Q3 2021 Earnings Call - investors.overstock.com
Transcript of Q3 2021 Earnings Call - investors.overstock.com
Q3 2021Earnings Call
Forward-Looking Statements
2
The information presented herein may contain forward-looking statements within the meaning of the federal securities laws. Such forward-
looking statements include all statements other than statements of historical fact, including forecasts of trends, market conditions, and other
factors that will impact our results of operations. You should not place undue reliance on any forward-looking statements, which speak only as
of the date they were made. We undertake no obligation to update any forward-looking statements as a result of any new information, future
developments, or otherwise. Forward-looking statements are inherently difficult to predict. Accordingly, actual results could differ materially for a
variety of reasons, including but not limited to, the duration of the COVID-19 pandemic and its ultimate impact on our business and results of
operations, adverse tax, regulatory or legal developments, and competition, including how such factors will be impacted at such time as the
pandemic subsides throughout the country and globally. Other risks and uncertainties include, among others, the inherent risks associated with
difficulties we may have with our fulfillment partners, supply chain, access to products, shipping costs, attraction/retention of employees, search
engine optimization results, payment processors, infrastructure, including any cyber-attacks or data breaches affecting us or any of them, and
whether our partnership with Pelion Venture Partners will be able to achieve its objectives. More information about factors that could potentially
affect our financial results are included in our Form 10-K for the year ended December 31, 2020, which was filed with the SEC on February 26,
2021, our Form 10-Q for the quarter ended March 31, 2021, which was filed with the SEC on May 6, 2021, our Form 10-Q for the quarter ended
June 30, 2021, which was filed with the SEC on August 5, 2021, and in our subsequent filings with the SEC. The Form 10-K, Form 10-Q's, and
our subsequent filings with the SEC identify important factors that could cause our actual results to differ materially from those contained in or
contemplated by our projections, estimates, and other forward-looking statements.
Agenda
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1. CEO Remarks and Corporate Update
2. Financial Results
3. Business Updates
4. Summary and Q&A
Macro Trends and Business Model Support Long-Term Favorability
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1 Source: Online survey conducted by Harris Poll on behalf of Zillow, March 2021.
2 Source: Zillow August 2021–August 2022 Home Value & Sales Forecast, September 2021.
3 Source: Combined data from eMarketer, NRF, NPD, and Earnest transactional data.
6%4
2021 forecasted
U.S. GDP growth
5%2
2021 forecasted U.S.
home sales growth
1/3of home furnishings
purchased online in 2020
3
1 in 10Americans moved
in 2020
1
8%5
2021 forecasted U.S.
consumer spending
growth
4 Source: International Monetary Fund, October 2021.
5 Source: Deloitte – U.S. Economic Forecast, September 2021.
Solid Macro Trends
Distributed
Supply Chain
(Partner Network)
Asset-light
(Drop-Ship Model)
Long-term
Favorability
+ + =
Corporate Update
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▪ Announced $100 million stock repurchase program
▪ Utah District Court dismissed with prejudice securities class action lawsuit
▪ Announced national Charitable Partnership with Mercy Housing
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Financial Results
Q3 2021 Financial Results
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Note: All figures represent results from continuing operations.
1 Adjusted EBITDA is a non-GAAP financial measure. See reconciliation in appendix.
2 Excludes the impact of $4.4M tax valuation allowance release. See reconciliation in appendix.
$689.4 Million-4% vs. Q3’20
+102% vs. Q3’19
Revenue
22.7%-78 bps vs. Q3’20
+270 bps vs. Q3’19
Gross Margin
7.6%-59 bps vs. Q3’20
-653 bps vs. Q3’19
G&A and Tech % of Revenue
$512.2 MillionEnding CashAdjusted EBITDA1
$36.1 Million-$9.9M / -22% vs. Q3’20
+$40.7M / +882% vs. Q3’19
Adjusted Diluted EPS2
$0.54-$0.27 vs. Q3’20
+$0.94 vs. Q3’19
Diluted EPS
$0.63
Revenue
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Q3 Dynamics
▪ Revenue of $689M
– -4% / -$28M vs. Q3’20
– +102% / $349M vs. Q3’19
▪ ~2x pre-pandemic sales run-rate
$400
$300
$100
$600
$0
$200
$500
$700
$800
Q3 ’19 Q4 ’20Q1 ’20 Q1 ’21
$689$670
$340
Q4 ’19 Q2 ’20 Q3 ’20 Q2 ’21 Q3 ’21
$341$364
$767
$718
$660
$795
Revenue
($M)
Note: All figures represent results from continuing operations.
Gross Margin
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Q3 Dynamics
▪ Gross margin of 22.7%
– -78 bps vs. Q3’20
– +270 bps vs. Q3’19
▪ Gross margin impacted by:
– Normalized promotional and operating environment
20.0%
21.9%
23.2%22.5%
22.0%22.7%
0%
5%
10%
15%
20%
25%
$50
$125
$0
$175
$25
$75
$100
$150
$200
$22523.3%23.5%
Q2 ’21Q2 ’20Q3 ’19 Q3 ’20Q4 ’19 Q1 ’20
$169
Q4 ’20 Q1 ’21 Q3 ’21
$68
$175
$75 $74
$178
$151 $154 $157
20.7%
Gross Margin
($M)
Gross Margin
(%)
Note: All figures represent results from continuing operations.
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14.1% 14.4%
6.5%
8.2% 8.1% 8.1%
6.7%
7.6%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
$0
$10
$60
$30
$20
$40
$50
$80
$70
$52 $53$54
Q2 ’20Q1 ’20
$54$52
15.1%
Q4 ’19 Q3 ’20 Q1 ’21Q4 ’20 Q2 ’21 Q3 ’21
$48
$57 $59
$53
Q3 ’19
G&A and Tech Expense
($M)
G&A and Tech Expense
Q3 Dynamics
▪ G&A and tech expense generating operating leverage
– -11% vs. Q3’20
– +9% vs. Q3’19
▪ G&A and tech expense % of revenue of 7.6%
– -59 bps vs. Q3’20
– -653 bps vs. Q3’19
Note: All figures represent results from continuing operations.
1 In Q1’20 we recorded $2.5M in special items that benefited G&A expense. Reported G&A expense in Q1’20 was $51.2M or 15.1% of revenue.
2 In Q2’20 we recorded $7.3M in special items that benefited G&A expense. Reported G&A expense in Q2’20 was $49.9M or 6.5% of revenue.
G&A and Tech Exp.
as % of Revenue
7.5%2
15.8%1
11
(1.4%)
6.4% 6.4%
4.5%
5.1%5.6%
5.2%
(4%)
(2%)
0%
2%
4%
6%
8%
10%
$10
($20)
($40)
($30)
($10)
$30
$0
$20
$40
$50
$60
Q3 ’19
(1.8%)
$30
Q4 ’19
(1.9%)
Q1 ’20 Q2 ’20 Q3 ’21Q3 ’20
($7)
Q4 ’20 Q1 ’21 Q2 ’21
($5)
$49
($7)
$46
$34
$44
$36
Adjusted EBITDA
($M)
Adjusted EBITDA
Q3 Dynamics
▪ Adj. EBITDA of $36M
– -$10M vs. Q3’20
– +$41M vs. Q3’19
▪ Adj. EBITDA margin of 5.2%
– -118 bps vs. Q3’20
– +659 bps vs. Q3’19
Adjusted EBITDA Margin
(%)
Note: All figures represent results from continuing operations.
Active Customers and Order Frequency
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Q3 Dynamics
▪ Active customers of 8.7M
– Impacted by significant influx of new customers during the pandemic
– +5% / +0.4M vs. Q3’20
– +59% / +3.2M vs. Q3’19
▪ Order frequency of 1.68
– Influenced by shift into home categories
– +3% vs. Q3’20
– -5% vs. Q3’19
1.701.62 1.63 1.64 1.66 1.69 1.68
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
0
12
8
2
4
6
10
8.7
5.1
Q1 ’20 Q2 ’20Q3 ’19 Q4 ’19 Q3 ’20 Q4 ’20 Q1 ’21
8.2
Q2 ’21 Q3 ’21
5.45.2
7.0
1.76
9.2
9.9
9.2
1.75
Active Customers (LTM)
(M)
Note: All figures represent results from continuing operations.
Note: Orders per active customer represents the number of orders delivered over a twelve-month period divided by the number of active customers for
that same period.
Order per Active Customer (LTM)
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$167
$155 $156 $160
$173$168
$213 $214
$0
$50
$100
$150
$200
$250
5
0
20
10
15
25
Q2 ’20
8.9
Q3 ’19 Q4 ’19
$183
Q1 ’21Q1 ’20 Q3 ’20 Q4 ’20 Q2 ’21 Q3 ’21
9.68.8
11.3
13.4
15.1
16.515.5
14.5
Orders Delivered (LTM)
(M)
Orders and Average Order Value
Q3 Dynamics
▪ Orders delivered (LTM) of 14.5M
– +8% / +1.1M vs. Q3’20
– +51% / +4.9M vs. Q3’19
▪ Average order value of $214
– Driven by sales mix of home furniture categories
– +24% vs. Q3’20
– +28% vs. Q3’19
Note: LTM orders delivered represents the total number of orders delivered during the prior twelve-month period.
Note: Average order value represents net revenue divided by orders delivered, measured on a quarterly basis.
Average Order Value
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Business Updates
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1. Amazon
2. Wayfair
3. Walmart
4.
5. Target
6. Pottery Barn
7. IKEA
8. Bed Bath & Beyond
9. West Elm
10. Restoration Hardware
Top 4 Brand in a Growing ~$325B Market
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Top U.S. Home Furnishings Online Brands1
(ranked by online revenue)
1 Source: Public, third-party analyses and transactional data based on commonly accepted definition of ‘home furnishings and décor’ category (which includes furniture) and ranked by 2020 direct-to-customer online sales.
2 Source: Combined data from eMarketer, NRF, NPD, and Earnest transactional data.
6%7%
8%9%
11%
13%
16%18%
20%
23%
29%
32%
0%
10%
20%
30%
40%
50%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sep2021(est.)
2022(est.)
2023(est.)
Furniture & Home Furnishings U.S. Online Penetration2
Establishing Unique Market Positioning
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IKEA
Dream Homes for All:
The space of ‘Smart Value’
where quality & style costs less
Home Goods Expertise
Department Store Generalist
Style & InspirationValue
Amazon
Walmart
Target
Bed Bath &Beyond
Wayfair West Elm
Pottery BarnRestorationHardware
Source: Based on Overstock Annual Brand Research, 2020. Shown are the top ten U.S. home furnishings online home retailers, as ranked by online revenue.
Savvy
Shoppers
Reluctant
Refreshers
“Smart Value Seekers”
Brand Pillars: Product Findability
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Our focus on Home attractsloyal customers whospend more with us.
Higher purchase & post-purchase Net Promoter Score
~2.0x Average Order Value
~1.5x Higher repeat rate
vs. ‘Non-Home’:
Brand Pillars: Smart Value
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Smart Value =best quality for the price
Promotional model iscritical to target customers
Competitive pricing is foundational to brand
Free shipping is atop purchase driver
% offcoupons
* See website for details.
Sale Ends in 2 Days
freeshippingonEVERYTHING*
extra
%off*
Brand Pillars: Easy Delivery and Support
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Delivery speed and on-time accuracy drive customer satisfaction and retention
Frequent communications and planning enable navigation of supply chain disruptions
Large and growing Home partner base enables high inventory and broad assortment
~3,000Third-party manufacturers,
distributors, and other partners
~5,000Fulfillment centers
Brand Pillars: Easy Delivery and Support
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Proprietary dashboards and analytics software
Secures assortment and allocations
We provide robust analytics and compelling growth opportunities
Analytics support growth and business development opportunities
Growth Drivers
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Increase brandassociation with “home”
Expand internationally
Improveproduct
findability
Increase home assortment
Establish government business
Improve customer retention
Increase mobile app adoption
Optimizemarketing channels
Well-Positioned for Market Share Growth – in 2021 and Beyond
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▪ Revenue outpacing industry
▪ Gross profit margin in the 22% range
▪ Operating expenses growing slower than revenue,
driving operating leverage
▪ Adjusted EBITDA margins in the mid-single digits
▪ Free cash flow positive
Driving sustainable, profitable market share growth
dreamhomesfor all
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Medici VenturesFund
Medici Ventures Fund Update
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▪ Initiated trading of Exodus digital security (EXOD) on tZERO ATS
▪ Announced new digital securities planning to trade on tZERO ATS
▪ Partnered with WealthBlock
▪ Launched support of eight new crypto assets on tZERO Crypto app
▪ Received FINRA approval to self-clear trades
▪ Announced it is CBDC technology provider to Central Bank of Nigeria
▪ Launched eNaira on October 25
Medici Ventures Fund Update
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▪ Raised $50M Series B funding
▪ Medici Ventures Fund increased its ownership percentage
▪ Partnered to detect and reduce deed fraud in New York City
▪ Supported Michigan Democratic Party virtual convention
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Summary and Q&A
Q3 Review and Looking Ahead
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▪ Continued focus on Overstock brand association with Home
– On target with removal of Non-home products from site
– Increased assortment of home product SKUs and strategic home brands
– Outperformed peers in ‘Outdoor Furniture’ traffic and conversion
▪ Successfully executing an event-driven sales strategy
▪ Operating in a large and growing market with favorable long-term trends
▪ Distributed partner network enables supply chain flexibility throughout Holiday season and beyond
▪ Continuing to deliver sustainable, profitable market share growth
Questions?To ask questions:
▪ Dial-in: (877) 673-5346Conference ID: 7265079
▪ Email: [email protected]
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Appendix
Adjusted EBITDA Reconciliation
31
Note: All figures represent results from continuing operations, in thousands.
1 Period does not yet reflect certain immaterial income tax reclassifications associated with discontinued operations. No impact to adjusted EBITDA.
Adjusted EBITDA is a non-GAAP financial measure 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. Review our financial statements and publicly-filed reports in their entirety and do not rely on any single financial measure.
Three months ended
Sep-2019 Dec-2019 Mar-2020 Jun-2020 Sep-2020 Dec-20201
Mar-2021 Jun-2021 Sep-2021
Income (loss) from continuing operations $ (13,448) $ (16,740) $ (13,766) $ 47,839 $ 37,904 $ 23,092 $ 26,018 $ 82,405 $ 30,426
Depreciation and amortization 6,212 6,474 5,569 5,409 5,310 5,487 5,146 4,803 4,383
Stock-based compensation 3,821 3,911 2,681 1,952 1,568 1,640 2,305 2,802 2,542
Interest (income) expense, net (321) (182) 11 364 264 199 155 130 139
Other (income) expense, net 183 (65) 287 (246) (59) (595) 226 (298) 79
Provision (benefit) for income taxes 160 (100) 163 840 753 (335) 193 (45,726) (1,795)
Special items (see table below) (1,221) - (1,486) (7,272) 288 432 (187) 243 305
Adjusted EBITDA $ (4,614) $ (6,702) $ (6,541) $ 48,886 $ 46,028 $ 29,920 $ 33,856 $ 44,359 $ 36,079
Special items:
Special legal charges (1) $ (1,221) $ - $ (2,501) $ (7,272) $ - $ 432 $ (187) $ - $ 1
Severance - - 1,015 - 288 - - - 253
Transaction costs - - - - - - - 243 51
Total Special items $ (1,221) $ - $ (1,486) $ (7,272) $ 288 $ 432 $ (187) $ 243 $ 305
Adjusted Diluted EPS Reconciliation
32Note: All figures represent results from continuing operations, in thousands, except per share data.
Three months ended
September 30,
Diluted EPS
Less: tax valuation allowance
release Adjusted
Diluted EPS
Numerator: Income from continuing operations $ 30,426 $ 4,420 $ 26,006
Less: Preferred stock dividends—accumulated 182 — 182
Undistributed income from continuing operations 30,244 4,420 25,824
Less: Undistributed income allocated to participating securities 2,899 424 2,475
Net income from continuing operations attributable to common stockholders $ 27,345 $ 3,996 $ 23,349
Denominator: Weighted average shares of common stock outstanding—diluted 43,324 43,324 43,324
Net income from continuing operations per share of common stock:
Diluted $ 0.63 $ 0.09 $ 0.54