Q1 2021 Overstock.com Inc Earnings Call

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Good day, and thank you for standing by and welcome to the Q1 2021 Overstock Dot Com, Inc Conference, earning conference call. At this time all participants are in a listen only mode. After the speaker presentation that will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that today's.

<unk> conference is being recorded if you require any further assistance. Please press star zero and I'd now like to hand, the conference over to your speaker today, Ms. Callahan director of Investor Relations. Please go ahead.

Thank you operator, good morning, and welcome to Overstock first quarter 2021 earnings conference call. Joining me today are Jonathan Johnson, CEO and Adrian Lee CFO, Dave Nielsen President of Overstock will also be available for Q&A. Please note that we are conducting today's call remotely.

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Let me remind you that the following discussion and our responses to your questions reflect management's view as of today April 29th 2020, one and May include forward looking statements.

<unk> results may differ materially.

Additional information about factors that could potentially impact our financial results is included in our form 10-K for 2020 and 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 we will discuss certain non-GAAP financial measures.

Slides accompanying this webcast and our filings with the SEC each posted on our Investor Relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.

Presentation is available for download on our Investor Relations website, and our summary slide contains instructions for asking questions during our Q&A session.

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

Thank you Alexis and good morning, everybody rewrote and another impressive quarter years off to a strong start.

Let's get ready to discuss and their business.

And the agenda on slide three.

And I'd please.

And I always start with a few corporate updates.

As we announced on January 25th we entered a strategic partnership with Tony on venture partners, who and.

And we started the Medici ventures portfolio.

We set our goal was to close the transaction and three to six months and please.

Pleased to say, we call debt transaction last week and less.

And from three months.

And another clear indicator of work.

The new Overstock has been all about simple.

And last 18 months.

Execution.

We do what we say we will do and.

And this case ahead of schedule.

The closing of this transaction means overstock is a passive limited partner and Tony on has full oversight of the Medici ventures portfolio, including saw 40 and responsibility.

Regarding the fund's investment decisions and and exercising all shareholder rights Medici ventures holds and the portfolio of companies.

I think there is real upside for overstock as these companies are and Paillasse qualified and capable hands on.

And look forward to seeing where primary on takes time.

After the announcement of depending on transaction, we asked for and received pre clearance from the FTC to deconsolidation Medici ventures from Overstocked financial results.

And those results are reflected in net earnings.

Our earnings release published this morning, and this presentation.

And they'll say, it's great to have this transaction closed.

How are you on the focus on the Medici ventures portfolio.

And and allows overstock and <unk>.

On our core furniture and home furnishings business.

We have no regulatory update.

And we'll keep you apprised of relevant developments and.

Remind you of our annual shareholder meeting on May 13th Rich like last year, we wont hold virtually.

We continue to work well and our remote first arrangement.

Because we have been able to manage the business working from home so well over the past year were adult urgent rush to get back to the office and have postponed on a return to being in the office until most sooner than next January.

And we want to better understand how to best structure and work model going forward.

We are monitoring and learning from others and what their successes and failures, we remain committed to ensuring the safety of our employees and the continuity of our business operations and.

We will carefully and thoughtfully structure any reentry plan and the best interests of overstock.

Slide five please.

Our CFO Adrianne Lee will now review, our great first quarter financial results Adrianne.

Thank you Jonathan as already mentioned, we are pleased to have closed our transaction with telling on venture partners and that we received pre clearance from the SEC to deconsolidation the Medici ventures businesses.

Although the transaction did not close until the second quarter. The Medici ventures businesses net accounting criteria to be treated as held for sale assets and discontinued operations as of March 31.

As such we have classified the related assets and liabilities as held for sale and our consolidated balance sheets and the related loss as discontinued operations and our consolidated statements of operations.

In conjunction with deconsolidation treatment Overstock has reorganized its remaining business into a single reportable segments retail the pure play e-commerce furniture and home furnishings retailer.

Which is reflected and which is reflected as continuing operations and our first quarter reporting my remarks today will reflect results relating to our continuing operations I will begin with a summary of first quarter results followed by a review of our newly disclosed key metrics and performance indicators.

Next slide please.

We delivered another strong quarter, we outpaced our growth trajectory quarter over quarter, posting revenue growth of 94% compared to the same period last year. This growth coupled with our ongoing focus on managing expenses resulted in adjusted EBITDA of nearly $34 million and improvement.

A $40 million or 600 per cent compared to the same period last year and a $42 million increase compared to Q1 2019 diluted earnings per share came in at 56 cents and improvement of 90.

Per share compared to the first quarter of 2020, and $8, 15% increase compared to the first quarter of 2019, and our balance sheet remains solid our strong operational performance resulted in a quarter and cash balance of nearly $535 million and increase of $39 million compared to the fourth quarter of <unk>.

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Next slide.

As a reminder, all financials and metrics and todays remarks, and slides reflect results from continuing operations that of our ecommerce furniture and home furnishings retail business. We provided nine quarters of financial results on this slide to illustrate the consistently strong performance. We have delivered since we began making key operational improvements.

Roughly 18 months ago we.

We posted revenue of $660 million and the first quarter and increase of 94% year over year or 82% versus 2019. This increase was primarily driven by a 66% increase and customer orders and a 17% increase and average order size increased order activity was largely driven by new customer.

Growth and strong repeat behavior average order size increased as we continue to shift our sales mix and to our core home categories.

As I have mentioned on prior earnings calls future trends remain difficult to predict but we believe that the shift to buying furniture and home furnishings online is a trend that will persist our goal remains to take market share and the expanding U S online home furnishings market.

Next slide.

Our gross profit came in at $154 million and the first quarter and increase of $79 million year over year, and an increase of $82 million versus Q1 of 2019 gross margin came in at 23, 3%, which is an improvement of 141 basis points compared to a year ago and 300.

And 42 basis points compared to two years ago.

And year over year margin improvement was driven by shifting our sales mix into higher margin core home categories and reduced discounting as we increased our customer acquisition efforts by one percentage point of spend as a percentage of revenue versus 2020.

Going forward, we continue to expect gross margins and a 22% range, but acknowledge and may be influenced by balancing discounting and customer acquisition efforts and our continued transition and core home categories. Our gross margin strategy is intentional and will be influenced by our brand pillar to deliver smart value to our customers and and to.

And you to take market share.

Next slide. Please this chart illustrates G&A and tech expense, both on absolute dollars and as a percentage of revenue adjusting for a onetime expense benefit and the prior year G&A and tech expense was relatively flat year over year, while revenue nearly doubled.

As a percentage of revenue G&A and tech expense was eight 1% for the first quarter 771 basis points lower than the first quarter of 2000 and 'twenty versus.

Versus 2019, G&A and tech expense declined by 8% and improved by 783 points as a percentage of revenue.

We have a strong degree of operating leverage inherent in our business, we remain disciplined and our spending and despite our ongoing strategic initiatives, we anticipate our revenue growth to significantly outpace expense growth and 2021.

Next slide please.

We delivered $34 million and adjusted EBITDA for the first quarter, which represents an increase of $40 million compared to the first quarter of 2020, and an increase of $42 million compared to the first quarter of 2019, adjusted EBITDA margin was five 1% and increase of 706 basis points compared to the first.

Quarter of 2020, and an increase of 730 basis points versus 2019. This is in line with our long term targets driven by our focus on market share growth and disciplined expense management.

And we're off to Adrian day.

And of the Pastas and results for the quarter were doing just what we said we would do so.

Liver and sustainable profitable growth.

Yeah.

Thank you Jonathan next slide.

And now I would like to introduce a few operational metrics that we use internally to manage and assess our business performance. We believe these metrics are solid indicators of sustainable growth customer behavior and reflect the mix of products purchased by our customers is metrics require little explanation as their standard metrics within the retail and <unk>.

Ecommerce landscape.

This slide shows the active customers and order frequency, we define active customers as the total number of customers who made at least one purchase over the prior 12 month period as of March 31, our active customer base reached $9 9 million. This is the highest and our operating history and represents an increase of 92%.

Or $4 8 million active customers compared to the first quarter of 2020, and a 60% increase versus 2019.

And we have stated before the online home furnishings penetration rate reached an all time high and our second quarter of 2020 before landing on the trajectory we've seen in the past three quarters. It is important to note that we anticipate a slight decrease and our active customers as we annualize. This high point, followed by sustainable growth going forward.

Order frequency is also measured on a 12 month basis and represents the number of times, our customers make purchases over the span of a year orders per active customer was 166 times and the first quarter down slightly from a year ago. This metric was strongly influenced by our large influx of new customers and 2012.

Many of these new customers have not reached the frequency of purchases that correspond to our more tenured customers and our team, including our new CMO Elizabeth Sullivan is focused on growing our active customer base, both through retention and customer acquisition efforts and as such we anticipate this metric will increase over time.

Shareholders, we've stabilized the business.

Through operational improvements, we've grown our active customer base throughout the pandemic.

As you can see on this chart and 2019 and we were continually losing customers from the base now we are right at the business. We are thrilled by the number of new customers, who discovered overstock.

Last year.

Because of that surge of new customers order frequency decline due to the mix effect. Other brands, you didn't experience and similar surge and new customers likely won't experience and same impact.

Thus as Adrian mentioned, we anticipate reporting a slight decreases.

And customers in the coming quarter as we lap the peak of the <unk>.

Parents, Denver, where stay at home mandates force and your online penetration rates on all time high before.

Settling on a positive sustainable trajectory.

We are focused on continuing to grow our customer base.

And keep those customers coming back.

Thank you Jonathan next slide please.

This slide illustrates nine quarters of orders delivered and average order value on a trailing 12 month basis orders delivered reached a record $16 5 million as of March 31. This is an increase of 88% compared to the prior year or $7 7 million orders and a 52% increase versus 2019.

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Like my commentary on active customers. We expect this metric to decrease a bit as we annualize the high point of online penetration followed by sustainable growth average order.

Value increased $27 or 17% versus the first quarter of 2020. This is mainly driven by our sales mix shifts and to core furniture, and hearth and home furnishings and there is some seasonality over a 12 month period and this metric driven by category mix and peak gifting times.

In summary, we delivered a strong first quarter. We are pleased we were able to provide transparency into our continuing operations and our financial reporting and to provide the investment community with and with additional operational metrics with that back to you Jonathan.

Thank you Adrianne.

And I hope the metrics we shared on these two slides are health and from our shareholders, we intend to share with them quarterly.

First quarter results were impressive.

We outpaced our revenue growth year over year and quarter over quarter.

We generated operating leverage delivering nearly $34 million.

And adjusted EBITDA and <unk>.

And rate of five 1%.

This is the fourth consecutive quarter and were.

We have deliver profitable market share growth and within the margin revpar growth guardrails and Retargeting.

I Hope you see that this is a new overstock is our new normal sustainable profitable market share growth.

Slide 13 please.

Our performance is a result of discipline.

And execution.

It is an entire company efforts my colleagues work hard and sincerely appreciate all they do to accomplish the long term goals of the company.

14 please.

I will now discuss our operations specifically.

We are choosing and executing these financial results.

Slide 15 please.

Overstock is now a top four brands and the larger grow and U S online home.

Furnishings market.

We've moved from the number five spot on.

We'll of course is to continue to move up the ranks.

Moving down a couple of things happening and this market.

First it is growing and now estimated at $325 billion up from $300 billion last year.

And second it appears a true secular shift and consumer behavior is underway and <unk>.

Sticking.

Permanent and moved from cities to suburbs.

Life lasting structural shift and American way.

And of the impact will begin to come out on the pandemic.

Multi data show all on penetration of the category, which peaked at 42% with debt.

And of the shutdown last year settled around 35% towards the end of 2020, where we feel like it has now stabilized.

We think this shift in consumer behavior will continue to grow.

Consumers have become accustomed to buying home furnishings online just like you do so many other products.

As we look forward, we don't think it's a question of whether consumers will buy furniture and home versions. We think it's a question of where.

On line Rune store.

You know housing starts surged in March growing 37% versus March 2020 to the highest level since June 2006 exceeding economists' forecast.

And the great reshuffling for share and home line continues to increase so too will demand for home furnishings.

We think consumers will increasingly opt for the selection value and convenience of buying online.

Part of our mantra market share growth is to make sure we capture the secular shift as consumers increasingly move online.

Slide 16 please.

Yeah.

We have strategically and purposefully differentiating ourselves from our competitors to attract our targeted customers and capture market share.

And we're not trying to be all things for all people.

Third we offer a value proposition that resonates with a particular subset of the market.

And this differentiation is twofold.

First we specialize and furniture and home furnishings, and we're not a mass merchandiser and we are increasingly leaning into a home.

Second we focus on providing smart value, which means offering great products and.

At great prices and importantly, we're about at everyday low price leader our model is promotional driven.

Because it resonates with our target customers.

Our goal is to win on price post promotion.

And as Differentiators poise us and our.

And you did quadrant within a competitive landscape.

What are you seeing one other player is and our quadrant.

<unk> does not focus on the same customer segments all through the same quality of goods for the price more focus on being a pure play online retail.

There's a lot of white space and our quadrant and.

And that white space is.

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Slide 17 please.

This slide shows the two customer segments and naturally we have the highest per passenger and shop with overstock.

They are who we focus on serving.

These two segments represent 40% or about $130 billion of.

The large and growing home furnishings market.

Primary customer segment, the savvy shopper loved the deal she.

She wants to feel like she is winning.

Our promotional model is critically important to her.

Our secondary segment of reluctant refresher once and easy and hassle free experience, our brand pillars of product find ability and.

Easy delivery and support.

Critically important to her.

We continue to focus on improving the customer experience for these two segments and refining our targeting and retention efforts.

Slide 18 please.

And with vision is to make dream homes for all a reality.

Our focus on home will only increase as we continue to lean into this category.

We are focused on and having success with the two customer segments and naturally over index to shop with us.

We are focused on providing them and of course other shoppers with a great customer experience, we use technology to enable our execution against our four 2021 initiatives.

One reason we are confident.

And we can do what we say we're going to do is because we remain focused.

I think the entire organization now understand the priority and focus we've proven to ourselves and we've proven it to our investors over the past 18 months.

This strategy document has posted all over the company we.

We intentionally and included in every investor presentation.

We live by it.

In fact, as we were preparing for this call someone asked whether we should remove the slides.

There was a visceral reaction from the executive team to keep it in.

It's woven into our DNA.

Our strategy keeps us on line by delivering what matters most to our customers and in turn is producing sustainable profitable market share growth.

I will now talk to each of our brand pillars slide 19. Please.

Our first brand pillars product line debility, making sure customers can quickly and easily find what they're looking for.

As consumers increasingly utilized mobile devices per their shopping needs.

And ability is critical and.

It's why improving mobile was one of our four strategic initiatives in 2020.

We made good progress in terms of upgrading our mobile web experience.

<unk> sales remain above 50%.

Visits are up and so this conversion year over year.

That said, we still have work to do and we.

We will continue to iterate and make improvements.

We are shifting our mobile focus this year to our award winning App, which is something we've historically not emphasized enough.

It's a great retention tool and the channel the natural and we achieved higher conversion and <unk>.

And the adoption of our mobile App, the 2020, one focus on our Chief Marketing Officer, Elizabeth Sullivan, who has hit the ground running and thus far is.

Everything we had hoped for and more.

And is helping us and that effort.

Slide 20 please.

Another component of product line and ability as providing the products our customers want.

And the years, we've purposely become a furniture and home furnishings retailer.

Continue to lean into home over the past year.

Home furnishings, our core products were 93% on sales in the first quarter higher than they've ever been.

Focusing on home is increasing the Overstock brand Association with home and area of significant opportunity is on.

Customers, who make home furnishing purchases has a higher repeat rates. So you will see us continue to lean even further into home gradually phasing out.

Our non home categories over the next 12 to 18 months as we do we will simultaneously replace non home categories with more home products and existing categories and expand.

Our home product categories, which should result, and a net increase to our breadth and depth of assortment.

Slide 21 please.

I, just mentioned breadth and depth of our home furnishings assortment.

This chart demonstrates the progress we made and increasing both over the last two years, despite the challenges and the supply chain during the pandemic and today's backdrop.

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And we increased our SKU count and <unk>.

Productivity per SKU.

Even though the pandemic has made it difficult to add new skus.

<unk> Skus sold is up 24% year over year.

And the units sold per SKU is up 36% year over year.

The Skus, we have per sale are the right skus.

Our customers purchasing behavior and makes that clear.

And we're thoughtful and careful and increasing our breadth of assortment. So that we carry the products most relevant to an actor, but on our target customers.

Slide 22 please.

Our second brand pillar is smart value, which again means providing great products at great prices and and.

Employing and effective promotional model.

Free shipping is a key component on smart value.

It also happens to be a top purchase driver, particularly for our target customers.

And that's one reason, we permanently launched free shipping on everything and 2020 and.

A word adult.

And lease of our existing customer base, which continue to rate us favorably on shipping charges.

You can see our quarterly progression and you can see we continue to compare 12% favorable relative to our competitors.

We expect to remain near current levels.

Our existing customers are aware of and appreciate our free shipping offering offering.

The opportunity is to increase awareness awareness of this offering much more broadly including to those discovery and overstock for the first time.

Slide 23 please.

Another key component of smart value is of course, our pricing.

Savvy shoppers seek value our product pricing must be right.

One of our 2020 strategic initiatives was to clarify our promotional messaging and refine our pricing model.

With Matt and ensuring our products on optimal optimally price compared to our competition.

<unk> and.

And post promotion and certainly not higher.

This chart shows the significant progress we've made over it.

Past year, and a house and tightening up our pricing model.

When we price somewhere between 80% to 85% of our comparable Skus competitively pre <unk> pre coupon that is exactly where we want to be.

Of course, we're continually monitoring the competitive environment to ensure our pricing remains within these targets and.

Slide 24 please.

Our third brand pillar is.

And usually delivery and support.

Providing an easy and have hassle free customer experience.

One is this experience and deliberately did is deliberate and importantly expectations around delivery.

We know that both speed and accuracy of delivery delivery matter.

But they are for large parcels in particular and accuracy and estimation matters more so delivery estimation and something we have put significant effort and to improving over the past year.

And the first quarter, despite port congestion carrier capacity constraints, and Texas storms in February which impacted the entire supply chain, we were largely able to protect the customer experience and deliver on expectations.

Through improved estimation and customer communication and percentage of our.

And on time or early deliveries increased significantly and the first quarter over the fourth quarter, Although we did experience and depth at the height of the Texas storms.

Through improved planning and carrier communication. The time it takes from quick actual deliver and delivery remain stable through most of the first quarter and has begun to trend downward which is good.

Slide 25 please.

Part two of our third brand pillar is customer support.

That is five customers translate into repeat customers.

And whilst we're always focused on improving the customer support experience with.

And with improved communication and order tracking and increased self service customer contact volume as a percentage of orders was down 16% year over year, and the first quarter and down 29% compared to 2019.

We've also found that self service functionality not only reduces customer costs. It also improves customer satisfaction.

Our customers appreciate being able to solve issues on their own without giving an agent and involved.

Also we continue to enhance and augment our self service customer support most recently, adding new and increased functionality for Hertz request.

As a result self service cases are up two five times compared to last year and four four times compared to 2019.

Customers, who use self service have a significantly higher repeat purchase rate. So of course. This remains an area of focus for us.

Slide 26 please.

As we announced on our last earnings call. These are the four strategic 2021 initiatives.

They are improving on site search and taxonomy, which means improving product liability.

Expansion into Canada, serving our Canadian customers from Canada, rather than to Canada.

Establishing our government business, our federal GSA pilot serves as the foundation for this business, we're expanding it from there by reaching out to state and local entities.

Adding new partners and expanding the product offering and.

And the fourth improving the enterprise platform, which means increasing cloud adoption and ever modernizing our systems.

We are squarely and build mode on most of these so there's not a lot to report on right now.

We are focused and executing.

We will report on progress as trends emerge and materiality and warrants.

We know these are the right 2021 initiatives for us.

Slide 27 please.

Overstock is well positioned for continued growth.

Our revenue growth is outpacing the industry driven by our technology, our customer focus and our business model.

We have improved and maintained our normalized gross margins.

Our target remains and the 22% range.

We continue to exercise discipline, and our spending our expenses are growing slower than revenue driving operating leverage.

This flow through to produce long term adjusted EBITDA margin and the mid single digits.

Anyone.

Those who has ever listened to our earnings calls or participated in and industrial event, which we do many of these debt of these three of these days.

And our mantra is sustainable profitable.

Market share growth.

And sometimes asked one why this mantra and two what gives me confidence and our ability to achieve it.

Let me answer those questions and then provide some commentary on our forward looking trajectory.

First is sustainable profitable market share growth.

Michael.

Question for Overstock, yes.

It is important to grow market share, leaving else's shrinking.

Growth begets growth and some.

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Equally important to be profitable, it's value sustainable way to grow and.

And as far as timing goes now is the opportune time to be focused on market share growth as we are and the middle of the secular shift and consumer behavior to online home furnishings purchases.

Second what is your confidence level and achieving this.

Hi from both the short and long term.

In fact, I'm going to depart slightly from my typical Meredith.

And then my tenure Overstock has not and does not provide guidance. However, given the unusual situations in which we find ourselves moving up against a difficult year over year second quarter comparison, and will provide a little more commentary as unusual.

While we are less and one month into Q2 and.

And it is hard to know what May and June will bring on.

Current business trends are good and as we hold our own against the toughest month of the quarter.

We believe we can maintain the absolute sales levels, we achieved last year.

The key performance metrics, we have shared with you today show, we have a strong foundation on which to build.

Importantly, we believe the structural changes and improvements we've been making for the last year and a half the new overstock. If you will will continue to prove out and consistent metrics and performance, which is perhaps not yet reflected and investors current outlook or.

Patients, who are overstocked or the Medici ventures fund assets.

We will remain focused.

Disciplined and committed to delivering on our long term plan.

And I think the results from those efforts will become more apparent over time.

Slide 28 please.

Next I'll briefly discuss the Medici ventures fund and significant updates on a few of its businesses slide 29. Please.

Previously mentioned, we closed our strategic partnership with telling on last week.

This slide summarizes the key terms of the polling on arrangement, we converted Medici ventures into a fund that is now managed by piling on which have the sole authority and responsibility regarding all investment and management decisions.

Early on and have the rates.

And as an eight year life.

Overstock has committed approximately $45 million for the fund.

<unk> annual management fees are paid by the fund.

We are thrilled the deal is closed.

Volume is the right firm to take these companies like T zero debt.

<unk> grain chain Medici land governance peer Nova Vincent.

The next level.

Slide 30 please.

Let me provide a handful of exciting updates on some of the pharma companies.

Net launched the cash on March 31, which is the world's first central bank digital currency.

And this was a much a weighted event and we hope to first and many significant achievements by debt as the world moves closer to embracing central Bank digital currencies.

Can you zero is officially launched its strategic capital raise.

Zero will also be hosting its quarterly update call on that.

Rather and speak for the two zero management team I encourage you to listen and debt that call for an update on the T zero business.

Given the recent corn based direct listing and a red hot interest and non fungible tokens or Rfps I would be remiss if I didn't say at least a few words on these topics first the success and the.

The coin based direct listing shows the crypto was real and here to stay overstocked product when we became the first major retailer.

To accept bitcoin and over seven years ago on January 2014.

Second the next step is a digital wall and lets users hold and trade crypto and Ftes digitize securities stocks et cetera.

Coinbase meets Robinhood meets T zero.

I think it feels like T zero has the regulatory and technology lead to get there first.

Great Jane was recently selected by <unk> as one of eight startups COVID-19.

And be part of our it's global accelerator program. This means we'll.

And we'll be selling grant Jane and its app store to all its customers a major tailwind and a huge win for grand share.

Our boats and turnover of close first tranches of new funding rounds, and both of which are up rounds per each votes.

And targeting a $10 billion around and a lot going on and devoting space right now, which makes it a great time for votes to be on the market.

Turnover is targeting a $25 million round.

And you should note that today's update is the degree of detail investors should expect to receive from overstock going forward about Medici Ventures fund.

Overstock is no longer involved and the day to day operations of or maintaining board seats on these portfolio companies.

And we'll provide updates on material and publicly disclose progress such as acquisition capital raises and strategic partnerships and exit events.

Slide 31 please.

I'll briefly recap before we move to Q&A Slide 32. Please.

We are doing what we told you we would do we.

We entered a strategic partnership.

And oversight of the Medici ventures portfolio and closed the deal quickly.

We are deconsolidation and those assets post close.

We provided you with more information and detailed disclosures about new customer metrics. We are focused on executing on the right strategic initiatives. Those we believe will have the most positive impact on our business.

Still have lots of opportunities to improve mostly of the blocking and tackling variety and this includes further leaning into hall with increasingly Overstock brand Association with home.

Further cementing our competitive our competitive position and.

And further improving adoption of our mobile app.

Market share growth remains our key objective.

We are confident we will continue to move to deliver sustainable profitable market share growth.

Now, let's take some questions.

As a reminder to ask a question you need your Presto and one on your telephone to withdraw your question price and how key your first question from the line of Seth Sigman from Credit Suisse.

Hey, everyone. Good morning, and thanks for all the info and congrats on the progress.

I wanted to focus I guess first on a short term, Jonathan obviously, providing a very positive message about what youre seeing right now and your ability to navigate the difficult comparisons here.

I think we'd get demand is strong and the industry, but I'm more curious about some of the specific drivers for overstock to help navigate the short term.

For example are there drivers to consider.

And categories that were very short on inventory a year ago that are improving or perhaps seasonal categories that you've leaned more into this year or anything else that you would highlight that you feel like will help.

And I guess stabilize the business and comp the comp over the next few quarters. Thank you.

So I appreciate the question, let me take and initial answer and then I'll turn it to my colleague day to give a little more color.

And as far as categories, we're leaning into.

Memphis size, we're becoming more and more volume retail, but within the home category, we're leaning more and we've been leaning into.

Patio furniture and outdoor <unk>.

Recreation products.

We are trying to expand their living spaces to the four corners of their property not just the four walls of their homes. So we've expanded that inventory it is a tight market.

And.

As demand is high.

But that's one area, we're leaving it too.

And what else would you add to that.

And Jonathan I'd add debt.

Seasonal categories as we as we and the first quarter and rolling into the second quarter.

The category, Jonathan mentioned first and foremost patio furniture, everyone is interested in expanding their their living space and we are working with vendors with our partners. They are very creative utilizing different ports too to bring and products and get that product to the customer.

And one of the things that I think is.

Is wonderful about our business model and how resilient it is.

We have millions of products millions of Skus and as Jonathan mentioned earlier.

And those new Skus that were bringing in are very productive and very targeted to the customers' needs.

Jonathan.

Yeah.

Overall, we address your questions Yeah, no that's perfect I appreciate that so maybe just a related follow up question.

Step up in the <unk> this quarter up 17% year over year as a meter changed to what extent does that reflect some of the assortment changes youre, making that shift the core home and other efforts to improve the customer experience.

This is the nature of where consumer demand is just right now and or same SKU inflation.

So I think very little of it is same SKU inflation.

And are working hard to maintain.

Very competitive price.

And into the smart value brand pillar.

Yeah.

It is.

Impacted by leaning into home.

Our non home categories, some have a little bit.

Higher price point, most have a lower price point.

So I think as we lead into all of you Youll see that average order.

Size increase.

And I also think it has to do.

A little bit with seasonality.

Patio furniture tends to be a higher price point.

And then some other things that we sell the certainly patio furniture is more expensive.

And a throw pillow and.

And so there we are Dave or Adrian moving band David anything to add.

No Jonathan nothing.

Okay. Thank you all very much and congrats on that.

Seth.

And your next question on line of Thomas Forte from D. A Davidson.

Great. Thanks for taking my questions Hello, Jonathan and Youre going to have to permit me to start with a statement first and then a question and second so as a longtime follower of overstock and as a longtime follower of E. Commerce and also a blockchain and it was tremendously validating to see the coinbase direct listing and congrats on the conversion to <unk>.

For the venture cap fund and congrats on identifying the potential of blockchain at a very early days.

Another question.

So I want to somewhat rephrase, Jonathan the comments you made in your remarks.

From my Vantage point as a longtime follower of ecommerce you've been following the home category for a long time, Dave has been following the home category for a long time.

It seems to me that we're in the midst of a super cycle. So when you think about the pandemic do you think about economic stimulus do you think about the comments you talked about with consumers moving to suburban locations from urban locations.

Looks to me to be a multiyear event.

And that the home e-commerce industry is going to have elevated sales not just from 2020, but 2021 and 2022 2023.

And to the extent that you are taking market share that makes me think that you're also going to have elevated sales.

And 2020, but also a 'twenty one 'twenty two 'twenty three so.

At a high level on <unk>.

Do you and Dave agree with my assertion that were in our homes Super cycle and that there is potential for the industry. The home E. Commerce industry has elevated sales growth from multiple years, not just one year.

Tom first I appreciate your comment upfront and.

Both our volume per talk as a CEO of <unk>.

Looking forward to participating and the Davidson event on.

Next week, we'll be talking about.

On the crypto currency.

Digital currency and that market Theres, a lot of room to grow there as far as being in a.

Uh huh.

Super cycle.

I think the short answer is yes, I agree with you we get positive GDP.

We've got shrinking unemployment.

Got record housing starts with great reshuffling.

As we see people move from New York to Florida, and Illinois, and Texas, and California, Oregon, and our Utah and Idaho.

I think just bodes well today tomorrow.

And going forward.

And the questions address new geology add on.

And just one point I would add on and that is the.

And right into online home furnishings and it is.

Still in the beginning we are not in a mature market on the on line side of things. So there is much room to grow and that excites us.

Yeah, that's right I do think I do think it's important Tom where on a super cycle and I think that cycle is magnified.

Hi.

And immature online market.

Maturing and Thats, a big deal for us because we're a pure play online home furnishings counsel.

Great. Thanks for taking my questions.

Thanks, Tom.

And your next question on line of Yoga Aryan <unk> from Wedbush.

Hey, good morning, guys.

I have a couple of questions maybe first start on retail and then I'm going to ask something a few things on that Medici.

Thank you Jonathan.

I think it was Jonathan our agent highlighted.

Our revenues growing faster than expenses this year gross margins.

Again this quarter.

And your 22% target and and yet we're still we're already at the mid single digit EBITDA margin targets.

You guys have set.

Sounds like there and there's room for that especially if opex is growing slower than revenue. So can you just highlight how you're thinking about.

The margin story over the next couple of quarters and couple of years.

Yes, why don't you go first and then I'll add to it because I definitely have an opinion on where the right price for gross margin growth.

Perfect and good morning Yigal.

I think as you know and Jonathan said, our mantra is sustainable profitable market share growth and we've been really focused on a sustainable part of this and as.

And as well as the growing so I think for us consistently producing targets in line with these expectations is our goal and focus.

Over time, we'll look at this once again, we kind of create this multi quarter trend.

But as you can see this and this is our focus and its deliberate and strategic Jonathan.

And this is a question we get asked a lot and.

<unk>.

<unk>.

Because there is this secular shift online.

We feel like it's a really important time to take market share.

Keeping our price is low, particularly for our customer segment that savvy shopper and that's our primary customer she needs a deal if we start picking up the mark and the margin gross margin.

I think it slows our growth and now is not the time to slow growth.

This is Mike.

And the Oklahoma land Rush.

There are.

We are waiting and a covered wagon at the border and the whistle blows and it is time to run those horses hard and fast to get as much of the land is land grab as we can so <unk>.

Sustainable profitable profitable is important market share growth with the market share I think is where we're looking at right now.

Ask the question.

Got it yet.

Helpful.

To be clear you did say that revenues will outpace opex this year right.

Yes.

We are where we have a very scalable model.

On a lot of.

We don't have.

Stores, we don't have that and we don't have inventory.

Our model I think gives us great opportunity to make sure there is operating leverage and the business every corner.

Yeah.

Okay excellent very helpful. There, so and that you said.

Get a lot of investor focus here and not surprisingly with the changes we're making.

And that's what really trying to understand the full value of that might flow through to overstock, I know theres a lot of moving pieces, but.

And you know as some.

Crypto and blockchain related assets scope and go public and there is some.

Public comps out there now.

Anyway, you you view those as comps and can help investors think through that and then the second piece is how much of a potential sale or spin or.

Backer or however, you begin to exit these businesses translates.

And to overstock.

Profit per overstocked so.

And the.

And the press release, you highlighted the return on invested capital on that it's you can't just walk through how that works and I know, there's the scale on the profit share, but is there and easy way to kind of summarize and help people think through.

What percentage of the potential gains could flow through to overstock.

And we wanted to talk about economics, and then ill.

Try and address some of their fees and Chris asked and that's a great question Sir.

Our lives go the technical side. So Egalet is as you mentioned you know the setup of the fund is that the fund will return on invested capital first to overstock on that generally measured as debt net asset value.

And then the remaining profits will be split for the economics as specified in the L. P. A setting there is a couple of points. There that are important one is we did disclose and adds within the L. P. E. And then second all the economics are included within that agreement and the other thing to note from kind of an accounting and expectation is that we will we do expect to realize and initial upward upward.

And fail.

Fair value excuse me adjustment to the carrying value of these businesses as they're transferred into the fund.

And then on a quarterly basis, we will record our pro rata share of the Fund's performance.

So those are kind of three and some technical pieces and Jonathan.

So I think very simply.

As Eric.

<unk>, our money and back to US first Dennis split on anything on top of that and then.

Each is a little different than <unk>.

Finger and the wind because a 70 30 split 70 30 to compelling. So I think there is real upside there.

As far as comps and what else is out there.

And the analysts and ready to take a better than Ireland and figuring out how those comps translate to those businesses. This is certainly a hot area.

The enthusiasm around <unk> and <unk> I think is meaningful.

And it won't surprise me in fact, I think the FCC should be.

Jim a lot of these and ft and securities those that have fractional ownership or Pat and royalty to the owners feel like securities to me and yes and.

It's more of when the FCC sales that can euros and the catbird seat because Nevada do digital securities.

And what will let pelle and manage it.

And the exits and manage the fund raising.

We've hired a good.

And our headmaster.

Take care of our children as they go off to school whats kind of medical and I look at it.

Great that's helpful metaphor and.

Helpful color. Thanks, Thanks, so much.

Thank you al.

Your next question on line of Peter Keith from Piper Sandler.

Good morning, guys great results.

And it's great to see a lot of the kpis that being disclosed this morning, and look forward to seeing and progress going forward.

And I guess, a fairly simplistic question, though is it.

And someone who was just listening to this call on overstock for the very first time and maybe has a has a memory from the 2018 2019 days what Kpis do you think are most important to reflect ongoing progress and turnaround and the business that's going to allow you to hold sales at least.

Flat with Q2.

What are some of your initial and outside of our day, we'll have more days as David has brought on that business and boy I don't know anyone who looks at kpis more than their debt and manages to those.

I think first and foremost we are.

We are customer retention 2020 was the year on customer acquisition, because customers were and the market and board and do we acquire a lot of them.

We are.

<unk> on customer repeat rate customer retention and when they were not acquiring new customers, we're always doing that.

For me that is Kpis and number one and that's what I asked about every time every week, we're on along on on how we're doing on retention.

And that's what's important for everybody to add to that.

Well first I can attest Peter.

Jonathan asked me about retention and every time, we meet it is critical to US. We we garnered so many acquired so many new customers and 2020.

And we have over 30.

Different okay are as you've heard us talk about okay ours and previous.

Earnings calls.

<unk> is a way that we focus on our line throughout our business and from that single objective of building retention on those customers. We acquired in 2020, there are like I say over 30.

Key results and objectives.

Put it out throughout the organization for us to be able to focus and each of the areas, whether it's merchandising whether its supply chain and ensuring that that delivery is met in a way that the customer repeats again from a marketing standpoint, and the channels that it matters, most to get that customer back to overstock, and buying and and culture of that relationship.

So those are some of the key metrics, but I won't take it would be on retention that is our primary focus.

Okay.

And we address the question.

Yes, you did and maybe I'll try and unpack a little bit further I think you were saying new customer.

On the accounts is probably going to be sort of trending down year on year.

So that's going to be a bit of a headwind to revenue, but your <unk> is moving up a lot I think orders per customer moving up are those going to be powerful enough to kind of offset what probably it will be a drop and new customer adds.

Uh huh.

Yes, I think so for us and we're looking at customers.

Sure.

And new customers and repeat customers and they make a purchase it's the same purchase and so as.

And we probably will add new customers on the same rate, we did in 2020, Although we'll share work to continue to add new customers, we have a bigger base.

To get repeat customers from and so on.

And our goal is every day.

More sales.

More customers and so we're working on.

Okay sounds great guys. Good luck.

Where are we now.

Go ahead, operator, I'm, sorry, I will now like to turn the call back over to Mr. Johnson for closing remarks.

Thank you.

And we didn't get to everyone on the queue. Thank you all for participating in today's call and if Theres one thing.

Should take away from this call is that we are better positioned than ever to continue to take market share and deliver profitability, we're focused and executing on our plans.

And a favorable macroeconomic conditions things like positive GDP shrinking unemployment.

Economic growth record housing starts and.

And the last and shift of the great reshuffle and the American workforce.

Permanently migrates from cities to suburbs and you can see why we feel poised to continue to outperform.

We appreciate your interest and ownership and overstock until we talk again, we'll.

And we'll keep working diligently to deliver on our 2021 plan and thanks everybody.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

Yes.

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Yes.

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