Overstock.com's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Overstock.com, Inc. (OSTK)

Q2 2012 Earnings Call

July 19, 2012 11:30 am ET

Executives

Jonathan Johnson - President & Corporate Secretary

Patrick Byrne - Chairman & CEO

Steve Chesnut - SVP, Finance & Risk Management

Analysts

Justin Ruiss - Sidoti

Nathaniel Schindler - Bank of America

Chris Donnelly - Pacific Roth Capital

Presentation

Operator

Good morning. My name is Jodie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Overstock.com second quarter 2012 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.

I would now like to turn the conference over to Jonathan Johnson, President of Overstock.com. Please go ahead sir.

Jonathan Johnson

Thank you, Jodie. Good morning and welcome to our second quarter 2012 earnings conference call. Joining me today are Dr. Patrick Byrne, the company's Chairman and CEO and Steve Chesnut, the company's 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, July 19, 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 press release filed this morning and 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 the slide two of the presentation.

And with that preliminary piece out of the way let me turn the call over to Steve to highlight some of the financial results.

Steve Chesnut

Thank you, Jonathan. Please turn to slide three and let me start with the last bullet point. Net income for the quarter was a positive $470,000 or that was $0.02 per share. This is $8.3 million improvement over last year and it was due to a combination of revenue growth, contribution of margin expansion and lower operating expenses. On the topline, total revenue was $239.5 million, a 2% increase from last year.

Gross margin improved a 110 basis points from Q2 of last year, while contribution increased by 14% to $29.7 million due to a 9% increase in gross profit and a 1% decrease in sales and marketing expense. Combined technology and G&A expense has decreased by $3.9 million due primarily to a reduction in compensation and legal costs.

While we don’t provide it on this slide that we ended the quarter with $60 million in cash and cash equivalents, working capital at the end of Q2 was a negative $7.6 million while working capital at December 31, 2011 was negative $14.1 million, so a nice improvement.

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

Patrick Byrne

Thank you, Steve. Good morning everybody. Well that was a long time to hold our breath, but I do feel that things we’ve been telling over the last quarter to that we’re turning things around and getting the fly wheels spinning back in the correct direction have come through.

Slide four I am going to be quick like moving through these slides. Quarterly revenue growth slide four, you see we have broken the slide and up a little bit, not satisfactory. The markets growing 12% to 14% in general we say. As I mentioned many times, we think of our growth on as we look at contribution to our growth is what we manage everything there. However, it’s still nice to get our head above water on GAAP record growth, and I think that not everything goes as planned you will that spinning up fairly quickly.

Slide five, gross profit growth, same basic story, on slide its only better it’s up to 9%. Slide six, I’ve said in the past 12%, 12.5% on our contribution, is seems to be in a sweet spot for us. Remember, we calculate this differently than some business -- well, we calculate margins different than some online businesses, but at the end of the day, it all comes out in the wash when you look at the contribution dollars. And we think we’re right in the sweet spot there. We have opportunities to increase that. We actually are attending to pass them on more to our consumers than we are trying to make them stick to our [rates].

Slide seven, this is what I like seeing contribution back up at 14% growth rate, which is the general industry growth rate. So I am very pleased with this. This is what we managed all of our -- everything above this line really gets managed and optimize this line and I also believe you will see this accelerate nicely. Everything stays on course.

Slide eight, operating expenses. I think this is a new slide in this format. And it’s useful to look at this at the blue and green segments together. Red is marketing, but the blue and green gives you our tech and G&A and you can see we have, thanks to great management and my colleagues, manage that, kept that –well gotten that, tightened up a notch and but we feel very good, we are a not skimpy anywhere in fact I think we have a better innovative cycle that we’ve never had before. So this is good management led especially by Mr. Chesnut, who is hawkish on our expenses.

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