Overstock.com Reports Q1 2013 Results Q1 2013 net income of $7.7 million and 19% revenue growth

SALT LAKE CITY, April 18, 2013 /PRNewswire/ -- Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarter ended March 31, 2013.

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

Key Q1 2013 metrics (comparison to Q1 2012):

  • Revenue: $312.0M vs. $262.4M (19% increase);
  • Gross margin: 18.9% vs. 18.1% (80 basis point increase);
  • Gross profit: $58.9M vs. $47.5M (24% increase);
  • Sales and marketing expense: $18.7M vs. $14.5M (29% increase);
  • Contribution (non-GAAP measure): $40.2M vs. $33.0M (22% increase);
  • G&A/Technology expense: $33.2M vs. $30.5M (9% increase);
  • Net income: $7.7M vs. $2.7M ($5.0M increase); and
  • Diluted EPS: $0.32/share vs. $0.12/share ($0.20/share increase).

As previously announced, the Company will hold a conference call and webcast to discuss its Q1 2013 financial results today, Thursday, April 18, 2013, at 11:30 a.m. ET.

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 29140338 when prompted. Participants outside the United States or Canada who do not have Internet access should dial +1 (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. ET on Thursday, April 18, 2013, through 11:59 p.m. ET on Saturday, May 18, 2013. To listen to the recorded webcast by phone, please dial (855) 859-2056 then enter the conference ID provided above. Outside the U.S. or Canada please dial +1 (404) 537-3406 and enter the conference ID provided above.

Please 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 Q1 2013 and 2012 was $312.0 million and $262.4 million, respectively, a 19% increase. The growth in net revenue was primarily due to a 21% increase in average order size, partially offset by a small decrease in the number of customer orders.

Gross profit — Gross profit for Q1 2013 and 2012 was $58.9 million and $47.5 million, respectively, a 24% increase, representing 18.9% 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, and lower warehousing costs, partially offset by higher freight costs.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) — Contribution for Q1 2013 and 2012 was $40.2 million and $33.0 million, respectively, a 22% increase. Contribution margin was 12.9% and 12.6% 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 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. 

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):


Three months ended

March 31,


2013


2012

Total net revenue

$

311,994


100%


$

262,367


100%

Cost of goods sold


253,058


81.1%



214,859


81.9%

Gross profit


58,936


18.9%



47,508


18.1%

Less: Sales and marketing expense


18,705


6.0%



14,475


5.5%

Contribution and contribution margin

$

40,231


12.9%


$

33,033


12.6%



















Sales and marketing expenses — Sales and marketing expenses totaled $18.7 million and $14.5 million for Q1 2013 and 2012, respectively, a 29% increase, and representing 6.0% and 5.5% of total net revenue for those respective periods. The increase was primarily due to increased spending in the sponsored search marketing channel due to a higher proportion of our revenue coming through that channel.

Technology expenses — Technology expenses totaled $18.2 million and $15.6 million for Q1 2013 and 2012, respectively, a 16% increase, and representing 5.8% and 6.0% of total net revenue for those respective periods. The $2.6 million increase is primarily due to an increase in staff related costs.

General and administrative ("G&A") expenses — G&A expenses totaled $15.1 million and $14.8 million for Q1 2013 and 2012, respectively, a 2% increase, and representing 4.8% and 5.6% of total net revenue for those respective periods.    

Restructuring — Restructuring was a credit of $(432,000) and a charge of $98,000 for Q1 2013 and Q1 2012, respectively. The credit in Q1 2013 is related to reoccupying some of our IT data center space that had previously been restructured. The $98,000 charge in Q1 2012 was primarily due to ceasing the use of our office space in Provo, Utah.

Operating income — Operating income was $7.4 million and $2.5 million for Q1 2013 and 2012, respectively, a $4.9 million increase. 

Interest income — Interest income was $34,000 and $29,000 for Q1 2013 and 2012, respectively.

Interest expense — Interest expense totaled $51,000 and $208,000 for Q1 2013 and 2012, respectively. The decrease is primarily due to our repayment of the $17.0 million in advances under the U.S. Bank Financing Agreement in November 2012.

Other income, net — Other income, net totaled $345,000 and $432,000 for Q1 2013 and 2012, respectively.

Income taxes — Income tax expense totaled $46,000 and $9,000 for Q1 2013 and 2012, respectively.  

Net income — Net income was $7.7 million and $2.7 million for Q1 2013 and 2012, respectively, an increase of $5.0 million. Q1 2013 diluted earnings per share were $0.32, compared to $0.12 for Q1 2012.

Free cash flow (a non-GAAP financial measure) — Free cash flow totaled $32.3 million and $3.5 million for the twelve months ended March 31, 2013 and 2012, respectively. The $28.8 million increase was due to a $36.1 million increase in operating cash flows, partially offset by a $7.2 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):


Three months ended

March 31,


Twelve months ended
March 31,


2013


2012


2013


2012

Net cash provided by (used in) operating activities

$

(1,653)


$

(22,234)


$

48,726


$

12,657

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


(6,062)



(2,127)



(16,424)



(9,192)

Free cash flow

$

(7,715)


$

(24,361)


$

32,302


$

3,465

























Cash and working capital — We had cash and cash equivalents of $81.9 million and $93.5 million and working capital of $8.5 million and $7.5 million at March 31, 2013 and December 31, 2012, 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 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.  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™, Club O 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, 2012, which was filed with the Securities and Exchange Commission on February 21, 2013, 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 or forward-looking statements.

 

Overstock.com, Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands)








March 31,


December 31,


2013


2012

Assets






Current assets:






Cash and cash equivalents

$

81,895


$

93,547

Restricted cash


1,780



1,905

Accounts receivable, net


15,851



19,273

Inventories, net


21,535



26,464

Prepaid inventories, net


1,988



1,912

Prepaids and other assets


10,589



12,897

Total current assets


133,638



155,998

Fixed assets, net


25,937



21,037

Goodwill


2,784



2,784

Other long-term assets, net


2,867



2,166

Total assets

$

165,226


$

181,985

Liabilities and Stockholders' Equity






Current liabilities:






Accounts payable

$

46,753


$

62,416

Accrued liabilities


46,871



47,674

Deferred revenue


31,531



38,411

Total current liabilities


125,155



148,501

Other long-term liabilities


2,049



2,522

Total liabilities


127,204



151,023







Stockholders' equity:






Common stock


2



2

Additional paid-in capital


357,647



356,895

Accumulated deficit


(239,399)



(247,096)

Treasury stock


(80,228)



(78,839)

Total stockholders' equity


38,022



30,962

Total liabilities and stockholders' equity

$

165,226


$

181,985







 

Overstock.com, Inc.

Consolidated Statements of Income and

Comprehensive Income (Unaudited)

(in thousands, except per share data)








Three months ended

March  31,


2013


2012

Revenue, net




Direct 

$

41,942


$

40,897

Fulfillment partner 


270,052



221,470

Total net revenue


311,994



262,367

Cost of goods sold






Direct


37,149



37,630

Fulfillment partner


215,909



177,229

Total cost of goods sold


253,058



214,859

Gross profit


58,936



47,508

Operating expenses:






Sales and marketing


18,705



14,475

Technology


18,160



15,638

General and administrative


15,088



14,822

Restructuring


(432)



98

Total operating expenses


51,521



45,033

Operating income 


7,415



2,475

Interest income


34



29

Interest expense


(51)



(208)

Other income, net


345



432

Income before income taxes


7,743



2,728

Provision for income taxes


46



9

Net income 

$

7,697


$

2,719

Net income per common share—basic:






Net income attributable to common shares—basic

$

0.33


$

0.12

Weighted average common shares outstanding—basic 


23,594



23,392

Net income per common share—diluted:






Net income attributable to common shares—diluted

$

0.32


$

0.12

Weighted average common shares outstanding—diluted


24,016



23,414







Comprehensive income 

$

7,697


$

2,719







Other data:




Gross bookings

$

345,338


$

291,981







 

Overstock.com, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)



Three months ended

March 31,


Twelve months ended

March 31,


2013


2012


2013


2012

Cash flows from operating activities:










Net income (loss)

$

7,697


$

2,719


$

19,647


$

(16,275)

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












Depreciation and amortization


3,863



4,034



15,838



16,385

Realized gain from sale of marketable securities


(12)



(7)



(14)



(7)

Loss (gain) on disposition of fixed assets


-



85



(13)



85

Stock-based compensation to employees and directors


752



813



3,466



2,988

Amortization of debt discount and deferred loan costs


5



35



43



128

Loss from early extinguishment of debt


-



-



-



1,226

Restructuring charges (reversals)


(432)



98



(454)



98

Changes in operating assets and liabilities:












Restricted cash


125



(17)



273



330

Accounts receivable, net


3,422



1,560



(3,910)



(4,060)

Inventories, net


4,929



6,348



(4,890)



3,518

Prepaid inventories, net


(76)



(883)



(78)



(124)

Prepaids and other assets


1,462



3,156



(400)



1,581

Other long-term assets, net


53



694



(908)



244

Accounts payable


(15,729)



(27,587)



3,956



3,386

Accrued liabilities


(748)



(12,211)



11,004



(1,952)

Deferred revenue


(6,880)



(1,164)



4,717



4,695

Other long-term liabilities


(84)



93



449



411

Net cash provided by (used in) operating activities


(1,653)



(22,234)



48,726



12,657

Cash flows from investing activities:











Purchases of marketable securities


(75)



(38)



(119)



(159)

Purchases of intangible assets


-



-



(6)



(4)

Sales of marketable securities


152



117



189



117

Investment in precious metals


-



-



(1,397)



-

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


(6,062)



(2,127)



(16,424)



(9,192)

Proceeds from sale of fixed assets


-



-



56



-

Net cash used in investing activities


(5,985)



(2,048)



(17,701)



(9,238)

Cash flows from financing activities:












Payments on capital lease obligations


(2,563)



(77)



(2,598)



(735)

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


-



-



-



(23,939)

Paydown on direct financing arrangement


(62)



(57)



(241)



(221)

Payments to retire convertible senior notes


-



-



-



(24,505)

Purchase of treasury stock


(1,389)



(464)



(1,396)



(479)

Net cash used in financing activities


(4,014)



(598)



(21,235)



(31,590)

Net increase (decrease) in cash and cash equivalents


(11,652)



(24,880)



9,790



(28,171)

Cash and cash equivalents, beginning of period


93,547



96,985



72,105



100,276

Cash and cash equivalents, end of period 

$

81,895


$

72,105


$

81,895


$

72,105

Supplemental disclosures of cash flow information:












Cash paid during the period:












Interest paid

$

20


$

149


$

453


$

2,142

Taxes paid


283



2



580



2

Non-cash investing and financing activities:












Fixed assets, including internal-use software and website development, costs financed through accounts payable and accrued liabilities

$

116


$

121


$

497


$

12

Equipment acquired under capital lease obligations


2,563



-



2,563



-

Equipment acquired under finance obligations


-



-



-



4,532

Lapse of rescission rights of redeemable stock


-



-



-



398



 

SOURCE Overstock.com, Inc.



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