors? Thank you.
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Andy Jassy: Well, the first thing I would say is when we've historically said that revenue can be lumpy, we've been saying this well before what's happened with AI over the last couple of years. And the reason for that is the sales cycle, particularly for enterprises. It's true for startups. What you really want is you want to have the type of capabilities where startups want to primarily choose to run on top of your platform. And that's true. If you look in the startup space, the vast majority of successful startups over the last 10 to 15 years have run on top of AWS. And it's unpredictable when those startups are going to find product market fit and grow substantially. And it's hard for them to predict and even harder for us to predict. And the same thing goes on the enterprise side, but in a different way. When the sales cycle on the enterprise side is that you spend time trying to convince people that they should move from on-premises to the cloud, and then that you have the right solution for them. And then, you pick a set of projects that you get experience on. And sometimes they use systems integrators. Sometimes they use our own professional services. Sometimes they're doing it themselves. Then there's a next tranche migrations. And those migrations just take time. And some companies get through them really quickly and some companies take longer to get through them. And what happens a lot of times too, is that they get excited and enthusiastic about the cost advantages and the speed of innovation advantages they get moving to the cloud. And what was supposed to be a smaller next tranche turns into a much larger next tranche. And all of that has been true for a long time. It's very hard for us to predict because it really is contingent on what enterprises, how they want to sequence it and resource it. Then you throw in AI, which has its own very fast growth cycle, particularly in certain types of use cases. And those change. I mean, I'll give you just some examples. In the early days, of the earliest
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in certain types of use cases. And those change. I mean, I'll give you just some examples. In the early days, of the earliest days, I should say, of AI, what you've seen the most amount of has been initiatives that get you productivity and cost avoidance. And we've seen that from so many of our AWS customers. And we're doing a lot of it ourselves inside of Amazon using AI. And then, you've also seen, I would say, large scale training with a lot of those are running on top of this as well, and as Anthropic is building their next few training models on top of our Trainium 2 chip on AWS. And then, you've seen a couple of really big chatbots. And then, what you've seen just in the last few months is really kind of the explosion of coding agents. And if you just look at the growth of these coding agents, the last few months, these are companies like Cursor or Vercel, both of them run significantly on AWS, but just look at the growth of that over the last few months. You just couldn't have predicted that sort of growth. And so, that's why it's lumpy. Sometimes you'll have very significant increases that you didn't predict and you couldn't forecast. And then, they'll grow at a good rate, but maybe not the same rate before the next big kind of explosive growth. And I would tell you that everything I just mentioned, what's interesting in AI is that we still haven't gotten to all the other customer experiences that are going to be reinvented and all the other agents that are going to be built, they're going to take the role of a lot of different functions today. And even though we have a lot of combined inference in those areas, I would say we're not even at the second strike of the first batter in the first inning. It is so early right now. And then, I would just say on how to think about relative growth rates, you always have to -- the year-over-year growth rate is really only a function of the percentage growth on the base with which you are operating from. And we just have a very meaningfully larger base on the
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of the percentage growth on the base with which you are operating from. And we just have a very meaningfully larger base on the technology infrastructure side than others. And so, when it's still think about 17% year-over-year growth on a $117 billion revenue run rate, it's still pretty significant growth. And as I said, I think we could be doing more, more if we had more capacity and I expect that the capacity to ease in the coming months.
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Operator: Thank you. Our next question comes from the line of Doug Anmuth with J.P. Morgan. Please proceed with your question.
Doug Anmuth: Thanks for taking the questions. One for Brian, one for Andy; Brian, just maybe to follow-up on AWS, but more on the margin side, we've seen a lot of fluctuation over the last couple of years and now hitting almost 40%. Maybe you can just talk about what's driving the outperformance and then how we should think about normalized margins going forward? And then, Andy, your comments on Alexa about moving to more complex tasks, can you talk about that more and just with Alexa, the products have been around for a long time, they've had different use cases. How do you get users to shift their behavior more with Alexa? Thanks.
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Brian Olsavsky: Thanks, Doug. I'll take your first question. We did a strong quarter in AWS, as you mentioned, the margin performance. I would attribute it to the strong growth that we're seeing coupled with the impact of some continued investment we're making in innovation and technology, give you some examples. So, we invest in software and process improvements and it ends up optimizing our server capacity, which helps our infrastructure cost. We've been developing more efficient network using our low cost custom networking gear. We're working to maximize the power usage in our existing data centers, which both lowers our costs and also reclaims power for other newer workloads. And we're also seeing the impact of advancing custom silicon like Graviton. It provides lower costs not only for us, but also for our customers, the better price performance for them. But you're right, margins are impacted by a lot of things, including our level of investment, competitive pricing, the mix of Generative AI services as they're ramping up will continue to evolve over the years to come. So, we do have a lot of investment in infrastructure going on and planned for the second-half of the year. So, that will -- we'll start to see the impact of that. But we're happy with the performance of the team with generating cost savings. And it's a big focus as well as expanding the services and features for customers.
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Andy Jassy: On the Alexa question, we're really excited about Alexa+. And as I mentioned earlier, it is -- she's much more intelligent, much more capable, and able to take real action. And to date, most of the agents that have been out there have really just been able to answer questions, which when it came out was very remarkable and -- but it's I think the future of agents is not just being intelligent, but also being able to take action. And that's actually, it requires a great model, but it also requires the ability to sync that model and to align that model with being able to take the right action and execute and implement the right APIs or you can have, very suboptimal results. And so, we've worked hard on that in Alexa+. We've been -- we started rolling out over the last several weeks. So, it's with now over 100,000 users, with more rolling out in the coming months. And so, far, the response from our customers has been very, very positive. People are excited about it. I think that it does a lot more things than what Alexa did before. And we're very fortunate in that we have over a half billion devices out there in people's homes and offices and cars. So, we have a lot of distribution already, but there will be to some degree, there will be a little bit of rewiring for people on what they can do because you get used to patterns. I mean, even the simple thing of not having to speak Alexa speak anymore where we're all used to saying Alexa before we want every, action to happen. And what you find is you really only have to do it the first time, and then really the conversation is ongoing where you don't have to say Alexa anymore. And I've been lucky enough to have the alpha and the beta, that I've been playing with for several months. And it took me a little bit of time to realize I didn't have to keep saying Alexa. And it's very freeing when you don't have to do that. And then, I think it's just experience in trying things. So, you can do things like you have guests coming over on a Saturday night for dinner
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it's just experience in trying things. So, you can do things like you have guests coming over on a Saturday night for dinner and you can say Alexa, please, open the shades, put the lights on in the driveway and on the porch, increase the temperature five degree and pick music that would be great for dinner that's mellow. And she just does it. And like, when you have those types of experiences, it makes you want to do more of it. When I was in New York, when we were announcing, I asked her what were the -- we did the event way downtown. I asked her, what was great Italian restaurants or pizza restaurants. She gave me a list and then she asked me if she wanted me to make a reservation. I said yes and she made the reservation, confirmed the time. Like that, when you get into those types of routines and you have those types of experience, they're very, very useful. It is really like having a great personal assistant, which most people in the world don't have. And so, I think that the more and more that people get used to it, they will realize what she can do. And we're not going to be standing still. We have a lot more functionality that we plan to add in the coming months too.
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Operator: Thank you. Our next question comes from the line of Brian Nowak with Morgan Stanley. Please proceed with your question.
Brian Nowak: Thanks for taking my questions. Hey, Andy and Brian. So, I have one for each of you guys. So, Andy, you have a very complicated retail business with a lot of moving pieces to it. I imagine you have a lot of good data on what you expect demand to be over the course of the year and the holidays and things. As you kind of step back and analyze the business and the tariff uncertainty, can you just sort of walk us through the one or two key areas operationally that you're most focused on just to ensure that Prime Day, Thanksgiving and the holidays go as smoothly as they possibly can? And then, secondly, on Brian, just to kind of go back to Eric's earlier question, as we think about the 2Q EBIT guide, are there any onetime costs or sort of tariff related costs in there similar to that $1 billion that you called out in the first quarter? Thanks.
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Andy Jassy: Thanks, Brian. On the retail question, I would say that the areas that maybe we're most focused on to make sure we have not just a great Prime Day, but Prime Day is just one event as you know, and so is peak. We're trying to be great all year long for customers. The obvious ones are making sure that we help our sellers however we can, because there's uncertainty for our sellers as well. So, we're trying to make sure we provide a great experience. We're trying to make sure that we have the right diversity of sellers and low prices for our customers. I think all that you have to also be very thoughtful around how much inventory you bring into your fulfillment nodes at any one time, because you can imagine scenarios where either on your own when you're the first party seller or lots of third parties want to get as much inventory in as early as possible trying to beat a deadline on what may happen. And if you end up with too much inventory in your fulfillment network, it really slows down, your productivity and your ability to get things out as quickly as you want for customers at the cost structure you want. So, being able to manage that thoughtfully, we've learned that over the years, and I think the team is doing a really good job of balancing that right now.
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Brian Olsavsky: And Brian, on your question about Q2, I guess I'd just reiterate what I had said earlier. We have stock based comp step up, which I think you can see the normal pattern for that if you look at our history. We have additional Kuiper expenses. Specifically, you asked about tariffs. We do have tariffs that we'll be paying on retail purchases based on current tariffs. It's not large in Q2. It's we had done a lot of pre-buying of inventory in Q1, as I mentioned earlier. But just generally, I think with the uncertainty, we've added a bit to the range that we've given you. We generally have a wide range, but just the general uncertainty that we're seeing and uncertainty of consumer demand and all the everything else is causing us to increase the ranges a bit. So, we'll see. We feel an informed view of Q2 right now. As Andy mentioned earlier, we saw, actually some strength in April based on what could end up being some pre buys of a number of things, but and advertising has been strong. So, we think there's a lot of positive trends, but certainly uncertainty right now for the quarter.
Operator: Thank you. And our final question will come from the line of Brent Thill with Jefferies. Please proceed with your question.
Brent Thill: Thanks. On AWS, I'm curious if you could give us the backlog number? And Andy, to your point about many of these core workload still yet to come to cloud, can you just update us on what you're seeing, are you seeing enterprise spring back, or are you seeing some confusion with AI clouding that transition and the timing of that? Just give some perspective on what you're seeing on migration. Thank you.
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Dave Fildes: This is Dave. I'll just jump in on the backlog, and turn over to Andy. The backlog is $189 billion for Q1. That's up about 20% year-over-year. And the weighted average, meaning life on that is 4.1 years. And the AWS question around what we are seeing on the workloads that haven't moved, what I would say -- the way I would characterize it is that we were on a very aggressive March that was esthetical, but almost metronomic before the pandemic of enterprises deciding that they wanted to move off their on-premises infrastructure, because of the speed of innovation, the developer productivity, and the cost advantages of the cloud. And then, when you got into the pandemic, and the economy was concerned in the second-half of that few years, we had everybody trying to cost-optimize, including us by the way. And then, as we started to emerge from that trend, you saw generative AI explode, and everybody wanted to try to find a way to have a workload, or set a workload there, because people saw the potential, and it was also something that was generating a lot of interest publicly. And so, what we are seeing now over the last, call it, 16 to 18 months or so, is that enterprises realize they need to do both. And they want to do AI. Also to pilot at this point, AI, many of which will be successful, others will not be successful. The ones that are successful were scaled. But they also have a lot more initiatives that they still haven't gotten to on the AI side, either because the willingness skill set, where they're picking the first set to get experience with, or as they're waiting to see the cost inference continue to go down, which it will. I mean, you will not get the expensiveness that we all know is coming in AI until we keep getting the cost inference down, even though it's going like crazy right now. But at the same time, I would say that we see an increased resurgence, and understanding for enterprises that they're dropping the low-hanging fruit if they don't move their infrastructure to the cloud, for
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for enterprises that they're dropping the low-hanging fruit if they don't move their infrastructure to the cloud, for all the reasons I mentioned earlier. So, you're starting to see those plans pick up again. As I mentioned earlier to one of the questions, you know the side that you're going to transform your infrastructure from on-premises and cloud, and see it happen in there months. That is typically a multiyear process that some companies do it fast, some companies do it slower, but they do it cautious and they do it softly because they can't afford for their application not to work if they're making that transition. And we are having meaningful success in those conversations, and in companies choosing to transform their infrastructure on top of AWS, and I think you'll see that moving forward too. Thank you for your time joining us today, and for your questions. A replay will be available on the Investor Relations website for at least three months. We appreciate your interest in Amazon, and we look forward to talking with you again next quarter.
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Operator: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Operator: Thank you for standing by. Good day, everyone, and welcome to the Boeing Company's Fourth Quarter 2024 Earnings Conference Call. Today's call is being recorded. The management discussion and the slide presentation, plus the analyst question-and-answer session are being broadcast live over the internet. [Operator Instructions] At this time, for opening remarks and introductions, I'm turning the call over to Mr. Matt Welch, Vice President of Investor Relations for the Boeing Company. Mr. Welch, please go ahead.
Matt Welch : Thank you and good morning. Welcome to Boeing's quarterly earnings call. I am Matt Welch, and with me today are Kelly Ortberg, Boeing's President and Chief Executive Officer; and Brian West, Boeing's Executive Vice President and Chief Financial Officer. And as a reminder, you can follow today's broadcast and slide presentation at Boeing.com. Projections, estimates, and goals included in today's discussion involve risks, including those described in our SEC filings and in the forward-looking statement disclaimer at the beginning of the presentation. We also refer you to the disclosures relating to non-GAAP measures in our earnings release and presentation. Now, I will turn the call over to Kelly Ortberg.
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Kelly Ortberg : Thanks Matt, and thanks to everyone for joining today's call. Before I get into the fourth quarter earnings, let me first offer our thoughts and deepest condolences for the families and loved ones of those on-board Jeju Air Flight 2216. We continue to support the airline and the U.S. National Transportation Safety Board as they assist the South Korean authorities in the accident investigation. Now, turning to the fourth quarter earnings. During the last call I highlighted four areas critical to our recovery, and as the New Year begins we're making steady progress in all four areas. The first area, stabilizing the business. Following the resolution of the IEM strike, our commercial team has been executing a methodical plan to restart our factories within the framework of our safety management system. This included ensuring all manufacturing employees were current on their training and certifications prior to returning to work on the factory floor. We took time to rebalance the production line, so that when we started up, we did so with a healthy production system. People are back to work and excited about the task ahead and you can see the energy when you are on the factory floor. For the 737 MAX we have sufficient parts inventory to enable producing at 38 a month, including fuselages which were a pacing item prior to the strike, and all three of the production lines in Renton are now cycling. In the past quarter we completed our safety management meeting with the FAA, in which they reviewed our safety management system and our production status, including spending time on the factory floor. They reported that they saw a significant improvement, and I'm pleased that we have an agreed-upon path for rate increases beyond 38 per month. It's all about adhering to our safety management system and a stable factory as measured through agreed-upon key performance indicators or KPIs. It's an early innings on the production ramp and we need to stay disciplined on maintaining a stable production system, but
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It's an early innings on the production ramp and we need to stay disciplined on maintaining a stable production system, but early signs are encouraging. The best news is that our customers are reporting that they are encouraged with what they are seeing as they monitor our production. Progress on the 787 also continues, and we finished last year at a production rate of five per month. Like the 737, we are working to ensure the 787 production system, including the supply chain, is stable prior to making the next rate increase. An important accomplishment to stabilize the business was to shore up our balance sheet. We are committed to recovering the business, while maintaining an investment grade credit rating, and delivering for our shareholders. I think the demand for our offering last year speaks volumes about the market's competence in our recovery. We're working across the supply chain, including the sub tiers to ensure readiness and stability with our production rates. Notably, supplier part shortages across all of our commercial programs are within their established control limits. We have instituted dedicated sessions with suppliers to provide insights, as well as to promote two-way communication to stay aligned as we operate together as one extended production system. The second element of our recovery is to improve performance on our development programs. While the charges for the quarter in BDS are disappointing, I have had the opportunity to complete deep dive EAC reviews on all the troubled programs. We are very focused on creating stability within the EACs, so we stop this quarterly drumbeat of cost growth. This means being more proactive and clear-eyed on the risks and our estimates to complete the projects. While I know it doesn't show in this past quarter's performance, we're making progress in working with our customers to actively manage the contracts to achieve better outcomes for both parties. You've seen that we've entered into an MOA with the U.S. Air Force on the T-7A program, and we're in
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outcomes for both parties. You've seen that we've entered into an MOA with the U.S. Air Force on the T-7A program, and we're in active discussions on a second MOA on that program, all focused on improving the performance of the program. We're also in active discussions with our customer on the VC-25B program to make the necessary changes to improve the program performance and delivery. The U.S. Air Force has termed this as an Active Management, which is a term I really like. We're focused on actively managing all of our problematic programs to improve the performance for the company and our customers. While I said there's no silver bullet on these fixed price programs, I do feel better about our ability to better manage the performance in 2025. On the commercial side, we continue to focus on getting the 737-7 and -10, as well as the 777X through certification. There are no updates to the timelines we’ve previously communicated on these programs. On the -7 and -10, we're still working through the testing phase, focused on finalizing the icing design solution, which we plan to include in the certification program. Working closely with the FAA, especially in light of their leadership changes, will be a key focus area for us this year. The 777X is back in flight test, and we have a good handle on fixing the thrust link issue we uncovered. Now, moving to the third area, culture change, this will be a multi-year journey, but we're already making progress. Our leaders are getting more engaged with their teams and customers. We're having the frank discussions about what we need to change. In 2025, we'll be rebaselining our core values and behaviors to make our expectations perfectly clear to all our Boeing teammates. These will be incorporated into our leadership development program and become fundamental elements of our performance management system. Leadership promotions will be grounded not only in what we get done, but how we get things done. We're going to help focus the teams on what it takes to make Boeing
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not only in what we get done, but how we get things done. We're going to help focus the teams on what it takes to make Boeing successful and promote a culture of unity and accountability by implementing a single enterprise score for all of our annual incentive plans. As I talk with employees, there's a growing swell of excitement around restoring trust and getting their Boeing back, and they want to be a part of this turnaround. So the last area is building a new future for Boeing. While workforce reductions are always difficult, I'm pleased that we have been able to reduce layers of management and redundant overheads in our system. This will serve us well as we establish a less bureaucratic, more focused and agile operating environment for our future. We're preparing for the road ahead by continuing to make important investments in our core business, while streamlining our portfolio in areas that aren't core to us. So let me wrap up by saying that the markets we serve are robust and growing. Demand for our core commercial and defense products and services remain strong. Our backlog of more than $0.5 trillion clearly demonstrates the value of our portfolio, and we're focused on meeting our commitments and delivering safe, high quality products to our customers. I do want to acknowledge and thank the incredibly talented employees at Boeing. Your resiliency and commitment gives me confidence in our path forward. It's going to take all of us working together. Next, let me turn it over to Brian to cover the operating results, and after that we'll be happy to take your questions. So Brian, over to you.
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Brian West : Thanks Kelly, and good morning, everyone. Let's start with the total company financial performance for the quarter. Revenue was $15.2 billion, down 31%, primarily driven by lower commercial deliveries associated with the IAM work stoppage. The core loss per share was $5.90, primarily reflecting previously announced impacts of the IAM work stoppage and agreement, charges on certain defense programs, as well as costs associated with workforce reductions announced last year. Pre-cash flow with the use of $4.1 billion in the quarter, in line with the expectations shared at our last earnings call. Results were impacted by lower commercial deliveries and unfavorable working capital timing, primarily driven by the IAM work stoppage. Turning to the next page, I'll cover Boeing commercial airplanes. BCA delivered 57 airplanes in the quarter. Revenue was $4.8 billion, and operating margin was minus 43.9%, primarily reflecting previously announced impacts from the IAM work stoppage and agreement, including pre-tax charges of $1.1 billion on the 777X and 767 programs. Backlog in the quarter ended at $435 billion and includes more than 5,500 airplanes. Now, I'll give more color on the key programs. The 737 program delivered 36 airplanes in 4Q, including a step up to 18 in December, and as of yesterday we've delivered 33 airplanes in January with four days to go. On production, we restarted the factory in December and plan to gradually increase rate. We expect to be in a position to go above 38 per month later in the year. All three lines in our rent and factory recycling and monthly production is already in the low to mid 20s for January. More broadly on the master schedule, we continue to make adjustments as needed and manage supplier-by-supplier based on inventory levels. Over the past year, our buffer inventory has grown to promote stability across our production system. As production stabilizes and rates increase over time, we plan to deliberately return buffer inventory to more normal levels. The quarter
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stabilizes and rates increase over time, we plan to deliberately return buffer inventory to more normal levels. The quarter ended with 55 737-8s built prior to 2023, the majority for customers in China and India, down five from 3Q, with about another 10 already delivered in January. Given the impact of the strike, we now expect to shut down the shadow factory mid-year and deliver all remaining airplanes to customers within the year. On the -7 -10, inventory levels were stable at approximately 35 airplanes and testing on the anti-icing design solution is ongoing with certification expected to follow later in the year. On the 787 program, we delivered 15 airplanes in the quarter as we made progress on working through production recovery plans for heat exchangers and delivery delays associated with seat certifications. The program exited the year at a production rate of five per month and we recently announced plans to expand South Carolina operations as we prepared for anticipated future need of the commercial market. We are intent on ensuring the production system and the supply chain demonstrate stability prior to making the next increase on rates sometime this year. We ended the quarter with 25 airplanes in inventory built prior to 2023 that require rework, down five from last quarter. Our ability to finish the rework and shut down the shadow factory was also impacted by the work stoppage and we expect to complete this work in early 2025. Finally, on 777X, as previously announced, the $900 million pre-tax charge primarily reflects higher estimated labor costs associated with finalizing the IM Agreement and will be incurred over the next several years. Flight testing recently resumed and we still expect first delivery in 2026 and will continue to follow the lead of the FAA as we move through certification. 777X inventory spend in 2024 finished at $2.6 billion as 4Q spending levels moderated due to the work stoppage. As noted previously, we expect the cash profile to look similar to prior development programs,
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due to the work stoppage. As noted previously, we expect the cash profile to look similar to prior development programs, with a first year prior to first delivery typically the largest use of cash driven by inventory build associated with the production ramp, which will unwind as deliveries accelerate. Moving on to the next page in Boeing Defense and Space. BDS booked $8 billion in orders during the quarter, including awards for 15 KC-46A Tankers from the U.S. Air Force and seven P-8A aircraft from the U.S. Navy and the backlog ended at $64 billion. Revenue was $5.4 billion down 20% year-over-year on volume and program charges and operating margin was minus 41.9%. BDS delivered 34 aircraft and two satellites in the quarter, including the final T-7A EMD aircraft to the U.S. Air Force. The 15% of their portfolio comprised of fixed price development programs and recorded a $1.7 billion pre-tax charge as previously announced. The fixed price development cost pressures were driven by the KC-46A and T-7A programs with KC-46 primarily reflecting higher estimated manufacturing costs, including the impacts of the IAM work stoppage and agreement and T-7 driven by higher estimated production costs on contracts in 2026 and beyond. Roughly one-third of these new charges will work through the cash flows in the next few years with the remainder spread over the coming decade. Given the fixed price nature of these contracts, we'll continue to be transparent about impacts as we work to stabilize and mature these programs. We acknowledge that these are disappointing results. These are complicated development programs and we remain focused on retiring risk each quarter, and ultimately delivering these mission critical capabilities to our customers. As Kelly shared, we continue to make progress in 4Q, including key order and delivery milestones already noted. Importantly, the updated acquisition approach for the T-7A is a proof point for how we are working with our customers to find better overall outcomes for both parties, and
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for the T-7A is a proof point for how we are working with our customers to find better overall outcomes for both parties, and those efforts will continue as we work through other parts of the portfolio. On the 25% of the portfolio, primarily it comprised of fighter and satellite programs. Our fighter programs again recognize losses in 4Q due to disruptions associated with the F-15 EX ramp-up and the F-18 production wind-down. We also recognize impacts across satellites and a few other legacy platforms tied to development realities as we work to refresh the capabilities of these platforms to support our customer needs. The remaining 60% of revenues of the portfolio are generally performing in the mid to high single-digit margin range. Although the P-8 commercial derivative program experienced margin compression in the fourth quarter due to the IAM work stoppage and agreement. While still more work in front of us, we continue to be confident that BDS margins can improve to high single-digit levels in the medium to longer term. The demand for our defense products remains very strong, supported by the threat environment confronting our nation and our allies. We still expect the business to return to historical performance levels as we stabilize production, execute on development programs, and transition to new contracts with tighter underwriting standards. Moving on to the next page, Boeing Global Services. BGS continued to perform well, delivering record operating margins in the quarter. The business received $6 billion in orders and the backlog ended at $21 billion. Revenue was $5.1 billion, up 6%, primarily on higher commercial volume. Operating margin was a record 19.5% in the quarter, up 210 basis points compared to last year, with both our commercial and government businesses delivering double-digit margins. In the quarter, BGS secured awards for C-17 sustainment, as well as a contract for F-15 Japan super interceptor upgrade and services from the U.S. Air Force. BGS is a terrific long-term franchise focused
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