Overstock.com Investor

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July 18, 2008 at 9:17 AM EDT
Overstock.com Reports Second Quarter 2008 Financial Results

SALT LAKE CITY, July 18, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Overstock.com, Inc. (Nasdaq: OSTK) today reported financial results for the quarterly period ending June 30, 2008.

Key Q2 2008 metrics (comparison to Q2 2007):

  • Total revenue: $188.8 million vs. $149.0 million (27% gain);
  • Gross margin: 18.1% (all-time high) vs. 17.7%;
  • Gross profit: $34.1 million vs. $26.3 million (30% gain);
  • Sales and marketing expense: $14.2 million vs. $8.0 million (79% increase);
  • Contribution (gross profit less marketing expense): $19.9 million vs. $18.3 million (8% gain);
  • G&A / Technology expense: $26.2 million vs. $25.7 million (a 2% increase);
  • Net loss: $6.5 million [$(0.28)/share] vs. $13.8 million [$(0.58)/share] (53% gain);
  • EBITDA: $1.1 million vs. $(4.2) million (a $5.3 million gain);
  • EBITDA (TTM): $9.6 million vs. ($54.9) million (a $64.5 million gain);
  • Operating cash flows (TTM): $12.7 million vs. $9.4 million (a $3.3 million gain).

Dear Owner:

For the first time in its history your business has generated four consecutive quarters of positive EBITDA and TTM operating cash flows. We ended Q2 with $87 million in cash, having bought in $12 million of stock earlier in 2008. Our financial condition is sound despite a weak economy.

Strong growth in our fulfillment partner business drove revenues and gross profits this quarter. Total revenue grew 27%, the same pace we experienced in Q1, and gross margins reached an historical high of 18.1%. The fulfillment partner business accelerated to 41% year-over-year growth and 19.4% gross margins. We continue to increase product selection for our customers (now up to ~100k non-media SKUs vs. ~43k for the same period last year).

We added over 500,000 new customers this quarter, up 31% from last year: while this is primarily attributable to our marketing efforts, we feel that this is also an indication that the current economic climate is driving more people to discount shopping. Most of the areas we spend marketing dollars are fairly well dialed-in, a few channels are in the process of being dialed-in (but we see how to do it), and one is purely exploratory: we spent a considerable amount in that exploratory channel this quarter in an effort to hasten the dialing-in process. We expect to see improved marketing efficiency in Q3.

Our Technology and G&A expenses are under control, even though we are doing more basic projects than we ever have in the past. Some of these are directed to better inventory purchasing and handling, some will benefit our website, and some are long-term projects, such as the housing tab that went live this quarter, joining the cars and auctions tabs. In addition, we are building an extremely robust training environment for our company which, while costly now, should yield superb long-term benefits (this has become the work of Steve Tryon, our retired US Army Colonel).

Both customer service and warehouse operations have gotten dialed-in past all our expectations. Our customer satisfaction continues to astonish me. We are building a new Customer Care operation in our new warehouse. The rest of our corporate facility anticipates moving to that new warehouse sometime around June of next year.

As always, I look forward to speaking with you about your business during the upcoming conference call. Until then, I remain,

Your humble servant,
Patrick M. Byrne

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

Key financial and operating metrics:

Total revenue -- Total revenue for the three months ended June 30, 2007 and 2008 was $149.0 million and $188.8 million, respectively, a 27% increase. For the six months ended June 30, 2008, total revenue was $389.6 million, a 27% increase from the $306.9 million reported in 2007.

Gross profit and gross margin -- Gross profit for the three months ended June 30, 2007 and 2008 was $26.3 million and $34.1 million, respectively, a 30% increase, representing margins of 17.7% and 18.1% for those respective periods. For the six-month periods, gross profits were $51.6 million in 2007 and $68.9 million in 2008, a 33% increase. Gross margins were 16.8% and 17.7% for those respective six-month periods.

Contribution and contribution margin -- "Contribution" (gross profit less sales and marketing expenses) for the three months ended June 30, 2007 and 2008 was $18.3 million (12.3% contribution margin) and $19.9 million (10.5% contribution margin), respectively, an 8% increase. For the six months ended June 30, 2007 and 2008, contribution was $32.4 million (10.5% contribution margin) and $39.6 million (10.2% contribution margin), respectively, a 22% increase.


                                   Three months ended     Six months ended
    (in thousands)                      June 30,              June 30,
                                    2007        2008       2007      2008
    Total revenue                 $148,967    $188,842   $306,897  $389,587
    Cost of goods sold             122,664     154,737    255,279   320,696

    Gross profit                    26,303      34,105     51,618    68,891
    Less: Sales and marketing
     expense                         7,962      14,244     19,246    29,263

    Contribution                   $18,341     $19,861    $32,372   $39,628
    Contribution margin               12.3%       10.5%     10.5%      10.2%



Operating loss -- Operating losses for the three months ended June 30, 2007 and 2008 were $13.5 million (including $6.2 million of restructuring) and $6.3 million, respectively. For the six months ended June 30, 2007 and 2008, operating losses were $31.2 million (including $12.3 million of restructuring) and $10.6 million, respectively.

EBITDA -- EBITDA (a non-GAAP measure) for the three months ended June 30, 2007 and 2008 was $(4.2) million (including $6.2 million of restructuring) and $1.1 million, respectively. For the trailing twelve months ended June 30, 2007 and 2008, EBITDA was $(54.9) million (including $12.3 million of restructuring) and $9.6 million, respectively. We believe that, because our current capital expenditures are lower than our depreciation levels, discussing EBITDA at this stage of our business is useful to us and investors because it approximates cash used or cash generated by the operations of the business.


                                                           Trailing Twelve
                                      Three months ended     months ended
                                            June 30,           June 30,
                                        2007       2008     2007      2008
    Operating loss                   $(13,519)  $(6,317) $(95,276) $(20,989)

    Add: Depreciation and
     amortization                       7,974     5,887    35,046    26,134
      Stock-based compensation          1,137     1,068     4,284     4,564
      Stock-based compensation
       to consultants for services        135       329       129       364
      Stock-based compensation
       relating to performance share
       plan                                 -       150         -      (250)
      Issuance of common stock
       from treasury for 401(k)
       matching contribution              113         -       890      (202)
    EBITDA                            $(4,160)   $1,117  $(54,927)   $9,621



Net loss -- Net loss for the three months ended June 30, 2008, was $6.5 million, or $0.28 loss per share, compared to $13.8 million, or $0.58 loss per share in 2007. Net loss in Q2 2007 included $6.2 million of restructuring charges and loss from discontinued operations of $300K. For the six months ended June 30, 2007 and 2008, net losses totaled $35.2 million and $10.4 million, respectively, or $1.49 and $0.45 loss per share for those respective periods. Net loss in 2007 included restructuring expense of $12.3 million and a loss from discontinued operations of $3.9 million.

Free Cash Flow (a non-GAAP measure) -- Free cash flow for the three months ended June 30, 2007 and 2008 totaled $13.5 million and $(4.7) million, respectively. For the trailing twelve months ended June 30, 2007 and 2008, free cash flow totaled $(4.0) million and $5.5 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.



                                                          Trailing Twelve
                                      Three months ended    months ended
                                             June 30,          June 30,
                                          2007     2008      2007     2008
    Net cash provided by (used in)
     operating activities               $14,939    $449     $9,412   $12,683
    Expenditures for property and
     equipment                           (1,439) (5,136)   (13,450)   (7,176)

    Free cash flow                      $13,500 $(4,687)   $(4,038)   $5,507



Cash and working capital -- At June 30, 2008, Overstock.com had cash, cash equivalents and marketable securities of $86.7 million and working capital of $58.4 million.

About Overstock.com

Overstock.com, Inc. is an online retailer offering brand-name merchandise at discount prices. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory 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.

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 the soundness of the company's financial condition, future increases in product selection, a belief that the current economic climate will drive increases in customer growth, accuracy or effectiveness of marketing programs, the extent that we have expenses under control, the effect of internal projects, the benefits of our internal training program, the timing of moving personnel to our new warehouse, a belief that free cash flow is an important and useful measure to evaluate our business, as well as all such other risks as identified in our Form 10-K for the year ended December 31, 2007, our subsequent quarterly reports on Form 10-Q, or any amendments thereto, and our other subsequent filings with the Securities and Exchange Commission identify important factors that could cause our 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   Six months ended
                                             June 30,            June 30,
                                          2007      2008      2007     2008

    Revenue
      Direct revenue                    $43,578   $39,939   $89,279   $91,422
      Fulfillment partner revenue       105,389   148,903   217,618   298,165

        Total revenue                   148,967   188,842   306,897   389,587

    Cost of goods sold
      Direct                             36,321    34,752    75,641    79,066
      Fulfillment partner                86,343   119,985   179,638   241,630

        Total cost of goods sold        122,664   154,737   255,279   320,696

    Gross profit                         26,303    34,105    51,618    68,891

    Operating expenses:
      Sales and marketing                 7,962    14,244    19,246    29,263
      Technology                         15,237    15,311    30,210    29,827
      General and administrative         10,429    10,867    21,118    20,430
      Restructuring                       6,194         -    12,283         -

        Total operating expenses         39,822    40,422    82,857    79,520

    Operating loss                      (13,519)   (6,317)  (31,239)  (10,629)

    Interest income                       1,078       740     2,068     2,044
    Interest expense                     (1,027)     (888)   (2,056)
(1,789)
    Other income, net                         -         2         -         2

    Loss from continuing operations     (13,468)   (6,463)  (31,227)  (10,372)
    Discontinued operations:
      Loss from discontinued operations    (300)        -    (3,924)        -

    Net loss                           $(13,768)  $(6,463) $(35,151) $(10,372)

    Net loss per common share - basic
     and diluted:
      Loss from continuing operations    $(0.57)   $(0.28)   $(1.32)   $(0.45)
      Loss from discontinued operations  $(0.01)       $-    $(0.17)       $-
      Net loss per common share - basic
       and diluted                       $(0.58)   $(0.28)   $(1.49)   $(0.45)
    Weighted average common shares
     outstanding - basic and diluted     23,689    22,750    23,642    23,048

    Other data:
    Shopping bookings (in 000s)        $161,852  $202,600  $328,005  $418,921
    Auction gross merchandise volume
     (in 000s)                           $3,753    $1,964    $8,448    $4,574
    Average customer acquisition cost
     (shopping)                          $20.21    $27.61    $22.20    $26.32



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

                                                 December 31,        June 30,
                                                     2007              2008
                      Assets
    Current assets:
      Cash and cash equivalents                    $101,394           $56,679
      Marketable securities                          46,000            30,020

        Cash, cash equivalents and marketable
         securities                                 147,394            86,699
      Accounts receivable, net                       12,304            15,186
      Note receivable                                 1,506               250
      Inventories, net                               25,933            14,036
      Prepaid inventory                               3,572             2,648
      Prepaid expenses                                7,572            10,481

        Total current assets                        198,281           129,300
    Property and equipment, net                      27,197            21,318
    Goodwill                                          2,784             2,784
    Other long-term assets, net                          86                30
    Note receivable                                   4,181             4,453

        Total assets                               $232,529          $157,885

          Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                              $70,648           $31,217
      Accrued liabilities                            35,241            24,248
      Deferred revenue                               17,357            15,417
      Capital lease obligations, current              3,796                 -

        Total current liabilities                   127,042            70,882
    Other long-term liabilities                       3,034             2,975
    Convertible senior notes                         75,623            75,795

        Total liabilities                           205,699           149,652

    Stockholders' equity:
      Common stock                                        2                 2
      Additional paid-in capital                    333,909           337,659
      Accumulated deficit                          (243,709)         (254,081)
      Treasury stock                                (63,278)          (75,218)
      Accumulated other comprehensive loss              (94)             (129)

             Total stockholders' equity              26,830             8,233

        Total liabilities and
         stockholders' equity                      $232,529          $157,885



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

                                       Three months ended   Six months ended
                                            June 30,            June 30,
                                          2007     2008      2007      2008

    Cash flows from operating
     activities of continuing
     operations:
      Net loss                          $(13,768) $(6,463) $(35,151) $(10,372)
      Adjustments to reconcile net loss
       to cash provided by (used in)
       operating activities of continuing
       operations:
        Loss from discontinued operations    300        -     3,924         -
        Depreciation and amortization      7,974    5,887    15,745    12,384
        Loss on disposition of property
         and equipment                         1        -         1         -
        Stock-based compensation           1,137    1,068     2,210     2,252
        Stock-based compensation to
         consultants for services            135      329       140       315
        Stock-based compensation relating
         to performance share plan             -      150         -       300
        Issuance of common stock from
         treasury for 401(k) matching
         contribution                        113        -       715        19
        Amortization of debt discount and
         deferred financing fees              86       85       172       172
        Asset impairment and depreciation
         (restructuring)                   2,169        -     2,169         -
        Restructuring charges              4,025        -    10,114         -
        Notes receivable accretion             -     (136)        -      (272)
        Changes in operating assets and
         liabilities, net of effect of
         discontinued
         operations:
          Accounts receivable, net          (431)  (2,144)    3,396    (2,882)
          Inventories, net                 1,237    3,934     4,849    11,897
          Prepaid inventory                  477      (80)      117       924
          Prepaid expenses                   700     (363)   (1,262)   (2,909)
          Other long-term assets, net        176        -       266         -
          Accounts payable                 5,467   (1,622)  (32,592)  (39,431)
          Accrued liabilities              4,941      428   (18,768)  (10,993)
          Deferred revenue                   200     (771)      654    (1,940)
          Other long-term liabilities          -      147         -       (59)

            Net cash provided by
             (used in) operating
             activities                   14,939      449   (43,301)  (40,595)

    Cash flows from investing
     activities of continuing
     operations:
      Purchases of marketable securities (21,381) (18,823)  (21,381)  (25,362)
      Sales and maturities of marketable
       securities                          3,400   18,428     3,400    41,339
      Expenditures for property and
       equipment                          (1,439)  (5,136)   (1,916)   (6,449)
      Proceeds from the sale of
       discontinued operations, net of
       cash transferred                    9,892        -     9,892         -
      Collection of note receivable          753      754     4,694     1,256
      Decrease in cash resulting from
       de-consolidation of variable
       entity                                  -        -         -         -

        Net cash provided by (used in)
         investing activities             (8,775)  (4,777)   (5,311)   10,784

    Cash flows from financing
     activities of continuing
     operations:
      Payments on capital lease
       obligations                            (4)      (2)   (5,251)   (3,796)
      Drawdown on line of credit               -    1,128     1,169     6,396
      Payments on line of credit               -   (1,128)   (1,169)   (6,396)
      Issuance of common stock in
       offerings, net of issuance costs        -        -         -         -
      Purchase of treasury stock               -        -         -   (12,000)
      Exercise of stock options              768      924     1,921       924

        Net cash provided by (used in)
         financing activities                764      922    (3,330)  (14,872)

     Effect of exchange rate changes on
      cash                                    36       (9)       21       (32)
     Cash provided by (used in)
      operating activities of
      discontinued operations               (614)       -      (204)        -
     Cash used in investing activities
      of discontinued operations               -        -       (53)        -

     Net increase (decrease) in cash
      and cash equivalents                 6,350   (3,415)  (52,178)  (44,715)
     Change in cash and cash
      equivalents from discontinued
      operations                             614        -       257         -
     Cash and cash equivalents,
      beginning of period                 68,080   60,094   126,965   101,394

     Cash and cash equivalents, end of
      period                             $75,044  $56,679   $75,044   $56,679



                                                 Twelve months ended June 30,
                                                    2007               2008

    Cash flows from operating activities
     of continuing operations:
      Net loss                                    $(105,268)         $(20,236)
      Adjustments to reconcile net loss
       to cash provided by (used in)
       operating activities of continuing
       operations:
        Loss from discontinued operations             8,898                 -
        Depreciation and amortization                35,046            26,134
        Loss on disposition of property
         and equipment                                    1                 -
        Stock-based compensation                      4,284             4,564
        Stock-based compensation to
         consultants for services                       129               364
        Stock-based compensation relating
         to performance share plan                        -              (250)
        Issuance of common stock from
         treasury for 401(k) matching
         contribution                                   890              (202)
        Amortization of debt discount and
         deferred financing fees                        311               344
        Asset impairment and depreciation
         (restructuring)                              2,960                 -
        Restructuring charges                        14,997                 -
        Notes receivable accretion                        -              (544)
        Changes in operating assets and
         liabilities, net of effect of
         discontinued operations:
           Accounts receivable, net                       5            (7,244)
           Inventories, net                          53,411             1,389
           Prepaid inventory                          1,119              (524)
           Prepaid expenses                             913            (1,746)
           Other long-term assets, net                  744               205
           Accounts payable                          (2,568)           (2,327)
           Accrued liabilities                       (6,033)              878
           Deferred revenue                            (427)           12,130
           Other long-term liabilities                    -              (252)

             Net cash provided by (used in)
              operating activities                    9,412            12,683

    Cash flows from investing activities
     of continuing operations:
      Purchases of marketable securities            (21,381)          (79,198)
      Sales and maturities of marketable
       securities                                     3,400            67,197
      Expenditures for property and
       equipment                                    (13,450)           (7,176)
      Proceeds from the sale of
       discontinued operations, net of
       cash transferred                               9,892                 -
      Collection of note receivable                   4,694             1,758
      Decrease in cash resulting from
       de-consolidation of variable entity             (102)                -

        Net cash provided by (used in)
         investing activities                       (16,947)          (17,419)

    Cash flows from financing activities
     of continuing operations:
      Payments on capital lease
       obligations                                   (5,454)           (3,806)
      Drawdown on line of credit                     14,592             7,650
      Payments on line of credit                    (14,592)           (7,650)
      Issuance of common stock in
       offerings, net of issuance costs              39,406                 -
      Purchase of treasury stock                          -           (12,000)
      Exercise of stock options                       2,994             2,233

        Net cash provided by (used in)
         financing activities                        36,946           (13,573)

     Effect of exchange rate changes on cash             84               (56)
     Cash provided by (used in)
      operating activities of
      discontinued operations                         1,307                 -
     Cash used in investing activities
      of discontinued operations                       (315)                -

     Net increase (decrease) in cash and
      cash equivalents                               30,487           (18,365)
     Change in cash and cash equivalents
      from discontinued operations                     (993)                -
     Cash and cash equivalents,
      beginning of period                            45,550            75,044

     Cash and cash equivalents, end of period       $75,044           $56,679


SOURCE Overstock.com, Inc.


http://www.overstock.com