Overstock.com Reports Q1 2014 Results Q1 2014 revenue growth of 9 percent and net income of $4 million

SALT LAKE CITY, April 24, 2014 /PRNewswire/ -- Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarter ended March 31, 2014.

Key Q1 2014 metrics (comparison to Q1 2013):

  • Revenue: $341.2M vs. $312.0M (9% increase);
  • Gross profit: $64.0M vs. $58.9M (9% increase);
  • Gross margin: 18.8% vs. 18.9% (10 basis point decrease);
  • Sales and marketing expense: $23.4M vs. $18.7M (25% increase);
  • Contribution (non-GAAP measure): $40.6M vs. $40.2M (1% increase);
  • G&A/Technology expense: $34.9M vs. $33.2M (5% increase);
  • Pre-tax income: $6.6M vs. $7.7M ($1.2M decrease);
  • Provision for income taxes: $2.6M vs. $46,000 ($2.5M increase);
  • Net income: $4.0M vs. $7.7M ($3.7M decrease); and
  • Diluted EPS: $0.16/share vs. $0.32/share ($0.16/share decrease).

As previously announced, the company will hold a conference call and webcast to discuss its Q1 2014 financial results Thursday, April 24, 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 22708203 when prompted. Participants outside the United States 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, April 24, 2014, through 11:59 p.m. ET on Thursday, May 8, 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.

Total net revenue - Total net revenue for Q1 2014 and 2013 was $341.2 million and $312.0 million, respectively, a 9% increase. The growth in net revenue was primarily due to an increase of 8% in average order size, from $153 to $165, coupled with a 5% increase in orders. These increases were partially offset by an increase in the amount of orders taken but not delivered at quarter end due to higher average daily sales in the last week of the quarter and the timing of quarter end.

Gross profit - Gross profit for Q1 2014 and 2013 was $64.0 million and $58.9 million, respectively, a 9% increase, representing 18.8% and 18.9% gross margin for those respective periods. The increase in gross profit was primarily due to higher revenue. The decrease in gross margin was largely due to increased promotional activities including coupons, site sales, and Club O rewards, which are recognized as a reduction of revenue.

Sales and marketing expenses - Sales and marketing expenses totaled $23.4 million and $18.7 million for Q1 2014 and 2013, respectively, a 25% increase, and representing 6.9% and 6.0% of total net revenue for those periods. The increase was primarily due to increased spending in the sponsored search marketing channel due to driving a higher proportion of our revenue through that channel, and from increased staff-related costs.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) - Contribution for Q1 2014 and 2013 was $40.6 million and $40.2 million, respectively. Contribution margin was 11.9% and 12.9% 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):


Three months ended


March 31,


2014


2013

Total net revenue

$

341,207



100.0

%


$

311,994



100.0

%

Cost of goods sold

277,211



81.2

%


253,058



81.1

%

Gross profit

63,996



18.8

%


58,936



18.9

%

Less: Sales and marketing expense

23,392



6.9

%


18,705



6.0

%

Contribution and contribution margin

$

40,604



11.9

%


$

40,231



12.9

%

Technology expenses - Technology expenses totaled $19.6 million and $18.2 million for Q1 2014 and 2013, respectively, an 8% increase, and representing 5.7% and 5.8% of total net revenue for those respective periods. The increase is primarily due to an increase in staff-related and external contractor costs.

General and administrative ("G&A") expenses - G&A expenses totaled $15.3 million and $15.1 million for Q1 2014 and 2013, respectively, a 1% increase, and representing 4.5% and 4.8% of total revenue for those respective periods. The $208,000 increase is primarily due to a $1.6 million increase in staff-related costs and professional fees, largely offset by a $777,000 decrease in legal costs and a $680,000 decrease in our estimate of legal loss contingencies.

Restructuring - Restructuring costs totaled ($360,000) and ($432,000) for Q1 2014 and 2013, respectively. These reversals were a result of our reoccupation of formerly restructured facility space.

Interest income - Interest income was $41,000 and $34,000 for Q1 2014 and 2013, respectively.

Interest expense - Interest expense totaled $7,000 and $51,000 for Q1 2014 and 2013, respectively.

Other income (expense), net - Other income (expense), net totaled $459,000 and $345,000 for Q1 2014 and 2013, respectively. The increase is primarily due to increased gift card breakage.

Provision for income taxes - Provision for income taxes totaled $2.6 million and $46,000 for Q1 2014 and 2013, respectively. The increase is primarily due to our deferred tax asset valuation release in 2013.

Free cash flow (a non-GAAP financial measure) - Free cash flow totaled $37.4 million and $32.3 million for the twelve months ended March 31, 2014 and 2013, respectively. The $5.1 million increase was due to a $6.9 million increase in operating cash flows partially offset by a $1.8 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,


2014


2013


2014


2013

Net cash provided by (used in) operating activities

$

(29,679)



$

(1,653)



$

55,619



$

48,726


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

(6,195)



(6,062)



(18,200)



(16,424)


Free cash flow

$

(35,874)



$

(7,715)



$

37,419



$

32,302


Cash and working capital - We had cash and cash equivalents of $110.6 million and $148.7 million and working capital of $25.5 million and $25.7 million at March 31, 2014 and December 31, 2013, respectively.

We have reached agreements in principle to purchase land in Salt Lake City, Utah and develop or lease our future headquarters on the site. Both agreements are non-binding and subject to our due diligence and final negotiation of terms. If we proceed to develop or lease a facility for our new headquarters, we will need to obtain additional financing.

About Overstock.com
Overstock.com (NASDAQ: OSTK) is a discount online shopping 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 April 24, 2014 conference call and webcast to discuss our 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 could potentially affect our financial results is included in our Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the Securities and Exchange Commission on February 27, 2014. This 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)







March 31,
 2014


December 31,
 2013

Assets




Current assets:




Cash and cash equivalents

$

110,647



$

148,665


Restricted cash

1,580



1,580


Accounts receivable, net

15,836



16,047


Inventories, net

22,773



27,043


Prepaid inventories, net

1,665



1,804


Deferred tax assets, net

13,854



13,854


Prepaids and other current assets

10,035



10,298


Total current assets

176,390



219,291


Fixed assets, net

33,417



27,194


Precious metals

9,678



9,678


Deferred tax assets, net

56,480



58,797


Goodwill

2,784



2,784


Other long-term assets, net

1,829



2,023


Total assets

$

280,578



$

319,767


Liabilities and Stockholders' Equity




Current liabilities:




Accounts payable

$

62,219



$

90,582


Accrued liabilities

51,854



65,679


Deferred revenue

36,843



37,321


Total current liabilities

150,916



193,582


Other long-term liabilities

3,997



3,294


Total liabilities

154,913



196,876


Commitments and contingencies




Stockholders' equity:




Preferred stock, $0.0001 par value:




Authorized shares - 5,000




Issued and outstanding shares - none




Common stock, $0.0001 par value




Authorized shares - 100,000




Issued shares - 27,173 and 26,909




Outstanding shares - 23,971 and 23,785

2



2


Additional paid-in capital

362,800



361,706


Accumulated deficit

(154,617)



(158,587)


Treasury stock:




Shares at cost - 3,202 and 3,124

(82,520)



(80,230)


Total stockholders' equity

125,665



122,891


Total liabilities and stockholders' equity

$

280,578



$

319,767


 

 

 

Overstock.com, Inc.

Consolidated Statements of Income and Comprehensive Income (Unaudited)

(in thousands, except per share data)




Three months ended
 March 31,


2014


2013

Revenue, net




Direct

$

38,047



$

41,942


Fulfillment partner

303,160



270,052


Total net revenue

341,207



311,994


Cost of goods sold




Direct

33,097



37,149


Fulfillment partner

244,114



215,909


Total cost of goods sold

277,211



253,058


Gross profit

63,996



58,936


Operating expenses:




Sales and marketing

23,392



18,705


Technology

19,601



18,160


General and administrative

15,296



15,088


Restructuring

(360)



(432)


Total operating expenses

57,929



51,521


Operating income

6,067



7,415


Interest income

41



34


Interest expense

(7)



(51)


Other income, net

459



345


Income before income taxes

6,560



7,743


Provision for income taxes

2,590



46


Net income

$

3,970



$

7,697


Net income per common share—basic:




Net income attributable to common shares—basic

$

0.17



$

0.33


Weighted average common shares outstanding—basic

23,926



23,594


Net income per common share—diluted:




Net income attributable to common shares—diluted

$

0.16



$

0.32


Weighted average common shares outstanding—diluted

24,339



24,016






Comprehensive income

$

3,970



$

7,697


 

 

 

Overstock.com, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)






Three months ended
 March 31,


Twelve months ended
 March 31,


2014


2013


2014


2013

Cash flows from operating activities:








Net income

$

3,970



$

7,697



$

84,782



$

19,647


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








Depreciation and amortization

3,795



3,863



14,454



15,838


Realized gain from sale of marketable securities

(10)



(12)



(31)



(14)


Loss (gain) on disposition of fixed assets

5





5



(13)


Stock-based compensation to employees and directors

923



752



3,422



3,466


Deferred income taxes

2,317





(70,334)




Amortization of debt discount and deferred loan costs



5



13



43


Loss on investment in precious metals





1,457




Restructuring charges (reversals)

(360)



(432)



(399)



(454)


Changes in operating assets and liabilities:








Restricted cash



125



75



273


Accounts receivable, net

211



3,422



15



(3,910)


Inventories, net

4,270



4,929



(1,238)



(4,890)


Prepaid inventories, net

139



(76)



323



(78)


Prepaids and other current assets

174



1,462



(1,824)



(400)


Other long-term assets, net

221



53



170



(908)


Accounts payable

(31,909)



(15,729)



12,000



3,956


Accrued liabilities

(13,718)



(748)



4,989



11,004


Deferred revenue

(478)



(6,880)



5,312



4,717


Other long-term liabilities

771



(84)



2,428



449


   Net cash provided by (used in) operating activities

(29,679)



(1,653)



55,619



48,726


Cash flows from investing activities:








Purchases of marketable securities

(12)



(75)



(69)



(119)


Purchases of intangible assets

(22)





(35)



(6)


Sales of marketable securities

77



152



217



189


Investment in precious metals





(8,080)



(1,397)


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

(6,195)



(6,062)



(18,200)



(16,424)


Proceeds from sale of fixed assets







56


Net cash used in investing activities

(6,152)



(5,985)



(26,167)



(17,701)


Cash flows from financing activities:








Payments on capital lease obligations



(2,563)





(2,598)


Payments on line of credit







(17,000)


Paydown on direct financing arrangement

(68)



(62)



(264)



(241)


Change in restricted cash





125




Proceeds from exercise of stock options

171





1,731




Purchase of treasury stock

(2,290)



(1,389)



(2,292)



(1,396)


Net cash used in financing activities

(2,187)



(4,014)



(700)



(21,235)


Net increase (decrease) in cash and cash equivalents

(38,018)



(11,652)



28,752



9,790


Cash and cash equivalents, beginning of period

148,665



93,547



81,895



72,105


Cash and cash equivalents, end of period

$

110,647



$

81,895



$

110,647



$

81,895


Logo - http://photos.prnewswire.com/prnh/20120110/LA33954LOGO

SOURCE Overstock.com, Inc.



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