2014

Overstock.com Reports Q2 2013 Results Q2 2013 Revenue growth of 22% generates $3.7 million of net income

SALT LAKE CITY, July 18, 2013 /PRNewswire/ -- Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarter ended June 30, 2013.

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

Key Q2 2013 metrics (comparison to Q2 2012):

  • Revenue: $293.2M vs. $239.5M (22% increase);
  • Gross margin: 19.7% vs. 18.0% (170 basis point increase);
  • Gross profit: $57.8M vs. $43.2M (34% increase);
  • Sales and marketing expense: $19.2M vs. $13.5M (42% increase);
  • Contribution (non-GAAP measure): $38.6M vs. $29.7M (30% increase);
  • G&A/Technology expense: $34.5M vs. $29.6M (16% increase);
  • Net income: $3.7M vs. $470,000 ($3.2M / 687% increase); and
  • Diluted EPS: $0.15/share vs. $0.02/share ($0.13/share / 650% increase).

As previously announced, the Company will hold a conference call and webcast to discuss its Q2 2013 financial results today, Thursday, July 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 17544716 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 2:30 p.m. ET on Thursday, July 18, 2013, through 11:59 p.m. ET on Sunday, August 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 Q2 2013 and 2012 was $293.2 million and $239.5 million, respectively, a 22% increase. The growth in net revenue was primarily due to a 21% increase in average order size, from $138 in Q2 2012 to $167 in Q2 2013.

Gross profit — Gross profit for Q2 2013 and 2012 was $57.8 million and $43.2 million, respectively, a 34% increase, representing 19.7% and 18.0% of total net revenue for those respective periods. The increase in gross profit was primarily due to higher revenue, 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 Q2 2013 and 2012 was $38.6 million and $29.7 million, respectively, a 30% increase. Contribution margin was 13.2% and 12.4% for those same 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. 

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 



June 30,



2013


2012

Total net revenue


$

293,204


100%


$

239,536


100%

Cost of goods sold



235,365


80.3%



196,367


82.0%

Gross profit



57,839


19.7%



43,169


18.0%

Less: Sales and marketing expense



19,208


6.6%



13,512


5.6%

Contribution and contribution margin


$

38,631


13.2%


$

29,657


12.4%

 

Sales and marketing expenses — Sales and marketing expenses totaled $19.2 million and $13.5 million for Q2 2013 and 2012, respectively, a 42% increase, and representing 6.6% and 5.6% 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 $17.9 million and $15.1 million for Q2 2013 and 2012, respectively, a 19% increase, and representing 6.1% and 6.3% of total net revenue for those respective periods. The $2.8 million increase is primarily due to an increase in staff-related costs.

General and administrative ("G&A") expenses — G&A expenses totaled $16.6 million and $14.5 million for Q2 2013 and 2012, respectively, a 14% increase, and representing 5.7% and 6.1% of total net revenue for those respective periods. The $2.1 million increase is primarily due to increased legal fees and staff-related costs.

Restructuring — Restructuring was a credit of $39,000 and zero for Q2 2013 and 2012, respectively. The credit in Q2 2013 is related to terminating our office space lease in Provo, Utah.

Operating income — Operating income was $4.2 million and $19,000 for Q2 2013 and 2012, respectively, a $4.1 million increase.

Interest income — Interest income was $32,000 and $27,000 for Q2 2013 and 2012, respectively.

Interest expense — Interest expense totaled $37,000 and $253,000 for Q2 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 (expense), net — Other income (expense), net totaled ($150,000) and $719,000 for Q2 2013 and 2012, respectively. The $869,000 decrease is primarily related to an unrealized loss on our investment in precious metals and a decrease in Club O rewards breakage.

Income taxes — Income tax expense totaled $312,000 and $42,000 for Q2 2013 and 2012, respectively. The $270,000 increase is primarily related to higher net income.

Net income — Net income was $3.7 million and $470,000 for Q2 2013 and 2012, respectively, an increase of $3.2 million. Q2 2013 diluted earnings per share were $0.15, compared to $0.02 for Q2 2012.

Free cash flow (a non-GAAP financial measure) — Free cash flow totaled $46.3 million and $8.0 million for the twelve months ended June 30, 2013 and 2012, respectively. The $38.3 million increase was due to a $42.3 million increase in operating cash flows, partially offset by a $4.1 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):



Six months ended


Twelve months ended



June 30,


June 30,



2013


2012


2013


2012

Net cash provided by (used in) operating activities


$

3,521


$

(29,941)


$

61,607


$

19,258

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



(9,296)



(6,503)



(15,282)



(11,220)

Free cash flow


$

(5,775)


$

(36,444)


$

46,325


$

8,038

Cash and working capital — We had cash and cash equivalents of $84.7 million and $93.5 million and working capital of $14.1 million and $7.5 million at June 30, 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.  The NRF Foundation/American Express 2011 Customer Choice Awards ranked Ovestock.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™, Club O Dollars™ and Your Savings Engine™ are trademarks of Overstock.com, Inc.

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, our Form 10-Q for the quarter ended March 31, 2013 which was filed with the Securities and Exchange Commission on April 25, 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)










June 30,


December 31,



2013


2012

Assets







Current assets:







Cash and cash equivalents


$

84,737


$

93,547

Restricted cash



1,780



1,905

Accounts receivable, net



14,582



19,273

Inventories, net



20,989



26,464

Prepaid inventories, net



1,652



1,912

Prepaids and other assets



16,785



12,897

Total current assets



140,525



155,998

Fixed assets, net



25,541



21,037

Goodwill



2,784



2,784

Other long-term assets, net



2,476



2,166

Total assets


$

171,326


$

181,985

Liabilities and Stockholders' Equity







Current liabilities:







Accounts payable


$

49,498


$

62,416

Accrued liabilities



47,064



47,674

Deferred revenue



29,859



38,411

Total current liabilities



126,421



148,501

Other long-term liabilities



1,383



2,522

Total liabilities



127,804



151,023








Stockholders' equity:







Common stock



2



2

Additional paid-in capital



359,449



356,895

Accumulated deficit



(235,701)



(247,096)

Treasury stock


(80,228)



(78,839)

Total stockholders' equity



43,522



30,962

Total liabilities and stockholders' equity


$

171,326


$

181,985

 

Overstock.com, Inc.

Consolidated Statements of Income and

Comprehensive Income (Unaudited)

(in thousands, except per share data)
















Three months ended


Six months ended



June 30,


June 30,



2013


2012


2013


2012

Revenue, net









 Direct 


$

36,250


$

33,936


$

78,192


$

74,833

 Fulfillment partner 



256,954



205,600



527,006



427,070

Total net revenue



293,204



239,536



605,198



501,903

Cost of goods sold













 Direct



31,842



31,108



68,991



68,738

 Fulfillment partner



203,523



165,259



419,432



342,488

Total cost of goods sold



235,365



196,367



488,423



411,226

 Gross profit



57,839



43,169



116,775



90,677

Operating expenses:













 Sales and marketing



19,208



13,512



37,913



27,987

 Technology



17,920



15,122



36,080



30,760

 General and administrative



16,585



14,516



31,673



29,338

 Restructuring



(39)



-



(471)



98

Total operating expenses



53,674



43,150



105,195



88,183

Operating income 



4,165



19



11,580



2,494

Interest income



32



27



66



56

Interest expense



(37)



(253)



(88)



(461)

Other income (expense), net



(150)



719



195



1,151

 Income before income taxes



4,010



512



11,753



3,240

Provision for income taxes



312



42



358



51

Net income 


$

3,698


$

470


$

11,395


$

3,189

Net income per common share—basic:













Net income attributable to common shares—basic


$

0.16


$

0.02


$

0.48


$

0.14

Weighted average common shares outstanding—basic 



23,714



23,437



23,654



23,382

Net income per common share—diluted:













Net income attributable to common shares—diluted


$

0.15


$

0.02


$

0.47


$

0.14

Weighted average common shares outstanding—diluted



24,283



23,464



24,158



23,399

Comprehensive income 


$

3,698


$

470


$

11,395


$

3,189














Other data:









Gross bookings


$

329,626


$

265,331


$

674,964


$

557,312

 

Overstock.com, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)














Six months ended


Twelve months ended


June 30,


June 30,


2013


2012


2013


2012

Cash flows from operating activities:










 Net income (loss)

$

11,395


$

3,189


$

22,875


$

(8,007)

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












Depreciation and amortization


7,526



8,096



15,439



16,183

Realized gain from sale of marketable securities


(12)



(7)



(14)



(7)

Loss on disposition of fixed assets


-



61



11



61

Stock-based compensation to employees and directors


1,568



1,643



3,452



2,986

Amortization of debt discount and deferred loan costs


9



37



45



104

Loss on investment in precious metals


382



-



382



-

Loss from early extinguishment of debt


-



-



-



1,226

Restructuring charges (reversals)


(471)



98



(493)



98

Changes in operating assets and liabilities:












    Restricted cash


125



(8)



264



351

    Accounts receivable, net


4,691



3,417



(4,498)



(3,442)

    Inventories, net


5,475



1,919



85



(4)

    Prepaid inventories, net


260



(727)



102



(77)

    Prepaids and other assets


(4,801)



(2,890)



(617)



975

    Other long-term assets, net


123



889



(1,033)



499

    Accounts payable


(12,924)



(29,651)



8,825



1,806

    Accrued liabilities


(693)



(12,352)



11,200



3,373

    Deferred revenue


(8,552)



(3,715)



5,596



2,809

    Other long-term liabilities


(580)



60



(14)



324

    Net cash provided by (used in) operating activities


3,521



(29,941)



61,607



19,258

Cash flows from investing activities:











 Purchases of marketable securities


(95)



(55)



(122)



(136)

 Purchases of intangible assets


-



(6)



-



(10)

 Sales of marketable securities


152



154



152



154

 Investment in precious metals


-



-



(1,397)



-

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


(9,296)



(6,503)



(15,282)



(11,220)

 Proceeds from sale of fixed assets


-



55



1



55

    Net cash used in investing activities


(9,239)



(6,355)



(16,648)



(11,157)

Cash flows from financing activities:








 Payments on capital lease obligations


(2,563)



(112)



(2,563)



(274)

 Drawdowns on line of credit


-



-



-



17,000

 Payments on line of credit


-



-



(17,000)



-

 Capitalized financing costs


-



-



-



(140)

 Proceeds from finance obligations


-



-



-



681

 Payments on finance obligations


-



-



-



(22,852)

 Paydown on direct financing arrangement


(126)



(115)



(247)



(225)

 Payments to retire convertible senior notes


-



-



-



(24,505)

 Proceeds from exercise of stock options


986



-



986



-

 Purchase of treasury stock


(1,389)



(464)



(1,396)



(468)

    Net cash used in financing activities


(3,092)



(691)



(20,220)



(30,783)

Net increase (decrease) in cash and cash equivalents


(8,810)



(36,987)



24,739



(22,682)

Cash and cash equivalents, beginning of period


93,547



96,985



59,998



82,680

Cash and cash equivalents, end of period 

$

84,737


$

59,998


$

84,737


$

59,998

Supplemental disclosures of cash flow information:












Cash paid during the period:












     Interest paid

$

39


$

294


$

327


$

1,472

     Taxes paid


293



4



588



4

     Non-cash investing and financing activities:












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

$

127


$

279


$

350


$

(666)

     Equipment acquired under capital lease obligations


2,563



-



2,563



1,391

     Lapse of rescission rights of redeemable stock


-



-



-



109

 

 

 

SOURCE Overstock.com, Inc.



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