Overstock.com (OSTK) Q3 2021 Earnings Call Transcript | The Motley Fool


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Overstock.com (NASDAQ:OSTK)
Q3 2021 Earnings Call
Oct 28, 2021, 8:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good day and thank you for standing by. Welcome to the Overstock third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session.

[Operator instructions] I would now like to hand the conference over to your speaker today, Alison Fletcher. Please go ahead.

Alison FletcherDeputy General Counsel and Senior Director of Legal Affairs

Thank you, operator. Good morning and welcome to Overstock’s third quarter 2021 earnings conference call. I’m Alison Fletcher, deputy general counsel and senior director of legal affairs. Joining me today are Jonathan Johnson, CEO; and Adrianne Lee, CFO.

Dave Nielsen, president of Overstock, will also be available for Q&A at the end of the call. Please note that we are conducting today’s call remotely. Let me remind you that the following discussion and our responses to your questions reflect management’s views as of today, October 28th, 2021, and may include forward-looking statements, actual results could differ materially from such statements. Additional information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2020, and our Form 10-Qs for the first and second quarters of 2021 in the press release we filed this morning and in our subsequent filings with the SEC.

Please review the important forward-looking statements, disclosure on Slide 2 of today’s presentation. During this call, we’ll 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. This presentation is available for download on our Investor Relations website and our summary slide contains instructions for asking questions during our Q&A session.

With that, let me turn the call over to you, Jonathan.

Jonathan JohnsonChief Executive Officer

Thank you, Alison, and good morning, everyone. Overstock delivered another strong quarter even as we lapped our highest quarter of revenue growth since 2004 and navigated significant industrywide supply chain disruptions. As you’ll see when Adrianne reviews the financial results, we once again exceeded quarterly consensus expectations on both the top and bottom lines. And the metrics we look at indicate Overstock gained about 50 basis points on online market share year over year, compared to our top home goods retailer peers.

I’m eager to see this confirmed as others release results in the coming weeks. Before I jump into the specifics on the quarter, I’m reminded of a Warren Buffett quote, only when the tide goes out, do you discover who’s been swimming naked. Well, the pandemic tide, it lifted all online home retail, home furnishing companies in 2020 has begun to go up. And Overstock continues to operate at over two times our pre-pandemic sales level and we consistently deliver profits within our stated targets.

This is because in the six months that preceded the pandemic and then a month since, this management team has made and continues to make foundational improvements to our business operation. The pandemic tide is receding and we are wearing an operational wet suit, if you will. For the last six quarters, we consistently delivered results well above our pre-pandemic numbers. During today’s call, we’ll follow the agenda on Slide 3.

Next slide, please. I’ll start with a comment on macroeconomic trends. They remain strong and favorable. We’ve shown these numbers before, but I’ll quickly review them.

In 2020, one in 10 Americans moved. When people move, that creates opportunities for us as the furniture and home furnishings purchases are often move and project based. Even if customers start with one room and move to the next and then to the next, we have lots of opportunities to support these movers by helping them furnish each room within the four walls of their home and their living spaces that extend to the four corners of their property. U.S.

home sales continue to grow year over year and forecasted consumer spending remains strong. All these macro trends support category growth. Our supply chain is broad and distributed. Our vast partner network reduces single source risks, shipping bottlenecks, and supply chain kinks.

In fact, we’re proving that our supply chain works well in times of high consumer demand and low supply, partially because suppliers don’t want to tie up limited inventory in one or two distribution networks. Unlike some of our competitors, we don’t pressure from our partners to lock up inventory in our distribution centers. As a result, we tend to get favorable priority on inventory. Our asset-light business model aids in reducing gross margin pressure.

We own almost no inventory. We continue to expand our extensive partner supplier network. We can flex our distribution center footprint as demand fluctuates and we work closely with our regional and national contracted carriers, providing them accurate and timely forecasts to improve our delivery accuracy and meet customer expectations. We have a great business model.

It’s a great business model and periods of high demand and low supply. It is a great business model when there are kinks in the supply chain. And of course, we think it is a great business model in more normal business circumstances. All this adds up to long-term favorability.

Speaking of long term, rather than opine on what we expect in Q4, let me just give some brief comments on what we think we see for 2022. From our current vantage point, including our perspective on the macro environment, we are comfortable with consensus estimates for 2022 revenue growth and adjusted EBITDA margin. In fact, we think the annual estimate for 2022 revenue growth is a bit pessimistic, noting we have beat top-line estimates for seven consecutive quarters. Our goal is to continue to grow our market share and then to build the business in 2022 and beyond.

Slide 5, please. Next, I’ll provide a brief corporate update. We announced a $100 million stock repurchase program, something the company has not had in place since 2015. We have a healthy balance sheet, and we’ve proven we can consistently perform within our financial model, so we think this is a strategic way to deploy capital.

We have not yet made any stock repurchases under this program, so we have ample dry powder. It’s great to note that the Utah District Court once again dismissed the security class action lawsuit against Overstock. The plaintiffs have filed a notice of appeal. We’ve won this case twice in the lower court and I believe we will win it again in the appellate court.

I’m also very proud of our announced philanthropic partnership with Mercy Housing, a non-profit organization dedicated to providing affordable homes nationwide to individuals and families with lower incomes. Through this partnership, we help provide one of the most basic and important needs: a comfortable, affordable, and long-term home. This aligns perfectly with Overstock’s vision of creating dream homes for all. I’ll now hand the call over to Adrianne Lee, who will review our strong third quarter financial results.


Adrianne LeeChief Financial Officer

Thank you, Jonathan. Slide 6, please. As announced on last quarter’s earnings call, the Medici Ventures businesses are deconsolidated from our financial statements, and the Medici fund is recorded as an asset on our balance sheet. On a quarterly basis, we record our proportionate share of the fund’s reported net income or loss.

I will begin with a high-level summary of our third quarter results, followed by a review of key customer metrics and performance indicators. Next slide, please. The third quarter of 2021 was another strong quarter and in line with the — near to mid-term financial targets. We are maintaining the significant sales gains from the pandemic and delivering financial results in line with what we committed to deliver: market share growth, and profitability.

Revenue declined by 4% year over year…


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