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SMALL BUSINESS
Overstock.com Reports Second Quarter 2008 Financial Results
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
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
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
Key financial and operating metrics:
Total revenue -- Total revenue for the three months ended
Gross profit and gross margin -- Gross profit for the three months ended
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
EBITDA -- EBITDA (a non-GAAP measure) for the three months ended
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
Free Cash Flow (a non-GAAP measure) -- Free cash flow for the three months
ended
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
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
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
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,