EX-99.1 2 a08-4058_1ex99d1.htm EX-99.1

 

Exhibit 99.1

 

NEWS RELEASE
January 30, 2008

 

Media Contact:

Kirstie Burden, Overstock.com, Inc.

+1 (801) 947-3172

kburden@overstock.com

 

Investor Contact:

Kevin Moon, Overstock.com, Inc.

+1 (801) 947-3282

kmoon@overstock.com

 

Overstock.com Reports Fourth Quarter and Fiscal Year 2007 Financial Results

 

SALT LAKE CITY (January 30, 2008) — Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarterly and annual periods ending December 31, 2007.

 

Key FY 2007 metrics (comparison to 2006):

·         Revenue:  $768.8 million vs. $788.2 million (a 2% decrease);

·         Gross profits:  $128.9 million vs. $94.8 million (a 36% increase);

·         Sales and marketing expense: $55.7 million vs. $70.9 million (a 21% reduction);

·         Contribution (gross profit less marketing):  $73.3 million vs. $23.9 million (a 206% increase);

·         G&A / Technology expense: $101.7 million vs. $112.0 million (a 9% reduction);

·         Net loss: $44.1 million vs. $101.8 million (a 57% reduction);

·         EBITDA:  $(4.0) million vs. $(55.7) million (a $51.8 million improvement)

·         Operating cash flow:  $10.1 million vs.  $(26.3) million (a $36.4 million improvement); and

·         Free cash flow: $7.4 million vs. $(49.7) million (a $57.2 million improvement)

 

Key Q4 metrics (comparison to Q4 2006):

·         Revenue:  $300.0 million vs. $294.0 million (a 2% increase);

·         Gross profits:  $49.0 million vs. $27.4 million (a 79% increase);

·         Sales and marketing expense: $27.6 million vs. $29.0 million (a 5% reduction);

·         Contribution (gross profit less marketing):  $21.5 million vs. $(1.7) million (an increase of $23.1 million);

·         G&A / Technology expense: $26.0 million vs. $33.5 million (a 22% reduction);

·         Net loss: $4.3 million vs. $45.6 million (a 91% reduction);

·         EBITDA:  $2.2 million vs. $(27.4) million (a $29.6 million improvement)

·         Operating cash flow:  $55.8 million vs.  $51.9 million (a $3.9 million improvement); and

·         Free cash flow: $55.4 million vs. $48.2 million (a $7.3 million improvement)

 

1



 

Dear Investor:

 

Free cash flow for the year was positive $7.4 million and operating cash flow was positive $10.1 million. For the first time in our history, we were EBITDA positive for two consecutive quarters (Q3 and Q4 2007), generating positive $6.3 million of EBITDA during those six months.  At December 31, 2007, we had cash and marketable securities on hand of $147.4 million, up $20.4 million from the end of last year.

 

While I had hoped our Q4 results would have been stronger than they were, 2007 was still a major turnaround from the setbacks of 2005 and 2006, and we truly are well-positioned for 2008. I predicted that the turnaround would look like this: first, hyper-growth in contribution dollars (at least for a while); then, growth in gross profits; and, finally, growth in revenue. To many that may have seemed optimistic, as during the second half of 2006, revenues, gross profits and contribution dollars were all shrinking sharply.  In 2007 we did, in fact, return to hyper-growth in contribution dollars, and we saw strong growth in gross profits. That was the proper place in the income statement to focus.  Our next focus is revenue growth, without losing the discipline that has led to the turnaround of the first two.  Once we achieve that, our turnaround will be complete. However, having returned to a solid cash-generating position, and positive EBITDA position, is a great relief.

 

During the last few months, we earned several distinctions.  We placed number one in the Q4 2007 Online Customer Respect Study issued by the Customer Respect Group.  We placed number two overall, and number one among mass merchants, in Gomez, Inc.’s “Merchant Madness Holiday Tournament” — a competition that identified websites that were consistently responsive and available to shoppers during the holiday crunch.  For the second year running, the NRF Foundation/American Express Customer Service Survey — a national survey of thousands of households that ranks both on-line and brick-and-mortar retailers for customer service — ranked Overstock the number four retailer in the nation.

 

I look forward to discussing our results with you on our conference call.  In the mean time, I remain,

 

Your humble servant,

 

Patrick M. Byrne

 

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

 

Note regarding our Q4 and 2007 financial results:

 

From the company’s inception through the third quarter of 2007, we have recorded revenue based on product ship date.  In the fourth quarter of 2007, in response to an accounting comment from the staff of the SEC, we retrospectively changed our policy to

 

2



 

recognize revenue based on estimated product delivery date.  We have recorded the cumulative effect of this change in the fourth quarter of 2007.

 

We performed a detailed analysis of the impact of this change through the fourth quarter of 2007, and we have preliminarily determined that the impact of this change is immaterial to prior periods. As a result, for the full year 2007, we have recorded revenue of $768.8 million, which comprises of $777.5 million of revenue under the revised revenue recognition policy, less $8.7 million, the cumulative effect of revenue that would have been deferred as of the end of 2006.  Our consolidated balance sheet at December 31, 2007 reflects $5.0 million of deferred revenue related to shipments in transit as of that date; we also reduced gross profit and net income in Q4 related to the revenue deferral by approximately $800K. Going forward, each quarter, we will make a similar deferral based on estimated product delivery date.

 

Although we have initially concluded that this is the appropriate manner in which this change should be reflected in our results of operations for 2007, we are still in the process of reaching a final conclusion. If we determine it was not appropriate to make the cumulative adjustment in the fourth quarter, our results of operations will be adjusted to reflect the results solely under the revised method.

 

Key financial and operating metrics:

 

Total revenue — Total revenue for the three months ended December 31, 2006 and 2007 of $294.0 million and $300.0 million, respectively, a 2% increase.  For the year ended December 31, 2006 and 2007, total revenue was $788.2 million and $768.8 million, respectively, a 2% decrease.

 

Gross profit and gross margin — Gross profits for the three months ended December 31, 2006 and 2007 was $27.4 million and $49.0 million, respectively, a 79% increase, representing margins of 9.3% and 16.3% for those respective periods.  For the twelve-month periods, gross profits were $94.8 million in 2006 and $128.9 million in 2007, a 36% increase.  Gross margins were 12.0% and 16.8% for those respective twelve-month periods.

 

Contribution and contribution margin — “Contribution” (gross profit less sales and marketing expenses) for the three months ended December 31, 2006 and 2007 was $(1.7) million (-0.6% contribution margin) and $21.5 million (7.2% contribution margin), respectively, a 1,383% increase.  For the twelve months ended December 31, 2006 and 2007, contribution was $23.9 million (3.0% contribution margin) and $73.3 million (9.5% contribution margin), respectively, a 206% increase.

 

3



 

 

 

Three months ended
December 31,

 

Twelve months ended
 December 31,

 

 

 

2006

 

2007

 

2006

 

2007

 

Total revenue

 

$

294,029

 

$

300,011

 

$

788,150

 

$

768,838

 

Cost of goods sold

 

266,656

 

250,974

 

693,350

 

639,922

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

27,373

 

49,037

 

94,800

 

128,916

 

Less: Sales and marketing expense

 

29,045

 

27,580

 

70,897

 

55,661

 

 

 

 

 

 

 

 

 

 

 

Contribution

 

$

(1,672

)

$

21,457

 

$

23,903

 

$

73,255

 

Contribution margin

 

(0.6

)%

7.2

%

3.0

%

9.5

%

 

Operating loss — Operating losses for the three months ended December 31, 2006 and 2007 were $40.9 million and $4.6 million, respectively.  For the twelve months ended December 31, 2006 and 2007, operating losses were $93.8 million and $40.7 million, respectively.

 

EBITDA — EBITDA (a non-GAAP measure) for the three months ended December 31, 2006 and 2007 was $(27.4) million and $2.2 million, respectively. For the twelve months ended December 31, 2006 and 2007, EBITDA was $(55.7) million and ($4.0) 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

 

Twelve months ended

 

 

 

December 31,

 

December 31,

 

 

 

2006

 

2007

 

2006

 

2007

 

Operating loss

 

$

(40,885

)

$

(4,577

)

$

(93,766

)

$

(40,690

)

Add:Depreciation and amortization

 

11,525

 

6,670

 

32,327

 

29,495

 

Stock-based compensation expense

 

1,032

 

1,136

 

4,120

 

4,522

 

Stock-based compensation to consultants for service

 

(8

)

(91

)

23

 

189

 

Stock-based compensation for performance share plan

 

 

(900

)

 

(550

)

Treasury stock issued to employees as compensation

 

108

 

(26

)

787

 

902

 

Restructuring costs - asset impairment and depreciation

 

791

 

 

791

 

2,169

 

 

 

 

 

 

 

 

 

 

 

EBITDA

 

$

(27,437

)

$

2,212

 

$

(55,718

)

$

(3,963

)

 

Net loss — Net loss for the three months ended December 31, 2006, was $45.6 million, or $2.15 loss per share, compared to $4.3 million, or $0.18 loss per share in 2007. For the twelve months ended December 31, 2006 and 2007, net losses totaled $101.8 million and $44.1 million, respectively, or $5.01 and $1.86 loss per share for those respective periods.  For the twelve months ended December 31, 2006 net loss included restructuring charges of $5.7 million and $6.9 million loss from discontinued operations. Net loss in 2007 includes restructuring of $12.3 million and loss from discontinued operations of $3.9 million.

 

4



 

Free Cash Flow (a non-GAAP measure) — Free cash flow for the three months ended December 31, 2006 and 2007 totaled $48.2 million and $55.4 million, respectively.  For the years ended December 31, 2006 and 2007, free cash flow was $(49.7) million and $7.4 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 “Net cash provided by (used in) operating activities,” is cash flow from operations reduced by “Expenditures for property and equipment.” Although we believe that cash flow from operating activities in 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.

 

 

 

Three months ended

 

Twelve months ended

 

 

 

December 31,

 

December 31,

 

 

 

2006

 

2007

 

2006

 

2007

 

Net cash provided by (used in) operating activities

 

$

51,949

 

$

55,846

 

$

(26,293

)

$

10,089

 

Expenditures for property and equipment

 

(3,766

)

(411

)

(23,441

)

(2,643

)

 

 

 

 

 

 

 

 

 

 

Free cash flow

 

$

48,183

 

$

55,435

 

$

(49,734

)

$

7,446

 

 

Cash and working capital — At December 31, 2007, Overstock.com had cash, cash equivalents and marketable securities of $147.4 million and working capital of $72.1 million.

 

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

 

5



 

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, without losing the discipline, completion of a turnaround, positioning for 2008, future cash generation and EBITDA results, and the outlook of the company.  Our Form 10-K for the year ended December 31, 2006, our quarterly reports on Form 10-Q, 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.

 

6



 

Overstock.com, Inc.

Consolidated Statements of Operations (unaudited)

(in thousands, except per share amounts)

 

 

 

Three months ended

 

Twelve months ended

 

 

 

December 31,

 

December 31,

 

 

 

2006

 

2007

 

2006

 

2007

 

Revenue

 

 

 

 

 

 

 

 

 

Direct

 

$

98,158

 

$

68,471

 

$

303,202

 

$

197,196

 

Fulfillment partner

 

195,871

 

231,540

 

484,948

 

571,642

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

294,029

 

300,011

 

788,150

 

768,838

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

 

 

 

 

 

 

 

Direct

 

101,730

 

56,897

 

284,943

 

165,698

 

Fulfillment partner

 

164,926

 

194,077

 

408,407

 

474,224

 

 

 

 

 

 

 

 

 

 

 

Total cost of goods sold

 

266,656

 

250,974

 

693,350

 

639,922

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

27,373

 

49,037

 

94,800

 

128,916

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

29,045

 

27,580

 

70,897

 

55,661

 

Technology

 

20,680

 

14,667

 

65,158

 

59,453

 

General and administrative

 

12,859

 

11,367

 

46,837

 

42,209

 

Restructuring

 

5,674

 

 

5,674

 

12,283

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

68,258

 

53,614

 

188,566

 

169,606

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

(40,885

)

(4,577

)

(93,766

)

(40,690

)

 

 

 

 

 

 

 

 

 

 

Interest income

 

577

 

1,429

 

3,566

 

4,788

 

Interest expense

 

(1,127

)

(1,103

)

(4,765

)

(4,188

)

Other income, net

 

88

 

 

81

 

(92

)

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

(41,347

)

(4,251

)

(94,884

)

(40,182

)

Discontinued operations:

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

(4,267

)

 

(6,882

)

(3,924

)

 

 

 

 

 

 

 

 

 

 

Net loss

 

(45,614

)

(4,251

)

(101,766

)

(44,106

)

Deemed dividend related to redeemable common stock

 

 

 

(99

)

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to common shares

 

$

(45,614

)

$

(4,251

)

$

(101,865

)

$

(44,106

)

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted:

 

 

 

 

 

 

 

 

 

Loss from continuing operations

 

$

(1.95

)

$

(0.18

)

$

(4.67

)

$

(1.70

)

Loss from discontinued operations

 

$

(0.20

)

$

 

$

(0.34

)

$

(0.16

)

Net loss per common share - basic and diluted

 

$

(2.15

)

$

(0.18

)

$

(5.01

)

$

(1.86

)

Weighted average common shares outstanding - basic and diluted

 

21,163

 

23,807

 

20,332

 

23,704

 

 

 

 

 

 

 

 

 

 

 

Other data:

 

 

 

 

 

 

 

 

 

Shopping bookings (in 000s)

 

$

319,621

 

$

342,642

 

$

863,202

 

$

855,913

 

Auction gross merchandise volume (in 000s)

 

$

7,180

 

$

3,183

 

$

28,870

 

$

14,259

 

Average customer acquisition cost (shopping)

 

$

25.06

 

$

24.98

 

$

24.80

 

$

22.65

 

 



 

Overstock.com, Inc.

Consolidated Balance Sheets (unaudited)

(in thousands)

 

 

 

December 31,

 

 

 

2006

 

2007

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

126,965

 

$

101,394

 

Marketable securities

 

 

46,000

 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities

 

126,965

 

147,394

 

Accounts receivable, net

 

11,638

 

12,304

 

Notes receivable

 

6,702

 

1,506

 

Inventories, net

 

20,274

 

24,603

 

Prepaid inventory

 

2,241

 

3,572

 

Prepaid expenses

 

7,473

 

7,572

 

Current assets of held for sale subsidiary

 

4,718

 

 

 

 

 

 

 

 

Total current assets

 

180,011

 

196,951

 

Property and equipment, net

 

56,198

 

27,197

 

Goodwill

 

2,784

 

2,784

 

Other long-term assets, net

 

578

 

86

 

Note receivable

 

 

4,181

 

Long-term assets of held for sale subsidiary

 

16,594

 

 

 

 

 

 

 

 

Total assets

 

$

256,165

 

$

231,199

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

66,039

 

$

79,097

 

Accrued liabilities

 

40,142

 

41,910

 

Capital lease obligations, current

 

5,074

 

3,796

 

Current liabilities of held for sale subsidiary

 

3,684

 

 

 

 

 

 

 

 

Total current liabilities

 

114,939

 

124,803

 

Capital lease obligations, non-current

 

3,983

 

 

Other long-term liabilities

 

 

3,034

 

Convertible senior notes

 

75,279

 

75,623

 

 

 

 

 

 

 

Total liabilities

 

194,201

 

203,460

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Common stock

 

2

 

2

 

Additional paid-in capital

 

325,771

 

333,909

 

Accumulated deficit

 

(198,694

)

(242,800

)

Treasury stock

 

(64,983

)

(63,278

)

Accumulated other comprehensive loss

 

(132

)

(94

)

 

 

 

 

 

 

Total stockholders' equity

 

61,964

 

27,739

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

256,165

 

$

231,199

 

 



 

Overstock.com, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

 

 

Three months ended December 31,

 

Twelve months ended December 31,

 

 

 

2006

 

2007

 

2006

 

2007

 

Cash flows from operating activities of continuing operations:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(45,614

)

$

(4,251

)

$

(101,766

)

$

(44,106

)

Adjustments to reconcile net loss to cash provided by (used in) operating activities of continuing operations:

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

4,267

 

 

6,882

 

3,924

 

Depreciation and amortization

 

11,525

 

6,670

 

32,327

 

29,495

 

Realized gain from marketable securities

 

 

 

(2,085

)

 

Realized loss on disposition of property and equipment

 

 

 

599

 

1

 

Stock-based compensation

 

1,032

 

1,136

 

4,120

 

4,522

 

Stock-based compensation to consultants for services

 

(8

)

(91

)

23

 

189

 

Stock-based compensation relating to performance share plan

 

 

(900

)

 

(550

)

Treasury stock issued to employees as compensation

 

108

 

(26

)

787

 

902

 

Amortization of debt discount and deferred financing fees

 

 

86

 

417

 

344

 

Restructuring

 

 

 

 

12,283

 

Notes receivable accretion

 

 

(136

)

 

(272

)

Changes in operating assets and liabilities, net of effect of acquisition and discontinued operations:

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

(4,932

)

(4,697

)

(2,052

)

(966

)

Inventories, net

 

42,522

 

(2,203

)

67,009

 

(4,329

)

Prepaid inventory

 

1,783

 

1,431

 

7,388

 

(1,331

)

Prepaid expenses

 

1,720

 

2,685

 

1,004

 

(99

)

Other long-term assets

 

601

 

105

 

496

 

471

 

Accounts payable

 

18,279

 

40,593

 

(35,200

)

12,961

 

Accrued liabilities

 

20,666

 

15,523

 

(6,242

)

(3,157

)

Other long-term liabilities

 

 

(79

)

 

(193

)

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

51,949

 

55,846

 

(26,293

)

10,089

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities of continuing operations:

 

 

 

 

 

 

 

 

 

Change in restricted cash

 

 

 

253

 

 

Purchases of marketable securities

 

 

(46,053

)

 

(75,217

)

Sales of marketable securities

 

 

16,934

 

56,756

 

29,258

 

Expenditures for property and equipment

 

(3,766

)

(411

)

(23,441

)

(2,643

)

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

 

 

 

 

5,196

 

Decrease in cash resulting from de-consolidation of variable entity

 

(102

)

 

(102

)

 

Other investments

 

 

 

(100

)

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

(3,868

)

(29,530

)

33,367

 

(33,514

)

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities of continuing operations:

 

 

 

 

 

 

 

 

 

Payments on capital lease obligations

 

(79

)

(5

)

(2,957

)

(5,261

)

Borrowings on line of credit

 

8,178

 

1,254

 

86,681

 

2,423

 

Payments on line of credit

 

(8,178

)

(1,254

)

(86,681

)

(2,423

)

Proceeds from the issuance of common stock

 

39,406

 

 

64,406

 

 

Exercise of stock options

 

267

 

936

 

2,534

 

3,118

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

39,594

 

931

 

63,983

 

(2,143

)

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

23

 

2

 

34

 

(3

)

Cash provided by (used in) operating activities of discontinued operations

 

1,469

 

 

1,581

 

(204

)

Cash used in investing activities of discontinued operations

 

(223

)

 

(566

)

(53

)

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

88,944

 

27,249

 

72,106

 

(25,828

)

Change in cash and cash equivalents from discontinued operations

 

(1,247

)

 

(1,016

)

257

 

Cash and cash equivalents, beginning of period

 

39,268

 

74,145

 

55,875

 

126,965

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

126,965

 

$

101,394

 

$

126,965

 

$

101,394