Q1 2020 Earnings Call
Ladies and gentlemen, thank you for spending back and welcome to.
The Q1, 2020, Overstock Dot Com earnings conference call.
At this time, all participants are in listen only mode.
Okay.
After the speakers presentation, there will be a question and answer session to ask a question. During the session you would need to press Star then one on your telephone.
Please be advised that today's conference is being recorded it'd be require any further assistance. Please press star then to the wrong I will now like then the conference over to your host for today.
Alexis Callahan you may begin.
Thank you good morning, and welcome to our first quarter 2020, <unk> earnings Conference call.
Joining me today are Johnson, and Johnson CEO of Overstock, and president of Medici ventures.
Did you recently CFO of Overstock, Dave Nelson President of Overstock retail and saw Noursalehi CEO of T zero.
Please note we are conducting today's call remotely.
Let me remind you at the following discussion and.
Our responses to your questions reflects management's near thousand today April Thirtyth 2020, and May include forward looking statements.
Actual results may differ materially.
Just.
No information about factors that could potentially impact our financial results is included in our form 10-K for 2019.
Subsequent filings with the SEC and in our press release filed this morning.
Please review the forward looking statements disclosure on slide two of today's presentation.
During this call will discuss certain non-GAAP financial measures the slides accompanying this webcast and our filings with the SEC each posted on our Investor Relations website.
Okay and additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.
With that Jonathan let me turn call over to you.
Thank you all are close to $400 today.
I'm pleased to be Jonathan review again.
Well first one through corporate updates, including the impact to covert 19 of our business.
Greg discussed the overstock retail business, followed by an update on two zero or some of other belge ventures companies will finish by taking questions.
Yes. Please.
Let me start by welcoming the news positions, our executive team Adrian Lee, our new CFO, who joined US last month welcome Adrian.
Thank you Jonathan I am thrilled to join Overstock, which has been such a pioneer into tech based industries E Commerce and block chain. My focus has been working for companies that are innovators MVC world. Most recently in the travel industry, where at hurts I was the CFO of it to North America rent a car business and manage came after.
Next to drive revenue and productivity.
Alright.
With that I spent time at best buy and then a multinational brand environment of Pepsi I'm excited to get back end of the direct to consumer retail space.
2020 is a pivotal year for both our areas of our business and thus far has proven to be a your progress and results. Our retail team is continuing its focus on sustainable profitable growth built on a strong technological foundation.
Brand and culture of innovation and as Jonathan will discuss now more now more than ever the world rates block chain technology.
First I kinda unique opportunity to move up in the consumer and Investor mindset that is why joined the team and is what I will be focused on achieving as CFO.
Thank you Andrea Scauri to heavier on the PD.
Now, let's turn to corporate update slide five please.
I want to talk of learning for both software and gravy on top of mind for everyone. The impact is covered by the business and how we view the shifting paradigm, which we now live operate.
Overstock is a company was well positioned for and has generally been operating well in this newer there.
We are 100% work from home other than that overstock retail three distribution centers their crews work.
Should we just added shifts.
As I mentioned last quarter, you did a companywide trail running work from home in early March to make sure systems and processes.
Sanctioned seamlessly.
And it is work.
There has been minimal disruptions to our business due from due to working from home.
Overstock hasn't made any layoffs instead, we're hiring particularly in customer care to keep up with increased sales.
The oversize business model couldn't be better suited to operate your current environment.
Overstock retail April sales are up significantly over 120% year over year.
Our model scale so effectively.
Well, you unconstitutionally because of our focus on technology and automation embedded in our systems.
Our principal offerings home furnishings are increasingly in demand.
Those are most relevant categories under the current stay at home mandates.
Because you're a pure play ecommerce retailer.
Tumors combined.
We're busy for most from the safety of their homes.
Our 20 plus years of longstanding partner supplier relationships and our drops your model.
Allowed us to be nimble.
Hi percent in March with customers that they will decline by 30% due to the beer pandemic.
Additional brick and mortar retail sales are estimated to declined by 50% as consumers shift to buying online.
Sales are estimated to benefit from this year.
Are you additional 25% to 30%.
Beyond the original estimates before the pandemic yet.
You are meaningful shifts as consumers become increasingly comfortable.
Accustomed to make you purchase.
Does online.
These forces good volume do advances several years forward in terms of online penetration.
Insoluble share for brick and mortar online in the home furnishing market has gone from nearly has gone from only 23% last year to an estimated 42% now this is nearly double the amount of home goods.
Bob online versus in physical stores or radical job compared to the slower to push semiannual progression over the last 10 years.
The percentages percentage is not likely to say that high businesses begin marketing backdrop.
We go we don't expect you to regress to prepare Derek levels.
Some of this change your online buying habits will stick.
Next slide please.
The impact of these market dynamics on the overstock retail performance has been meaningful.
This chart shows sales growth as compared to a year ago comparable period.
We intentionally segment the time periods to show organic operational improvements versus what I'll call stay at home mandate related Tailwinds you.
You can see from the chart, we were already performing significantly better.
First quarter as compared to last year.
We were already on track to outperform their first quarter plan before stay at home mandates began.
From March 33, 31st our sales grew in our signature categories.
With regard to focus on making their homes more functional during the national stay at home mandate.
Our top category of area rugs grew 20%, we solve a 100% growth.
Office furniture outdoor flare equivalent like swings.
Exercise equipment.
Percent.
It's important to reiterate that we were already demonstrating strong performance.
For the stay at home mandates here.
Im cycles, so bear with my cycling analogy.
Alive advisors, a tailwind I go faster.
My Ledger also strong.
Even faster and can catch those ahead of me.
Dave will talk later in the presentation.
That how our operational leg become stronger.
Bankers and execution.
Report is than we were already performing well, we had strong operational legs.
Customer having tailwind we are now experience simply allows us to go even faster.
Next slide.
We've seen a meaningful increases new customers this year, particularly at April.
You can see that new customer growth in April lows.
Increased nearly 250% versus a year ago period.
These new customers demographically mirror, our existing customer base.
Our brand values in our value proposition resonate with him evidenced by demand being almost entirely promote furnishing.
Things like area rugs office furniture.
Ill beds with other home related items. These are all bread and butter products.
These are exactly what people are buying.
As a percentage of sales home goods now represent 87% of the total.
Given what their by we don't believe these new customers there just one time customers.
Let me start retail is well positioned to capture and convert the shifting online homes versus traffic.
We're providing products people lead and enabling them to buy from the safety of their homes.
Slide.
Now, let's briefly discuss the effective global Latino T zero.
Very dynamic is certainly affected capital markets with depressed valuations as volatility, causing disruption in trading activity in business development efforts issuers have largely sideline freight existing digital securities until.
Market conditions normalize celgene currency to slowdown in issuers looking to raise capital.
Said conversations do continue.
Mike Overstock retail easier all of its subsidiaries continue to operate well in this environment.
Steve Route benefited from increased trading volume generating record quarterly routing revenue in the first.
Quarter.
Next slide.
Many of our block chain companies continue operating as usual some stand to benefit and the problems. They are helping to solve using blockchain technology our issues exacerbated by the pandemic.
The pandemic has created a sense of urgency to find.
Solutions.
Solutions, our companies are already in the process of developing.
Talk more about some of these later in the presentation with these problems include things like self sovereign identity in health records. The ability to have largely based view the passport that proves either have antibodies or vaccinated.
Loading.
Having a safe and secure mobile voting solution has never been more important than right now.
If we can vote in person in November no one wants to stand in line.
Touching machine the rest of the neighborhood is patch.
Supply chain tracking and monitoring.
Particularly of food and medical supplies is top of mind is we struggle with shortages and delays.
Digital currency.
Paper money is germline and.
Hello to governments to distribute.
Next slide.
Even though our focus is business model makes us uniquely suited to help solve.
Consumer problems at this time the reality is we have faced challenges over the past several weeks.
Surging sales of first is gone beyond our capacity to handle all customer care needs.
Customer service requests as a percentage of sales have decreased the absolute volume of request is gone up.
We've responded by hiring.
Streamlining our customer service channels.
Marketing automation initiatives.
We are still taking too long to respond to customers, who are reaching out sometimes taking a weaker more.
We have added turn off our phones for a few weeks has been most businesses.
We're pleased that was only temporary our phones are back on today.
We hope highly hundreds of all agents over the past few weeks, we'll return us to normal standards of response.
Fulfillment has also lag is we and our partners just working with cruise 14 ships.
For social this degree mandates.
The carriers are maxed out.
There's a high demand for packages and limited crews to manage the volume.
Which has caused tracking to decline frustrating.
Partners and customers.
Going forward there is a lot of uncertainty.
Theres no precedent for what we're experiencing.
We don't know exactly what will face in terms of luck.
Okay.
In some sort of government shutdown.
The state of the capital markets may affect our company's ability to raise capital for Joe.
Alright revenue.
To recap, we don't know what we don't know.
Well, we certainly are susceptible to any number of market wide risk factors on balance I think oversight can and will react to shifting market.
Conditions.
Slide.
I know our shareholders Teradata digital.
Since our last earnings.
Call, we've made a lot of progress.
All declares a dividend we received DTC eligibility NASDAQ granted us in aggregate.
We completed the registration process.
Pass the rest is doing.
We now look forward to distributing the dividend on May 19.
This dividend is not a cryptocurrency, it's a preferred shares of stock.
In response to Investor questions.
Ill reiterate some.
Okay.
And have each of the three years sense issuance.
Third distribution of the series a hours Teekay LNG.
Theres two all record date shareholders should increase participation on T zero platform as investors seem to find sell shares.
The dealers seek execute trades on behalf of their clients.
This increased participation and platform adoption may increase the overall value to zero, which is a majority 80% owner ultimately benefits overstock and as shareholders.
I should mention.
We believe liquidity analysts detail will be fan right out of again as it will take some time to get all 4 million shares.
On the platform and for the ecosystem to fully developed.
Sales will be selling pressure first as a few index funds, mainly the liquidity.
Longer term liquidity will grow participation will increase remember, we do not need to sellier series, a one shares you can hold them indefinitely and receive the cash dividend has paid.
Slide 13 please.
Some corporate housekeeping.
First our ATM.
I want to explicitly matches that we have not use the ATM in 2020.
We don't have any current plans to use it at these prices.
With respect to supplement earlier this month to reflect the loss of our Wix is there has to do we allocate our shelf for the dividend.
Our balance sheet is strong with our cash balances.
Growing significantly.
It's simply good housekeeping to have the ATM in place.
We filed the second perspective supplement related to our dividend.
So on completes the registration of our series one preferred shares. So we can distribute the dividend next month.
On the regulatory.
Good for us.
I am pleased.
Great assessments pricing.
Next slide.
Yes.
Saleable charter notable growth.
Let me remind you that oversight is at its core.
Technology company, we are cutting edge in retail.
We are leading the charge in blockchain technology technology is our core it is enabling us to respond well to shifting time.
Because of our focus and our technology Technology Foundation.
This shift in sales.
Next slide.
With that let's dive into the business update saves Nielsen will first talk about overstock retail performance.
Thanks, Jonathan.
Eager to discuss our first quarter performance there was a solid quarter for overstock and I'm pleased with the progress we've made and strengthening our cycling legs as you put it.
I'd like to reiterate the warm welcome.
Our new CFO, Adrian Lee and ask the sheer review, our first quarter financial performance.
Thank you, Dave I'm happy to cover the first quarter results.
As airliner most of the accelerated growth in our online sales.
Comes down mandates will fall into the second quarter.
In the first quarter revenue trend improved and we expanded our margins demonstrating our focus on sustainable profitable growth and execution against our supporting initiatives.
Next slide.
Our first quarter revenue came in at $340 million. While this is a decrease of 6% year over year I would like to highlight the sequential improvement.
We realized double digit declines over the last several quarters. So this improvement as both meaningful and reflects our commitment to grow.
It's important to note that we were gaining growth momentum prior to the mid March down mandates.
Which accelerated our online sales.
Next slide.
Our first quarter gross profit came in at 74 million with a margin of 21.9% a 200 basis point improvement year over year.
This increase is the result of focused initiatives that lowered shipping and returned Scotts androgel higher volumes to our sponsored products platform.
Next slide.
Our first part of our first quarter contribution came in at 38 million, but the margin of 11.2%.
Improvement, a 40 basis points year over year, reflecting solid operational performance and the team's commitment to disappoint spending.
Next slide.
Adjusted EBITDA.
Thanks.
24% year over year, Postini loss of 1.9 million, while yet while not yet positive earnings. The team continues to focus on our customer experience promotional model improvements that leverage AI and machine learning, while we execute against disciplined and efficient spending.
Next I'd next slide please.
As I previously discussed overstock it.
As an athree hundred billion dollar market, which has seen steady low single digit annual online migration as Jonathan mentioned in his remarks, and killing as large a percentage transaction transacted online was approximately 23%, but the balance of purchases and brick and mortar let's stay at home mandates shifted this landscape.
And according to various third party sources show the percentage transacted online doubling to over 40%.
While we are uncertain to what the landscape will ultimately look like increases.
The adoption level for online furnishing purchases that we are anticipated to play out over a number of years could have potentially happened over the course.
On the last several.
These two customer segments already over index for shopping with overstock.
They are deal driven.
I want to feel great about their purchase.
Mrs and want the low half will experience.
We continue to leverage analytics and machine learning to ensure we provide the shopping experience. They desire our entire strategy is designed with this and in mind.
Next slide.
Overstocks mission is to create dream homes for all.
We've consolidated that vision and focus onto a single flight.
We know that in order for to achieve sustainable profitable growth, we must focus on serving our customers highest needs.
We remain relentlessly focused on our three brand pillars product fundability smart value and easy delivery and support.
They provide the guardrails for innovation. So we're only working on those things that improve the experience our customers what.
On the following slides will share metrics, we used to evaluate our progress against these objectives.
Next slide.
We measure product liability in two ways speed and relevant.
Relevance makes it easy for customers to find the products they want.
As you'll see on the chart on the left we've made site search improvements over the past year that continue to lead to higher site search conversion and you can see its favorable 8% year over year speed also matters.
Research continues to indicate that customers are highly sensitive to page load speed.
As you can see by the chart on the right, we're continuing to make improvements in our page load time, particularly in mobile where we have the most room for improvement.
Next slide.
Traffic continues to shift towards mobile.
And this has been a key area of focus for US people are increasingly buying from their mobile phones. As you can see from the top chart mobile traffic is increased 13.5%.
Year over year and represents 68% of unique visits at the end of the first quarter.
This increase in traffic has had an exponential impact on the topline equating to a 7.8% increase year over year in mobile cells in the first quarter.
Mobile sales relative to desktop continued steady climb and now represents nearly one half of total sales.
Next slide.
We've already showing you the spike in sales we saw from stay at home mandates and Jonathan's earlier remarks, what's important to highlight here is what the revenue represents.
Customers identify with oversight for buying home furnishings, our core product offerings.
Our customers want home furnishings, we have them customers are able to find them and they can do so from the safety of their own homes.
Furnishings represented nearly 87% of total sales in Q1.
Next slide.
Our three brand pillars smart value as the most important to our customers they want to find quality products at great prices.
We work diligently to provider customers with the best value to remain highly competitive with our pricing.
As shown on the chart here customers agree we see customer satisfaction reflected in their increasing perception of our price advantage compared to other retailers.
Next slide.
Smart value isn't just about the price of our products. It's about the total cost of the order and that includes shipping.
We conducted a survey earlier this year to see just how important free shipping is to overstock shoppers.
What we found is that free shipping on everything essentially doubles shopper intent.
Matters.
The shipping on everything is the number one purchase driver among overstock shoppers overall, and especially among savvy shoppers.
When the National Emergency was declared we decided to expand our already industry, leading free shipping program to a free shipping on everything in the continental United States. During this they're all mandate as you can see from the chart. It resonated with our customers during this time.
Next slide.
One of our biggest cost is returns we continue to focus on streamlining our supply chain and are moving other areas. The friction all of which helped to drive down costs.
So we can maintain our competitive pricing for our customers you can see on the chart that are net returns cost continues to decline.
Next slide.
As we've already mentioned.
One of the most important purchase drivers is shipping and delivery experience through our continued work in optimizing our machine learning delivery estimate models strategically positioning inventory.
And leveraging partner relationships as you can see from the talk show, we were able to increase the number of today ship items by 190% in the first quarter year over year.
This will look different in Q2, because we've made some adjustments.
Adjustments due to the recent sales growth, it's important to establish trust with our customers.
Existing and new and ensuring we deliver their orders on or before the estimated delivery time is a huge component of that trust.
In spite of skeleton crews and social distancing in ours and our partners warehouses as you can see from the bottom chart, we were able to improve same day shipping by 4.4% year over year.
Next slide.
We know that delivery and support translates to increased customer satisfaction as you can see from the chart. The percentage of self service initiated request for parts has returned.
And returns has continued to climb covering over 40% of the of those contacts in March alone and indicating that we're providing an intuitive experience by customers love and which costs a fraction as much as customer call to a CS agent.
Who are now able to work on more complexity.
Issues.