Overstock.com Investor

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April 18, 2008 at 8:00 AM EDT
Overstock.com Reports First Quarter 2008 Financial Results

Announces Time and Date of Earnings Call

SALT LAKE CITY, April 18 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) today reported financial results for the quarterly period ending March 31, 2008.

Key Q1 2008 metrics (comparison to Q1 2007):

  • Total revenue: $200.7 million vs. $157.9 million (a 27% increase);
  • Gross margin: 17.3% vs. 16.0%
  • Gross profit: $34.8 million vs. $25.3 million (a 37% increase);
  • Sales and marketing expense: $15.0 million vs. $11.3 million (a 33% increase);
  • Contribution (gross profit less marketing): $19.8 million vs. $14.0 million (a 41% increase);
  • G&A / Technology expense: $24.1 million vs. $25.7 million (a 6% decrease);
  • Net loss: $3.9 million, or $(0.17) per share vs. $21.4 million (an 82% decrease);
  • EBITDA: $3.5 million vs. $(8.3) million (an $11.7 million increase)
  • Operating cash flows (TTM): $27.2 million positive (a $39.1 million increase)
  • Share buyback: repurchased 1.1 million shares for $12.0 million

Dear Investor:
We returned to above industry-level revenue growth this quarter, capping off our turnaround plan that started with growth in contribution and gross profits over a year ago. The combination of an expanding top line, gross profits and contribution dollars, along with declining fixed costs, is generating operating leverage in our business.

This is the third consecutive quarter we've had positive EBITDA. More significantly, over the last twelve months we have generated $27 million of positive operating cash flow. As a result, we ended the quarter with a comfortable $90 million of cash and marketable securities, despite the seasonal reduction of payables following the busy holiday season and $12 million we used to repurchase our shares during the quarter.

Other highlights of the quarter include:

  • Our customer satisfaction is extraordinary, and customer loyalty is strong.
  • Our site is getting faster and easier to use. The recommendations we provide customers are more and more helpful. We've also made many enhancements to our home page and the overall site design that are improving our customers' shopping experience.
  • Our selection has grown to become the widest selection of high-end, quality products at discount prices that we have ever offered.
  • Our car site has launched and is off to a positive start.

We will discuss our Q1 results on April 22, 2008 at 11:00 a.m. Eastern Daylight Time. Please find details for the conference call below. I look forward to speaking with you then, and in the meantime remain,

Your humble servant,
Patrick M. Byrne

P.S. Please email Kevin Moon at kmoon@overstock.com with questions prior to the conference call.



Details for the Q1 conference call/webcast

We will hold our Q1 conference call/webcast on April 22, 2008 at 11:00 a.m. Eastern Daylight Time. To access the live webcast and presentation slides, please go to http://investors.overstock.com. To listen to the conference call via telephone, dial (866) 770-7051 and enter pass code 25722257 when prompted. Participants outside the United States can dial +1 (617) 213-8064 and enter pass code 25722257 when prompted.

We will make available a replay of the webcast at http://investors.overstock.com starting 90 minutes after the live call has ended. We will make available an audio replay of the webcast via telephone starting at 1:00 p.m. Eastern Daylight Time on Tuesday, April 22, through 11:59 p.m. Eastern Daylight Time on Tuesday, April 29, 2008. To listen to the recorded webcast by phone, please dial (888) 286-8010 and enter pass code 67010968 when prompted. Participants outside the U.S. can dial +1 (617) 801-6888 and enter pass code 67010968 when prompted.

Key financial and operating metrics:

Total revenue - Total revenue for the three months ended March 31, 2007 and 2008 was $157.9 million and $200.7 million, respectively, a 27% increase.

Gross profit and gross margin - Gross profit for the three months ended March 31, 2007 and 2008 was $25.3 million and $34.8 million, respectively, a 37% increase, representing margins of 16.0% and 17.3% for those respective periods.

Contribution and contribution margin - "Contribution" (gross profit less sales and marketing expenses) for the three months ended March 31, 2007 and 2008 was $14.0 million (8.9% contribution margin) and $19.8 million (9.8% contribution margin), respectively, a 41% increase.



                                                        Three months ended
                                                             March 31,
                                                         2007         2008
    Total revenue                               $      157,930    $  200,745
    Cost of goods sold                                 132,615       165,959

    Gross profit                                        25,315        34,786
    Less: Sales and marketing expense                   11,284        15,019

    Contribution                                $       14,031    $   19,767
    Contribution margin                                    8.9%          9.8%


Operating loss - Operating losses for the three months ended March 31, 2007 and 2008 were $17.7 million and $4.3 million, respectively.

EBITDA - EBITDA (a non-GAAP measure) for the three months ended March 31, 2007 and 2008 was $(8.3) million and $3.5 million, respectively. We believe that, because our current capital expenditures are significantly lower than our depreciation levels, discussing EBITDA at this stage of our business is useful to us and investors because it approximates actual cash used or cash generated by the operations of the business.



                                                      Three months ended
                                                           March 31,
                                                     2007           2008
    Operating loss                                $(17,720)       $(4,312)
    Add: Depreciation and amortization               7,771          6,497
         Stock-based compensation expense            1,073          1,184
         Stock-based compensation to consultants
          for service                                    5            (14)
         Stock-based compensation for performance
          share plan                                     -            150
         Treasury stock issued to employees as
      compensation                                     602             19

    EBITDA                                         $(8,269)        $3,524


Net loss - Net loss for the three months ended March 31, 2007, was $21.4 million, or $0.91 loss per share, compared to $3.9 million, or $0.17 loss per share in 2008. For the three months ended March 31, 2007, net loss included restructuring charges of $6.1 million. There were no restructuring charges in 2008.

Free Cash Flow (a non-GAAP measure) - Free cash flow for the three months ended March 31, 2007 and 2008 totaled $(58.7) million and $(42.4) million, respectively. For the twelve months ended March 31, 2007 and 2008, free cash flow totaled $(29.1) million and $23.7 million.

Free cash flow reflects an additional way of viewing our cash flows and liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Free cash flow, which we reconcile to "Cash provided by operating activities," is cash flow from operations reduced by "Expenditures for property and equipment." Although we believe that cash flow from operating activities is an important measure, we believe free cash flow is a useful measure to evaluate our business since purchases of fixed assets are a necessary component of ongoing operations. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows. We believe that analyzing free cash flows on a trailing twelve month basis eliminates seasonal fluctuations in cash flows and more accurately reflects trends in this non-GAAP measure.



                                      Three months ended   Twelve months ended
                                           March 31,            March 31,
                                        2007       2008      2007      2008

    Net cash provided by operating
     activities                      $(58,240)  $(41,044)  $(11,955)  $27,173
    Expenditures for property and
     equipment                           (477)    (1,313)   (17,114)   (3,479)

    Free cash flow                   $(58,717)  $(42,357)  $(29,069)  $23,694


Cash and working capital - At March 31, 2008, Overstock.com had cash, cash equivalents and marketable securities of $89.8 million and working capital of $61.7 million.

Early Q2 Developments

On April, 8, 2008, we entered into a lease for a 686,865 square foot warehouse facility now under construction in Salt Lake City, Utah. We plan to consolidate warehouse operations from two smaller warehouse facilities into the new warehouse. We anticipate in the future that we may construct a corporate office facility within the new warehouse. More details regarding this lease are contained in the Form 8-K we filed on April 11, 2008 which can be found in our investor relations link on our website.

On April 14, 2008, Gradient filed a countersuit accusing us and Patrick Byrne of libeling Gradient. We believe this countersuit is meritless and we will vigorously defend against it. We issued a separate press release about this countersuit on April 15, 2008.

On April 15, 2008, we received a letter from the Office of the District Attorney of Marin County, California, stating that the District Attorneys of Marin and four other counties in California have begun an investigation into the way we advertise products for sale, together with an administrative subpoena seeking related information and documents. We follow industry advertising practices and we intend to respond fully to the subpoena and cooperate with the investigation.

About Overstock.com

Overstock.com, Inc. is an online "closeout" retailer offering discount, brand-name merchandise for sale over the Internet. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory liquidation distribution channel. Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ Global Market System and can be found online at http://www.overstock.com.

Overstock.com(R) is a registered trademark of Overstock.com, Inc. All other trademarks are the property of their respective owners.

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, statements regarding revenue growth, completion of a turnaround, operating leverage, future cash generation and EBITDA results, the helpfulness of product recommendations, construction of and/or feasibility of consolidating warehouse operations, building a corporate office in the new warehouse, our following industry advertising practices, the meritless nature of Gradient's countersuit, the selection of products on our site, the status of our auctions and car sites, and the outlook of the company, and the date and time of the Q1 earnings call. Our Form 10-K for the year ended December 31, 2007, our quarterly reports on Form 10-Q, or any amendments, and our subsequent filings with the Securities and Exchange Commission identify important factors that could cause the actual results to differ materially from those contained in our projections, estimates or forward-looking statements.

                             Overstock.com, Inc.
              Consolidated Statements of Operations (unaudited)
                   (in thousands, except per share amounts)

                                                       Three months ended
                                                           March 31,
                                                     2007              2008

    Revenue
     Direct                                        $45,701            $51,483
     Fulfillment partner                           112,229            149,262

      Total revenue                                157,930            200,745

    Cost of goods sold
     Direct                                         39,320             44,314
     Fulfillment partner                            93,295            121,645

      Total cost of goods sold                     132,615            165,959

    Gross profit                                    25,315             34,786

    Operating expenses:
     Sales and marketing                            11,284             15,019
     Technology                                     14,973             14,516
     General and administrative                     10,689              9,563
     Restructuring                                   6,089                -

      Total operating expenses                      43,035             39,098

    Operating loss                                 (17,720)            (4,312)

    Interest income                                    990              1,304
    Interest expense                                (1,029)              (901)

    Loss from continuing operations                (17,759)            (3,909)
    Discontinued operations:
     Loss from discontinued operations              (3,624)               -

    Net loss                                      $(21,383)           $(3,909)

    Net loss per common share - basic
     and diluted:
     Loss from continuing operations                $(0.75)            $(0.17)
     Loss from discontinued operations              $(0.16)              $-
     Net loss per common share - basic
      and diluted                                   $(0.91)            $(0.17)
    Weighted average common shares
     outstanding - basic and diluted                23,594             23,345

    Other data:
    Shopping bookings (in 000s)                   $170,362           $216,322
    Auction gross merchandise volume (in 000s)      $4,695             $2,610
    Average customer acquisition cost (shopping)    $24.58             $25.21



                             Overstock.com, Inc.
                   Consolidated Balance Sheets (unaudited)
                                (in thousands)

                                                 December 31,        March 31,
                                                    2007               2008
                    Assets
    Current assets:
      Cash and cash equivalents                    $101,394           $60,094
      Marketable securities                          46,000            29,750

        Cash, cash equivalents and
         marketable securities                      147,394            89,844
      Accounts receivable, net                       12,304            13,042
      Note receivable                                 1,506             1,004
      Inventories, net                               25,933            17,970
      Prepaid inventory                               3,572             2,568
      Prepaid expenses                                7,572            10,118

        Total current assets                        198,281           134,546
    Property and equipment, net                      27,197            22,069
    Goodwill                                          2,784             2,784
    Other long-term assets, net                          86                30
    Note receivable                                   4,181             4,317

        Total assets                               $232,529          $163,746

        Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                              $70,648           $32,839
      Accrued liabilities                            52,598            40,008
      Capital lease obligations, current              3,796                 2

        Total current liabilities                   127,042            72,849
    Other long-term liabilities                       3,034             2,828
    Convertible senior notes                         75,623            75,710

        Total liabilities                           205,699           151,387

    Stockholders' equity:
      Common stock                                        2                 2
      Additional paid-in capital                    333,909           335,188
      Accumulated deficit                          (243,709)         (247,618)
      Treasury stock                                (63,278)          (75,218)
      Accumulated other comprehensive loss              (94)                5

             Total stockholders' equity              26,830            12,359

        Total liabilities and stockholders'
          equity                                   $232,529          $163,746



                             Overstock.com, Inc.
              Consolidated Statements of Cash Flows (unaudited)
                                (in thousands)

                                     Three months ended   Twelve months ended
                                          March 31,            March 31,
                                      2007      2008        2007      2008

    Cash flows from operating
     activities of continuing
     operations:
       Net loss                    $(21,383)  $(3,909)  $(107,239)  $(27,541)
       Adjustments to reconcile net loss
        to cash provided by (used in)
        operating activities of
        continuing operations:
          Loss from discontinued
           operations                 3,624         -       9,727        300
          Depreciation and
           amortization               7,771     6,497      33,948     28,221
          Realized loss (gain) on
           marketable securities          -         -      (1,868)         -
          Loss on disposition of property
           and equipment                  -         -           1          1
          Stock-based compensation    1,073     1,184       4,235      4,633
          Stock-based compensation to
           consultants for services       5       (14)        (15)       170
          Stock-based compensation
           relating to performance share
           plan                           -       150           -       (400)
          Treasury stock issued to
           employees as compensation    602        19         882        (89)
          Amortization of debt discount
           and deferred financing fees   86        87         364        345
          Asset impairment and
           depreciation (restructuring)   -         -           -      2,169
          Restructuring               6,089         -      11,763      4,025
          Notes receivable accretion      -      (136)          -       (408)
          Changes in operating assets and
           liabilities, net of effect of
           acquisition and discontinued
           operations:
             Accounts receivable, net 3,827      (738)       (541)    (5,531)
             Inventories, net         3,612     7,963      58,703     (1,308)
             Prepaid inventory         (360)    1,004       6,234         33
             Prepaid expenses        (1,962)   (2,546)        936       (683)
             Other long-term assets      90         -         539        381
             Accounts payable       (38,059)  (37,809)     (9,638)     4,762
             Accrued liabilities    (23,255)  (12,590)    (19,986)    18,492
             Other long-term liabilities  -      (206)          -       (399)

               Net cash provided by
                (used in) operating
                activities          (58,240)  (41,044)    (11,955)    27,173

    Cash flows from investing activities
     of continuing operations:
       Change in restricted cash          -         -          55          -
       Purchases of marketable
        securities                        -    (6,539)          -    (81,756)
       Sales of marketable securities     -    22,911      49,475     52,169
       Expenditures for property and
        equipment                      (477)   (1,313)    (17,114)    (3,479)
       Proceeds from the sale of
        property and equipment            -         -           1          -
       Proceeds from the sale of
        discontinued operations, net of
        cash transferred                  -         -           -      9,892
       Collection of note receivable  3,941       502       3,941      1,757
       Decrease in cash resulting from
        de-consolidation of variable
        entity                            -         -        (102)         -

          Net cash provided by (used in)
           investing activities       3,464    15,561      36,256    (21,417)

    Cash flows from financing activities of
     continuing operations:
       Payments on capital lease
        obligations                  (5,247)   (3,794)     (5,776)    (3,808)
       Borrowings on line of credit   1,169     5,268      57,122      6,522
       Payments on line of credit    (1,169)   (5,268)    (77,122)    (6,522)
       Issuance of common stock in
        offerings, net of issuance costs  -         -      64,406          -
       Purchase of treasury stock         -   (12,000)          -    (12,000)
       Exercise of stock options      1,153         -       2,660      2,077

          Net cash provided by (used in)
           financing activities      (4,094)  (15,794)     41,290    (13,731)

       Effect of exchange rate changes
        on cash                         (15)      (23)          4        (11)
       Cash provided by (used in) operating
        activities of discontinued
        operations                      410         -       2,167       (614)
       Cash used in investing activities
        of discontinued operations      (53)        -        (578)         -

       Net increase (decrease) in cash
        and cash equivalents        (58,528)  (41,300)     67,184     (8,600)
       Change in cash and cash
        equivalents from discontinued
        operations                     (357)        -      (1,590)       614
       Cash and cash equivalents,
        beginning of period         126,965   101,394       2,486     68,080

       Cash and cash equivalents,
        end of period               $68,080   $60,094     $68,080    $60,094

SOURCE Overstock.com, Inc.

CONTACT:
Media,
Kirstie Burden,
+1-801-947-3116,
kburden@overstock.com,
or
Investors,
Kevin Moon,
+1-801-947-3282,
kmoon@overstock.com,
both of Overstock.com, Inc.

Web site: http://www.overstock.com