EX-99.1 2 a06-16962_1ex99d1.htm EX-99

 

Exhibit 99.1

 

NEWS RELEASE
July 28, 2006

 

Media Contact:
Scott Blevins, Overstock.com, Inc.
+1 (801) 947-3133
sblevins@overstock.com

Investor Contact:
Kevin Moon, Overstock.com, Inc.
+1 (801) 947-3282
kmoon@overstock.com

Overstock.com Reports Second Quarter 2006 Financial Results

SALT LAKE CITY — Overstock.com, Inc. (NASDAQ: OSTK; www.overstock.com) today reported financial results for its second quarter ended June 30, 2006.

·      Q2 Total revenue: $160.0 million, up 6% versus 2005

·      Q2 Gross profits: $23.0 million, up 1% versus 2005

·      Q2 Gross margins: 14.4% compared to 15.1% in 2005

·      Q2 Net loss: $(15.7) million or $(0.78) loss per share

Still chopping wood, still carrying water.

Dear Owners,

Q2 financial results came in where I expected.  At the start of the year I said we would slow growth so we could focus on improving internal processes, then re-accelerate into the fourth quarter: this work has proceeded at a slightly faster pace than I had expected.

Operations Update

Order Flow Management and Customer Care — For six months we have focused on fixing any issues in the order flow process.  The process is now far better than it was under our old systems.  These improvements are already showing up in our customer satisfaction scores, which have rebounded to extremely high levels (that is, where they were before the system changeover last year).   Our new RightNow customer care application goes




 

live next week: it is an incredible step up from the homegrown solution on which we survived for six years, and will provide tools to track and resolve customer issues: this should further increase customer satisfaction and reduce customer care costs.

Fulfillment Center Build-out — We completed construction (at $1.5 million, a bit below budget) of a new three-level, 75,000 square-foot mezzanine in our fulfillment center in Salt Lake City.  We should immediately see some improvement in picking efficiency, but the real payoff will come in Q4 and beyond.  A latent benefit of the new mezzanine is that it increases warehouse capacity, delaying the need to lease additional space.

Returns — We continue to wring out inefficiencies from the returns process.  In addition, we’re automating more of the process, making it easier for customers to return items on their own.  Because the returns process has consistently been the biggest source of customer complaints, this should improve the customer experience.

Expense Management — We are showing good discipline in managing operating expenses.  Sales & marketing spend is down this year on both an absolute and relative basis, though I expect to see it ramp in Q3 and Q4 as we reaccelerate growth.  While technology and other g&a expenses will outpace our revenue growth this year, I expect these to flatten going forward.

Cash — In May, we raised $25 million by selling common stock, and we liquidated our $50 million of foreign bonds.  We’ve also continued to reduce our overall and prepaid inventory (albeit at a slightly slower pace than I would have liked), resulting in some drag on gross margins that will continue through the end of 2006.  With our Q2 cash raising efforts and our existing inventory line, I’m comfortable with our current cash position through the year.

2




 

IT Systems Update

Shopping Database — We completed the shopping database roll-over from Oracle 9i to Oracle 10g. This 10g is an all-around great product: it is robust, easy to administer, has a great cost-based optimizer, and offers fast recovery when a node goes down.

ERP System — The Oracle ERP system is functioning as intended.  The vast majority of the issues we had with the ERP implementation have been resolved, and with a theoretical capacity of 12-15 times last year’s Q4, the system has ample capacity to carry us through many holiday seasons.

Data Warehouse — The Teradata Enterprise Data Warehouse (EDW) is giving us incredibly granular data. The EDW has been instrumental in several strategic projects we have undertaken this year, including improvements in pricing and inventory management, and is critical to the personalization engine we are building.  I believe that the EDW will allow us to manage inventory and pricing better than we ever have, which should result in improvements in inventory turns and gross margins over time.   The EDW is the foundation for our work on personalization, though this has continued to lag behind schedule.

Management Changes

The old-timers here will remember Jason Lindsey as the conservative yin to my yang. Jason was the CFO in the early years of the company, then became president briefly before retiring for a health reason. He is back as president and is contributing enormously, taking line responsibility for the entire buying team as well.

Jason’s return has allowed me to take over Internal Marketing. This job encompasses website design and function, personalization of the website, and email marketing (which is becoming increasingly personalized).  I will focus on completing the

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development of orderly testing and personalization, the foundations for which Holly so ably built. I am excited to have a real job again.

We lost two members of our management team.  Kamille Twomey, who ran merchandising, decided to go to business school and Holly MacDonald-Korth, who ran Internal Marketing, has also decided to leave the company (though she may do some consulting work for us on several projects before returning to her family’s business). Both of these women have left their marks on the company and earned my deep gratitude. We will all miss them. While I am at it, I shall forewarn that Tad Martin, who oversees project management, recently married.  He and his wife are planning to live on the East Coast and so Tad will be leaving the company before the end of 2006.

Ralph Mondeaux and Dan Lee have taken over merchandising, and report to Jason Lindsey.  Ralph came to Overstock.com from Baker & Taylor and has done a superb job running our Books, Music, Movies & Games department for the last year.  Dan has been our Corporate Controller for the past three years.

In summary, as I said at the beginning of the year, our financial results for the first few quarters of 2006 will suffer from the large 2005 investments in the business, and the technology debacle they caused. However, by the end of Q3, we will have completed building a solid infrastructure throughout the company.  For that reason, I believe that the internal health of the business has never been better.

I look forward to discussing these developments on our call. Until then, I remain,

Your humble servant,


Patrick

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PS If you have any questions, please feel free to email them to Kevin Moon at kmoon@overstock.com before the conference call, so we may address them.

Note to investors

In May the Board of Directors approved the implementation of the Direct Registration System (DRS) to provide the company’s shareholders an alternative to holding paper certificates. (For a brief description of DRS and how it compares to holding physical certificates or holding stock in “street name” through a broker, please visit the SEC’s website via the following link: http://www.sec.gov/investor/pubs/holdsec.htm). Like those who hold physical certificates, shareholders in DRS are registered on the company’s books and those shares cannot be lent for short selling. There are advantages to DRS over paper certificates, namely, the shares are transferred electronically between the transfer agent and the shareholder’s broker, which results in much more timely transactions, and the risk of loss, damage or theft is eliminated. The company has considered this matter carefully, and believes it is in the best interest of its stockholders to permit them to choose to hold uncertificated shares through DRS should they desire to do so. It is important to note that DRS does not replace shareholder’s ability to obtain physical certificates if they prefer. For additional questions regarding DRS, please contact our transfer agent, Computershare, at (781) 575-2879.

Key financial and operating metrics

Total revenue—Overstock.com reported total revenue for the three months ended June 30, 2006 of $160.0 million, a 6% increase from the $150.6 million reported in 2005.  For the six months ended June 30, 2006, total revenue was $340.2 million, a 7% increase from the $316.5 million in 2005.

Gross profit and gross margins—Gross profit for the three months ended June 30, 2006 was $23.0 million (14.4% margins), a 1% increase from the $22.7 million (15.1%

5




 

margins) reported in 2005.  For the six months ended June 30, 2006, gross profits were $48.2 million, a 1% increase from the $47.5 million in 2005.

Net loss—Net loss for the three months ended June 30, 2006, was $15.7 million, or $0.78 loss per share, compared to $1.9 million, or $0.10 loss per share in 2005.  For the six months ended June 30, 2006, net loss totaled $31.6 million, or $1.60 loss per share, compared to $6.2 million, or $0.32 loss per share in 2005.

Overstock.com had cash and marketable securities of $45.7 million and working capital of $78.5 million on June 30, 2006.

Gross bookings (excluding auctions and travel)—Gross bookings for the three months ended June 30, 2006 totaled $172.1 million, a 5% increase from the $163.8 million reported last year.  For the six months ended June 30, 2006, gross bookings totaled $373.0 million, a 7% increase from the $348.0 million in 2005.

# # #

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 National Market System and can be found online at http://www.overstock.com.

Overstock.com® 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 accelerated growth, continued improvement of customer satisfaction scores, go-live date of new customer care application and the positive effects of this application, increases in margins, improved picking efficiencies, need for additional warehouse space, ease of customer returns, expense management reductions, need for additional capital, ease of administering Oracle 10g, reduced website downtime, capacity of Oracle ERP, Tad Martin’s leaving the company’s employ, the focus of internal website marketing, completion of the company’s infrastructure, as well as all such other risks as identified in our Form 10-K for the year ended December 31, 2005, and all our subsequent filings with the Securities and Exchange Commission, which contain and

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identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

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Overstock.com, Inc.

Consolidated Statements of Operations (unaudited)

(in thousands, except per share amounts)

 

 

 

Three months ended

June 30,

 

Six months ended
June 30,

 

 

 

2005

 

2006

 

2005

 

2006

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

Direct

 

$

60,064

 

$

68,770

 

$

127,948

 

$

148,480

 

Fulfillment partner

 

90,574

 

91,198

 

188,571

 

191,694

 

Total revenue

 

150,638

 

159,968

 

316,519

 

340,174

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

 

 

 

 

 

 

 

Direct

 

51,567

 

61,473

 

109,829

 

132,176

 

Fulfillment partner

 

76,375

 

75,501

 

159,232

 

159,842

 

Total cost of goods sold

 

127,942

 

136,974

 

269,061

 

292,018

 

Gross profit

 

22,696

 

22,994

 

47,458

 

48,156

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

14,499

 

12,171

 

31,325

 

25,348

 

Technology

 

6,103

 

15,048

 

10,201

 

28,637

 

General and administrative

 

7,566

 

12,453

 

14,913

 

25,807

 

Total operating expenses

 

28,168

 

39,672

 

56,439

 

79,792

 

Operating income (loss)

 

(5,472

)

(16,678

)

(8,981

)

(31,636

)

 

 

 

 

 

 

 

 

 

 

Interest income

 

896

 

2,215

 

1,540

 

2,530

 

Interest expense

 

(1,517

)

(1,275

)

(2,962

)

(2,542

)

Other income (expense), net

 

4,170

 

(1

)

4,170

 

(1

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(1,923

)

(15,739

)

(6,233

)

(31,649

)

Deemed dividend related to redeemable common stock

 

(47

)

(33

)

(93

)

(66

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common shares

 

$

(1,970

)

$

(15,772

)

$

(6,326

)

$

(31,715

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

- basic

 

$

(0.10

)

$

(0.78

)

$

(0.32

)

$

(1.60

)

- diluted

 

$

(0.10

)

$

(0.78

)

$

(0.32

)

$

(1.60

)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

- basic

 

19,709

 

20,159

 

19,785

 

19,774

 

- diluted

 

19,709

 

20,159

 

19,785

 

19,774

 

 

 

 

 

 

 

 

 

 

 

Other data:

 

 

 

 

 

 

 

 

 

Shopping bookings (in 000s)

 

$

163,775

 

$

172,091

 

$

347,990

 

$

372,991

 

Travel bookings (in 000s)

 

$

2,759

 

$

5,979

 

$

4,408

 

$

18,307

 

Auction gross merchandise volume (in 000s)

 

$

7,362

 

$

6,860

 

$

12,964

 

$

14,939

 

Average customer acquisition cost (shopping)

 

$

22.10

 

$

22.98

 

$

20.63

 

$

21.05

 

Average registrant acquisition cost (auctions)

 

$

7.51

 

$

2.06

 

$

7.91

 

$

2.54

 

 

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Overstock.com, Inc.

Consolidated Balance Sheets (unaudited)

(in thousands, except per share amounts)

 

 

 

 

December 31,

 

June 30,

 

 

 

2005

 

2006

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$56,224

 

$45,665

 

Marketable securities

 

55,799

 

 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities

 

112,023

 

45,665

 

Accounts receivable, net

 

11,695

 

9,838

 

Inventories, net

 

93,269

 

74,822

 

Prepaid inventory

 

9,633

 

3,247

 

Prepaid expenses

 

8,508

 

9,776

 

 

 

 

 

 

 

Total current assets

 

235,128

 

143,348

 

Restricted cash

 

253

 

 

Property and equipment, net

 

63,914

 

64,611

 

Goodwill

 

13,169

 

13,169

 

Other long-term assets, net

 

13,449

 

12,069

 

 

 

 

 

 

 

Total assets

 

$325,913

 

$233,197

 

 

 

 

 

 

 

Liabilities, Redeemable Securities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$101,436

 

$35,920

 

Accrued liabilities

 

46,847

 

23,504

 

Line of credit

 

 

 

Capital lease obligations, current

 

6,683

 

5,401

 

 

 

 

 

 

 

Total current liabilities

 

154,966

 

64,825

 

Capital lease obligations, non-current

 

3,058

 

3,964

 

Convertible senior notes

 

74,935

 

75,107

 

 

 

 

 

 

 

Total liabilities

 

232,959

 

143,896

 

 

 

 

 

 

 

Redeemable common stock

 

3,205

 

2,398

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock

 

2

 

2

 

Additional paid-in capital

 

250,939

 

280,891

 

Accumulated deficit

 

(96,829

)

(128,544

)

Treasury stock

 

(65,325

)

(65,251

)

Accumulated other comprehensive gain (loss)

 

962

 

(195

)

 

 

 

 

 

 

Total stockholders’ equity

 

89,749

 

86,903

 

 

 

 

 

 

 

Total liabilities, redeemable securities and stockholders’ equity

 

$325,913

 

$233,197

 

 

9




 

Overstock.com, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

 

 

Three months ended
June 30,

 

Six months ended
June 30,

 

Twelve months ended
June 30,

 

 

 

2005

 

2006

 

2005

 

2006

 

2005

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,923

)

$

(15,739

)

$

(6,233

)

$

(31,649

)

$

(6,339

)

$

(50,334

)

Adjustments to reconcile net loss to cash provided by

 

 

 

 

 

 

 

 

 

 

 

 

 

(used in) operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

2,930

 

7,709

 

4,565

 

14,544

 

6,856

 

25,593

 

Realized (gain) loss from marketable securities

 

(25

)

(1,868

)

(26

)

(2,085

)

(28

)

1,292

 

Loss on disposition of property and equipment

 

 

1

 

 

599

 

34

 

2,056

 

Stock-based compensation from stock options

 

53

 

1,088

 

73

 

2,046

 

175

 

2,045

 

Stock options issued to consultants for services

 

(15

)

(9

)

(415

)

34

 

294

 

60

 

Issuance of common stock from treasury as compensation

 

60

 

105

 

311

 

612

 

311

 

744

 

Amortization of debt discount and deferred financing fees

 

116

 

139

 

423

 

278

 

570

 

475

 

Gain from retirement of convertible senior notes

 

(4,170

)

 

(4,170

)

 

(4,170

)

(1,988

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

755

 

(1,572

)

3

 

1,857

 

867

 

(3,255

)

Inventories, net

 

(11,419

)

6,529

 

(14,989

)

18,447

 

(29,784

)

(13,275

)

Prepaid inventory

 

(503

)

5,592

 

1,912

 

6,386

 

(5,756

)

7,163

 

Prepaid expenses

 

1,666

 

716

 

(4,636

)

(1,164

)

(5,721

)

(1,467

)

Other long-term assets, net

 

603

 

(29

)

(11

)

18

 

415

 

(2,122

)

Accounts payable

 

(374

)

(1,181

)

(24,574

)

(65,516

)

17,964

 

(4,487

)

Accrued liabilities

 

2,148

 

(7,663

)

2,494

 

(23,343

)

15,500

 

(2,271

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

(10,098

)

(6,182

)

(45,273

)

(78,936

)

(8,812

)

(39,771

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

(Increase) decrease in restricted cash

 

179

 

55

 

769

 

253

 

1,042

 

833

 

Investments in marketable securities

 

(36,047

)

 

(161,991

)

 

(242,626

)

(23,552

)

Sales of marketable securities

 

102,926

 

49,475

 

162,188

 

56,756

 

175,087

 

110,833

 

Expenditures for property and equipment

 

(11,246

)

(5,366

)

(24,276

)

(12,211

)

(31,411

)

(32,675

)

Acquisition of Ski West (net of cash acquired)

 

 

 

 

 

 

(24,620

)

Other investments

 

 

 

 

(100

)

 

(100

)

Proceeds from the sale of property and equipment

 

 

1

 

 

1

 

20

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

55,812

 

44,165

 

(23,310

)

44,699

 

(97,888

)

30,721

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on capital lease obligations

 

(2,901

)

(326

)

(3,052

)

(2,754

)

(3,356

)

(6,788

)

Borrowings on line of credit

 

 

42,530

 

 

73,258

 

 

85,126

 

Payments on line of credit

 

 

(62,530

)

 

(73,258

)

(1,000

)

(85,126

)

Proceeds from the issuance of convertible senior notes

 

 

 

 

 

116,199

 

 

Payments to retire convertible senior notes

 

(27,935

)

 

(27,935

)

 

(27,935

)

(7,735

)

Payments of deferred financing fees

 

 

 

 

 

(301

)

 

Proceeds from the issuance of common stock

 

 

25,000

 

 

25,000

 

75,207

 

25,000

 

Purchase of treasury stock

 

(24,133

)

 

(24,133

)

 

(24,133

)

 

Purchased call options for purchase of treasury stock

 

 

 

(47,507

)

 

(47,507

)

 

Settlement of call options for cash

 

 

 

 

 

 

7,937

 

Exercise of stock options

 

3,002

 

434

 

3,908

 

1,461

 

5,237

 

4,868

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net provided by (used in) financing activities

 

(51,967

)

5,108

 

(98,719

)

23,707

 

92,411

 

23,282

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(8

)

(44

)

(26

)

(29

)

(9

)

83

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(6,261

)

43,047

 

(167,328

)

(10,559

)

(14,298

)

14,315

 

Cash and cash equivalents, beginning of period

 

37,611

 

2,618

 

198,678

 

56,224

 

45,648

 

31,350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

31,350

 

$

45,665

 

$

31,350

 

$

45,665

 

$

31,350

 

$

45,665

 

 

10