Overstock.com, Inc.
Q3 2012 Earnings Call Transcript

Published: 30 Oct 2012

[Operator:]

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. It is now my pleasure to hand the program over to Mr. Jonathan Johnson. Please go ahead.

[Jonathan Johnson:]

Thank you, Christie. Good morning and welcome to our third quarter 2012 earnings call. Joining me today are Dr. Patrick Byrne, Chairman and CEO of Overstock.com and Steve Chesnut, Senior Vice President of Finance and Risk Management. To those of you that are on the East coast and are dealing with Hurricane Sandy, our thoughts and prayers are with you.

[Dr. Patrick M. Byrne:]

Hear, hear.

[Jonathan Johnson:]

Let me remind you that the following discussion and our responses to your questions reflect Management’s views as of today, October 29, 2012 and may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in the Form 10-Q filed last Thursday October 25, 2012 and in the Form 10-K that we filed on March 2, 2012. During this call, we will discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC each posted on our Investor Relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Please review the Safe Harbor statement on slide 2. With that out of the way, I’d like to now turn the call over to Steve to highlight some of our financial results.

[Stephen J. Chesnut:]

Thank you, Jonathan. Please turn to slide number 3 in the presentation, which is available on our Investor Relations website. On the top line total revenue was $255.4 million, a 7% increase over the last year. Gross margin improved 220 basis points from last year to 18.2% and gross profit increased by 21% to $46.5 million. This along with flat sales and marketing expense drove a 29% increase in contribution. Contribution margin was 12.4% in Q3, 12.5% for the first nine months of 2012. Combined technology and G&A expenses decreased by 8% or $2.6 million due primarily to the reduction in compensation and legal costs. Net income for the quarter improved by $10.5 million to a positive $2.7 million or $0.11 per share. While we don’t show this on the slide, we ended the quarter with $72 million in cash and cash equivalents and working capital at the end of Q3 was a negative $4.5 million and a negative $14.1 million at the end of December 31, 2011. Patrick, with that, let me turn the call over to you.

[Dr. Patrick M. Byrne:]

Thank you, Steve. Thank you, Jonathan. First, I echo Jonathan’s thoughts about everyone out there facing Sandy. Our thoughts are with you. Also on slide 3, I do just want to highlight two things Steve touched on, contribution dollars 29% increase, we’ve said many times that how we view growth, how we view the real economics of our business in the growth to pay attention to is that contribution dollar number. And also the contribution margin of 12.4%. I will just mention that our analysis is that, that’s about the same as Amazon. If you true everything up, apples-to-apples, Steve, would you go along with that?

[Stephen J. Chesnut:]

It’s pretty comparable, yeah.

[Dr. Patrick M. Byrne:]

Yeah, now the – Amazon puts logistics in a different place, but if you took gross margin the way we count it and take out marketing, you get – I think you get basically the same number. And we’ve often said that’s just – that’s the sweet spot for us. Okay, turning to slide 4, you see we have – it was an acceptable quarter. My colleague hit the cover off the ball, I thought and we certainly to mix metaphors, we – they certainly have gotten the fly wheel spinning in the right direction. So we’ve returned to positive growth for the quarter and we think that we can keep it spinning up modestly from this point. Slide 5, gross profit growth 21% that is acceptable. I should say that the 7% on the top line still seems 4, 5 points below the industry growth, so that’s unacceptable. But the gross profit growth of 21% if you assume that, that should for the industry, the gross profits are growing about the same as the revenues. And our growth – gross profit growth of 21% is more than acceptable. The slide 6, gross margin and contribution, again we’re aiming for with that contribution line to be over 12%. I actually get a little worried, I don’t like it over 13%, sometimes it bounces up there. And there is some seasonality. There is product shift by season, you get into the Christmas season, people buy a lot of one type of product and they’ve lower margins and so forth. But anyway I think this is about the sweet spot, mid 12s. Page 7, contribution dollar growth 29%. That’s terrific. And if we – believe me, if we just hold 29% growth in that number or even 20% growth in that number, we will have a fantastic – or even 15% growth in that number we can adjust all the other expenses here to have a wonderful, highly profitable cash machine business. So I’m thrilled with the 29%. Slide 8, oh, I guess, I will pause there. Jonathan or Steve do you have any additions or anything so far.

[Jonathan E. Johnson:]

No.

[Stephen J. Chesnut:]

No.

[Dr. Patrick M. Byrne:]

Nothing to add, you and Charlie Bunker. Okay, 8, quarterly operating expenses. Why don’t we – these are tight, these we have – we’ve actually, I think, always had good operating expense discipline in the sense of what we set out to spend and the budget constraints we make ourselves, we live within where we’ve had the occasional hickey has been where the contribution growth and the top line hasn’t come in where we had built the rest of the scale for. So, we’re – we feel like we’re quite good on managing operating expenses within the budgets we set. Mr. Chesnut, who plays a key role in making sure that comes to pass, do you have anything to add to that?

[Stephen J. Chesnut:]

Yeah, I think we’ve sized headcount appropriately too for 2012. So that we’re managing this business for profitability.

[Jonathan E. Johnson:]

We do have open hires for our Tech Group. We would like to hire more developers. We always have work for them to do, which we think we will good ROI.

[Dr. Patrick M. Byrne:]

And I would even – I would maybe say something myself a little bit differently than Steve Chesnut. In that it is – its often been the case or sometimes been the case – its often been the case that we had choose between managing for profitability or eliminating loss and/or versus making the spending money for the medium and the long-term building ahead of time things that we needed. And that was true in the years past. I’d say, I’m not sure it’s fair to say we’re managing for profitability right now. We’re not trying to absolutely maximize profitability. Within this profitability that is emerging we have – we’re making lot of investments and we’re spending, there is a fair – now there is a measurable layer in there that is really about stuff that isn’t going to have payback in six months or 12 months, but we’re building, we’re investing in things that may take a couple of years to pay off. And actually we have been doing that is for – as much as we could. So for sometime and they – those projects are really paying off and that’s why you see the improving result that you see. So I don’t know, Steve I would just have put it when you say we’re managing for profitability are we talking past each other?

[Stephen J. Chesnut:]

No, nope. I think you said it better, which is we’ve sized it, we’re still investing in the business and we’re still positioning this thing for the long-term.

[Dr. Patrick M. Byrne:]

Yeah, thanks. Page 9, net income 1.1% for the quarter.

[Jonathan E. Johnson:]

Three quarters in a row.

[Dr. Patrick M. Byrne:]

Three quarters in a row. Anything else you want to say on that? Steve and Johnson?

[Jonathan E. Johnson:]

Nothing more to add.

[Dr. Patrick M. Byrne:]

Nothing more to add. Three quarters in a row. Let’s see if we can make it four. Slide 10, operating and free cash flow, $28 million trailing 12 months cash flow from operations. Free cash flow $15.7 million, do you want to add anything to this Steve?

[Stephen J. Chesnut:]

It’s just nice to see that, we’ve come through a strong three quarters this year and we’re still producing cash in the business.

[Dr. Patrick M. Byrne:]

Slide 11, GAAP, trailing 12 month inventory turns, we broken 40, I think we did yes, we had broken 40 once or twice before, but on a GAAP basis 40 is terrific. Of course that is aided by the fact that so much of our business is partner or drop-ship. But even on our own core business its 6.6 and even this, do you want to add Steve? Steve and Dave Neilsen have been doing a marvelous job getting some very rigorous management tools in place. What do you want – have to add to this Steve?

[Stephen J. Chesnut:]

I think we’ve got good processes around managing inventory for the right seasons and getting out of the inventory at the end of the seasons. So, we got a much more robust processes going.

[Dr. Patrick M. Byrne:]

Ruthlessly. Ruthlessly getting out of inventory that as we’re not a – as Warren Buffet says, you don’t want to be a museum when it comes to inventory. I want to be a museum.

[Stephen J. Chesnut:]

That’s – so we don’t like just to look at it.

[Dr. Patrick M. Byrne:]

12 – slide 12, GMROI 861%. 59 on the direct, but that’s in part a reflection of we have more scale than we – we’ve more scale than we’re using, somewhat more for most of the year. Next page, 13, 13% increase in the – up to almost 30 million people have done business with us. Slide 14, new customers has – is about flat last year, up 3%. The CPA is at 20, is where it’s generally been over the years. Slide 15, this is interesting. There really is some change here. Average order size of a 147, slight decrease in number of orders, 3% decrease, but a 15% increase in average order size. Jonathan or Steve, without giving away too much, do you want to …?

[Stephen J. Chesnut:]

I mean, we’re pretty happy with this. It shows strength in the business, it shows the strength in the consumer willing to buy larger ticket. So feel very comfortable where we’ve got the business position and this is fuel to growth for Q3.

[Dr. Patrick M. Byrne:]

Jonathan?

[Jonathan E. Johnson:]

I think Steve said it well, we certainly like to see the orders increase, but increase in the average order size is good news.

[Dr. Patrick M. Byrne:]

I know a lot of people follow us, pay attention to this as a driver and it’s not something – to me, I guess, I’ve always looked at it as a derivative number, it just – it derives from all these other things we do and not that this was a lever that we actually use to move the business. However, so – anyway, it is this – it’s a very significant increase what’s going on and a lot of that is mix shift for the customers with us. Gross profit – next slide 16, gross profit per transaction, up handily $19. Normally its $24 over the course of last year. Anything you want to add to that, Steve?

[Stephen J. Chesnut:]

No.

[Dr. Patrick M. Byrne:]

Slide 17, corporate employees. Why don’t you address this?

[Jonathan E. Johnson:]

Well, you can see they are down year-over-year. We think they’re at a good size. They’ve ticked up a little bit quarter-over-quarter and we we’re being judicious in our hiring. And like I said earlier, its tech spots that account for most of that – most of those – that increase.

[Stephen J. Chesnut:]

That’s right.

[Dr. Patrick M. Byrne:]

And boy, do we want to hire more of them? I should mention that corporate employees what we mean is just to be clear, its employees not including customer care and warehouse operations. And that’s because those numbers of employees, those segments basically increase linearly with sales. And there is some fluctuation around Christmas as such. So we measure corporate employees, that’s almost like we are the overhead, I guess, is one word, the one way to say it. Anyway well, so when we look at the efficiency of our employee count, we are really looking at corporate employees then we are managing the other two groups using different efficiency measures. Page 18, is questions. Jonathan?

[Jonathan E. Johnson:]

We have a handful of questions that have been pre-submitted and we will take some of those before we take questions on the call. First one Patrick is, could you describe the internal and external factors which contributed to the rebound in revenue growth?

[Dr. Patrick M. Byrne:]

Well, the external factors I don’t think contributed too much. I think the economy is quite soft and it’s dribbling along, bottom bouncing and even this is, as you may have heard me on FOX occasionally talking about my dentist metaphor. And we’ve really just got some folks who are jamming a Novocain needle into the public’s gum and keeping it numb. And so I’m actually quite bearish about the economy in general. Internally I would love to attribute this to one superstar effort. But it really is we have – it’s just sticking to our knitting, measuring everything, doing things better and better having executives and associates who are – who just gotten better – we’re a learning organization and we’ve learned. And we’ve learned where our mistakes are and how to improve and to me it’s all just the race about who is learning more. I mean, who can learn fastest. So that, in a broad brush that’s what I think has made such a big difference. Now, you fellows may have something to add to that?

[Stephen J. Chesnut:]

It just feels like the business, marketing, merchandising, everybody is just firing on all cylinders.

[Dr. Patrick M. Byrne:]

Customer care?

[Stephen J. Chesnut:]

Customer care.

[Dr. Patrick M. Byrne:]

They’re all so integrated now; they’re so integrated with each other and sharing so much information and planning together so well. And we see enormous opportunities folks. We are seeing enormous opportunities to drive forward.

[Jonathan E. Johnson:]

Okay, good. Another question that came in is, please provide an overview of the Goldman Sachs lawsuit and how that is going? Do you want me to take that one, Patrick?

[Dr. Patrick M. Byrne:]

Take it.

[Jonathan E. Johnson:]

Okay. So we’re – two things are – two big things are happening in that case. We’ve recently filed our response to the Goldman and Merrill filings of whether the documents that the judge looked at in dismissing the case should be released to the public. It’s called a motion to unseal or motion to seal by Goldman. So that is in front of the court and we will see that, I would suspect in the springtime the court will decide whether to unseal those documents. The other big thing that’s coming up is we will file our appeal of the judge’s dismissal of the case and that filing will happen in early December, I would think sometime next early fall or so, all the briefs will be in and the court will be considering that. But we like the work that our lawyers have been doing on this. We expect to win on the unsealing and we expect to win on the appeals, so that we can get back to trial sometime in the next year.

[Dr. Patrick M. Byrne:]

May I add a footnote to that?

[Jonathan E. Johnson:]

Please.

[Dr. Patrick M. Byrne:]

I know that people have had – that this is going to subject to controversy. And our pursuit of this case to me, Goldman Sachs is an enemy of the republic. This is an enemy of the republic issue and when facts come out, well I think it become clear to much of the population since we started this fight years ago that, that’s not just a – its not such an – a crazy thing to say. And when all the facts come out from this case, I think people who understand what I mean by the saying these guys are enemies of the republic can understand why we felt a civic obligation not to back out of this. Next question?

[Jonathan E. Johnson:]

One – another question, how is Worldstock doing, Patrick?

[Dr. Patrick M. Byrne:]

Worldstock is great. We did loose a key leader in Worldstock, but I love Worldstock, its got people in 55, 60 countries, I think about 10,000 people making product of it. I think it’s upon the website, the number I think we’ve passed our $85 million back to artisan suppliers, last time I had checked. And it’s great. In fact, its giving us – there are other directions we can take that business and expand it. It’s beautifully managed now, but we see additional directions as we go.

[Jonathan E. Johnson:]

Yeah, I think its going well and the monies that we make from that we put into schools that we opened internationally and those are schools are self sustaining and do great work in developing nations.

[Dr. Patrick M. Byrne:]

Its actually been just in terms of all kinds of measures that you would use like the how much capital it uses in sales to capital and stuff, it’s a very – its actually been very tightly managed for a number of years. Now in addition, I periodically run into people who just tell me, I know that Worldstock, that the reason I shop with Overstock because I love Worldstock. And so I think it has some spillover effect to our business, some goodwill effect. And so to me its always been the case that if we can run this at breakeven, and when it does make some money, use that to build a school somewhere, that justify – it seems like the right thing to do and my anecdotal sense is that it does generate goodwill as well that helps the whole business and I can sleep with that.

[Jonathan E. Johnson:]

Another question Patrick, why have results to-date not reflecting the inherent margins that your business seems capable of producing? Is it a question of scale or investments being made to expand the business or is the third-party business not as profitable as it seems?

[Dr. Patrick M. Byrne:]

Well, I don’t think our – myself, I don’t see our margins – I don’t think that we want to drive this by seeing our margins go up. I think the economics of this work out beautifully, if we keep our margins just where they’re and we’re growing even 15%, if you model that out, we can have a fantastic business, 15% growth which is 10% to 15% is basically the industry -- 12%, 13%. So I’m not keen about driving the margins higher. I’m keen to keep finding efficiencies and boy have we uncovered – we see a whole another, I mean, its always like that, the Japanese manufacturing model as you – you’re draining the lakes, some rocks emerge, you stop, you blow out the rocks and then you just drain the lake some more and then some more rocks emerge and you stop. We have drained a lot out of the lake, more rocks have emerged. We see ways to take them out. In other words, ways to strip cost out of our supply chain, they will be unrolling over the first two quarters of next year and – but I don’t see that necessarily is driving our business to higher margin. But I see that is making us more competitive. Steve?

[Stephen J. Chesnut:]

Yeah, I think you’re right in that we feels like we got – we found the sweet spot between pricing and marketing and then as we uncover efficiencies in the supply chain, we have the ability to translate that back into benefiting the consumer by lowering prices.

[Dr. Patrick M. Byrne:]

And we think – we see ourselves as very competitive on price now and getting more competitive.

[Jonathan E. Johnson:]

In fact we had people who shop on the internet, that’s important. So price is key and our being able to strip costs out of our supply chain is what – it helps us to keep the price low, so customers keep coming to us.

[Dr. Patrick M. Byrne:]

Right. And we think we’ve gotten ahead of that power curve, so to speak. We’re substantially cheaper than other people on the internet and we think by a pretty wide margin at this point and we have a whole series of project that are just ticking off month after month after month that can keep driving at price competitiveness. So our opponents are going to be playing catch up as far as the eye can see.

[Jonathan E. Johnson:]

Okay. One more and we will take some questions from the call. Patent rolling seems to be a very profitable business. How is this affected Overstock?

[Dr. Patrick M. Byrne:]

Let me toss that question back to our junkyard dog over here, Jonathan?

[Jonathan E. Johnson:]

Well, we’ve got – we have been sued, and we continue to be sued by patent rolls. We’ve done a great job beating them with a big bully stick. Last year ...

[Dr. Patrick M. Byrne:]

They’re the bullies.

[Jonathan E. Johnson:]

They’re the bullies and we’re in a big job of beating them with a stick. Last year we went all the way to trial, had a four day trial and in Eastern Texas against Alcatel-Lucent, as they tried to take us down with some patents that didn’t really apply to the internet. And not only do we win the trial, jury came back quickly, but it also invalidated one of their key patent. So our theory has been to fight back and fight back hard and work to take away their franchise. That’s been able to slow some of the suits that have been filed against us and some have been dismissed. But we will continue to be real vigilant in asserting our rights and not settling just because someone asserts a case.

[Dr. Patrick M. Byrne:]

Yeah, I would like to add something and then I will ask to follow-up to you Jonathan. Our philosophy has been for years that we know that these people, their calculation is always they’re pretty much say to you, hey we’re filing this suit, you can tell that half the time they don’t even believe in themselves, but they’re saying it will take you $4 million to fight this, we will settle it right now for $2 million. And we have never taken the – we’ve had the mantra, we don’t negotiate with terrorists. When we think we are in the right, we don’t do that calculation. And we – that’s a form of long-term investment in the business. We incur higher costs for years than we could have incurred if we adjust rollover for these guys. But we have – I hear this – I’ve heard this numerous places around the country, once we start invalidating people’s patents, I mean, we have to see that a lot of patent rolls in various ways. And some of those defeats have come in the form of actually getting their patent stripped from them, which defangs them. And that makes them learn, I think that there is – that makes them to start having to do the calculation of expediency before they come after us and we see – we know that there are examples where this is now saving us money where people are leaving us alone because they understand the costs of engaging with us on these – frivolously on these issues, is going be very high for them. In addition, Jonathan and Mark Griffin, our General Counsel, have done a nice job in building an IP practice here. Do you want to go into that?

[Jonathan E. Johnson:]

Sure. I think we’ve been much more careful in seeing where we’re innovating and where those innovations can be patented. And so, we’ve increased the number of patents that we’re filing. We think that is a good defense against patent rolls and frankly its good practice for the business to make sure that we have greater intellectual property protections on at – the places where we have made it.

[Dr. Patrick M. Byrne:]

Steve?

[Stephen J. Chesnut:]

I love it. It’s nice when you get known as the junkyard dog out there and people back away.

[Dr. Patrick M. Byrne:]

And it’s nice we have – we have acquired patents, I’m not sure have we announced everything we’ve acquired or …?

[Jonathan E. Johnson:]

No. We file, then we wait for the patent office to o rule on them and then they’re available for the public to see.

[Dr. Patrick M. Byrne:]

Christie, why don’t you open it up to questions from those on the call? (Operator Instructions) Your first question comes from the line of Nat Schindler with Bank of America Merrill Lynch.

[Dr. Patrick M. Byrne:]

Good morning, Nat.

[Nat Schindler:]

I’m not facing the storm like everybody else, but I wanted to just give you a quick question on the gross margin. You seem to have stabilized that number quite a bit above where you were last year when you were struggling on gross margin, you're up 220 basis points year-over-year this quarter, and you seem to be nicely stable for three quarters in a row around the 18% to 18.2% range. What was the greatest – what caused that shift up? And what should we expect kind of going forward? Is this a new sustainable level that you can keep gross margins at or will it still have fluctuations based on mix and the like?

[Dr. Patrick M. Byrne:]

I’m going to just hit the first part of that, then punt to Steve Chesnut. But I think that some of the troubles in the past have to do with liquidating not getting out of inventory at the end of seasons as quickly as we should have. And as Steve indicated earlier, we now have a very robust even ruthless process and so you shouldn’t see buried in our numbers before were the costs of liquidating either occasional bad buys or just not managing the inventory run out as well as we should have. Steve and Dave and others have now built – and Tim in marketing have built a really robust process around managing that inventory capital, so we don’t have to do cost of liquidation. Steve, do you want to add to that?

[Stephen J. Chesnut:]

Yeah, two other thoughts Nat to your question. Obviously, Q4 we will see a mix shift. So we naturally see some decline in gross margin that I expect that we will see that again in Q4 of this year. On an ongoing basis, I think we’re getting smarter and smarter with our pricing intelligence about where to effectively price in the marketplace. So I think a combination of what Patrick said of managing inventory so we don’t get caught on the back side of liquidation and then pricing models and obviously mix coming into the fourth quarter. I think it’s a good summary to your question.

[Nat Schindler:]

Okay. And just on the second question, looking at the revenue growth on the year-over-year basis, how much of that do you – that attribute to the new sears initiative?

[Dr. Patrick M. Byrne:]

Really to be – we released the number. It’s really quite small. It would be measured – we’re talking about measuring in basis points. What it contributed to the third quarter, do we …?

[Jonathan E. Johnson:]

That’s still – it’s still immaterial.

[Stephen J. Chesnut:]

It’s still small.

[Nat Schindler:]

Okay.

[Dr. Patrick M. Byrne:]

If you said 100 basis points, would that be in the rough neighborhood even?

[Stephen J. Chesnut:]

It would be in the rough neighborhood.

[Dr. Patrick M. Byrne:]

Okay. So it’s not a significant part.

[Stephen J. Chesnut:]

Right.

[Dr. Patrick M. Byrne:]

But we love that relationship and we love that relationship and others like it.

[Nat Schindler:]

Okay, great. Thank you.

[Dr. Patrick M. Byrne:]

Thank you, Nat.

[Operator:]

(Operator Instructions)

[Jonathan E. Johnson:]

While we wait for maybe another question Patrick, one that was sent in earlier is, where do you think we’re in a boom of bust cycle and how is that going to affect the business?

[Dr. Patrick M. Byrne:]

We have a – I see that we have some questions in from – it looks like an Austrian – from the questions it looks like an Austrian economist. I think and this no different than I’ve said on FOX in the last couple of times, that we have – I think that our economy has real institutional problems. And I think the analogy I used was – should I go into all this or …?

[Jonathan E. Johnson:]

Yeah.

[Dr. Patrick M. Byrne:]

Well, that its like you go to a dentist and the dentist says – and you say I’ve got a tooth ache and he pumps you with Novocain, and you say, I mean, the root canal and he just give you more Novocain and you say no, you need to pull my tooth and he just gives you more Novocain. We have a government and both parties are guilty of this, they’re – they get themselves elected by promising bigger and bigger doses of Novocain. Nobody gets them self elected by promising to give a root canal to our public institutions. You get elected by promising bigger and fancier doses of Novocain. I see both parties is guilty of that. As a result, I actually think that there is a real fundamental weakness in the teeth. I think that there is a real weakness that’s got to express itself at some point. And it’s somewhat amazing to me that that we’ve even got through as we did in the last. Well, its in the last four years, in the last 10 years, I think there is a real profound structural problem in the country and – so it’s a little bit like asking me if I saw a bridge that was built to hold a 100 cars, and there is 300 driving over it now, is the next car going to break it? Well, I don’t know. I wouldn’t have thought it would have taken 300. But I think our capital markets are deeply broken and that’s at the core of it – that’s core of some of it are the settlement issues that have been revealed and that we’ve been jumping up and down about for seven years. There are other issues and I think there is other long-term problems for the U.S. I think it’s all fixable. It’s all fixable, but we’re – so anyway that’s my general view, but this doesn’t make me pessimistic about our business. As the cookie crumbles, it will crumble from the outside in and the businesses and supply chains that are most tied up – that are most capital intensive are going to suffer. And those that have to do with moving electrons around and having smarter algorithms are going to be standing in the center of the cookie and they will be okay. So we have really leaned out our supply chain and we’re focused on the algorithms and the electrons or protons, I guess, and we think we’re in a position to make a positive contribution to this world as we come through our – as we enter another problematic phase. John?

[Jonathan E. Johnson:]

I would agree, I think that if we enter into another bust cycle that eCommerce in general and Overstock in specific are well positioned. Our supply chain is lean, we keep costs down. When people are trying to stretch nickel, they know they can do it with us, they know that we’re always kind of great – provide great customer service. And the more that we lean out our operations, and don’t invest in big brick and mortar and physical stores, I think that eCommerce and Overstock are well positioned for what is to come.

[Dr. Patrick M. Byrne:]

Yeah, in general if you look back, eCommerce typically has grown about 10% faster than brick and mortar. For really five, six, seven years now. So, its like that old joke, I don’t have to run faster than the bear, I just have to run faster than you. And now all that said, we have to be stay as smart or smarter and learn quicker, learn more quickly than any of our competing online – our online competitors. But to me that’s a question of institutional design within the Company and I really think we’ve reached the institutional design that lets us be a learning organization and learn quickly, okay.

[Jonathan E. Johnson:]

Christie, any other questions?

[Operator:]

No, sir. There are no further questions at this time.

[Jonathan E. Johnson:]

Okay. Well, we thank those that have called in. We thank our investors that have entrusted us to use their capital wisely and we will get back to it and work hard this fourth quarter. Thanks everybody.

[Dr. Patrick M. Byrne:]

Thanks.

[Operator:]

This does conclude today’s conference call. You may now disconnect.