Form 8-K OVERSTOCK.COM, INC For: Oct 23

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October 23, 2014 9:11 AM EDT


�
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM�8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

October 23, 2014
Date of Report (date of earliest event reported)
Overstock.com, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
�
000-49799
�
87-0634302
(State or other jurisdiction of
�
(Commission File Number)
�
(I.R.S. Employer
incorporation or organization)
�
�
�
Identification Number)

6350 South 3000 East
Salt Lake City, Utah 84121
(Address of principal executive offices)
�
(801) 947-3100
(Registrants telephone number, including area code)

(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
�
�
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
�
�
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
�
�
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
�
�




Item 2.02. Results of Operations and Financial Condition

On October 23, 2014, Overstock.com, Inc. (the Company) issued a press release announcing the Companys financial results for the three months ended September 30, 2014. A copy of the press release is attached hereto as Exhibit 99.1.

The information in this Current Report on Form 8-K is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section.

Item 9.01. Financial Statements and Exhibits

(d)����Exhibits.
����
The following exhibit is furnished with this report:
����
99.1 Press release issued October 23, 2014.

This Form 8-K may include statements that are forward-looking statements. There are risks that the Company faces that could cause actual results to be materially different from those that may be set forth in forward-looking statements made by the Company. There also may be additional risks that the Company does not presently know or that it currently believes are immaterial which could also impair its business and results of operations. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Additional information regarding factors that could materially affect results and the accuracy of the forward-looking statements contained herein may be found in the Companys Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on February 27, 2014, our Form 10-Q for the quarter ended June 30, 2014 filed with the SEC on July 29, 2014, and any subsequent filings with the SEC.



2


SIGNATURE
�
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
�
�
�
OVERSTOCK.COM,�INC.
�
�
�
�
By:
/s/ ROBERT P. HUGHES
�
�
Robert P. Hughes
�
�
Senior Vice President, Finance and Risk Management
�
Date:
October 23, 2014


3



FOR IMMEDIATE RELEASE:

Media Contact:
Kirstie Burden, Overstock.com, Inc.
+1 (801) 947-3116

Investor Contact:
Mark Harden, Overstock.com, Inc.
+1 (801) 947-5409

Overstock.com Reports Q3 2014 Results
Q3 2014 revenue growth of 17 percent and net income of $1.6 million

SALT LAKE CITY - October 23, 2014 - Overstock.com, Inc. (NASDAQ: OSTK) today reported financial results for the quarter ended September 30, 2014.

Key Q3 2014 metrics (comparison to Q3 2013):
"
Revenue: $353.0M vs. $301.4M (17% increase);
"
Gross profit: $67.1M vs. $59.2M (13% increase);
"
Gross margin: 19.0% vs. 19.6% (60 basis point decrease);
"
Sales and marketing expense: $25.4M vs. $22.5M (13% increase);
"
Contribution (non-GAAP measure): $41.6M vs. $36.7M (13% increase);
"
G&A/Technology expense: $39.3M vs. $33.2M (18% increase);
"
Pre-tax income: $2.0M vs. $3.6M ($1.6M decrease);
"
Provision for income taxes: $413,000 vs. $91,000 ($322,000 increase);
"
Net income: $1.6M vs. $3.5M ($1.9M decrease); and
"
Diluted EPS: $0.07/share vs. $0.14/share ($0.07/share decrease).

As previously announced, the company will hold a conference call and webcast to discuss its Q3 2014 financial results Thursday, October 23, 2014, at 11:30 a.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 17335480 when prompted. Participants outside the United States 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 2:30 p.m. ET on Thursday, October 23, 2014, through 11:59 p.m. ET on Thursday, November 6, 2014. To

1


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 [email protected] 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 Q3 2014 and 2013 was $353.0 million and $301.4 million, respectively, a 17% increase. The growth in revenue was primarily due to a 13% increase in orders, coupled with a 6% increase in average order size, from $170 to $180. These increases 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 driving a higher proportion of our sales using those channels. Although our average order size has increased in recent years, we expect the rate of increase to taper in the future.

Gross profit - Gross profit for Q3 2014 and 2013 was $67.1 million and $59.2 million, respectively, a 13% increase, representing 19.0% and 19.6% gross margin for those respective periods. The increase in gross profit was primarily due to higher revenue. The decrease in gross margin was largely due to increased promotional activities including coupons, site sales, and Club O Rewards (which we recognize as a reduction of revenue) due to driving a higher proportion of our sales using those channels.

Sales and marketing expenses - Sales and marketing expenses totaled $25.4 million and $22.5 million for Q3 2014 and 2013, respectively, a 13% increase, and representing 7.2% and 7.5% of total net revenue for those periods. The increase in sales and marketing expenses was primarily due to higher revenue. The decrease in sales and marketing expenses as a percent of revenue was primarily due to decreased spending in the sponsored search and offline advertising marketing channels due to driving a smaller proportion of our revenue using those channels.

Contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) - Contribution for Q3 2014 and 2013 was $41.6 million and $36.7 million, respectively, a 13% increase, representing 11.8% and 12.2% contribution margin for those respective 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 provides 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.


2


Our calculation of contribution and contribution margin is set forth below (in thousands):
�
Three months ended
�
September 30,
�
2014
�
2013
Total net revenue
$
352,991

�
100.0
%
�
$
301,426

�
100.0
%
Cost of goods sold
285,933

�
81.0
%
�
242,276

�
80.4
%
Gross profit
67,058

�
19.0
%
�
59,150

�
19.6
%
Less: Sales and marketing expense
25,428

�
7.2
%
�
22,463

�
7.5
%
Contribution and contribution margin
$
41,630

�
11.8
%
�
$
36,687

�
12.2
%

Technology expenses - Technology expenses totaled $22.2�million and $17.3�million for Q3 2014 and 2013, respectively, a 29% increase, and representing 6.3% and 5.7% of total net revenue for those respective periods. The increase is primarily due to an increase in staff-related costs of $3.0 million related to our recent innovation efforts in fulfillment services, international expansion, and other software innovation, and a related increase in technology depreciation of $1.4 million.

General and administrative ("G&A") expenses - G&A expenses totaled $17.1 million and $16.0�million for Q3 2014 and 2013, respectively, a 7% increase, and representing 4.8% and 5.3% of total revenue for those respective periods. The increase is primarily due to an increase of $2.4 million in staff and travel related costs, and a $565,000 increase in professional fees, partially offset by a decrease of $2.5 million in legal costs.

Interest income - Interest income was $36,000 and $34,000 for Q3 2014 and 2013, respectively.

Interest expense - Interest expense totaled $11,000 and $33,000 for Q3 2014 and 2013, respectively.

Other income (expense), net - Other income (expense), net totaled ($350,000) and $165,000 for Q3 2014 and 2013, respectively. The decrease is primarily due to an increase in unrealized losses on precious metals of $659,000, partially offset by increased Club O Rewards and gift card breakage of $209,000.

Overall, our revenue growth drove higher gross profits, and growth in Contribution. These increases were offset by higher technology expenses as part of our innovation efforts. As a result, operating income decreased as compared to Q3 2013.

Provision for income taxes -�Provision for income taxes totaled $413,000 and $91,000 for Q3 2014 and 2013, respectively.

Free cash flow (a non-GAAP financial measure) - Free cash flow totaled $32.7 million and $39.4 million for the twelve months ended September 30, 2014 and 2013, respectively. The $6.6 million decrease was due to a $20.7 million increase in capital expenditures including the companys recent $11.0 million purchase of land for its future headquarters, partially offset by a $14.1 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

3


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):
�
Nine months ended
September 30,
�
Twelve months ended
September 30,
�
2014
�
2013
�
2014
�
2013
Net cash provided by (used in) operating activities
$
(496
)
�
$
13,784

�
$
69,365

�
$
55,266

Expenditures for fixed assets, including internal-use software and website development
(32,544
)
�
(13,970
)
�
(36,641
)
�
(15,896
)
Free cash flow
$
(33,040
)
�
$
(186
)
�
$
32,724

�
$
39,370


Cash and working capital - We had cash and cash equivalents of $112.7 million and $148.7 million and working capital of $18.0 million and $25.6 million at September 30, 2014 and December 31, 2013, respectively.

Our December 31, 2013 balance sheet includes an immaterial revision to current and deferred tax assets and our provision for income taxes for 2013. The effect of the revision was to reduce current and long-term deferred tax assets by $121,000 and $2.9 million, respectively, with an offsetting increase of $3.0 million to our provision for income taxes for 2013.


About Overstock.com
Overstock.com, Inc. (NASDAQ: OSTK) is a discount online shopping retailer based in Salt Lake City, Utah that sells a broad range of products including furniture, rugs, bedding, electronics, clothing, and jewelry.�Worldstock.com, a fair trade department dedicated to selling artisan-crafted products from around the world offers additional unique items. Main Street Revolution supports small businesses across the United States by providing them a national customer base. Forbes ranked Overstock in its list of the Top 100 Most Trustworthy Companies in 2014. The NRF Foundation/American Express 2011 Customer Choice Awards ranked Overstock #4 in customer service among all U.S. retailers.�Overstock sells internationally under the name O.co. Overstock Shopping (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.

Overstock.com�, O.co�, Worldstock Fair Trade� and Club O Rewards� are registered trademarks of Overstock.com, Inc. O.info", Club O", Club O Dollars" and Your Savings Engine" are trademarks of Overstock.com, Inc. All other trademarks are the property of their respective owners.
�
# # #

This press release and the October 23, 2014 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 December 31, 2013, which was filed with the Securities and Exchange Commission on February 27, 2014, our Form 10-Q for the quarter ended March 31, 2014 which was filed with the Securities and Exchange Commission on April 29, 2014, and our Form 10-Q for the quarter ended June 30, 2014 which was filed with the Securities and Exchange Commission on July 29, 2014. 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.


4



Overstock.com,�Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands)
�
�
September�30,
2014
�
December�31,
2013
Assets
�

�
�

Current assets:
�

�
�

Cash and cash equivalents
$
112,740

�
$
148,665

Restricted cash
1,580

�
1,580

Accounts receivable, net
14,941

�
16,047

Inventories, net
25,283

�
27,043

Prepaid inventories, net
1,723

�
1,804

Deferred tax assets, net
13,733

�
13,733

Prepaids and other current assets
14,143

�
10,298

Total current assets
184,143

�
219,170

Fixed assets, net
47,622

�
27,194

Precious metals
8,926

�
9,678

Deferred tax assets, net
52,952

�
55,861

Goodwill
2,784

�
2,784

Other long-term assets, net
1,943

�
2,023

Total assets
$
298,370

�
$
316,710

Liabilities and Stockholders Equity
�

�
�

Current liabilities:
�

�
�

Accounts payable
$
63,141

�
$
90,582

Accrued liabilities
62,370

�
65,679

Deferred revenue
40,651

�
37,321

Total current liabilities
166,162

�
193,582

Other long-term liabilities
3,888

�
3,294

Total liabilities
170,050

�
196,876

Commitments and contingencies
0

�
0

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 - 27,230 and 26,909
�

�
�

Outstanding shares - 24,027 and 23,785
2

�
2

Additional paid-in capital
364,997

�
361,706

Accumulated deficit
(154,148
)
�
(161,644
)
Treasury stock:
�

�
�

Shares at cost - 3,203 and 3,124
(82,531
)
�
(80,230
)
Total stockholders equity
128,320

�
119,834

Total liabilities and stockholders equity
$
298,370

�
$
316,710



5


Overstock.com,�Inc.
Consolidated Statements of Income and Comprehensive Income (Unaudited)
(in thousands, except per share data)
�
�
Three months ended
�September 30,
�
Nine months ended
�September 30,
�
2014
�
2013
�
2014
�
2013
Revenue, net
�

�
�

�
�

�
�

Direct
$
33,592

�
$
35,681

�
$
104,854

�
$
113,873

Fulfillment partner
319,399

�
265,745

�
921,889

�
792,751

Total net revenue
352,991

�
301,426

�
1,026,743

�
906,624

Cost of goods sold
�

�
�

�
�

�
�

Direct
29,385

�
30,777

�
91,955

�
99,768

Fulfillment partner
256,548

�
211,499

�
741,109

�
630,931

Total cost of goods sold
285,933

�
242,276

�
833,064

�
730,699

Gross profit
67,058

�
59,150

�
193,679

�
175,925

Operating expenses:
�

�
�

�
�

�
�

Sales and marketing
25,428

�
22,463

�
72,363

�
60,376

Technology
22,202

�
17,259

�
63,211

�
53,339

General and administrative
17,073

�
15,970

�
48,250

�
47,643

Restructuring


�


�
(360
)
�
(471
)
Total operating expenses
64,703

�
55,692

�
183,464

�
160,887

Operating income
2,355

�
3,458

�
10,215

�
15,038

Interest income
36

�
34

�
114

�
100

Interest expense
(11
)
�
(33
)
�
(30
)
�
(121
)
Other income (expense), net
(350
)
�
165

�
633

�
360

Income before income taxes
2,030

�
3,624

�
10,932

�
15,377

Provision for income taxes
413

�
91

�
3,436

�
449

Net income
$
1,617

�
$
3,533

�
$
7,496

�
$
14,928

Net income per common sharebasic:
�

�
�

�
�

�
�

Net income attributable to common sharesbasic
$
0.07

�
$
0.15

�
$
0.31

�
$
0.63

Weighted average common shares outstandingbasic
24,027

�
23,766

�
23,988

�
23,692

Net income per common sharediluted:
�

�
�

�
�

�
�

Net income attributable to common sharesdiluted
$
0.07

�
$
0.14

�
$
0.31

�
$
0.61

Weighted average common shares outstandingdiluted
24,283

�
24,446

�
24,290

�
24,297

�
�
�
�
�
�
�
�
Comprehensive income
$
1,617

�
$
3,533

�
$
7,496

�
$
14,928





6


Overstock.com,�Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
�
Nine months ended
�September 30,
�
Twelve months ended
�September 30,
�
2014
�
2013
�
2014
�
2013
Cash�flows�from�operating�activities:
�

�
�

�
�

�
�

Net income
$
7,496

�
$
14,928

�
$
78,020

�
$
23,715

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
�

�
�

�
�

�
�

Depreciation and amortization
12,806

�
10,833

�
16,495

�
14,907

Realized gain from sale of marketable securities
(11
)
�
(28
)
�
(16
)
�
(29
)
Stock-based compensation to employees and directors
2,949

�
2,377

�
3,823

�
3,280

Deferred income taxes
2,909

�


�
(66,685
)
�


Amortization of debt discount and deferred loan costs


�
14

�
4

�
32

Loss on investment in precious metals
752

�
475

�
1,734

�
475

Loss on investment in cryptocurrency
50

�


�
50

�


Restructuring (reversals)
(360
)
�
(471
)
�
(360
)
�
(448
)
Changes in operating assets and liabilities:
�
�
�
�
�
�
�
Restricted cash


�
125

�
75

�
280

Accounts receivable, net
1,106

�
4,601

�
(269
)
�
(652
)
Inventories, net
1,760

�
3,731

�
(2,550
)
�
(1,343
)
Prepaid inventories, net
81

�
(14
)
�
203

�
(258
)
Prepaids and other current assets
(3,484
)
�
(2,995
)
�
(1,025
)
�
(1,387
)
Other long-term assets, net
(7
)
�
(445
)
�
440

�
448

Accounts payable
(27,512
)
�
(7,779
)
�
8,447

�
11,277

Accrued liabilities
(3,164
)
�
(2,308
)
�
17,103

�
4,711

Deferred revenue
3,330

�
(8,553
)
�
10,793

�
1,044

Other long-term liabilities
803

�
(707
)
�
3,083

�
(786
)
Net cash provided by (used in) operating activities
(496
)
�
13,784

�
69,365

�
55,266

Cash flows from investing activities:
�

�
�

�
�

�
�

Purchases of marketable securities
(19
)
�
(111
)
�
(40
)
�
(124
)
Purchases of intangible assets
(54
)
�
(13
)
�
(54
)
�
(13
)
Sales of marketable securities
77

�
291

�
78

�
291

Investment in precious metals


�
(5,980
)
�
(2,100
)
�
(7,377
)
Investment in cryptocurrency
(396
)
�


�
(396
)
�


Expenditures for fixed assets, including internal-use software and website development
(32,544
)
�
(13,970
)
�
(36,641
)
�
(15,896
)
Net cash used in investing activities
(32,936
)
�
(19,783
)
�
(39,153
)
�
(23,119
)
Cash flows from financing activities:
�

�
�

�
�

�
�

Payments on capital lease obligations
(325
)
�
(2,563
)
�
(325
)
�
(2,563
)
Payments on line of credit


�


�


�
(17,000
)
Paydown on direct financing arrangement
(209
)
�
(192
)
�
(275
)
�
(253
)
Change in restricted cash


�


�
125

�


Proceeds from exercise of stock options
342

�
1,458

�
444

�
1,458

Purchase of treasury stock
(2,301
)
�
(1,389
)
�
(2,303
)
�
(1,396
)
Net cash used in financing activities
(2,493
)
�
(2,686
)
�
(2,334
)
�
(19,754
)
Net increase (decrease) in cash and cash equivalents
(35,925
)
�
(8,685
)
�
27,878

�
12,393

Cash and cash equivalents, beginning of period
148,665

�
93,547

�
84,862

�
72,469

Cash and cash equivalents, end of period
$
112,740

�
$
84,862

�
$
112,740

�
$
84,862



7

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