Overstock.com Reports Q2 2012 Results

SALT LAKE CITY, July 19, 2012 /PRNewswire/ -- Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarter ended June 30, 2012.

Key Q2 2012 metrics (comparison to Q2 2011):

• Revenue:  $239.5M vs. $235.0M (2% increase);
• Gross margin: 18.0% vs. 16.9% (110 basis point increase);
• Gross profit:  $43.2M vs. $39.8M (8.5% increase);
• Sales and marketing expense: $13.5M vs. $13.7M (1% decrease);
• Contribution (non-GAAP measure): $29.7M vs. $26.1M (14% increase);
• G&A/Technology expense: $29.6M vs. $33.5M (12% decrease);
• Net income (loss): $470,000 vs. $(7.8)M ($8.3M increase); and
• Diluted EPS: $0.02/share vs. $(0.34)/share ($0.36 increase).

CEO Patrick Byrne said, "Club O is a wonderful addition to our business. Our customers appreciate the 5% rewards and free shipping. I am once again grateful to my colleagues for getting the flywheel spinning in the right direction, and excited to see how quickly they can accelerate it."

The Company will hold a conference call and webcast to discuss its second quarter 2012 financial results on Thursday, July 19, 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 94476983 when prompted.  Participants outside the United States or Canada who do not have Internet access should dial (706) 758-1198 and enter conference ID 94476983 when prompted.

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 Thursday, July 19, 2012, through 11:59 p.m. Eastern Time on Sunday, August 19, 2012.  To listen to the recorded webcast by phone, please dial (800) 585-8367 and enter conference ID 94476983 when prompted.  Outside the U.S. or Canada please dial +1 (404) 537-3406 and enter conference ID 94476983.

Please email questions to Kevin Moon at [email protected] 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 2012 and 2011 was $239.5 million and $235.0 million, respectively, a 1.9% increase. The growth in net revenue was primarily due to increases in unique visitors and average order size which more than offset lower conversion rates and fewer orders compared to last year.

Gross profit — Gross profit for Q2 2012 and 2011 was $43.2 million and $39.8 million, respectively, an 8.5% increase, representing 18.0% and 16.9% of total net revenue for those respective periods. The increase in gross profit was primarily due to pricing initiatives and lower credit card costs, partially offset by higher freight and return-related costs.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) — Contribution for Q2 2012 and 2011 was $29.7 million and $26.1 million, respectively, a 14% increase. Contribution margin increased by 130 basis points to 12.4% from 11.1% 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):

Sales and marketing expenses — Sales and marketing expenses totaled $13.5 million and $13.7 million for Q2 2012 and 2011, respectively, a 1% decrease, and representing 5.6% and 5.8% of total net revenue for those periods. Lower compensation-related costs from reduced staffing was the primary reason for the year-over-year decrease.

Technology expenses — Technology expenses totaled $15.1 million and $16.8 million for Q2 2012 and 2011, respectively, a 10% decrease and representing 6.3% and 7.2% of total net revenue for those periods. The $1.7 million decrease is primarily due to decreases in compensation and recruiting related costs from reduced staffing.

General and administrative ("G&A") expenses — G&A expenses totaled $14.5 million and $16.7 million for Q2 2012 and 2011, respectively, a 13% decrease, and representing 6.1% and 7.1% of total net revenue for those periods. The $2.2 million decrease is largely due to decreases in legal fees and compensation related expenses from reduced staffing.

Operating income — Operating income for Q2 2012 was $19,000 compared to $(7.4) million in Q2 2011, a $7.4 million increase.   

Interest income — Interest income for Q2 2012 and 2011 was $27,000 and $46,000, respectively.

Interest expense — Interest expense for Q2 2012 and 2011 was $253,000 and $630,000 respectively, a decrease of 60%. The decrease in interest expense is primarily the result of the extinguishment of our Senior Notes and US Bank finance obligations in 2011.

Other income, net — Other income, net for Q2 2012 and 2011 was $719,000 and $220,000, respectively. The increase was primarily due to increased gift card and Club O rewards breakage.

Income taxes — The income tax provision for Q2 2012 and 2011 was $42,000 and $16,000, respectively. This income tax provision is for state minimum tax payments, foreign taxes and certain income tax uncertainties, including interest and penalties.  

Net income (loss) — Net income for Q2 2012 was $470,000, or $0.02 per share on a fully diluted basis, compared to net loss of $(7.8) million, or $(0.34) per share on a fully diluted basis for Q2 2011.

Free cash flow (a non-GAAP financial measure) — Free cash flow for the twelve months ended June 30, 2012 and 2011 totaled $8.0 million and $23.0 million, respectively.  The $15.0 million year over year decrease was due to a $13.5 million decrease in operating cash flows and a $1.5 million increase in capital expenditures from the twelve month period ending Q2 2012 compared to 2011.  

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):

Cash and working capital — We had cash and cash equivalents of $60.0 million and $97.0 million and working capital of $(7.6) million and $(14.1) million at June 30, 2012 and December 31, 2011, respectively. 

About Overstock.com Overstock.com is a technology-based retail company offering customers a wide variety of high-quality products, at great value, with superior customer service. The company provides its customers with the opportunity to shop for bargains by offering suppliers an alternative inventory distribution channel. Headquartered in Salt Lake City, Overstock.com is a publicly traded company listed on the NASDAQ Global Market System and can be found online at http://www.overstock.com and http://www.o.co.  Overstock.com regularly posts information about the company and other related matters on its website under the heading "Investor Relations."

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.

SOURCE Overstock.com, Inc.

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