EX-99.1 2 a07-3084_2ex99d1.htm EX-99.1

 

Exhibit 99.1

 

NEWS RELEASE

Media Contact:
Jared Matkin, Overstock.com, Inc.
+1 (801) 947-3880
jmatkin@overstock.com

Investor Contact:
Kevin Moon, Overstock.com, Inc.
+1 (801) 947-3282
kmoon@overstock.com

Overstock.com Reports Fourth Quarter and Year End 2006
Financial Results

SALT LAKE CITY (February 5, 2007) — Overstock.com, Inc. (NASDAQ: OSTK; www.overstock.com) today reported financial results for its fourth quarter and fiscal year ended December 31, 2006.

·      Total Q4 revenue: $297.5 million, down 6% versus 2005

·      Total 2006 revenue: $796.4 million, down 1% versus 2005

·      2006 gross profits: $101.6 million, down 16% versus 2005

·      2006 gross margins: 12.8% compared to 15.0% in 2005

·      2006 net loss: $(96.9) million or $(4.77) loss per share

Dear Owners:

The fourth quarter was a difficult end to a tough rebuilding year.  While there are plenty of negatives to report, I believe the company has fixed the problems that began in Q4 2005, and we are entering 2007 with a fresh start.

We lost $41 million for the quarter and $97 million for the year; we paid the price for hastily implemented system upgrades of 2005 and the subsequent troubles caused by them.  Q4 sales declined 6%, the same percentage decline we experienced in Q3.  Lower traffic was partly to blame and we didn’t improve conversion (turning visitors into purchasers) enough to achieve positive growth.  In addition, we consciously and aggressively discounted old inventory during the quarter, and as a result, our gross margins were negatively impacted.  However, we did this to significantly clean and reduce our inventory, and we were successful in doing so. This was painful, but it was a necessary step in improving our direct business.  The company is healthier as a result.

We ended the year with $20 million of inventory, significantly lower than the $93 million we had at the end of 2005.  From this lower inventory level, we expect to turn our inventory much more efficiently.  We entered 2007 with more attractive, higher margin inventory, and as a result, we expect our gross margins to increase significantly



 

in 2007 — in similar magnitude as they did a few years ago.  In addition to converting much of our inventory into cash, we also raised $40 million in common equity in December (for a total of $64 million for the year), greatly improving our cash position.

 We built the infrastructure to handle continued hyper-growth just as it ended.  We recognize that the days of hyper-growth are behind us and that our poor execution of the building of our infrastructure contributed to the end of that hyper-growth.   Our expense structure is higher than it should be, and because of that, we have had to right-size our expense structure for our current sales level.  We’ve reduced our headcount and we’ve terminated an expensive computer facility co-location lease.  We are in the process of significantly reducing additional facilities lease costs and other expenses.

Based on our preliminary January numbers and our internal 2007 plan, I expect our 2007 results to improve. Specifically, we should:

·              Achieve immediate and substantial gross margin improvements;

·              Reduce sales and marketing as a percentage of revenue; and

·              Reduce technology and G&A expenses from 2006 levels.

Two last comments: (1) Our NPS scores stayed high during Q4; our customers remain fanatics about us.  (2) The poorly implemented system upgrades that caused so much trouble last year hummed through this Q4, like well oiled machines, and I couldn’t be happier about that.

As always, I look forward to discussing this in more detail with you on the conference call.

Humbly submitted,

Patrick M. Byrne

P.S. If you have any questions, please feel free to email them to Kevin Moon at kmoon@overstock.com before the conference call, so we may address them.

Key financial and operating metrics

Total revenue—Overstock.com reported total revenue for the quarter ended December 31, 2006 of $297.5 million, a 6% decrease from the $318.0 million reported in 2005.  For the year ended December 31, total revenue decreased 1%, from $803.8 million in 2005 to $796.4 million in 2005.

2



 

Gross profit and gross margins—Gross profit for the quarter ended December 31, 2006 was $30.5 million (10.3% margins), a 34% decrease from the $46.5 million (14.6% margins) reported in 2005.  For the year ended December 31, gross profit decreased 16%, from $120.6 million (15.0% gross margins) in 2005 to $101.6 million (12.8% gross margins) in 2006.

Net loss—Net loss for the quarter ended December 31, 2006, was $40.7 million, or $1.92 loss per share, compared to $6.3 million, or $0.33 loss per share in 2005. For the year ended December 31, 2006, net loss was $96.9 million, or $4.77 loss per share, compared to $24.9 million, or $1.29 loss per share.

Overstock.com had cash and cash equivalents of $128.3 million and working capital of $65.5 million on December 31, 2006.

Gross bookings (excluding auctions and travel)—Gross bookings for the three months ended December 31, 2006 totaled $309.9 million, a 9% decrease from the $340.5 million reported last year. For the year ended December 31, 2006, gross bookings were $838.9, a 3% decrease from the $868.0 reported in 2005.

# # #

About Overstock.com

Overstock.com, Inc. is an online “closeout” retailer offering discount, brand-name merchandise for sale over the Internet.  The company offers its customers an opportunity to shop for bargains conveniently, while offering its suppliers an alternative inventory liquidation distribution channel.  Overstock.com, headquartered in Salt Lake City, is a publicly traded company listed on the NASDAQ National Market System and can be found online at http://www.overstock.com.

Overstock.com® is a registered trademark 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, but are not limited to, statements regarding the health of the company, the company’s ability to turn inventory in the future, future increases in gross margins, further expense reductions, future reductions of expenses, as well as all such other risks as identified in our Form 10-K for the year ended December 31, 2005, and all our subsequent filings with the Securities and Exchange Commission, which contain and identify important factors that could cause the actual results to differ materially from those contained in our projections or forward-looking statements.

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Overstock.com, Inc.

Consolidated Statements of Operations (unaudited)

(in thousands, except per share amounts)

 

 

 

Three months ended

 

Twelve months ended

 

 

 

December 31,

 

December 31,

 

 

 

2005

 

2006

 

2005

 

2006

 

Revenue

 

 

 

 

 

 

 

 

 

Direct

 

$

128,478

 

$

98,158

 

$

324,875

 

$

303,202

 

Fulfillment partner

 

189,502

 

199,308

 

478,947

 

493,165

 

 

 

 

 

 

 

 

 

 

 

Total revenue

 

317,980

 

297,466

 

803,822

 

796,367

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

 

 

 

 

 

 

 

Direct

 

113,385

 

101,276

 

282,383

 

284,489

 

Fulfillment partner

 

158,068

 

165,671

 

400,889

 

410,255

 

 

 

 

 

 

 

 

 

 

 

Total cost of goods sold

 

271,453

 

266,947

 

683,272

 

694,744

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

46,527

 

30,519

 

120,550

 

101,623

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Sales and marketing

 

30,371

 

29,622

 

79,655

 

72,785

 

Technology

 

9,861

 

25,313

 

28,143

 

70,234

 

General and administrative

 

11,649

 

15,823

 

36,546

 

54,338

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

51,881

 

70,758

 

144,344

 

197,357

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

(5,354

)

(40,239

)

(23,794

)

(95,734

)

 

 

 

 

 

 

 

 

 

 

Interest income

 

(120

)

577

 

(270

)

3,566

 

Interest expense

 

(1,356

)

(1,127

)

(5,582

)

(4,765

)

Other income (expense), net

 

547

 

88

 

4,728

 

81

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

(6,283

)

(40,701

)

(24,918

)

(96,852

)

Deemed dividend related to redeemable common stock

 

(45

)

—

 

(185

)

(99

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common shares

 

$

(6,328

)

$

(40,701

)

$

(25,103

)

$

(96,951

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

 

 

 

 

 

 

 

 

- basic

 

$

(0.33

)

$

(1.92

)

$

(1.29

)

$

(4.77

)

- diluted

 

$

(0.33

)

$

(1.92

)

$

(1.29

)

$

(4.77

)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

- basic

 

19,311

 

21,163

 

19,429

 

20,332

 

- diluted

 

19,311

 

21,163

 

19,429

 

20,332

 

 

 

 

 

 

 

 

 

 

 

Other data:

 

 

 

 

 

 

 

 

 

Shopping bookings (in 000s)

 

$

340,489

 

$

309,887

 

$

867,959

 

$

838,934

 

Travel bookings (in 000s)

 

$

15,505

 

$

19,069

 

$

29,579

 

$

48,265

 

Auction gross merchandise volume (in 000s)

 

$

9,458

 

$

7,180

 

$

29,724

 

$

28,869

 

Average customer acquisition cost (shopping)

 

$

20.35

 

$

25.56

 

$

21.05

 

$

25.46

 

Average registrant acquisition cost (auctions)

 

$

4.68

 

$

1.88

 

$

6.73

 

$

0.59

 

 

4



 

Overstock.com, Inc.

Consolidated Balance Sheets (unaudited)

(in thousands, except per share amounts)

 

 

 

December 31,

 

 

 

2005

 

2006

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

56,224

 

$

128,330

 

Marketable securities

 

55,799

 

—

 

 

 

 

 

 

 

Cash, cash equivalents and marketable securities

 

112,023

 

128,330

 

Accounts receivable, net

 

11,695

 

14,905

 

Notes receivable

 

—

 

6,702

 

Inventories, net

 

93,269

 

20,274

 

Prepaid inventory

 

9,633

 

2,241

 

Prepaid expenses

 

8,508

 

7,559

 

 

 

 

 

 

 

Total current assets

 

235,128

 

180,011

 

Restricted cash

 

253

 

—

 

Property and equipment, net

 

63,914

 

57,413

 

Goodwill

 

13,169

 

13,169

 

Other long-term assets, net

 

13,449

 

10,032

 

 

 

 

 

 

 

Total assets

 

$

325,913

 

$

260,625

 

 

 

 

 

 

 

Liabilities, Redeemable Securities and Stockholders’ Equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

101,436

 

$

68,986

 

Accrued liabilities

 

46,847

 

40,425

 

Capital lease obligations, current

 

6,683

 

5,074

 

 

 

 

 

 

 

Total current liabilities

 

154,966

 

114,485

 

Capital lease obligations, non-current

 

3,058

 

3,983

 

Convertible senior notes

 

74,935

 

75,279

 

 

 

 

 

 

 

Total liabilities

 

232,959

 

193,747

 

 

 

 

 

 

 

Redeemable common stock

 

3,205

 

—

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock

 

2

 

2

 

Additional paid-in capital

 

250,939

 

325,771

 

Accumulated deficit

 

(96,829

)

(193,780

)

Treasury stock

 

(65,325

)

(64,983

)

Accumulated other comprehensive gain (loss)

 

962

 

(132

)

 

 

 

 

 

 

Total stockholders’ equity

 

89,749

 

66,878

 

 

 

 

 

 

 

Total liabilities, redeemable securities and stockholders’ equity

 

$

325,913

 

$

260,625

 

 

5



 

Overstock.com, Inc.

Consolidated Statements of Cash Flows (unaudited)

(in thousands)

 

 

 

Three months ended

 

Twelve months ended

 

 

 

December 31,

 

December 31,

 

 

 

2005

 

2006

 

2005

 

2006

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net loss

 

$

(6,283

)

$

(40,701

)

$

(24,918

)

$

(96,852

)

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

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

6,148

 

12,391

 

15,614

 

35,404

 

Realized (gain) loss from marketable securities

 

990

 

—

 

3,351

 

(2,085

)

Loss on disposition of property and equipment

 

1,457

 

—

 

1,457

 

599

 

Stock-based compensation expense from employee options

 

7

 

1,032

 

72

 

4,120

 

Stock options issued to consultants for services

 

(51

)

(8

)

(389

)

23

 

Treasury stock issued to employees as compensation

 

41

 

108

 

443

 

787

 

Amortization of debt discount and deferred financing fees

 

18

 

—

 

620

 

417

 

Gain from retirement of convertible senior notes

 

(1,988

)

—

 

(6,158

)

—

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

(4,144

)

(3,749

)

(5,109

)

(3,645

)

Inventories, net

 

4,865

 

42,522

 

(46,711

)

67,009

 

Prepaid inventory

 

2,973

 

1,783

 

2,689

 

7,388

 

Prepaid expenses

 

821

 

1,781

 

(4,939

)

1,053

 

Other long-term assets, net

 

(1,716

)

601

 

(2,151

)

496

 

Accounts payable

 

54,366

 

18,219

 

36,455

 

(32,450

)

Accrued liabilities

 

1,569

 

19,543

 

23,566

 

(6,872

)

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

59,073

 

53,522

 

(6,108

)

(24,608

)

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

Decrease in restricted cash

 

380

 

—

 

1,349

 

253

 

Investments in marketable securities

 

(2,000

)

—

 

(185,543

)

—

 

Sales of marketable securities

 

20,015

 

—

 

216,265

 

56,756

 

Expenditures for property and equipment

 

(8,274

)

(3,989

)

(44,740

)

(24,007

)

Proceeds from the sale of property and equipment

 

1

 

—

 

1

 

1

 

Acquisition of Ski West (net of cash acquired)

 

—

 

—

 

(24,620

)

—

 

Other investments

 

—

 

—

 

—

 

(100

)

Decrease in cash resulting from de-consolidation of variable entity

 

—

 

(102

)

—

 

(102

)

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

10,122

 

(4,091

)

(37,288

)

32,801

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

Payments on capital lease obligations

 

(3,852

)

(183

)

(7,086

)

(3,061

)

Borrowings on line of credit

 

7,500

 

8,178

 

11,868

 

86,681

 

Payments on line of credit

 

(11,868

)

(8,178

)

(11,868

)

(86,681

)

Proceeds from the issuance of convertible senior notes

 

—

 

—

 

—

 

—

 

Payments to retire convertible senior notes

 

(7,735

)

—

 

(35,670

)

—

 

Payments of deferred financing fees

 

—

 

—

 

—

 

—

 

Proceeds from the issuance of common stock

 

—

 

39,406

 

—

 

64,406

 

Purchase of treasury stock

 

—

 

—

 

(24,133

)

—

 

Purchased call options for purchase of treasury stock

 

—

 

—

 

(47,507

)

—

 

Settlement of call options for cash

 

—

 

—

 

7,937

 

—

 

Exercise of stock options

 

434

 

267

 

7,315

 

2,534

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

(15,521

)

39,490

 

(99,144

)

63,879

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

 

(25

)

23

 

86

 

34

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

53,649

 

88,944

 

(142,454

)

72,106

 

Cash and cash equivalents, beginning of period

 

2,575

 

39,386

 

198,678

 

56,224

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

56,224

 

$

128,330

 

$

56,224

 

$

128,330

 

 

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