Overstock.com, Inc.
Q2 2021 Earnings Call Transcript
Published:
- Operator:
- Good day and thank you for standing by, welcome to the Q2 2021 Overstock.com, Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alexis Callahan, Head of IR. Please go ahead.
- Alexis Callahan:
- Thank you, operator. Good morning, and welcome to Overstock's second quarter 2021 earnings conference call. Joining me today are Jonathan Johnson, CEO; and Adrianne Lee, CFO. Dave Nielsen, President of Overstock, will also be available for Q&A. Please note that we are conducting today's call remotely.
- Jonathan Johnson:
- Thank you, Alexis, and good morning to everyone. I'm pleased to report that Overstock delivered both growth and profitability in the second quarter, a significant achievement for the company. We beat the year-over-year comp growing revenue 4% against a robust comparable period in our first full quarter lapping at the start of the pandemic. We did this by continuing to make foundational operational improvements to our business, executing against the discipline strategy and focusing intensely on the things that drive results. During today's call we'll follow the agenda on Slide three. Next slide, please. Nearly two years ago, when I took the helm, the business was unfocused, it was less disciplined, it was trying to do too many and often competing projects, and it was experiencing an identity crisis. The e-commerce business wasn't being appropriately tended to do as we were spending a lot of time and energy on the blockchain portfolio. I recognized that we were at a real moment for Overstock, and we had an opportunity to step back, assess the business, assess our strengths and weaknesses, and evaluate the competitive landscape and how it had evolved. The senior team and I made several important strategic decisions that led us to where we are today. First, we decided to focus on our e-commerce business. Second, we decided to lean into our home furnishings categories and decades of expertise staff. And third, we decided to outsource the management of blockchain assets to a capable venture capital firm, enabling all parties to do what they do best.
- Adrianne Lee:
- Thank you, Jonathan. Slide six please. As already mentioned, we are pleased to have closed the transaction with Pelion Venture Partners in the second quarter, allowing us to deconsolidate the Medici ventures businesses from our financial statements and record a gain net of tax, as we recognized an initial upward fair value adjustments on the Medici assets and our direct minority interest in tZERO. Please note my comments today will reflect results from continuing operations only. I will begin with a high level summary of our second quarter results, followed by a review of key customer metrics and performance indicators. Next slide please. We had yet another strong quarter, delivering year-over-year revenue growth while continuing profitability. Adjusted EBITDA was $44 million in the second quarter, a year-over-year decrease of $4.5 million as a result of one-time benefits recognized in 2020 and an improvement of $47 million compared to the second quarter of 2019. We reported diluted earnings per share of $1.72, excluding the impact of the tax valuation allowance release, diluted earnings per share was $0.73 in the quarter, a decrease of $0.38 versus 2020 and an improvement of $1.10 per share compared to the second quarter of 2019. The year-over-year decline in diluted earnings per share reflects a $0.16 benefit from a non-recurring legal accrual release in 2020 and a $0.12 impact from increased shares outstanding due to our successful follow-on offering last August and our digital dividends. Consistent with recent performance, our balance sheet remained strong. We ended the second quarter with $536 million in cash. Our cash balance reflects the funding of our capital commitment to the Medici Ventures fund, and benefited from standard invoice timing and accounts payable. I will speak to the other financial metrics in greater detail in the following slides. Next slide please. We've posted revenue of $795 million in the second quarter, an increase of 4% year-over-year and 116% compared to the same period in 2019. This was driven by a 33% increase in average order value and an improvement in order frequency. Average order value increased year-over-year as we continue to lean into home and was sequentially driven by sales mix within home categories.
- Jonathan Johnson:
- Thanks Adrianne. Our second quarter results were solid. We beat the comp during a quarter with a high bar. We were measured in our spending and generated operating leverage. We delivered $44 million of adjusted EBITDA at a margin of 5.6%. We again delivered profitable growth and within our target margin guiderails. It should be clear that this is the result of purposeful, meaningful, foundational changes.
- Operator:
- . Your first question comes from a line of Thomas Forte with D.A. Davidson. Your line is open.
- Thomas Forte:
- Great. First off, congratulations on the quarter. Second, two quick questions on retail and then one on tZERO. For retail, can you give a little more color on what drove your AOV in the second quarter? And then can you talk about order trends versus sales trends on the assumption you're not recognizing your revenue to the actual product is shipped? And if you're so inclined, can you talk about the order trends versus sales trends quarter to-date? Thank you.
- Jonathan Johnson:
- Thanks Tom. Good to hear your voice. AOV in Q2, this is what you would expect to see happening as we lead into home. Home furnishings having average - higher average order volume than non-home furnishing products. And when you think about last Q2 in 2020, we were selling a whole lot of products that weren't home, things like, spools of elastic string as people were making their own face masks and things like that. So as we move into home, I think you can expect to see AOV increase. Dave, would you like to add anything to that? And do you want to comment on orders versus sales trends?
- Dave Nielsen:
- Sure. Hi, Tom, the increased AOV is thoughtful and intentional. As we continue to transition into home and lean into some of those product categories as you know, we don't share between product categories, how they're performing individually, but we are seeing good signs of that transition that customer our customer is becoming more and more comfortable with buying home. And an interesting metric and exciting metrics for us is as that AOV increases as customers buy larger items, they're more inclined to repeat more frequently as we are seeing. In terms of that orders - go ahead, Jonathan.
- Jonathan Johnson:
- Go ahead Dave. Sorry. A part of a toughness of being remote.
- Dave Nielsen:
- That is so true. And in terms of our order count, obviously as we continue to shift out of those non-foam categories and into home categories, you will see a transition in the number of orders, but an offsetting increase in AOV. Jonathan, back to you.
- Jonathan Johnson:
- Yeah. And Tom I don't think we're going to comment anymore on quarter to-date trends, we've said what we said, and that's the color we're providing.
- Thomas Forte:
- Great. Thank you, Jonathan. So a quick follow-up then on tZERO. At a high level, can you talk about the positive impact as we've seen on trading volume from increasing the crypto cap from 500 a week to 25,000 a day?
- Jonathan Johnson:
- Tom, I can't. With the Pelion deal closed, we are less involved in the day-to-day of tZERO or any of the portfolio companies. That is a question I think is better asked to the tZERO management team when they hold their quarterly call next month.
- Thomas Forte:
- Great. I look forward to asking them then. Thanks Jonathan.
- Operator:
- Your next question comes from the line of Anna Andreeva with Needham and Company. Your line is open.
- Anna Andreeva:
- Great. Thank you so much. Good morning, guys and congrats, great results on top of these tough compares. We had a couple of questions.
- Jonathan Johnson:
- Thank you.
- Anna Andreeva:
- Of course. I had a couple of questions. One on the near term, if I may, and one on more medium term. So understanding the quarter to-date of choppiness if you will, maybe talk about how you feel Overstock is positioned for back-to-school season this year. There are estimates out there calling for a pretty big back-to-school season of the industry, maybe specific category opportunities that were missed last year with the pandemic? That's one. And secondly, on SKUs. The SKU growth in the business has been pretty impressive and this is a with all the challenges with the supply chain across the industry, obviously you guys are taking share, maybe help us unpack, how should we think about the SKU growth next year, just trying to think through the sales acceleration for '22 as a supply chain opens up?
- Jonathan Johnson:
- Let me take first kind of add and then pass both those questions to give little more color, to Dave. First, quarter to-date and what possibilities we have in the rest of the quarter. Certainly this summer is generally starting a little slower and I think we've seen that impacted this year, as people are just vacation starved, travel starved. But when kids go back to school, parents go back to work, we think they'll be kind of returned to what feels more normal in the shopping space. We have two big events coming up in the third quarter. Labor Day is a significant furniture purchasing holiday historically, and our Customer Day, which follow that later in September are big deals. So we think some of that will be back-to-school, I'll let Dave comment on that in a minute. As far as SKU growth, we are focused on building home inventory, while some SKU shrinkage as we move out of non-home, we think that can be more than offset by getting into new categories. There are some categories where we're market leaders, somewhere we're market competitors, and somewhere we're just not there yet. And we are focused on remaining leaders becoming leaders and getting into categories where we're not. So I think there's a lot of potential SKU growth still there. Dave, what more color would you give to that?
- Dave Nielsen:
- On the back-to-school question, I would add that. Our back-to-school back to dorm room, there's some pent up demand there in terms of it's been a couple of years, a lot of the universities were closed last year and as the college age, students are headed back to dorm rooms, we have a strong bedding category and are poised and ready to take advantage of that and back-to-school advertising and promotions. On the SKU count, I'd like just to add to Jonathan's comments. We continue to add and lean into product categories and have a very data driven approach on that, it's not just willy-nilly additions, but with 3000 partners, we have partners all over the globe that are working to source and develop products for us to fit those areas where we see opportunity from, some search words and click through rates and search words. So it's a very data driven approach and confident in how we're attacking that.
- Anna Andreeva:
- Okay, that's super helpful. I appreciate that. But just on that, if I may add another one, just on the vendor checks. Our checks has been very constructive on Overstock and I know a lot of things are being done very differently with this new Overstock. Can you maybe Jonathan speak to some of the examples of how you guys view vendor relationship now versus several years ago?
- Jonathan Johnson:
- Well, I mean, one of the things we're doing is we've to focused on being as an online home furnishings retailer. We talk to our partners frequently, we've got teams that talk to them every day. But even at the senior management level, for frequency of discussions and things, what can we do for them, what can they do for us with specific assets there's different partners. It's turned into a real partnership. We help them with product design, and where they can go next, we give them lots of analytics, to see where the market is going and what they can do to be in front of the market. We pay on time, and we pay more quickly than any of our competitors. And I think that's important. The other thing and I think is treating them like a partner is we forced no one into our fulfillment centers, we encourage them, but we try and do it in a way that makes sense for them. If it makes economic sense for them to be in our one of our three fulfillment centers, that's where they come. They appreciate not having their arm twisted, to be forced to be somewhere they shouldn't be. So candidly none of that is rocket science, most of the standard business practice blocking and tackling. But that's what we do and we do it every day.
- Anna Andreeva:
- Well, thanks so much, guys for taking our questions and best of luck for the third quarter.
- Jonathan Johnson:
- Thanks Anna.
- Operator:
- Your next question comes from a line of Ygal Arounian with Wedbush Securities.
- Ygal Arounian:
- Hey, good morning, guys. Thanks for taking the questions. Two, I think one for Jonathan, one for Adrianne. Jonathan on - I want to go back to your comments about competitors and ad market, clearly ad prices have gone up materially. And I just want to see if you could expand on that a little bit. Are you saying that you're not stepping in as aggressively on the advertising side as some of your competitors? Are you kind of waiting for the markets to normalize a little bit more? Can you just talk about your ad strategy here? And then for Adrianne, I guess, I want to understand the comments around less seasonality given the fact that your 2Q kind of sequential growth was if I'm looking backwards, and I know things have changed, but by far as strongest it's ever been. So what drove that and how does that fit into the comments around less seasonality? Thanks.
- Jonathan Johnson:
- I'll start, turn to Adrianne and then maybe if Dave has anything he wants to add to either both of them - I think he has got relevant thoughts. On ad pricing, Ygal, I think there's a couple things to think about here. One, Q2 2020, ad prices went down and so the year-over-year comparable is skewed. Online advertising got cheap in 2020, it got more normal in 2021. And then I think as people tried to keep up with last year's growth, it got out of whack, it got expensive. Now, we spent online, we spend more than we had probably thought we would, no, we did not chase it all the way to the top. And some of our competitors got what I think into the inefficient ad spend areas, we didn't follow up. But we did spend and I think that's part of what helped us we were very nimble. And that's part of what helped us comp the comp and grow top line 4%. So, we're going to be competitive, we're going to make sure that we're doing the best we can under our rubric of sustainable profitable market share growth. But we're not going to be irrational in our spending. Adrianne wanted to talk about seasonality, and will let Dave layer on top.
- Adrianne Lee:
- Certainly. I think my comments is just generally around as we lean into home and continue to lean into home, we expect to just see less season or less volatility quarter in quarter out, that's more around kind of being less giftable, or less than those kind of niche areas where people aren't buying home furnishing all year. I would say within that, though, we do expect some variability by quarter, depending on what categories of home people are purchasing. So there's heights where people are purchasing increased patio, there's heights, where people are purchasing maybe a bit more of the giftable type home products. So generally, we're expecting to see less seasonality than we have historically, because we're leaning into home furnishings, by the quarter in quarter out, there might be a slight sales mix within home. Dave?
- Jonathan Johnson:
- Dave, anything you would like to add to either those answers.
- Dave Nielsen:
- No, both very accurate. Spot on.
- Jonathan Johnson:
- Thank you, Ygal.
- Ygal Arounian:
- Thank you. I appreciate that answers.
- Operator:
- Your next question comes from a line of Peter Keith with Piper Sandler. Your line is open.
- Peter Keith:
- Thanks. Good morning, guys. Nice Q2 results here. Circling back on the large AOV increase, I think the shift to home makes a lot of sense. But you didn't mention price inflation, we know that there's large price increases flowing through the channels, given elevated freight costs and the like. So my question is, what are you seeing there, I don't if you want to quantify it and is that the price increases from your suppliers causing any gross margin pressure in the near term as you try to remain price competitive?
- Jonathan Johnson:
- Peter, great question. Everyone knows that raw material costs are up, that labor costs are up, that shipping costs are up. And so there is a lot of price pressure. Some of the costs, we ask our partners to bear, some of the costs we bear and some we pass along to the customer. But we're always doing it within the constraints of having a very competitive price for our savvy shopper and reluctant refresher, it needs to be an easy experience for them. And when we take a piece of it, again, it has to fit our margin rubric, it has to fit in our financial recipe card. And so some products we wind up taking upside if that's necessary. So pressure is there. Thus far, particularly with our large distributed partner network of more than 3000 partners, we've been able to play in this space without having too much price inflation.
- Peter Keith:
- Okay, that's helpful. Secondly, I guess, I hate to ask a short term question seems like your stock has reversed this morning with the discussion around Q3, would there be a - potentially you can quantify a little more detail what negative single digit means? And I guess is that the view without guiding that maybe the quarter could get better as we progress just based on perhaps easier compares, and then some of the major selling events that you've called out?
- Jonathan Johnson:
- Yeah, Peter, the call we have is what we're going to give, we're only one-third of the way through the quarter. And that first third is the height of vacation time for most Americans, we're hyper focused on market share growth. And that means no matter what the market is doing, whether it's expanding, stagnating or even contracting, we're going to do better than how the market performs, we're going to keep doing that. So do I think we can have a better second two-thirds of the quarter than the first two-thirds? Of course I do. That's what we drive for every day. Well, I promise that it's hard to promise what the future holds until I won't. But I'm very confident that we will outperform our competitors in the market. That's what we're about, sustainable, profitable, market share growth.
- Peter Keith:
- Okay, very good. If I guess one last question, too. You've talked about your three distribution centers, you're not forcing suppliers into them. Could you quantify where you are today in terms of the percent of sales flowing through your own DCs? And then secondarily, you talked about trying to move small parcel to guaranteed through shipping, which seems like could be kind of expensive, so you have to take up that flow through, through your DC network in order to achieve that goal.
- Jonathan Johnson:
- Let me start, and if I giving as it correct or Dave wants to add, please do. The amount of through our three fulfillment centers is still relatively small. It's single digit piece of our revenue. We think that'll grow over time. But it needs to grow organically because it makes economic sense for us and for them. And we've got a plan to do that. As far as getting small parcels for today, that is today delivery, that is a goal. We're not going to do it at the risk of hurting sales on today delivery. So if it cost more than it is competitive, we won't go there on those products. Part of it is just is getting our partners to have their product located, whether it's in their fulfillment centers, or our fulfillment centers, closer to the customer and convincing them, that makes sense for them and for us. Dave, would you add anything.
- Dave Nielsen:
- Nothing to that. Accurate, spot on.
- Peter Keith:
- Okay, thanks so much for all the feedback guys. Good luck.
- Jonathan Johnson:
- Thanks Peter.
- Operator:
- I would now like to turn the call back over to Jonathan Johnson for closing remarks.
- Jonathan Johnson:
- Thank you. Thanks for participating in today's call, what you should take away from this second quarter report. First, we've made and continue to make foundational operational improvements to the business. This has been the result of a lot of hard work and focus strategy, still employing more work to do much of a blocking and tackling variety, and we will continue to execute and deliver. Second, when our market is large and growing and supported by favorable long-term macro-economic trends that should enable sustained growth for years to come. We feel well positioned to continue to outperform and take market share. We appreciate your interest in ownership and Overstock. Until next time we'll keep working hard to consistently deliver on our long-term plan. Thanks so much.
- Operator:
- This concludes today's conference call. Thank you for participating. You may now disconnect.
Other Overstock.com, Inc. earnings call transcripts:
- Q3 (2023) OSTK earnings call transcript
- Q2 (2023) OSTK earnings call transcript
- Q1 (2023) OSTK earnings call transcript
- Q4 (2022) OSTK earnings call transcript
- Q3 (2022) OSTK earnings call transcript
- Q2 (2022) OSTK earnings call transcript
- Q1 (2022) OSTK earnings call transcript
- Q4 (2021) OSTK earnings call transcript
- Q3 (2021) OSTK earnings call transcript
- Q1 (2021) OSTK earnings call transcript