Overstock.com Reports FY and Q4 2012 Results

2012 revenues of $1.1 billion and net income of $14.7 million

Jan 24, 2013, 09:00 ET from Overstock.com, Inc.

SALT LAKE CITY, Jan. 24, 2013 /PRNewswire/ -- Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for fiscal year 2012 and the quarter ended December 31, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120110/LA33954LOGO)

Key FY 2012 metrics (comparison to FY 2011):

  • Revenue:  $1,099M vs. $1,054M (4% increase);
  • Gross margin: 18.1% vs. 17.0% (110 basis point increase);
  • Gross profit: $198.4M vs. $179.1M (11% increase);
  • Sales and marketing expense: $63.5M vs. $61.8M (3% increase);
  • Contribution (non-GAAP measure): $135.0M vs. $117.3M (15% increase);
  • G&A/Technology expense: $122.7M vs. $134.8M (9% decrease);
  • Net income (loss): $14.7M vs. $(19.4)M ($34.1M increase); and
  • Diluted EPS: $0.62/share vs. $(0.84)/share ($1.46 increase).

Key Q4 2012 metrics (comparison to Q4 2011):

  • Revenue:  $342.0M vs. $314.1M (9% increase);
  • Gross margin: 17.9% vs. 16.2% (170 basis point increase);
  • Gross profit: $61.2M vs. $50.9M (20% increase);
  • Sales and marketing expense: $20.6M vs. $18.9M (9% increase);
  • Contribution (non-GAAP measure): $40.6M vs. $32.0M (27% increase);
  • G&A/Technology expense: $32.7M vs. $34.1M (4% decrease);
  • Net income (loss): $8.8M vs. $(3.4)M ($12.2M increase); and
  • Diluted EPS: $0.37/share vs. $(0.15)/share ($0.52 increase).

As previously announced, the Company will hold a conference call and webcast to discuss its fiscal year and Q4 2012 financial results today, Thursday, January 24, 2013, at 11:30 a.m. Eastern Time.

Webcast information

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) 551-1816 and enter conference ID 85851093 when prompted. Participants outside the United States or Canada who do not have Internet access should dial (706) 758-1198 then enter the conference ID provided above.

A replay of the conference call will be available at http://investors.overstock.com starting two hours after the live call has ended. An audio replay of the webcast will be available via telephone starting at 12:30 p.m. Eastern Time on Thursday, January 24, 2013, through 11:59 p.m. Eastern Time on Saturday, February 23, 2013. To listen to the recorded webcast by phone, please dial (800) 585-8367 then enter the conference ID provided above. Outside the U.S. or Canada please dial +1 (404) 537-3406 and enter conference ID provided above.

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

Key financial and operating metrics:

Investors should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure.

Net revenue — Total net revenue for the fiscal year 2012 and 2011 was $1,099 million and $1,054 million, respectively, a 4% increase. The growth in net revenue was primarily due to an increase in the average order size, which more than offset fewer customer orders due to lower conversion rates compared to last year. Total net revenue for Q4 2012 and 2011 was $342.0 million and $314.1 million, respectively, a 9% increase.

Gross profit — Gross profit for the fiscal year 2012 and 2011 was $198.4 million and $179.1 million, respectively, an 11% increase, representing 18.1% and 17.0% of total net revenue for those respective periods. The increase in gross profit was primarily due to a shift in product sales mix, partially offset by higher freight and return-related costs. Gross profit for Q4 2012 and 2011 was $61.2 million and $50.9 million, respectively, a 20% increase, representing 17.9% and 16.2% of total net revenue for those respective periods. The increase in gross profit was primarily due to a shift in product sales mix and lower warehousing costs, partially offset by higher return-related costs.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) — Contribution for the fiscal year 2012 and 2011 was $135.0 million and $117.3 million, respectively, a 15% increase. Contribution margin increased by 120 basis points to 12.3% from 11.1% in those same periods. Contribution for Q4 2012 and 2011 was $40.6 million and $32.0 million, respectively, a 27% increase. Contribution margin was 11.9% and 10.2% for those same periods. 

Contribution (a non-GAAP financial measure) (which we reconcile to "gross profit" in our statement of operations) consists of gross profit less sales and marketing expense and reflects an additional way of viewing our results. Contribution margin is contribution as a percentage of total net revenue. We believe contribution and contribution margin provide management and users of the financial statements information about our ability to cover our operating costs, such as technology and general and administrative expenses. Contribution and contribution margin are used in addition to and in conjunction with results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures. The material limitation associated with the use of contribution is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income (loss) and net income (loss). 

For further details on contribution and contribution margin, see the calculation of these non-GAAP financial measures and the reconciliation of contribution to gross profit below (in thousands):

Year ended December 31,

2012

2011

2010

Total revenue

$

1,099,289

$

1,054,277

$

1,089,873

Cost of goods sold

900,859

875,189

900,233

Gross profit

198,430

179,088

189,640

Less: Sales and marketing expense

63,467

61,813

61,334

Contribution

$

134,963

$

117,275

$

128,306

Contribution margin

12.3%

11.1%

11.8%

Three months ended December 31,

2012

2011

Total revenue

$

342,034

$

314,077

Cost of goods sold

280,823

263,216

Gross profit

61,211

50,861

Less: Sales and marketing expense

20,581

18,911

Contribution

$

40,630

$

31,950

Contribution margin

11.9%

10.2%

Sales and marketing expenses — Sales and marketing expenses totaled $63.5 million and $61.8 million for the fiscal year 2012 and 2011, respectively, a 3% increase, and representing 5.8% and 5.9% of total net revenue for those periods. Sales and marketing expenses totaled $20.6 million and $18.9 million for Q4 2012 and 2011, respectively, a 9% increase, and representing 6.0% of total net revenue for both periods.

Technology expenses — Technology expenses totaled $65.5 million and $67.0 million for the fiscal year 2012 and 2011, respectively, a 2% decrease, and representing 6.0% and 6.4% of total net revenue for those periods. The $1.5 million decrease was primarily due to lower compensation related costs from reduced staffing. Technology expenses totaled $18.6 million and $16.4 million for Q4 2012 and 2011, respectively, a 14% increase, and representing 5.4% and 5.2% of total net revenue for those respective periods. The $2.2 million increase is primarily due to an increase in third-party technology services.

General and administrative ("G&A") expenses — G&A expenses totaled $57.3 million and $67.8 million for the fiscal year 2012 and 2011, respectively, a 16% decrease, and representing 5.2% and 6.4% of total net revenue for those periods. The $10.5 million decrease is largely due to lower legal fees. G&A expenses totaled $14.1 million and $17.7 million for Q4 2012 and 2011, respectively, a 21% decrease, and representing 4.1% and 5.6% of total revenue for those respective periods. The $3.6 million decrease is largely due to lower legal fees, partially offset by an increase in compensation-related costs from higher bonus expense. 

Operating income (loss) — Operating income (loss) was $12.2 million and $(17.5) million for the fiscal year 2012 and 2011, respectively, a $29.7 million increase. Operating income (loss) was $7.9 million and $(2.2) million for Q4 2012 and 2011, respectively, a $10.1 million increase. 

Restructuring — Restructuring costs totaled $76,000 and $0 for the fiscal year 2012 and 2011, respectively. Restructuring costs totaled $23,000 and $0 for Q4 2012 and 2011, respectively.

Interest income — Interest income was $116,000 and $161,000 for the fiscal year 2012 and 2011, respectively, and $30,000 and $40,000 for Q4 2012 and 2011, respectively.

Interest expense — Interest expense totaled $809,000 and $2.5 million for the fiscal year 2012 and 2011, respectively, a decrease of 67%. The decrease in interest expense is primarily a result of the extinguishment of US Bank finance obligations and Senior Notes during 2011. Interest expense totaled $154,000 and $517,000 for Q4 2012 and 2011, respectively. In November 2012, we fully paid the $17.0 million in advances under the U.S. Bank Financing Agreement and the facility expired at the end of the year. In December 2012, we entered into a $3.0 million credit agreement with U.S. Bank in order to provide a line of credit whereby letters of credit could be issued by the bank.

Other income, net — Other income, net totaled $3.7 million and $278,000 for the fiscal year 2012 and 2011, respectively. The increase in other income, net is primarily due to a $2.2 million increase in Club O rewards breakage. In addition, we had a $1.2 million prepayment penalty in 2011 paid to US Bank for paying off our leases early. Other income, net totaled $1.3 million and $(684,000) for Q4 2012 and 2011, respectively. The increase is primarily due to $798,000 of increased Club O rewards breakage, and the $1.2 million prepayment penalty paid in 2011.

Income taxes — Income tax expense totaled $485,000 and a benefit of $(142,000) for the fiscal year 2012 and 2011, respectively. Income tax expense totaled $303,000 and $60,000 for Q4 2012 and 2011, respectively.  

Net income (loss) — Net income (loss) was $14.7 million and $(19.4) million for the fiscal year 2012 and 2011, respectively, an increase of $34.1 million. Earnings per share was $0.62 on a fully diluted basis for 2012, compared to $(0.84) for 2011. Net income (loss) was $8.8 million and $(3.4) million for Q4 2012 and 2011, respectively, an increase of $12.2 million. Q4 2012 earnings per share was $0.37 on a fully diluted basis, compared to $(0.15) for Q4 2011.

Free cash flow (a non-GAAP financial measure) — Free cash flow totaled $15.7 million and $16.9 million for the twelve months ended December 31, 2012 and 2011, respectively. The $1.2 million decrease was due to a $3.7 million increase in capital expenditures, partially offset by a $2.5 million increase in operating cash flows.  

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 and liquidity. Free cash flow, which we reconcile to "net cash provided by (used in) operating activities," is cash flow from operations reduced by "expenditures for fixed assets, including internal-use software and website development." We believe that cash flows from operating activities is an important measure, since it includes both the cash impact of the continuing operations of the business and changes in the balance sheet that impact cash. However, 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 and free cash flow measures the amount of cash we have available for mandatory debt service and financing obligations, changes in our capital structure, and future investments, after we have paid our operating expenses. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows. 

Our calculation of free cash flow is set forth below (in thousands):

Year ended December 31,

2012

2011

2010

Net cash provided by operating activities

$

28,145

$

25,663

$

16,322

Expenditures for fixed assets, including internal-use software and website development

(12,489)

(8,741)

(20,511)

Free cash flow

$

15,656

$

16,922

$

(4,189)

Cash and working capital — We had cash and cash equivalents of $93.5 million and $97.0 million and working capital of $7.5 million and $(14.1) million at December 31, 2012 and December 31, 2011, respectively. 

About Overstock.com Overstock.com (NASDAQ: OSTK) is an online discount retailer based in Salt Lake City, Utah that sells a broad range of products including furniture, rugs, bedding, electronics, clothing, jewelry, travel, cars, and insurance.  Worldstock.com, a fair trade department dedicated to selling artisan-crafted products from around the world, offers additional unique items.  Main Street Revolution supports small businesses across the United States by providing them a national customer base.  A recent Nielsen State of the Media: Consumer Usage Report placed Overstock.com among the top five most visited mass merchandiser websites.  The NRF Foundation/American Express Customer Choice Awards ranks Overstock.com #4 in customer service among all U.S. retailers.  Overstock.com sells internationally under the name O.co.  Overstock.com (http://www.overstock.com and http://www.o.co) regularly posts information about the company and other related matters under Investor Relations on its website.

Overstock.com®, O.co®, Worldstock Fair Trade® and Club O Rewards® are registered trademarks of Overstock.com, Inc.  O.info™, Club O™, and Club O Rewards Dollars™ and Your Savings Engine™ are trademarks 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 all statements other than statements of historical fact. Our Annual Report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 2, 2012, and our subsequent filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, which was filed on October 25, 2012, 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 Balance Sheets (Unaudited)

(in thousands)

December 31,

December 31,

2012

2011

Assets

Current assets:

Cash and cash equivalents

$

93,547

$

96,985

Restricted cash

1,905

2,036

Accounts receivable, net

19,273

13,501

Inventories, net

26,464

22,993

Prepaid inventories, net

1,912

1,027

Prepaids and other assets

12,897

12,651

Total current assets

155,998

149,193

Fixed assets, net

21,037

25,322

Goodwill

2,784

2,784

Other long-term assets, net

2,166

2,260

Total assets

$

181,985

$

179,559

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

62,416

$

70,332

Accrued liabilities

47,674

47,902

Deferred revenue

38,411

27,978

Line of credit

-

17,000

Capital lease obligations, current

-

110

Total current liabilities

148,501

163,322

Capital lease obligations, non-current

-

2

Other long-term liabilities

2,522

2,998

Total liabilities

151,023

166,322

Stockholders' equity:

Common stock

2

2

Additional paid-in capital

356,895

353,368

Accumulated deficit

(247,096)

(261,765)

Treasury stock

(78,839)

(78,368)

Total stockholders' equity

30,962

13,237

Total liabilities and stockholders' equity

$

181,985

$

179,559

    

Overstock.com, Inc.

Consolidated Statements of Operations and

Comprehensive Income (Loss) (Unaudited)

(in thousands, except per share data)

Year ended December 31

2012

2011

2010

Revenue, net

Direct 

$

155,516

$

163,609

$

209,646

Fulfillment partner 

943,773

890,668

880,227

Total net revenue

1,099,289

1,054,277

1,089,873

Cost of goods sold

Direct

140,536

149,660

187,124

Fulfillment partner

760,323

725,529

713,109

Total cost of goods sold

900,859

875,189

900,233

Gross profit

198,430

179,088

189,640

Operating expenses:

Sales and marketing

63,467

61,813

61,334

Technology

65,467

67,043

58,260

General and administrative

57,259

67,766

55,650

Restructuring

76

-

(569)

Total operating expenses

186,269

196,622

174,675

Operating income (loss)

12,161

(17,534)

14,965

Interest income

116

161

157

Interest expense

(809)

(2,485)

(2,962)

Other income, net

3,686

278

2,088

Income (loss) before income taxes

15,154

(19,580)

14,248

Provision (benefit) for income taxes

485

(142)

359

Net income (loss)

14,669

(19,438)

13,889

Deemed dividend related to redeemable common stock

-

(12)

(112)

Net income (loss) attributable to common shares

$

14,669

$

(19,450)

$

13,777

Net income (loss) per common share—basic:

Net income (loss) attributable to common shares—basic

$

0.63

$

(0.84)

$

0.60

Weighted average common shares outstanding—basic 

23,387

23,259

23,019

Net income (loss) per common share—diluted:

Net income (loss) attributable to common shares—diluted

$

0.62

$

(0.84)

$

0.59

Weighted average common shares outstanding—diluted

23,672

23,259

23,366

Comprehensive income (loss)

$

14,669

$

(19,438)

$

13,889

Other data:

Gross bookings

$

1,253,629

$

1,181,319

$

1,210,983

    

Overstock.com, Inc.

Consolidated Statements of Operations and

Comprehensive Income (Loss) (Unaudited)

(in thousands, except per share data)

Three months ended December 31,

2012

2011

Revenue, net

Direct 

$

46,468

$

47,256

Fulfillment partner 

295,566

266,821

Total net revenue

342,034

314,077

Cost of goods sold

Direct

41,114

43,927

Fulfillment partner

239,709

219,289

Total cost of goods sold

280,823

263,216

Gross profit

61,211

50,861

Operating expenses:

Sales and marketing

20,581

18,911

Technology

18,622

16,404

General and administrative

14,093

17,734

Restructuring

23

-

Total operating expenses

53,319

53,049

Operating income (loss)

7,892

(2,188)

Interest income

30

40

Interest expense

(154)

(517)

Other income, net

1,322

(684)

Income (loss) before income taxes

9,090

(3,349)

Provision (benefit) for income taxes

303

60

Net income (loss)

8,787

(3,409)

Deemed dividend related to redeemable common stock

-

-

Net income (loss) attributable to common shares

$

8,787

$

(3,409)

Net income (loss) per common share—basic:

Net income (loss) attributable to common shares—basic

$

0.37

$

(0.15)

Weighted average common shares outstanding—basic 

23,450

23,278

Net income (loss) per common share—diluted:

Net income (loss) attributable to common shares—diluted

$

0.37

$

(0.15)

Weighted average common shares outstanding—diluted

24,064

23,278

Comprehensive income (loss)

$

8,787

$

(3,409)

Other data:

Gross bookings

$

403,019

$

366,391

 

Overstock.com, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

Year ended December 31

2012

2011

2010

Cash flows from operating activities:

Net income (loss)

$

14,669

$

(19,438)

$

13,889

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

16,009

16,350

14,580

Realized gain on marketable securities

(9)

-

-

Loss on disposition of fixed assets

72

-

-

Stock-based compensation to employees and directors

3,527

3,051

5,056

Amortization of debt discount and deferred loan costs

73

127

391

Loss (gain) from early extinguishment of debt

-

1,253

(346)

Restructuring charges (reversals)

76

-

(569)

Changes in operating assets and liabilities:

Restricted cash

131

506

1,872

Accounts receivable, net

(5,772)

59

(1,920)

Inventories, net

(3,471)

9,121

(8,739)

Prepaid inventories, net

(885)

1,055

797

Prepaids and other assets

1,294

(456)

368

Other long-term assets, net

(267)

(160)

(215)

Accounts payable

(7,902)

2,944

(9,315)

Accrued liabilities

(459)

6,952

(2,575)

Deferred revenue

10,433

3,951

3,362

Other long-term liabilities

626

348

(314)

Net cash provided by operating activities

28,145

25,663

16,322

Cash flows from investing activities:

Purchases of marketable securities

(82)

(160)

(136)

Purchases of intangible assets

(6)

(4)

(396)

Sale of marketable securities prior to maturity

154

-

-

Investment in precious metals

(1,397)

-

(1,657)

Expenditures for fixed assets, including internal-use software and website development

(12,489)

(8,741)

(20,511)

Proceeds from sale of fixed assets

56

-

-

Net cash used in investing activities

(13,764)

(8,905)

(22,700)

Cash flows from financing activities:

Payments on capital lease obligations

(112)

(730)

(490)

Drawdowns on line of credit

-

17,000

-

Payments on line of credit

(17,000)

-

-

Capitalized financing costs

-

(140)

-

Proceeds from finance obligations

-

1,429

16,383

Payments on finance obligations

-

(24,918)

(841)

Paydown on direct financing arrangement

(236)

(216)

(197)

Payments to retire convertible senior notes

-

(34,615)

(24,865)

Purchase of redeemable stock

-

-

(26)

Purchase of treasury stock

(471)

(1,604)

(825)

Exercise of stock options

-

-

1,503

Net cash used in financing activities

(17,819)

(43,794)

(9,358)

Net decrease in cash and cash equivalents

(3,438)

(27,036)

(15,736)

Cash and cash equivalents, beginning of period

96,985

124,021

139,757

Cash and cash equivalents, end of period 

$

93,547

$

96,985

$

124,021

 

SOURCE Overstock.com, Inc.



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