Nov. 3, 2009 (PR Newswire) -- SALT LAKE CITY, Nov. 3 /PRNewswire-FirstCall/ -- Overstock.com, Inc. (Nasdaq: OSTK) today reported financial results for the quarter ended September 30, 2009.
Key Q3 2009 metrics (comparison to Q3 2008):
-- Revenue: $195.1M vs. $186.9M (4% increase);
-- Gross margin: 19.3% vs. 17.2% (210 basis point improvement);
-- Gross profit: $37.7M vs. $32.1M (17% increase);
-- Sales and marketing expense: $12.2M vs. $11.9M (2% increase);
-- Contribution (non-GAAP measure): $25.5M vs. $20.2M (26% increase);
-- G&A/Technology expense: $25.6M vs. $24.4M (5% increase);
-- Net loss: $(787,000) vs. $(1.6)M (50% decrease in net loss);
-- EPS: $(0.03)/share vs. $(0.07)/share ($0.04/share improvement); and
-- Adjusted EBITDA (TTM) (non-GAAP financial measure): $19.7M vs. $4.7M
($15.0M improvement).
Dear Owner:
We saw our financial results improve versus Q3 2008. Revenue growth turned positive and Contribution dollars are up 26% over last year due to higher gross profit and a more efficient marketing spend. Our net loss has narrowed to 0.4% of revenue. For the first nine months of 2009, our net loss is $2.5 million, an $11.2 million improvement over the same period last year.
As we move into our peak selling season, our inventory is good and we are well positioned to deliver great deals to the cost conscious consumer.
As previously announced, we have received a notice from the Securities and Exchange Commission stating that the SEC is conducting an investigation concerning our previously-announced financial restatements of 2006 and 2008 and other matters. The subpoena accompanying the notice covers documents related to the restatements and also to our billings to our partners in the fourth quarter of 2008 and related collections, and our accounting for and implementation of software relating to our accounting for customer refunds and credits, including offsets to partners, and related matters. We have been and will continue to cooperate fully with the investigation. In addition, we have received a comment letter from the SEC's Division of Corporation Finance regarding our 2008 Form 10-K/A and June 30, 2009 Form 10-Q. We have responded to the comment letter, but have not yet resolved all of the staff's comments.
I look forward to discussing your business with you on our conference call, and until then, I remain,
Your humble servant,
Patrick M. Byrne
P.S. Please email questions to Kevin Moon at kmoon@overstock.com prior to the conference call.
Key financial and operating metrics discussion:
Total revenue -- Total revenue for the three months ended September 30, 2009 and 2008 was $195.1 million and $186.9 million, respectively, a 4% increase. For the nine months ended September 30, 2009 and 2008, total revenue decreased 3% to $558.6 million from $578.5 million.
Gross profit -- Gross profit for the three months ended September 30, 2009 and 2008 was $37.7 million and $32.1 million, respectively, a 17% increase, representing 19.3% and 17.2% of total revenue for those respective periods. For the nine months ended September 30, 2009 and 2008, gross profit was $111.3 million and $99.3 million, respectively, a 12% improvement, representing 19.9% and 17.2% of total revenue for those respective periods.
For the nine months ended September 30, 2009, we reduced total Cost of goods sold by $1.7 million due to recoveries from partners who were underbilled in 2008 for certain fees and charges, and for a refund of overbillings by a freight carrier for charges from the fourth quarter of 2008. These recoveries accounted for 31 basis points of the 270 basis point improvement in gross profit from the nine months ended September 30, 2008. Without this reduction, gross profit for the nine months ended September 30, 2009 would be $109.5 million (19.6% as a percentage of total revenue), a 10% increase from the nine months ended September 30, 2008 rather than the 12% increase described above. In the third quarter of 2009, we recognized $117,000 of recoveries from partners and a freight carrier for charges related to 2008.
In September 2009, we executed a new supplier agreement with a majority of our fulfillment partners with the goal to better manage costs related to product returns. The impact of this change resulted in a reduction of Cost of goods sold related to our fulfillment partner business of approximately $350,000 in Q3 2009.
Contribution (a non-GAAP financial measure) and Contribution margin (a non-GAAP financial measure) -- Contribution for the three months ended September 30, 2009 and 2008 was $25.5 million (13.1% Contribution margin) and $20.2 million (10.8% Contribution margin), respectively, a 26% increase in Contribution, or a 230 basis point improvement in Contribution margin, when compared to the same period in the prior year. For the nine months ended September 30, 2009 and 2008, Contribution was $74.4 million (13.3% Contribution margin) and $58.1 million (10.0% Contribution margin), respectively, a 28% increase, or a 330 basis point increase when compared to the same period in the prior year.
Contribution (a non-GAAP financial measure) (which we reconcile to "Gross profit" in our statement of operations) 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 revenues. When viewed with our GAAP gross profit less sales and marketing expenses, 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. You should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. 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 (loss) and net income (loss).
For further details on Contribution, see the calculation of this non-GAAP financial measure below (in thousands):
Three months ended Nine months ended
September 30, September 30,
------------- -------------
2008 2009 2008 2009
---- ---- ---- ----
Total revenue $186,855 $195,081 $578,505 $558,591
Cost of goods sold 154,736 157,412 479,206 447,323
------- ------- ------- -------
Gross profit 32,119 37,669 99,299 111,268
Less: Sales and marketing expense 11,934 12,187 41,197 36,849
------ ------ ------ ------
Contribution $20,185 $25,482 $58,102 $74,419
------- ------- ------- -------
Contribution margin 10.8% 13.1% 10.0% 13.3%
Sales and marketing expenses -- Sales and marketing expenses totaled $12.2 million and $11.9 million for the three month periods ended September 30, 2009 and 2008, respectively, representing 6.2% and 6.4% of total net revenue for those respective periods. Comparing the third quarter of 2009 with the same quarter of 2008, sales and marketing expenses increased 2%. For the nine month periods ended September 30, 2009 and 2008, sales and marketing expenses decreased 11% to $36.8 million in 2009 from $41.2 million in 2008, representing 6.6% and 7.1% of total revenue for those respective periods. The decrease in sales and marketing costs was primarily due to more efficient marketing spending in 2009.
Technology expenses -- Technology expenses totaled $12.4 million and $14.1 million for the third quarters of 2009 and 2008, representing 6.4% and 7.6% of revenue for the third quarters of 2009 and 2008, respectively. Comparing the third quarter of 2009 to the third quarter of 2008, technology expenses decreased 12% primarily due to decreased depreciation expense for technology equipment and software development of approximately $2.7 million, which was partially offset by an increase in compensation of approximately $1.5 million related to an increase in technology staff.
For the nine month periods ended September 30, 2009 and 2008, technology expenses totaled $38.9 million and $43.9 million, respectively, representing 7.0% and 7.6% of total revenue for those respective periods, a decrease of 12%. The decrease is primarily due to a $10.3 million decrease in expenses related to depreciation of technology equipment and software development and the expiration of an operating lease in Q2 of 2008 which was not renewed, which was partially offset by an increase in compensation of approximately $5.0 million related to an increase in technology staff.
General and administrative ("G&A") expenses -- G&A expenses totaled $13.2 million and $10.3 million for the three months ended September 30, 2009 and 2008, respectively, 6.8% and 5.5% of total revenue for those respective periods. The $2.9 million increase in G&A expenses for the three month period ended September 30, 2009 compared to the same period in 2008 is primarily attributable to an increase in compensation expense of approximately $1.9 million related to an increase in general and administrative staff, and an increase in legal expense of approximately $1.6 million; which was partially offset as we recognized a reduction of legal expense of $683,000 from a $2.75 million settlement payment discussed below.
For the nine month periods ended September 30, 2009 and 2008, G&A expenses totaled $38.8 million and $30.8 million, representing 7.0% and 5.3% of total revenue for both periods, respectively. The increase of $8.1 million in G&A expenses, which represents an increase of 26% for the nine month period ended September 30, 2009 compared to the same period in 2008 is primarily due to an increase in compensation expense of approximately $5.9 million related to an increase in general and administrative staff, which includes expense of $1.25 million related to termination of a consulting arrangement with Icent LLC. Icent LLC's chief executive officer is James V. Joyce, who resigned from his position as a member of the Board of Directors on April 1, 2009.
The increase in G&A expenses is also related to additional facilities expenses relating to a new customer service center in the first part of 2009, increased moving related expenses and an increase of legal expenses of approximately $2.0 million during the nine month period ended September 30, 2009 compared to the same period of 2008; we incurred $4.2 million in legal expense for the nine months ended September 30, 2009 compared to $2.9 million of legal expense in the same period of 2008, which was partially offset as we recognized a reduction of legal expense of $1.9 million from a $2.75 million payment that we received from an insurer in the settlement of a dispute regarding insurance coverage of a legal matter. The remaining balance of $859,000 is recorded in accrued liabilities at September 30, 2009 in the accompanying Consolidated Balance Sheets.
