Overstock's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Overstock.com, Inc.(OSTK)

Q4 2011 Earnings Conference Call

March 2, 2012 11:30 am ET

Executives

Jonathan E. Johnson III – President and Corporate Secretary

Patrick M. Byrne – Chairman and Chief Executive Officer

Stephen J. Chesnut – Senior Vice President, Finance and Risk Management

Presentation

Operator

Good morning. My name is [Misty] and I will be your conference operator today. At this time, I would like to welcome everyone to the Overstock.com fiscal year and quarter four 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Mr. Jonathan Johnson, President of Overstock.com. You may begin your conference.

Jonathan E. Johnson III

Thank you, Misty. Good morning and welcome to our fiscal year and fourth quarter 2011 earnings conference call. On the call with me today are Dr. Patrick Byrne, the Chairman and CEO of the company; and Steve Chesnut, Senior Vice President of Finance and Risk Management.

To begin, let me remind you that the following discussion and our responses to your questions reflect management’s views as of today, March 2, 2012, and may include forward-looking statements. Actual results may differ materially. We have additional information about factors that could potentially impact our financial results, included in the press release and the 8-K that we filed this morning.

During this call, we’ll discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC, each of which are 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.

With those preliminary comments out of the way, let me turn the call over to Steve to highlight some of the financial results.

Stephen J. Chesnut

Thank you, Jonathan. Let me give you a brief overview of our financial results for the full year and fourth quarter of 2011. And as we review our financial results during the call today, please keep in mind that unless otherwise stated, all comparisons will be against our results for the full year and fourth quarter of 2010.

2011 revenue was $1.05 billion that’s a 3% decrease. Q4 revenue was $314 million, a 10% decrease. 2011 gross margin decreased by 6% and gross margin declined by 40 basis points to 17%. For 2011, contribution margin fell by 70 basis points to 11.1%.

Q4 gross profit decreased by 40% and gross margin declined by 80 basis points to 16.2%. For Q4 contribution margin fell by a 190 basis points to 10.2%. 2011 combined technology and G&A expenses increased by 18%, this is largely due to an increase in IT related staffing and the higher legal expenses. Q4 combined technology and G&A expenses increased by 24%.

The 2011 net loss was $19.4 million and the Q4 net loss was $3.4 million. During the fourth quarter, we retired the remaining $34.5 million of outstanding senior convertible notes. This was partially funded through a $17 million draw on our U.S. Bank Line of Credit. We also prepaid all of the outstanding technology leases for $20.1 million in cash during Q4. We ended the year with $97.0 million in cash and cash equivalents and negative $14.1 million in working capital. I would encourage you to review our Form 10-K that we filed today for more detailed information on our results.

So with that, let me turn the call over to you Patrick.

Patrick M. Byrne

Thank you, Mr. Chesnut. Patrick here, so we’re up through page three, no reason to review those numbers. Now, I'll start off by saying obviously it was a ugly end to an ugly year. We’re happy there is lots of good questions that will be sent in that we'll be answering, as after we get to these slides.

We do think, I think fundamentally, actually every department is running better than its ever run with one exception, which is marketing, and that is definitely been stumbling, there is and my fault entirely. And but we have made the real ugly period to be honest came in the middle of the last quarter, well, say November to mid December. I would say the Christmas period, we definitely had some problems. Some unexpected contraction very sharp and our biggest problem over the last few years, its sort of two steps forward, one step back, when we have good steady growth, we can adjust our expense structure around it, its when we have great deceleration or even acceleration at sometime its has been hard to, well, when the growth rate changes suddenly some other things get some other ratios get carried (inaudible) want us. Two years ago, we certainly had a quarter I think we were growing 55% and then it tailed off, tail has been very lackluster growth and then in the fourth quarter there was a period with very sharp contraction.

We stopped that. We have stopped the hemorrhaging. We have adjusted our significant adjustment to our corporate expense structure and we think we’ve come out of it quite handily actually and that this Q1 is going to look sort of surprisingly good given where we’ve just in, but we did have a tough year no bounce about it.

So I’ll hit slide 4 picture affecting what Mr. Chesnut said, we should not be contracting to represent in industry, which is growing 15%, so that’s clearly a problem gross profit everything else suffered, gross profit and contribution suffered with it. You get to technology and G&A, your corporate expenses slide 7, versus our contribution margin and that got upside down. Our contribution margin, we think 12%, 12.5% is sort of where it wants to be and we got upside down on that.

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