Q1 2021 Earnings Call - Overstock.com
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Q1 2021 Earnings Call
Forward-Looking Statements
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 market volatility, the world economy, government regulation, and
our supply chain, including supply and demand for the products and services we offer, and the ability of our third-party partners and carriers to provide products and
services without interruption and at a reasonable cost. Actual results could also differ materially for a number of reasons, including, but not limited to initiatives to
improve or maintain the performance of our business, adverse tax, regulatory or legal developments, competition, and any inability to maintain profitability, continue to
generate positive cash flow from operations, raise capital, or borrow funds on acceptable terms, difficulties we may have with our infrastructure, our fulfillment partners
or our payment processors, including cyber-attacks or data breaches affecting us or any of them, any inability to protect our intellectual property, and difficulties we may
experience with increasing or maintaining our search engine optimization results, converting web traffic to sales, or ensuring we maintain our new customer base. Other
risks and uncertainties include, among others, whether our partnership with Pelion Venture Partners will be able to achieve its objectives and the timing for doing such.
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, and in our subsequent filings with the SEC. The Form 10-K 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.
2
Agenda
1. CEO Remarks
2. Financial Results
3. Business Updates
4. Summary and Q&A
3Corporate Update
▪ Closed blockchain fund transaction with Pelion Venture Partners on April 23
– Announced strategic partnership on January 25 (original goal to close by mid-July)
– Medici Ventures converted into a limited partnership (the “Fund”) overseen by Pelion
– Medici Ventures deconsolidated in financial results
▪ Regulatory front – no updates
▪ Annual shareholder meeting on May 13
▪ Continue to operate well working remote-first
4Financial Results
5Q1 2021 Financial Results
Revenue Gross Margin G&A and Tech % of Revenue
$659.9 Million 23.3% 8.1%
+94% vs. Q1’20 +141bps vs. Q1’20 -771bps vs. Q1’201
+82% vs. Q1’19 +342bps vs. Q1’19 -783bps vs. Q1’19
Adjusted EBITDA2 Diluted EPS Ending Cash
$33.9 Million $0.56 $534.8 Million
+$40.4M / +618% vs. Q1’20 +$0.90 vs. Q1’20 +$39.4M vs. Q4’20
+$41.7M / +530% vs. Q1’19 +$1.15 vs. Q1’19 +$438.3M vs. Q4’19
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 $51.2M, or 15.1% of revenue.
2 Adjusted EBITDA is a non-GAAP financial measure. See Reconciliation in Appendix. 6Revenue
Revenue YoY Revenue
($M) ∆ Q1 Dynamics
$800 $767 120% ▪ Revenue of $660M
$718
– +94% / $320M vs. Q1’20
$700 111% $660 100%
– +82% / $297M vs. Q1’19
109% $670
94%
$600 80%
84%
$500 60%
$400
$363 $367 $364 $340 40%
$341
$300 20%
$200 0%
(6%)
$100 (20%)
(18%) (19%)
(23%) (22%)
$- (40%)
Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
Note: All figures represent results from continuing operations. 7Gross Margin
Gross Profit Gross Margin
($M) (%) Q1 Dynamics
$225 25% ▪ Gross margin of 23.3%
– +141bps vs. Q1’20
$200 23.2% 23.5% 23.3% – +342bps vs. Q1’19
22.5%
21.9% $178
20% ▪ Gross margin benefited by:
$175 20.7% $169
19.9% 19.7% 20.0% – Continued sales mix into core
$151 $154 home furnishings categories
$150
– Disciplined discounting
15% activities offset by increased
$125 acquisition marketing
$100
10%
$72 $72 $75 $74
$75 $68
$50
5%
$25
$- 0%
Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
Note: All figures represent results from continuing operations. 8G&A and Tech Expense
G&A and Tech Expense G&A and Tech Exp % of Revenue
($M) (%) Q1 Dynamics
$80 18% ▪ G&A and tech expense
generating operating leverage
15.8%1 16% – -1% vs. Q1’201
$70
15.9% – -8% vs. Q1’19
$60 $58 14.4%
15.1%
$57
$59 14%
▪ G&A and tech expense % of
14.1% 14.1%
$54 $54 $53 revenue of 8.1%
$52 $52
12% – -771bps vs. Q1’201
$50 $48
– -783bps vs. Q1’19
10%
$40
7.5%2
8%
8.2% 8.1% 8.1%
$30
6%
6.5%
$20
4%
$10 2%
$- 0%
Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
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 $49.9M, or 6.5% of revenue. 9Adjusted EBITDA
Adj. EBITDA Adj. EBITDA Margin
($M) (%) Q1 Dynamics
$60 8% ▪ Adj. EBITDA of $34M
– +$40M vs. Q1’20
$49 $46
$50 – +$42M vs. Q1’19
6%
$40
6.4% 6.4%
$34 ▪ Adj. EBITDA margin of 5.1%
$30 – +706bps vs. Q1’20
5.1%
$30 – +730bps vs. Q1’19
4.5% 4%
$20
$10 2%
$-
$(2) 0%
$(5)
$(10)
$(8) $(7) $(7)
(0.7%)
$(20)
(1.4%) (2%)
(1.8%) (1.9%)
$(30) (2.2%)
$(40) (4%)
Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
Note: All figures represent results from continuing operations.
Retail Adjusted EBITDA is a non-GAAP financial measure. See Reconciliation in Appendix. 10Active Customers and Order Frequency
Active Customers Orders per Active Customer
(M) Q1 Dynamics
12 2.0 ▪ Active customers reached
record of 9.9M
1.75 1.76 1.76 1.75
1.70 1.66 – +92% / +4.8M vs. Q1’20
1.63 1.64
10
1.62 – +60% / +3.7M vs. Q1’19
9.2 9.9
1.5 ▪ Order frequency of 1.66
8.2 – -2% vs. Q1’20
8
– -5% vs. Q1’19
7.0
– Impacted by influx of new
6.2 customers
6
5.8 1.0
5.4
5.1 5.2
4
0.5
2
- -
Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
Note: Active customers represents the number of customers who made at least one purchase during the prior twelve-month period.
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. 11Orders and Average Order Value
Orders Delivered (LTM) Average Order Value
(M) Q1 Dynamics
20 $200 ▪ Orders delivered (LTM) reached
$183 record of 16.5M
18 $173
$168 $180 – +88% / +7.7M vs. Q1’20
$166 $167
$160 16.5 – +52% / +5.7M vs. Q1’19
$155 $155 $156
16 $160
15.1
▪ Average order value of $183
14 13.4 $140 – +17% vs. Q1’20
– +18% vs. Q1’19
12 11.3 $120 – Driven by continued sales mix
10.9
10.2 into core home furniture
10 9.6 $100 categories
8.9 8.8
8 $80
6 $60
4 $40
2 $20
- $-
Q1 '19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
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. 12Business Updates
1314
Top 4 Brand in a Growing Market
Top U.S. Home Furnishings Online Brands1 Furniture & Home Furnishings U.S. Online Penetration2
(ranked by online revenue)
50%
1. Amazon
2. Wayfair 40%
3. Walmart
35%
4.
30%
5. Target 29%
6. Pottery Barn
20% 23%
7. IKEA 20%
18%
8. Bed Bath & Beyond 16%
13%
10%
11%
9. West Elm 9%
8%
7%
10. Restoration Hardware 6%
0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Mar 2021
(est.)
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. 15Establishing Unique Market Positioning
Home Goods Expertise
IKEA Pottery Barn
Restoration
Wayfair West Elm Hardware
Dream Homes for All: Bed Bath &
The space of ‘Smart Value’ Beyond
where quality & style costs less
Value Style & Inspiration
Target
Amazon
Walmart
Department Store Generalist
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. 16Playing to Our Strengths
Savvy Shoppers Reluctant Refreshers
$130B Market1,2
▪ Higher propensity to shop at Overstock
▪ Deal-driven and low-hassle
▪ Combined market spend is 40% of total market2
1Source: eMarketer–Total U.S. Retail Sales estimates, 2020.
2Source: Overstock customer segmentation research, 2019.
Note: $325B total market size x 40% customer segments market size = $130B market. 17Focused Strategy
vision dream homes for all making beautiful & comfortable homes accessible by helping customers
easily & confidently find just what they want for less
financial goal
sustainable, profitable market share growth
primary segment secondary segment
target customers savvy shopper reluctant refresher
values Overstock for helping them feel smart about finding a great deal values Overstock for helping them easily
from a compelling selection of stylish & quality home products & confidently find just what they want
product smart easy delivery
brand pillars findability value + support
get inspired anywhere, fast, free, & predictable delivery,
but easily find it at Overstock quality & style for less plus low-hassle returns & support
OKR-driven world-class data-driven customer relationship machine learning and rapid iteration
enablers
focus SEO and loyalty building algorithms innovation mindset
2021 initiatives improve product findability grow government market share grow Canada market share improve enterprise platform
18product Sales % by Device
product
findability 80%
findability 60%
40%
Mobile
▪ Customers shifted to mobile Desktop
20%
▪ In Q1, mobile:
0%
– Purchases >50% of total sales Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
– Unique visits +62% YoY
Orders Delivered % by Device
– Sales +105% YoY 80%
– Conversion +10% YoY
60%
▪ Focus on app adoption in 2021
40%
Mobile
Desktop
20%
0%
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
Note: Sales reflects GMS (gross merchandise sales), calculated as the amount paid by customers for products (and shipping), measured at the time of order, before coupons and discounts,
without reductions for estimated returns. 19product
product
findability Sales Mix of Home Furnishings
findability 93%
91%
▪ Demand for home furnishings
continues to increase
– Home furnishings were 93% of sales in Q1
– Highest home furnishings mix in history
▪ Opportunity to increase brand
association with “Home”
– 2X higher purchase intent if shopper
comes to OSTK for “Home”
– Emphasizing Dream Homes for All
2015 2016 2017 2018 2019 2020 Q1'19 Q1'20 Q1'21
Note: Sales Mix is shown as a percentage of gross merchandise volume, calculated as the amount paid by customers for products (and shipping), measured at the time of order, after coupons and discounts,
without reductions for estimated returns. 20product
product
findability Assortment Optimization
findability 225,000 14
200,000
SKUs Sold 12
Units Sold per SKU
▪ Assortment and SKU productivity 175,000
continue to increase 10
150,000
– Number of SKUs sold +24% YoY
8
125,000
– Units sold per SKU +36% YoY
100,000
6
75,000
4
50,000
2
25,000
- -
Q1'19 Q2'19 Q3'19 Q4'19 Q1'20 Q2'20 Q3'20 Q4'20 Q1'21
Note: Chart reflects home furnishings SKUs only. 21smart
smart
value Customer Rating of Shipping Charges1
value 12% favorable to
competitors
▪ Free shipping is a top purchase
driver and key component of Smart
Value
– Launched free shipping on all items in
2020
– Customer rating of shipping charges
expected to remain at current levels
Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
1 Source: Bizrate point of sale survey, Q1 2021. 22smart
smart
value Competitively Priced SKUs
value 85%
80%
70%
▪ Savvy Shoppers expect value
– Want to feel like they are getting “best
quality for the price” 55%
▪ Progress evident in continued
refinement of pricing model
▪ Pricing is another key component of
Smart Value
Dec '19 Jul '20 Dec '20 Mar '21
Note: Overstock prices used to compare to competitor prices include site sale discounts before coupons are applied. Comparisons account for 30-35% of all product page views.
Price comparisons taken during last week of respective month reported. 23% Orders Delivered On-Time or Early
easy delivery
+ support
Texas storms
▪ Delivery speed and on-time accuracy
key drivers of customer conversion and
retention
1/5/20 2/5/20 3/5/20 4/5/20 5/5/20 6/5/20 7/5/20 8/5/20 9/5/20 10/5/20 11/5/20 12/5/20 1/5/21 2/5/21 3/5/21
– For customers, maintained focus on
communicating delivery expectations
during times of operational disruption Click to Delivery (business days)
– For carriers, managed disruptions
through rigorous planning, estimation
accuracy, and communications
1/5/20 2/5/20 3/5/20 4/5/20 5/5/20 6/5/20 7/5/20 8/5/20 9/5/20 10/5/20 11/5/20 12/5/20 1/5/21 2/5/21 3/5/21
Note: % orders delivered on-time or early and click to delivery refer to small parcels only. 24CS Contacts as % of Orders
easy delivery
+ support
▪ Contact volume as a percentage of
orders decreased 29% vs. Q1’19
▪ Automation and self-service Q1'19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
capabilities improve customer
retention and reduce costs
Self Service Cases as % of Total
– Continue to enhance and augment
self-service functionality
Q1'19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Q2 '20 Q3 '20 Q4 '20 Q1 '21
Note: Following the national stay-at-home order (Q2’20), not all customers were able to reach customer service agents due to unexpected volume of sales. 252021 Strategic Initiatives
1 Improve onsite search and taxonomy
2 Expand into Canada
3 Establish government business
4 Improve the enterprise platform
26Well Positioned for Market Share Growth – in 2021 and Beyond
▪ Revenue growth outpacing industry
▪ Gross profit margin in the 22% range
▪ Operating expenses growing slower than revenue,
driving operating leverage dream
▪ Adjusted EBITDA margins in the mid-single digits
homes
for all
▪ Free cash flow positive
Driving sustainable, profitable market share growth
27Medici Ventures
Fund
28Summary of Medici Ventures Fund Transaction
Deal Type Partnership between Overstock and Pelion Venture Partners
General Partner A Pelion Venture Partners entity
Limited Partner Overstock
Partnership Term 8 years
Capital Commitment $45 million (with Overstock option to increase by $30 million)
Annual fees of $2.5 million, combined with success fees paid
Fee Structure
according to performance
Timing Announced on January 25; closed on April 23
Maximize shareholder value through partnering with a highly
Deal Rationale
experienced venture firm
29Medici Ventures Fund Update
▪ Bitt launched DCash, the world’s first central bank digital currency, on March 31
▪ tZERO:
– Launched strategic capital raise
– Hosting Q1 update call in May
▪ GrainChain selected by SAP for its global startup accelerator program on April 14
▪ Voatz closed first tranche of $10M capital raise on April 20
▪ PeerNova closed first tranche of $25M capital raise on April 22
30Summary and Q&A
31Q1 Review and Looking Ahead
▪ Closed Pelion transaction and deconsolidated Medici Ventures’ businesses
▪ Execute against our 2021 initiatives
▪ Increase Overstock brand association with “Home”
▪ Cement competitive positioning
▪ Improve mobile app adoption
▪ Continue to deliver profitable market share growth
32Questions?
To ask questions:
▪ Dial-in: (877) 673-5346
Conference ID: 5898642
▪ Email: ir@overstock.com
33Appendix
34Adjusted EBITDA Reconciliation
Three months ended
Mar-2019 Jun-2019 Sep-2019 Dec-2019 Mar-2020 Jun-2020 Sep-2020 Dec-2020 Mar-2021
Income (loss) from continuing operations $ (19,490) $ (13,230) $ (13,448) $ (16,740) $ (13,766) $ 48,174 $ 38,050 $ 23,092 $ 26,018
Depreciation and amortization 5,266 6,127 6,212 6,474 5,569 5,410 5,310 5,487 5,146
Stock-based compensation 3,868 4,560 3,821 3,911 2,681 1,952 1,568 1,640 2,305
Interest (income) expense, net (240) (458) (321) (182) 11 364 264 199 155
Other (income) expense, net 105 419 183 (65) 287 (246) (59) (595) 226
Provision (benefit) for income taxes 864 136 160 (100) 163 505 607 (335) 193
Special items (see table below) 1,757 - (1,221) - (1,486) (7,272) 288 432 (187)
Adjusted EBITDA $ (7,870) $ (2,446) $ (4,614) $ (6,702) $ (6,541) $ 48,887 $ 46,028 $ 29,920 $ 33,856
Special items:
Special legal charges 1 $ - $ - $ (1,221) $ - $ (2,501) $ (7,272) $ - $ 432 $ (187)
Severance 1,757 - - - 1,015 - 288 - -
Total Special items $ 1,757 $ - $ (1,221) $ - $ (1,486) $ (7,272) $ 288 $ 432 $ (187)
Note: All figures represent results from continuing operations.
1 Special legal charges include amounts associated with the resolution for and adjustments to various legal contingencies and legal fees associated with pursuing our strategic alternatives.
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. 35You can also read
