Q4 2019 Earnings Call
Callahan director of Investor Relations. Thank you. Please go ahead.
Thank you Gigi good morning, and welcome to our fourth quarter 2019 earnings Conference call.
Joining me today are Jonathan Johnson, CEO of Overstock, and President Medici Ventures gave Nielsen President of Overstock retail and Saum Noursalehi CEO Keith Euro.
Let me remind you that the following discussion and our responses to your question.
I want to management's views as of today March 13, 2020 and May include forward looking statement.
Actual results may differ materially.
Additional information about factors that could potentially impact our financial results.
Included in the press release and form 10-K filed this morning.
Please review the forward looking statements disclosure on flights you of today's presentation.
During this call will discuss certain non-GAAP financial measures.
Slides accompanying this webcast and other filings with the FCC 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.
Jonathan with that let me turn the call over to you heard your Watson.
Welcome and good morning.
I appreciate your interest in overstock.
I'm excited to talk again with her show I understand all started by reviewing the agenda.
Oh, that's your remarks and updates on topics I believe are top of mind for shareholders will then discuss the overstock retail business burgers mood, but do zero, but did so another another geoventures companies.
And then take questions like slot.
The last two quarters, we're all about establishing stability and focus.
Honestly is just where we broad real value, where we need to improve and upgrade and where we can best lovers your strength within the market.
We have identified areas in which we excel and have real opportunity places, where we should focus our efforts and double down on their strength.
For example, and Dave will discuss some of these in more detail overstock retail is improving or mobile website conversion rate and shopping experience.
Measuring or discounting and pricing.
Maximizing the value of our website.
We have also active were chosen to amend certain projects in businesses that did not that these criteria removing destruction, allowing us to remain focus for example, overstock retail turned up the cars pet adoptions and real estate portions of the website.
Two zero and stop working on the deal or project.
We remain committed to returning overstock retail to sustainable profitable growth.
And growing the block chain businesses to their potential.
This focus this stability will get us there.
In the fourth quarter, we established right initiatives and said Bulkers objectives with measurable GE result targets against which we can Franco progress and hold ourselves accountable in 2020.
Throughout the organization, we are committed to a disciplined focus.
But as our direction and in the team's ability to execute next month.
Let me up bridge I'll update you on a digital dividend as you know we receive shareholder approval on February 13 to move forward as planned with the issuance of our dividend.
As I mentioned during our special shareholder meeting, we're committed to making this pretty smooth shareholder experience.
Trailblazing can be rocky so we're working to finalize it do details there will ensure smooth <unk> shareholder experience.
As I mentioned on February 13, we still intend for the company to set the record date and distribute the dividend in April.
Of course watching and reacting to market conditions.
Thank you for your support in this historic.
Really important endeavor, one that I believe.
They bring real value to our shareholders next time.
[noise] onto capital.
Many of you asked about the status of our financing efforts in November the company entered into agreement with Jones trading to sell shares through an ATM.
And in aftermarket offering.
In the fourth quarter, we raised gross <unk> net proceeds of $34 million through that program.
Well the prices of the shares we sold in the ATM were lower than I'd typically like to raise capital.
Management and the board felt it was prudent to put some cash in the till.
We recently filed post affective amendments to our form S. Three as a result of losing or what's the status.
We will continue to engage and good corporate housekeeping activities. So we can take advantage of future market conditions.
We recently refinanced or peace Coliseum headquarters, which provides us with another 47 and a half a million in capital we signed that agreement last week and the money is now in our account.
The interest rate and other terms are good is a good time to be a borrower.
We have borrowed against the building in the past as we manage the company's balance sheet.
And we have paid all four loans well ahead of maturity.
As Ohio, one later in the call several of our June two companies raised third party Jetaport capital over the last year, so, including most recently met its you land governance.
For shareholders and other stakeholders shouldn't view all these activities favorably.
Our balance sheet is strong.
Next month.
I mentioned earlier, the team's ability to execute let me highlight some great additions to our leadership.
Part of her righting the ship is getting the right people going to write horse in the right direction.
We recently made some changes I believe I believe are accomplishing just yes.
First off on please Rob Shapiro joined me Overstock Board of Directors, Rob has been serving on the board of metallurgy ventures for the past three years and has provided valuable insights into our block chain business.
His wealth of knowledge and both public and private sectors, including serving as under Secretary of Commerce for economic Affairs, a real assets to overstock.
I look forward do is continued contributions to the business.
I should mention our board. He is actively looking for two additional board members to augment the skill set a dog and bring fresh thinking to the board.
We're doing so in a careful and methodical way because we want to find the right people.
Let me turn into recent senior executive appointments it overstock retail.
First Joel worried has become our CTO.
Joel joined Overstock nine years ago, when it's held many position. Since then most recently has met a g. ventures, Chief operating officer and before that it's CTO.
I'm thrilled that Joel rejoin the overstock retail team in this key executive role.
Joel is a highly skilled technologists, who brings 20 plus years of enterprise software architecture development and growth experienced overstock.
Confident his passion for building cutting edge technology will keep us and innovative ecommerce leader.
I'm also excited about the appointment of bark Baker Chief product officer.
Mark joined Overstock retail on 2011 and has held many product development roles.
Putting being responsible for building and maintaining many of the website pro products and platforms that have made overstock the online retail technology leader it is.
Marks technical track record includes helping overstock build our supply chain and logistics system.
The system superior to those of many of our competitors.
<unk> has a proven ability to build a world class customer facing products and his appointment is a strategic move to leverage is telling more broadly across our products and platforms.
Many of our shareholders have already had the chance to interact with Lexus Callahan, our new director of Investor Relations.
Well Lexus has investment banking.
Public company Investor Relations and block chain company experience. She is a great addition to our team, particularly as we work to improve our regular communication with her owners about who overstock is and what we're doing.
I Trust, she will become a valuable resource for our shareholders.
Yes.
You'll notice another new face on this slide Anthony strong who has been with overstock for over 15 years and he is our controller is no acting CFO, replacing reviews.
With minutes you land governance is recent capital raise NLG again requires rob's full time attention.
President.
I want to thank Rob for graciously stepping in to fill the CFO position well, we undertook our executive search efforts to find a full time replacement Rob good yeoman's work.
On that note I'm pleased to announce we've found an excellent CFO and she is accepted our offer I cannot yet discloser name at this moment, but I can tell you. She has an impressive background and credentials.
The entire team is excited to have her join us at the ended the month I expect we'll make the official announcement about her early next week.
It was gratifying that we received a lot of interest from very highly qualified candidates.
Next slide.
[noise] because many of you ask let me give a status update on regulatory matters.
We continue to cooperate fully engage with the FCC staff to address is questions and requests.
We will update our shareholders when the situation warrants.
Today.
There is nothing meaningful to report.
Next slide.
The Corona virus is top of mind everywhere.
We are taking the situation seriously and monitoring developments closely.
I suspect you have questions about how corona virus might impact our business.
So let me address those head on mentioning five points.
First the situation is obviously very fluid is difficult to predict with any certainty what will happen.
That said, so far we've not observed any material.
Impact to our business.
Second as we've mentioned before we've taken steps over the years to diversifying our sources.
Chinese manufactured products now have decreased two now represent approximately 50% of our revenue as we source more products from adjacent countries.
Third our dropship partner model should enable us to quickly pivot and react to market shocks because we are online only.
I have no physical footprint any reduction in retail foot traffic really has no negative impact on us.
It's the opposite if people.
I was forced to stay at home they may show up online instead.
For.
Relating to product in our supply chain one of our competitors in the home furnishings space recently announced forecast reductions on its earnings call.
I suspect this is a good thing for overstock and our supply chain has this competitor works with many of our drop ship partners.
[noise] change may make more inventory available for us to sell.
As an aside the change also provides an opportunity for us to gain market share and the growing online home furnishings market.
Yep.
As an organization we are now encouraging.
But not yet requiring our employees to operate on a remote basis.
Because we have prepared for this in the past there has been minimal operational disruption and rolling this out.
Next slide.
Before turning to the business updates, let me address another question I frequently here.
How should I think you've overstock is it a retailer or block chain company.
Overstock is that our core technology company.
We started as an innovative ecommerce company over two decades ago.
And today, we continually innovate using technology to optimize commerce and to fundamentally change the way people will transact.
On the retail side, we are using machine learning and artificial intelligence to better the customer shopping experience.
And our technologists are focused on improving the website to be faster and easier to use and navigate.
At the Medici ventures, keiretsu companies, including T zero, where easy blockchain technology to change the way commerce is done.
You think of Overstock.
Technology.
Thank you innovation.
Next slide.
With that let's dive into the business updates paid Nielsen president of Overstock retail.
How about fourth quarter performance and what we see on the horizon.
Thank you Jonathan.
Next slide.
Let's jump right into fourth quarter business performance adjusted EBITDA came in as expected.
Which was 60% favorable to the comparable quarter last year, a 10 million dollar improvement.
Looking at it through the lens of including only overstock retail portion of the shared services our retail adjusted EBITDA came in at a negative 2 million.
Our full year 2019, adjusted EBITDA improved by $90 million, which was an 81% improvement and we continue to focus on achieving sustainable profitable growth.
These results are inline with where we thought they would be.
The team continues to focus on customer experience promotional modeled improvements and expense management.
Slide.
Our fourth quarter contribution came in at 35 million, which equates to a 7% improvement year over year.
For the full year, we came in at a 148 million 70 million above last year, an 89% improvement.
We began righting the ship in late 2018, and we'll continue to focus our efforts on this turnaround.
In spite of some of the tariff and logistics headwinds we experienced in the second half of 2019.
We allocated our resources to ensure that our core profitable focus areas had the most attention.
We continue to bring in quality assortment drive compelling promotions and provide a customer experience that will continue to drive our contribution going forward next slide.
Some additional Q4 financial results demonstrate retail significant progress.
Gross margin improved.
By 275 basis points year over year to 20.7%.
And contribution dollars correspondingly improve as described on the previous slide with contribution margin improving by 233 basis point year over year and 9.7%.
Next slide.
Our annual result show, how our strategy to return to our core principles and sustainable profitable growth is already evident as several of our key performance indicators are moving into right direction again.
2019, gross margin improved by 74 basis points to 20.1% versus last year and contribution margin improved by 595 basis points to 10.3% that translated into a contribution dollar increase of 89% to 148 million 70.
Million dollar improvement year over year.
We are committed to achieving sustainable profitable growth.
As a pure play ecommerce retailers, we're well positioned to quickly adjust to a winning strategy.
Next slide.
As we mentioned last quarter overstock retail isn't a large and growing market that has not yet seen significant online migration.
Home furnishings market is a 300 billion dollar market with online representing only 23% of the total and which was estimated to grow 16% last year.
We're also proud to say that we are the fifth largest home furnishings brand online where the market is projected to continue its double digit growth.
Customers become more and more comfortable buying online our 20 years and experienced in the states make is well positioned to capture online migration market share.
Next slide.
The customer research that we've done continues to drive our focus the two segments. The play to our strengths and then which we have chosen to focus represent 40% of the home furnishings market roughly $120 billion.
These customers already over index for shopping with overstock their deal driven and what low hassle experience.
Our strategy is to continue to optimize our site for those customers by accommodating for their unique shopping preferences throughout our website.
We will leverage our analytics and machine learning models to ensure we create an experience they love and that starts with a clear focus strategy.
Next slide.
Overstock aspires to create dream homes for all and we've consolidated our vision and our focus into a single fly.
We know what to do we know that to drive sustainable profitable growth, we must focus on our customers highest needs.
Focus is a principal you'll hear us reinforce relentlessly.
We have three brand pillars of focus that we've shared with you in previous calls product fundability smart value and easy delivery and support.
On the following slides will share with you some cases.
We used to evaluate our progress against these objectives and we share. These with you. So that you can hold us accountable in our progress against our strategy.
Next slide.
We measured product find ability in part by the time it takes customers to engage with their first product.
As you can see on the chart on the left we have improved significantly which indicates that our search and navigation efforts have made it easier for customers to find what they're looking for.
Sites speed also matters as research indicates customers are highly sensitive to page load speed as you can see from the chart on the right. We've reduced our page look time, particularly in mobile over the course of the year. We continue to look for ways to make our website faster and more responsive.
Next slide.
The second component of product find to Billy aside from speed is relevant making it easier for customers to find the products. They want we've made site search improvements over the past year, which has led to higher site search conversion.
People engaging with our site are more likely to by year over year and this is a big focus for us in the coming year as well.
Next slide.
Of our three brand pillars smart value.
As of most importance to our customers and we are proud to share that over the holiday season, Overstock with fifth most mentioned retailer or having shoppers favorite online shopping experience.
We see customer satisfaction reflected in their increasing perception of our price advantage over other retailers.
We have to asked ourselves and cost reduction initiatives that will enable us to further drive down costs. So that we can then pass those savings onto our customers.
Next slide.
And talking about costs, one of our biggest as returns.
We focused on streamlining our supply chain and are moving other areas of friction, which helped to drive down those costs. So we can maintain or competitive pricing for our customers.
Next slide.
The growth of private label within our business represents a focus on quality and in particular and assortment of high quality products. Our private label items have among the highest reviews lowest shipment time and best site content, which makes for an improved experience for the product on our site.
Next slide.
For our third brand pillar easy delivery and support we are encouraged to see or 28 day repeat purchase rate increase year over year.
Customers are demonstrating their satisfaction with overstock by returning again soon to buy with us.
Loyalty of our returning customers contributes to the confidence in our ability to achieve sustainable profitable growth.
Next slide.
One of the most important determinant in customer purchasing decisions is delivery timing.
Through prioritize inventory positioning machine learning modeling and partnerships with our suppliers, we increased the number of today shipment items by 188% in the fourth quarter versus the prior year period.
Our machine learning algorithms algorithms predicts delivery based on historical data and they continue to learn and improve.
The two biggest factors and shipments speed, our partner fulfillment capabilities and shipping carrier speed. Our partners increased their same be shipped confirming by 8% year over year and new PS helped us to recover from a disappointing prior partnership to ensure carrier speed bounced back in the fourth corner.
Next slide.
And our last earnings call, we shared some of our fourth quarter business projects that support our three brand pillars. We've made strides in all of them and we'll continue to work on many of them. We identified mobile experience as a key focus for 2020 and spent much of the fourth quarter on web analytics and customer research to understand and prior.
Entice them work.
We added resources to this project and have made a lot of progress since then.
We also focused on improving our machine learning models and personalization to improve product find ability.
Our goal of providing smart value was supported by efforts to reduce returns costs.
Expand private label strategically positioned doorbuster inventory.
And test new promotional strategies, we made progress in providing easy delivery and support by extending the returns window for our loyal club O members by improving our machine learning models for accurate delivery and by testing one day shifting messaging.
Next slide.
Going forward, we remain focused on our three brand pillars for product line to ability, we will leverage analytics in research to improve our mobile web experience refiner machine learning models for better relevance and improve our product content.
For smart value, we're focused on ensuring our promotional messaging and model is clear and valuable to our customers.
And we'll also work continue lowering our logistics costs.
Finally.
For easy delivering support will continue our integration and refinement of our machine learning models strategically positioning inventory.
And improve our customer self service support experience.
Next slide.
The home furnishings market is a 300 billion dollar market and growing.
It is increasingly moving online we are locked into our two customer segments. The play into our strengths and that represent 40% of this 300 billion dollar market.
We have deployed a solid strategy.
And established focused initiatives.
Execute against in order to return to sustainable profitable growth with that let me turn the time back to you Jonathan. Thank you, Dave I am excited about our initiatives and focus.
And I'm pleased to have the team is executing on our turnaround.
Let's now turn to manage adventures and discuss some of the progress being made their slide 31.
As we always do let's begin by discussing two zero.
Saum Noursalehi CEO to zero, we'll talk about some easier as recent progress and go forward priority.
Thank you Jonathan.
2019 was a productive year for T zero, we achieved several key milestones setting the stage for our continued success this year.
As I previously mentioned much of our focus last year was on building.
We allocated our capital both human and financial on meeting in advancing regulatory requirements developing our trading technology.
And building the leadership team needed to drive our company vision. In addition to advancing our platform, we shifted our focus towards growth and adoption.
We have been making good progress.
I will discuss this further but first let's start with an overview of what we do.
Slide.
Keith deal represents the next generation capital markets platform, which ultimately allows assets to be digitally represented in the form of security tokens and provide the compliant way for these tokens to be traded.
We cannot issuers looking to raise capital and access liquidity with investors interested in trading these securities.
For example in the fourth quarter, we signed an agreement with alliance investments to Tokenized 25 million of River Plaza, a commercial real estate project in Manchester.
On concluding their capital raise which is in progress we intend to tokenized, the asset and habit trade on the T zero Ats customers of broker dealers participating on our yes, we'll be able to buy and sell that security.
Secondly, we are providing river pauses investors with secondary liquidity, while simultaneously democratizing access to a unique asset that many investors would traditionally have access to.
Slide 34.
While we only launched our prop platform last year, our recent activity relative to other marketplaces is significantly more robust in 2019, we had over 2 million shares traded representing 5 million of value transacted and roughly $23000 trades per day.
Slide 35.
In addition to our digital security ecosystem, we launched the crypto App, which is gaining traction.
Went live in June and we have seen.
And with since grown the user base 10, X. from 600 accounts to nearly 6000 note that this is with very little marketing, while also working to receive the necessary licenses to allow customers from states such as New York to sign up and create accounts.
This growth is encouraging and we expect that these customers.
We'll be able to trade securities down the road through our broker dealer broadening our investor base.
Slide 36.
You can see we have three overarching priorities this year, increasing the number of high quality assets trading enhancing liquidity on the platform.
And creating a world class experience for trading digital securities.
37.
Our first priority is to list more assets on the easier Ats. This can be broken down into three categories new offerings.
Which includes assets such as river Plaza, which are undergoing a capital raise.
And would like to distribute that asset to investors in the form of the digital security. This is the largest category of issuers, we have and we expect to have more deals signed shortly.
Broker dealer subsidiary has also find number of commissioning sharing agreements with various placement agents and broker dealers.
Since our last earnings call, we signed three New commission sharing agreements, bringing our total to 11.
This is in addition to another 10 to 15 firms that we have into formal relationships with.
These partnerships to become very important to help our issuers with their capital raise and will eventually help us source new deals for digital offerings.
The second category is aimed at tokenizing existing assets. This would include companies or assets that aren't looking to raise capital. However would like to offer their existing employees are investors with secondary liquidity.
We are fewer of these opportunities compared to the first category. However, we're refocusing on this opportunity set and are in discussions with roughly a dozen companies.
The last category, our existing securities that were issued using other digital technology protocols.
We're speaking with several issuers that are represented.
That are interested in trading on the teaser rate, yes in accessing our investor base.
This category, we we did expect to have an additional security trading at this time.
Well, we completed the necessary due diligence and tech integration the issuer, who has a significant pool of Asian investors decided to hold off given the recent market volatility.
We believe this is a transitory headwind and expect to have the security trading when the market smart moderate.
We have a strong pipeline of potential issuers, which now exceeds 200 pot prospects and continues to grow despite current market challenges.
Slide 38.
Our second priority is to enhance liquidity on our Ats. We're approaching this from a few angles first neo as detailed digital dividend, which was recently approved by overstock shareholders.
This is an important milestone broker dealers, representing overstock shareholders, who received the did the dividends shares will need to access our HTS to enable their clients to trade the digital.
Dividends I.
Im pleased to note we are already experiencing an increase in interest from broker dealers representing overstock shareholders.
We are encouraged any broker dealers interested in our Ats will reach out to IR at T zero Dot com.
The process is straightforward.
The second is through our proactive outreach to third party broker dealers as well as launching our own broker dealer TCOS Ats has signed agreements with five third party broker dealers and just completed technology integration with one of them choice trait.
In total we have roughly 100 potential broker dealer prospects that we're in discussions with.
In addition, we're targeting a second quarter launch of our retail broker dealer T. Zero markets. This is of course contingent on receiving regulatory approval.
Lastly, our JV with Stx is also making progress.
FCX recently amended the rule book that was published and regulators extended the comment period.
Stx expects the decision from regulators in the second quarter.
Slide 39.
Our third priority to create a world class investor experience over the past several months, we have made numerous enhancements to our product we increased the daily investor Onboarding capacity from roughly five per day.
[music] around 1000.
We added enhanced starting an order book functionality to our Ats.
Easier Ats made its current market data publicly available on T zero Ats Dot com.
And we did decrease the total LOE time of the T zero crypto app to under three seconds on iOS.
Android will follow shortly.
Looking ahead at our product roadmap, we plan to support the distribution of the lowest teekay digital dividend.
Integrate and support the case those block chain in our token protocol complete technology work to support the Stx and T zero markets.
Support multiple clearing firms and lastly, we expect to introduce the capability to trade security tokens on our App.
Collective collectively we believe these enhancements will meaningfully improved our products and investor experience.
Overall, it's been a very busy start to the year at Tcf, we see the most effective way to increase value for our stakeholders is by focusing on growing the supply and demand sides of our business. This will be achieved by trading more assets enhancing liquidity and improving the experience investors have on our.
Platform.
I look forward to keeping you abreast of our progress in the year ahead, and with that I'm going to turn it back over to John Thanks, Tom Ti Zeros made real progress over the last several months next slide.
I look forward to an acceleration of those trends given the catalog various catalyst in place.
Ill now provide a few additional updates on Medici ventures noticed a new addition to our identity pillar vital chain in a moment I will talk about it and another of our keiretsu companies that's made.
Notable recent progress for inclusive.
Next slide.
Before I do that I want to reiterate Domenici ventures mission statement and talk about our model Medici Ventures mission is to change the world by advancing blockchain technology technology that will fundamentally change the way in which people transact.
Just as the Internet change the way people transfer information largely in technology will change the way people transfer digitized assets to be clear, we're still in the early days or block chain adoption, but I believe it is only a matter of time until mainstream adoption occurs.
For that to really happened people need to know how and why block chain solves real world problems. That's just how the technology works.
We view that as part of Medici ventures role as in Evangelist educator.
We're committed to increasing public awareness block chain use cases, and the value they bring and do so through public engagement and policymaker outreach.
Next slide.
Metallurgy isn't just in the business and funding startups, we're also an accelerator reader.
We don't just provide capital we also offer to help our keiretsu companies Ics extend their runway to profitability.
Including offering them product development and design services.
Public and government relations services and assistance in raising capital when they need it.
It may not be widely understood Domenici ventures has an extraordinary team over 50 enterprise grade block chain developers and designers on staff.
We make this world class development team available to our keiretsu companies out there option in a flexible and highly cost efficient manner and on an as needed basis.
Time to time and energy ventures also makes these resources available to overstock retail as needs arise.
We really do view, our K read through as a family.
And we are committed to helping these companies make real progress and get products in production.
Next slide.
Speaking of family, we're pleased to announce our newest addition, vital chain utilizes blockchain technology to digitize birth and death certificates also known as vinyl Records. Then integrates does digitized records in the various health systems and State agency.
Sees fit need to keep track of them, which reduces the risk of fraud and enables more efficient benefits management.
The company's founders a proven entrepreneurs, having successfully launched in grown another block chain startup.
Final chain already has a partner the Cleveland based Metro help hospital with an agreement in place to develop and test the vital chain product.
We're excited to add vital chained to our keiretsu.
It helps advance our progress in the identity space since vinyl records play an important role in and our base layer personal identity and ultimately self sovereign identity.
Medici ventures participation in vital chain is solely through the sweat equity model, where we provide a team of developers for the next year in exchange for a 20% ownership interest in the company.
Next slide.
I will highlight inclusive another jenrette's your company that's made significant progress.
Inclusive uses block chain technology to provide low cost highly secure digital banking and compliance solutions to underserved individuals and entities globally.
Bank and underpinned.
The first after 2019 inclusive began offering compliance as a service which provides customer due diligence checks no your customer energy money laundering compliance surfaces.
Last November introduced its second product banking as a service, which uses several banking partnerships to provide ledger end and sublet during services and the facilitation funds transfers.
Inclusive also launched the compliance and payments task force, which brings together over 100 global Fintech crypto companies banks and regulators to define a global standard for AML compliance.
Importantly think Wuhan.
So inclusive has filed for 10 pounds and will continue its IP related efforts this year.
With its compliance and banking products in production inclusive is turning its attention to sales and revenue generation as we move forward and 2020.
Slide 45.
As I mentioned earlier, one of managed adventures roles as a block chain accelerator is to help our general two companies extend their respective runways to profitability.
We're already seeing success in this area.
During 2019 in the first quarter of 2020, our cancer companies have collectively raised $85 million in total capital.
63 million of which came from third party investors with Medici ventures contributing balance in the form of direct investment and conversion of intercompany payables nodes and sweat equity.
In addition to our excitement at the very real progress our clearance to companies are making.
We're pleased to see our company's raise outside capital.
This third party funding reflects the market's validation.
And we've made good decisions and that our keiretsu companies have excellent business models.
It also means we can slow down the amount of future investments being highly selective and focusing on sweat equity.
Slide 46.
So with that let me recap seven seven months since I took the help help our owners and stakeholders recognize work we've done and the progress we've made.
Well some of this work may not be readily apparent in our fourth quarter results. We've laid the foundation that will set us up for success going forward as we execute against our focused initiatives to return overstock retail to sustainable profitable growth.
And continue to advance our block chain businesses.
Even in the face of uncertainty we plan to carefully and are confident our balance sheet is strong so that we can achieve these goals.
In closing I'd like to say as a company we are more focused now than ever.
We are executing on our initiatives employees were improved performance as we entered this new decade.
We are as optimistic as ever and energized by the opportunities that lie before US. We thank you for your support as we as we embark on this exciting course for overstock.
With that Alexis lets take some questions.
Thank you Jonathan will now move into the question and answer portion of our call. We received a significant number of questions in advance of our call and we'll address several of those first well then open up the line for a few my question.
So our first question is related to retail and in particular, a main competitor who has made a significant recent reduction and at 2020 growth forecasts.
Wayfair scaling back its marketing expense, it's a question.
They will attract the CEO well that make it easier to achieve your goal.
Well, we sure hope so.
Wafer scaling back decreases the cost to obtain traffic everything else sold equal course.
Watching this closely and are adjusting our marketing spend accordingly to take advantage advantage if those changes as we see them come through.
Great and follow up on Wayfair.
What are the implications for wafer stepping back from the market what percentage of Overstock shoppers also visit one of the wafer sites.
Yep wafer stated growth reduction has the potential benefit.
For all the home goods retailers of several hundreds of millions of dollars annually.
We expect overstock should benefit disproportionately from that amount.
And really because of.
Are the traffic visits that overlap between wafer and overstock on a typical day or roughly one third.
That's helpful. Dave Thank you.
One more on retail Where's the company's stand today shipping.
Today's shipping is very important metric to us.
We focus on that it's one of our brand pillars easy delivery and support.
As I mentioned on the call earlier, we improved our percentage of page views with two day delivery messaging by 188% year over year in the fourth quarter, we're getting close to 30% of your revenue being delivered within two days and working on that quickly.
Thank you Dave one last one on retail.
Anecdotally, we've noticed emails from overstock from Black Friday, cyber Monday through presidents day, offering more than 20% discount.
How can you be so generous and still strive for profitable growth.
Well. This is why we believe so strongly in vending machine learning throughout the organization.
We're testing various algorithms the personalize the coupon based on behavioral indicators and margin availability by skewed to maximize return to overstock.
As you can see from our contribution margin performance I covered earlier on the call.
We realized an improvement of 233 basis points in the fourth quarter of over 2018, and and we're moving in the right direction there.
Great. Thank you.
I'm also top of mind to investors is the dividend.
Specifically potential impact on teams year out Tom I'll ask US have you had the digital dividend had the desired impact in terms of customer sign ups and new broker dealer relationships.
Yes, it has and it's just the beginning so we've seen an increased interest from broker dealers since the announcement.
I will update the market.
One we have more formal agreements in place.
In addition for Investor sign ups through die no, we really expect that to pick up once we announced the record date distribution date and that behavior. We saw last summer when we made those announcements.
Great staying with TV rally Tom can you provide investors an update on your pipeline of potential token issuers are both your Ats and your box JV.
Yes, Sir as far as the Ats as I mentioned, we're in discussions with now well over 200 potential issuers.
Several of these issuers are in their later stages and with it.
Expects to have some announcements coming in the near future.
As far as DS TX, it's probably too early to talk about their pipeline, but they've already started business development efforts. So.
You can expect things once once they're approved from regulators to operate.
You can expect some announcements around potential issuers.
Great. Thank you and one of the status of the BS TX approval.
As I mentioned earlier, we expect to get a decision from regulators in Q2. So we're we're very hopeful that in Q2 will get a positive answer and that we can move forward with it great I'm sticking with approval what is the status of the retail broker dealer approval because that one week again working.
And closely with regulators and we expect to second quarter launch for that comments, it's really exciting milestone for T zero and it will allow us to marry the web and mobile platforms into one experience great. Thank you Sir.
Jonathan I'll address a couple of questions around corporate business at large.
The question is there have been a lot of management changes since you became CEO.
How do you feel about the team you have in place today.
Well actually Thats a great question.
Since I've sat on the CEO, Steve David I have taken the time to really evaluate the team and over the last six months, we have made some changes.
I'm very pleased with the current team we've promoted within some very capable individuals and we've also abroad and top talent from the outside.
Change in an organization takes time, we were thoughtful and careful about how we manage this change.
We did in a measured way that was the least disruptive to the business had we done at all wants I think it would have been detrimental to the business.
But the bottom line is I can say, we're in a good place now.
Thank you Jonathan.
Given recent events, particularly yesterdays market nose dive and trading where it is it's employee retention a concern because of the current stock price.
Well the stock price to the level significantly lower than we'd like and that in my opinion it should.
But we're confident in our ability to execute against our plan.
And correspondingly enhance shareholder value.
Attrition, particularly regrettable attrition is low and it's something we monitor closely.
Making sure it stays low is one of my key objectives for the year.
We regularly whole companywide stand ups.
Well, one just yesterday to check lines of communication open and address potential concerns.
Hi, Thank the employees are happy with the focus like the direction of the company and are committed to the are executing on our plans.
Thank you Jonathan related to the stock price do you think the stock is being manipulated and if so are you doing anything to address that.
We're in the business of running a business that said, we are aware of trading that looked like market manipulation last year.
And we notified regulators to make them aware of this behavior.
Huh.
I should note to all the preferred stock prices down.
We are not on the ranks show last well, we continue to monitor Ed.
And keep regulators with whom we haven't open the line of communication well have marked.
Great. Thank you Jonathan.
Easy we would like to open up the line for our first last question SK.
Thank you.
As a reminder to ask a question you want to your press Star one on your telephone. Our first question comes from the line of Thomas Forte from D.A. Davidson. Your line is now fan.
Great. Thanks for taking my question. So first I want to a point of clarification. So on the supply chain for China, you talked about 50% of your sales are currently supplied out of China, How's that trend. It overtime and then second I wanted to make sure that I heard what you said that as.
As of today on March 12, you've not seen in noticeable disruption in demand as it relates to the krona virus.
Great questions Tom.
Supply chain coming from China, now approximately 50% of revenue that has trended down over the years, David any thing to add to that we shared on the last call back as far as 2008 2009 that was 85%.
Our revenue.
Coming from from China Chinese source products. So we have it's been significantly decreased yes and on your question about what we've seen today with Corona bars, I will come from what I said earlier, we've seen so far we've seen no meaningful impact on that.
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Great and then as a follow up I think Dave indicated that it through your legacy let me commerce's Theres two customer segments that make up 40% of the total addressable market can you give a little more details and what those two segments are.
Yeah, those two segments.
Our our.
We've named them Savannah.
Savannah is our savvy shopper.
Andrew Rebecca are reluctant refresher now in both instances with these customers.
One is obviously looking for a deal.
This customer love our promotional cadence they are a coupon purchaser and.
We have the ability and we're continuing to build out the ability as I mentioned with our machine learning algorithms.
To be able to personalize the type of offer that she's looking for.
For the reluctant refresher, it's more about finding what she wants.
And not being overwhelmed she wants a no hassle solution and that requires some pretty complicated search and rendering algorithms to be able to provide her or something a little more assorted a lot less in depth.
Let me just.
Common, but a footnote on that.
These two market segments are not chosen randomly.
There are the market segments, there the customer that as a natural affinity for overstock. So.
They represent 40% we think of the market, but there are people that are looking.
To purchase from us and already have an affinity with us.
Then one last question for me on Wayfair.
Talked about the opportunity as it pertains to more cheap traffic or being able to get traffic less expensively and you talked about the supplier opportunity.
It seems to me that this could be a catalyst.
To.
Accelerate your return to profitable sales growth.
For your legacy home ecommerce business can you give any.
Thank you. Our next question comes from the line up Brad Safalow from P.A. Research. Your line is now open Brad before we go to you on.
Let's answer Tom's question, Sorry go ahead.
Sure traffic, we see wafers revised guidance as a place where we can increase traffic and as I mentioned, we share a lot of suppliers, where wayfairs revised downward guidance does suppliers have product and pipeline, we think pipeline, it's Paul pays and why would your elsewhere.
[noise] will play out this will play out more over time.
You know what when they when they tune down their marketing models, which is what you would anticipate it takes some time for those to burn in as we've talked about in the past with some of the ebbs and flows we participated in.
As we see that the inventory availability to US is is the real opportunity there okay.
Brad sort of catch up.
Okay. Thank you for taking the questions and haven't live questions.
First question really has to do with management and the board of directors.
One of the things that I.
I guess, Evan hoping with changes that we've seen an increase in the ownership.
The stock, but you are the key members of management.
The board have you guys contemplated instituting a required stock ownership amount for high level executives or the board I think it's something that would obviously signal from confidence to the market and certainly is something that feels like its long overdue at least from my perspective.
Brad Thanks for that question.
We have not considered that it's interesting suggestion and we will consider.
Some of us.
I have purchased shares relatively recently.
Remember we've been in a blackout period for quite some time, which is prevent prohibited us from doing that.
I know.
I know there so we're.
Eager for our broad blackout period tab.
Okay. If is it the digital dividend that is catching them blackout period or is there something else.
Well part of its just the ended the year.
We.
Where we waited until today.
To file our K without those results coming out.
You know that's kept as to where we're working to have a trading period.
Open for some period, so at least a short period because we're already.
Finally, close to the end of Q1.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Jonathan Johnson for closing remarks.
Great. Thank you and each of our shareholders. We thank you.
We're focused we're working hard.
We are frustrated by the current stock price, we don't think it's a fair representation value of the company.
But all we can do is execute on our plans to try and deliver value view and Thats what were doing everyday all day, we'll talk to you at the end of Q1. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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