Overstock.com Reports FY and Q4 2009 Results
Reports Net Income of $12.7m for Q4, $7.7m for 2009
Company will host conference call and webcast on April 5, 2010
SALT LAKE CITY, March 31 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) today reported financial results for fiscal year 2009 and the quarter ended December 31, 2009.
Key FY 2009 metrics (comparison to FY 2008, as restated)
- Revenue: $876.8M vs. $829.9M (6% increase);
- Gross margin: 18.8% vs. 17.4% (140 basis point improvement);
- Gross profit: $164.8M vs. $144.2M (14% increase);
- Sales and marketing expense: $55.5M vs. $57.7M (4% decrease);
- Contribution (non-GAAP measure): $109.2M vs. $86.6M (26% increase);
- G&A/Technology expense: $101.2M vs. $96.0M (5% increase);
- Net income (loss) attributable to common shares: $7.7M vs. $(11.1M) ($18.8M increase in net income); and
- Diluted EPS: $0.33/share vs. $(0.48)/share ($0.81/share improvement)
Key Q4 2009 metrics (comparison to Q4 2008, as restated):
- Revenue: $322.4M vs. $253.8M (27% increase);
- Gross margin: 17.1% vs. 16.5% (60 basis point improvement);
- Gross profit: $55.0M vs. $42.0M (31% increase);
- Sales and marketing expense: $18.6M vs. $16.4M (13% increase);
- Contribution (non-GAAP measure): $36.4M vs. $25.5M (43% increase);
- G&A/Technology expense: $23.0M vs. $21.6M (7% increase);
- Net Income (loss) attributable to common shares: $12.7M vs. $(705,000) ($13.4M increase in net income); and
- Diluted EPS: $0.55/share vs. $(0.03)/share ($0.58/share improvement).
Dear Owner:
In Q4 our revenues grew 27%, twice the ecommerce industry's rate, and we earned $12.7 million in net income. In 2009 we grew revenues 6%, earned $7.7 million in net income, generated $46 million in operating cash flow, and generated $39 million in free cash flow. It's nice to be profitable.
I am proud that, for the second year in a row, we rank number 2 in the NRF/Amex survey of American consumers, behind only LL Bean and ahead of Amazon, Zappos, eBay, Nordstrom, and many other fine firms.
As you may know, at the end of Q4 we engaged KPMG as our independent auditors, and announced that we were restating our FY 2008 and Q1, Q2 and Q3 2009 financial statements. I thank you for being patient with us as we worked through the questions raised by the SEC, the transition to the KPMG team, and the extra time it took to ensure that our financial statements are accurate.
I look forward to our conference call next Monday. Until then, I remain,
Your humble servant,
Patrick M. Byrne
The Company will hold a conference call and webcast to discuss its fiscal year and fourth quarter 2009 financial results on Monday, April 5, 2010 at 5:00 p.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 60727777 when prompted. Participants outside the United States or Canada who do not have Internet access should dial +1 (706) 758-1198 and enter conference ID 60727777 when prompted.
Replay
A replay of the webcast will be available at http://investors.overstock.com starting 2 hours after the live call has ended. An audio replay of the webcast will be available via telephone starting at 8:00 p.m. Eastern Time on Monday, April 5, 2010, through 11:59 p.m. Eastern Time on Monday, April 12, 2010. To listen to the recorded webcast by phone, please dial (800) 642-1687 and enter conference ID 60727777 when prompted. Outside the U.S. or Canada please dial +1 (706) 645-9291 and enter conference ID 60727777 when prompted.
Please email questions to Kevin Moon at [email protected] prior to the conference call.
Key financial and operating metrics discussion:
NOTE: ALL COMPARISONS TO 2008 SHOWN BELOW ARE TO RESTATED RESULTS AS REPORTED IN OUR 2009 FORM 10-K.
Total revenue -- Total revenue for the three months ended December 31, 2009 and 2008 was $322.4 million and $253.8 million, respectively, a 27% increase. Total revenue increased 6% in 2009 to $876.8 million from $829.9 million in 2008.
Gross profit -- Gross profit for the three months ended December 31, 2009 and 2008 was $55.0 million and $42.0 million, respectively, a 31% increase, representing 17.1% and 16.5% of total revenue for those respective periods. Gross profit in 2009 and 2008 was $164.8 million and $144.2 million, respectively, a 14% improvement, representing 18.8% and 17.4% of total revenue for those periods.
Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) -- Contribution for the three months ended December 31, 2009 and 2008 was $36.4 million (11.3% contribution margin) and $25.5 million (10.1% contribution margin), respectively, a 43% increase in contribution, and a 120 basis point improvement in contribution margin. Contribution was $109.2 million (12.5% contribution margin) in 2009 and $86.6 million (10.4% contribution margin) in 2008, a 26% increase, and a 210 basis point improvement in contribution margin.
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 revenues. 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 fixed 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. You should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. 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, see the calculation of this non-GAAP financial measure below (in thousands):
Three months ended Twelve months ended
December 31, December 31,
--------------- ---------------
2008 2009 2008 2009
(Restated) (Restated)
---- ---- ---- ----
Total revenue $253,841 $322,359 $829,850 $876,769
Cost of goods sold 211,864 267,337 685,614 712,017
------- ------- ------- -------
Gross profit 41,977 55,022 144,236 164,752
Less: Sales and
marketing expense 16,447 18,578 57,668 55,549
------- ------- ------- -------
Contribution $25,530 $36,444 $86,568 $109,203
------- ------- ------- -------
Contribution margin 10.1% 11.3% 10.4% 12.5%
Sales and marketing expenses -- Sales and marketing expenses totaled $18.6 million and $16.4 million for the for the three months ended December 31, 2009 and 2008, respectively, a 13% increase, and representing 5.8% and 6.5% of revenue for those respective periods. Sales and marketing expenses decreased 4% to $55.5 million in 2009 from $57.7 million in 2008, representing 6.3% and 6.9% of total revenue for those respective periods. The decrease in sales and marketing costs was primarily due to more efficient marketing spending. We were able to generate more revenue per dollar of advertising spent in 2009, particularly with online marketing campaigns. Higher compensation expense offset some of the improvement in lower advertising costs.
Technology expenses -- Technology expenses totaled $13.5 million and $13.4 million for the three months ended December 31, 2009 and 2008, a 1% increase, and representing 4.2% and 5.3% of revenue for those respective periods. While technology expenses increased during the quarter from costs related to additional technology staff, the increase was nearly offset by decreased depreciation expense for technology equipment and software development.
For the years ended December 31, 2009 and 2008, technology expenses totaled $52.3 million and $56.7 million, respectively, a decrease of 8% and representing 6.0% and 6.9% of total revenue for those respective periods. The decrease is primarily due to $10.2 million less depreciation expense for technology equipment and software development. This decrease was partially offset by an increase in compensation expense of approximately $7.2 million related to additional technology staff and an increase in annual bonus expense of $1.4 million due to improved company financial performance.
General and administrative ("G&A") expenses -- G&A expenses totaled $9.5 million and $8.2 million for the three months ended December 31, 2009 and 2008, representing 2.9% and 3.2% of total revenue for those respective periods. The $1.3 million increase is primarily attributable to an increase in compensation expense related to additional general and administrative staff and increased bonus expense in the fourth quarter of 2009 compared to 2008. In the fourth quarter of 2009, legal expenses were reduced by $5.5 million received from the settlement of legal matters. G&A expenses increased 24% for the year ended December 31, 2009 to $48.9 million from $39.3 million in 2008, representing 5.6% and 4.7% of total revenue, respectively. The increase of $9.6 million is primarily due to an increase in compensation expense of approximately $6.0 million related to additional general and administrative staff and $3.8 million from increased bonus expense in 2009 compared to 2008, and also $1.25 million of expense related to the termination of a consulting arrangement with Icent LLC. Icent LLC's chief executive officer is James V. Joyce, who resigned from his position as a member of the Board of Directors on April 1, 2009. The increase in G&A expenses is also related to additional facilities costs relating to the lease of a new customer service center and an increase in legal expenses of approximately $4.3 million during 2009 compared to 2008. However, the increase in legal expense for 2009 was offset by $7.1 million received from the settlement of legal matters.
Restructuring -- In 2009 and 2008, we reduced our accrued restructuring liability by $66,000 and $299,000, respectively, as a result of a change in our estimated sublease income.
Operating income (loss) -- Operating income for the three months ended December 31, 2009 was $13.4 million compared to $4.0 million in 2008, a $9.5 million improvement. Operating income (loss) was $8.0 million and $(9.2) million for the years ended December 31, 2009 and 2008, respectively, a $17.2 million improvement.
Interest income and interest expense -- The decrease in interest income from $3.2 million in 2008 to $170,000 in 2009 is due to a decrease in total cash, lower interest rates and the settlement of notes receivable related to our travel subsidiary. Interest expense is largely related to interest incurred on our Senior Notes, and to a lesser extent our capital lease obligations. Interest expense for 2008 and 2009 totaled $3.6 million and $3.5 million, respectively.
Other income (expense), net -- Other income in 2009 was $3.3 million, which was primarily related to gains from the early extinguishment of a portion of our 3.75% Convertible Senior Notes. We retired a total of $7.4 million of our Senior Notes in 2009 for $4.6 million in cash and recorded a $2.8 million gain, net of amortization of debt discount of $92,000. In 2008, other income (expense) was net expense of $(1.4) million. This included a $2.8 million gain, net of amortization of debt discount of $142,000 on the retirement of $9.5 million of our Senior Notes, a $3.9 million loss on the settlement of notes receivable and a $300,000 other-than-temporary impairment of marketable securities.
Net income (loss) attributable to common shares -- Net income attributable to common shares for the fourth quarter of 2009 was $12.7 million, or $0.55 per share on a fully diluted basis, compared to a net loss attributable to common shares of $(705,000), or $(0.03) per share on a fully diluted basis for the fourth quarter of 2008. Net income (loss) attributable to common shares was $7.7 million and $(11.1) million in 2009 and 2008, respectively, or $0.33 and $(0.48) per share on a fully diluted basis for those respective periods.
Free cash flow (a non-GAAP financial measure) -- Free cash flow for the fourth quarters of 2009 and 2008 totaled $65.1 million and $44.0 million, respectively. Free cash flow was $38.8 million and $(12.3) million for the years ended December 31, 2009 and 2008.
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 future investment, debt retirement or other changes to our capital structure after we have paid all of our 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 Twelve months ended
December 31, December 31,
--------------- --------------
2008 2009 2008 2009
(Restated) (Restated)
---- ---- ---- ----
Net cash provided by
operating activities $47,474 $66,376 $6,444 $46,117
Expenditures for fixed assets,
including internal-use
software and
website development (3,449) (1,266) (18,707) (7,275)
------- ------- ------- -------
Free cash flow $44,025 $65,110 $(12,263) $38,842
------- ------- ------- -------
Cash and working capital -- At December 31, 2009, Overstock.com had cash and cash equivalents of $139.8 million. Working capital was $51.2 million and $41.8 million at December 31, 2009 and December 31, 2008, respectively. The increase in our working capital is primarily due to the $18.8 million improvement in net income from 2008 to 2009.
About Overstock.com
Overstock.com, Inc. is an online retailer offering brand-name merchandise at discount prices. The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory distribution channel. Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ Global Market System and can be found online at http://www.overstock.com. Overstock.com regularly posts information about the company and other related matters on its website under the heading "Investor Relations."
Overstock.com® is a registered trademark of Overstock.com, Inc. Any other trademarks are the property of their respective owners.
This press release 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. Our Form 10-K for the year ended December 31, 2009, our subsequent quarterly reports on Form 10-Q, or any amendments thereto, 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 any projections, estimates or forward-looking statements.
Overstock.com, Inc.
Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended Twelve months ended
December 31, December 31,
-------------- --------------
2008 2009 2008 2009
(Restated) (Restated)
---------- ------ ---------- ------
Revenue, net
Direct $48,240 $55,053 $173,687 $150,901
Fulfillment partner 205,601 267,306 656,163 725,868
------- ------- ------- -------
Total net revenue 253,841 322,359 829,850 876,769
------- ------- ------- -------
Cost of goods sold
Direct 43,973 48,490 153,967 130,890
Fulfillment partner 167,891 218,847 531,647 581,127
------- ------- ------- -------
Total cost of goods sold 211,864 267,337 685,614 712,017
------- ------- ------- -------
Gross profit 41,977 55,022 144,236 164,752
------ ------ ------- -------
Operating expenses:
Sales and marketing 16,447 18,578 57,668 55,549
Technology 13,355 13,538 56,677 52,336
General and administrative 8,197 9,458 39,348 48,906
Restructuring - - (299) (66)
--- --- ---- ---
Total operating expenses 37,999 41,574 153,394 156,725
------ ------ ------- -------
Operating income (loss) 3,978 13,448 (9,158) 8,027
Interest income 455 9 3,163 170
Interest expense (821) (763) (3,565) (3,470)
Other income (expense), net (4,297) 290 (1,446) 3,277
------ --- ------ -----
Pretax income (loss) (685) 12,984 (11,006) 8,004
---- ------ ------- -----
Provision for income taxes - (257) - (257)
--- ---- --- ----
Net income (loss) (685) 12,727 (11,006) 7,747
---- ------ ------- -----
Deemed dividend related to
redeemable common stock (20) (13) (77) (48)
--- --- --- ---
Net income (loss)
attributable to common shares $(705) $12,714 $(11,083) $7,699
----- ------- -------- ------
Net income (loss)
attributable to common shares
- basic: $(0.03) $0.56 $(0.48) $0.34
Net income (loss)
attributable to common shares
- diluted: $(0.03) $0.55 $(0.48) $0.33
Weighted average common
shares outstanding - basic: 22,745 22,838 22,901 22,821
Weighted average common
shares outstanding -
diluted: 22,745 23,272 22,901 23,067
Other data:
Gross bookings (in 000s) $285,111 $358,389 $914,388 $966,560
Auction gross merchandise
volume (in 000s) $4,428 $3,121 $11,512 $13,903
Average customer acquisition
cost (shopping) $17.68 $14.92 $22.27 $17.88
Overstock.com, Inc.
Consolidated Balance Sheets
(in thousands)
December 31, December 31,
------------ ------------
2008 2009
(Restated)
---------- ----------
Assets
Current assets:
Cash and cash equivalents $96,457 $139,757
Restricted cash 4,262 4,414
Marketable securities 8,989 -
Accounts receivable, net 7,100 11,640
Notes receivable 1,250 -
Inventories, net 24,719 23,375
Prepaid inventory, net 761 2,879
Prepaid expenses and other assets 9,552 10,275
----- ------
Total current assets 153,090 192,340
Fixed assets, net 24,724 20,618
Goodwill 2,784 2,784
Other long-term assets, net 538 758
--- ---
Total assets $181,136 $216,500
-------- --------
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $57,981 $76,623
Accrued liabilities 34,097 43,296
Deferred revenue 19,232 20,665
Capital lease obligations, current - 520
--- ---
Total current liabilities 111,310 141,104
Capital lease obligations, non-current - 806
Other long-term liabilities 4,251 3,580
Convertible senior notes, net 66,558 59,466
------ ------
Total liabilities 182,119 204,956
------- -------
Redeemable common stock 1,263 744
Stockholders' equity (deficit):
Common stock 2 2
Additional paid-in capital 337,707 343,040
Accumulated deficit (263,333) (256,056)
Treasury stock (76,670) (76,186)
Accumulated other comprehensive income 48 -
--- ---
Total stockholders' equity (deficit) (2,246) 10,800
------ ------
Total liabilities and stockholders'
deficit $181,136 $216,500
-------- --------
Overstock.com, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Three months ended Twelve months ended
December 31, December 31,
------------------ -------------------
2008 2009 2008 2009
(Restated) (Restated)
---------- ------ ---------- ------
Cash flows from operating
activities:
Net income (loss) $(685) $12,727 $(11,006) $7,747
Adjustments to reconcile net
income (loss) to
cash provided by (used in)
operating activities:
Depreciation and amortization,
including internal-use
software and website
development 4,770 2,841 22,968 12,883
Realized loss on
marketable securities 334 9 334 48
Loss on settlement of
notes receivable 3,929 - 3,929 -
Loss on disposition of
fixed assets 140 (1) 140 183
Stock-based compensation
to employees and
directors 875 1,322 4,372 4,775
Stock-based compensation
to consultants for
services 78 - 259 10
Stock-based compensation
relating to performance
share plan (1,300) - (1,000) -
Amortization of debt
discount 77 61 334 331
Gain from early
extinguishment of debt - - (2,849) (2,810)
Restructuring charges - - (299) (66)
Notes receivable accretion (137) - (545) -
Changes in operating assets
and liabilities
Restricted cash 4,532 (129) 4,372 (152)
Accounts receivable, net 3,527 (2,240) 4,654 (4,540)
Inventories, net (102) (1,340) 3,790 1,344
Prepaid inventory, net 3,157 737 2,177 (2,118)
Prepaid expenses and
other assets 1,336 324 (2,027) (604)
Other long-term assets,
net (516) (40) (516) (120)
Accounts payable 27,459 42,893 (10,774) 18,642
Accrued liabilities 764 7,747 (7,636) 9,131
Deferred revenue (656) 1,465 (3,733) 1,433
Other long-term
liabilities (108) - (500) -
---- --- ---- ---
Net cash provided by
operating activities 47,474 66,376 6,444 46,117
------ ------ ----- ------
Cash flows from investing
activities:
Purchases of marketable
securities - - (35,548) -
Maturities of marketable
securities 64,542 - 64,542 -
Sales of marketable
securities prior to
maturity (46,897) (9) 7,740 8,893
Expenditures for fixed assets,
including internal-use software
and website development (3,449) (1,266) (18,707) (7,275)
Collection of note
receivable - - 1,506 1,250
--- --- ----- -----
Net cash provided by
(used in) investing
activities 14,196 (1,275) 19,533 2,868
------ ------ ------ -----
Cash flows from financing
activities:
Payments on capital lease
obligations - (50) (3,796) (348)
Drawdowns on line of credit 5,241 - 12,963 1,612
Paydowns on line of credit (5,241) - (12,963) (1,612)
Capitalized financing costs - (245) - (245)
Paydown on other obligations - (59) - (218)
Payments to retire
convertible senior notes - - (6,550) (4,563)
Purchase of treasury stock - (7) (13,452) (340)
Exercise of stock options - 26 1,471 29
--- -- ----- --
Net cash (used in)
financing activities - (335) (22,327) (5,685)
--- ---- ------- ------
Effect of exchange rate
changes on cash 9 - - -
Net increase (decrease) in
cash and cash equivalents 61,679 64,766 3,650 43,300
Cash and cash equivalents,
beginning of period 34,778 74,991 92,807 96,457
------ ------ ------ ------
Cash and cash equivalents,
end of period $96,457 $139,757 $96,457 $139,757
------- -------- ------- --------
SOURCE Overstock.com, Inc.
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