OVERSTOCK.COM, INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1

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8-K - 8-K - OVERSTOCK.COM, INC	a8-kq115pressrelease.htm

FOR IMMEDIATE RELEASE:

Media Contact:

Kirstie Burden, Overstock.com, Inc.

+1 (801) 947-3116

kburden@overstock.com

Investor Contact:

Mark Harden, Overstock.com, Inc.

+1 (801) 947-5409

mharden@overstock.com

Overstock.com Reports Q1 2015 Results

17% revenue increase; pre-tax net income of $4.5 million; net income of $2.7 million

SALT LAKE CITY - April 27, 2015 - Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarter ended March 31, 2015.

Key Q1 2015 metrics (comparison to Q1 2014):


•	Revenue: $398.3M vs. $341.2M (17% increase);


•	Gross profit: $75.4M vs. $64.0M (18% increase);


•	Gross margin: 18.94% vs. 18.76% (18 basis point increase);


•	Sales and marketing expense: $28.0M vs. $23.4M (20% increase);


•	Contribution (non-GAAP measure): $47.5M vs. $40.6M (17% increase);


•	G&A/Technology expense: $43.6M vs. $34.9M (25% increase);


•	Pre-tax income: $4.5M vs. $6.6M ($2.1M decrease);


•	Provision for income taxes: $1.9M vs. $2.6M ($650,000 decrease);


•	Net income*: $2.7M vs. $4.0M ($1.2M decrease); and


•	Diluted EPS: $0.11/share vs. $0.16/share ($0.05/share decrease).

*Net income refers to Net income attributable to stockholders of Overstock.com, Inc.

As previously announced, the company will hold a conference call and webcast to discuss its Q1 2015 financial results Monday, April 27, 2015, at 4:30 p.m. ET.

Webcast information

To access the live webcast and presentation slides, go to http://investors.overstock.com. To listen to the conference call via telephone, dial (877) 673-5346 and enter conference ID 27688762 when prompted. Participants outside the U.S. or Canada who do not have Internet access should dial +1 (724) 498-4326 then enter the conference ID provided above.

A replay of the conference call will be available at http://investors.overstock.com starting two hours after the live call has ended. An audio replay of the webcast will be available via telephone starting at 7:30

p.m. ET on Monday, April 27, 2015, through 11:59 p.m. ET on Monday, May 11, 2015. To listen to the recorded webcast by phone, dial (855) 859-2056 then enter the conference ID provided above. Outside the U.S. or Canada dial +1 (404) 537-3406 and enter the conference ID provided above.

Email questions to Mark Harden at mharden@overstock.com prior to the conference call.

Key financial and operating metrics:

Investors should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure.

Total net revenue - Total net revenue for Q1 2015 and 2014 was $398.3 million and $341.2 million, respectively, a 17% increase. The growth in revenue was primarily due to a 12% increase in orders, coupled with a 5% increase in average order size, from $165 to $174. In addition, the percentage of revenue we defer from orders taken but not delivered was less due to the timing of quarter end. These increases in revenue were partially offset by increased promotional activities including coupons, site sales, and Club O Rewards (which we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using such promotions, and by an increase in returns. Although our average order size has increased in recent years, we expect the rate of increase to lessen as our sales mix shift into home and garden products tapers.

Gross profit - Gross profit for Q1 2015 and 2014 was $75.4 million and $64.0 million, respectively, an 18% increase, representing 18.9% and 18.8% gross margin for those respective periods. The increase in gross profit was primarily due to higher revenue. The increase in gross margin was largely due to a continued shift in sales mix into higher margin home and garden products, partially offset by increased promotional activities including coupons, site sales, and Club O Rewards (which we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using such promotions.

Sales and marketing expenses - Sales and marketing expenses totaled $28.0 million and $23.4 million for Q1 2015 and 2014, respectively, a 20% increase, and representing 7.0% and 6.9% of total net revenue for those respective periods. The increase in sales and marketing expenses as a percent of revenue was primarily due to increased spending in the display ad and offline advertising marketing channels, partially offset by decreased staff-related costs and decreased spending in the email marketing channel.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) - Contribution for Q1 2015 and 2014 was $47.5 million and $40.6 million, respectively, a 17% increase, representing 11.9% contribution margin for both periods.

Contribution (a non-GAAP financial measure - which we reconcile to "gross profit" in our statement of income) consists of gross profit less sales and marketing expense and reflects an additional way of viewing our results. Contribution margin is contribution as a percentage of total net revenue. We believe contribution and contribution margin provide management and users of the financial statements information about our ability to cover our operating costs, such as technology and general and administrative expenses. Contribution and contribution margin are 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. The material limitation associated with the use of contribution is that it is an incomplete measure of profitability as it does not include all operating expenses or non-operating income and expenses. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income and net income.

Our calculation of contribution and contribution margin is set forth below (in thousands):



	Three months ended
	March 31,
	2015				2014
Total net revenue	$	398,344	100.0	%	$	341,207	100.0	%
Cost of goods sold	322,907		81.1	%	277,211		81.2	%
Gross profit	75,437		18.9	%	63,996		18.8	%
Less: Sales and marketing expense	27,972		7.0	%	23,392		6.9	%
Contribution and contribution margin	$	47,465	11.9	%	$	40,604	11.9	%

Technology expenses - Technology expenses totaled $23.1 million and $19.6 million for Q1 2015 and 2014, respectively, an 18% increase, and representing 5.8% and 5.7% of total net revenue for those respective periods. The increase was primarily due to an increase in depreciation of $1.6 million, an increase in staff-related costs of $1.5 million, and increased licensing and support costs of $441,000.

General and administrative ("G&A") expenses - G&A expenses totaled $20.5 million and $15.3 million for Q1 2015 and 2014, respectively, a 34% increase, and representing 5.2% and 4.5% of total revenue for those respective periods. The increase was primarily due to an increase of $1.9 million in staff and travel related costs, an increase in legal costs of $1.5 million, and a $1.3 million increase in management consulting services.

We continue to seek opportunities for growth by expanding our international sales and distribution footprint, through our crypto-initiatives, and through other means. As a result of these initiatives, we expect to continue to incur additional technology and G&A expenses, and may make investments in other technology companies. These expenses or investments may be material, and, coupled with the seasonality of our business, may lead to reduced income as compared to prior periods or to losses in some periods.

Other income, net - Other income, net totaled $605,000 and $459,000 for Q1 2015 and 2014, respectively. The change is primarily due to increased Club O Rewards breakage of $336,000 due to increased participation in the Club O Rewards program, including our recently introduced Club O Silver program, partially offset by losses on crypto-currency of $117,000 and a decrease in gift card breakage of $95,000.

Overall, our revenue growth drove higher gross profits and growth in contribution. These increases were offset by higher technology and G&A expenses as part of our growth and innovation efforts. As a result, operating income decreased in Q1 2015 as compared to Q1 2014.

Net cash provided by operating activities - Net cash provided by operating activities was $67.4 million and $55.6 million for the twelve months ended March 31, 2015 and 2014, respectively.

Free cash flow (a non-GAAP financial measure) - Free cash flow totaled $25.7 million and $37.4 million for the twelve months ended March 31, 2015 and 2014, respectively. The $11.8 million decrease was due to a $23.6 million increase in capital expenditures including $19.7 million of costs related to the land and development of the company’s future headquarters. The increase in capital expenditures was partially offset by an $11.8 million increase in operating cash flows.

Free cash flow reflects an additional way of viewing our cash flows and liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and liquidity. Free cash flow, which we reconcile to “net cash provided by (used in) operating activities,” is cash flow from operations, reduced by “expenditures for fixed assets, including internal-use software and

website development.” We believe that cash flows from operating activities is an important measure since it includes both the cash impact of the continuing operations of the business and changes in the balance sheet that impact cash. Also, we believe free cash flow is a useful measure to evaluate our business since purchases of fixed assets are a necessary component of ongoing operations and free cash flow measures the amount of cash we have available for mandatory debt service and financing obligations, changes in our capital structure, and future investments, after we have paid our operating expenses. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

Our calculation of free cash flow is set forth below (in thousands):



	Twelve months ended March 31,
	2015			2014
Net cash provided by operating activities	$	67,424		$	55,619
Expenditures for fixed assets, including internal-use software and website development	(41,763		)	(18,200		)
Free cash flow	$	25,661		$	37,419

Cash and working capital - We had cash and cash equivalents of $124.3 million and $181.6 million and working capital of $11.3 million and $15.3 million at March 31, 2015 and Dec. 31, 2014, respectively. The decrease in working capital is primarily due to capital expenditures including the development costs for our future headquarters.

About Overstock.com

Overstock.com, Inc. (NASDAQ:OSTK) is an online shopping retailer based in Salt Lake City, Utah that sells a broad range of products at low prices including furniture, rugs, bedding, electronics, clothing, and jewelry. Worldstock.com is a fair trade department dedicated to selling artisan-crafted products from around the world whereas Main Street Revolution supports small businesses across the U.S. by providing them a national customer base. Overstock has additional community-focused initiatives such as a Farmers Market and pet adoption service. Forbes ranked Overstock in its list of the Top 100 Most Trustworthy Companies in 2014. Overstock sells internationally under the name O.co. Overstock (http://www.overstock.com and http://www.o.co) regularly posts information about the company and other related matters under Investor Relations on its website.

O, Overstock.com, O.com, O.co, Club O, Main Street Revolution, Worldstock Fair Trade, Worldstock, and OVillage are registered trademarks. O.biz, Club O Dollars,and OGlobal are trademarks of Overstock.com, Inc. The Overstock.com, Club O, and Worldstock Fair Trade logos are also registered trademarks of Overstock.com, Inc. Other service marks, trademarks and trade names which may be referred to herein are the property of their respective owners.

# # #

This press release and the April 27, 2015 conference call and webcast to discuss our financial results may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include all statements other than statements of historical fact, including forecasts of trends. These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including the amount and timing of our capital expenditures, the mix of products we sell, the results of legal proceedings and claims and the amounts we spend relating to them, the extent to which we owe income taxes, competition, fluctuations in operating results, any difficulties we may encounter as a result of accepting Bitcoin as payment, any inability to raise capital if needed on acceptable terms, our efforts to expand both domestically and internationally, risks of inventory management and seasonality. Other risks and uncertainties include, among others, risks related to new products and services we may offer, and difficulties with our infrastructure, our expectations regarding the benefits and risks of the credit facility we recently entered into for the purpose of, among other things, financing our construction of an office campus to serve as our corporate headquarters, our fulfillment partners or our payment processors, including cyber-attacks or data breaches affecting us or any of them. More information about factors that could potentially affect our financial results is included in our Annual Report on Form 10-K for the year ended Dec. 31, 2014, which was filed with the Securities and Exchange Commission on March 12, 2015. These and our other subsequent filings with the Securities and Exchange Commission identify important factors that could cause our actual results to differ materially from those contained in our projections, estimates and other forward-looking statements.

Overstock.com, Inc.

Consolidated Balance Sheets (Unaudited)

(in thousands)



	March 31, 2015			December 31, 2014
Assets
Current assets:
Cash and cash equivalents	$	124,322		$	181,641
Restricted cash	505			580
Accounts receivable, net	15,651			18,963
Inventories, net	24,467			26,208
Prepaid inventories, net	4,174			3,214
Deferred tax assets, net	15,019			14,835
Prepaids and other current assets	10,928			12,621
Total current assets	195,066			258,062
Fixed assets, net	54,947			52,071
Precious metals	10,905			10,905
Deferred tax assets, net	48,887			50,331
Goodwill	2,784			2,784
Other long-term assets, net	7,809			2,712
Total assets	$	320,398		$	376,865
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	66,993		$	112,787
Accrued liabilities	72,998			81,564
Deferred revenue	43,742			48,451
Total current liabilities	183,733			242,802
Other long-term liabilities	6,888			4,843
Total liabilities	190,621			247,645
Stockholders’ equity:
Preferred stock, $0.0001 par value:
Authorized shares - 5,000
Issued and outstanding shares - none	—			—
Common stock, $0.0001 par value
Authorized shares - 100,000
Issued shares - 27,583 and 27,241
Outstanding shares - 24,276 and 24,037	2			2
Additional paid-in capital	367,223			366,252
Accumulated deficit	(151,125		)	(153,864		)
Accumulated other comprehensive loss	(1,324		)	(621		)
Treasury stock:
Shares at cost - 3,307 and 3,204	(84,885		)	(82,531		)
Equity attributable to stockholders of Overstock.com, Inc.	129,891			129,238
Equity attributable to noncontrolling interests	(114		)	(18		)
Total equity	129,777			129,220
Total liabilities and stockholders’ equity	$	320,398		$	376,865

Overstock.com, Inc.

Consolidated Statements of Income (Unaudited)

(in thousands, except per share data)



	Three months ended March 31,
	2015			2014
Revenue, net
Direct	$	36,135		$	38,047
Partner	362,209			303,160
Total net revenue	398,344			341,207
Cost of goods sold
Direct	32,527			33,097
Partner	290,380			244,114
Total cost of goods sold	322,907			277,211
Gross profit	75,437			63,996
Operating expenses:
Sales and marketing	27,972			23,392
Technology	23,087			19,601
General and administrative	20,534			15,296
Restructuring	—			(360		)
Total operating expenses	71,593			57,929
Operating income	3,844			6,067
Interest income	43			41
Interest expense	(4		)	(7		)
Other income, net	605			459
Income before income taxes	4,488			6,560
Provision for income taxes	1,940			2,590
Consolidated net income	2,548			3,970
Less: Net loss attributable to noncontrolling interests	(191		)	—
Net income attributable to stockholders of Overstock.com, Inc.	$	2,739		$	3,970
Net income per common share—basic:
Net income attributable to common shares—basic	$	0.11		$	0.17
Weighted average common shares outstanding—basic	24,213			23,926
Net income per common share—diluted:
Net income attributable to common shares—diluted	$	0.11		$	0.16
Weighted average common shares outstanding—diluted	24,390			24,339

Overstock.com, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



	Three months ended March 31,						Twelve months ended March 31,
	2015			2014			2015			2014
Cash flows from operating activities:
Consolidated net income	$	2,548		$	3,970		$	7,379		$	80,651
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	5,376			3,795			19,645			14,454
Stock-based compensation to employees and directors	778			923			3,890			3,422
Deferred income taxes	1,698			2,317			3,122			(66,203		)
Amortization of debt discount and deferred loan costs	39			—			39			13
Loss on investment in precious metals	—			—			1,269			1,457
Loss on investment in cryptocurrency	117			—			117			—
Restructuring reversals	—			(360		)	—			(399		)
Other	10			(5		)	7			(26		)
Changes in operating assets and liabilities:
Restricted cash	—			—			1,000			75
Accounts receivable, net	3,312			211			185			15
Inventories, net	1,741			4,270			(1,694		)	(1,238		)
Prepaid inventories, net	(960		)	139			(2,509		)	323
Prepaids and other current assets	1,244			174			(385		)	(1,824		)
Other long-term assets, net	346			221			151			170
Accounts payable	(45,249		)	(31,909		)	8,312			12,000
Accrued liabilities	(10,359		)	(13,718		)	18,966			4,989
Deferred revenue	(4,709		)	(478		)	6,899			5,312
Other long-term liabilities	979			771			1,031			2,428
Net cash (used in) provided by operating activities	(43,089		)	(29,679		)	67,424			55,619
Cash flows from investing activities:
Purchases of marketable securities	(3		)	(12		)	(14		)	(69		)
Sales of marketable securities	35			77			35			217
Purchases of intangible assets	(32		)	(22		)	(145		)	(35		)
Investment in precious metals	—			—			(2,496		)	(8,080		)
Investment in cryptocurrency	—			—			(300		)	—
Equity method investment	(95		)	—			(345		)	—
Cost method investment	(5,000		)	—			(5,000		)	—
Expenditures for fixed assets, including internal-use software and website development	(6,612		)	(6,195		)	(41,763		)	(18,200		)
Proceeds from sale of fixed assets	—			—			43			—
Net cash used in investing activities	(11,707		)	(6,152		)	(49,985		)	(26,167		)
Cash flows from financing activities:
Payments on capital lease obligations	(362		)	—			(687		)	—
Paydown on direct financing arrangement	(75		)	(68		)	(289		)	(264		)
Change in restricted cash	75			—			75			125
Proceeds from exercise of stock options	193			171			533			1,731
Purchase of treasury stock	(2,354		)	(2,290		)	(2,365		)	(2,292		)
Payment of debt issuance costs	—			—			(1,031		)	—
Net cash used in financing activities	(2,523		)	(2,187		)	(3,764		)	(700		)
Net (decrease) increase in cash and cash equivalents	(57,319		)	(38,018		)	13,675			28,752
Cash and cash equivalents, beginning of period	181,641			148,665			110,647			81,895
Cash and cash equivalents, end of period	$	124,322		$	110,647		$	124,322		$	110,647

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