Overstock.com Reports FY and Q4 2013 Results 2013 revenues of $1.3 billion and net income of $88.5 million, including $72.7 million net impact of deferred tax asset valuation release

SALT LAKE CITY, Jan. 30, 2014 /PRNewswire/ -- Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for fiscal year 2013 and the quarter ended Dec. 31, 2013.

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

Key FY 2013 metrics (comparison to FY 2012):

  • Revenue: $1,304M vs. $1,099M (19% increase);
  • Gross margin: 19.0% vs. 18.1% (90 basis point increase);
  • Gross profit: $247.7M vs. $198.4M (25% increase);
  • Sales and marketing expense: $91.6M vs. $63.5M (44% increase);
  • Contribution (non-GAAP measure): $156.1M vs. $135.0M (16% increase);
  • G&A/Technology expense: $140.0M vs. $122.7M (14% increase);
  • Provision (benefit) for income taxes: ($72.2M) vs. $485,000 ($72.7M increase);
  • Net income: $88.5M vs. $14.7M ($73.8M and 503% increase); and
  • Diluted EPS: $3.64/share vs. $0.62/share ($3.02/share and 487% increase).

Key Q4 2013 metrics (comparison to Q4 2012):

  • Revenue: $397.6M vs. $342.0M (16% increase);
  • Gross margin: 18.0% vs. 17.9% (10 basis point increase);
  • Gross profit: $71.7M vs. $61.2M (17% increase);
  • Sales and marketing expense: $31.2M vs. $20.6M (52% increase);
  • Contribution (non-GAAP measure): $40.5M vs. $40.6M (0% decrease);
  • G&A/Technology expense: $39.0M vs. $32.7M (19% increase);
  • Provision (benefit) for income taxes: ($72.6M) vs. $303,000 ($72.9M increase);
  • Net income: $73.6M vs. $8.8M ($64.8M and 737% increase); and
  • Diluted EPS: $3.01/share vs. $0.37/share ($2.64/share and 714% increase).

As previously announced, the company will hold a conference call and webcast to discuss its fiscal year and Q4 2013 financial results today, Thursday, Jan. 30, 2014, at 11:30 a.m. ET.

Webcast information

To access the live webcast and presentation slides, go to http://investors.overstock.com. To listen to the conference call via telephone, dial (877) 673-5346 and enter conference ID 34087753 when prompted. Participants outside the U.S. or Canada who do not have Internet access should dial +1 (724) 498-4326 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 2:30 p.m. ET on Thursday, Jan. 30, 2014, through 11:59 p.m. ET on Thursday, Feb. 13, 2014. To listen to the recorded webcast by phone, dial (855) 859-2056 then enter the conference ID provided above. Outside the U.S. or Canada dial +1 (404) 537-3406 and enter the conference ID provided above.

Email questions to Mark Harden, at mharden@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 2013 and 2012 was $1,304 million and $1,099 million, respectively, a 19% increase. The growth in net revenue was primarily due to an increase of 17% in average order size, from $135 to $158, coupled with a 2% increase in orders. Total net revenue for Q4 2013 and 2012 was $397.6 million and $342.0 million, respectively, a 16% increase. The growth in net revenue was primarily due to an increase of 13% in average order size, from $132 to $149, coupled with a 3% increase in orders. The increases in average order size are largely due to a sales mix shift into home and garden products.

Gross profit - Gross profit for the fiscal year 2013 and 2012 was $247.7 million and $198.4 million, respectively, a 25% increase, representing 19.0% and 18.1% of total net revenue for those respective periods. The increase in gross profit was primarily due to higher revenue and a shift in product sales mix into higher margin home and garden products. Gross profit for Q4 2013 and 2012 was $71.7 million and $61.2 million, respectively, a 17% increase, representing 18.0% and 17.9% of total net revenue for those respective periods. The increase in gross profit was primarily due to higher revenue.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) - Contribution for the fiscal year 2013 and 2012 was $156.1 million and $135.0 million, respectively, a 16% increase.  Contribution margin was 12.0% and 12.3% for those periods. Contribution for Q4 2013 and 2012 was $40.5 million and $40.6 million, respectively. Contribution margin was 10.2% and 11.9% for those periods.

Contribution (a non-GAAP financial measure) (which we reconcile to "gross profit" in our statement of income) 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 provides 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 and net income.

Our calculation of contribution and contribution margin is set forth below (in thousands):


Year ended


December 31,


2013


2012


2011

Total net revenue

$

1,304,217



100.0

%


$

1,099,289



100.0

%


$

1,054,277



100.0

%

Cost of goods sold

1,056,557



81.0

%


900,859



81.9

%


875,189



83.0

%

Gross profit

247,660



19.0

%


198,430



18.1

%


179,088



17.0

%

Less: Sales and marketing expense

91,609



7.0

%


63,467



5.8

%


61,813



5.9

%

Contribution and contribution margin

$

156,051



12.0

%


$

134,963



12.3

%


$

117,275



11.1

%

 


Three months ended


December 31,


2013


2012

Total net revenue

$

397,593



100.0

%


$

342,034



100.0

%

Cost of goods sold

325,858



82.0

%


280,823



82.1

%

Gross profit

71,735



18.0

%


61,211



17.9

%

Less: Sales and marketing expense

31,233



7.9

%


20,581



6.0

%

Contribution and contribution margin

$

40,502



10.2

%


$

40,630



11.9

%

Sales and marketing expenses - Sales and marketing expenses totaled $91.6 million and $63.5 million for the fiscal year 2013 and 2012, respectively, a 44% increase, and representing 7.0% and 5.8% of total net revenue for those periods. Sales and marketing expenses totaled $31.2 million and $20.6 million for Q4 2013 and 2012, respectively, a 52% increase, and representing 7.9% and 6.0% of total net revenue for those periods. The increases were primarily due to increased spending in the sponsored search marketing channel due to a higher proportion of our revenue coming through that channel.

In late 2012, Google, Inc. ("Google") discontinued providing its free Google Base product listing service to retailers and instead offered retailers a new fee based product listing service. In addition, during Q3 2013, Google tested and later implemented changes to its search engine algorithms, which reduced our ranking in certain Google search results during some periods. While we worked on adapting to Google's changes, we emphasized other marketing channels, such as sponsored search, which generated revenue growth but with higher associated marketing expenses as a percentage of revenue than was the case for revenue coming from Google Base and natural search.

Technology expenses - Technology expenses totaled $71.8 million and $65.5 million for the fiscal year 2013 and 2012, respectively, a 10% increase, and representing 5.5% and 6.0% of total net revenue for those periods. The $6.3 million increase was primarily due to an increase in staff-related costs partially offset by a decrease in depreciation. Technology expenses totaled $18.4 million and $18.6 million for Q4 2013 and 2012, respectively, a 1% decrease, and representing 4.6% and 5.4% of total net revenue for those respective periods. The decrease is primarily due to a decrease in external consulting costs partially offset by an increase in staff-related costs.

General and administrative ("G&A") expenses - G&A expenses totaled $68.2 million and $57.3 million for the fiscal year 2013 and 2012, respectively, a 19% increase, and representing 5.2% of total net revenue for both periods. The $10.9 million increase is primarily related to a $10.1 million increase in legal costs due to an increase in activity on legal matters, including our defense of a case brought by district attorneys in eight California counties, and for civil penalties assessed in an adverse judgment received in the case (which we intend to appeal). G&A expenses totaled $20.5 million and $14.1 million for Q4 2013 and 2012, respectively, a 46% increase, and representing 5.2% and 4.1% of total revenue for those respective periods. The $6.4 million increase is primarily related to a $6.0 million increase in legal costs, from the legal activities described above.

Restructuring - Restructuring costs totaled ($471,000) and $76,000 for the fiscal year 2013 and 2012, respectively. The credit in 2013 is primarily related to reoccupying some of our IT data center space that had previously been restructured in prior years. Restructuring costs totaled $0 and $23,000 for Q4 2013 and 2012, respectively.

Operating income - Operating income was $16.6 million and $12.2 million for the fiscal year 2013 and 2012, respectively, a $4.4 million increase. Operating income was $1.5 million and $7.9 million for Q4 2013 and 2012, respectively, a $6.4 million decrease.

Interest income - Interest income was $127,000 and $116,000 for the fiscal year 2013 and 2012, respectively, and $27,000 and $30,000 for Q4 2013 and 2012, respectively.

Interest expense - Interest expense totaled $113,000 and $809,000 for the fiscal year 2013 and 2012, respectively. Interest expense totaled ($8,000) and $154,000 for Q4 2013 and 2012, respectively. The decreases are primarily due to our repayment of the $17.0 million in advances under the U.S. Bank Financing Agreement in November 2012.

Other income (expense), net - Other income (expense), net totaled ($235,000) and $3.7 million for the fiscal year 2013 and 2012, respectively. The decrease is primarily related to $1.7 million of decreased Club O rewards breakage due to fewer expiring promotional memberships and $1.5 million of losses on our investment in precious metals. Other income (expense), net totaled ($595,000) and $1.3 million for Q4 2013 and 2012, respectively. The decrease is primarily due to $1.0 million of losses on our investment in precious metals and $878,000 of decreased Club O rewards breakage due to fewer expiring promotional memberships.

Provision (benefit) for income taxes - Provision (benefit) for income taxes totaled ($72.2) million and $485,000 for the fiscal year 2013 and 2012, respectively. Provision (benefit) for income taxes totaled ($72.6) million and $303,000 for Q4 2013 and 2012, respectively. The decrease in our income tax provision was due to a $79.7 million deferred tax asset valuation release in Q4 2013 after concluding that it was more likely than not that we will realize our deferred tax assets. The valuation allowance release was partially offset by use of $7.0 million of our deferred tax assets in 2013.

Net income - Net income was $88.5 million and $14.7 million for the fiscal year 2013 and 2012, respectively, an increase of $73.8 million. Earnings per share was $3.64 on a fully diluted basis for 2013, compared to $0.62 for 2012. Net income was $73.6 million and $8.8 million for Q4 2013 and 2012, respectively, an increase of $64.8 million. Q4 2013 earnings per share was $3.01 on a fully diluted basis, compared to $0.37 for Q4 2012. The increase in net income and diluted EPS during 2013, including Q4 2013, was primarily due to the $72.7 million net impact of our deferred tax asset valuation release.

Free cash flow (a non-GAAP financial measure) - Free cash flow totaled $65.6 million and $15.7 million for the twelve months ended December 31, 2013 and 2012, respectively. The $49.9 million increase was due to a $55.5 million increase in operating cash flows partially offset by a $5.6 million increase in capital expenditures.

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,


2013


2012


2011

Net cash provided by operating activities

$

83,645



$

28,145



$

25,663


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

(18,067)



(12,489)



(8,741)


Free cash flow

$

65,578



$

15,656



$

16,922


 

Cash and working capital - We had cash and cash equivalents of $148.7 million and $93.5 million and working capital of $25.7 million and $7.5 million at December 31, 2013 and December 31, 2012, respectively.

About Overstock.com
Overstock.com (NASDAQ: OSTK) is a discount online retailer based in Salt Lake City, Utah that sells a broad range of products including furniture, rugs, bedding, electronics, clothing, jewelry and cars. 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. The Nielsen State of the Media: Consumer Usage Report placed Overstock.com among the top five most visited mass merchandiser websites in 2011. The NRF Foundation/American Express 2011 Customer Choice Awards ranked Overstock.com #4 in customer service among all U.S. retailers. Overstock.com sells internationally under the name O.co. Overstock Shopping (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™, Club O Dollars™ and Your Savings Engine™ are trademarks of Overstock.com, Inc.

This press release and the January 30, 2014 conference call and webcast to discuss fiscal year and Q4 2013 financial results may contain 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. These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including the amount and timing of our capital expenditures, the mix of products we sell, the results of legal proceedings and claims and the amounts we spend relating to them, the extent to which we owe income taxes, competition, fluctuations in operating results, any difficulties we may encounter as a result of accepting Bitcoin as payment, any inability to raise capital if needed on acceptable terms, our efforts to expand both domestically and internationally, risks of inventory management and seasonality. Other risks and uncertainties include, among others, risks related to new products and services we may offer, and difficulties with our infrastructure, our fulfillment partners or our payment processors, including cyber attacks or data breaches affecting us or any of them. More information about factors that potentially could affect our financial results is included in our Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission on February 21, 2013 and our Form 10-Q for the quarter ended September 30, 2013, which was filed with the Securities and Exchange Commission on October 24, 2013. These 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 and other forward-looking statements.

 

Overstock.com, Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands)



December 31,
 2013


December 31,
 2012

Assets




Current assets:




Cash and cash equivalents

$

148,665



$

93,547


Restricted cash

1,580



1,905


Accounts receivable, net

16,047



19,273


Inventories, net

27,043



26,464


Prepaid inventories, net

1,804



1,912


Deferred tax assets, net of valuation allowance of $10.0 million at December 31, 2012

13,854




Prepaids and other assets

10,298



12,897


Total current assets

219,291



155,998


Fixed assets, net

27,194



21,037


Precious metals

9,678




Deferred tax assets, net of valuation allowance of $69.7 million at December 31, 2012

58,797




Goodwill

2,784



2,784


Other long-term assets, net

2,023



2,166


Total assets

$

319,767



$

181,985


Liabilities and Stockholders' Equity




Current liabilities:




Accounts payable

$

90,582



$

62,416


Accrued liabilities

65,679



47,674


Deferred revenue

37,321



38,411


Total current liabilities

193,582



148,501


Other long-term liabilities

3,294



2,522


Total liabilities

196,876



151,023






Stockholders' equity:




Common stock

2



2


Additional paid-in capital

361,706



356,895


Accumulated deficit

(158,587)



(247,096)


Treasury stock

(80,230)



(78,839)


Total stockholders' equity

122,891



30,962


Total liabilities and stockholders' equity

$

319,767



$

181,985


 

 

Overstock.com, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except per share data)



Year ended
 December 31,


2013


2012


2011

Revenue, net






Direct

$

156,032



$

155,516



$

163,609


Fulfillment partner

1,148,185



943,773



890,668


Total net revenue

1,304,217



1,099,289



1,054,277


Cost of goods sold






Direct

136,282



140,536



149,660


Fulfillment partner

920,275



760,323



725,529


Total cost of goods sold

1,056,557



900,859



875,189


Gross profit

247,660



198,430



179,088


Operating expenses:






Sales and marketing

91,609



63,467



61,813


Technology

71,788



65,467



67,043


General and administrative

68,169



57,259



67,766


Restructuring

(471)



76




Total operating expenses

231,095



186,269



196,622


Operating income (loss)

16,565



12,161



(17,534)


Interest income

127



116



161


Interest expense

(113)



(809)



(2,485)


Other income (expense), net

(235)



3,686



278


Income (loss) before income taxes

16,344



15,154



(19,580)


Provision (benefit) for income taxes

(72,165)



485



(142)


Net income (loss)

88,509



14,669



(19,438)


  Deemed dividend related to redeemable common stock





(12)


Net income (loss) attributable to common shares

$

88,509



$

14,669



$

(19,450)


Net income (loss) per common share—basic:






Net income (loss) attributable to common shares—basic

$

3.73



$

0.63



$

(0.84)


Weighted average common shares outstanding—basic

23,714



23,387



23,259


Net income (loss) per common share—diluted:






Net income (loss) attributable to common shares—diluted

$

3.64



$

0.62



$

(0.84)


Weighted average common shares outstanding—diluted

24,294



23,672



23,259








Comprehensive income (loss)

$

88,509



$

14,669



$

(19,438)


 

 

 

Overstock.com, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

(in thousands, except per share data)




Three Months Ended December 31,



2013


2012

Revenue, net





Direct


$

42,159



$

46,468


Fulfillment partner


355,434



295,566


Total net revenue


397,593



342,034


Cost of goods sold





Direct


36,514



41,114


Fulfillment partner


289,344



239,709


Total cost of goods sold


325,858



280,823


Gross profit


71,735



61,211


Operating expenses:





Sales and marketing


31,233



20,581


Technology


18,449



18,622


General and administrative


20,526



14,093


Restructuring




23


Total operating expenses


70,208



53,319


Operating income


1,527



7,892


Interest income


27



30


Interest expense


8



(154)


Other income (expense), net


(595)



1,322


Net income before income taxes


967



9,090


Provision (benefit) for income taxes


(72,614)



303


Net income


$

73,581



$

8,787


Net income per common share—basic:





Net income per share—basic


$

3.09



$

0.37


Weighted average common shares outstanding—basic


23,780



23,450


Net income per common share—diluted:





Net income per share—diluted


$

3.01



$

0.37


Weighted average common shares outstanding—diluted


24,430



24,064


Comprehensive income


$

73,581



$

8,787


 

 

 

Overstock.com, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



Year Ended
 December 31,


2013


2012


2011

Cash flows from operating activities:






Net income (loss)

$

88,509



$

14,669



$

(19,438)


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






Depreciation and amortization

14,522



16,009



16,350


Realized gain from sale of marketable securities

(33)



(9)




Loss on disposition of fixed assets



72




Stock-based compensation to employees and directors

3,251



3,527



3,051


Deferred income taxes

(72,651)






Amortization of debt discount and deferred loan costs

18



73



127


Loss on investment in precious metals

1,457






Loss from early extinguishment of debt





1,253


Restructuring charges (reversals)

(471)



76




Changes in operating assets and liabilities:






Restricted cash

200



131



506


Accounts receivable, net

3,226



(5,772)



59


Inventories, net

(579)



(3,471)



9,121


Prepaid inventories, net

108



(885)



1,055


Prepaids and other assets

(536)



1,294



(456)


Other long-term assets, net

2



(267)



(160)


Accounts payable

28,180



(7,902)



2,944


Accrued liabilities

17,959



(459)



6,952


Deferred revenue

(1,090)



10,433



3,951


Other long-term liabilities

1,573



626



348


Net cash provided by operating activities

83,645



28,145



25,663


Cash flows from investing activities:






Purchases of marketable securities

(132)



(82)



(160)


Purchases of intangible assets

(13)



(6)



(4)


Sales of marketable securities

292



154




Investment in precious metals

(8,080)



(1,397)




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

(18,067)



(12,489)



(8,741)


Proceeds from sale of fixed assets



56




Net cash used in investing activities

(26,000)



(13,764)



(8,905)


Cash flows from financing activities:






Payments on capital lease obligations

(2,563)



(112)



(730)


Drawdowns on line of credit





17,000


Payments on line of credit



(17,000)




Capitalized financing costs





(140)


Proceeds from finance obligations





1,429


Payments on finance obligations





(24,918)


Paydown on direct financing arrangement

(258)



(236)



(216)


Payments to retire convertible senior notes





(34,615)


Change in restricted cash

125






Proceeds from exercise of stock options

1,560






Purchase of treasury stock

(1,391)



(471)



(1,604)


Net cash used in financing activities

(2,527)



(17,819)



(43,794)


Net increase (decrease) in cash and cash equivalents

55,118



(3,438)



(27,036)


Cash and cash equivalents, beginning of period

93,547



96,985



124,021


Cash and cash equivalents, end of period

$

148,665



$

93,547



$

96,985


 

SOURCE Overstock.com, Inc.



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