Q4 2021 Overstock.com Inc Earnings Call

Good day and thank you for standing by welcome to the fourth quarter 2021, Overstock Com earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question answer session.

Question during the session you will need to press star one on your telephone.

Please be advised that today's conference is being recorded and if you have any further assistance. Please press star zero on whenever you had the conference over to your speaker today.

And <unk> head of Investor Relations. Please go ahead.

Thank you Victor good morning, and welcome to <unk> fourth quarter and full year 2021 earnings conference call I'm.

<unk> Mani joining me on the call today are Jonathan Johnson, CEO and evenly CFO . Additionally, Dave Nielsen President of Overstock, who will be available for Q&A.

Please note that we are conducting today's call remotely.

Let me remind you that the following discussion and our responses to your questions reflect management's views as of today February 22022.

And may include forward looking statements.

Actual results could differ materially from such statements.

Information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2020, and our Form 10-Q s for the quarters ended March June and September 2021, and subsequent filings with the SEC.

A slide presentation accompanying today's webcast has been posted to our Investor relations website and is available to download.

Let's review the important forward looking statements disclosure on slide two of today's presentation.

During this call, we'll discuss certain non-GAAP financial measures the slides accompanying this webcast and our filings with the SEC contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.

<unk> instructions to ask questions. During our Q&A session are also available in the slide presentation.

Let me turn the call to the first speaker for today Jonathan.

Thank you John good morning, everyone.

Overstock delivered seven.

Consecutive quarter profitability right in line with our stated financial targets.

We internally call recipe card for the business.

This was intentional.

Managed our expenses.

Especially our competitive online marketing spend during a highly competitive quarter two to achieve this outcome.

Even with the highly competitive AD spend environment and other industry wide challenges, we delivered on our largest cyber five period in the company's history.

All year, we've consistently illustrated our gained ability to provide smart value during key shopping events.

I am pleased with how the team managed to deliver profitability.

During today's call will follow the agenda on slide three next slide please.

This slide provides an overview of our operating and financial performance for the full year.

2020 , one was our second consecutive year of profitability and market share gains we grew sales to nearly double our pre pandemic run rate.

Tom metrics, we look at which compare us to our top U S home furnishing online peers overstocked added almost 50 basis points of market share in 2021.

<unk> is an encouraging result, considering the almost 200 basis points of market share.

In 2020.

We are proving we can adjust to execute through and take advantage of both positive and negative jaws to the market.

I'm extremely proud of what this overstock team has accomplished over the last two and a half years.

We refocused our marketing efforts on the target base of customers, who have a higher propensity to shop with us and they spend more and at a higher frequency.

We have made it easier for our customers to find and purchase great home products from our site are.

Our customers can shop, our large and growing assortment of quality home products the prices they desire.

We have improved our delivery experience focusing on both speed and accuracy.

All of this progress has been driven by successful execution against our three brand pillars product liability.

Smart value.

An easy delivery and support.

We'll provide an update on each of these brand pillars later.

Next slide please.

As we sit here today external forecasts project some moderation in the housing market.

The same time external forecast project.

More home furniture and home furnishing sales.

Transmitted online.

We believe our opportunity continues to lie in increasing Overstock brand Association with home to continue to deliver to deliver market share gains.

<unk> non home category has been a key focus for us over the past few quarters.

We remain on track to hit our goal of a 100% home focused assortments by Q3 of this year.

Combining this home focused strategy with our advantageous supply chain and agile business model positions us favorably for 2022 and beyond.

We have many proof points as you know our strategy is working and resonating with our customers.

During the fourth quarter, we stacked a favorably versus our competitors on two key purchase consideration.

I appreciate that.

Our promotional model around key events continued to drive record results Overstocked free shipping awareness expanded 1000 basis points over the year.

Our strategy to remove non homes skewed positively influencing our association with home Ah repeat rate and our average order value.

We are attracting customers, who spend more repeat more frequently and I appreciate it.

For home expertise.

These proof points give us confidence that overstocked and continued to win in the home furnishings market.

Our supply chain continues to be a competitive advantage.

As a reminder, our supply chain is broad and distributed with a vast partner network that reduces single source risks shipping bottlenecks and supply chain case.

Unlike some of our competitors, we don't pressure our partners to lock up the inventory in our distribution centers. As a result, we tend to give favorable priority in pricing on inventory, particularly during periods of high demand and low supply.

Our asset light business model aimed at reducing gross margin pressure.

One almost no inventory.

Can flex our distribution center footprint as demand fluctuates and sure we have a great business model.

Now let me provide a brief update on our 2022 outlook taking into consideration various recent market and broader economic forecast, where we ended 2021 our performance. Thus far in Q1, 2022, which has a tough year over year.

Both comparable and our plans for the balance of the year, which include exiting the last of our non home products by the end of Q2.

We expect to outpace the market with at least.

High single digit annual revenue growth and mid single digit adjusted EBITDA margins.

We believe we can deliver on sustainable profitable market share growth for the third consecutive year slide.

Slide six please.

Next I'll provide a brief corporate update on Q4 events.

In November we.

<unk> announced our future of remote work and reentry designed or forward plan that takes effect in April 2022.

Almost all our teams will continue to work remotely most of the time coming to our headquarters two to four times a year for collaboration.

<unk> and <unk>.

Celebration of our culture.

The ability to offer remote work has improved our attraction and retention efforts both of which are important during the nationwide great resignation.

Workforce continues to be engaged and productive working from home.

In December for the fifth year in a row, we pay the dividend on our preferred to our preferred stockholders.

We ended the year.

We launched dedicated pages on our website outlining our current ESG efforts and targeted goals.

Affirming our we are overstocked value to do good.

We have an ESG can you move place comprised of many talented people across several departments.

I'm proud of our community efforts during the quarter.

Including our work with Afghan refugees and Mercy housings we're.

<unk> vision of Dream homes for all which includes fulfilling the basic home furnishing needs for the less fortunate.

Now I'll ask Adrianne Lee to review, our fourth quarter and full year.

Actual results in more detail.

Thank you Jonathan Slide seven please.

I will begin with a summary of our fourth quarter financial results, including a review of key customer metrics and performance indicators, then I will summarize our full year full year 2021 financial results next slide.

The fourth quarter of 2021 was our seventh consecutive quarter of profitability, we achieved profitability right in line with our stated targets, while navigating industry wide challenges, including a return up foot traffic to brick and mortar and a competitive AD spend environment revenue declined by 9% year over year, but increased nearly 70% on a two year.

Basis, adjusted EBIT margin was four 5% flat to 2020, and a 630 basis point improvement versus 2019.

We reported diluted earnings per share of <unk> 68.

If we exclude the impact of Truing up our tax valuation allowance, which is customary when it releases done during an interim period as opposed to yearend and our proportionate share of the Medici Ventures Fund performance, our adjusted diluted earnings per share was <unk> 36.

In the fourth quarter, a decrease of 12%, 12% versus 2020, and an improvement of <unk> 81, compared to the fourth quarter of 2019.

Our balance sheet remains healthy we ended the fourth quarter with $503 million in cash and very minimal debt, resulting in a net cash position of over $450 million. As a reminder, our board authorized $100 million stock repurchase program in August last year, we have yet to execute against this program. It's.

And to note that we have been in a blackout periods with December one.

I will get into these core Andrew Andrew.

If I may.

I'd like to interrupt me go off script for a moment.

You are right to note that we've been in a blackout period since December one.

I expect some of our owners are wondering about our intention to use the board authorized $100 million stock.

Purchase program.

I won't comment on when or how much of the $100 million. We may use to repurchase shares I will say the current stock price does not accurately reflect reflect our view.

The current and potential value of the business excuse me anchored.

Thank you Jonathan I.

I will speak to these quarterly financial metrics in greater detail in the following slides and then provide a summary of our full year results next slide please.

We posted revenue of $613 million in the fourth quarter, a decrease of 9% year over year and an increase of six 8% compared to the same period in 2019, the fourth quarter had industry wide challenges and was impacted by our strategic actions. We intentionally chose not to chase higher AD spend and deliver on profit on our profitability.

We realized a negative impact from lapping customer day in 2020, which we moved into the third quarter in 2021 and aligned with our broader strategy continued to remove non home products from our site impacting a highly giftable period and recognized an outsized impact compared to prior quarters.

Revenue was positively impacted by a 23% year over year increase in average order value and a year over year improvement in order frequency average order value increased versus last year. As a result of increased sales in our key furniture category I will discuss these metrics in further detail later.

Our strategy to exit non home categories is the right move for our business. It increases Overstock brand Association with home and our home customers spend more and repeat at a higher frequency next slide please.

Gross profit came in at $139 million in the fourth quarter, a decrease of $12 million versus the prior year and an increase of $64 million compared to the fourth quarter of 2019.

Gross margin was 22, 7% in the fourth quarter, which is right in line with our targeted range. This is an almost 20 basis point improvement versus last year and flat to the third quarter of 2021 I will note that we were able to maintain gross margin relatively flat sequentially, even during a more promotional and giftable sales period.

The year over year margin increase of 20 basis points was primarily driven by operational efficiencies, partially offset by higher discount discounting compared to last year, notably gross margin improved 200 basis points versus 2019. It is a significant structural improvement that we have been able to nearly double sales, while improving our gross margin profile.

Next slide.

This chart illustrates G&A and tech expense over the past nine quarters in both absolute dollars and as a percentage of revenue G&A and tech expense declined by $2 million year over year and remained relatively flat sequentially.

As a percentage of revenue G&A and tech expense was eight 4% in the fourth quarter, a deleverage of 34 basis points compared to the fourth quarter of 2020 compared to 2019, G&A and tech expense was flat while revenue increased by 68% and improved 592 basis points as a percent of revenue or absolute G&A.

Tech spend remains in line with pre pandemic levels.

Our goal remains to be extremely disciplined in managing our expenses I will note like many other companies overstock is not immune to market wide wage inflation, and we are increasingly using equity compensation and benefits to align our workforce around our financial targets and business objectives are tech and G&A plans include higher staff related expenses some of which.

Our non EBITDA impacting next.

Next slide.

In the fourth quarter, we delivered adjusted EBITDA of $27 million, which is down $3 million versus a year ago, but up significantly versus the two year comparable period. Adjusted EBIT margin was four 5% flat to last year and right in line with our stated targets adjusted EBIT margin was an increase of 630 basis.

Points versus 2019.

This was a managed outcome, we focused on maintaining our profitability commitment through disciplined marketing spend and a laser focus on expense management, while making progress against our home strategy.

Next slide please.

Now I will turn to our customer metrics that we use to manage and assess our business performance. This slide shows the active customers and order frequency, we measure active customers on a trailing 12 month basis.

<unk> customer base declined to $8 1 million at the end of the fourth quarter, a decrease versus 2020, but an increase of almost 60% our 3 million customers versus 2019.

Just on where we sit today, we expect our active customer base decline in Q1.

The Q4 decline in active customers was driven by three key factors online penetration receded from the all time highs experienced during peak pandemic restrictions are.

Our strategy to exit non home categories. As previously discussed we believe this is the right long term tradeoff.

And the market realized an uptick in brick and mortar traffic, partially driven by increased supply chain pressures that we believe prompted some customers to physically purchase in store to ensure availability.

Orders per active customer was 167 times in the fourth quarter, essentially flat sequentially and an improvement of 2% year over year, we see this as a positive proof point to our home strategy.

We take a step back and normalize for those onetime customers that purchased during peak pandemic restrictions and are those customers that only bought non home products and categories. We exited our customer metrics remained relatively stable.

It is important to point out that while active customers have decreased we have been able to strategically offset this decline with an increased average order value, which is more aligned with the home category overall, and which I will discuss in greater detail in the next slides.

Next slide please.

This slide shows average order value and orders delivered average order value improved 23% year over year to $206 and declined sequentially driven by more seasonal and home related giftable sales the year over year improvement was primarily driven by our continued sales mix into home categories.

Orders delivered were $13 5 million for the trailing 12 months period. This is a decrease of 10% compared to the prior year or $1 6 million orders and an increase of 51% or $4 6 million orders compared to 2019.

Our <unk> results are an important proof point on our continued focus on home while orders are declining the value of each order or <unk> is improving it's a strategic tradeoff and reflects the purchase behavior of the customers. We are targeting home customers, who trust us with higher value items and have a higher propensity to make a repeat purchase.

Next slide please.

I will now recap our strong 2021 full fifth full year financial performance.

Revenue increased 11% versus 2020 to $2 8 billion almost double 2019 results gross margin was in line with our target at 22, 6%.

257 basis point improvement versus 2019, we continue to be measured in our G&A and tech spending driving leverage of 94 basis points and 698 basis points versus 2020 and 2019, respectively.

We delivered adjusted EBITDA in the mid single digits at five 1% and generated free cash flow as I indicated earlier, we exited the year with a favorable net cash position and a healthy balance sheet.

We continue to be focused and measured on delivering our financial targets, while executing against our strategic our strategic vision of dream homes for all with that back to you Jonathan.

Thanks, Adrienne <unk>.

<unk> executed well during the fourth quarter and averaging in competitive marketing pressures in the industry challenges to deliver.

Profitability for the quarter and full year.

We grew and took market share for the year.

Our team is focused on delivering against our targets and committed to continue to drive meaningful.

Additional operational change changes.

Before I proceed to the discussion on our business and brand pillars.

Like to provide some clarity around recent executive departures and what appeared to me to be so.

This guided commentary on that.

First these departures were not the result of disagreement regarding our business model or strategy.

Second the current overstock team is fully equipped with required decision makers.

And Dave Nielsen and the rest of the team.

Dave is a master retailer and operator.

Can and is executing on our home focused strategy this year.

Beyond.

And third as I shared earlier overstock is attracting top talent across various levels of the organization.

Expect that to continue.

<unk> 16 please.

Next I'll provide some key insights into our business, including where our focused strategy is paying off and where we're targeting and driving growth.

<unk> please.

Online penetration continues to grow in 2021, even after the large uptick in 2020.

It is encouraging to see that about a third of the home furniture and furnishings purchases.

The U S are transacted online.

Importantly, third party forecast project continued online migration into 2022 and beyond as customers recognized the broad assortment available to value in that.

Use of purchasing online.

New estimates from our third party sources now place the total addressable market of roughly $390 billion up 20% from previous market reported.

As we look ahead overstocked business should benefit from the combined tailwind of a growing home furniture and furnishings Tam.

Kris online migration and our focused strategy that includes planned growth.

Home and the home SKU assortment.

Slide 18 please.

This slide is a good reminder, we're overstocked fits in the overall market and the significant white space available in the quadrant, where homegoods expertise meet smart value.

This quadrant is the right place for overstock, we've been strategic about choosing to focus on it.

Target customers already have a higher propensity to shop with us.

We purposefully play to our natural strength these.

These customers represent roughly 40% of the market.

Your stock has ample growth opportunity in this space and with these targeted customers.

I'll now talk to each of our three <unk>, our three brand pillars, each of which are key to our continued growth and helped define overstocked customer value proposition slide.

Slide 19 please.

Our first <unk> product line the ability one of our key initiatives in 2021 was to improve onsite search and taxonomy we.

We continue to as we continue to lean into the home. It's critical our customers knows for our home furnishings offerings and can quickly and easily find a home product they're looking for.

We made great strides in 2021 click through rates further improved in the fourth quarter.

We also improved the accuracy of search results over each subsequent quarter during the year insured customers are engaging with us at a higher rate.

Finding the quality home products they are looking for.

We view both as critical milestones this should help us grow repeat purchases in quarters and quarters ahead.

We've made good progress towards getting the overstock brand associated with home for example, we've increased our brand association with home by 15% over last year.

This has been supported by home SKU growth like we did in Q3 during the fourth quarter, we expanded our new home Skus.

150% year over year.

Yeah.

At the end of.

At the end of the fourth quarter, 94% of our sales were in homes were at home categories. This is about 400 basis points higher than last year and illustrates our execution against removing non home assortments from our website.

We did see an impact on active customer growth on our website during the removal of non home merchandise that occurred in Q2 and Q3.

We're confident this is the right strategy for our business going forward.

Our streamlined home related home related Assortments supports a higher average order value.

Higher repeat rates as.

As our customers begin to associate overstock more with home.

We expect this will translate to a bigger share of wallet ultimately driving market share growth.

We have set targets to grow both breadth and depth of SKU count in key home categories, where we know we can win.

Perfect and offer other important purchase completed.

We have removed categories the corner of the website experience.

For our customers and distracted our focus on the home.

Electronics musical instruments and crafting materials.

We expect to remove the last of our non home categories by the end of Q2.

This category approach will help us better align our marketing efforts and customer experience to drive stronger more frequent customer engagement.

Slide 20 please.

Our second brand pillars smart value.

Smart value means offering great products at great prices or said differently, the highest quality products for the price.

Our promotional model is intentional and critical to attracting and retaining our customers. They love finding a deal and want to feel like they're women.

We allow them to do just that our competitive pricing parents.

And then remains to offer a winning priced post promotion, we continue to see progress in our smart value pillar.

During the fourth quarter, we leveraged our proven ability to execute around holidays and special events.

Following record fourth of July and Labor day events in the third quarter, we delivered the largest Thanksgiving to cyber Monday period in the company's history.

Execution was bolstered by our increased increasingly popular mobile app.

We saw an 80% increase in app downloads relative to Q3.

Our exclusive coupon on Thanksgiving day helped us deliver off sales at three times and a three times higher rate than our typical run rate.

We view the mobile app as a key customer retention tool.

Thus far.

We had a higher average order value higher conversion.

Higher order frequency.

We will continue to focus our efforts are driving higher engagement.

Let me also provide an update on our club O paid loyalty program the.

The number of members in this program reached a new milestone during the fourth quarter.

Paid club O memberships are at the highest level in company history.

<unk> offers additional value to our customers such as collecting rewards and redeeming those rewards on future purchases and free returns for in store credit.

We do not intend to share membership metrics I am encouraged to see growth in this program as it supports strong overall repeat rates.

Leasing sales penetration of our most loyal customers indicates to us.

And our commitment to delivering smart value continues to resonate.

Slide 21 please.

Our third brand pillars easy delivery and support.

This includes getting the right product assortment and then optimizing its journey to the customer.

We have a distributed supply chain with our tenant base drop ship model that includes about 3000 partners with about 5000 fulfillment centers nationwide.

Susan and advantage when navigating industry wide supply chain disruptions Andrew.

And it allows us to flex quickly.

<unk> and demand are.

Our carrier network is diverse both regionally and nationally.

This unique model has worked particularly well for us.

Over the last two years.

I think of overstock.

<unk> to withstand jolts to the market industry and consumer demand both positive and negative our operating model is the key to this agility.

Based on general market commentary and predictions, we expect supply chain challenges and started because of the pandemic to persist at least through the better part of 2022.

For our vantage point, we believe as we believe overstock is better positioned than many others in the industry.

We continue to provide timely forecasting and communicate frequently with our vast partner base and carrier network, allowing us to meet customer expectations and help them navigate through periods of disruption.

We recently hired a chief supply chain officer to focus on optimizing our unique operating model.

The customer journey and help us further differentiate in the marketplace.

Yes, we are attracting top tier talent, even under a red hot market and field.

Slide 22 please.

As you've heard me say many times.

Mantra is sustainable profitable market share growth.

Growth is a key component of our business one of which we spent significant amount of amount of time strategy Jonathan.

We gave great momentum over the last two and a half years. This slide includes several key drivers to support continued growth.

Comment on these drivers focusing again on our Canada expansion efforts.

As mentioned before they're there.

There continues to be a big opportunity to increase Overstock brand Association with home.

We've increased and will continue to increase the breadth and depth of our home assortment goods assortment.

I expect the pace of this should increase as supply chain challenges improve.

More home skews on our side.

We are significantly improving how we do category management, which may seem like retail 201, but it is something we've needed to do better and now we are getting there.

We will continue to focus on increasing mobile app adoption.

Especially encouraged by the recent success over the 2021 cyber five period.

Never higher mobile App adoption and continued progress on optimizing marketing challenges channels with a focus to increase direct traffic should help us improve customer retention.

Efforts to improve our site are ongoing.

Our planned ability efforts continue.

And they are making a difference.

We believe we are well positioned with a great business model and many levers to pull to continue to gain market share.

And to do so.

Blake.

We've highlighted our Canada business is a key focus area for 2022.

We're big believers in the Canadian market.

We see large long term opportunities for market share growth as we execute to deliver on our brand pillars in the region.

During 2021, we made good progress on our Canada initiative, improving the website experience, adding additional skus and working with partners to hold more product and local warehouses.

Our overall brand awareness is still lower than we would like.

We're targeting our efforts to build awareness, including showcasing our unique pillar smart value.

Our goal when we believe is achievable over the next few years is for Canada revenue to grow to 10% of our U S revenue slide.

Slide 23 please.

Some in the industry to see growing market share and be profitable as mutually exclusive.

We do not.

We continue to direct our strategies to drive sustainable profitable market share growth.

Since I became CEO , we have operated under this philosophy, we are not deviating from this commitment.

We continue to see opportunities to gain market share as we increase our brand Association with home.

When we feel the industry has reached its natural maturation point, we then consider revising our targets and establishing different longer term along a different longer term margin framework.

Our financial recipe card targets remain unchanged.

<unk> topline outpacing the market outpacing the market to deliver market share growth driven by our advanced technology, our unwavering focus on the customer and our inherently adaptable business model.

We expect margins gross margins in the 22% range. So that we can deliver on smart value acknowledging these may fluctuate slightly from quarter to quarter.

We are disciplined in our G&A and tech spending to continue to drive operating leverage you saw that in the fourth quarter and you should expect us to continue to deliver adjusted EBITDA margins in the mid single digits as we delight, our customers and deliver dream homes for all.

Slide 24 please.

Next I'll discuss a few of the significance.

Significant updates on the Medici Ventures fund all of which had been previously released publicly and our great milestones for the asset in the fund.

I'll start with two zero.

Slide 25 please.

Yesterday, <unk> announced the appointed a new CEO , who will start next month.

New CEO , David Good Chief strategy Officer, and Intercontinental Exchange, who helped build ice into a trading clearing and data powerhouse.

$770 billion market cap and owns among other companies the New York stock exchange with his industry expertise in connection David is a great hire.

While it took longer than expected.

<unk> CEO .

The weight.

It was worth it.

I believe the T zero aboard count just the right person to take two zero to the next level.

Related to Davids appointment to zero also announced we completed an additional funding round for new and existing investors ice led the round.

<unk> will become a significant.

<unk> shareholder two zero.

To have a well known and strategically significant industry player leaves around is a big deal.

Overstock in the Medici Ventures Fund also participated in the round.

We believe the new capital.

The new capital infusion, coupled with David's leadership will allow us to zero to scale and continue its innovation and leveraging blockchain technology to create a more efficient and.

Wall Street, ultimately revolutionizing democratizing capital markets.

And another significant milestone for <unk> as Boston Security token exchange 50, 50 joint venture.

But digital.

Company that drives innovation in the public capital markets received SEC approval.

<unk> is the first and only National Securities Exchange and the U S improved utilize blockchain technology for parts of its operations.

Other updates related to two zero.

Zero Etfs launched a clearance and settlement function for securities This year.

This should enable us to drive further growth and improve user experience.

Zero Crypto App added three new coins expanding.

<unk> crypto currency offerings to 18 points.

Zero continues to be a leader in digital security traded during 2021 total market cap of digital securities surpassed $1 billion.

So from a T zero platform represent more than 60%.

Of all digital security values and T zero resolved two legacy legal matters, one with the SEC related to <unk>.

TFS disclosures.

And another when its subsidiaries Phaedra entered a settlement with the New York stock exchange and NASDAQ related to market access rules.

The resolution involved are implicated overstock.

I believe the future has never.

Never been brighter for two zero and I'm excited for what's next to zero.

26 please.

And some other Medici primed updates following the launch of IRA in Nigeria in October <unk> launched MBV pay and believes in December the first deployment of this digital currency management system in Central America.

Two central banks and over 50 financial institutions across seven other company countries. Currently now are using their products.

<unk> land governance sign.

Memorandum of understanding with sustainable development goals of Africa.

<unk> is helping develop transaction systems and land administration and payment software in various countries.

The city of Chandler, Arizona tested mobile voting through votes, yet another vote of confidence for its blockchain based platform.

I know many of our shareholders. Our eagle are eager to learn more about the Medici ventures portfolio companies to that and <unk> to hold the Medici day on May 10, 2022 to highlight some of the fund's top port.

Folio companies.

To wrap up our discussions of the Medici Ventures fund I'm pleased without counting on is acting as the fund's general manager actively helping many of our portfolio companies advance their respective businesses and vessel, allowing the oversight management team to focus on the E Commerce business.

As you can tell I remain bullish on blockchain technology and many of the companies in the Medici ventures pump.

Slide 27 please.

I'll now briefly recap the quarter and then we'll move to Q&A slide 28.

We had a great year.

And that was on the heels of a spectacular 2020, we continue to increase the number of home products available to us on our site strengthening Overstock brand Association with home.

Our focus on smart value is resonating with customers and as I shared earlier, we are successfully executing and event driven strategy supported by growing mobile app adoption.

Our supply chain is agile and prepared to support sustainable profitable market share growth we.

We are look we.

We are looking forward to continuing to grow and build this business in 2022 and beyond.

Importantly, our philosophy on profitability is unchanged we are committed to deliver results in line with our stated targets now.

Now operator.

Let's take some questions.

As a reminder to ask a question you May press star one on your telephone and to enjoying a question just press the pound key in the interest of time and to get to as many questions. Please.

Just one question and then go back into queue for a follow up.

Once again Thats star one for questions. Our first question will come from the night of Anna <unk> from Needham you may begin.

Great. Thanks, so much good morning, guys and thanks for taking our questions.

We have a few quick questions first off congrats on controlling the controllable during a really tough quarter. So this is to Adrian I guess a question on Opex sales and marketing dollars. We're down I think first time since 19 during the quarter how sustainable do you think that is as we look into.

22 does this mean privacy change impacts are now largely behind the company and then secondly to Jonathan you mentioned high single digit sales growth for the year for overstock and outpacing the industry and apologies if I missed it but curious what type of growth do you expect to see.

The home furnishings category in 'twenty, two and for <unk>, specifically should we expect to see sales inflection starting in the back half as the category exit is behind us.

Sequential improvement here for now in the first half and thank you so much guys.

Thank you for those questions and I'll, let <unk> address the question about sales and Opex.

Yes, hi, good morning, and I think we don't tend to give specific color kind of on our sales and marketing line, what I will say as Jonathan mentioned in his scripted remarks were.

Committed to our mid single digit adjusted EBITDA targets.

As we've discussed before we balance our marketing spend across various channels in discounting and promotional activity and ad spend.

And so we look at those carefully and manage them within the channel, though as targets.

And as you asked about.

High single digit growth in outpacing the market.

We do think and as I mentioned in the script there.

Q1.

The year over year comparable and historically Q1 revenue has been slightly lower than Q4, So we do see that growth picking up in.

In the latter half of the year.

As we as we look to the annual guidance we gave.

Single digit revenue growth.

And our next question comes from the line of Seth Sigman from Guggenheim You may begin.

Hey, guys. Good morning, everybody. Thanks for taking the question I just want to piggyback on that last question. So Jonathan how are you thinking about industry growth for the year. So high single digits are you assuming that online home furnishings grows high single digits or I mean, how do you think about that and then just on the cadence part I just want to dig into this a little bit more.

As normal seasonality would suggest that.

Growth in the first half of the year it could be down double digits year over year is that right is a reason why that wouldn't be right I'm just curious how youre thinking about that.

Yes.

Good question.

We do think that we're going to outpace the industry with at least high single digit revenue growth.

As I mentioned Q1, historically has tended to be a little smaller revenue wise in Q4.

But for the last couple of years Q2 has been our largest quarter of the year from a revenue perspective so.

<unk>.

We look at a lot of forecast.

We know.

Unemployment is down we know housing starts are down.

Down a little bit there as you know tailwind there's headwinds.

But we really think.

The market where ever the market grows.

We cannot pesos and thats at least single digits.

Yeah.

And our next question will come from the line of Thomas Forte from D. A Davidson you may begin.

Great. Thanks for taking my question I wanted to ask about two zero.

For the investments.

If you can or can you give.

Incremental details on the terms how much was invested at.

What valuation and if you can't provide that can you at least provide.

Some level of directionality versus the last funding for that.

Zero.

Okay.

Yes.

We can provide.

Some information.

Ice has been.

Specific in saying as well.

Want to disclose the amount of investment.

Did lead around.

When <unk> on the <unk>.

Energy events are the Medici Fund General partners balance sheet Ventures fund would.

Participating around it asked overstock is that if we wanted to participate to given our direct holdings already in Q zero.

You will see in our 10-K, which we expect to file later this week that following.

The closing of everything Overstock will have contributed $15 million in this round and our direct equity interest in T zero will be reduced from approximately 40% to approximately.

34%.

We expect the series B, while the series B shares were purchased at a price lower than the fair value per share of the common shares as of December 30, 31, 2021, we don't know the impact on our financial statements, but let me say this.

To have an industry leader someone that has creates and does create market someone like ice lead around vehicle Investor. We think is just testing put T zero and it was one of the reasons.

In your.

To use some of our capital people always ask is what we're going to do with our capital we use some of our capital too.

To invest in this round alongside us.

Tom I hope that addresses your question.

And our next question comes from the line of Peter Keith from Piper Sandler you may begin.

Thanks, Good morning, Thanks for all the detail on the call.

I guess I just wanted to reflect back on Q4.

Because you guys were expecting growth for the quarter came in down negative high single digit.

<unk> the environment, maybe got a little bit tough industry wide, but anything company specific that happened.

Either operationally or within the forecasting and then I guess just playing that forward.

You get confidence around the high single digit sales growth guide off of the Q4 guidance Smith, what gives you confidence in this type of growth.

Sure.

Address that initially and now I'll turn to the data from color about Q4.

We did pull our customer day event, which historically has been in Q4 to Q3.

Even with that we still thought we would.

Our higher revenue growth in Q4 than we did.

It was a competitive market.

There were.

People were spending more online.

<unk> was for their advertising online advertising that we felt was appropriate.

There were there was some I think fear among consumers.

They didnt purchase.

If they didnt purchase early enough in the quarter online it wouldnt get to them as it relates to overstock. The fear was unfounded, but its still met some traffic move to brick and mortar that we weren't expecting.

But I will tell you that the team adjusted quickly we delivered our best cyber class ever.

I think.

Despite some of the challenges we did well.

What would you add to that.

Well in terms of the confidence moving forward.

When you think of some of the product categories and the mix shifts that occur in them over time, Jonathan mentioned as we move into the second quarter for the last couple of years its been one of our biggest quarters.

Also one of the quarters in which one of our power categories.

Is most exposed in outdoor patio furniture.

And an area that is already performing for us and we're very excited to see the next couple of quarters and how that translates.

Back to you Jonathan.

Thanks, Dave.

Look the future is always hard to predict.

It's one of the reasons works.

We've been hesitant to give guidance on where we're not talking about quarterly guidance, but we do think for the year, we are well positioned to beat the market.

And to deliver high single digit deliver at least high single digit growth.

Our next question will come from the line of Curtis Nagle from Bank of America, you may begin.

Good morning, Thank you very much.

As we've been kind of talking about pretty significant news on.

Two zero.

I guess for some of those who.

Our retail analyst and a little less familiar.

Maybe just sort of refresh or just Jonathan some comments in terms of like.

As you said the endorsements investments rates for myself, it's pretty significant.

What do they find to be the most attractive assets here.

The biggest growth opportunities and then.

I guess, that's a great point.

What are.

I guess the capabilities.

Strategic prowess, what is David bring here in terms of his new role here.

Yes.

Comment to that would be great.

Great questions, let me jump in and I'll answer the second first is on the first second.

David is a 20 plus year senior executive.

<unk>.

At ice.

He is a named executive officers chief strategy.

Officer, He has helped build exchanges and markets for ice.

When we look at the T Zero board looked to find an industry expert.

It Couldnt have hope to find anyone better than David.

I will comment on <unk>, because I think thats for ice to comment on but let me see what I see at zero.

Two zero.

Has.

The exchange is.

Yes, which is allowed to use blockchain.

Blockchain holds the promise for the trade being the settlement.

Taking the swap out of the settlement system.

Currently trade settle a trade plus two or.

T plus two.

Two zero offers the ability for credit card zero or T zero.

It also I think theres, great opportunity with <unk>.

Non fungible broken.

Great opportunities with crypto to meet <unk> can be a crypto wallet.

In exchange for NMS Securities and exchange for security tokens and exchange for NFC.

To me, it's welcome to the 21st century trading 420.

I think it holds a lot of promise.

Think it holds even more promise with a partner like ice.

And its ability to partner with its sister companies in the ice umbrella and a leader like David who has built and done this before.

Our last question will come from the line of Brad Saslow from PAA Research you may begin.

Hey, Thanks for taking my questions and a really good job organizing this call I have enjoyed it.

Can you just parse out maybe a little more specifically because you've mentioned that maybe half a dozen times what was the actual numerical drag from exiting non home categories on your revenues I have it is like.

450 to 500 basis point drag in terms of revenue growth in the quarter and the fourth quarter.

But we have not provided that.

We know roughly what it is but that's not something we're talking to like I said, we started what we're calling next it non home exit mono good exit in Q2 of 'twenty.

'twenty one.

It will continue through the end of.

Excuse me Q2 2022.

We think we're adequately.

Offsetting it with new homes SKU growth, we expect new homes, new growth to continue both in breadth and depth, particularly particularly as the supply chain challenges.

Leasing in the East, we think Thats, the time, where SKU growth could really increase and do that so.

There is some short term headwind, but we think the long term tailwind.

Being at home being more associated with home, where shoppers purchase more frequently.

Order sizing or just better customers.

As we are.

The long term gain is worth the short term pain is not what the people say, that's what we believe here.

Let me see.

Thank everybody for participating in today's call, we like our business.

Our strategy is aimed at increasing Overstock brand Association with home.

Our business model is advantageous and resilience within economic cycles, especially with the foundational operational improvements we've made and are continuing to make.

We remain in a favorable position to deliver market share growth and profits to the bottom line.

And there are exciting things happening in our blockchain portfolio, especially and most recently at T. Zero. We appreciate your interest in and ownership of Overstock have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

[music].

[music].

[music].

[music].

Good day, and thank you for standing by welcome to the fourth quarter 2021 overstock Com earnings conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question answer session to ask a question. During the session you will need for star one on your telephone.

Today's conference is being recorded and if you require any further assistance. Please press star zero and whenever you have the conference over to your speaker today I wish Anthony.

Mr Relations. Please go ahead.

Thank you Victor good morning, and welcome to all the stocks fourth quarter and full year 2021 earnings Conference call <unk> joining me on the call today are Jonathan Johnson, CEO and evenly CFO . Additionally, Dave Nielsen President of Overstock, who will be available for Q&A. Please note that we're conducting two.

This call remotely.

Let me remind you that the following discussion and our responses to your questions reflect management's views as of today February 22022.

And may include forward looking statements actual.

Actual results could differ materially from such statements.

Information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31st 2020, and our Form 10-Q s for the quarters ended March June and September 2021.

Sequel filings with the SEC.

A slide presentation accompanying today's webcast has been posted to our Investor relations website and is available to download.

These video the important forward looking statements disclosure on slide two of today's presentation.

This call will discuss certain non-GAAP financial measures the slides accompanying this webcast and our filings with the SEC contain additional disclosures regarding these non-GAAP measures.

Reconciliations of these measures to the most comparable GAAP measures finally instructions to ask questions. During our Q&A session are also available in the slide presentation.

With that let me turn the water call for the first speaker for today Jonathan.

Thank you Rob asked Jan good morning, everyone.

Overstock delivered its seventh.

Consecutive quarter profitability right in line with our stated financial targets.

What we internally call our recipe card credit business.

This was intentional we managed our expenses.

Especially our competitive online marketing spend during a highly competitive quarter.

To achieve this outcome.

Even with the highly competitive AD spend environment and other industry wide challenges, we delivered on our largest cyber five period in the company's history.

All year, we consistently illustrated our gain the ability to provide smart value during key shopping events.

I'm pleased with how the team managed to deliver profitability.

During today's call will follow the agenda on slide three next slide please.

This slide provides an overview of our operating and financial performance for the full year.

2021 was our second consecutive year of profitability and market share gains we grew sales to nearly double our pre pandemic run rate.

Based on metrics, we look at which compare us to our top U S home furnishing online peers overstocked added almost 50 basis points of market share in 2021.

This is an encouraging result, considering the almost 200 basis points of market share we added in 2020.

We are proving we can adjust to execute through and take advantage of both positive and negative <unk> <unk> to the market.

I'm extremely proud of what this overstock team has accomplished over the last two and a half years.

We refocused our marketing efforts on the target base of customers, rather higher per passenger you shop with us and they spend more and at a higher frequency.

We have made it easier for our customers to find and purchase great home products from our site.

Our customers can shop, our large and growing assortment of quality home products the prices they desire.

Improved our delivery experience focusing on both speed and accuracy.

All this progress has been driven by successful execution against our three brand pillars product liability.

Smart value and easy delivery and support.

I will provide an update on each of these brand pillars later.

Next slide please.

As we sit here today external forecasts project some moderation in the housing market.

At the same time external forecast project.

More home furniture and home furnishing fail.

Net it online.

We believe our opportunity continues to lie in increasing Overstock brand Association with home to continue to deliver to deliver market share gains.

Executing non home category has been a key focus for us over the past few quarters, we remain on track to hit our goal of 100% home focused assortment by Q3 of this year.

Combining this home focused strategy with our added major supply chain.

Our business model positions us favorably for 2022 and beyond.

We have many proof points as our strategy is working and resonating with our customers.

During the fourth quarter, we stacked up favorably versus our competitors on two key purchase consideration.

Pricing.

Shippers.

Our promotional model around key events continued to drive record results.

<unk> III is shipping awareness expanded 1000 basis points over the year.

Our strategy to remove non harms.

Positively influencing our association with home or repeat rate and our average order value.

We are attracting customers, who spend more repeat more frequently and appreciate our home expertise. These proof points give us confidence that overstock and continue to win in the home furnishings market.

Our supply chain continues to be a competitive advantage as a reminder, our supply chain is broad and distributed with a vast partner network that reduces single source risks shipping bottlenecks and supply chain case allow.

Unlike some of our competitors, we don't pressure our partners to lock up the inventory in our distribution centers. As a result, we tend to give favorable priority in pricing on inventory, particularly during periods of high demand and low supply.

Our asset light business model aimed at reducing gross margin pressure.

One almost no inventory.

Rockstar distribution center footprint as demand fluctuates in short we have a great business model.

Now let me provide a brief update on our 2022 outlook taking into consideration various recent market and broader economic forecasts, where we ended 2021 our performance. Thus far in Q1, 2022, which has a tough year over year.

Both comparable and our plans for the balance of the year, which include exiting the last of our non home products by the end of Q2.

We expect outpace the market with at least.

High single digit annual revenue growth and mid single digit adjusted EBITDA margins.

We believe we can deliver sustainable profitable market share growth for the third consecutive year.

Slide six please.

Next I'll provide a great corporate update on Q4 events.

In November we internally announced our future of remote work and reentry designed or forward plan. It takes effect in April 2022.

Almost all our teams will continue to work remotely most of the time coming to our headquarters two to four times a year for collaboration.

Thank goodness.

Celebration of our culture.

The ability to offer remote work has improved our attraction and retention efforts both of which are important during the nationwide great resignation.

Workforce continues to be engaged and productive working from home.

In December .

Fifth year in a row, we pay the dividend on our preferred to our preferred stockholders.

We ended the year.

We launched dedicated pages on our website outlining our current ESG efforts and targeted goals.

Are we are overstocked value to do good.

We have an ESG team in place comprised of many talented people across several departments.

I am proud of our community efforts during the quarter.

Including our work with Afghan refugees and Mercy hazard.

We are committed to our vision of dream homes for all which includes fulfilling the basic home furnishing needs or the less fortunate.

Now ask Adrianne Lee to review, our fourth quarter and full year.

Actual results in more detail.

Thank you Jonathan Slide seven please.

I will begin with a summary of our fourth quarter financial results, including a review of key customer metrics and performance indicators, then I will summarize our full year full year 2021 financial results next slide.

The fourth quarter of 2021 was our seventh consecutive quarter of profitability, we achieved profitability right in line with our stated targets, while navigating industry wide challenges, including the return of foot traffic to brick and mortar and a competitive AD spend environment revenue declined by 9% year over year, but increased nearly 70% on a two year.

Basis.

Adjusted EBIT margin was four 5% flat to 2020, and a 630 basis point improvement versus 2019.

We reported diluted earnings per share of <unk> 68.

If we exclude the impact of Truing up our tax valuation allowance, which is customary when it releases done during a interim period as opposed to year end and our proportionate share of the Medici ventures filed performance. Our adjusted diluted earnings per share was <unk> 36 in the fourth quarter, a decrease of 12% 12 cents versus <unk>.

In 'twenty and an improvement of 81 compared to the fourth quarter of 2019.

Our balance sheet remains healthy we ended the fourth quarter with $503 million in cash and very minimal debt, resulting in a net cash position of over $450 million. As a reminder, our board authorized $100 million stock repurchase program in August last year, we have yet to execute against this program. It's.

And to note that we have been in a blackout periods with December one.

I will thank you Andy Andrew Andrew.

If I may.

I'd like to interrupt and go off script for a moment.

You are right to note that we've been in a blackout period since December one.

I expect some of our owners are wondering about our intentions to use the board authorized $100 million stock repurchase program.

While I won't comment on when or how much of the $100 million, we may use to repurchase shares.

I will say the current stock price does not accurately reflect reflect our view.

Of the current and potential value of the business excuse me Andrew.

Thank you Jonathan.

I will speak to these quarterly financial metrics in greater detail in the following slides and then provide a summary of our full year results next slide please.

We posted revenue of $613 million in the fourth quarter, a decrease of 9% year over year, and an increase of 68% compared to the same period in 2019, the fourth quarter had industry wide challenges and was impacted by our strategic actions. We intentionally chose not to chase higher AD spend and deliver on profit on our profitability.

We realized a negative impact from lapping customer day in 2020, which we moved into the third quarter in 2021 and aligned with our broader strategy continued to remove non home products from our site impacting a highly giftable period and recognized an outsized impact compared to prior quarters.

Revenue was positively impacted by 23% year over year increase in average order values and a year over year improvement in order frequency average order value increased versus last year. As a result of increased sales in our key furniture category I will discuss these metrics in further detail later.

Our strategy to exit non home categories is the right move for our business. It increases Overstock brand Association with home and our home customers spend more and repeat at a higher frequency next slide please.

Gross profit came in at $139 million in the fourth quarter, a decrease of $12 million versus the prior year and an increase of $64 million compared to the fourth quarter of 2019 gross margin was 22, 7% in the fourth quarter, which is right in line with our targeted range. This is an almost 20 basis point improvement.

Versus last year and flat to the third quarter of 2021 I will note that we were able to maintain gross margin relatively flat sequentially, even though any more promotional and giftable sales period.

The year over year margin increase of 20 basis points was primarily driven by operational efficiencies, partially offset by higher discount discounting compared to last year, notably gross margin improved 200 basis points versus 2019. It is a significant structural improvement that we have been able to nearly double sales, while improving our gross margin profile.

Next slide.

This chart illustrates G&A and tech expense over the past nine quarters in both absolute dollars and as a percentage of revenue G&A and tech expense declined by $2 million year over year and remained relatively flat sequentially.

As a percentage of revenue G&A and tech expense was eight 4% in the fourth quarter, a deleverage of 34 basis points compared to the fourth quarter of 2020 compared to 2019, G&A and tech expense was flat while revenue increased by 68% and improved 592 basis points as a percent of revenue or absolute G&A and.

Tech spend remains in line with pre pandemic levels.

Our goal remains to be extremely disciplined in managing our expenses I will note like many other companies overstock is not immune to market wide wage inflation, and we are increasingly using equity compensation and benefits to align our workforce around our financial targets and business objectives are tech and G&A plans include higher staff related expenses some of which.

Our non EBITDA impacting next.

Next slide.

In the fourth quarter, we delivered adjusted EBITDA of $27 million, which is down $3 million versus a year ago, but up significantly versus the two year comparable period. Adjusted EBIT margin was four 5% flat to last year and right in line with our stated targets adjusted EBIT margin was an increase of 630 basis.

Points versus 2019.

This was a managed outcome, we focused on maintaining our profitability commitment through disciplined marketing spend and a laser focus on expense management, while making progress against our whole strategy.

Next slide please.

Now I will turn to our customer metrics that we use to manage and assess our business performance. This slide shows the active customers and order frequency, we measure active customers on a trailing 12 months basis.

<unk> customer base declined to $8 1 million at the end of the fourth quarter, a decrease versus 2020, but an increase of almost 60% our 3 million customers versus 2019.

Just on where we sit today, we expect our active customer base to decline in Q1.

The Q4 decline in active customers was driven by three key factors online penetration receded from the all time highs experienced during peak pandemic restrictions are.

Our strategy to exit non home categories. As previously discussed we believe this is the right long term tradeoff.

And the market realized an uptick in brick and mortar traffic, partially driven by increased supply chain pressures that we believe prompted some customers to physically purchase in store to ensure availability.

Orders per active customer was 167 times in the fourth quarter, essentially flat sequentially and an improvement of 2% year over year, we see this as a positive proof point to our home strategy.

We take a step back and normalize for those onetime customers that purchased during peak pandemic restrictions and are those customers that only bought non home products and categories. We exited our customer metrics remained relatively stable.

It's important to point out that while active customers have decreased we have been able to strategically offset this decline with an increased average order value, which is more aligned with the home category overall, and which I will discuss in greater detail in the next slide.

Next slide please.

This slide shows average order value and orders delivered average order value improved 23% year over year to $206 and declined sequentially driven by more seasonal and home related giftable sales the year over year improvement was primarily driven by our continued sales mix into home categories.

Orders delivered were $13 5 million for the trailing 12 months period. This is a decrease of 10% compared to the prior year or $1 6 million orders and an increase of 51% or $4 6 million orders compared to 2019.

Our <unk> results are an important proof point on our continued focus on home while orders are declining the value of each order <unk> is improving it's a strategic tradeoff and reflects the purchase behavior of the customers. We are targeting home customers, who trust us with higher value items and have a higher propensity to make a repeat purchase.

Next slide please.

I will now recap our strong 2021 full full year financial performance.

Revenue increased 11% versus 2020 to $2 8 billion almost double 2019 results gross margin was in line with our target at 22, 6%.

257 basis point improvement versus 2019, we continue to be measured in our G&A and tech spending driving leverage of 94 basis points and 698 basis points versus 2020 and 2019, respectively.

We delivered adjusted EBITDA in the mid single digits at five 1% and generated free cash flow as I indicated earlier, we exited the year with a favorable net cash position and a healthy balance sheet.

We continue to be focused and measured on delivering our financial targets, while executing against our strategic our strategic vision of dream homes for all with that back to you Jonathan.

Thanks, Hey, Greg <unk>.

<unk> executed well during the fourth quarter navigated competitive marketing pressures and industry challenges to deliver.

Profitability for the quarter Evercore year.

We grew and took market share for the year.

Our team is focused on delivering against our targets and committed to continue to drive meaningful foundational operational changes changes.

Before I proceed to the discussion on our business and brand pillars.

Like to provide some clarity around recent executive departures and what appeared to me to be.

Misguided commentary on that.

First these departures were not the result of disagreement regarding our business model or strategy.

Second the current overstock team is fully equipped with required decision makers.

Dave Nielsen and the rest of the team.

Dave is a master retailer and operator.

Can and is executing on our home focused strategy this year.

Beyond.

And third as I shared earlier overstock is attracting top talent.

Across various levels of the organization.

Expect that to continue.

<unk> 16 please.

Next I'll provide some key insights into our business, including where our focused strategy is paying off and where we're targeting and driving growth.

Slide 17 please.

Online penetration continues to grow in 2021, even after the large uptick in 2020.

It is encouraging to see that about a third of home furniture and furnishings purchases.

The us are transacted online.

Importantly, third party forecast project continued online migration into 2022 and beyond as customers recognized the broad assortment available the value and the ease of purchasing online.

Estimates from our third party sources now place the total addressable market of roughly $390 billion up 20% from previous market reported.

As we look ahead overstock business should benefit from the combined tailwind.

Growing home furniture and furnishings Tam.

<unk> online migration and <unk>.

Our focused strategy that includes planned growth.

Home and the home SKU Assortments.

Slide 18 please.

This slide is a good reminder, were overstocked in the overall market and the significant white space available in the quadrant, where homegoods expertise.

Smart value.

This quadrant is the right place for overstock.

Been strategic about choosing to focus on it.

Our target customers already have a higher propensity to shop with us.

We purposefully play to our natural strength these.

These customers represent roughly 40% of the market.

Your stock has ample growth opportunity in this space and with these targeted customers.

I'll now talk to each of our three on our three brand pillars, each of which are key to our continued growth and help required overstocked customer value proposition.

Slide 19 please.

Our first <unk> product line the ability one of our key initiatives in 2021 was to improve onsite search and taxonomy.

We continue to as we continue to lean into the home. It's critical our customers knows for our home furnishings offerings and can quickly and easily find their home products, they're looking for we.

We made great strides in 2021.

Click through rates further improved in the fourth quarter.

We also improved the accuracy of search results over each subsequent quarter during the year.

Sure customers are engaging with us at a higher rate.

The quality of home products, they're looking for.

We view both as critical milestones this should help us grow repeat purchases and quarters.

<unk> ahead.

We've made good progress towards getting the overstock brand associated with home. For example, we've increased our brand association with home by 15% over last year. This has been supported by a home SKU growth like we did in Q3 during the fourth quarter, we expanded our new home.

Skus.

150% year over year.

Yeah.

At the end of.

At the end of the fourth quarter, 94% of our sales were in homes were at home categories. This is about 400 basis points higher than last year.

Illustrates our execution against removing non home assortments from our website.

We did see an impact on active customer growth on our website during the removal of non home merchandise that occurred in Q2 and Q3.

We are confident this is the right strategy for our business going forward.

Streamlined home related.

Related to assortment.

<unk>, a higher average order value and a higher repeat rates.

As our customers begin to associate overstock more with home. We expect this will translate to a bigger share of wallet ultimately driving market share growth.

We have set targets to grow both breadth and depth of SKU count in key home categories, where we know we can win.

Perfect.

All of our other important purchase completer.

We've removed categories the quarter the website experience.

For our customers and distracted our focus on the home.

Perhaps electronics musical instruments and crafting materials.

We expect to remove the last of our non home categories by the end of Q2.

This category approach will help us better align our marketing efforts and customer experience to drive stronger more frequent customer engagement.

Slide 20 please.

Our second brand <unk> smart value.

Smart value means offering great products at great prices or said differently the high.

<unk> quality products for the price.

Our promotional model is intentional and critical to attracting and retaining our customers. They love Hardy deal and want to feel like they're women.

We allow them to do just that our competitive pricing parents.

And then remains to offer a winning priced post promotion, we continue to see progress in our smart value pillar during.

During the fourth quarter, we leveraged our proven ability to execute around holidays and special events.

Following record fourth of July and Labor day events in the third quarter, we delivered the largest Thanksgiving to cyber Monday period in the company's history.

Execution was bolstered by our increased increasingly popular mobile app.

Some 80% increase in app downloads relative to Q3.

Our up exclusive coupon on Thanksgiving day helped us deliver off sales at three times at a three times higher rate than our typical run rate.

The mobile App as a key customer retention tool.

As for <unk>.

We had a higher average order value higher conversion and higher order frequency.

We will continue to focus our efforts are driving higher engagement.

Let me also provide an update of our club O paid loyalty program.

The number of members in this program reached a new milestone during the fourth quarter.

Paid club O memberships are at the highest level in company history.

<unk> offers additional value to our customers such as collecting rewards and redeeming those rewards on future purchases and free returns for in store credit.

We do not intend to share membership metrics I am encouraged to see growth in this program as it supports strong overall repeat rates.

<unk> sales penetration of our most loyal customers indicate to us.

And our commitment to delivering smart value continues to residents.

Slide 21 please.

Our third brand pillar easy delivery and support.

This includes getting the right product assortment and then optimizing its journey to the customer.

We haven't distributed supply chain with our partner based drop ship model that includes about 3000 partners with about 5000 fulfillment centers nationwide.

Susan and advantage when navigating industry wide supply chain disruptions and.

And it allows us to flex quickly with <unk>.

Changes in demand.

Our carrier network is diverse both regionally and nationally.

This unique model has worked particularly well for us over the last two years.

I think of overstock.

<unk> to withstand jolts to the market industry and consumer demand both positive and negative our operating model is the key to this agility.

Based on general market commentary and productions, we expect supply chain challenges and started because of the pandemic to persist at least grew the better part of 2022.

Although our vantage point, we believe as we believe overstock is better positioned than many others in the industry.

We continue to provide timely forecasting and communicate frequently with our vast partner base and carrier network, allowing us to meet customer expectations and help navigate through periods of disruption.

We recently hired a chief supply chain officer to focus on optimizing our unique operating model improve the customer journey and help us further differentiate in the marketplace.

Yes, we are attracting top tier talent, even under a red hot market and field.

Slide 22 please.

Hi.

As you've heard me say many times.

Mantra is sustainable profitable market share growth.

Growth is a key component.

Of our business.

And all of which we spent significant amount of time of maritime strategy.

Yes.

We've gained great momentum over the last two and a half years. This slide includes several key drivers to support continued growth.

I will comment on these drivers focusing it.

On our Canada expansion efforts.

As mentioned before there.

There continues to be a big opportunity to increase Overstock brand Association with home.

We've increased and will continue to increase the breadth and depth of our home assortment goods assortment.

I expect the pace of this should increase as supply chain challenges improve.

<unk> Tomorrow home skews on our side.

We are significantly improving how we do category management, which may seem like retail 201, but it's something we've needed to do better and now we are getting there.

We will continue to focus on increasing mobile app adoption, we're especially encouraged by the recent success over the 2021 cyber five period.

You ever higher mobile App adoption and continued progress on optimizing marketing challenges channels with a focus to increase direct traffic should help us improve customer retention.

Our efforts to improve our site our ongoing.

Alright time ability.

<unk> continue.

And they are making a difference.

We believe we are well positioned with a great business model and many levers to pull to continue to gain market share.

And to do so profitably.

We've highlighted our Canada business is a key focus area for 2022.

We're big believers in the Canadian market.

See large long term opportunities for market share growth as we execute to deliver on our brand pillars in the region.

During 2021, we've made good progress on our Canada initiative, improving the website experience, adding additional arms skus and working with partners to hold more product and local warehouses.

Our overall brand awareness is still lower than we would like.

We're targeting our efforts to build awareness, including showcasing our unique pillar smart value.

Our goal when we believe is achievable over the next few years is for Canada revenue to grow to 10% of our U S revenue.

Slide 23 please.

Some in the industry see growing market share and be profitable.

Mutually exclusive.

We do not.

We continue to direct our strategies to drive sustainable profitable market share growth.

Since I became CEO , we have operated under this philosophy, we are not deviating from this commitment.

We continue to see opportunities to gain market share as we increase our brand Association with home.

When we feel the industry has reached its natural maturation point, we then consider revising our targets and establishing different longer term along a different longer term margin framework.

Our financial recipe card targets remain unchanged.

<unk> topline outpacing the market outpacing the market to deliver market share growth driven by our advanced technology, our unwavering focus on the customer and our inherently adaptable business model.

We expect margins gross margins in the 22% range. So that we can deliver on smart value acknowledging these may fluctuate slightly from quarter to quarter.

We are disciplined in our G&A and tech spending to continue to drive operating leverage you saw that in the fourth quarter and you should expect us to continue to deliver adjusted EBITDA margins in the mid single digits as we delight, our customers and deliver dream homes for all.

Slide 24 please.

Next I'll discuss a few of the significance.

Significant updates on the Medici Ventures fund all of which had been previously released publicly and our great milestones for the asset in the fund.

I'll start with T zero.

Slide 25 please.

We ask your day, please neuro announced appointed a new CEO , who will start next month.

<unk> CEO , David <unk>, Chief strategy Officer, and Intercontinental Exchange, who helped build.

And two are trading clearing and data powerhouse.

Over $70 billion market cap and owns among other companies the New York stock exchange with his industry expertise in connection David is a great hire.

While it took longer than expected to find the right CEO .

Wait.

It's worth it.

I believe the T Zero Board power, just the right person to take two zero to the next level.

Related to Davids appointment to zero also announced and completed an additional funding round for new and existing investors.

This led the round.

And we will become a significant minority shareholder of two zero.

To have a well known and strategically significant industry player lead around is a big deal.

Overstock in the Medici Ventures Fund also participated in the round.

We believe the new capital.

The new capital infusion, coupled with David's leadership will allow us to zero to scale and continue.

Innovation, and leveraging blockchain technology to create a more efficient.

And transparent wall Street, ultimately revolutionizing democratizing capital markets.

And another significant milestone for Q zero is Boston Security token exchange 50, 50 joint venture.

But digital company that drives innovation in the public capital markets received SEC approval.

<unk> is the first and only National Securities Exchange and the U S approved utilize blockchain technology for parts of its operations.

In other updates related to zero.

Zero Etfs launched a clearer and settlement function for securities SG&A that should enable us to drive further growth and improve user experience.

<unk> crypto App added three new coins expanding <unk>.

<unk> crypto currency offerings to 18 points.

Two zero continues to be a leader in digital security trading during 2021 total market cap of digital securities surpassed $1 billion.

So from a T zero platform represent more than 60%.

Of all digital security values and T zero resolved two legacy legal matters, one with the SEC related to <unk>.

TFS disclosures.

And another when its subsidiaries Phaedra entered a settlement with the New York stock exchange and NASDAQ related to market access rules.

The resolution involved are implicated overstock.

I believe the future has never.

Never been brighter for two zero and I'm excited for what's next to zero.

26 please.

From some other Medici pronged updates following the launch of <unk> in Nigeria in October <unk> launched <unk> pay and believes in December .

First deployment of digital currency management system in Central America.

Central banks and over 50 financial institutions across seven other company countries. Currently now are using their products.

<unk> land governance side.

A memorandum of understanding with sustainable development goals of Africa.

MLG is helping develop transaction systems and land administration and payment software in various countries.

The city of Chandler, Arizona tested mobile voting two votes, yet another vote of confidence for its blockchain based platform.

I know many of our shareholders. Our eagle are eager to learn more about the Medici ventures portfolio companies.

To that end <unk> to hold the Medici day on May 10, 2022 to highlight some of the top portfolio.

Folio companies.

To wrap up our discussions of the Medici Ventures fund I'm pleased to have <unk> is acting as the Fund's General manager.

We're helping many of our portfolio companies advance their respective businesses and vessel, allowing the overstock management team to focus on the E Commerce business.

As you can tell I remain bullish on blockchain technology and many of the companies in the Medici ventures pump.

Slide 27 please.

I'll now briefly recap the quarter and then we'll move to Q&A slide 28.

We had a great year.

That was on the heels of a spectacular 2020.

We continue to increase the number of home products available to us on our site strengthening Overstock brand Association with home.

Our focus on smart value is resonating with customers and as I shared earlier, we are successfully executing and event driven strategy supported by growing mobile app adoption, our supply chain is agile and prepared to support sustainable profitable market share growth.

We are look we.

We are looking forward to continuing to grow and build this business in 2022 and beyond.

Importantly, our philosophy on profitability is unchanged we are committed to deliver results in line with our stated targets now.

Now operator.

Victor lets take some questions.

As a reminder to ask a question you May press star one on your telephone.

To enjoying a question just press the pound key in the interest of time and to get to as many questions. Please.

Ask one question and then go back into queue for a follow up.

Again, Thats star one for questions. Our first question will come from the night of and <unk> from Needham you may begin.

Great. Thanks, so much good morning, guys and thanks for taking our questions.

We have a few quick questions first off congrats on controlling the controllable during a really tough quarter. So this is to Adrian I guess a question on Opex sales and marketing dollars. We're down I think first time since 19 during the quarter how sustainable do you think that is as we're looking at.

22 does this mean privacy change impact.

Now largely behind the company and then secondly to Jonathan you mentioned high single digit sales growth.

For the year for overstock, and outpacing the industry and apologies if I missed it but curious what type of growth do you expect to see.

Home furnishings category in 'twenty, two and for <unk>, specifically should we expect to see sales inflection starting in the back half.

Category exits behind Us and then some.

Sequential improvement here for now in the first half and thank you so much guys.

Thank you for those questions everyone I'll, let us first address the question about sales and Opex.

Yes, hi, good morning, and I think we don't tend to give specific color kind of on our sales and marketing line, what I will say as Jonathan mentioned in his scripted remarks, we're committed to our mid single digit adjusted EBIT targets.

I think as we've.

Discussed before we balance our marketing spend across various channels in discounting and promotional activity and ad spend.

So we look at those carefully and manage them within the channel, though as targets.

And as you asked about.

High single digit growth in outpacing the market.

We do think and as I mentioned in the script the Q1.

Year over year comparable and historically Q1 revenue has been slightly lower than Q4, so we do see that growth picking up.

In the latter half of the year.

As we as we look to the annual guidance, we gave of <unk>.

High single digit revenue growth.

And our next question will come from the line of Seth Sigman from Guggenheim You may begin.

Hey, guys. Good morning, everybody. Thanks for taking the question I just want to piggyback on that last question. So Jonathan how are you thinking about industry growth for the year. So high single digits are you assuming that online home furnishings grows high single digits or I mean, how do you think about that and then just on the cadence part I just want to dig into this a little bit more.

It gets normal seasonality would suggest that.

Both in the first half of the year it could be down double digits year over year is that right is there a reason why that wouldn't be right I'm, just curious how youre thinking about that.

Good question.

We do think that we're going to outpace the industry with or at least high single digit revenue growth.

As I mentioned Q1, historically intended to be a little smaller revenue wise in Q4, but for the last couple of years Q2 has been our largest quarter of the year from a revenue perspective so.

We look at a lot of forecast.

We know.

Unemployment is down we know housing starts are.

Down a little bit there as you know.

Tailwind there's headwinds.

We really.

The market, where we're ever the market grows.

We cannot peso.

High single digits.

And our next question comes from the line of Thomas Forte from D. A Davidson you may begin.

Great. Thanks for taking my question I wanted to ask about T zero, so for the investments if.

If you can't.

Can you give.

Incremental details on the terms how much was invested at what valuation and if you can't provide that can you at least provide.

Some level of directionality versus the last funding for that.

Two zero.

Yes.

We can provide.

Some information.

This is Ben.

Specific to <unk>.

Now I'll walk you disclose the amount of investment.

Did lead around.

When <unk> and <unk>.

Energy events are the Medici Fund General partners with balance sheet Ventures Fund wood.

Participating around at Astro restocking.

If we wanted to participate to given our direct holdings already in Q zero.

You will see in our 10-K, which we expect to file later this week that following.

The closing of everything Overstock will with contributed $15 million in this round and our direct equity interest in T zero will be reduced from approximately 40% to approximately.

34%.

We expect the series B, while the series B shares were purchased at a price lower than the fair value per share of the common shares as of December 30, 31, 2021, we don't know the impact yet on our financial statements, but let me say this.

To have an industry leader someone that has created does create market someone like ice lead around vehicle Investor. We think is just testing putting zero and it was one of the reasons.

Bigger.

Some of our capital people are always asking us what we're going to do with our capital we use some of our capital.

No.

To invest in this round alongside us.

Tom I hope that addresses your question.

And our next question comes from the line of Peter Keith from Piper Sandler you may begin.

Hi, Thanks, Good morning, Thanks for all the detail on the call.

I just wanted to reflect back on Q4.

Because you guys were expecting growth for the quarter came in down negative high single digit I understand the environment, maybe got a little bit tough industry wide, but anything company specific that happened either operationally or within the forecasting and then I guess just playing that forward.

Confidence around the high single digit sales growth guide off of the Q4 guidance Smith, what gives you confidence in this type of growth.

Sure let me address that initially and now I'll turn to bear to add some color about Q4.

We did pull our customer day event, which historically has been in Q4 to Q3.

Even with that we still thought we would.

Our higher revenue growth in Q4 than we did.

It was a competitive market.

There were.

People were spending more online we thought was.

For their advertising online advertising that we thought was appropriate.

There were there was some I think fear among consumers.

And then if they didnt purchase.

If they didnt purchase early enough in the quarter online it wouldnt get to them as.

As it relates to overstock, the fear was unfounded, but its still met some traffic move to brick and mortar that we werent expecting.

But I will tell you that the team adjusted quickly we delivered our best cyber class ever.

And I think.

Despite some of the challenges we did well.

What would you add to that.

Well in terms of the confidence moving forward.

When you think of some of the product categories and the mix shifts that occur in them over time, Jonathan mentioned as we move into the second quarter for the last couple of years its been one of our biggest quarters.

Also one of the quarters in which one of our power categories.

Is most exposed in outdoor patio furniture.

And an area that is already performing for us and we're very excited to see the next couple of quarters and how that translates.

Back to you Jonathan.

Thanks, Dave.

The future is always hard to predict.

It's one of the reasons works.

We've been hesitant to give guidance on where we're not talking about quarterly guidance, but we do think for the year.

Well positioned to beat the market.

Sure.

And to deliver high single digits and deliver at least high single digit growth.

Our next question comes from the line of Curtis Nagle from Bank of America, you may begin.

Good morning, Thanks very much.

Yes, as we've been kind of talking about pretty significant news on.

Two zero.

Yes, I guess for some of those who are retail analyst and a little less familiar.

Maybe just sort of refresh or just Jonathan some comments in terms of like.

As you said the endorsements investments rates for myself, it's pretty significant.

What do they find to be the most attractive assets here.

The biggest growth opportunities and then.

I guess, that's a great point.

What are.

I guess the capabilities.

Strategic prowess.

What is David bring here.

So his new role here.

Yes.

How much of that would be great.

Great questions, let me jump in and I'll answer the second first and then the first second.

David is a 20 plus year senior executive.

<unk>.

At ice.

The named Executive officers Chief strategy.

Officer, He has helped build exchanges and markets for ice.

When we look at.

The T zero board looked to find an industry expert.

It Couldnt have hope to find anyone better than David.

I will comment on ice needs because everything thats for ice to comment on but let me tell you what I see at zero.

Zero.

Has.

The exchange, it's Ats, which is allowed to use blockchain.

<unk> holds the promise for the trade being the settlement, we're taking the swap out of the settlement system.

Currently trades settle a trade plus two or.

T plus two.

Two zero offers the ability for trade Coke zero or T zero.

It also I think theres, great opportunity with <unk>.

Non fungible broken.

Great opportunities with crypto to meet <unk> can be a crypto wallet.

In exchange for NMS Securities and exchange for security tokens and exchange for NFC.

To me, it's welcome to the 21st century of trading or zero.

I think it holds a lot of promise.

Think it holds even more promise with a partner like ice.

And its ability to partner with its sister companies in the ice umbrella and <unk>.

A leader like David who has built and done this per cohort.

Our last question will come from the line of Brad Saslow from PAA Research you may begin.

Hey, Thanks for taking my questions and a really good job organizing this call I have enjoyed it.

Can you just parse out maybe a little more specifically because you've mentioned that maybe half a dozen times what was the actual numerical drag from exiting non home categories on your revenues I have it as like a.

450 to 500 basis point drag in terms of revenue growth in the quarter and the fourth quarter.

But we have not provided that.

Sure.

We know roughly what it is but that's not something we're talking to like I said, we started what we're calling <unk> non home exit non home good exit in Q2 of 'twenty.

'twenty one.

It will continue through the end of.

Excuse me Q2 2022.

We think we're adequately.

Offsetting it with new homes SKU growth, we expect <unk> growth to continue both in breadth and depth, particularly particularly as the supply chain challenges.

Are you seeing in the east, we think Thats, the time, where SKU growth.

Really increase and do that so.

There is some short term headwind, but we think the long term tailwind.

Being at home being more associated with home, where shoppers purchase more frequently bigger order sizing or just better customers.

As we are.

The long term gain is worth the short term pain is not what they are.

Now people say, that's what we believe here.

Let me.

Thank you everybody for participating in today's call.

We like our business.

Our strategy is aimed at increasing Overstock brand Association with home.

Our business model is advantageous and resilient within economic cycles, especially with the foundational operational improvements we've made and are continuing to make we remain in a favorable position to deliver market share growth and profits to the bottom line.

And there are exciting things happening in our blockchain portfolio, especially and most recently at T. Zero. We appreciate your interest in and ownership of Overstock have a great day.

Yes.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.