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Overstock.com Reports Q2 2013 Results

July 18, 2013

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                 Twelve months
                         ended                        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(TM), Club O(TM), Club O Dollars(TM) and Your Savings Engine(TM) 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                     Six months
                         ended                        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.


Source: PR Newswire