Overstock.com Reports Q3 2012 Results Net income of $2.7 million; Announces details for October 29, 2012 Conference Call

SALT LAKE CITY, Oct. 25, 2012 /PRNewswire/ -- Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarter ended September 30, 2012.

Key Q3 2012 metrics (comparison to Q3 2011):

  • Revenue:  $255.4M vs. $239.7M (7% increase);
  • Gross margin: 18.2% vs. 16.0% (220 basis point increase);
  • Gross profit:  $46.5M vs. $38.4M (21% increase);
  • Sales and marketing expense: $14.9M vs. $13.8M (8% increase);
  • Contribution (non-GAAP measure): $31.6M vs. $24.6M (29% increase);
  • G&A/Technology expense: $29.9M vs. $32.5M (8% decrease);
  • Net income (loss): $2.7M vs. $(7.8)M ($10.5M increase); and
  • Diluted EPS: $0.11/share vs. $(0.33)/share ($0.44 increase).

The Company will hold a conference call and webcast to discuss its third quarter 2012 financial results on Monday, October 29, 2012 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 55715641 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 2:30 p.m. Eastern Time on Monday, October 29, 2012, through 11:59 p.m. Eastern Time on Thursday, November 29, 2012.  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 in Q3 2012 and 2011 was $255.4 million and $239.7 million, respectively, a 7% increase. The growth in net revenue was primarily due to increases in unique visitors and average order size which more than offset fewer customer orders due to lower conversion rates compared to last year.

Gross profit — Gross profit in Q3 2012 and 2011 was $46.5 million and $38.4 million, respectively, a 21% increase, representing 18.2% and 16.0% of total net revenue for those respective periods. The increase in gross profit was primarily due to a shift in product sales mix and pricing initiatives.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) — Contribution in Q3 2012 and 2011 was $31.6 million and $24.6 million, respectively, a 29% increase. Contribution margin increased by 220 basis points to 12.4% from 10.2% for the 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. When viewed with our GAAP gross profit less sales and marketing expenses, 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 (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):


Three months ended

September 30,


2012


2011

Total net revenue

$

255,352


100%


$

239,738


100%

Cost of goods sold


208,810


81.8%



201,365


84.0%

Gross profit


46,542


18.2%



38,373


16.0%

Less: Sales and marketing expense


14,899


5.8%



13,822


5.8%

Contribution and contribution margin

$

31,643


12.4%


$

24,551


10.2%

Sales and marketing expenses — Sales and marketing expenses totaled $14.9 million and $13.8 million in Q3 2012 and 2011, respectively, an 8% increase, and representing 5.8% of total net revenue for both periods.

Technology expenses — Technology expenses totaled $16.1 million and $17.2 million in Q3 2012 and 2011, respectively, a 6% decrease, and representing 6.3% and 7.2% of total net revenue for those periods. The $1.1 million decrease was primarily due to lower compensation related costs from reduced staffing.

General and administrative ("G&A") expenses — G&A expenses totaled $13.8 million and $15.3 million in Q3 2012 and 2011, respectively, a 10% decrease, and representing 5.4% and 6.4% of total net revenue for those periods. The $1.5 million decrease is largely due to lower legal fees.

Operating income/(loss) — Operating income totaled $1.8 million and $(7.9) million in Q3 2012 and 2011, respectively, a $9.7 million increase.   

Restructuring — Restructuring was a credit of $(45,000) and $0 in Q3 2012 and 2011, respectively. The restructuring credit of $(45,000) is related to subleasing our IT development office in Provo.

Interest income — Interest income totaled $30,000 and $23,000 in Q3 2012 and 2011, respectively.

Interest expense — Interest expense totaled $194,000 and $662,000 in Q3 2012 and 2011, respectively, a decrease of $468,000 or 71%. The decrease in interest expense is primarily a result of extinguishments of US Bank finance obligations and Senior Notes during 2011.

Other income, net — Other income, net totaled $1.2 million and $553,000 in Q3 2012 and 2011, respectively. The increase in other income, net is primarily due to an increase in Club O Rewards breakage.

Income taxes — Income tax expense totaled $131,000 and a benefit of $(240,000) in Q3 2012 and 2011, respectively, an increase of $371,000.  

Net income/(loss) — Net income totaled $2.7 million and a loss of $(7.8 million) for Q3 2012 and 2011, respectively, an increase of $10.5 million. Earnings per share was $0.11 on a fully diluted basis in Q3 2012, compared to $(0.33) for Q3 2011.

Free cash flow (a non-GAAP financial measure) — Free cash flow totaled $15.7 million and $24.2 million for the twelve months ended September 30, 2012 and 2011, respectively. The $8.5 million decrease was due to a $3.1 million decrease in operating cash flows and a $5.4 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):


Nine months ended

September 30,


Twelve months ended

September 30,


2012


2011


2012


2011

Net cash provided by (used in) operating activities

$

(13,337)


$

(16,300)


$

28,626


$

31,744

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


(10,563)



(6,344)



(12,960)



(7,538)

Free cash flow

$

(23,900)


$

(22,644)


$

15,666


$

24,206

Cash and working capital — We had cash and cash equivalents of $72.5 million and $97.0 million and working capital of $(4.5) million and $(14.1) million at September 30, 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 that was filed on March 2, 2012, 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)








September 30,


December 31,


2012


2011

Assets






Current assets:






Cash and cash equivalents

$

72,469


$

96,985

Restricted cash


2,060



2,036

Accounts receivable, net


14,020



13,501

Inventories, net


21,390



22,993

Prepaid inventories, net


1,668



1,027

Prepaids and other assets


13,550



12,651

Total current assets


125,157



149,193

Fixed assets, net


23,084



25,322

Goodwill


2,784



2,784

Other long-term assets, net


2,643



2,260

Total assets

$

153,668


$

179,559

Liabilities and Stockholders' Equity






Current liabilities:






Accounts payable

$

43,302


$

70,332

Accrued liabilities


40,508



47,902

Deferred revenue


28,814



27,978

Line of credit


17,000



17,000

Capital lease obligations, current


-



110

Total current liabilities


129,624



163,322

Capital lease obligations, non-current


-



2

Other long-term liabilities


2,765



2,998

Total liabilities


132,389



166,322







Stockholders' equity:






Common stock


2



2

Additional paid-in capital


355,992



353,368

Accumulated deficit


(255,883)



(261,765)

Treasury stock


(78,832)



(78,368)

Total stockholders' equity


21,279



13,237

Total liabilities and stockholders' equity

$

153,668


$

179,559


Overstock.com, Inc.

Consolidated Statements of Operations and

Comprehensive Income (Loss) (Unaudited)

(in thousands, except per share data)
















Three months ended

 September  30,


Nine months ended 

September  30,



2012


2011


2012


2011

Revenue, net









Direct 


$

34,215


$

34,749


$

109,048


$

116,353

Fulfillment partner 



221,137



204,989



648,207



623,847

Total net revenue



255,352



239,738



757,255



740,200

Cost of goods sold













Direct



30,684



32,472



99,422



105,733

Fulfillment partner



178,126



168,893



520,614



506,240

Total cost of goods sold



208,810



201,365



620,036



611,973

Gross profit



46,542



38,373



137,219



128,227

Operating expenses:













Sales and marketing



14,899



13,822



42,886



42,902

Technology



16,085



17,171



46,845



50,639

General and administrative



13,828



15,321



43,166



50,032

Restructuring



(45)



-



53



-

Total operating expenses



44,767



46,314



132,950



143,573

Operating income (loss)



1,775



(7,941)



4,269



(15,346)

Interest income



30



23



86



121

Interest expense



(194)



(662)



(655)



(1,968)

Other income, net



1,213



553



2,364



962

Income (loss) before income taxes



2,824



(8,027)



6,064



(16,231)

Provision (benefit) for income taxes



131



(240)



182



(202)

Net income (loss)


$

2,693


$

(7,787)


$

5,882


$

(16,029)

Deemed dividend related to redeemable common stock



-



-



-



(12)

Net income (loss) attributable to common shares


$

2,693


$

(7,787)


$

5,882


$

(16,041)

Net income (loss) per common share—basic:













Net income (loss) attributable to common shares—basic


$

0.11


$

(0.33)


$

0.25


$

(0.69)

Weighted average common shares outstanding—basic 



23,447



23,276



23,382



23,253

Net income (loss) per common share—diluted:













Net income (loss) attributable to common shares—diluted


$

0.11


$

(0.33)


$

0.25


$

(0.69)

Weighted average common shares outstanding—diluted



23,754



23,276



23,511



23,253














Comprehensive income (loss)


$

2,693


$

(7,787)


$

5,882


$

(16,029)














Other data:











Gross bookings


$

293,299


$

262,564


$

850,610


$

814,928

 

Overstock.com, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)
















Nine months ended

September 30,


Twelve months ended

September 30,



2012


2011


2012


2011

Cash flows from operating activities:











Net income (loss)


$

5,882


$

(16,029)


$

2,473


$

(1,170)

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













Depreciation and amortization



11,935



12,472



15,813



16,581

Realized gain from sale of marketable securities



(8)



-



(8)



-

Loss (gain) on disposition of fixed assets



72



-



72



(14)

Stock-based compensation to employees and directors



2,624



2,411



3,264



3,697

Amortization of deferred loan costs and debt discount



55



77



105



162

Loss from early extinguishment of debt



-



54



1,199



54

Restructuring charges (reversals)



53



-



53



(433)

Changes in operating assets and liabilities:













Restricted cash



(24)



159



323



159

Accounts receivable, net



(519)



5,115



(5,575)



(57)

Inventories, net



1,603



12,904



(2,180)



15,183

Prepaid inventories, net



(641)



667



(253)



1,296

Prepaids and other assets



(314)



(3,218)



2,448



(1,674)

Other long-term assets, net



(1,160)



12



(1,332)



271

Accounts payable



(26,958)



(24,775)



761



(3,253)

Accrued liabilities



(7,478)



(3,507)



2,981



567

Deferred revenue



836



(2,847)



7,634



430

Other long-term liabilities



705



205



848



(55)

Net cash provided by (used in) operating activities



(13,337)



(16,300)



28,626



31,744

Cash flows from investing activities:











Purchases of marketable securities



(69)



(119)



(110)



(155)

Sale of marketable securities 



154



-



154



-

Proceeds from sale of fixed assets



56



-



56



-

Purchases of intangible assets



(6)



(7)



(3)



(23)

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



(10,563)



(6,344)



(12,960)



(7,538)

Net cash used in investing activities



(10,428)



(6,470)



(12,863)



(7,716)

Cash flows from financing activities:









Payments on capital lease obligations



(112)



(654)



(188)



(722)

Drawdowns on line of credit



-



17,000



-



17,000

Capitalized financing costs



-



(121)



(19)



(121)

Proceeds from finance obligations



-



1,429



-



3,235

Payments on finance obligations



-



(3,390)



(21,528)



(4,231)

Paydown on direct financing arrangement



(175)



(160)



(231)



(211)

Payments to retire convertible senior notes



-



(34,615)



-



(34,615)

Purchase of treasury stock



(464)



(1,602)



(466)



(1,606)

Purchase of redeemable stock



-



-



-



(26)

Exercise of stock options



-



-



-



(1)

Net cash used in financing activities



(751)



(22,113)



(22,432)



(21,298)

Net increase (decrease) in cash and cash equivalents



(24,516)



(44,883)



(6,669)



2,730

Cash and cash equivalents, beginning of period



96,985



124,021



79,138



76,408

Cash and cash equivalents, end of period 


$

72,469


$

79,138


$

72,469


$

79,138

SOURCE Overstock.com, Inc.



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