Q3 2022 Overstock.com Inc Earnings Call
Yeah.
Good day, and thank you for standing by and welcome to the third quarter 2022.
Overstock Dot Com earnings conference call at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
The ask a question during this session you press star one on your telephone.
Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your speakers de La version had money head of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to always start with third quarter of 2022 earnings Conference call <unk> <unk> head of Investor Relations joining me on the call today, our CEO , Jonathan Johnson CFO Adrianne Lee President, Dave Nielsen will be available for Q&A next slide please.
Let me remind you that the following discussion and our responses to your questions reflect management's views as of today October 27 2022.
Input Pollack looking statements actual results could differ materially from such statements additional information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31 2021.
Our subsequent filings with the SEC.
A slide presentation accompanying today's webcast has been posted to our Investor Relations website.
Billable to download. Please review the important forward looking statements disclosure on slide two acre. This presentation. During this call we will discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC contain important additional disclosures regarding these non-GAAP measures.
Reconciliations of these measures to the most comparable GAAP measures finally to participate during our Q&A session. Please use the registration link available under the events section of back into that.
Relations website.
Next slide please.
Turning to this call will follow the agenda on slide three with that let me turn the call over to our CEO Jonathan Johnson Jonathan.
Thank you Robert and good morning, everyone.
Let me begin by saying upfront.
But I'm not pleased with the topline revenue results.
Or for.
I believe we continue to spend the endpoint on marketing your growth efforts.
This is a hard in a highly promotional environment in which many of our competitors continued to liquidate products.
Andrew or ignore bottom line losses.
We believe that will catch up to them.
Where some perhaps sooner than later.
Vendors and their finances worried about payment risk and even longer term viability.
That is not a concern with overstock were profitable for the 10th consecutive quarter and we are here to stay.
In today's environments profits count.
We believe profits or the right measure of the long term winners versus losers and our industry.
I believe that over time, we are well positioned to take market share from competitors. Many of which are closing stores and <unk> are currently struggling with liquidity and distracted by debt management obligations.
In the meantime, we will continue to navigate the near term remaining confident that our longer term results will be better because of our efforts and our focus on profitability.
Since its inception overstock has transformed from a small online liquidator to a general merchandiser and more recently, a 100% furniture and home furnishings retailer with a differentiated asset light model and targeted customer customer base.
I can confidently say.
Our updated business model and our disciplined.
Execution over the last three years has enabled us to navigate the choppy waters of the pandemic and the difficult current economic challenges.
With the economic environment expected to remain uncertain for the foreseeable future. The natural question is how is overstock position relative to our competition.
Sure some specific thoughts on that.
The U S economy and consumers remain unsettled.
High interest rates and various other economic factors are causing considerable stress and putting pressure on the housing market.
Market, which influences purchase behavior among our customers.
The overstock team remains focused on controlling elements of our business that are within our control.
Our business model is focused on growth.
Not at the cost of profitability for us or our partners.
We provide an efficient channel for our partners to drive growth even during times of significant uncertainty as we efficiently serve the evolving home related needs of our customers.
We pay on time and on better and earlier terms than our competitors.
Always have.
I always will.
This along with our exclusive focus on home has allowed us to add new partners to our ranks and increase the breadth and depth of products we offer.
Overstock partners and their finance years.
We've not worry about payment risk.
We have a strong net cash position with minimal debt with no meaningful payment obligations until 2030, and even that is an obligation we can easily cover right now.
Overstock shareholders need not worry about erosion to our earnings from high interest rate debt.
Nor about ownership dilution to pay large debt with looming maturity.
Our shareholders also stand to benefit.
From value within the Medici Ventures fund portfolio that includes about 20 blockchain focused startups.
Hello, Tien venture partners continues to do an impressive job of managing this portfolio, allowing me overstock management team to focus on our retail business.
Several of the Medici venture portfolio companies that had has been busy this summer and early fall I will provide a medici update later in my prepared remarks.
Our third quarter performance continued to be impacted by ongoing headwinds of high inflation.
<unk> weakness.
Shifting consumer spending preferences.
The team managed and leased to carefully stabilize the topline decrease and importantly deliver another profitable quarter as I mentioned, our 10th in a row.
With the focus on profitability, we ended the quarter with a healthy balance sheet and nearly $4 million.
Net cash.
And we.
As we plan around economic uncertainty our balance sheet is a distinct advantage.
Allowing us to focus on executing toward our strategic vision.
We will be opportunistic in evaluating future share repurchases.
We will diligently scrutinized M&A opportunities that might be.
T J can operational fit within our long term business priorities and objectives.
As an overstock shareholder I hope you will lead today's presentation, feeling as confident as I am an overstock <unk> ability to navigate and eventually return to growth in the current business environment.
Next slide please.
The overstock team continues to make progress to deliver on our strategic vision and targets. This.
This is evident in a 53% growth.
For Q3 home only revenue compared to 2019 as shown on the left chart.
This growth rate has outpaced the expansion in the total addressable market over the same period.
Well I'm certainly not pleased with another quarter of 30% plus year over year revenue decline.
We're encouraged to see our homeowner revenue decline seems to have at least leveled off.
This is a good sign when you consider one to the pandemic drivers that were helping revenue last year and to the benefit we saw from the shift in our customer day event into Q3 last year.
This year, we held our two day customer day in October in conjunction with the launch of our new marketing campaign and rebranded it as Overstock day.
We were pleased with the results of this annual event.
The chart on the right illustrates our Q3 home only revenue performance compared to the prior year.
Our homeowner revenue trend has stabilized sequentially since July for the quarter and for the quarter declined just under 30% and.
An improvement in trend relative to Q2.
Third party data shows a sequential improvement in our retention trends.
We continue to direct our focus through merchandising and marketing strategies to drive further improvement.
Last quarter I shared with you our plan to launch New brand marketing following completion of our move to 100% home related assortment.
We are excited to have launched a new brand campaign earlier this month centered around our refreshed vision of making dream homes come true.
I will discuss more on this shortly.
Next slide.
Now for a brief update on recent corporate events.
Part of our continued efforts to identify efficiencies we conducted a strategic review of our organizational structure and made changes that better align our teams to eliminate redundancies and fixed cost.
We've strengthened our leadership team with top talent over the past several months.
We have assembled the best in class data and Tech organization to drive cross functional synergies operational excellence and more automation.
Each of these changes are important as they better position overstock for short and long term success.
In October Overstock employees came together for a semi annual event at our corporate campus in Utah.
We discussed our refresh division and showcased our brand campaign, including for the first time ever the use of brand ambassadors.
We view this as a critical piece of our strategy to enhance Overstock brand name Association with home now that we've completed our exit from and removal of all know non home products.
Next slide.
As we shared with you in the past.
Stock name has very strong name recognition, but our association with homes low.
Our major journey to become an online furniture and home furnishings retailer took six quarters.
Noting in June we exited the last of our non home categories and transition to a 100% furniture and home furnishings retailer.
With that transition complete we strategically refreshed our vision from dream homes for all to making dream homes come true to emphasize our purpose and inspire our employees partners and customers.
With our new vision in place, we created a brand campaign.
Launching a new commercial title come on get comfy to coincide with our two day Overstock day customer event on October 2nd and third.
The ad spots, which reinforcement reinforce our vision at Overstock makes dream homes come true. It budget can be seen on broadcasting cable television like HGTV streaming TV Youtube and social media channels.
An additional element of our campaign is a brand ambassador program.
We partnered with six high profile home centric brand ambassadors you see on this slide.
Each are experts in interior design home decorating and remodeling.
Duane them, they have approximately 12 million followers across multiple social media platforms, including Instagram Facebook Pinterest, Youtube tick tock and Twitter.
These ambassadors are a diverse and talented group of home experts, whose host who most popular TV shows.
Interior design firms and create home and lifestyle content.
Overstocked partnership with them will allow overstock to reach new audiences and attract more new customers.
This new campaign marks the next step and our teams journey and a vision for the future.
Over the coming weeks and months, you will see exciting content and social media posts from these brand ambassadors, highlighting how overstocked and make dream homes come true.
Chief Marketing officer, Angela and her team deserve a special shout out for the rollout of this marketing and brand Ambassador campaign.
I believe I speak for everyone at Overstock, when I say, how excited we are with this new marketing campaign and the value it will add to the company over the long run.
We are finally in the social media media game in a meaningful way.
I will now hand over the call to Adrian made to review, our third quarter financial results in more detail.
Thank you Jonathan Slide nine please.
Revenue declined by 33% year over year in the third quarter, we manage through near term challenges and delivered an adjusted EBITDA of $15 million at a margin of three 2%.
Our reported EPS loss of <unk> 81.
It was driven by a non cash non operating expense associated with the change in value of our equity securities. The change primarily reflects dilution to our direct and indirect ownership interest in T. Zero. Following the series B funding round, including the dilutive impact of T Zero issued equity awards.
Now hold approximately 29% direct interest in Q zero and approximately 25% indirect interest in T zero through the Medici ventures filings.
We reported adjusted diluted earnings per share of <unk> 13, a day.
Decrease of 41 versus 2021, and this excludes the impact from our proportionate share of the Medici venture spanning performance and changes in value of our direct investment in T zero, including the change in value of our equity securities that I just referenced the decline in adjusted EPS versus last year was driven by lower pre tax income.
Our balance sheet remains strong we ended with a cash balance of $428 million, even after funding $7 5 million for the second tranche of the T. Zero series B funding round I will now speak to these quarterly metrics in greater detail in the following slides next slide please.
We posted revenue of $460 million in the third quarter, a decrease of 33% year over year. The third quarter was impacted by weak consumer sentiment and shifting spending preferences, and then challenging macro dynamics, including high inflation. Additionally, we faced headwinds from our strategic action to remove non home products from our site.
Our business continues to perform well relative to <unk> 2019 levels illustrating the operational progress. We have made this is evident in the 53% home only sales growth versus 2019 that Jonathan shared earlier, our customers recognize our improved assortment of furniture and home furnishings and have strong engagement with our mobile app.
Both of which have been key elements of our strategy.
Revenue performance was positively impacted by a 13% year over year increase in average order value I will discuss our key customer metrics in further detail later next slide please.
Gross profit was $107 million in the third quarter, a decrease of $49 million versus the prior year gross margin came in at 23, 3%, a 60 basis point improvement versus the same period last year.
The year over year increase was driven by operational efficiencies, partially offset by higher promotions and discounting. We expect this highly promotional competitive backdrop to continue through the fourth quarter.
Our gross margin performance as a proof point of our asset light model, we are able to improve our margins. During this challenging cycle, while continuing to offer our customers smart value in the quarter, we navigated product cost inflation and significant liquidation from retailers with excess owned inventory.
Important to remember that our business model does not have an expensive logistics operation with a high fixed cost base or significant owned inventory.
Slide.
G&A and tech expenses decreased $4 million year over year, primarily due to a reduction in our cash incentive compensation, which is based on financial performance.
So we realized parcel efficiency and automation gains related to the organizational review Jonathan referred to earlier.
It's important to note that our compensation and benefits expense increased versus last year, mainly driven by our enhanced equity programs.
As a percentage of revenue G&A and Tech expense was 10, 5% in the third quarter, a deleverage of 290 basis points compared to the third quarter of 2021 due to weak top line results are.
Our goal remains to be extremely disciplined in managing our expenses and finding efficiencies across the organization. We have taken actions to balance our G&A and tech spend with our top line performance to set up overstock for near to setup overstock for near and long term success next slide.
In the third quarter, we delivered adjusted EBITDA of $15 million, which is a decrease of $21 million versus a year ago. Adjusted EBITDA margin was three 2% below our target of mid single digits, we control the controllable during a challenging macro backdrop with waning consumer sentiment and navigated through a high.
<unk> promotional environment, we view these dynamics as transitory and remain focused on pursuing strategic initiatives that will drive long term value next slide please.
This slide shows active customers and order frequency, we measure active customers on a trailing 12 month basis, our active customer base declined to $5 8 million at the end of the third quarter. This decline in active customers was driven by three key factors first concern consumer sentiment toward discretionary spend has been weak this year.
Due to high inflation and consumer Staples the impact of this has been compounded by difficult comparisons from pandemic related shopping behavior last year.
Consumers shifted spend to experiences.
And services and third our strategy to exit non home products. As previously shared this is the right long term tradeoff. Despite some pain in the short term.
We are disciplined when customer acquisition costs are high while this slows our pace of new customer acquisition, our year over year change in customer retention rate is comparable to the average of other online furniture and home furnishings retailers as measured by third party data.
Orders per active customer was 162 times in the third quarter, a decrease of about 4% versus last year and a decrease sequentially. We expect that over time, our improved association with home continued mix into mobile App, our platform with the highest frequency and enhance loyalty offerings will help improve this metric.
Well active customers have decreased we have been able to strategically offset a portion of this decline with an increased average order value, which is more typical of the home category and which I will discuss in greater detail on the next slide.
Next slide.
Average order value improved 13% year over year to $243 or <unk>. During this highly inflationary time was primarily driven by the mix within our home product assortment.
<unk> declined slightly compared to Q2, as we shifted out of seasonal outdoor patio furniture and into rugs and other furniture.
Orders delivered were $9 4 million for the trailing 12 months period. This is a decrease of 36% compared to the prior year or $5 2 million orders.
Mine was primarily driven by weak consumer sentiment and a shift in their spending priorities along with the cumulative impact of non home product removals from our site.
Our <unk> and revenue per active customer metrics continue to be a proof point on our purposeful focus on home while orders are declining the value of each order is improving it's a.
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.
This slide provides a recast in view of our business, excluding non home sales, which allows for a more direct comparison to our peers. As you can see on the left chart at the end of the third quarter, our comparable home related active customer base declined 29% versus the reported 33%. The chart on the right illustrates our comparable home only revenue declined 30.
80% versus the reported 33%.
A sequential base basis, the impact of the non home category removal has increased due to the cumulative impact of non home customers exiting our ecosystem.
Next slide please.
I will wrap up my discussion of the financial section by highlighting a few balance sheet and cash flow items. We ended the third quarter was $428 million in cash and $35 million in long term debt and net cash position of $392 million with no significant debt maturities until 2030.
Since the beginning of this year, we have returned $60 million to our shareholders via share repurchases and invested $15 million in T. Zero series B funding round alongside ice and the Medici Ventures Fund our current share repurchase program is authorized through December 31, 2023, and we currently have about $40 million available under it.
Having minimal debt and a strong cash position in this uncertain macro environment is a great tactical advantage. It allows us to focus on improving our core operations and pursue strategic initiatives without relying on the capital markets. Additionally, in this increasingly volatile landscape our balance sheet provides us an opportunity to lean into.
Market share opportunities as new and existing vendor partners realize overstock will be a reliable channel into the future with that back to you Jonathan.
Thanks Adrian.
Our strong balance sheet, certainly gives us more stability and flexibility.
I continue to believe our shares are undervalued, however, given the revenue environment over the past three months, we conservatively chose to maintain a higher cash balance and paused repurchases.
We'll be opportunistic in evaluating future share repurchases.
In addition, we.
We continuously evaluate strategic M&A opportunities to accelerate growth.
During the second quarter, we were in advanced stages of such a deal.
The deal that made a lot of business sense, and our asset light business model.
However, after a thorough due diligence we ascertain that while the business case was good.
Targets operational model on its future investment needs, we're not currently aligned with our expectations.
As a result, we walked away from the transaction.
Rest assured we will diligently scrutinized M&A opportunities to ensure that any potential transaction will be a strategic and operational fit.
With our long term business priorities and objectives.
Know that we will continue to be prudent and capital deployment to deliver the best outcome for all shareholders.
Next slide.
Next I'll provide some key insights into our business and our strategic brand pillars next slide please.
We've shared this slide in the past illustrates the direction of third party forecast for online sales in the domestic furniture and home furnishings market.
It is encouraging to see.
Projection for 33% of purchases to be transacted online, especially since the category is comparing against some strong growth from the prior two years.
Longer term, we still believe that as the market matures.
There is sufficient room for online penetration to move higher.
In furniture and home furnishings market.
A large and fragmented with a total addressable market.
$419 billion based on third party recording.
Large market provides us with additional opportunities to gain market share even if online penetration remains unchanged over the near term.
This is the fourth largest online retailer home furnishings in the U S. Our smart value brand pillar and strategic focus and strategy focused on increasing the breadth and depth of our home SKU product Assortments will help us capture market share.
Next slide.
We like to show this slide to remind the investment community that overstock has significant wide space available in the quadrant, where home goods expertise meets a smart value.
This quadrant is the natural and right place for overstock to compete.
We've been strategic about choosing to focus on it.
We don't need to leverage outside debt and are a capital intensive business models to cast a wider net.
On either ended the customer value spectrum to drive sales.
We believe such a strategy is sustainable over the longer term.
Especially during volatile retail business cycles like the one we're in.
We see evidence of this with some of our larger competitors, who struggle with liquidity and debt financing.
Our focus on the white space within our quadrant helps us generate the maximum return on investments.
<unk> also influenced our choice of our six brand ambassadors.
<unk> been carefully selected for their home related expertise to amplify overstocked position in the marketplace.
I will now talk to our three brand pillars, each of which are key to our <unk>.
<unk> growth.
Next slide.
The first brand pillars product find ability.
Since the start of 2021, we have doubled.
Our home only assortment.
We have been working with our partners to carry on trend quality products to meet evolving customer needs.
The outlook for the housing market is blurred by rising mortgage rates.
See the potential for increased home based products projects.
Should support spend and renovation and home improvement categories like bathroom vanities.
Seeing an uptick already this year.
As we look ahead to our first holiday season, as a 100% home based retailer.
Our customers will be able to find everything they usually look forward during this period.
This holiday season is expected to be highly competitive I'm pleased with how the team is positioned to overstock to compete.
We are strategically leaning into branded gifting categories like small appliances to capture market share from struggling competitors. We are working with some of the top brands in the industries, such as Dyson Kitchenaid Caliper, one Hoover Mr coffee in a.
Booster and many others we.
We are doing this within our asset light model and carefully managing inventory.
We anticipate the relationships we build with these brands during the holiday season.
We will open the door to partnerships with other prestige brands in the future. These.
These brands like that we are now fully focused on home and are more willing to allocate inventory.
Another key element of our efforts is the relationship relationships. We are building more customers, we expect that serving their shopping needs. During this important time will help us win repeat business in the future.
Next slide.
Our second brand pillars smart value.
A critical element of our evolution has been the development of pricing competency.
We have improved <unk>.
<unk> prices soften relative to competitors.
And we have consistently delivered on our core pricing kpis quarter after quarter.
We continue to make steady progress in comparing two competitive page views and are now able to match up to 66% of those views.
This is the highest level since we embarked on our pricing initiatives.
Discounts markdowns and clearance activities by our competitors have not impacted our ability to deliver smart value to our customers and maintain and maintain our targeted gross margins.
It is almost certain our revenue decline would have been worse. If we did not have this capability.
Something that gives us confidence in our smart value proposition is the growth.
And the order mix of customers and income levels above $100000.
This change coincides with the increase in inflation this year.
New customers acquired over the last few quarters are also exhibiting a similar trend and in fact, new order mix of hiring some new customers.
Frankly at the highest level since 2019.
Simply put our value proposition is resonating.
These new customers are choosing to shop with us despite having the option to shop at other online and Omnichannel home retailers.
In a recessionary environment.
<unk> value on quality products becomes more important than ever we.
We are delivering for our customers, while maintaining profitability, which in this economic environment is we think quite an achievement.
Good point out while we have seen growth and the mix of orders from higher income demographics are smart value.
Resonates with our current customers.
Our update our App made to customers skew younger importantly, we continue to see the mobile app grow as a percent of sales and expect that to continue with the launch of our brand ambassadors.
Our best performing and fastest growing sales platform.
Anyway, you look at it as customers work to stretch their dollar.
We're helping them make their dollars go farther west.
We strive to offer the highest quality products at the best price.
Our high low promotional model is intentional and critical to attracting and retaining our customers and.
And our smart value proposition is something our customers depend on.
<unk> us in the marketplace.
Successful execution of these brand pillar enabled us to deliver the second largest labor day company history, and the largest single day of sales in the year to date 2022.
Our customers see that we deliver value across a broad and growing assortment of home products.
Next slide.
Our third brand pillars easy delivery and support.
As I've said time and again, our asset light business model is good because we don't have an expensive internal logistics operation with a high fixed cost base or significant owned inventory on our balance sheet.
We are always looking for ways to delight, our customers and elevate their shopping experience without incurring substantial cost.
I'm excited to share that we are.
Working closely with UBS on a digitally led strategy starting with a pilot in Q4.
We will elevate our customer experience.
We are launching a pilot program in which returns will now be possible.
Through simpler home pickup options right from the customer's doorstep.
Don't require re boxing of the product by our customers.
Through this pilot.
Our organizations will have the opportunity to better understand customer preferences and enable us to serve up options and align with their day to day lives.
These posts per purchased performance metrics.
It will help us evaluate the end to end shopping experience for our customers.
Initiatives like this one with UBS can go a long way of generating repeat business from our customers.
During the third quarter, we made progress on our logistics and customer care operations and further enhance the customer experience.
By the end of Q3, we were able to reduce large item home delivery times by 18% since the start of the quarter.
We achieved this by diversifying our third party large item carrier network with each new carrier needing to meet our high standards and service levels with which.
Which we vigilantly monitor and enforce.
Another important aspect of post purchase performance is customers' interaction with our customer care agents and the quality of services we provide.
Our customer care productivity improved around 600 basis points during the quarter compared to the first half of 2022.
We still have room for further improvement in case in case closure rates.
And the quality of service, we provide as we strive to deliver the.
The best end to end purchase experience for our customers.
Next slide.
Our mantra is sustainable profitable market share growth.
Growth is a key component of our business.
Slide shows several key drivers that are critical to support continued growth.
Our differentiated business model is allowing us to pursue these growth drivers despite headwinds in the overall macro and competitive environment.
These growth drivers are not capital or resource intensive.
<unk> been limiting what we would be what would be inefficient marketing spend our focus on profitability is not hampering the progress there.
Many of our growth drivers.
We are focused on these strategies, while continuing to be disciplined in managing expenses.
Next slide.
We continue to direct.
Our strategies to drive sustainable profitable March market share growth within our financial recipe card targets.
Even as the online market contracts.
Overstock as opportunities to gain market share as we increase our brand association at home.
Our annual targets remain unchanged. These include topline outpacing the market to deliver market share growth under various macro scenarios driven by our advanced technology, our unwavering focus on the customer and.
Our inherently adaptable business model.
Gross margins in the 22%.
Great. Thanks.
So that we can deliver on smart value.
<unk> these may fluctuate slightly from quarter to quarter.
Q4 is expected to be highly promotional.
Disciplined G&A and tech spending to deliver operational leverage.
Note, our ability to drive leverage on a year to date basis has been limited by the difficult sales environment. We.
We'll of course continue to manage these expenses carefully.
And we continue to do our best to deliver adjusted EBITDA margins in the mid single digit range on an annual basis.
Something.
Admittedly difficult to do with the still hyper competitive Q4 in front of us.
Next slide.
Now I will discuss a few updates on the Medici ventures pond.
Next slide.
Kelly Ann venture partners has been a great choice to manage the Medici ventures is it actively helps advance the portfolio companies' respective businesses to create value for overstock and its shareholders.
I remind our shareholders that are that overstock has met its financial obligations to the fund.
Some recent developments in the Medici venture.
Portfolio include.
First key zero.
In August two zero completed its strategic funding round that was announced in February of this year.
Round was led by Intercontinental exchange Overstock invested alongside ice the Medici Ventures fund and other investors.
February overstock committed to invest in aggregate, an additional $15 million and series B financing and.
We funded the first tranche of.
$7 $5 million in February and the second and final tranche in August .
Our additional investment shows our commitment to T zero and the belief in its leadership.
Following completion of this funding round.
<unk> combined direct and indirect ownership in two zero now around 54%.
And other T zero news in September the key zero platform listen the largest <unk> security offering.
That's why labs.
This is a leader in providing central bank digital currency or CVC solutions announced that it won the 2022 G 20 Tech sprint global CBD see competition.
Partnering with debt in this constantly in this competition that received over 100 submissions from leading fintech firms together that EMEA, we're able to develop a CD CBD C solution for online offline payments to ensure low cost access.
With a variety of easy to use payment devices and the best identity management verification available in full compliance with regulatory requirements.
This week it has been a year since bed and the central Bank of Nigeria completed the launch of the Eni or up.
The project is moving to the next phase of growth, which includes Onboarding, Nigeria and trade and exchange platform.
Sector specific tokens from grants and subsidies and Provo programmable payments.
Fit as a bright future.
Three settlement.
The settlement has a high performance low code platform for blockchain application development M&A that empowers engineering games to build integrate and launch applications on web three infrastructure.
The platform is a full fledged blockchain platform as a service solution.
Medici ventures first investment in settlement in January 2017.
Last month settlement closed an oversubscribed up round funding that was co led by molten ventures and OTB and included other new investors.
And a pound against today's difficult venture capital backdrop is an impressive feat.
The Medici Ventures Fund also participated in this funding round and now holds about 18% and.
Settlement.
Overstock did not directly invest in this round.
[noise] ranging.
In August the company was named the AG Tech solution of the year. After 2022 AD Tech breakthrough awards grain Jane pairs to security and traceability of blockchain technology with the efficiency and reliability of salt executing smart contracts to I'm sure producers get paid.
Quickly.
Receive immediately tradable titles of commodity and lien holders and other pay he's our paid first.
The branch and technology makes the entire supply chain process easier faster and safer.
Recently at CEO and founder Lew as smartly as we recognize these one of the top 100 Ceos in the AG Tech space.
In February IPO.
In August .
Latin American marketplace.
<unk> Libre now the launch of its own token Mercado token.
<unk> is the developer of this Duncan.
Coin rewards user for their loyalty and Mercado Libre and can be used on the marketplace and has been and is tradable via Mercado Libre Fintech platform.
I remain confident that the Medici ventures fund will prove itself to be extremely valuable to overstock.
Next slide.
I'll now briefly recap the quarter and provide some final thoughts before moving to Q&A.
To wrap up during the third quarter, we remained profitable.
<unk>, our topline decrease and improves our homeowner revenue trend despite a weak consumer backdrop.
Our balance sheet is healthy, giving us real flexibility in the current macro environment.
We continue to increase the breadth and depth of home assortment available on the site.
We've embarked on a national brand campaign supported by six home focused brand ambassadors and should help us in our efforts to strengthen our response brand Association with Hall.
Our focus on smart value is important, especially in times, where consumers' wallets are under pressure.
We are successfully leveraging our mobile app to increase customer engagement.
<unk> business model of agile and resilient.
<unk> has jumped in the market and consumer behavior and capitalize on opportunities to gain market share.
Before we take questions. Let me note that I recently had my 20 year anniversary at Overstock.
During my tenure I have.
Worked with and learned for many talented colleagues.
Full through the entire team for helping build the company that is strongly positioned for many years to come.
Now operator, let's take some questions.
Thank you as a reminder to ask a question you'll need to press star one one on your telephone please limit yourself to one question and re queue. If you have any further.
These standby, while we compile the Q&A roster.
Our first question comes from Pete.
Peter Keith your.
Your line is open.
Hi, Thanks, good morning, everyone.
Thank you for all the detail on the call.
It's a challenging environment out there with.
A lot of excess inventory.
Price competition I Wonder Jonathan if you could just comment then kind of what youre seeing in terms of the intensity.
You mentioned that the pricing environment is still tough has it gotten worse versus Q2, and maybe even getting worse as you were entering the holiday season.
Is it shaping up for you overall.
Fair.
Promotional activity is theirs.
It's Dave <unk> through Q3, and you can see in Q4, we've already seen.
Our competition has.
Special promotional days in our second time day second way that we had our overstock day.
<unk> targets <unk> target and Walmart special promotional days.
The holiday promotion arent waiting for blood.
Black Friday and cyber Monday.
Happening now so promotion is tough.
Fears.
But we are playing in this space and will play well and will play out within the bounds of profitability.
Okay. Thank you.
Thank you one moment.
We have a question from Tom Forte with D. A Davidson your line is open.
Great. So Jonathan Adrian Thank you for taking my question a real impressive job on the profitability. The question I have is the good news or the silver lining in the dark cloud is that <unk> seen material improvements in the supply chain.
<unk> the related costs.
How is that showing up in your results is it having a positive impact on your gross margin as an example.
So let me talk briefly about supply chain and Adrian can factor, how and if it's impacting gross margin.
Supply chain is different than it was during different times of the pandemic.
The cotton containers has come way down to pre pandemic levels of EBIT loss.
Factory usage in.
In Asia is low.
And that could turn to be.
Concern.
In the future because I think factory workers.
Going home and sometimes and factory workers go home they don't come back.
The ports are clear because theres not a lot of product on the water.
So there is not.
The backlogs are willing in the past.
Domestically, it's still tough.
With high fuel rates Theres Aspersorium surcharges.
<unk> product two warehouses in the new products from distribution centers to customers. So.
Parts of the supply chain have eased up and have become less expensive parts of them are still expensive Adrian do you want to comment at all on what that means for <unk>.
What we're doing on gross margins, which I should say, we've continued to maintain a good rate.
Yes, Jonathan ill just add you know our gross margin improvement year over year generally a ton.
Driven by those operational efficiency.
<unk> seen things like efficiencies in our customer care organization returns handling merchant activities with our partners in negotiations on any of that really help us offset this increased kind of highly promotional time.
Yeah.
Great. Thank you.
Thank you.
We have a question from Ana and driver with Needham Your line is open.
Great. Thank you so much and good morning, everyone. We had two questions you guys have done a really good job managing the expense base should we expect EBITDA margins I still maintain at that mid single digit level next year in the sales decline double digits again for the business and then secondly, you mentioned.
Sales trends improved in late third quarter can you talk about what drove that and what are you seeing in the business quarter to date and thank you so much.
Yes.
Thanks Pat.
Asking the question.
We're still in the planning phase for 2023, and it's in this highly promotional market with weird.
Tough macro times.
It's tough to predict.
Uh huh.
There will be 2023.
I think you can assume we're in the planning process I think you can expect us to give some more color on how we think 2023 can be.
When we announce our Q4 results.
We'll say well.
<unk> said that our aim for the annual.
<unk> EBITDA is mid single digits for the year.
That won't be the case this year, because we're not quite there now in the fourth quarter.
<unk> is now serving.
Perfect.
On EBITDA, if you want to answer any more on this and then Dave I'll look to you to maybe add some color.
Okay.
Yeah on the sales trends as we are as we transition from the third to the fourth quarter that Jonathan mentioned earlier it is extremely promotional highly promotional.
And.
<unk> got a full lineup ready.
New and exciting types of promotions.
Just time to pull out all the stops right now we're competing for a customer out there.
Yes, nothing further to add on that JJ.
The fourth.
Fourth quarter has started path just like the second and third quarters.
There's still a lot of fourth quarter and for all of us.
And Theres still a lot of time when shoppers shop in front of us. So it's hard to know how the fourth quarter is going to come.
You mentioned what happens if we continue to experience double digit shrink next year, that's certainly not the intention.
The goal is to get back to growth.
Like I said, we're in our planning process, we are seeing where things are more color on that in the future.
Thank you.
We have a question from Steven Forbes with Guggenheim. Your line is open.
Good morning, Jonathan Adrian I wanted to explore customer demographic and engagement trends given your commentary about the higher income customer. So curious if you can break down the customer base.
By household income level, just to general percentages in and discuss if you're seeing any difference right and loyalty engagement.
And or just what the conversion drivers are right among those different income levels.
I appreciate the question.
Typically haven't we won't provide detail on.
Customer demographics.
On a more granular level, we are seeing.
More.
100000, plus income demographics shop with us.
We don't think Thats, a trade down because we don't think we're a trade down.
We think its a trade that value.
We have that quality product.
And.
Customers at all income levels and looking for it.
Upper income.
The upper income demographic is becoming more value conscious.
We're not not necessarily trade down at this point.
David anything you'd add on customers.
I would just add that as our mobile App continues to grow in the mix of our total business that is the customer base that is in that category that Jonathan mentioned, the 100000, plus that is also driving that and prove to be a more loyal customer on the app.
Yes, I would say mobile brings to customers. It brings a higher income demographic and it brings a younger demographic and those are.
Not necessarily overlapping the 32, two demographically come through mobile.
I'm excited about this brand ambassador campaigns, I think they're going to help our.
Mobile app.
Continue.
Can be strong and it is already our fastest growing channel so.
Pretty exciting I think.
Maybe just a quick follow up on the brand ambassadors as it relates to the customers Youre targeting that curious if you can comment.
If you have any insight into their follower base in terms of who they are right their income levels. The.
Brand ambassadors have reach across a broad demographic profile or are you sort of targeting some subset of the U S consumer.
If you have a pretty broad reach these were carefully selected.
Ambassadors.
We think they appeal, especially here.
Savvy shopper, who we go after.
But there the focus in choosing them was more to get home centric.
Ambassadors that would appeal to folks that are already in the home shopping market decorating market the home improvement market.
That was the focus and breaking new six I've got Italia.
I met with them.
Individually they are not not only are they just good good people.
They know their staff and their followers and loved him.
Im a fan boy now I'm really excited to have.
Them on our team.
Thank you best of luck.
Thanks.
Thank you and our last question comes from Rick Patel with Raymond James Your line is open.
Thank you and good morning, everyone. Just a follow up on the gross margin question great to see the continued expansion there. Despite the elevated inventory in discounting pressure can you talk about your confidence in continuing to realize operating efficiencies as we think about the fourth quarter and 2023, I guess I'm curious.
What.
To what extent you expect this progress to be sticky.
And perhaps create a stronger foundation for our gross margin to expand from once the discounting normalizes because it seems like the 22% long range target could have some upside potential in a more normal environment.
Yes.
That's a great question and one thing that I think helps us maintain these gross margins even in a highly promotional period.
Our asset light model.
We own almost no inventory and so.
<unk>.
We are not liquidating our own product.
And when our partners have excess inventory variable to take the cost down.
We pay them and that allows us to keep the same gross margin.
So some of our competition that own inventory when they liquidate.
It impacts their gross margin.
We're able to compete at the same gross margin level. We've been asked a lot about where gross margins go in the future.
We've always answered and how we still answer.
As the market continues to penetrate to penetrate into online migrated online.
We think it's important to keep our gross margins roughly where they are.
So that we get these new customers that are becoming online purchases. We also think it's important to keep gross margins roughly where they are.
To provide smart value.
When the market matures online penetration matures, we think that will be the time to take a look and determine whether it's time to do something with the gross margins, but don't expect that.
Post this highly promotional period, we're going to start jacking up gross margins in 'twenty two 'twenty, 3% range is really what helps us with our customer base.
One chart, where we're in the quadrant with lots of White space. There is a lot of room to grow there and that gross margin helps us do that.
Okay.
The commodity coffee campaign looks really great I know, it's only been a short period since it launched but any initial reads on the uptick in demand.
Since it went live and I know you have some really big hitters among the brand ambassadors along those lines I guess with the right way to think about the outlook for sales and marketing expense going forward.
Yes, so the command good company.
It's been out less than a month.
Hard to have.
Super.
Reliable numbers on it but I will say the initial numbers are good.
And the traction, it's getting particularly where it's a little easier to track Youtube and other online channels has been really encouraging.
Pretty exciting.
Second part of your question.
Yes, just the brand ambassadors you had some pretty big names. So I'm just curious how to think about the sales and marketing line.
Sales and marketing spend yet so.
Okay.
Our goal is to keep our sales and marketing spend where it is and as it's moving marketing dollars from one channel to another.
Monitoring that carefully.
Note when the fourth quarter, it's highly promotional sometimes our marketing percentage ticked up just a bit but we monitor that carefully because we don't have a lot of points in gross margin to spend more on marketing to maintain profitability. So.
Our marketing spend as a ball.
Higher as a percentage of sales as I would like to see it.
And that's kind of what kind of what we're trying to maintain right now.
Very helpful. Thank you and all the best for holiday.
Thank you Rick and thanks to everyone who participated in today's call. We appreciate your interest in an ownership of overstock.
We are in an industry that is going through a rough patch.
But we believe we are navigating it well.
We believe our strategy of spending for growth.
While focusing on profits is the right long term.
And winning strategy.
Wish all of you and your families a happy holiday season.
And remind you to shop early and often an overstock. The deals are great well talk to you next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly.
Raise your hand during Q&A, you can dial star one one.
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