Q3 2023 Overstock.com Inc Earnings Call

Okay.

Good day and thank you for standing by welcome to the Q3 2023 Overstock Dot Com, Inc. Earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question.

During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please be advised that today's conference is being recorded I would now like during the conference over to your speaker today.

Lavish Nani head of Investor Relations. Please go ahead.

Thank you good morning, and welcome to our third quarter 2020 earnings Conference call. Joining me on the call today, our CEO, Jonathan Johnson, CFO evenly and President Dave Nielsen today's discussion and our responses to your questions reflect management's views as of today October 26, 2023 and May include forward looking statements actual results could.

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, 2022 and in our subsequent filings with the SEC.

During this call we will discuss certain non-GAAP financial measures are filings with the SEC contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.

Following managements prepared remarks, we will open the call for questions a slide presentation with supporting financial data will be available for download on our Investor Relations website. After the call has ended please review important forward looking statements disclosure on slide two of that presentation with that let me turn the call over to our CEO Jonathan <unk>.

Johnson.

Thank you Rochelle and good morning, everybody.

Today is an exciting day as it marks the start of something there.

Please to share details about our path forward and how we are capturing the many opportunities. We see ahead, while also addressing areas of the business, where we need to see improvement.

This morning, we reported Q3 financial results that included the performance under the Overstock brand through July 31, and.

And performance under the bed Bath and beyond brand beginning August one.

While there were many things in the quarter that we felt good about including the launch of the new bed Bath and beyond and to 6% growth in our active customer file we fell short of our revenue goal, we will discuss what steps we are making.

To improve revenue growth.

Over the last three months, we have accelerated our efforts to build a company with a bigger brighter boulder future.

On June 28, we acquired the bed Bath and beyond brand and IP are brand ranked in the top five most recognizable home brands in the United States alongside tightened like target.

Mark and home depot.

Within hours of closing the deal we regard the brand in Canada.

And then just 33 days, we launched the brand in the U S under our unique asset light operational model.

I'd like to take a step back to provide insight into how we view the deal and discuss how we intend to modest.

Going forward.

Just a few years ago, when we first considered acquiring the bed bath and beyond business it would've cost us close to $2 billion.

We chose not to pursue a deal at a time and subsequently watched and continue to monitor as it struggled with declining same store same.

Same store sales.

The overwhelming that.

We saw four valuable assets in the business, if the right opportunity presented itself.

First.

The number five most recognizable brand in the home space and.

As an aside in that same ranking overstock was number 25.

Second and over 100 million person customer file.

Third vendor relationships with some of the biggest home category brands in the world.

Fourth valuable intellectual property.

We were thrilled when that opportunity presented itself.

And we pounced on it.

To strengthen the clarity of the economics of this deal.

We breakdown this opportunity into two buckets totaling up to approximately $175 million.

First.

The approximately $25 million paid to the bankruptcy state for the brand and related IP and acquisition related fees and.

And second <unk>.

<unk> $150 million of additional investment to launch the brand and reignite the customer file and expand and create new categories, while working to maintain our company's core customers.

That $175 million.

Less than 10% of the cost bed Bath and beyond would have been just a few years earlier.

A lot of this $175 million purchase price is included in our future operating plans.

This strategic spend is expected to run through our P&L over the next 15 months yourself.

Rest assured profitability is and always will be a key metric and tenants of our company, noting we are intentionally and strategically spending more for this time to take advantage of the bed Bath <unk> beyond brand and grow our customer file.

Earlier this week, we announced our new corporate name <unk>.

Beyond <unk>.

This new corporate identity builds on the value of our iconic consumer brand at all.

Also recognizes our ability to transform into more than just a single brand e-commerce retailer.

Our goal is over time to transform the company into a house of brands, providing a mix of products and services across categories. Thank you.

This is a bigger better bolder beyond.

Today, we provide a broad selection of on trend furniture and home furnishing products through a single E Commerce website.

<unk> and beyond.

In due time, we plan to re imagine the overstock brand with a standard with a standalone website that offers with the brand originally was besides selling a broad array of clearance products.

Marketable prices.

We plan to begin initial work on this cross category Overstock branded liquidation only website with the goal to launch it by the end of 2024, we will work with former existing and new supplier partners to provide an outlet for clearance merchandise and <unk>.

<unk> seeking consumers.

We feel strongly that our tribal knowledge in the white space around this business model makes this the right move.

We will not stop there thank.

Taking a disciplined approach we are opportunistically and patiently looking at other targets across the consumer space to grow our brand portfolio.

Our ability to execute on our beyond vision is backed by a strong balance sheet.

Because we have been careful stewards of capital we can play offense amid a weak macro backdrop to differentiate ourselves in the marketplace for the long term.

Our new corporate name was a very thoughtful and strategic choice.

It has only been three months since we launched bed Bath and beyond in the U S.

We have learned a great deal as we launched this top five consumer Mega brands.

We intend to implement.

These learnings as we aggressively move forward remember we are just getting started and the efforts to engage with the customer file we acquired.

Our objectives from this acquisition were four fold.

First on a top five consumer brand within the home category that we acquired at a deep discount.

Second leverage the brand's intellectual property to expand our breadth of offerings, including launching our registry business.

Spanning our nation trade business and enhancing supplier relations.

Third access a bigger portion of the total addressable market.

Importantly grow our active customer file.

Growing our customer file is critical to our long term vision and is the primary metric we are using to measure. The initial the initial success of this acquisition.

The interaction we can have with our vast customer file will provide valuable insight into our customers' needs inside and outside their homes.

This will enable us to expand our current financial service offerings and even explore additional service offerings.

We are essentially trying to build a business that can grow that can grow through frequent customer touch points. One that allows our operational model to scale and excesses alternate revenue sources less impacted by economic cycles.

Now for a brief update on some strategic decisions and learnings since we acquired the bed Bath <unk> beyond brand.

I mentioned earlier the launch of the bed Bath <unk> beyond brand in the U S was done in just over a month after closing the deal.

Before we launched we evaluated whether to run both the overstock and the bed Bath <unk> beyond sites or a single E Commerce website.

More we studied the options.

Became clear to us and to those.

We consulted with.

Operator: Good day and thank you for standing by.

They're running two nearly identical websites.

Operator: Welcome to the Q3 2023 Overstock.com Inc. Earnings Conference Call. At this time, all participants are in a listen only mode.

Not a viable choice.

You would have severely damaged search engine rankings on Google and other search engines.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again.

<unk> taken several months to complete.

Additionally, it would have created confusion for our supplier partners and required challenging operational workarounds, which would have resulted in negative impact to the customer and delivery experience.

Operator: Please be advised that today's conference is being recorded.

Thus, we are likely to run a single site. However, as I noted earlier, we already have plans in place to stand up and Overstock E. Commerce site again by the end of next year in a way that will differentiate the brands.

Operator: I would like to hand the conference over to your speaker today, Lavesh Hemnani, Head of Investor Relations. Please go ahead. Thank you.

Lavesh Hemnani: Good morning and welcome to our third quarter of 2023 Earnings Conference Call. Joining me on the call today are CEO Jonathan Johnson, CFO Adrianne Lee, and President Dave Nielsen. Today's discussion and our responses to your questions reflect management's views as of today, October 26, 2023, and may include forward looking statement. Special results could differ materially from such statements. Additional information about factors that could potentially impact our financial results is included in our form 10K for the year and at December 31, 2022 and in our subsequent filings with the SEC.

In terms of learnings, we're gaining knowledge about the purchasing behavior of our newly acquired customers and insights about our legacy overstock customer base.

We are learning what products.

And promotional and marketing strategies resonate with each group.

We have learned that many new supplier partners are eager to engage in our newly acquired brand and.

Lavesh Hemnani: During this call, we'll discuss certain non-gap financial measures. Our filings with the SEC contain important additional disclosures regarding these non-gap measures, including the conciliations of these measures to the most comparable gap measures. Following management's prepared remarks, we will open the call for questions. A slide presentation with supporting financial data will be available for download on our Investor Relations website after the call has ended. Please review important forward looking statement disclosure on slide two of that presentation.

And see the importance of growing and improving our relationship with our loyal legacy supplier base.

We intend to increase our engagement with our supplier base.

We believe that it's important to protect these partners investment in this relationship and leverage their historical knowledge.

With the acquisition of the bed Bath <unk> beyond brand, we are combining a well recognized consumer brand synonymous with home with an advantageous asset light operational model.

Jonathan Johnson: With that, let me turn the call over to our CEO, Jonathan Johnson. Thank you, Levas, and good morning, everybody. Today is an exciting day as it marks the start of something new. We're pleased to share details about our path forward and how we are capturing the many opportunities we see ahead while also addressing areas of the business where we need to see improvements. This morning, we reported Q3 financial results that included the performance under the Overstock brand through July 31st and performance under the Bed Bath and Beyond brand beginning August 1st.

We are not alienating our legacy overstock customer.

Our initial launch strategy was a.

A three pronged approach first drive downloads of our new mobile App.

Second transition as many legacy overstock customers and legacy bed Bath and beyond customers to our new welcome rewards loyalty program and.

And third warm up the newly acquired legacy bed Bath and beyond customer E Mail list.

Jonathan Johnson: While there were many things in the quarter that we felt good about, including the launch of the new Bed Bath and Beyond and the 6% growth in our active customer file, we fell short of our revenue goal. We will discuss what steps we are making to improve revenue growth. Over the last three months, we have accelerated our efforts to build a company with a bigger, brighter, bolder future. On June 28th, we acquired the Bed Bath and Beyond brand and IP.

And necessary step prior to launching personalized and automated E mail campaigns.

As a reference we have more than doubled our customer database with the bed Bath <unk> beyond the acquisition to over 250 million files.

We will spend the next year accelerating CRM efforts with the following focus areas.

<unk>, our CRM stack.

Enriching and bringing our customer database.

Optimal hygiene.

Jonathan Johnson: A brand ranked in the top five most recognizable home brands in the United States, alongside titans like Target, Walmart, and Home Depot. Within hours of closing the deal, we revived the brand in Canada. In just 33 days, we launched the brand in the U.S, under our unique asset light operational model.

Applying predictive logic and using that data to better map and personalized customer journeys.

And activating marketing activities, leveraging this database to drive customer acquisition and improved retention.

These moves will allow us to further entrench our team into the connected points overall active file size and increase average order and frequency frequency of visits.

Jonathan Johnson: I'd like to take a step back to provide insight into how we view the deal and discuss how we intend to monetize it going forward. Just a few years ago, when we first considered acquiring the bedbath and beyond business, it would have cost us close to $2 billion. We chose not to pursue a deal at the time and subsequently watched and continued to monitor as it struggled with the coining same store sales and overwhelming debt.

These moves will allow us to further entrench our team into the connected points overall active five sites and increased frequency of visits.

It's important we also believe these actions can help us drive <unk> from under $200 to an aspirational $250 level over time as we work to reverse any downward furniture trend without slowing down soft goods sales.

Jonathan Johnson: We saw four valuable assets in the business if the right opportunity presented itself. First, the number five most recognizable brand in the home space and as an aside in that same ranking, Overstock was number 25. Second, an over 100 million person customer file. Third, vendor relationships with some of the biggest home category brands in the world. And fourth, valuable intellectual property. We were thrilled when that opportunity presented itself and we pounced on it.

<unk>.

We also expect that over time this will help increase our annual order per active customer.

We are laser focused.

On getting that number closer to two and believe that with the aggressive but strategic use of the famous bed bath and beyond coupon.

<unk> mobile App engagement and an increased number of people in our welcome rewards loyalty program, we will be on the right trajectory.

The actions we have taken are all ready starting to drive results.

Our active customer base grew sequentially to $4 9 million customers at the end of Q3, increasing by nearly 300000 customers in the quarter.

Jonathan Johnson: To strengthen the clarity of the economics of this deal, we break down this opportunity into two buckets totaling up to approximately $175 million. First, the approximately $25 million paid to the bankruptcy state for the brand and related IP and acquisition related fees. And second, approximately 150 million of additional investment to launch the brand. We ignite the customer file and expand and create new categories while working to maintain our company's core customers.

Fourth quarter to date, we are tracking at just under 5 million customers. Our goal is to add another 100 150000 customers buy the ended the quarter.

The increase in our customer base enabled us to return to year over year order growth for the first time in over two years.

Bed Bath and kitchen categories led to improvement in our orders performance in furniture remained one of our top categories as we see potential for further upside.

Jonathan Johnson: That $175 million is less than 10% of the cost bedbath and beyond would have been just a few years earlier. A lot of $175 million purchase price is included in our future operating plan. This strategic spend is expected to run through our P&L over the next 15 months or so. Rest assured, profitability is and always will be a key metric intent of our company, noting that we are intentionally and strategically spending more for this time to take advantage of the bedbath and beyond brand and grow our customer file.

We continue to do well in Canada.

Our average monthly sales trends are up three times compared to Q2 and the business is on a solid trajectory to scale.

Our Canada team has been able to drive this growth even without a mobile app or loyalty program.

<unk> capabilities, which are on our 2024 product roadmap.

We expect Canada to scale faster with these platform additions.

Moving to an update on the Medici front.

Because I assume we have first time listeners I will give a little background on this.

Jonathan Johnson: Earlier this week, we announced our new corporate name beyond. This new corporate identity builds on the value of our iconic consumer brand. It also recognizes our ability to transform into more than just a single brand e-commerce retailer.

Our company currently has an investment in 16 early startup companies using blockchain technology.

Those investments were made years ago.

In 2021 after a thorough evaluation of options for the business. We made the decision to give our daily oversight of those investments to a well qualified venture capital subject matter expert.

Jonathan Johnson: Our goal is, over time, to transform the company into a house of brands, providing a mix of products and services across categories. Think of this as a bigger, better, bolder beyond. Today, we provide a broad selection of on-trend furniture and home furnishing products through a single e-commerce website, Bed Bath and Beyond.

<unk> venture partners.

You can think of this asset is a massive piece of undeveloped real estate at the end of the bus route.

In due time that property would be parceled up with each parcel yielding varying degrees of returns.

Jonathan Johnson: In due time, we planned to reimagine the Overstock brand with a standalone website that offers what the brand originally was, the site selling a broad array of clearance products at remarkable prices. We plan to begin initial work on this cross category overstock branded liquidation only website with a goal to launch it by the end of 2024. We will work with former existing and new supplier partners to provide an outlet for clearance merchandise and deal seeking consumers.

Today, we remain wildly hopeful that the property value appreciates.

While we don't speculate on the future value of these assets <unk> is doing a great job managing the Medici fund.

As I've consistently said I am confident kellion will nurture and deliver some winners from the early stage companies in the fund.

It just needs some time.

As a reminder, we are only in year three of our eight year partnership with <unk>.

Jonathan Johnson: We feel strongly that our tribal knowledge and the white space around this business model makes this the right move. We will not stop there taking a disciplined approach. We are opportunistically and patiently looking at other targets across the consumer space to grow our brand portfolio.

Our investments in the managed funds are an important element.

Beyond investment story.

That said as prudent stewards of shareholder capital, we are always evaluating all the investments on our balance sheet.

President Dave Nielsen will now share how we plan to approach brand building over the next few months and dive into some insights about our customers.

Jonathan Johnson: Our ability to execute on our beyond vision is backed by a strong balance sheet. Because we have been careful stewards of capital, we can play offense amid a weak macro background to differentiate ourselves in the marketplace for the long term.

Thank you Jonathan and.

In the first 60 days following the bed Bath <unk> beyond launch.

<unk> largely met internal expectations. So that said we know there are.

Key areas that require improvement.

Jonathan Johnson: Our new corporate name was a very thoughtful and strategic choice. It has only been three months since we launched that depth and beyond in the U.S. We have learned a great deal as we launched this top five consumer mega brand. We intend to implement these learnings as we aggressively move forward. Remember, we are just getting started in the efforts to engage with the customer file we acquired.

After launching the brand we quickly went to work to leverage the 100 million plus customer file we acquired we executed a three pronged launch.

First as a test we offered in App exclusive 25% off coupon during August.

To the marketplace and customer file.

We wanted to reward loyalty legacy customers and welcome them to the new bed Bath.

The mobile App sales increased by 55% over Q2.

Jonathan Johnson: Our objectives from this acquisition were fourfold. First, on a top five consumer brand within the home category that we acquired at a deep discount. Second, leverage the brand's intellectual property to expand our breadth of offerings, including launching a registry business, expanding our nation trade business, and enhancing supplier relations. Third, access a bigger portion of the total addressable market. And fourth, importantly, grow our active customer file. Growing our customer file is critical to our long-term vision.

In Q4 continues distract to track strong.

Second to convert the most loyal legacy bed Bath <unk> beyond customers we.

Transferred and honored their previous accounts and reward balances to our platform.

We then added an additional $25 bonus reward to their accounts.

Which expired at the end of September and gave them a free one year welcome rewards membership.

These actions brought in loyal legacy bed Bath <unk> beyond reactivated legacy overstock customers.

Third.

We went through a process of warming up these new potential customer email addresses.

We began the warm up in mid August and only recently finished reaching out to the entire file.

Jonathan Johnson: And if the primary metric we are using to measure the initial success of this acquisition. The interaction we can have with our vast customer file will provide valuable insight into our customer's needs inside and outside of their homes. This will enable us to expand our current financial service offerings and even explore additional service offerings. We are essentially trying to build a business that can grow through frequent customer touch points. One that allows our operational model to scale and accesses alternate revenue sources less impacted by economic cycles.

With the acquisition are addressable and Contactable email population has nearly doubled and today our daily email campaigns have increased nearly three times compared to pre acquisition.

The size and scale of the upcoming branding campaign in November will be the largest we have ever done we are working with the top agency that has a track record of executing large campaigns for top consumer brands, we will be running spots on linear and streaming television leveraging out of home media.

Assets in key traffic areas and partnering with Influencers to create a social media buzz with accounts that have an affinity to the home and especially our brand.

The holidays this year will be an exciting new frontier for US we are eager to offer our customers incredible deals. During these key events historically November and December have been significant sales periods for the legacy bed Bath and beyond as our assortment lean heavily into holiday home entertaining and gift giving product categories.

Jonathan Johnson: Now, for a brief update on some strategic decisions and learnings since we acquired the bedbath and beyond brand. I mentioned earlier the launch of the bedbath and beyond brand in the US was done in just over a month after closing the deal. Before we launched, we evaluated whether to run both the Overstock and the bedbath and beyond sites or a single e-commerce website.

Jonathan Johnson: The more we studied the options, it became clear to us into those we consulted with that running to nearly identical websites was not a viable choice. It would have severely damaged search engine rankings on Google and other search engines and taken several months to complete. Additionally, it would have created confusion for our supplier partners and required challenging operational workarounds which would have resulted in negative impact to the customer and delivery experience.

Our team has a terrific lineup of deals on key brands and we will leverage the brand.

To serve our customers and capture market share.

Our new brand campaign will remind and educate customers across the addressable market that we haven't even bigger beyond assortment for their holiday entertaining needs. We are geared up to deliver a strong holiday season.

Now.

I'd like to walk you through some of our learnings after evaluating the first two months of the brand launch.

We have separated our customers into three distinct customer files.

First starting with the legacy overstock customers.

These are customers for which we had unique email addresses in our overstock database.

This group includes some legacy bed Bath <unk> beyond customers, who are already in the overstock database.

Jonathan Johnson: Thus, we elected to run a single site. However, as I noted earlier, we already have plans in place to stand up an Overstock e-commerce site again by the end of next year in a way that will differentiate the brand. In terms of learnings, we are gaining knowledge about the purchasing behavior of our newly acquired customers and insights about our legacy over stock customer base. We are learning what products and promotional and marketing strategies resonate with each group.

Second.

Legacy bed Bath <unk> beyond these are customer accounts that we acquired with the bed Bath <unk> beyond transaction that did not exist in the overstock database.

Third Tam new this is the most encouraging cohort in our view. These customers are E. Mailing these customers or email accounts, which did not exist within overstock or bed Bath <unk> beyond databases. We include this customer as part of the roughly $440 billion total addressable market and hedge.

The named Tam New.

Let me discuss how each of these customer files behaved during August and September the 60 day period in Q3 since launching the brand in the U S.

Jonathan Johnson: We have learned that many new supplier partners are eager to engage in our newly acquired brand and see the importance of growing and improving our relationship with our loyal legacy supplier base. We intend to increase our engagement with our supplier base. We believe that it's important to protect these partners' investment in this relationship and leverage their historical knowledge.

The legacy Overstock group was roughly two thirds or over 900000 of our $1 4 million total order volume during August and September.

Furniture, and rugs remained among the top product categories.

Our messaging around the bed Bath and kitchen product categories may have over indexed in communication to this customer file.

Jonathan Johnson: With the acquisition of the bedbath and beyond brand, we are combining a well-recognized consumer brand synonymous with home with an advantageous asset-like operational model. But we are not alienating our legacy overstock customer.

<unk> that I can certainly see how some may think we are confused this core customer group. However, it is way too early to conclude that the legacy overstock customer left us.

We're barely three months into the launch and our upcoming camp brand campaign is focused on ensuring the brand assortment messaging is clear.

Jonathan Johnson: Our initial launch strategy was a three-pronged approach. First, drive down loads of our new mobile app. Second, transition as many legacy overstock customers and legacy bedbath and beyond customers to our new welcome rewards loyalty program. Third, warm up the newly acquired legacy bedbath and beyond customer email list. A necessary step prior to launching personalized and automated email campaigns.

The legacy bed Bath, <unk> beyond customer file accounted for 10% or over 140000 orders.

We expected this group to account for the lowest percent of our orders as we spent much of the quarter warming up the email list for this group.

This group will grow as we rollout the brand campaign in early November.

It's encouraging to see that furniture was among their top categories.

Within the Tam new customer file furniture was a bigger share of orders compared to the legacy overstock.

They accounted for 23% or nearly 325000 orders during the period.

Jonathan Johnson: As a reference, we have more than doubled our customer database with the bedbath and beyond acquisition to over 250 million. We will spend the next year accelerating CRM efforts with the following focus areas, augmenting our CRM stack, enriching and bringing our customer database up to optimal hygiene, applying predictive logic and using that data to better map and personalize customer journeys and activating marketing activities, leveraging this database to drive customer acquisition and improved retention.

And this is important.

The highest AUR among the three groups.

These customers are total home customers. This group is finding us through search engines with the bed Bath <unk> beyond brand driving conversion.

This is not surprising to us as we acquired a top five home furnishings brand in the U S home furnishings market.

I would like to make a point on profitability through the lens of contribution margin, meaning gross profit less marketing expenses.

Through the first 60 days legacy Overstock, and Tam new customer files have been accretive to contribution margin.

At nearly similar levels.

Jonathan Johnson: These moves will allow us to further entrench our team into the connective points, overall active file size and increase average order and frequency of visits. These moves will allow us to further entrench our team into the connective points overall active size and increase frequency of visits. That's important. We also believe these actions can help us drive AOV from under $200 to an aspirational $250 level over time as we work to reverse any downward furniture trend without slowing down soft goods sales.

As expected.

The legacy bed Bath <unk> beyond file was dilutive to contribution margin as we invested in significant mobile app download campaign offers and bonus welcome rewards promotions to drive conversion.

That combined with lower AUR orders was unexpected headwind to profitability.

Remember we are still in the early stages of our branding launch we're excited about our future with the brand and we are just getting started I will now hand, the call to Adrian discussed the third quarter of 2023 financial results.

Thank you, Dave I will begin with an overview of our financial performance during the third quarter later, I will share our expectations regarding Q4, and the expected future investments around the acquisition of our bed Bath <unk> beyond IP.

Jonathan Johnson: We also expect that over time, this will help increase our annual order per active customer. We are laser focused on getting that number closer to two and believe that with the aggressive but strategic use of the famous bedbath and beyond coupon, increased mobile app engagement and an increased number of people in our welcome rewards loyalty program, we will be on the right trajectory.

Revenue declined 19% year over year in the third quarter. While this is a slight improvement in the year over year trend relative to the second quarter. The composition of our top line results versus our previous performance has changed.

<unk> declined 21% with mix of orders skewing to lower AUR categories. Following our brand launch orders increased 3% returning to growth for the first time in several quarters.

Underlying results continue to be influenced by macro factors and weakness across the furniture and home furnishings industry driven by low consumer engagement in the category a shift in spending preferences and a weak housing market.

Jonathan Johnson: The actions we have taken are all ready starting to drive results. Our active customer base grew sequentially to 4.9 million customers at the end of Q3, increasing by nearly 300,000 customers in the quarter. Fourth quarter to date, we are tracking at just under 5 million customers. Our goal is to add another 150,000 customers by the end of the quarter.

Our mid quarter update outlined mid teens decline in year over year revenue, which included performance over the labor day weekend in comparison, we ended the quarter with a decline of 19% mainly driven by the timing of our customer acquisition strategies.

Gross profit was $70 million in the third quarter, a decrease of $37 million versus the prior year gross margin came in at 18, 7%, a 461 basis point decrease versus the same period last year. The year over year decline was primarily driven by two factors higher discounting and promotional activity related to <unk>.

Jonathan Johnson: The increase in our customer base enabled us to return to year over year order growth for the first time in over two years. The bedbath and kitchen categories led the improvement in our order's performance and furniture remained one of our top categories as we see potential for further upside.

Customer acquisition strategies like the Opex versus 25% off coupon and freight cost deleverage driven by orders mixing into lower AUR category. We.

We expect this dynamic to continue throughout Q4 as we deploy targeted offers to support holiday shopping focus on new customer acquisition and re engagement efforts.

Jonathan Johnson: We continue to do well in Canada. Our average monthly sales trends are up three times compared to Q2 and the business is on a solid trajectory to scale. Our Canada team has been able to drive this growth even without a mobile app or loyalty program. Both capabilities which are on our 2024 product roadmap.

G&A and tech expenses increased $5 million year over year, which includes short term discrete costs associated with the bed Bath <unk> beyond brand integration efforts as I mentioned last quarter, we expected to incur acquisition related costs.

Adjusting for these costs are fixed G&A and tech costs continue to track at around $50 million per quarter.

Jonathan Johnson: We expect Canada to scale faster with these platform additions.

As a percentage of revenue G&A and Tech expense was 14, 3% in the third quarter, an increase of 380 basis points compared to the third quarter of 2020. This deleverage was mainly driven by lower revenue compared to last year.

Jonathan Johnson: Moving to an update on the medicine fund, because I assume we have first time listeners, I will give a little background on this. Our company currently has an investment in 16 early startup companies using blockchain technology. Those investments were made years ago.

In the third quarter, we delivered an adjusted EBITDA loss of $24 million, a decrease of $39 million versus a year ago on a margin basis. This was an almost 1000 basis point decline year over year, approximately 50% of the adjusted EBITDA margin decline was driven by gross margin pressure, resulting from the customer acquisition.

Jonathan Johnson: In we made the decision to give our daily oversight of those investments to a well-qualified venture capital subject matter expert, Kellyanne Venture Partners. You can think of this asset as a massive piece of undeveloped real estate at the end of the bus route. In due time, that property would be wrestled up with each parcel yielding varying degrees of returns. Today we remain wildly hopeful that the property value appreciates. While we don't speculate on the future value of these assets, Kellyanne is doing a great job managing the Medici fund. As I've consistently said, I'm confident Kellyanne will nurture and deliver some winners from the early stage companies in the fund. It just needs some time.

<unk> referenced earlier the balance of the margin decline was associated with fixed cost deleverage on a lower revenue base and higher marketing costs compared to last year, we are purposefully investing to grow our active customer file in this unique window.

Our reported GAAP EPS loss of $1 39 was primarily driven by operating losses, and a noncash nonoperating expense associated with a change in value of our equity securities and the associated tax impact the change in value of our equity securities reflects our proportionate share of the Medici Ventures fund, including <unk>.

The reduction in the valuation of our of our indirect investment of T zero.

Excluding the impact of equity Securities, we reported adjusted diluted loss per share of <unk> 61.

A decrease of <unk> 74 versus 2022, reflecting higher pre tax losses compared to the prior year.

Our balance sheet remains strong on a net basis, our cash balance excluding long term debt was $291 million. This level of cash continues to provide a strong foundation for us to invest in efforts to grow our active customer file.

Jonathan Johnson: As a reminder, we are only in year three of our eight-year partnership with Kellyanne. Our investments in the Medici fund are an important element of the beyond investment story. That said, as prudent stewards of shareholder capital, we are always evaluating all the investments on our balance sheet.

Now moving to an update on our Kpis, our active customer base was $4 9 million a decrease of 15% year over year, we measure active customers on a trailing 12 month basis. This decline in active customers was driven by two key factors a shift in spending preferences as consumers continue to spend on experiences and services.

David Nielsen: President David Nielsen will now share how we plan to approach brand building over the next few months and dive into some insights about our customers. Thank you, Jonathan. In the first 60 days following the bedbath and beyond launch, results largely met internal expectations.

And second a weak macro environment and housing environment.

Importantly, since launching bed Bath <unk> beyond we have grown active customers by 7% or nearly 300000 customers.

David Nielsen: That said, we know there are key areas that require improvement. After launching the brand, we quickly went to work to leverage the 100 million plus customer file we acquired. We executed a three-pronged launch. First, as a test, we offered an app exclusive 25% off coupon during August to the marketplace and customer file. We wanted to reward loyalty legacy customers and welcome them to the new bedbath. The mobile app sales increased by 55% over Q2 and Q4 continues to track strong.

Increasing our active customer file as a key measure of success for this transaction.

Orders per active customer were $1 48 in the third quarter, a decrease of about 9% versus last year and a decrease sequentially.

In the near term, we expect frequency to remain lower than our targets as new customer orders become a larger portion of our mix of total orders, we anticipate that over time brand awareness growing map growing mobile app adoption enhanced loyalty offerings and higher engagement in the future seasonal periods will help grow.

Order frequency.

Average order value declined 21% year over year to $192, mainly driven by a pronounced order mix two lower AUR categories.

David Nielsen: Second, to convert the most loyal legacy bedbath and beyond customers, we transferred and honored their previous account and reward balances to our platform. We then added an additional $25 bonus reward to their accounts, which expired at the end of September, and gave them a free one-year welcome rewards membership. These actions brought in loyal legacy bedbath and beyond reactivated legacy overstocked customers. Third, We went through a process of warming up these new potential customer email addresses.

While category mix shift was the primary driver of the change we continue to see evidence of trade down across our categories. Looking ahead, we will continue to offer compelling value to our customers and pass on cost reductions that we receive the dynamic of mixed driven lower AUR will influence future results.

Post Q4, we anticipate signals of normalization, while orders mixing into seasonal higher AUR categories.

Orders delivered were $7 3 million for the trailing 12 months period. This is a decrease of 22% compared to the prior year and largely driven by a weaker macro and lower consumer spending compared to last year.

David Nielsen: We began to warm up in mid-August and only recently finished reaching out to the entire file. With the acquisition, our addressable and contactable email population has nearly doubled, and today our daily email campaigns have increased nearly three times compared to pre-acquisition since.

To close I'll provide provide our thoughts on the fourth quarter, including color on our expected future investments around the acquisition.

For Q4, we expect revenue to improve modestly versus our three <unk> year over year decline.

David Nielsen: The sidenscale of the upcoming branding campaign in November will be the largest we have ever done. We are working with the top agency that has a track record of executing large campaigns for top consumer brands. We will be running spots on linear and streaming TV, leveraging out-of-home media assets in key traffic areas and partnering with influencers to create a social media buzz with accounts that have an affinity to the home and especially our brand.

We expect active customers to increase to around $5 $2 million range supporting year over year growth offset by lower <unk>.

We are planning for gross margin in line with <unk> as a reminder, <unk> is typically a lower gross margin quarter due to elevated holiday promotional activity. Our new brand campaign is expected to drive higher marketing expense as a percent of revenue and absolute dollars versus <unk>.

David Nielsen: The holidays this year will be an exciting new frontier for us. We are eager to offer our customers incredible deals during these key events. Historically, November and December have been significant sales periods for the legacy bedbath and beyond as their assortment leaned heavily into holiday home entertaining and gift-giving product categories. Our team has a terrific lineup of deals on key brands and we will leverage the brand to serve our customers and capture market share. Our new brand campaign will remind and educate customers across the addressable market that we have an even bigger beyond assortment for their holiday entertaining needs. We are geared up to deliver a strong holiday season.

As we look forward over the next 12 months or so we expect to spend the balance of our $175 million investment weighted more heavily over the next three quarters.

With that back to you Jonathan.

Thank you Adrienne.

Today, we covered a lot.

We hope to leave you with the following takeaways.

Our rebranding is still in the early days, we're just getting started.

Our upcoming top of funnel brand campaign is going to amplify our message is a leading online retailer of all things home.

We are acquiring customers. The most important early metric via initial success for this acquisition <unk>.

David Nielsen: Now, I'd like to walk you through some of our learnings after evaluating the first two months of the brand launch. We have separated our customers into three distinct customer files. First, starting with the legacy overstock customers. These are customers for which we had unique email addresses in our overstock database. This group includes some legacy bedbath and beyond customers who are already in the overstock database. Second, legacy bedbath and beyond. These are customer accounts that we acquired with the bedbath and beyond transaction that did not exist in the overstock database.

Importantly, we are extending our reach within the total addressable market.

Over the next five years, we plan to exceed.

10 million active customers.

Again, we cover a lot and provided more color and guidance than we usually do.

In that spirit I want to remind you that we are.

We're here today to discuss our financial results and the progress we've made integrating bed bath and beyond.

David Nielsen: Third, Camnew. This is the most encouraging cohort in our view. These customers are these customers are email accounts which did not exist within overstock or bedbath and beyond databases. We include this customer as part of the roughly 440 billion total addressable market and hence the name Camnew. Let me discuss how each of these customer files behaved during August and September the 60 day period in Q3 since launching the brand in the US.

We appreciate you keeping your questions focused on these topics.

With that <unk>, let's take some questions.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, we ask that you. Please ask one question and one follow up question and then go back.

To the queue.

Please stand by while we compile the Q&A roster.

David Nielsen: The legacy overstock group was roughly two thirds or over 900,000 of our 1.4 million total order volume during August and September. Furniture and rugs remained among the product categories. Our messaging around the bedbath and kitchen product categories may have over indexed in communication to this customer file. Considering that, I can certainly see how some may think we have confused this core customer group. However, it is way too early to conclude that the legacy overstock customer left us.

Our first question comes from the line of Tom Forte from D. A Davidson.

Great. Thanks, Jonathan and team for taking my question I'll, just limit myself to one no need for a follow up.

Focus on our <unk>.

To focus on.

So Jonathan taken as a whole what one or two things met or exceeded your expectations on the brand transition and.

One or two things fell short of your internal expectations.

Yes, Tom Thanks, since it's an insightful question.

David Nielsen: We are barely three months into the launch and our upcoming brand campaign is focused on ensuring the brand distortion messaging is clear. The legacy bedbath and beyond customer file accounted for 10% or over 140,000 orders. We expected this group to account for the lowest percent of our orders as we spent much of the quarter warming up the email list for this group. This group will grow as we roll out the brand campaign in early November.

I think we did.

Better than expected on our mobile app download.

The.

The number of customers that downloaded the mobile App was great and their usage is great. We saw their usage early in that campaign in August and then of course as late as the campaign.

And it.

I would also say on the other side.

David Nielsen: It's encouraging to see that furniture was among their top categories. Within the TAM new customer file, furniture was a bigger share of orders compared to the legacy overstock. They accounted for 23% or nearly 325,000 orders during the period. And, and this is important, they had the highest AUR among the three groups. These customers are total home customers. This group is finding us through search engines with the bedbath and beyond brand driving conversion.

It's taken longer to warm up the email file.

And then we hoped.

New would take some time because we've made wanted to make sure that we didn't have any E mail.

Trapped in spam filters.

But at this point.

Those pipes are warmed up and we're able to send E mail.

Anyone and everyone on the customer file.

Would you add maybe of what we like and one thing that we went through that a little better.

I think one of the things we like.

David Nielsen: This is not surprising to us as we acquired a top five home furnishings brand in the US home furnishings market. I would like to make a point on profitability through the lens of contribution margin, meaning gross profit less marketing expenses. Through the first 60 days, legacy overstock and TAM new customer files have been accretive to contribution margin at nearly similar levels. As expected, the legacy bedbath and beyond file was dilutive to contribution margin as we invested in significant mobile app download campaign offers and bonus welcome rewards, promotions to drive conversion. That combined with lower AUR orders was an expected headwind to profitability. Remember, we are still in the early stages of our branding launch.

Was.

When we changed the site.

We acquired this new brand with.

Blue.

We saw the power of this brand.

We saw customers flocking to these.

Softer categories.

The home textiles to the kitchen.

That speaks to the power of this brand.

We have been making adjustments.

In our top NAV in our margin our E mails.

Two.

Better balance the mix of legacy Overstock.

And legacy bed Bath <unk> beyond products, and we're finding that balance but that was probably the item that I say it was.

Disappointingly the power of the brand is really strong.

David Nielsen: We are excited about our future with a brand and we are just getting started.

And it's been strong with suppliers.

Suppliers that have come to us that we recorded for years, we couldnt get suppliers that have opened up their full catalog now where we used to have only a smaller portion.

Adrianne Lee: I will now hand the call to Adrian, discuss the third quarter 2023 financial results. Thank you, Dave. I will begin with an overview of our financial performance during the third quarter.

Really powerful piece of the bed Bath <unk> beyond brand. So I hope we addressed the question Tom.

Adrianne Lee: Later, I will share our expectations regarding Q4 and the expected future investments around the acquisition of our bedbath and beyond IP. Revenue declined 19% year over year in the third quarter. While this is a slight improvement in the year over year trend relative to the second quarter, the composition of our top line results versus our previous performance has changed. AOV declined 21% with mix of orders skewing to lower AUR categories following our brand launch.

Thank you Jonathan and thank you Dave.

Yep.

Thank you.

One moment for our next question.

Our next question comes from the line of Peter Keith from Piper Sandler.

Hey, good morning, everyone. Thanks for taking the question.

Just thinking about the first two months of the brand integration.

Adrianne Lee: Orders increased 3% returning to growth for the first time in several quarters. Underline results continue to be influenced by macro factors and weakness across the furniture and home furnishings industry driven by low consumer engagement in the category, a shift in spending preferences and a week housing market. From mid-quarter update outlined, mid-teens decline in year over year revenue, which included performance over the Labor Day weekend. In comparison, we ended the quarter with a decline of 19%, mainly driven by the timing of our customer acquisition strategies.

Want to talk a bit about the revenue trajectory because you are running negative mid teens in early September and then the finished down 19 for the quarter. It does suggest quite a bit of step ups and in the back part of September. So wondering if you could help us understand what caused that slowdown you pull back on the marketing and couponing and it was that.

A temporary slowdown.

Adrienne I'll take that one.

Great Yeah happy to Peter we don't generally discuss kind of our monthly kind of Gms and revenue trends, but I'll tell you.

Adrianne Lee: Growth profit was $70 million in the third quarter, a decrease of $37 million versus the prior year. Growth margin came in at 18.7%, a 461 basis point decrease versus the same period last year. The year over year decline was primarily driven by two facts. Doctors. Higher discounting and promotional activity related to customer acquisition strategies like the Epic exclusive 25% off coupon and freight cost delivery driven by orders mixing into lower AUR categories.

Few things.

One as I discussed in my prepared remarks that we had kind of a set of customer acquisition strategy. So a lot of the monthly cadence was really impacted by when we deployed <unk> our customer acquisition strategy is particularly the mobile app versus when we were able to kind of do our E mail stands for the welcome rewards folks in the balance of that customer.

Phil.

And you will just kind of known if we if we put kind of August and September together very in line with the Q3 trend.

Yes.

Adrianne Lee: We expect this dynamic to continue throughout Q4 as we deploy targeted offers to support holiday shopping, focus on new customer acquisition and re-engagement efforts. DNA and tech expenses increased $5 million year over year, which includes short-term discrete costs associated with the bedbath and beyond brand integration efforts. As I mentioned last quarter, we expected to incur acquisition related costs. Adjusting for these costs are fixed DNA and tech costs continue to track at around $50 million per quarter.

Kind of add to that Peter and it's a great question.

There was a lot of early promotional activity in the first months of the law first month of the launch and when we put out our mid quarter press release, It was post labor day.

Labor day is a big shopping day, so to see numbers down a little bit.

Labor day, not that surprising, but certainly working to improve that trend right now.

Okay. Thank you and then unrelated but just on.

Adrianne Lee: As a percentage of revenue, DNA and tech expense was 14.3% in the third quarter. An increase of 380 basis points compared to the third quarter of 2022. This deal average was mainly driven by lower revenue compared to last year. In the third quarter, we delivered an adjusted EBITDA loss of $24 million, a decrease of $39 million versus a year ago. On a margin basis, this was an almost 1,000 basis point decline year over year.

The role of Chief marketing officer in the company could.

Could you just bring us up to speed I'm not sure if you've hired anyone or are you looking to hire someone and it seems like that.

That would be a pretty important role with this rebranding effort you are looking for someone what are some of the characteristics you would like to find.

Yes so.

I'll begin the answer and turn it to Dave Who's leading that search we've not yet hired someone we do have.

Adrianne Lee: Approximately 50% of the adjusted EBITDA margin decline was driven by gross margin pressure, resulting from the customer acquisition strategies referenced earlier. The balance of the margin decline was associated with fixed costy leverage on a lower revenue base and higher marketing cost compared to last year. We are purposely investing to grow our active customer file in this unique window. Our reported gap EPS loss of $1.39 was primarily driven by operating losses and a non-cash non-operating expense associated with a change in value of our equity securities and the associated tax impact.

Great.

Candidates.

Great Vice Presidents will report to the Chief marketing Officer and are currently reporting to Dave as he.

Phil temporarily fills that role.

We want to find a great. One we're taking our time I. Thank the team we have in place is doing a nice job during the rebrand.

But as a whole that will need to and are working to fill.

Okay. Yeah. Thanks, Jonathan from a timing standpoint. This is obviously the best of the CMO oeser.

Adrianne Lee: The change in value of our equity securities reflects our proportionate share of the Medici Venture Fund, including a reduction in the valuation of our indirect investment of T0. Excluding the impact of equity securities, we reported adjusted diluted loss per share of 61 cents, a decrease of 74 cents versus 2022, reflecting higher pre-tax losses compared to the prior year.

Up to their eyeballs in fourth quarter execution for the holidays and so we're talking with them I've had several phone calls with some top notch candidates.

We will start post.

Ground shipping.

Im frame will probably start in on real panel interviews with our executive team in evaluating the candidates I anticipate we will have a candidate in place.

Adrianne Lee: Our balance sheet remains strong. On a net basis, our cash balance excluding long-term debt was $291 million. This level of cash continues to provide a strong foundation for us to invest in efforts to grow our active customer file.

At the end of January or mid February.

And in the meantime.

I'm really excited for our top of funnel marketing campaign.

Adrianne Lee: Now moving to an update on our KPIs. Our active customer base was $4.9 million, a decrease of 15% year over year. We measure active customers on a twirling 12 month basis.

Launching next week.

Even with us.

Sitting CFO.

Really nice job and a good job with this campaign is going to be broad and youll see us far and wide.

Adrianne Lee: This decline in active customers was driven by two key factors. A shift in spending preferences as consumers continue to spend on experiences and services, and second, a weak macro environment and housing environment.

So thanks for that question Peter.

Thanks, so much.

Thank you one moment for our next question.

Adrianne Lee: Importantly, since launching Bed Bath and Beyond, we have grown active customers by 7%, or nearly 300,000 customers. Increasing our active customer file is a key measure of success for this transaction.

Our next question comes from the line of Anna on driver from need him.

Great. Thank you for my son, good morning, guys.

Adrianne Lee: Orders per active customer were 1.48 in the third quarter, a decrease of about 9% versus last year, and a decrease sequentially. In the near term, we expect frequency to remain lower than our targets as new customer orders become a larger portion of our mix of total orders. We anticipate that over time, brand awareness, growing mobile app adoption, enhanced loyalty offerings, and higher engagement in the future seasonal periods will help grow order frequent.

One question and one follow up from US I appreciate you providing us color on how to think about revenues in the fourth quarter, but could you talk about the trends that you're seeing in the business quarter to date. Just curious what are you seeing from the core overstock consumers, so far and if you feel there is.

The need to promote even more.

I can make sure that customer stays with the platform and then secondly, as a follow up to Jonathan I really interesting to hear about the overstock site coming that is.

Adrianne Lee: Average order value declined 21% year-over-year to $192, mainly driven by a pronounced order mixed to lower AUR categories. While category mixed shift was the primary driver of the change, we continue to see evidence of trade down across our categories. Looking ahead, we will continue to offer compelling value to our customers and pass on cost reductions that we receive. The dynamic of mixed driven lower AUR will influence future AOV results.

Liquidation site, just big picture, how do you guys think about ensuring there is no cannibalization between the value that Beth and what will be no doubt sharp price it at overstock.

Great question, I'll turn to Adrian to ask.

To answer the first one and then we'll we'll go.

Discuss our thought.

That's about overstock as the liquidation side.

Adrianne Lee: Post-Q4, we anticipate signals of normalization while orders mixing into seasonal higher AUR categories.

And so I think trends continue to.

Kind of perform in line with our expectation and kind of as we discussed with our fourth quarter.

Adrianne Lee: Orders delivered were $7.3 million for the trailing 12-month period. This is a decrease of 22% compared to the prior year, and largely driven by a weaker macro and lower consumer spending compared to last year.

And we talked about trends excuse me, we talked about the fourth quarter, having a very similar year over year decline from the third quarter, and we feel confident saying that thats what were experiencing and that's what we expect.

Adrianne Lee: To close, I will provide our thoughts on the fourth quarter, including color on our expected future investments around the acquisition. For Q4, we expect revenue to improve modestly versus our 3Q year-over-year decline. We expect active customers to increase to around 5.2 million range, supporting year-over-year growth offset by lower AUV. We are planning for growth margin inline with 3Q. As a reminder, 4Q is typically a lower growth margin quarter due to elevated holiday promotional activity.

Thanks Adrian.

We are excited about taking overstock back to its roots.

A clearance liquidation site.

And anyone who's been in the clearance and liquidation business like a long time or is it overstock.

<unk> have been no that retailers are always trying to avoid channel pollution.

They don't want their clearance product next to their current product.

Adrianne Lee: Our new brand campaign is expected to drive higher marketing expense as a percent of revenue and absolute dollars versus 3Q. As we look forward over the next 12 months or so, we expect to spend the balance of our 175 million investment weighted more heavily over the next to 3Q.

That's why we couldnt be a general retailer and a liquidator at the same time no one can be.

When we stand up.

Re standup the overstock site as a clearance site it will be very different there will be no similar product.

Jonathan Johnson: With that, back to you, Jonathan.

That's how you avoid channel pollution.

Jonathan Johnson: Thank you, Adrian. Today, we covered a lot.

Pricing will be true clearance liquidation pricing.

Jonathan Johnson: We hope to leave you with the following takeaways. Our rebranding is still in the early days. We are just getting started. Our upcoming top-of-fondle brand campaign is going to amplify our message to the leading online retailer of all things home. We are acquiring customers, the most important early metric of the initial success for this acquisition. Importantly, we are extending our reach within the total addressable market. Over the next five years, we plan to exceed 10 million active customers. Again, we cover a lot and provide more color and guidance than we usually do.

There will be some some hurdles to get over there, but by having none of the similar product onsite.

We think we can avoid cannibalization that your question was concerned with hub that addresses the question.

Thank you one moment for our next question.

Our next question comes from the line of Seth Sigman from Barclays.

Hey, good morning, everyone I wanted to talk about the $175 million of investments can.

Can you frame for us how much has been spent to date and then where do you plan to deploy that is that pricing is that marketing do you need to do more hiring and I guess, that's the first part and then you did say that would occur over the next 15 months is there a cadence to think about just so that we can appropriately manage expectations. Thank you.

Operator: In that spirit, I want to remind you that we are here today to discuss our financial results and the progress we made integrating bedbath and beyond. We appreciate you keeping your questions focused on these topics.

Yes, Jeff Great question.

As part of a more color.

We wanted to provide alternative Adrian good aggressive then look to Dave to maybe add some color, but as I noted we spent about $25 million on the deal between buying an acquisition related we've spent some this quarter you can see that.

Operator: With that, Gigi, let's take some questions. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Our results Adrian you want to talk about kind of the cadence of whats.

Operator: We ask that you please ask one question and one follow-up question and then go back into the queue. Please stand by when we compile the Q&A roster.

The remainder happy to yes, so I think thats kind of in total as Jonathan outline those buckets in a let's just say we've spent around $50 million, thus far with third quarter and kind of the acquisition activities.

Thomas Forte: Our first question comes from the line of Tom Forte from D.A. Davidson. Great. Thanks, Jonathan and team for taking my question. I'll just limit myself to one no need for a follow-up and I'll focus on what you advise to focus on.

I talked about in my prepared remarks that we expect to see this over the next 12 months or so likely more heavily weighted in the next three quarters, that's starting with fourth quarter. So fourth first and second.

And I would say, we're going to deploy kind of those investments opportunistically. Some of them may hit gross margin for discounting and promotional activity. Some will head sales and marketing as we launch our branding campaign and various other items and certainly will continue to be really sharp on our pricing as I said in my remarks is while offering our customers the best value.

Jonathan Johnson: So, Jonathan, take it as a whole, what one or two things, matter if you did your expectations on the brand transition and what one or two things felt short of your internal expectations. Yeah, Tom, thanks. It's an insightful question. I think we did better than expected on our mobile app download. The number of customers that downloaded the mobile app was great and their usage is great. We saw their usage early in that campaign in August and then of course late is the campaign ended.

Everybody Ed.

On the marketing front, we've got a really exciting brand campaign, that's launching here at the first of November that we're really excited about.

That triggers a couple of thoughts, it's about a bigger better beyond which pushes our legacy overstock product and our bed Bath <unk> beyond products, so customer understands the wide the broad the bigger bolder assortment that we have.

Jonathan Johnson: I would also say on the other side, it's taken longer to warm up the email file than we hoped. We knew it would take some time as we made, wanted to make sure that we didn't have any email trapped in spam filters but at this point those pipes are warmed up and we're able to send email to anyone and everyone on the customer file.

Second it features a coupon.

I'll tell you the single item, 20% off coupon. It is money is money to this customer it is a trigger for them and we are using that to reactivate those customers and.

We're really encouraged by what that will do for US. We're also standing up Jonathan mentioned this our wedding registry.

Our emerging trade business. These are areas with this brand we have real permission to go grab market share and so we're spending some money in those areas as well.

David Nielsen: Dave, would you add up maybe a what we like and one thing that we wish we'd done a little better? I think one of the things we like was when we changed the site that we acquired this new brand with blue. We saw the power of this brand. We saw customers flocking to these softer categories, to the home textiles, to the kitchen. That speaks to the power of this brand. We've been making adjustments in our top nav, in our mods and our emails to better balance the mix of legacy overstock and legacy bedbath and beyond products. And we're finding that balance.

And Seth I, just know you asked about hiring yes, we've done some incremental hiring particularly around standing up the registry.

David Nielsen: But that was probably the item that I say was just disappointing. The power of the brand is really strong. Yeah and it's been strong with suppliers. The suppliers that have come to us that we've corded for years but couldn't get suppliers that have opened up their full catalog now where we used to have only a smaller portion, really powerful piece of the bedbath and beyond brand.

And some other things.

Don't think of hiring as being in that bucket. When we talk about that approximately $150 million of additional investment. It's the launch the brand is to reignite the customer file and has to expand and create new categories. So.

It's more marketing.

Got it.

It's not the kind of G&A head count piece.

We're always careful hiring there were higher when we need and there's a few we need and so we've done that and we're moving forward.

Okay, Great I'll, just ask a related follow up in the past you've targeted I think that mid single digit type of EBITDA margin is that still the expectation.

And then if so is that really a feeling that investments are going to roll off at some point or is it more about driving incremental sales incremental volume to ultimately leverage the fixed cost in the business.

Thomas Forte: So I hope we address the question, Tom. Yes, thank you, Jonathan. Thank you, Dave. Yep. Thank you.

So so.

Let me talk first to that.

Mid single digits as I've noted before we are taking a purposely taking a pause.

Operator: One moment for our next question.

As we.

Peter Keith: Our next question comes in the line of Peter Keith from Piper Sandler. Hey, good morning, everyone. Thanks for taking the question. I guess just as thinking about the first two months of the brand integration, I just want to talk a bit about the revenue trajectory because you're running negative mid-teens in early September and in the finish down 19 for the quarter. It does suggest quite a bit of step off in the back part of September.

The next few quarters and I think as Adrian guided to Q4, we're going to continue to continue to spend during this unique time to grow this customer file growing as customer profile is really important it will help us grow topline will help us have information about the customers. We can use as we think about.

Peter Keith: So I wonder if you could help us understand what caused that slowdown. You pull back in the marketing and the couponing and it was kind of a temporary slowdown. Did you want to take that one? Great. You're happy, too. Peter, you know, we don't generally discuss kind of our monthly kind of GMS and revenue trends, but I'll tell you a few things. One is, you know, I discussed in my prepared remarks that we had kind of a set of customer acquisition strategies.

<unk>.

We live up to the promise of our new corporate name beyond <unk> and.

And expand elsewhere.

So the goal is.

To grow the customer file so the top line grows and Thats, how we get back to mid single digits. After this and Thats why were spending marketing. This additional investment that we're making now.

Is really to increase the customer file.

Yeah.

Okay, great. Thanks, so much and good luck ahead.

Thanks Seth.

Thank you.

One moment for our next question.

Peter Keith: So a lot of the monthly cadence was really impacted by when we deployed our customer acquisition strategies, particularly the mobile app versus when we were able to kind of do our email sends for the welcome rewards folks and the balance of that customer file, and you will just kind of know if we if we put kind of August and September together very in line with the Q3 trend. Yeah, just kind of add to that, Peter.

Our next question comes from the line of Steven Forbes from Guggenheim Partners.

Good morning, everyone.

Jonathan maybe just a follow up on the last question from SaaS.

Obviously your active customer growth is a key focus but I was curious if you could maybe expand on how youre thinking.

Peter Keith: It's a great question. There was a lot of early promotional activity in the first month of the launch, and when we put out our mid quarter press release, it was post Labor Day and Labor Day is a big shopping day. So to see numbers down a little bit after Labor Day, not that surprising, but certainly working to improve that trend right now.

About the importance of repeat behavior.

Over the next 12 months and how that sort of as part of the ROI thresholds or Youre <unk>.

Spending against today.

Yeah for sure and I mentioned in my in my prepared remarks.

Improving our CRM capabilities.

That lets us personalize.

And send our messages in a meaningful way for repeat but Dave you want to talk about how repeat is so important because we acquire.

Jonathan Johnson: Okay, thank you. And then unrelated, but just on the role of chief marketing officer in the company, could you just bring us up to speed. I'm not sure if you've hired anyone or are you looking to hire someone and it seems like that would be a pretty important role with this rebranding effort. If you are looking for someone, what are some of the characteristics you'd like to find? Yeah, so I'll begin the answer and turn it to Dave who's leading that search.

Through a buy versus earn its not what were going to be doing.

Yes, the first.

The first step Steve in our branding launch.

It was acquiring mobile app customers and getting them to download our mobile app that customer.

Is our one of our most valuable customers. They have the highest average order size they have by far the highest repeat rate.

Jonathan Johnson: We've not yet hired someone. We do have great candidates, and we have great vice presidents that will report to the chief marketing officer and are currently reporting the day because he feels temporarily fills that role. We want to find a great one. We're taking our time. I think the team we have in place is doing a nice job during the rebrand. But it is it is a whole that we'll need to and are working to fill.

Are the least expensive for us to communicate with center offers too.

And drive business with.

So we will continue staying focused on that group.

Sure.

Mobile total mobile percentage of the business was the largest it's ever been this quarter, we're seeing real success, there and we're counting on that mobile app and experiential work that we're doing on our website to improve that funnel shopping experience.

But that mobile App is where we are placing the majority of our of our retention efforts.

Jonathan Johnson: Yeah, thanks. From a timing standpoint, this is obviously the best of the CMOs are up to their eyeballs in fourth quarter executions for the holidays. And so we're we're talking with them. I've had several phone calls with some top notch candidates. We'll start post ground shipping time frame will probably start in on real panel interviews with our executive team and evaluating the candidates. I anticipate we'll have a candidate in place the end of January or mid February.

When you look at how we started our brand campaign or started this rebranding launch it was mobile App and welcome rewards loyalty program those have the highest repeat rate. That's what we're trying to drive the customer by showing the customer the value of those two programs.

Thank you and then maybe just a quick follow up I.

I think Adrian mentioned $5 2 million active customers by year end and you guys spent some time on the call I was talking about the three customer groups.

Any way to frame how you think those three groups are as a percentage of the customer base by year end or how youre sort of expecting that to evolve here.

Jonathan Johnson: Yeah, and in the meantime, I'm really excited for our top of funnel marketing campaign that's launching next week, even with a sitting CMO. We've done a really neat job and a good job with this campaign. It's going to be broad and you'll you'll see us far and wide. So thanks for that question, Peter.

Okay.

Hard to give exact numbers I'll tell you the group I expect to grow the most.

Peter Keith: Okay, thanks so much.

Operator: Thank you.

That's the legacy bed bath and beyond customer because during that first.

Two months.

Launch, we were still warming up that massive E.

Anna Andreva: One moment for our next question. Our next question comes in the line of Anna Andreva from NeedHands. Great. Thank you so much. Good morning, guys. One question and one follow-up from us. Appreciate you providing us color on how to think about revenues in the fourth quarter. But could you talk about the trends that you see in the business quarter today? Just curious, what are you seeing from the core overstock consumers so far?

E Mail file that we purchased.

When I say warming up it's really keeping them in all of our other customers out of spam filters are doing this in a very measured and programmatic way.

That's now that those files are warmed up that's a group we can talk to.

In total so that should that should be the group percentage.

Percentage increases demands.

I think thats right Jonathan in the second group would be that Tam New group.

And what's encouraging about that I, just I have to go back to this again I mentioned it in the remarks.

This group had the highest average order size and they have found us in.

Anna Andreva: And if you feel there is a need to promote even more this water to make sure this customer stays with the platform. And then, secondly, as a follow-up to Jonathan, I really interesting to hear about the overstock site coming back as a liquidation site. Just big picture. How do you guys think about ensuring there's no cannibalization between the value, that, that, and what will be no doubt sharp rights at overstocks?

In the initial stages of the brand launched they found us through searching on Google We have not had the brand campaign and the national brand campaigns that are going to be launching here in the coming days. So that group is.

Adrianne Lee: Great question. I'll turn to Adrianne to ask the answer. The first one, and then we'll go. I'll discuss our thoughts about overstock as a liquidation site. Thanks. And so I think trends continue to, you know, kind of perform in line with our expectation and kind of as we discussed with our fourth quarter. You know, we talked about trends, excuse me, we talked about the fourth quarter having a very similar year over year decline from the third quarter. And that's, you know, we feel confident and that's what we're experiencing and that's what we expect. Thanks, Adrianne.

Very encouraging to us because as they grow that will grow that legacy overstock.

Business as well they were very high in furniture ranking and Youll see that on the on the schedules that we provided after the call. We've laid that out. So you can see the top product categories and performance based on each of those segments I talked about.

Stephen Thanks for those questions.

Thank you one moment for our next question.

Our next question comes from the line of Jonathan <unk> from Jefferies.

Hey, good morning, and thanks for taking my question. My first one is a follow up on the financial recipe.

Jonathan Johnson: We are excited about taking overstock back to its roots being a clearance liquidation site. And anyone who's been in the clearance and liquidation business like a long time has it overstocked like me have been, know that retailers are always trying to avoid channel pollution. They don't want their clearance product next to their current product. That's why we couldn't be a general retailer and a liquidator at the same time. No one can be.

After this initial period of AD spend and discounting I think the last plan communicated was returning to kind of that pre deal financial recipe or something close to it.

Jonathan Johnson: When we stand up, we stand up. The overstock site is a clearance site. It will be very different. There will be no similar product. That's how you avoid channel pollution. The pricing will be true clearance liquidation pricing. There will be some hurdles to get over there. But by having none of the similar product on site, we think we can avoid the cannibalization that your question was concerned with. I hope that's resting the questions on. Thank you. One moment for our next question.

By the end of 2024 it.

It looks like the street's modeling gross margins shy of that 22% range.

A negative EBITDA margin versus positive.

A lot's changed obviously over the last couple of months in terms of rates and housing.

Just curious is that plan still intact.

So what's the biggest disconnect.

You see with the street numbers in terms of the second half of next year.

Andrew do you want to.

Answer Jonathan's question. Please sure happy to I do think Jonathan I know that probably expectations are a bit across the board and right now we really haven't given any 2024 guidance or thoughts I think our general goal is we think our business can operate within the parameters of the recipe card and Thats.

Our north star by which we will run the business and perform on par.

These acquisition activities, but we haven't given a timeline in fact today I think is the first time, we talked about this 12 months to 15 months.

Investment period of about $175 million.

Seth Sigman: Our next question comes from the line of Seth Sigmund from Barclays.

And Jonathan I'll just note in our prepared remarks, we talked about the importance of growing the active customer file we're seeing great success on that we talked about our goals of growing <unk>.

Adrianne Lee: Hey, good morning, everyone. I wanted to talk about the $175 million of investment. Can you frame for us how much has been spent to date? And then where do you plan to deploy that? Is that pricing? Is that marketing? Do you need to do more hiring? I guess that's the first part. And then you did say that would occur over the next 15 months. Is there a cadence to think about just so that we can appropriately manage expectations?

I think fourth quarter <unk> tends to always be a little lower because of <unk>.

<unk>, but with our marketing campaign, and then moving into the.

Into 2024, we think we can take.

Aspirational or looking to take <unk> back to where it's been in the past and then the other thing I mentioned is we have a goal of increasing that.

Adrianne Lee: Thanks. Thank you. Yes, that's a great question. And, you know, this is part of the more color that we want to provide. I'll turn to Adrian to address it and look today to maybe add some color. But, you know, as I noted, we spent about 25 million on the deal between buying it and acquisition related. We've spent some this quarter. You can see that in our results. Adrian, you want to talk about kind of the cadence of what's remainder?

Average orders per customer.

Which runs to kind of the one five areas one five area. The goal is to get that to two over time and we're laser focused on working that I don't think that happens in 2024 over time.

These are the three metrics that we're working on because we think those will drive topline and bottomline.

Adrianne Lee: Happy to. Yeah, so I think that's kind of in total as Jonathan outlined those buckets. You know, let's just say we've spent around 50 million thus far with third quarter and kind of the acquisition activities. I talked about in my prepared remarks that, you know, we expect to see this over the next 12 months or so, you know, likely more heavily weighted in the next three quarters. That's starting with fourth quarter, so fourth, first and second.

That's helpful and just a quick follow up question.

On on kind of going back to your roots.

Clearance liquidation site any kind of big picture thoughts in terms of how that'll influence.

The P&L in terms of <unk>.

Adrianne Lee: And I would say we're going to deploy kind of those investments opportunistically. Some of them may hit gross margin for discounting and promotional activity. Some will hit sales and marketing as we launch our branding campaign and various other items. And certainly we'll continue to be really sharp on our pricing. As I said, my remarks as well, offering our customers the best value. Hey, what are you at? So on the marketing front, we've got a really exciting brand campaign that's launching here at the first of November that we're really excited about.

Average order value of order.

Order frequency or gross margin.

<unk>.

Additional.

<unk> and <unk>.

Related to setting that up.

Thanks, so much.

Yeah. So let me give some initial thoughts and turn to Dave.

It will be a different site.

And.

Probably too early to.

To comment on what <unk> looks like May look more like the historical.

Adrianne Lee: That triggers a couple of thoughts. It's about a bigger better beyond which pushes our legacy over stock product and our bedbath and beyond product. So customer understands the wide, the broad, the bigger, bolder assortment that we have. Second, it features a coupon. And I will tell you this single item 20% off coupon. It is money. It is money to this customer. It is a trigger for them. And we are using that to reactivate those customers.

<unk> we had.

We were a general retailer because there will be product on there. It is very different than what we're selling today as I noted, we intend for that to be a.

General Cross category Overstock branded liquidation site and so.

I don't think modeling it as a furniture or home furnishings site is the right thing to do we think we can do this in an asset light way there may be some additional tech spend but not very much. We think our systems are evolving to get there. So that we can run multiple sites as well.

Adrianne Lee: And we're really encouraged by what that will do for us. We're also standing up. Jonathan mentioned this, our wedding registry, our emerging trade business. These are areas with this brand. We have real permission to go grab market share in. And so we're spending some money in those areas as well. And Seth, I just know yes about hiring. Yes, we've done some incremental hiring, particularly around standing up the registry and some other things.

All the costs that we have David anything else you'd add no I think you've covered it it's all about the mix and that depends on the overstock at the time, yes.

One thing about the liquidation businesses, you cant predict which you are going to be selling because the vendors couldn't predict.

Adrianne Lee: I don't think of hiring is being in that bucket when we talk about that approximately 150 million of additional investment. It's the launch the brand. It's to reignite the customer file. And it's to expand and create new categories. So it's more marketing. It's not the, it's not the kind of GNA headcount. We're always careful hiring there. We hire when we need. And there's a few we need. And so we've done that and we're moving forward.

Didn't predict what they over volume.

Thank you.

I'd now like to turn the conference back over to Jonathan Johnson for closing remarks.

Thank you Gigi and thank you for everyone who joined the call.

I appreciate your time appreciate your interest.

Uh huh.

I love to say and I really believe that.

At the company.

<unk> is yet to come.

I think with our new name.

Jonathan Johnson: Okay, great. I'll just ask a related follow up. In the past you targeted, I think that mid single digit type of EBITDA margin. Is that still the expectation. And then if so, is that really a feeling that investments are going to roll off at some point or is it more about driving incremental sales and incremental volume to ultimately leverage the fixed costs in the business? So, so let me talk first to the mid single digits.

We intend to live up to the promise of being bigger better bolder beyond. Thank you for your ownership in our company I wish you well as we enter the upcoming holiday season, and we look forward to speaking you.

Speaking with you in the new year.

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

Jonathan Johnson: As I've noted before, we are, you know, taking a purposefully taking a pause. As we for the, you know, the next few quarters, and I think is Adrian guided to queue for we're going to continue continue to spend during this unique time to grow this customer file. Growing this customer file is really important. It will help us grow top line. We'll help us have information about the customers we can use as we think about how we live up to the promise of our new corporate name beyond.

Okay.

Yes.

Okay.

Yes.

Jonathan Johnson: And expand elsewhere. So, you know, the goal is to grow the customer file, so the top line grows. And that's how we get back to mid single digits after this. And that's why we're spending marketing this additional investment that we're making now is really to increase the customer.

Okay.

Yes.

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Seth Sigman: Okay, great.

Yes.

Okay.

Yes.

Yes.

Yes.

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Two.

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Yes.

Seth Sigman: Thanks so much and good luck ahead. Thanks, Seth. Thank you.

Operator: One moment for our next question.

Steven Forbes: Our next question comes from the line of Steven Forbes from Guggenheim Partners.

Steven Forbes: Good morning, everyone. Jonathan, maybe just a follow up on the last question from Seth. Obviously, active customer growth is a key focus, but I was curious if you can maybe expand on how you're thinking about the importance of repeat behavior over the next 12 months and how that sort of is part of the ROI threshold you're spending against today. Yeah, for sure. I mentioned in my prepared remarks, improving our CRM capabilities.

Steven Forbes: I think that lets us personalize and send our messages in a meaningful way for repeat. But Dave, you want to talk about how repeat is so important because if we acquire through a buy versus an earn, it's not what we're going to be doing. Yeah, the first step, Steve, in our branding launch was acquiring mobile app customers and getting them to download that mobile app. That customer is one of our most valuable customers.

Steven Forbes: They have the highest average order size. They have by far the highest repeat rate. They are the least expensive for us to communicate with, send offers to and drive business with. So we'll continue staying focused on that group. Our total mobile percent of the business was the largest it's ever been this quarter. We're seeing real success there and we're counting on that mobile app and experiential work that we're doing on our website to improve that funnel shopping experience.

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Steven Forbes: But that mobile app is where we are placing the majority of our retention efforts. When you look at how we started our brand campaign or started this rebranding launch, it was mobile app and welcome reward loyalty program. Those have the highest repeat rate.

David Nielsen: That's what we're trying to drive the customer by showing the customer the value of those two programs. Thank you and then very quick follow up. I think Adrian mentioned 5.2 million active customers by year end and you guys spent some time in the call talking about the three customer groups. Any way to frame how you how you think those three groups are as a percentage of the customer base by year end or how you're sort of expecting that to evolve here.

Yes.

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David Nielsen: Steven, it's hard to give exact numbers. I tell you the group I expect to grow the most and that's the legacy bedbath and beyond customer because during that first two months of the launch, we were still warming up that massive email file that we purchased. And when I say warming up, it's really keeping them and all of our other customers out of spam filters by doing this in a very measured and programmatic way.

David Nielsen: That's now that those files are warmed up. That's a group we can talk to in the total. So that should that should be the group that's percentage increases the most. I think that's right, Jonathan. And the second group would be that TAM new group. And what's encouraging about that, I just I have to go back to this again, I mentioned it in the remarks. This group had the highest average order size and they have found us, in the initial stages of the brand launch.

Yes.

Okay.

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David Nielsen: They found us through searching on Google. We have not had the brand campaign, the national brand campaign, that are going to be launching here in the coming days. So that group is very encouraging to us because as they grow, that will grow that legacy overstock business as well. They were very high in furniture ranking. And you'll see that on the schedules that we've provided after the call. We've laid that out so you can see the top product categories and performance based on each of those segments I talked about. Steven, thanks for those questions.

Jonathan Johnson: Thank you.

Operator: One moment for our next question.

Yes.

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Okay.

Yes.

Operator: Our next question comes from the line of Jonathan Matuszewski from Jeffries. Good morning and thanks for taking my question. My first one is a follow up on the financial recipe after this initial period of at spend and discounting. I think the last plan communicated was returning to kind of that pre-deal financial recipe or something close to it by the end of 2024. It looks like the street's modeling growth margins shy of that 22% range and negative EBITDA margins versus positive.

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Yes.

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Operator: A lot's changed, obviously, over the last couple of months in terms of race and housing. So just curious, is that plan still intact and it's what's the biggest disconnect you see with with the street's numbers in terms of the second half of next year? Thanks. Adrian, you want to answer Jonathan's question please? Sure, happy to.

Yes.

Okay.

Yes.

Okay.

Okay.

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Okay.

Okay.

Okay.

Yes.

Yes.

Yes.

Okay.

Jonathan Matuszewski: I do think Jonathan, I know that probably expectations are a bit across the board and right now we really haven't given any 2024 guidance or thoughts. I think our general goal is we think our business can operate within the parameters of the recipe card and that's kind of our north star by which we will you know run the business and perform post-exac was just an activity but we haven't given the timeline.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Yes.

Yes.

Okay.

Yes.

Okay.

Okay.

Okay.

Jonathan Matuszewski: In fact, today I think is the first time we talked about this 12 to 15 month you know investment period of about 175 million. Yeah and Jonathan, I was just known in our prepared remarks. We talked about the importance of growing the active customer file. We're seeing great success on that. We talked about our goals of growing AOLV. I think you know fourth quarter AOLV tends to always be a little lower because of giftables but with our marketing campaign and then moving into the in the 2024 we think we can take a you know aspirationally looking to take AOLV back to where it's been in the past.

Okay.

Okay.

Okay.

Okay.

Okay.

Okay.

Sure.

Yes.

Yes.

Okay.

Okay.

Yes.

Yes.

Okay.

Okay.

Okay.

Jonathan Matuszewski: And then the other thing I mentioned is we have a goal of increasing that average orders per customer which you know runs kind of the one five area one point five area. The goal is to get that to two over time and where laser focused on working that. I don't think that happens in 2024 but over time you know those are the three metrics that we're working on because we think those will drive top line and bottom line. That's helpful.

Okay.

Thank you.

Okay.

Okay.

Okay.

Okay.

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Okay.

Sure.

Okay.

Yes.

Yes.

Okay.

Okay.

Yes.

Okay.

Jonathan Johnson: And just a quick follow-up question, you know, on kind of going back to your roots with the clearance liquidation site. Any kind of big picture is awesome in terms of, you know, how that'll influence the P&L in terms of average order value, order frequency or gross margins. Any, you know, additional, you know, text span. And related to setting that up. Thanks so much. Yeah, so let me give some initial thoughts in turn today.

Yes.

Yes.

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Jonathan Johnson: It will be a different site and probably too early to comment on what AOV looks like. It is very different than what we're selling today. As I noted, we intend for that to be a general cross category overstock branded liquidation site. And so I don't think modeling it as a furniture or home furnishing site is the right thing to do. We think we can do this in an asset lightweight. There will maybe some additional text men, but not very much.

Okay.

Yes.

Okay.

Okay.

Okay.

Yes.

Okay.

<unk>.

Okay.

Okay.

Okay.

Okay.

Sure.

Great.

Okay.

Okay.

David.

Okay.

Okay.

Okay.

Okay.

Okay.

Jonathan Johnson: We think our systems are evolving to get there so that we can run multiple sites well for the cost that we have. Anything else you add? No, I think you covered it. It's all about the mix and that depends on the overstock at the time. Yeah, you know, one thing about the liquidation business is you can't predict what you're going to be selling because the vendors couldn't predict is it couldn't predict what they overbought in. Thank you.

Okay.

Okay.

Okay.

Yes.

Jonathan Johnson: I would now like to turn the conference back over to Jonathan Johnson for closing remarks. Thank you, Gigi. And thanks for everyone who joined the call. Appreciate your time. Appreciate your interest. I love to say and I really believe that at the company, the best is yet to come. I think with our new name, we intend to live up to the promise of being bigger, better, bolder, beyond. Thank you for your ownership in our company.

Okay.

Okay.

Good day and thank you for standing by welcome to the Q3 2023 Overstock Dot Com, Inc. Earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again please be advised.

Jonathan Johnson: I wish you well as we enter the upcoming holiday season and we look forward to speaking you, speaking with you in the new year.

Today's conference is being recorded I would now like to hand, the conference over to your speaker today <unk> <unk> head of Investor Relations. Please go ahead.

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

Thank you good morning, and welcome to our third quarter of 2020 earnings Conference call. Joining me on the call today, our CEO, Jonathan Johnson, CFO, <unk>, and President and Dave Nielsen today's discussion and our responses to your questions reflect management's views as of today October 26, 2023 and May include forward 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, 2022 and in our subsequent filings with the SEC.

During this call we will discuss certain non-GAAP financial measures are filings with the SEC contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.

Following managements prepared remarks, we will open the call for questions a slide presentation with supporting financial data will be available for download on our Investor Relations website. After the call has ended please review important forward looking statements disclosure on slide two of that presentation with that let me turn the call over to our CEO Jonathan <unk>.

Johnson.

Thank you <unk>.

Good morning, everybody.

Today is an exciting day as it marks the start of something near <unk>.

Please to share details about our path forward and how we are capturing the many opportunities. We see ahead, while also addressing areas of the business, where we need to see improvement.

This morning, we reported Q3 financial results that included the performance under the Overstock brand through July 31, and.

And performance under the bed Bath <unk> beyond brand beginning August one.

While there were many things in the quarter that we felt good about including the launch of the new bed Bath and beyond and to 6% growth in our active customer file we fell short of our revenue goal, we will discuss what steps, we are making to improve revenue growth.

<unk>.

Over the last three months, we have accelerated our efforts to build a company with a bigger brighter boulder future.

On June 28, we acquired the bed Bath <unk> beyond brand and IP are brand ranked in the top five most recognizable home brands in the United States alongside tightened like target and Walmart and home depot.

Within hours of closing the deal we revived the brand in Canada LNG.

<unk> 33 days, we launched the brand in the U S under our unique asset light operational model.

I'd like to take a step back to provide insight into how we view the deal and discuss how we intend to modest ties it going forward.

Operator: Peter Keith, Thomas Forte, Steven Forbes, David Nielsen, David Nielsen, David Nielsen Peter Keith, Thomas Forte, Steven Forbes, David Nielsen, David Nielsen, David Nielsen Peter Keith, Thomas Forte, Steven Forbes, David Nielsen, David Nielsen, David Nielsen, David Nielsen, David Nielsen, David Nielsen, David Nielsen David Nielsen,[inaudible] Nielsen, David Nielsen[inaudible] Peter Keith, Thomas Forte, Steven Forbes, David Nielsen Peter Keith, Thomas Forte, Steven Forbes, David Nielsen, Thomas Forte, Steven Forbes, David Nielsen Peter Keith, Thomas Forte, Steven Forbes, David Nielsen, Thomas Forte, Steven Forbes Peter Keith, Thomas Forte, Steven Forbes, David Nielsen, Thomas Forte, Steven Forbes, David Nielsen Peter Keith, Thomas Forte, Steven Forbes, David Nielsen, Thomas Forte, Steven Forbes, David Nielsen Following management's prepared remarks, he will open the call for questions.

Just a few years ago, when we first considered acquiring the bed bath and beyond business.

Would have cost us close to $2 billion.

We chose not to pursue a deal at a time and subsequently launched and continue to monitor as it struggled with declining same store same store sales and overwhelming that.

We saw four valuable assets in the business, if the right opportunity presented itself.

<unk>.

The number five most recognizable brand in the home space and as an aside in that same ranking overstock was number 25.

Second and over 100 million person customer file.

Third vendor relationships with some of the biggest home category brands in the world.

Fourth valuable intellectual property.

We were thrilled when that opportunity presented itself.

And we pounced on it.

To strengthen the clarity of the economics of this deal we breakdown this opportunity into two buckets totaling up to approximately $175 million first.

The approximately $25 million paid to the bankruptcy state further brand and related IP.

And acquisition related fees.

And second approximately $150 million of additional investment to launch the brand reignite, the customer file and expand and create new categories, while working to maintain our company's core customers.

That $175 million.

Less than 10% of the cost bed Bath and beyond would have been just a few years earlier.

A lot of this $175 million purchase price is included in our future operating plans.

This strategic spend is expected to run through our P&L over the next 15 months or so.

Rest assured profitability is and always will be a key metric and tenants of our company, noting we are intentionally and strategically spending more for this time to take advantage of the bed Bath <unk> beyond brand and grow our customer file.

Earlier this week, we announced our new corporate name <unk>.

Beyond <unk>.

This new corporate identity builds on the value of our iconic consumer brand.

It also recognizes our ability to transform into more than just a single brand e-commerce retailer.

Our goal is over time to transform the company into a house of brands, providing a mix of products and services across categories think of this.

<unk> is a bigger better bolder beyond.

Today, we provide a broad selection of on trend furniture and home furnishing products through a single E Commerce website bed Bath and beyond.

In due time, we plan to re imagine the overstock brand with a standard with a standalone website that offers with the brand originally was besides selling a broad array of clearance products at remarkable prices we.

We plan to begin initial work on this cross category Overstock branded liquidation only website with the goal to launch it by the end of 2024, we will work with former existing and new supplier partners to provide an outlet for clearance merchandise and.

<unk> seeking consumers.

We feel strongly that our tribal knowledge in the white space around this business model makes this the right move.

We will not stop there.

A disciplined approach.

Our opportunistically and patiently looking at other targets across the consumer space to grow our brand portfolio.

Our ability to execute on our beyond vision is backed by a strong balance sheet.

Because we have been careful stewards of capital we can play offense amid a weak macro backdrop to differentiate ourselves in the marketplace for the long term.

Our new corporate name was a very thoughtful and strategic choice.

It is only been three months since we launched bed Bath and beyond in the U S.

We have learned a great deal as we launched this top five consumer Mega brands.

We intend to implement.

These learnings as we aggressively move forward remember we are just getting started and the efforts to engage with the customer file we acquired.

Our objectives from this acquisition were four fold.

First one of top five consumer brands within the home category that we acquired at a deep discount.

Second leverage the brand's intellectual property to expand our breadth of offerings, including launching our registry business.

Spanning our nation trade business and enhancing supplier relations.

Third access a bigger portion of the total addressable market.

Importantly grow our active customer file.

Growing our customer file is critical to our long term vision and is the primary metric we are using to measure. The initial the initial success of this acquisition.

The interaction we can have with our vast customer file will provide valuable insight into our customers' needs inside and outside their homes.

This will enable us to expand our current financial service offerings and even explore additional service offerings.

We are essentially trying to build a business that can grow that can grow through frequent customer touch points. One that allows our operational model to scale and excesses alternate revenue sources less impacted by economic cycles.

Now for a brief update on some strategic decisions and learnings since we acquired the bed Bath <unk> beyond brand.

I mentioned earlier the launch of the bed Bath <unk> beyond brand in the U S was done in just over a month after closing the deal.

Before we launched we evaluated whether to run both the overstock and the bed Bath <unk> beyond sites or a single E Commerce website.

More we studied the options.

Became clear to us and to those.

We consulted with.

They're running two nearly identical websites was not a viable choice.

You would have severely damaged search engine rankings on Google and other search engines and taken several months to complete.

Additionally, it would have created confusion for our supplier partners and required challenging operational workarounds, which would have resulted in negative impact to the customer and delivery experience. Thus.

Thus, we elected to run a single site. However, as I noted earlier, we already have plans in place to stand up and Overstock E. Commerce site again by the end of next year in a way that will differentiate the brands.

In terms of learnings, we're gaining knowledge about the purchasing behavior of our newly acquired customers and insights about our legacy overstock customer base.

We are learning what products.

And promotional and marketing strategies resonate with each group.

We have learned that many new supplier partners are eager to engage in our newly acquired brand and.

And see the importance of growing and improving our relationship with our loyal legacy supplier base.

We intend to increase our engagement with our supplier base.

We believe that it's important to protect these partners investment in this relationship and leverage their historical knowledge.

Operator: A flight presentation with supporting financial data will be available for download on our investor relations website after the call has ended. Please review important forward looking statements disclosure on flight two of that presentation.

With the acquisition of the bed Bath <unk> beyond brand, we are combining a well recognized consumer brand synonymous with home with an advantageous asset light operational model.

Lavesh Hemnani: With that, let me turn the call over to our CEO, Jonathan Johnson. Thank you Lavash and good morning everybody. Today is an exciting day as it marks the start of something new. We're pleased to share details about our path forward and how we are capturing the many opportunities we see ahead, while also addressing areas of the business where we need to see improvement. This morning, we reported Q3 financial results that included the performance under the Overstock brand through July 31st and performance under the bedbath and beyond brand beginning August 1st.

We are not alienating our legacy overstock customer.

Our initial launch strategy was a three pronged approach.

First drive downloads of our new mobile App.

Second transition as many legacy overstock customers and legacy bed Bath and beyond customers to our new welcome rewards loyalty program.

Third.

Warm up the newly acquired legacy bed Bath and beyond customer E Mail list.

Lavesh Hemnani: While there were many things in the corner that we felt good about, including the launch of the new bedbath and beyond and the 6% growth in our active customer file, we fell short of our revenue goal. We will discuss what steps we are making to improve revenue growth. Over the last three months, we have accelerated our efforts to build a company with a bigger, brighter, bolder future. On June 28th, we acquired the bedbath and beyond brand and IP, a brand ranked in the top five most recognizable home brands in the United States alongside tightens like Target, Walmart, and Home Depot. Within hours of closing the deal, we revived the brand in Canada. And in just 33 days, we launched the brand in the US under our unique asset light operational model.

And necessary step prior to launching personalized and automated E mail campaigns.

As a reference we have more than doubled our customer database with the bed Bath <unk> beyond acquisition to over 250 million files.

We will spend the next year accelerating CRM efforts with the following focus areas.

<unk>, our CRM stack.

Enriching and bringing our customer database.

Optimal hygiene.

Applying predictive logic and using that data to better map and personalized customer journeys.

And activating marketing activities, leveraging the database to drive customer acquisition and improved retention.

These moves will allow us to further entrench our team into the connected points overall active file size and increase average order frequency frequency of visits.

Jonathan Johnson: I'd like to take a step back to provide insight into how we view the deal and discuss how we intend to monetize it going forward. Just a few years ago, when we first considered acquiring the bedbath and beyond business, it would have cost us close to $2 billion. We chose not to pursue a deal at the time and subsequently watched and continued to monitor as it struggled with declining same store sales and overwhelming debt.

These moves will allow us to further entrench our team into the connected points overall active five sites and increased frequency of visits. That's important. We also believe these actions can help us drive lv from under $200 to an aspirational 250.

The dollar level over time, as we work to reverse any downward furniture trend without slowing down soft goods sales.

Jonathan Johnson: We saw four valuable assets in the business if the right opportunity presented itself. First, the number five most recognizable brand in the home space. And as in the side in that same ranking, Overstock was number 25, second and over 100 million person customer file. Third, vendor relationships with some of the biggest home category brands in the world and fourth valuable intellectual property. We were thrilled when that opportunity presented itself and we pounced on it.

We also expect that over time this will help increase our annual order per active customer.

We are laser focused.

On getting that number closer to two and believe that with the aggressive but strategic use of prepayments bed Bath and beyond coupon increased mobile app engagement and an increased number of people in our welcome rewards loyalty program, we will be on the right trajectory.

The actions we have taken are all ready starting to drive results.

Our active customer base grew sequentially to $4 9 million customers at the end of Q3, increasing by nearly 300000 customers in the quarter.

Jonathan Johnson: To strengthen the clarity of the economics of this deal, we break down this opportunity into two buckets totaling up to approximately $175 million. First, the approximately $25 million paid to the bankruptcy state for the brand and related IP and acquisition related fees. And second, approximately $150 million of additional investment to launch the brand, re-ignite the customer file and expand and create new categories while working to maintain our company's core customers. That $175 million is less than 10% of the cost of the bedbath and beyond would have been just a few years earlier.

Fourth quarter to date, we are tracking at just under 5 million customers.

Our goal is to add another 100 150000 customers buy the ended the quarter.

The increase in our customer base enabled us to return to year over year order growth for the first time in over two years.

Bed Bath and kitchen categories led the improvement in our orders performance in furniture remained one of our top categories as we see potential for further upside.

We continue to do well in Canada.

Jonathan Johnson: A lot of this $175 million purchase price is included in our future operating plan. This strategic spend is expected to run through our P&L over the next 15 months or so. Rest assured, profitability is and always will be a key metric in tenant of our company, noting that we are intentionally and strategically spending more for this time to take advantage of the bedbath and beyond brand and grow our customer file.

Our average monthly sales trends are up three times compared to Q2 and the business is on a solid trajectory to scale.

Our Canada team has been able to drive this growth even without a mobile app or loyalty program.

<unk> capabilities, which are on our 2024 product roadmap.

We expect Canada to scale faster with these platform additions.

Okay.

Moving to an update on the managed fund.

Because I assume we have first time listeners I will give a little background on this are.

Jonathan Johnson: Earlier this week, we announced our new corporate name beyond. This new corporate identity builds on the value of our iconic consumer brand. It also recognizes our ability to transform into more than just a single brand e-commerce retailer.

Our company currently has an investment in 16 early startup companies using blockchain technology.

Those investments were made years ago.

In 2021 after a thorough evaluation of options for the business. We made the decision to give our daily oversight of those investments to a well qualified venture capital subject matter expert.

Jonathan Johnson: Our goal is over time to transform the company into a house of brands, providing a mix of products and services across categories. Think of this as a bigger, better, bolder beyond. Today, we provide a broad selection of on-trend furniture and home furnishing products through a single e-commerce website, bedbath and beyond.

<unk> venture partners.

You can think of this asset is a massive piece of undeveloped real estate at the end of the bus route.

In due time that property would be parceled up with each parcel yielding varying degrees of returns.

Jonathan Johnson: In due time, we plan to reimagine the overstock brand with a standalone website that offers what the brand originally was, the site selling a broad array of clearance products at remarkable prices. We plan to begin initial work on this cross category overstock branded liquidation only website with the goal to launch it by the end of 2024. We will work with former existing and new supplier partners to provide an outlet for clearance merchandise and deal seeking consumers.

Today, we remain wildly hopeful that the property value appreciates.

While we don't speculate on the future value of these assets early on is doing a great job managing the Medici fund.

As I've consistently said I am confident <unk> will nurture and deliver some winners from the early stage companies and to fund it just needs some time.

As a reminder, we are only in year three of our eight year partnership with Pilling on our.

Jonathan Johnson: We feel strongly that our tribal knowledge and the white space around this business model makes this the right move. We will not stop there taking a disciplined approach. We are opportunistically and patiently looking at other targets across the consumer space to grow our brand portfolio.

Our investments in the managed funds are an important element of the.

Beyond investment story.

That said as prudent stewards of shareholder capital, we are always evaluating all the investments on our balance sheet.

President Dave Nielsen will now share how we plan to approach brand building over the next few months and dive into some insights about our customers.

Jonathan Johnson: Our ability to execute on our beyond vision is backed by a strong balance sheet. Because we have been careful stewards of capital, we can play offense amid a weak macro backdrop to differentiate ourselves in the marketplace for the long term.

Thank you Jonathan.

In the first 60 days following the bed Bath <unk> beyond launch.

Results largely met internal expectations. So that said we know there are key areas that require improvement.

Jonathan Johnson: Our new corporate name was a very thoughtful and strategic choice. It has only been three months since we launched that death and beyond in the US. We have learned a great deal as we launched this top five consumer mega brand. We intend to implement these learnings as we aggressively move forward. Remember, we are just getting started in the efforts to engage with the customer file we acquired.

After launching the brand we quickly went to work to leverage the 100 million plus customer file we acquired we executed a three pronged launch.

First as a test we offered in App exclusive 25% off coupon during August.

To the marketplace and customer file we wanted to reward loyalty legacy customers and welcome them to the new bed Bath.

The mobile App sales increased by 55% over Q2.

Jonathan Johnson: Our objectives from this acquisition were fourfold. First, on a top five consumer brand within the home category that we acquired at a deep discount. Second, leverage the brand's intellectual property to expand our breadth of offerings, including launching a registry business, expanding our nation trade business and enhancing supplier relations. Third, access a bigger portion of the total addressable market. And fourth, importantly, grow our active customer file. Growing our customer file is critical to our long-term vision and is the primary metric we are using to measure the initial success of this acquisition.

In Q4 continues distract to track strong.

Second to convert the most loyal legacy bed Bath <unk> beyond customers, we transferred and honored their previous accounts and reward balances to our platform.

We then added an additional $25 bonus reward to their accounts, which expired at the end of September and gave them a free one year welcome rewards membership. These actions brought in loyal legacy bed Bath <unk> beyond reactivated legacy overstock customers.

Third.

We went through a process of warming up these new potential customer email addresses.

We began the warm up in mid August and only recently finished reaching out to the entire file.

With the acquisition are addressable and Contactable email population has nearly doubled and today our daily email campaigns have increased nearly three times compared to pre acquisition.

Jonathan Johnson: The interaction we can have with our vast customer file will provide valuable insight into our customer's needs inside and outside of their homes. This will enable us to expand our current financial service offerings and even explore additional service offerings. We are essentially trying to build a business that can grow through frequent customer touch points, one that allows our operational model to scale and accesses alternate revenue sources less impacted by economic cycles.

The size and scale of the upcoming branding campaign in November will be the largest we have ever done we are working with the top agency that has a track record of executing large campaigns for top consumer brands, we will be running spots on linear and streaming television leveraging out of home media App.

Assets in key traffic areas and partnering with Influencers to create a social media buzz with accounts that have an affinity to the home and especially our brand.

The holidays this year will be an exciting new frontier for US we are eager to offer our customers incredible deals. During these key events historically November and December have been significant sales periods for the legacy bed Bath and beyond as their assortment leaned heavily into holiday home entertaining and gift giving product categories.

Jonathan Johnson: Now, for a brief update on some strategic decisions and learnings since we acquired the Bed Bath and Beyond brand. I mentioned earlier the launch of the Bed Bath and Beyond brand in the U.S, was done in just over a month after closing the deal. Before we launched, we evaluated whether to run both the overstock and the Bed Bath and Beyond sites or a single e-commerce website. The more we studied the options, it became clear to us into those we consulted with that running to nearly identical websites was not a viable choice.

Our team has a terrific lineup of deals on key brands and we will leverage the brand.

To serve our customers and capture market share.

Our new brand campaign will remind and educate customers across the addressable market that we haven't even bigger beyond assortment for their holiday entertaining needs. We are geared up to deliver a strong holiday season.

Now I'd like to walk you through some of our learnings after evaluating the first two months of the brand launch.

Jonathan Johnson: It would have severely damaged search engine rankings on Google and other search engines and taken several months to complete. Additionally, it would have created confusion for our supplier partners and required challenging operational workarounds which would have resulted in negative impact to the customer and delivery experience.

We have separated our customers into three distinct customer file first starting with the legacy overstock customers.

These are customers for which we had unique email addresses in our overstock database.

This group includes some legacy bed Bath <unk> beyond customers, who are already in the overstock database second <unk>.

Jonathan Johnson: Thus, we elected to run a single site. However, as I noted earlier, we already have plans in place to stand up and Overstock e-commerce site again by the end of next year in a way that will differentiate the brands. In terms of learnings, we are gaining knowledge about the purchasing behavior of our newly acquired customers and insights about our legacy Overstock customers. We are learning what products and promotional and marketing strategies resonate with each group.

Our legacy bed Bath and beyond these are customer accounts that we acquired with the bed Bath <unk> beyond transaction that did not exist in the overstock database.

Third Tam new this is the most encouraging cohort in our view. These customers are E mail these customers or email accounts, which did not exist within overstock or bed Bath <unk> beyond databases.

We include this customer as part of the roughly $440 billion total addressable market and hence the name Tam new.

Let me discuss how each of these customer files behaved during August and September the 60 day period in Q3 since launching the brand in the U S.

Jonathan Johnson: We have learned that many new supplier partners are eager to engage in our newly acquired brand and see the importance of growing and improving our relationship with our loyal legacy supplier base. We intend to increase our engagement with our supplier base. We believe that it's important to protect these partners' investment in this relationship and leverage their historical knowledge.

Yes.

The legacy Overstock group was roughly two thirds or over 900000 of our $1 4 million total order volume during August and September.

Furniture, and rugs remained among the top product categories.

Our messaging around the bed Bath and kitchen product categories may have over indexed in communication to this customer file considering that I can certainly see how some may think we are confused this core customer group. However, it is way too early to conclude that the legacy overstock customer left us.

Jonathan Johnson: With the acquisition of the Bed Bath and Beyond brand, we are combining a well-recognized consumer brand synonymous with home with an advantageous asset light operational model. But we are not alienating our legacy Overstock customer.

We are barely three months into the launch and our upcoming camp brand campaign is focused on ensuring the brand assortment messaging is clear.

Jonathan Johnson: Our initial launch strategy was a three-pronged approach. First, drive downloads of our new mobile app. Second, transition as many legacy Overstock customers and legacy Bed Bath and Beyond customers to our new Welcome Rewards loyalty program. Third, warm up the newly acquired legacy Bed Bath and Beyond customer email list. A necessary step prior to launching personalized and automated email campaigns.

The legacy bed Bath, <unk> beyond customer file accounted for 10% or over 140000 orders.

We expected this group to account for the lowest percent of our orders as we spent much of the quarter warming up the email list for this group.

This group will grow as we rollout the brand campaign in early November.

It's encouraging to see that furniture was among their top categories.

Within the Tam new customer file furniture was a bigger share of orders compared to the legacy overstock.

They accounted for 23% or nearly 325000 orders during the period.

Jonathan Johnson: As a reference, we have more than doubled our customer database with the Bed Bath and Beyond acquisition to over 250 million files. We will spend the next year accelerating CRM efforts with the following focus areas, augmenting our CRM stack, enriching and bringing our customer database up to optimal hygiene, applying predictive logic and using that data to better map and personalized customer journeys. Activating marketing activities, leveraging this database to drive customer acquisition and improved retention.

And this is important they had the highest AUR among the three groups.

These customers our total home customers. This group is finding us through search engines with the bed Bath <unk> beyond brand driving conversion.

This is not surprising to us as we acquired a top five home furnishings brand in the U S home furnishings market.

I would like to make a point on profitability through the lens of contribution margin, meaning gross profit less marketing expenses.

Through the first 60 days legacy Overstock, and Tam new customer files have been accretive to contribution margin.

At nearly similar levels as.

Jonathan Johnson: These moves will allow us to further entrench our team into the connective points, overall active file size and increase average order and frequency of visits. These moves will allow us to further entrench our team into the connective points, overall active file size and increase frequency of visits. That's important. We also believe these actions can help us drive AOV from under $200 to an aspirational $250 level over time as we work to reverse any downward furniture trend without slowing down soft goods sales.

As expected the.

The legacy bed Bath <unk> beyond file was dilutive to contribution margin as we invested in significant mobile app download campaign offers and bonus welcome rewards promotions to drive conversion.

That combined with lower AUR orders was unexpected headwind to profitability.

Remember we are still in the early stages of our branding launch we're excited about our future with the brand and we're just getting started I will now hand, the call to Adrian discuss the third quarter of 2023 financial results.

Thank you, Dave I will begin with an overview of our financial performance during the third quarter later, I will share our expectations regarding Q4, and the expected future investments around the acquisition of our bed Bath <unk> beyond IP.

Jonathan Johnson: We also expect that, over time, this will help increase our annual order per active customer. We are laser focused on getting that number closer to two and believe that with the aggressive but strategic use of the famous bedbath and beyond coupon, increased mobile app engagement and an increased number of people in our Welcome Rewards loyalty program, we will be on the right trajectory. The actions we have taken are all ready starting to drive results.

Revenue declined 19% year over year in the third quarter. While this is a slight improvement in the year over year trend relative to the second quarter. The composition of our topline results versus our previous performance has changed.

<unk> declined 21% with mix of orders scaling to lower AUR categories. Following our brand launch orders increased 3% returning to growth for the first time in several quarters.

Underlying results continue to be influenced by macro factors and weakness across the furniture and home furnishings industry driven by low consumer engagement in the category of shift in spending preferences and a weak housing market.

Jonathan Johnson: Our active customer base grew sequentially to 4.9 million customers at the end of Q3, increasing by nearly 300,000 customers in the quarter. Fourth quarter to date, we are tracking at just under 5 million customers. Our goal is to add another 150,000 customers by the end of the quarter. The increase in our customer base enabled us to return to year over year order growth for the first time in over two years. The bedbath and teaching categories led the improvement in our order's performance and furniture remained one of our top categories as we see potential for further upside.

Our mid quarter update outlined mid teens decline in year over year revenue, which included performance over the labor day weekend in comparison, we ended the quarter with a decline of 19% mainly driven by the timing of our customer acquisition strategies.

Gross profit was $70 million in the third quarter, a decrease of $37 million versus the prior year gross margin came in at 18, 7%, a 461 basis point decrease versus the same period last year. The year over year decline was primarily driven by two factors higher discounting and promotional activity related to <unk>.

Customer acquisition strategies like the Opex versus 25% off coupon and freight cost deleverage driven by orders mixing into lower AUR category. We.

We expect this dynamic to continue throughout Q4 as we deploy targeted offers to support holiday shopping focus on new customer acquisition and re engagement efforts.

Jonathan Johnson: We continue to do well in Canada. Our average monthly sales trends are up three times compared to Q2 and the business is on a solid trajectory to scale. Our Canada team has been able to drive this growth even without a mobile app or loyalty program, both capabilities which are on our 2024 product roadmap.

G&A and tech expenses increased $5 million year over year, which includes short term discrete costs associated with the bed Bath <unk> beyond brand integration efforts as I mentioned last quarter, we expected to incur acquisition related costs adjusting for these costs are fixed G&A and tech costs continue to track at around $50 million per quarter.

Jonathan Johnson: We expect Canada to scale faster with these platform additions.

As a percentage of revenue G&A and Tech expense was 14, 3% in the third quarter, an increase of 380 basis points compared to the third quarter of 2020 killed. This deleverage was mainly driven by lower revenue compared to last year.

Jonathan Johnson: Moving to an update on the medicine fund. Because I assume we have first time listeners, I will give a little background on this. Our company currently has an investment in 16 early startup companies using blockchain technology. Those investments were made years ago. In 2021, after a thorough evaluation of options for the business, we made the decision to give our daily oversight of those investments to a well qualified venture capital subject matter expert.

In the third quarter, we delivered an adjusted EBITDA loss of $24 million.

A decrease of $39 million versus a year ago on a margin basis. This was an almost 1000 basis point decline year over year, approximately 50% of the adjusted EBITDA margin decline was driven by gross margin pressure, resulting from the customer acquisition strategies referenced earlier the balance of the margin decline was associated with this.

Fixed cost deleverage on a lower revenue base and higher marketing costs compared to last year, we are purposefully investing to grow our active customer file in this unique window.

Jonathan Johnson: Helian venture partners. You can think of this asset as a massive piece of undeveloped real estate at the end of the bus route. In due time, that property would be parceled up with each parcel yielding varying degrees of returns. Today, we remain wildly hopeful that the property value appreciates. While we don't speculate on the future value of these assets, Helian is doing a great job managing the medicine fund. As I've consistently said, I'm confident Callahan will nurture and deliver some winners from the early stage companies in the fund.

Our reported GAAP EPS loss of $1, 39% was primarily driven by operating losses, and a noncash nonoperating expense associated with a change in value of our equity securities and the associated tax impact the change in value of our equity securities reflects our proportionate share of the Medici ventures fund, including a reduction.

And the evaluation of our of our indirect investment of T zero excluding.

Excluding the impact of equity Securities, we reported adjusted diluted loss per share of <unk> 61.

A decrease of <unk> 74 versus 2022, reflecting higher pre tax losses compared to the prior year.

Jonathan Johnson: It just needs some time. As a reminder, we are only in year three of our eight-year partnership with Callahan. Our investments in the stewards of shareholder capital, we are always evaluating all the investments on our balance sheet.

Our balance sheet remains strong on a net basis, our cash balance excluding long term debt was $291 million. This level of cash continues to provide a strong foundation for us to invest in efforts to grow our active customer file.

Now moving to an update on our Kpis, our active customer base was $4 9 million a decrease of 15% year over year, we measure active customers on a trailing 12 month basis. This decline in active customers was driven by two key factors a shift in spending preferences as consumers continue to spend on experiences and services.

David Nielsen: President David Nielsen will now share how we plan to approach brand building over the next few months and dive into some insights about our customers. Thank you, Jonathan. In the first 60 days following the bed bath and beyond launch, results largely met internal expectations.

And second a weak macro environment and housing environment.

Importantly, since launching bed Bath <unk> beyond we have grown active customers by 7% or nearly 300000 customers.

David Nielsen: That said, we know there are key areas that require improvement. After launching the brand, we quickly went to work to leverage the 100 million plus customer file we acquired. We executed a three-pronged launch. First, as a test, we offered an app exclusive 25% off coupon during August to the marketplace and customer file. We wanted to reward loyalty legacy customers and welcome them to the new bed bath. The mobile app sales increased by 55% over Q2 and Q4 continues to track to track strong.

Increasing our active customer file as a key measure of success for this transaction.

Orders per active customer were $1 48 in the third quarter, a decrease of about 9% versus last year and a decrease sequentially and.

In the near term, we expect frequency to remain lower than our targets as new customer orders become a larger portion of our mix of total orders, we anticipate that over time brand awareness growing map growing mobile app adoption enhance loyalty offerings and higher engagement in the future seasonal periods will help grow.

Order frequency.

Average order value declined 21% year over year to $192, mainly driven by a pronounced order mix two lower AUR categories.

David Nielsen: Second, to convert the most loyal legacy bed bath and beyond customers, we transferred and honored their previous account and reward balances to our platform. We then added an additional $25 bonus reward to their accounts, which expired at the end of September, and gave them a free one-year welcome rewards membership. These actions brought in loyal legacy bed bath and beyond reactivated legacy over stock customers. Third, we went through a process of warming up these new potential customer email addresses.

While category mix shift was the primary driver of the change we continue to see evidence of trade down across our categories. Looking ahead, we will continue to offer compelling value to our customers and pass on cost reductions that we receive the dynamic of mix driven lower AUR will influence future <unk> results post.

Post Q4, we anticipate signals of normalization, while orders mixing into seasonal higher AUR categories.

<unk> delivered were $7 3 million for the trailing 12 months period. This is a decrease of 22% compared to the prior year and largely driven by a weaker macro and lower consumer spending compared to last year.

David Nielsen: We began to warm up in mid-August and only recently finished reaching out to the entire file. With the acquisition, our addressable and contactable email population has nearly doubled, and today, our daily email campaigns have increased nearly three times compared to pre-acquisition since.

To close I will provide our thoughts on the fourth quarter, including color on our expected future investments around the acquisition.

David Nielsen: The size and scale of the upcoming branding campaign in November will be the largest we have ever done. We are working with a top agency that has a track record of executing large campaigns for top consumer brands. We will be running spots on linear and streaming TV, leveraging out-of-home media assets in key traffic areas, and partnering with influencers to create a social media buzz with accounts that have an affinity to the home and especially our brand.

For Q4, we expect revenue to improve modestly versus our three <unk> year over year decline.

We expect active customers to increase to around $5 $2 million range supporting year over year growth offset by lower <unk>.

We are planning for gross margin in line with <unk> as a reminder, <unk> is typically a lower gross margin quarter due to elevated holiday promotional activity. Our new brand campaign is expected to drive higher marketing expense as a percent of revenue and absolute dollars versus <unk>.

David Nielsen: The holidays this year will be an exciting new frontier for us. We are eager to offer our customers incredible deals during these key events. Historically, November and December have been significant sales periods for the legacy bed bath and beyond, as their assortment leaned heavily into holiday home entertaining and gift-giving product categories. Our team has a terrific lineup of deals on key brands and we will leverage the brand to serve our customers and capture market share. Our new brand campaign will remind and educate customers across the addressable market that we have an even bigger beyond assortment for their holiday entertaining needs. We are geared up to deliver a strong holiday season.

As we look forward over the next 12 months or so we expect to spend the balance of our $175 million investment weighted more heavily over the next three quarters.

With that back to you Jonathan.

Adrian.

Today, we covered a lot.

We hope to leave you with the following takeaways.

Our rebranding is still in the early days, we are just getting started.

Our upcoming top of funnel brand campaign is going to amplify our message is a leading online retailer of all things home.

David Nielsen: Now I'd like to walk you through some of our learnings after evaluating the first two months of the brand launch. We have separated our customers into three distinct customer files. First, starting with the legacy overstock customers. These are customers for which we had unique email addresses in our overstock database. This group includes some legacy bedbath and beyond customers who are already in the overstock database. Second, legacy bedbath and beyond. These are customer accounts that we acquired with the bedbath and beyond transaction that did not exist in the overstock database.

We are acquiring customers. The most important early metric via initial success for this acquisition.

Importantly, we are extending our reach within the total addressable market.

Over the next five years, we plan to exceed.

10 million active customers.

Again, we cover a lot and provided more color and guidance than we usually do.

In that spirit I want to remind you that we are here today to discuss our financial results and the progress we've made integrating bed Bath and beyond we appreciate you keeping your questions focused on these topics.

David Nielsen: Third, Camnew. This is the most encouraging cohort in our view. These customers are email accounts which did not exist within overstock or bedbath and beyond databases. We include this customer as part of the roughly 440 billion total addressable market and hence the name Camnew.

With that Gee, let's take some questions.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, we ask that you. Please ask one question and one follow up question and then go back into.

David Nielsen: Let me discuss how each of these customer files behaved during August and September, the 60-day period in Q3 since launching the brand in the US. The legacy overstock group was roughly two thirds or over 900,000 of our 1.4 million total order volume during August and September. Furniture and rugs remained among the top product categories. Our messaging around the bed, bath, and kitchen product categories may have over indexed in communication to this customer file.

The queue. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Tom Forte from D. A Davidson.

Great.

Thanks, Jonathan and team for taking my question I'll, just limit myself to one no need for a follow up and I'll focus on our <unk> advised to focus on.

So Jonathan taken as a whole.

One or two things met or exceeded your expectations on the brand transition and what one or two things fell short of your internal expectations.

David Nielsen: Considering that, I can certainly see how some may think we have confused this core customer group. However, it is way too early to conclude that the legacy overstock customer left us. We are barely three months into the launch and our upcoming brand campaign is focused on ensuring the brand disportment messaging is clear. The legacy bedbath and beyond customer file accounted for 10% or over 140,000 orders. We expected this group to account for the lowest percent of our orders as we spent much of the quarter warming up the email list for this group.

Yes, Tom Thanks.

An insightful question.

I think we did.

Better than expected on our mobile app download.

The number of.

Customers that downloaded the mobile App was great and their use issues great reserve their usage early in that campaign in August.

Of course as late as the campaign.

David Nielsen: This group will grow as we roll out the brand campaign in early November. It's encouraging to see that furniture was among their top categories. Within the TAM new customer file, furniture was a bigger share of orders compared to the legacy overstock. They accounted for 23% or nearly 325,000 orders during a period.

Sure.

<unk> ended.

I would also say on the other side.

It's taken longer to warm up the email file.

Then we hope we knew would take some time because we've made wanted to make sure that we didn't have any E mail.

Trapped in spam filters.

But at this point.

Those types of warmed up and we're able to send E mail.

David Nielsen: This is important. They had the highest AUR among the three groups. These customers are total home customers. This group is finding us through search engines with the bedbath and beyond brand driving conversion. This is not surprising to us as we acquired a top five home furnishings brand in the US home furnishings market.

Anyone and everyone on the customer file Dave would you add up maybe.

What we like and one thing that we work to be done a little better.

One of the things we like.

Was.

When we changed the site.

We acquired this new brand with <unk>.

David Nielsen: I would like to make a point on profitability through the lens of contribution margin, meaning gross profit less marketing expenses. Through the first 60 days, legacy Overstock and Pam new customer files have been accretive to contribution margin at nearly similar levels. As expected, the legacy bedbath and beyond file was dilutive to contribution margin as we invested in significant mobile app download campaign offers and bonus welcome rewards promotions to drive conversion. That combined with lower AUR orders was an expected headwind to profitability. Remember, we are still in the early stages of our branding launch.

Blue.

We saw the power of this brand.

We saw customers flocking to these softer categories.

The home textiles to the kitchen.

That speaks to the power of this brand.

We have been making adjustments.

In our top NAV in our modern R E mails.

Two.

Better balance the mix of legacy Overstock and.

And legacy bed Bath <unk> beyond products, and we're finding that balance but that was probably the item that I say it was.

Disappointing.

The power of the brand is really strong.

David Nielsen: We are excited about our future with a brand and we are just getting started.

And it's been strong with suppliers.

Suppliers that have come to us through recorded for years, we couldnt get suppliers that have opened up their full catalog now where we used to have only a smaller portion.

Adrianne Lee: I will now hand the call to Adrianne, discuss the third quarter of 2023 financial results. Thank you, Dave. I will begin with an overview of our financial performance during the third quarter.

Really powerful piece of the bed Bath <unk> beyond brand. So I hope we addressed the question Tom.

Adrianne Lee: Later, I will share our expectations regarding Q4 and the expected future investments around the acquisition of our bedbath and beyond IP. Revenue declined 19% year over year in the third quarter. While this is a slight improvement in the year over year trend relative to the second quarter, the composition of our top line results versus our previous performance has changed. AOV declined 21% with mix of orders skewing to lower AUR categories following our brand launch.

Thank you Jonathan and thank you Dave.

Yep.

Thank you.

One moment for our next question.

Our next question comes from the line of Peter Keith from Piper Sandler.

Hey, good morning, everyone. Thanks for taking the question.

Just thinking about the first two months of the brand integration.

Adrianne Lee: Orders increased 3% returning to growth for the first time in several quarters. Underline results continue to be influenced by macro factors and weakness across the furniture and home furnishings industry driven by low consumer engagement in the category, a shift in spending preferences and a week housing market. From mid quarter update outlined, mid teams declined in year over year revenue, which included performance over the Labor Day weekend. In comparison, we ended the quarter with a decline of 19%, mainly driven by the timing of our customer acquisition strategies.

Want to talk a bit about the revenue trajectory because you are running negative mid teens in early September and finished down 19 for the quarter. It does suggest quite a bit of step ups and in the back part of September. So wondering if you could help us understand what caused that slowdown you pullback in the marketing and couponing and it was that.

A temporary slowdown.

Adrienne I'll take that one.

Yeah happy to Peter you know, we don't generally discuss kind of our monthly kind of Gms and revenue trends, but I'll tell you a few things.

Adrianne Lee: Gross profit was $70 million in the third quarter, a decrease of $37 million versus the prior year. Gross margin came in at 18.7%, a 461 basis point decrease versus the same period last year. The year over year decline was primarily driven by two factors. Higher discounting and promotional activity related to customer acquisition strategies like the app exclusive 25% off coupon and freight cost the leverage driven by orders mixing into lower AUR categories.

One as I discussed in my prepared remarks that we had kind of a set of customer acquisition strategy. So a lot of the monthly cadence was really impacted by when we deployed <unk> our customer acquisition strategy is particularly the mobile app versus when we were able to kind of do our E mail stands for the welcome rewards focused in the balance of that customer.

File.

And you will just kind of known if we if we put kind of August and September together very in line with the Q3 trend.

Adrianne Lee: We expect this dynamic to continue throughout Q4 as we deploy, targeted offers to support holiday shopping, focus on new customer acquisition, and re-engagement efforts. G&A and tech expenses increased $5 million year over year, which includes short-term discrete costs associated with the bedbath and beyond brand integration efforts. As I mentioned last quarter, we expected to incur acquisition related costs. Adjusting for these costs are fixed G&A and tech costs continue to track at around $50 million per quarter.

Yes.

Kind of add to that Peter and it's a great question.

There was a lot of early promotional activity in the first months of the law and first month of the launch and when we put out our mid quarter press release. It was post labor day and Labor day is a big shopping day, so to see numbers down a little bit after labor day not that surprising.

But certainly working to improve that trend right now.

Okay. Thank you and then.

Adrianne Lee: As a percentage of revenue, G&A and tech expense was 14.3% in the third quarter, an increase of 380 basis points compared to the third quarter of 2022. This deal average was mainly driven by lower revenue compared to last year. In the third quarter, we delivered an adjusted EBITDA loss of $24 million, a decrease of $39 million versus a year ago. On a margin basis, this was an almost 1,000 basis point decline year over year.

Unrelated, but just on.

The role of Chief marketing officer in the company could.

Could you just bring us up to speed I'm not sure if you've hired anyone or are you looking to hire someone and it seems like that.

That would be a pretty important role with this rebranding effort you are looking for someone what are some of the characteristics you'd like to find.

Yes so.

I'll begin the answer and turn it to Dave who is leading that search we've not yet hired someone we do have.

Adrianne Lee: Approximately 50% of the adjusted EBITDA margin decline was driven by gross margin pressure, resulting from the customer acquisition strategies referenced earlier. The balance of the margin decline was associated with fixed cost-delivered on a lower revenue base and higher marketing cost compared to last year. We are purposely investing to grow our active customer file in this unique window. Our reported gap EPS loss of $1.39 was primarily driven by operating losses and a non-cash non-operating expense associated with a change in value of our equity securities and the associated tax impact.

Great.

Candidates and we have.

Great Vice Presidents that will report to the Chief marketing Officer and are currently reporting to Dave as he sees fit.

Pills temporarily fills that role.

We want to find a great. One we're taking our time I. Thank the team we have in place is doing a nice job during the rebrand.

But it is it as a whole that will need to and are working to fill.

Okay. Yeah. Thanks, Jonathan from a timing standpoint. This is obviously the best of the CMO oeser.

Adrianne Lee: The change in value of our equity securities reflects our proportionate share of the Medici Venture Fund, including a reduction in the valuation of our indirect investment of T0. Excluding the impact of equity securities, we reported adjusted diluted loss per share of 61 cents, a decrease of 74 cents versus 2022, reflecting higher pre-tech losses compared to the prior year. Our balance sheet remains strong. On a net basis, our cash balance excluding long-term debt was 291 million.

Up to their eyeballs in fourth quarter execution for the holidays and so we're talking with them I've had several phone calls with some top notch candidates.

We will start.

<unk>.

Ground shipping.

Timeframe will probably start in on real panel interviews with our executive team in evaluating the candidates I anticipate we will have a candidate in place.

The end of January or mid February.

Adrianne Lee: This level of cash continues to provide a strong foundation for us to invest in efforts to grow our active customer file. Now moving to an update on our KPIs, our active customer base was 4.9 million, a decrease of 15 percent year over year. We measure active customers on a twirling 12 month basis. This decline in active customers was driven by two key factors. A shift in spending preferences, as consumers continue to spend on experiences and services, and second, a weak macro environment and housing environment.

And in the meantime.

I'm really excited for our top of funnel marketing campaign.

Launching next week.

Even with us.

Sitting CMO, we've done a really nice job and a good job with this campaign is going to be broad and you'll you'll see us foreign wide.

So thanks for that question Peter Okay. Thanks, so much.

Thank you one moment for our next question.

Adrianne Lee: Importantly since launching Bed Bath and Beyond, we have grown active customers by 7 percent or nearly 300,000 customers. Increasing our active customer file is a key measure of success for this transaction. Orders per active customer were 1.48 in the third quarter, a decrease of about 9 percent versus last year and a decrease sequentially. In the near term, we expect frequency to remain lower than our targets as new customer orders become a larger portion of our mix of total orders.

Our next question comes from the line of Anna on driver from need Ham.

Great. Thank you for Mike and good morning, guys.

One question and one follow up from us.

Appreciate you providing us color on how to think about revenues in the fourth quarter, but could you talk about the trends that you're seeing in the business quarter to date.

Curious what are you seeing from the core overstock consumers, so far and if you feel there is a need to promote even more than what it is.

Adrianne Lee: We anticipate that over time, brand awareness, growing mobile app adoption, enhanced loyalty offerings, and higher engagement in the future seasonal periods will help grow order frequency. Average order value declined 21 percent year over year to $192, mainly driven by a pronounced order mix to lower AUR categories. While category mixed shift was the primary driver of the change, we continue to see evidence of trade down across our categories. Looking ahead, we will continue to offer compelling value to our customers and pass on cost reductions that we receive.

To make sure the customers states, where the platform and then secondly, as a follow up to Jonathan I really interesting to hear about the overstock site coming back.

Liquidation site, just big picture, how do you guys think about ensuring that there is no cannibalization between the value that Beth and what will be no doubt sharp rise at overstock.

On a great question I'll turn to Adrian to ask.

To answer the first one and then we'll we'll go I'll discuss.

Our thoughts about overstock as the liquidation side.

Adrianne Lee: The dynamic of mixed driven lower AUR will influence future AOV results. Post-Q4, we anticipate signals of normalization while orders mixing into seasonal higher AUR categories. Orders delivered were 7.3 million for the trailing 12-month period. This is a decrease of 22 percent compared to the prior year and largely driven by a weaker macro and lower consumer spending compared to last year.

And so I think trends continue to.

Kind of perform in line with our expectation and kind of as we discussed with our fourth quarter.

And we talked about trends.

You talked about the fourth quarter, having a very similar year over year decline from the third quarter, and we feel confident saying that that's what we're experiencing and that's what we expect.

Thanks Adrian.

Adrianne Lee: To close, I will provide our thoughts on the fourth quarter, including color on our expected future investments around the acquisition. For Q4, we expect revenue to improve modestly versus our 3Q year over year decline. We expect active customers to increase to around 5.2 million range, supporting year over year growth offset by lower AUR. We are planning for growth margin in line with 3Q. As a reminder, 4Q is typically a lower growth margin quarter due to elevated holiday promotional activity.

We are excited about taking overstock back to its roots.

<unk> a clearance liquidation site.

And anyone who has been in the clearance and liquidation business like a long time or is that overstock like me have been no that retailers are always trying to avoid channel pollution.

Don't want their clearance product next to their current product.

That's why we couldnt be a general retailer and a liquidator at the same time no one can be.

Adrianne Lee: Our new brand campaign is expected to drive higher marketing expense as a percent of revenue and absolute dollars versus 3Q. As we look forward over the next 12 months or so, we expect to spend the balance of our 175 million investment, weighted more heavily over the next 3Q.

When we stand up.

Re standup the overstock site is a clearance site it will be very different there will be no similar product.

That's how you avoid channel pollution, the pricing will be true clearance liquidation pricing.

Jonathan Johnson: With that, back to you, Jonathan.

Jonathan Johnson: Thank you, Adrianne. Today, we covered a lot.

There will be some some hurdles to get over there, but by having none of the similar product on site.

Jonathan Johnson: We hope to leave you with the following takeaways. Our rebranding is still in the early days. We are just getting started. Our upcoming top of funnel brand campaign is going to amplify our message to the leading online retailer of all things home. We are acquiring customers, the most important early metric of the initial success for this acquisition. Importantly, we are extending our reach within the total addressable market. Over the next five years, we plan to exceed 10 million active customers. Again, we cover a lot and provided more color and guidance than we usually do.

Think we can avoid the cannibalization that your question was concerned with.

The address in for questions.

Thank you one moment for our next question.

Our next question comes from the line of Seth Sigman from Barclays.

Hey, good morning, everyone I wanted to talk about the $175 million of investments can.

Can you frame for us how much has been spent to date and then where do you plan to deploy that is that pricing is at marketing do you need to do more hiring so I guess, that's the first part and then you did say that would occur over the next 15 months is there a cadence to think about just so that we can appropriately manage expectations. Thank you.

Operator: In that spirit, I want to remind you that we are here today to discuss our financial results and the progress we made integrating bedbath and beyond. We appreciate you keeping your questions focused on these topics.

Yes, it's a great question.

As part of the more color.

We wanted to provide alternative Adrian good aggressive then look to Dave to maybe add some color, but as I noted we spent about $25 million on the deal between buying an acquisition related we've spent some this quarter you can see that in.

Operator: With that, GG, let's take some questions. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Our results Adrian you want to talk about kind of the cadence of what's the.

The remainder <unk>, yes, so I think thats kind of in total as Jonathan outline those buckets in a let's just say we've spent around $50 million, thus far with third quarter and kind of the acquisition activities.

Operator: We ask that you please ask one question and one follow up question and then go back into the queue. Please stand by what we compile the Q&A roster.

I talked about in my prepared remarks that we expect to see this over the next 12 months or so likely more heavily weighted in the next three quarters, that's starting with fourth quarter. So fourth first and second.

Thomas Forte: Our first question comes from the line of Tom Fort from DA Davidson. Great. Thanks Johnson and team for taking my question.

And I would say, we're going to deploy kind of those investments opportunistically. Some of them may hit gross margin for discounting and promotional activity. Some will head sales and marketing as we launch our branding campaign and various other items.

Jonathan Johnson: I'll just limit myself to one no need for a follow up and I'll focus on what you advise to focus on. So Johnson, taken as a whole, what one or two things met or defeated your expectations on the brand transition and what one or two things felt short of your internal expectations. Yeah, Tom, thanks. That's an insightful question. I think we did better than expected on our mobile app download. The number of customers that downloaded the mobile app was great and their usage was great.

And certainly we'll continue to be really sharp on our pricing as I said in my remarks is while offering our customers the best value.

Ed.

So on the marketing front, we've got a really exciting brand campaign, that's launching here at the first of November that we're really excited about.

That triggers a couple of thoughts, it's about a bigger better beyond which pushes our legacy overstock product and our bed Bath <unk> beyond products, so customer understands the wide the broad the bigger bolder assortment that we have.

Jonathan Johnson: We saw their usage early in that campaign in August and then of course late as the campaign ended. I would also say on the other side, it's taken longer to warm up the email file than we hoped. We knew it would take some time as we made want to make sure that we have any email trapped in spam filters but at this point, those pipes are warmed up and we're able to send email to anyone and everyone on the customer file.

Second it features a coupon, but I will tell you. This single item, 20% off coupon. It is money is money to this customer it is a trigger for them and we are using that to reactivate those customers and where.

We're really encouraged by what that will do for US. We're also standing up Jonathan mentioned this our wedding registry.

Our emerging trade business. These are areas with this brand we have real permission to go grab market share and so we're spending some money in those areas as well.

And Seth I, just know you asked about hiring yes, we've done some incremental hiring particularly around standing up the registry.

David Nielsen: Dave, would you add up maybe a one we liked and one thing that would wish we done a little better? I think one of the things we like was when we changed the site that we acquired this new brand with Blue, we saw the power of this brand. We saw customers flocking to these softer categories to the home textiles, to the kitchen. That speaks to the power of this brand. We've been making adjustments in our top nav, in our mods and our emails to better balance the mix of legacy overstock and legacy bedbath and beyond products.

And some other things.

Don't think of hiring as being in that bucket. When we talk about that approximately $150 million of additional investment since the launch the brand is to reignite the customer file and has to expand and create new categories.

No.

It's more marketing.

Got it.

It's not the kind of G&A head count piece.

We're always careful hiring there were higher when we need and there's a few we need and so we've done that and we're moving forward.

Okay, Great I'll, just ask a related follow up in the past you've targeted I think that mid single digit type of EBITDA margin is that still the expectation.

David Nielsen: And we're finding that balance. But that was probably the item that I say was just disappointing. The power of the brand is really strong. Yeah, and it's been strong with suppliers. The suppliers that have come to us that we've corded for years but couldn't get suppliers that have opened up their full catalog now where we used to have only a smaller portion, really powerful piece of the bedbath and beyond brand. So I hope we addressed the question, Tom. Yeah, thank you, Jonathan. Thank you, Dave. Yep. Thank you. One moment for our next question.

And then if so is that really a feeling that investments are going to roll off at some point or is it more about driving incremental sales incremental volume to ultimately leverage the fixed cost in the business.

So so.

Let me talk first to the mid single digits as I've noted before we are taking a purposely taking a pause.

As we.

The next few quarters and I think as Adrian guided to Q4, we're going to continue to continue to spend during this unique time to grow this customer file growing this customer profile is really important it will help us grow top line will help us have information about the customers. We can use as we think about.

Peter Keith: Our next question comes in the line of Peter Keith from Piper Sandler. Hey, good morning, everyone. Thanks for taking the question. I guess just as thinking about the first two months of the brand integration, I just want to talk a bit about the revenue trajectory because you're running negative mid-teens in early September and in the finish down 19 for the quarter. It does suggest quite a bit of step off in the back part of September.

<unk>.

<unk> live up to the promise of our new corporate name beyond <unk> and.

And expand elsewhere.

So the goal is.

To grow the customer file so the top line grows and Thats, how we get back to mid single digits. After this and Thats why were spending marketing. This additional investment that we're making now is really to increase the customer file.

Peter Keith: So I wonder if you could help us understand what caused that slowdown. You pull back on the marketing and the couponing and it was that kind of a temporary slowdown. Good for you, Walter. Is that one? Great. You happy, too.

Peter Keith: Peter, you know, we don't generally discuss kind of our monthly kind of GMS and revenue trends but I'll tell you a few things. One is, you know, I discussed in my prepare remarks that we had kind of a set of customer acquisitions strategy. So a lot of the monthly cadence was really impacted by when we deployed our customer acquisition strategies, particularly the mobile app versus when we were able to kind of do our email sends for the welcome rewards folks and the balance of that customer file.

Okay.

Okay, great. Thanks, so much and good luck ahead.

Thanks Seth.

Thank you.

One moment for our next question.

Our next question comes from the line of Steven Forbes from Guggenheim Partners.

Good morning, everyone.

Jonathan maybe just a follow up on the last question from SaaS, obviously active customer growth is the key focus but I was curious if you could maybe expand on how youre thinking about the importance of repeat behavior over the next 12 months and how that sort of is as part of the ROI threshold, you're you're spending again.

Peter Keith: And you will just kind of know if we put kind of August and September together very in line with the Q3 trend. Yeah, just to kind of add to that, Peter. It's a great question. There was a lot of early promotional activity in the first month of the launch and when we put out our mid-quarter press release, it was post Labor Day and Labor Day is a big shopping day. So to see numbers down a little bit after Labor Day, not that surprising, but certainly working to improve that trend right now. Okay. Thank you.

Just today.

We have for sure and I mentioned in my in my prepared remarks.

Improving our CRM capabilities, I think that lets us personalize.

And send our messages in a meaningful way for repeat.

Do you want to talk about how repeat is so important because we acquire.

Jonathan Johnson: And then I didn't relate it, but just on the role of chief marketing officer in the company, could you just bring us up to speed? I'm not sure if you've hired anyone or are you looking to hire someone and it seems like that would be a pretty important role with this rebranding effort. If you are looking for someone, what are some of the characteristics you'd like to find? Yeah, so I'll begin the answer and turn it to Dave who's leading that search.

Through a buy versus earn its not what were going to be doing yes.

The first the first steps Steve in our branding launch.

Was acquiring mobile app customers and getting them to download our mobile app that customer.

Is our one of our most valuable customers. They have the highest average order size they have by far the highest repeat rate.

Are the least expensive for us to communicate with center offers too.

Jonathan Johnson: We've not yet hired someone. We do have great candidates, and we have great vice presidents that will report to the Chief Marketing Officer and are currently reporting today because he feels temporarily fills that role. We want to find a great one. We're taking our time I think the team we have in place is doing a nice job during the rebrand. But it is it is a whole that we'll need to and are working to fill.

And drive business with.

So we will continue staying focused on that group.

Our mobile total mobile percentage of the business was the largest that's ever been this quarter, we're seeing real success, there and we're counting on that mobile app and experiential work that we're doing on our website to improve that funnel shopping experience.

But that mobile App is where we are placing the majority of our of our retention efforts.

When you look at how we started our brand campaign or started this rebranding launch it was mobile App and welcome rewards loyalty program those have the highest repeat rate. That's what we're trying to drive the customer by showing the customer the value of those two programs.

Jonathan Johnson: Yeah, thanks Jonathan. From a timing standpoint, this is obviously the best of the CMOs are up to their eyeballs in fourth quarter executions for the holidays. And so we're we're talking with them. I've had several phone calls with some top notch candidates. We'll start post ground shipping time frame. We'll probably start in on real panel interviews with our executive team and evaluating the candidates. I anticipate we'll have a candidate in place.

Thank you and then maybe just a quick follow up I think Adrian mentioned mentioned $5 2 million active customers by year end and you guys spent some time in the call I was talking about the three customer groups.

Jonathan Johnson: The end of January or mid February. Yeah, and in the meantime, I'm really excited for our top of funnel marketing campaign that's launching next week, even with a sitting CMO. We've done a really neat job and a good job with this campaign is going to be broad and you'll you'll see us foreign wide. So thanks for that question, Peter. Okay, thanks so much. Thank you. One moment for next question.

Any way to frame how you think those three groups are as a percentage of the customer base by year end or how youre sort of expecting that to evolve here.

Okay.

Hard to give exact numbers I would tell you the group I expect to grow the most and that's the legacy bed Bath and beyond customer because during that first two.

Two months of the launch we were still warming up that massive E mail file that we purchased.

When I say warming up it's really keeping them in all of our other customers out of spam filters are doing this in a very measured and programmatic way that's now.

Anna Andreva: Our next question comes in the line of Anna Andreva from Needham. Great. Thank you so much. Good morning, guys. One question and one follow up from us. Appreciate you providing us color on how to think about revenues in the fourth quarter. But could you talk about the trend that you're seeing in the business quarter to date? Just curious, what are you seeing from the core over stock consumer so far? And if you feel there is a need to promote even more this water to make sure this customer stays with the platform.

Those files are warmed up that's a group we can talk to.

In total so that should that should be the group that.

Percentage increases demands.

I think thats right Jonathan in the second group would be that Tam New group.

And what's encouraging about that I, just I have to go back to this again I mentioned it in the remarks.

This group had the highest average order size and they have found us.

In the initial stages of the brand launched they found us through searching on Google We have not had the brand campaign and the national brand campaigns that are going to be launching here in the coming days. So that group is.

Anna Andreva: And then secondly, as a follow up to Jonathan, I really interesting to hear about the over stock side coming back as a liquidation site. Just big picture. How do you guys think about ensuring there's no cannibalization between the value that that and what will be no doubt sharp prices at overstocks?

Very encouraging to us because as they grow that will grow that legacy overstock.

Business as well they were very high in furniture ranking and Youll see that on the on the schedules that we provided after the call. We've laid that out. So you can see the top product categories and performance based on each of those segments I talked about.

Adrianne Lee: Great question. I'll turn to Adrian to ask the answer. The first one and then we'll go. I'll discuss our thoughts about over stock as a liquidation site. Thanks. And so I think trends continue to, you know, kind of perform in line with our expectation and kind of as we discussed with our fourth quarter. You know, we talked about trends, excuse me, we talked about the fourth quarter, having a very similar year over year decline from the third quarter.

Stephen Thanks for those questions.

Thank you one moment for our next question.

Our next question comes from the line of Jonathan <unk> from Jefferies.

Adrianne Lee: And that's, you know, we feel confident saying that's what we're experiencing and that's what we. Thanks, Adrianne. Anna, we are excited about taking Overstock back to its roofs being a clearance liquidation site. And anyone who's been in the clearance and liquidation business like a long time has it overstocked, like me have been, know that retailers are always trying to avoid channel pollution. They don't want their clearance product next to their current product.

Hey, good morning, and thanks for taking my question. My first one is a follow up on the financial recipe.

After this initial period of AD spend and discounting I think the last plan communicated was returning to kind of that pre deal financial recipe or something close to it.

By the end of 2024 it.

It looks like the street's modeling gross margin shy of that 22% range and a negative EBITDA margin versus positive.

A lot's changed obviously over the last couple of months in terms of rates and housing.

Adrianne Lee: That's why we couldn't be a general retailer and a liquidator at the same time. No one can be. When we stand up, restand up, the Overstock site is a clearance site. It will be very different. There will be no similar product. That's how you avoid channel pollution. The pricing will be true clearance liquidation pricing. There will be some hurdles to get over there. But by having none of the similar product on site, we think we can avoid the cannibalization that your question was concerned with. I hope that addressing the questions on. Thank you. One moment for our next question.

Just curious is that plan still intact and if so what's the biggest disconnect.

With the street numbers.

Terms of the second half of next year. Thanks.

Andrew do you want to answer Jonathan's question. Please sure happy to I do think Jonathan I know that probably expectations are a bit across the board and right now we really haven't given any 2024 guidance or thoughts I think our general goal is as we think our business can operate within.

The parameters of the recipe card and Thats kind of our Northstar by which we will run the business and perform on policies acquisition activities, but we haven't given a timeline in fact today I think is the first time, we talked about this 12 months to 15 months.

Investment period of about $175 million.

Jonathan Johnson: Our next question comes from the line of Seth Sigmund from Barclays. Hey, good morning everyone. I wanted to talk about the $175 million of investment. Can you frame for us how much has been spent to date and then where do you plan to deploy that? Is that pricing? Is that marketing? Do you need to do more hiring? I guess that's the first part. And then you did say that would occur over the next 15 months.

And Jonathan I'll just note in our prepared remarks, we talked about the importance of growing the active customer file we're seeing great success on that.

Talked about our goal of growing <unk>.

I think fourth quarter <unk> tends to always be a little lower because of giftable, but with our marketing campaign and then moving into the.

Jonathan Johnson: Is there a cadence to think about just so that we can appropriately manage expectations? Thank you. Yes, I have great question. And you know, this is part of the more color that we want to provide. I'll turn to Adrian to address it and then look today to maybe add some color. But you know, as I noted, we spent about 25 million on the deal between buying it and acquisition related. We've spent from this quarter.

2024, we think we can take.

Aspirational or looking to take <unk> back to where it's been in the past and then the other thing I mentioned is we have a goal of increasing that ad.

Average orders per customer.

<unk> runs kind of a one five areas one five area. The goal is to get that to two over time and we're laser focused on working that I don't think that happens in 2024, but over time those are the three metrics that we're working on because we think those will drive topline and bottomline.

Jonathan Johnson: You can see that in our results. Adrian, you want to talk about the cadence of what's the remainder? Happy to. Yeah, so I think Seth kind of in total is Jonathan outline those buckets. You know, let's just say we've spent around 50 million thus far with third quarter and kind of the acquisition activities. I talked about in my prepared remarks that, you know, we expect to see this over the next 12 months or so, you know, likely more heavily weighted in the next three quarters.

Okay.

That's helpful and just a quick follow up question.

Alan.

Kind of going back to your roots.

The clearance liquidation site any kind of big picture thoughts in terms of how that'll influence.

Jonathan Johnson: That's starting with fourth quarter. So four first and second. And I would say we're going to deploy kind of those investments opportunistically. Some of them may hit gross margin for discounting and promotional activity. Some will hit sales and marketing as we launch our branding campaign and various other items. And certainly we'll continue to be really sharp on our pricing, as I said in my remarks as well aftering our customers the best value.

The P&L in terms of.

Average order value.

Order frequency or gross margin.

<unk>.

Additional.

<unk> and <unk>.

Related to setting that up.

Thanks, so much.

Yeah. So let me give some initial thoughts and turn to Dave.

Jonathan Johnson: Hey, what are you at? So on the marketing front, we've got a really exciting brand campaign that's launching here at the first of November that we're really excited about. That triggers a couple of thoughts. It's about a bigger, better beyond, which pushes our legacy over stock product and our bedbath and beyond product. So customer understands the wide, the broad, the bigger, bolder, assortment that we have. Second, it features a coupon. And I will tell you, this single item, 20% off coupon.

It will be a different site.

And.

Probably too early.

To comment on what <unk> looks like May look more like the historical.

We had.

We were a general retailer because there will be product on there. It is very different than what we're selling today as I noted, we intend for that to be a.

General Cross category Overstock branded liquidation site and so I.

Jonathan Johnson: It is money. It is money to this customer. It is a trigger for them. And we are using that to reactivate those customers. And we're really encouraged by what that will, will do for us. We're also standing up. Jonathan mentioned this, our wedding registry, our emerging trade business. These are areas with this brand. We have real permission to go grab market share in. And so we're spending some money in those areas as well.

I don't think modeling it as a furniture or home furnishings site is the right thing to do we think we can do this in an asset light way there may be some additional tech spend but not very much. We think our systems are evolving to get there. So that we can run multiple sites as well.

<unk> for the costs that we have David anything else you'd add no I think you've covered it it's all about the mix and that depends on the overstock at the time, yes.

Jonathan Johnson: And Seth, I just know you asked about hiring. Yes, we've done some incremental hiring, particularly around standing up the registry and some other things. I don't think of hiring is being in that bucket. When we talk about that approximately 150 million of additional investment. It's the launch the brand. It's to reignite the customer file. And it's to expand. And create new categories. So it's more marketing. It's not the, it's not the kind of GNA headcount.

One thing about the liquidation businesses, you cant predict which you are going to be selling because the vendors couldnt predict couldnt predict what they over bottom.

Yes.

Thank you.

I would now like to turn the conference back over to Jonathan Johnson for closing remarks.

Thank you Gigi and thanks to everyone who joined the call.

Appreciate your time appreciate your interest.

I love to say and I really believe that the company the best is yet to come.

Jonathan Johnson: We're always careful hiring there. We hire when we need. And there's a few we need. And so we've done that and we're moving forward. Okay, great. I'll just ask a related follow up in the past you targeted. I think that mid single digit type of EBITDA margin. Is that still the expectation? And then if so, is that really a feeling that investments are going to roll off at some point or is it more about driving incremental sales and incremental volume to ultimately leverage the fixed cost in the business?

I think with our new name <unk>.

Tend to live up to the promise of being bigger better bolder beyond. Thank you for your ownership in our company I wish you well as we enter the upcoming holiday season, and we look forward to speaking you speaking with you in the new year.

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

Jonathan Johnson: So, so let me talk first to the mid single digits. As I've noted before, we are taking a purposefully taking a pause as we for the next few quarters. And I think is Adrian guided to queue for we're going to continue continue to spend during this unique time to grow this customer file. Growing this customer file is really important. It will help us grow top line will help us have information about the customers we can use as we think about how we live up to the promise of our new corporate name beyond and expand elsewhere.

Jonathan Johnson: So, you know, the goal is to grow the customer file so the top line grows and that's how we get back to mid single digits after this. And that's why we're spending marketing this additional investment that we're making now is really to increase the customer file. Okay, great. Thanks so much and good luck ahead. Thank you. [inaudible] Good morning, everyone. Jonathan, maybe just a follow-up on the last question from Seth. Obviously, after the customer growth is a key focus, but I was curious if you can maybe expand on how you're thinking about the importance of repeat behavior over the next 12 months and how that sort of is part of the ROI threshold you're spending again.

Jonathan Johnson: Yeah, for sure. And I mentioned in my, in my prepared remarks, improving our CRM capabilities. I think that lets us personalize and send our messages in a meaningful way for repeat. But Dave, you want to talk about how repeat is so important because we, if we acquire through a buy versus an earn, it's not what we're going to be doing. Yeah, the first, the first step, Steve, in our branding launch was acquiring mobile app customers and getting them to download that mobile app.

Jonathan Johnson: That customer is one of our most valuable customers. They have highest average order size. They have by far the highest repeat rate. They are the least expensive for us to communicate with, send offers to and drive business with. So we'll continue staying focused on that group. Our mobile total mobile percent of the business was the largest it's ever been this quarter. We're seeing real success there and we're counting on that mobile app and experiential work that we're doing on our website to improve that funnel shopping experience.

Jonathan Johnson: But that mobile app is where we are placing the majority of our retention efforts. When you look at how we started our brand campaign or started this rebranding launch, it was mobile app and welcome reward loyalty program. Those have the highest repeat rate. That's what we're trying to drive the customer by showing the customer the value of those two programs. Thank you. I think Adrian mentioned 5.2 million active customers by year and you guys spent some time in the call talking about the three customer groups.

Jonathan Johnson: Any way to frame how you how you think those three groups are as a percentage of the customer base by year and or how you're sort of expecting that to evolve here. Student hard to give exact numbers. I tell you the group I expect to grow the most and that's the legacy bed, that's in the on customer because during that first two months of the launch, we were still warming up that massive email file that we purchased.

Jonathan Johnson: And when I say warming up, it's really keeping them and all of our other customers out of stamp filters by doing this in a very measured and programmatic way. That's now that those files are warmed up. That's a group we can talk to in total. So that should that should be the group that's percentage increases the most. I think that's right, Jonathan. And the second group would be that Tam knew group and what's encouraging about that.

Jonathan Johnson: I just I have to go back to this again. I mentioned it in the remarks. This group had the highest average order size and they have found us in the initial stages of the brand launch. They found us through searching on Google. We have not had the brand campaign and national brand campaigns that are going to be launching here in the coming days. So that group is very encouraging to us because as they grow, that will grow that legacy overstock business as well.

Jonathan Johnson: They were very high in furniture ranking and you'll see that on the on the schedules that we've provided after the call. We've laid that out so you can see the top product categories and performance based on each of those segments I talked about. Steven, thanks for those questions. Thank you. One moment for our next question.

Seth Sigman: Our next question comes from the line of Jonathan Matuszewski from Jeffries. Okay, good morning and thanks for taking my question. My first one is a follow-up on the financial recipe after this initial period of at spend and discounting. I think the last plan communicated was returning to kind of that pre-deal financial recipe or something close to it by the end of 2024. It looks like the streets modeling growth margins shy of that 22% range and a negative EBITDA margins versus positive.

Seth Sigman: A lot changed, obviously, over the last couple of months in terms of rates and housing. So just curious, is that plan still intact? And if so, what's the biggest disconnect you see with the streets numbers in terms of the second half of next year? Thanks. Adrianne, you want to answer Jonathan's question please? Sure, happy to. I do think Jonathan, I know that probably expectations are a bit across the board and right now we really haven't given any 2024 guidance or thoughts.

Seth Sigman: I think our general goal is we think our business can operate within the parameters of the recipe card, and that's kind of our North Star by which we will run the business and perform post-execuations and activities, but we haven't given the timeline. In fact, today I think it's the first time we talked about this 12 to 15 month investment period of about 175 million. And Jonathan, I was just known in our prepared remarks.

Seth Sigman: We talked about the importance of growing the active customer file. We're seeing great success on that. We talked about our goals of growing AOV. I think, you know, fourth quarter AOV tends to always be a little lower because of giftables, but with our marketing campaign and then moving into 2024, we think we can take aspirationally looking to take AOV back to where it's been in the past. And then the other thing I mentioned is we have a goal of increasing that average orders per customer which runs kind of the one five area, 1.5 area.

Seth Sigman: The goal is to get that to two over time and where laser focused on working that. I don't think that happens in 2024, but over time, you know, those are the three metrics that we're working on, because we think those will drive top line and bottom line. That's helpful. And just a quick follow-up question, you know, on kind of going back to your roots with the clearance liquidation site, any kind of big picture at the loss in terms of, you know, how that'll influence the P&L in terms of average order value, order frequency or growth margin, any, you know, additional, you know, tech spend related to setting that up.

Seth Sigman: Thanks so much. Yeah, so let me give some initial thoughts and turn today. It will be a different site and probably too early to comment on what AOV looks like. It may look more like the historical AOV we had when we were a general retailer because there will be product on there. It is very different than what we were selling today. As I noted, we intend for that to be a general cross category, Overstock branded liquidation site.

Seth Sigman: And so I don't think modeling it as a furniture or home furnishing site is the right thing to do. We think we can do this in an asset light way. There may be some additional text men but not very much. We think our systems are evolving to get there so that we can run multiple sites well for the cost that we have. Maybe anything else you had? No, I think you covered it.

Seth Sigman: It's all about the mix and that depends on the overstock at the time. Yeah, you know, one thing about the liquidation businesses, you can't predict what you're going to be selling because the vendors couldn't predict, it couldn't predict what they overbought in. Thank you.

Jonathan Johnson: I would now like to turn the conference back over to Jonathan Johnson for closing remarks. Thank you, Gigi. And thanks for everyone who joined the call. Appreciate your time. Appreciate your interest. I love to say and I really believe that at the company, the best is yet to come. I think with our new name, we intend to live up to the promise of being bigger, better bolder beyond. Thank you for your ownership in our company.

Jonathan Johnson: I wish you well as we enter the upcoming holiday season and we look forward to speaking you, speaking with you in the new year.

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