Q4 2024 Beyond Inc Earnings Call
Yes.
Okay.
Speaker Change: Ladies and gentlemen, thank you for standing by and Boca.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Your presentation, there will be a question and answer session.
Speaker Change: Please be advised that today's conference call maybe recorded.
Speaker Change: I would now like to have Paul Kress call over to Al So Fletcher Vice President of legal and acting General Counsel at beyond Inc. Please go ahead.
Speaker Change: Thank you operator, good morning, and welcome to beyond Inc. Fourth quarter and full year 2024 earnings Conference call. Joining me on the call today are executive chairman market, well known it chief financial and administrative officer, Adrian Lee and President Dave Nielsen.
Speaker Change: Today's discussion and our responses here.
Speaker Change: Our questions reflect managements views as of today February 22025, and May include forward looking statements, including without limitation to statements regarding our future business strategy goal financial performance outlook for the remainder of the quarter or any other period anticipated growth stock price.
Speaker Change: Profitability macroeconomic conditions, the value of our brands and in Bachman relationships with third parties and agreements we are entering into with them margin improvement expense reduction market efficiency and Bergen customer experience changes to brands and website product offering blockchain efforts and strategy how can a nation effort.
Speaker Change: It's got to be and the timing of any of the foregoing.
Speaker Change: Actual results could differ materially from such statements additional information about risks uncertainties and other important factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2023, and our Form 10-Q for the quarter ended September 32024.
Speaker Change: And in our subsequent filings with the SEC.
Speaker Change: This call will discuss certain non-GAAP financial measures are filings with the SEC, including our fourth quarter and full year earnings release, which are available on our Investor Relations website at Investor <unk> beyond Dot com contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the.
Speaker Change: Most comparable GAAP measures following management's prepared remarks, we will open the call for questions a slide presentation with supporting data is available for download on our Investor Relations website.
Speaker Change: Please review the important forward looking statements disclosure on slide two of our presentation with that let me turn the call over to you Marcus.
Marcus: Thanks, Allison It always amazes me, how these safe harbors get longer and longer over time, I give a lot of credit to the lawyers.
Speaker Change: We have added a lot of words.
Speaker Change: As I mentioned as Alison mentioned I'm joined today by Adrianne, Lee and Dave Nielsen and what we really wanted to do on this call as we're gonna go through our prepared remarks pretty briefly and we want to leave a lot of time for Q&A.
Speaker Change: As part of that context for Q&A, we had really divided the presentation into two distinct areas. The first area is our primary core business. The thing that actually drives revenue and what we're fighting to get the profitability on the second part of our call we will lean into.
Speaker Change: Blockchain <unk> and a couple of initiatives or ideas that we have out there.
Speaker Change: We're going to discuss so when we get into the Q&A section feel free to break out your questions in those specific areas. If you have them alright. So look we have made a lot of progress in the last 12 months and it has not been an easy 12 months, both for the stock price and for <unk>.
Speaker Change: Quite frankly the results.
Speaker Change: We really have acknowledged.
Speaker Change: That's the work that has been done since 12 months ago has really been fruitful and we feel that we're probably sitting in the best possible spot that we could be.
Speaker Change: I am confident to tell you that I believe that the worst is absolutely 100% behind US now I'm required to qualify things like that assumes market conditions don't eradicate but for the most part if the world stays the way. It is today, we are headed in a very very positive direction.
Speaker Change: For those of you that want to see more details around the things are going to be discussed on our investor page of our website is a slide presentation that will breakdown all of these things that we're going to discuss it in all these key kpis things and we will continue to update that on a quarterly basis. So that you are able.
Speaker Change: To compare and contrast, and then we put transparency at the front of every single thing that I'll address revenue, our vendor consolidation or margins or SG&A or marketing and what we're going to show you is not only the good but the things that we feel like we have a lot of work left to do.
Speaker Change: I sit here today also I want to be clear that in my mind as I look at the things that have happened around gross margin SG&A reduction marketing efficiency and conversion. The work that we're doing with third parties on improving site experience improving customer segmentation that we see.
Speaker Change: A path to profitability and that it is my hope and goal that we find multiple inflection points throughout the year well what is inflection points mean, we believe there are several months, while we think there is a real good shot at reaching profitability in that specific month I don't think we will be profitable for the year.
Speaker Change: Here. It is our goal it is our hope we're going to do all the things that are necessary.
Speaker Change: But as you would imagine the lawyers and accountants want me to qualify that we are taking a no prisoner approach to a multitude of things, including how we're feeling about our gross margin we set a bold target for Q4 of.
Speaker Change: 21, five and we said that we thought we could do a little better than that happy to tell you that we landed right around 23% now and Dave and I and the other merchants talk about this daily I wanted to be as clear as I can but we need to be north of 27% striving for 30%.
Speaker Change: And we believe that there is creative ways to do that but some of the principal ways that we're doing that is by rationalizing skus, meaning that random things that have entered the marketplace over the last 12 months that have either not sold created a bad site experience or quite frankly have owned.
Speaker Change: <unk> sold because we over promoted or over discounted those days are over.
Speaker Change: <unk> made clear on October 24th that we did not want to be in the business of selling products on our websites of any brand.
Speaker Change: Any nameplate that had a negative margin associated with the first costs.
Speaker Change: The cost to sell it would be incrementally more expensive and therefore lead us to a negative contribution margin or any vendors that didn't align to our customer service or customer experience philosophy, we have eliminated millions of skus over the last several months and candidly there are many more.
Speaker Change: To go Dave and the team have done a spectacular job, but much much work still to be done in consolidating vendors today as we look at our vendor lineup. We still believe we have too many we want to be far more important to fewer vendors because we believe the path to profitability.
Speaker Change: <unk> is partially driven by margins and those margins are driven by your importance to other people and other creative solutions around that until we get to a more refined offering we believe that we're going to continue to have to do a lot of extra work to get to 2007.
Speaker Change: You should expect sequential margin improvement quarter after quarter after quarter, starting with the first quarter and just to be clear sequential margin improvement from where we're reporting today.
Speaker Change: Simply stated I expect the margins to be better even if it's only incremental than it was in Q4.
Speaker Change: The second thing that we want to make clear is that we do not anticipate tariffs to disproportionately negative negatively affect our company I pointed out disproportionately because we believe the entire marketplace. The entire space is subjected to the same first cost model, but where we believe over.
Speaker Change: Your stock has a competitive advantage, particularly in the next 12 months. If you go onto Overstock website. Today, you will see that the management team of specifically that brand has done a spectacular job of restoring the core and.
Speaker Change: And as part of restoring the core Dave has been working very closely with specific manufacturers, who have excess inventory and were finding that the continual slowdown in the general market that existed in 2004 has given have unbelievable opportunities for 25 unbelievable opportunities.
Speaker Change: We SG&A reduction was the second API that really mattered, we committed to cutting $65 million of expenses throughout 2024, and we not only met but we exceeded that goal through really disciplined execution as we look at the goal of achieving $165 million of annual G&A and <unk>.
Speaker Change: Run rate, we have more work to do.
Speaker Change: I'll be honest I'd like to be a little bolder I think that in 2025, we could find another $5 million to $10 million on a run rate basis from where we ended our $65 million goal. We believe that there are a lot of additional opportunities, but selling the building and getting out of those fixed costs right sizing our head count.
Speaker Change: And continuing to leverage third parties as staffing solutions I E versus sell or Salesforce or any other third party that can help us approved parts of our business, that's allowing our head count to really be in line and quite frankly sustainable for the future.
Speaker Change: The next piece is how do we utilize our marketing dollars is still our belief today that our performance in Q4 around marketing at 17 ish percent is an acceptable and while we've had little wins here and there. It is our expectation that in short order, we get to below <unk>.
Speaker Change: In Q1, that's our goal and that we continue to work our way down closer to 12, and then hopefully as we continue to optimize the website improved E mail execution get much better at our La program improved site experience and add other features to the web.
Speaker Change: Site that make it a more seamless process, coupled with E mails being customized for customers at the right time with the right product with the right price of which we have made progress. We then believes we can start to achieve our goal of getting closer to 11, So just to clean that up we believe that in Q.
Speaker Change: One we will have additional improvement so that's already factored in our internal forecast what is our internal forecast tell us. It tells us that we expect to continue to have sequential EBITDA performance from Q4 to Q1 to Q2 to Q3 event onto Q4, a year from now.
Speaker Change: That is our expectation and while we aren't providing direct forecasting or providing guidance you can margins to continue to improve while modestly, but they will improve SG&A to come through in fruition in Q1, because we had a little bit of noise in Q4 with some things that were out.
Speaker Change: There.
Speaker Change: And you should expect that once we get comfortable.
Speaker Change: Once we get comfortable that we have achieved the margin targets have consolidated our vendors have improved site experience have put all of the guardrails in place, which we believe will happen here in short order you could expect this company to be what is supposed to be which is a growth business. We are not happy.
Speaker Change: <unk> about the retraction of our revenue, but we agreed and we made clear that we will not compromise anything, causing us to lose more money or to sell products or do business with vendors that caused us to lose money.
That establishment of that foundation that pace of seeing a breakeven in the neighborhood of breakeven you will see us push the button and start to grow at a much more accelerated rate I do not expect that revenue will continue to <unk> two contract.
Speaker Change: For the long haul I do want you to expect that in the short term your directive to myself and our full management team is get profitable eliminate unnecessary expenses get those margins, where they belong put the right vendors in the right place at the right time and stop wasting.
Money with inefficient marketing, that's what leads us to profitability, we have heard you loud and clear.
Speaker Change: As we get into the final stages of our strategic and it's quite frankly total transformation, we're having to look at other companies that we think are subject matter experts I think historically in this company. It believes that it can solve every single problem by itself.
Speaker Change: But in today's technology world, particularly with AI.
Speaker Change: There is so much subject matter expertise.
Speaker Change: Complement with our company as opposed to contradicts with our company. When we look at partnerships with companies like yourself that are entirely redoing. The front end experience of all of our websites. We see number one somebody smarter and wiser that has other examples in Congress.
Speaker Change: For us to glean from and number two a primary goal of them, making money when our conversion improves and when our revenue improves we have goal alignment.
Speaker Change: Secondarily, we have finally completed the implementation of Salesforce in our business and while all of the different parts and pieces are totally implemented the core is over the next three to six months, that's only going to get faster and more transformative. We are also we have also been selected.
Speaker Change: As one of the few companies to partner directly with Salesforce to install over the next six months to eight months agent force across different parts of our business enhancing a unique experience for the customer.
Speaker Change: Agent Force takes all of the parts and pieces of our sales force menu, our portfolio and it ties them altogether to do two things drive down our SG&A and increase our conversion.
Speaker Change: We believe those two companies are key to us achieving that level of profitability that we expect.
Speaker Change: Across my feed this morning, I've seen a lot of questions around the use of the ATM.
Speaker Change: I want to be very crystal clear about when it was filed why it was used and how I think about it.
Speaker Change: Last spring our company filed a $200 million shelf registration, giving us the ability to pull into the company up to $200 million by selling shares into the market.
Speaker Change: Through the year through the summer I was reluctant to touch it even when the share price was much higher because I ask the time could not see a clear path to profitability.
Speaker Change: Self as a shareholder and as an option holder take very seriously the dilution of our stock because it not only affects you but it affects me. We're on the same elevator until I saw clear green shoots that showed margin heading in the right direction conversion moving up into the right direction.
Speaker Change: SG&A getting to our levels and are starting to see paths to profitability, which I started to see more clearly in November.
Speaker Change: In December and subsequently in January and even through today I didn't touch the ATM.
Speaker Change: We started to touch the ATM, because we need to be we need to rebuild and fortify our balance sheet for two distinct purposes growth and return on investment.
ATM should never be used or should really not be used in my opinion, just to burn capital from laziness or sloppiness or poor performance or inefficiency, that's your money and I take it very seriously its my money too I'd take it seriously as well.
Speaker Change: As we went through that process, we wait a day by day to make sure that all the things that we mandated on October 24th around eliminating skus in raising pricing and modifying marketing, making the head count reductions happen day by day by day, and we all agreed as a management team again that we weren't going to touch it.
Speaker Change: That money was principally used to restock the shelves in some cases of the working capital that I think we need to be opportunistic, but it was also used to make various strategic investments and acquisitions in the fourth quarter and recently, we completed our transaction to make our investments one four.
Speaker Change: 40% of Kirkland's.
Speaker Change: $400 million business that for the last two quarters has really turned the tide over there year over year results I think they reported positive EBITDA in the last quarter, We love the management team there and as a reminder, we have structured not only an equity investment in that business, but a mutual.
Speaker Change: A partnership to bring bed Bath <unk> beyond Overstock and now our recent acquisition of buy buy baby to the market in an Omnichannel way, while we love most about that company is how razor thin they run everything they are locked down on the supply chain side, they have great inventory.
Speaker Change: Management and they are very focused on running profitable locations.
Speaker Change: That for US was the most impressive reason that we chose to partner with them because we find them to be very responsible stewards of capital. Additionally, they understand how to run small format retail and we believe that bed Bath and overstock and buy buy baby should exist in small format retail.
Speaker Change: That doesn't mean that there won't be a flagship location in a big city like New York or Chicago, but those plans aren't on the tables today.
Speaker Change: As we move forward.
Speaker Change: ATM is used to make strategic acquisitions like that or strategic investments like that where I firmly believe to my core that the accretive nature of that investment outpaces. The dilution that is created by using the ATM.
Speaker Change: Furthermore, we want to get back to Overstock original core and while we are closing our distribution center and eliminating a piece of our supply chain, we have access to other distribution centers, including Kirkland's, if we ever want to make strategic or opportunistic investments in inventory.
Speaker Change: More recently without having to take on the inventory we cut two transactions with two vendors that are creative and experiential and experimental in nature. While we're testing is to see can we partner with big core vendors of our of ours to deploy capital to pick up no.
Speaker Change: Less than 10 to 12 percentage points of incremental margin from where we have been operating historically, it's the thing that I think gets us closer to the 27 28, 29 and 30, if all things come together.
Speaker Change: So we are using your working capital not to burn it pay our bills, but to drive growth to drive opportunity to make acquisitions to enhance margin to deploying new technology on our website and to leave a little extra dry powder as we look at that.
Speaker Change: <unk> portfolio.
Speaker Change: All of those acquisitions and all of those investments are really part of our core business, while we kept but we cant, but what became clear to me.
Speaker Change: In the last 12 months and I apologize it took me a little longer to understand how to connect the dots is the beauty and the genius of what overstock created decades ago.
Speaker Change: When it started to develop blockchain and crypto and all these things if I had one criticism of what previous management did it wasn't to creation of those ideas for the creation of the core business.
Speaker Change: Was the fact that those two things operated on islands and they had never really thought of or made the decision to enter we've them.
Speaker Change: Over the last 12 months as we've learned and learned and learned what has become more clear is that our company needs to take a very very active role in every single part of that medicine portfolio and while we signed an arrangement to have Kelly on manage that portfolio as you can see.
Speaker Change: We have had significant write downs in the portfolio as part of our noncash charges. This last quarter and over the last several quarters that are quite frankly unacceptable.
We decided to take matters into our own hands and start to build relationships with both T zero in grain chain in a very different way.
Speaker Change: Furthermore, in conversations with companies like <unk> and <unk> also part of that portfolio. We are seeing lots of different green shoots is every one of the 16 companies functioning well.
Speaker Change: <unk> is now are some real heavy hitters, starting to turn the corner and unlock value that I never could have imagined yes.
Speaker Change: We started to think about what our responsibility was in solving that problem.
Speaker Change: And so as we looked at all the opportunities that were out there as I mentioned on my spaces call a week ago or last week, we have decided to explore the opportunity for us to look at totalizing certain assets on our balance sheet, we're looking at certain pieces of intellectual property.
Speaker Change: But one thing must remain absolutely disciplined.
Speaker Change: It's a security and this is an offering and it requires compliance and these arent mean coins or fart coins or any other nonsensical non asset backed thing.
Speaker Change: This is something that we believe we want to take off of our balance sheet establish a value and look to create an opportunity for both our current holders and future holders and potentially private investors to potentially invest in a token that would give them the rights to the monetization.
Speaker Change: Of that asset that.
Speaker Change: That asset should also come with some form of cash flow, whether thats, a rev share or royalty or whatever the lawyers and the accountants require us to call. It that's the goal.
Speaker Change: What we're starting to show you is the ability to connect and weave together those things.
Speaker Change: Well, we're excited about is we do not need to deploy any SG&A or any head count or use any of our current capital to execute these things.
Speaker Change: All of our current shareholders will have benefited from the hundreds of millions of dollars that were deployed over the last 10 years, but its now time to extract that value. So cheap zero and our company are working on lots of different things looking at all of our assets and we believe in short order, we could have some really fun.
Speaker Change: And exciting news.
Speaker Change: Secondarily, our understanding of what grain chain is doing is just simply spectacular those.
Speaker Change: Those founders and that management team has cracked the code on understanding supply chain.
Speaker Change: Not just in the agriculture business, but across all sorts of other industries I'm.
Speaker Change: Im excited that I wish I could reveal but I know that Louis will be ensured order. Some unbelievable major significant partnerships. The grain chain here is getting ready to announce in the next several weeks and other the other items in the next several months. So we want to leave a little extra dry powder if so.
Speaker Change: Like David Goon, if we see the green shoots or somebody like Luis the grain chain and we see the green shoots can convince us investing more of your money in their business to give us a greater return is available we definitely wanted to take a look at that.
Speaker Change: I'll close with the final piece.
Speaker Change: After the call today there'll be a slide presentation that will be posted on a concept that we will own inside of our company.
It's called life chain.
Speaker Change: I shared a basic idea on our spaces call, but beyond just thinking through ways to advance its blockchain and AI strategy with life chain. A next generation platform for secure verifiable and token is asset management of your asset initially focused on homeownership.
Speaker Change: View light chain as an opportunity to potentially expand into broader financial insurance and asset record keeping.
Speaker Change: That's why we're in the retail business make money and build the database for products like this.
Speaker Change: Key features and strategic impact of life chain would be blockchain powered security and beautiful ownership verification and seamless asset transfer AI, driven automation, including enhanced risk assessment fraud detection and real real time asset valuation comprehensive digital ledger, including secure storage for <unk>.
Speaker Change: Property leads financial records estate planning and credentials and the Salesforce partnership with a deeply integrated relationship with their AI function agent force for insights around automated document management and smart contract execution.
Speaker Change: Beyond is working with regulatory and financial partners to design life chain with secure and compliant adoption in mind, reinforcing blockchain and AI integration into Congress, which is what our core business is around the home, which is who our target audience customer is we're hopeful.
Speaker Change: Life chain will position us at the forefront of financial an innovative technology and unlock value for investors that you have been waiting for for the last decade.
Adrian Lee: Now I'll turn the call over to Adrian.
Speaker Change: Okay.
Adrian Lee: Thank you Markus I'll take a few minutes to walk us through our fourth quarter financial results.
Adrian Lee: Revenue declined 21% year over year in the fourth quarter as we continue to make trade off decisions to right size our margin profile for the year ending December 2024, we posted $1 4 billion of revenue, which was an 11% decline versus full year 2023.
Adrian Lee: As a reminder, we expected revenue to decline year over year as we continue on our path to profitability and as we swiftly make progress unrestrained margin guardrails we.
Adrian Lee: We do remain laser focused on the four key areas of conversion gross margin sales and marketing efficiency and expense management that we laid out at our October 24th Investor event in which Dave will speak to in greater detail.
Adrian Lee: I will start out with gross margin, where we exceeded our target gross margin landed at 23% for the quarter, a 380 basis point improvement compared to the same period last year.
Adrian Lee: Sequentially, we delivered an accelerated 180 basis point improvement in gross margin as we continue to optimize pricing improved freight costs and rationalize assortment you may recall, we targeted a 50 basis point improvement from the third quarter of 2024, and we over delivered by 130 basis points.
Adrian Lee: We took a significant step forward to return to our historic operating levels, we posted improvement each corner of 2024 as we continued to work the six part plan I outlined at the beginning of last year.
Adrian Lee: Renegotiating freight improving vendor relations growing the margin accretive overstock brand and integration add ons embarking on licensing activity and eliminating inefficient discounting the fourth quarter with a strong execution proof point.
Adrian Lee: G&A and tech expense of 48 million decreased by $6 million year over year as a result of our commitment to reduce fixed cost by an annualized amount of $65 million.
Adrian Lee: I am pleased to report we have realized this entire commitment, allowing us to reinvest a portion of those savings to support growth initiatives and innovation.
Adrian Lee: We continue to progress towards our goal of $165 million annual G&A and tech run rate.
Adrian Lee: All in adjusted EBITDA came in at a loss of $28 million, a 43% or $21 million improvement versus the fourth quarter of 2023, and an improvement of $4 million versus third quarter 2024.
Adrian Lee: It's vital that we reestablished the discipline of profitable commerce, and our focus will remain on delivering sequential improvements in adjusted EBITDA.
Adrian Lee: Reported GAAP EPS was a loss of $1 66 per share for the fourth quarter, excluding losses recognized from our equity method securities adjusted diluted loss per share was <unk> 91 cents.
Speaker Change: As Marcus mentioned, our balance sheet strengthened in the fourth quarter as we ended the quarter with a cash cash equivalents and restricted cash balance of $186 million.
Speaker Change: In addition to improving our margin profile and moderating cash burn we recognized $17 million in net cash proceeds from the building sale and $43 million of net proceeds from the sale of common stock pursuant to our ATM.
Speaker Change: Again, our team is laser focused on rebuilding our brands, while we continue to quarter end quarter out deliver proof points on our path to profitability. We made progress throughout 2024, and I know, we need to create a profitable foundation by which to grow with that let me turn the call over to Dave.
Dave Nielsen: Thanks Adrian on.
On October 24th at our Investor session in New York, We committed to four key priorities for restoring our core business marketing efficiency sales growth through improved conversion margin enhancement and expense management today.
Dave Nielsen: Today, we are pleased to share our fourth quarter progress. While there is still work to do we see a path to our goal of profitability.
To be clear our immediate focus isn't topline growth, it's about rebuilding a strong profitable foundation.
Dave Nielsen: Once that is in place, we will shift our focus to unlocking long term sustainable growth.
Dave Nielsen: Now, let's dive into the data the materials in front of you on the chart. We reviewed the October Investor event with Q4 and December performance added to show how we're tracking.
Dave Nielsen: I'll add some color from January results to highlight ongoing areas of focus as we march towards profitability.
Dave Nielsen: December was our best performing month of Q4 in terms of marketing efficiency as you can see on slide 12 of the prepared materials posted to the Investor Relations page on our website, we hit our target of 12% sales and marketing as a percent of revenue driven by reallocating spend to high performing channels focusing on a on a power cat.
Dave Nielsen: <unk> and refining audience targeting January came in slightly higher but well below the 2024 run rate.
Dave Nielsen: A 17% and while there will be ebbs and flows along the way I'm encouraged to see the trend moving in the right direction toward our goal of 12%.
Dave Nielsen: Next on Slide 12, you can see December conversion trending upward.
Dave Nielsen: This was fueled by SKU rationalization and vendor streamlining ensuring customers find our most productive assortment as we have said bed bath and beyond was never meant to be a marketplace. We're curating a sharper more efficient product mix.
Dave Nielsen: Since April of 2024, we've reduced bed Bath and beyond SKU count from 12 million to just under $6 million by November and further cut an additional million Skus and 800 more vendor partners in December.
Dave Nielsen: January's conversion dip slightly expected for seasonality, but slightly lower than anticipated as we continue to make some difficult decisions.
Dave Nielsen: Move unprofitable transactions, we've identified additional assortment improvements and we will continue to deteriorate or bed bath and beyond.
Dave Nielsen: We've discovered additional friction points in the overstock experience and are actively addressing through enhanced customer experience and improve conversion. We've entered into agreement with a terrific New tech partner, who we believe will help us improve our site responsiveness and overall experience first for overstock and have already begun that work.
Dave Nielsen: This transition is expected to be completed by mid year for the Overstock Graham.
Dave Nielsen: And then we will begin work on bed Bath and beyond we believe this will be a major step forward in improving conversion rates.
As you heard from Adrian gross margin has been steadily improving over the past several quarters could you can see on slide 12.
Dave Nielsen: We've worked to remove unprofitable transactions by leaning into our most profitable vendor relationships.
Dave Nielsen: Reduce our level of discounting.
Dave Nielsen: And optimizing pricing where applicable we have also removed those products, where we're losing money.
At the same time, we continue driving down outbound shipping costs, while monthly results may fluctuate we are firmly on a path to achieving our near term gross margin target of 25%.
Speaker Change: Adrian already mentioned, our expense management progress and with that I'll turn it back to your markets.
Speaker Change: Thanks, Dave will actually turn the call back over to the operator to open up our Q&A section.
Speaker Change: Thank you.
Speaker Change: If you would like to ask a question. Please.
Speaker Change: Please press star and the number one on your telephone keypad again that is star and the number one on your telephone keypad.
Speaker Change: One of their first question. This comes from the line of Jonathan <unk> from Jefferies.
Jonathan: Oh, Hey, good morning, Thanks for thanks for taking my questions.
Speaker Change: The first one was on just top line.
Jonathan: Obviously.
Jonathan: You had some good progress.
Jonathan: Recently in terms of bringing sales and marketing expense down just.
Jonathan: Just curious like the monthly cadence of revenue throughout the quarter and kind of how.
Revenue trended from a cadence perspective as you.
Jonathan: Brought down Ad spend.
Jonathan: That's my first question. Thanks.
Jonathan: I think we have to be careful we don't provide revenue we don't disclose revenue by month, but I will tell you that we're focused on.
Jonathan: Pretty very simply doing profitable transactions. So as we mentioned earlier when you look at that when you look at the revenue in the month of October compared to November and December they started to decline in the reasons and they started to decline is because we started eliminating vendors and skus that we were losing money on and so when you go.
Through a very explosive loss in October.
Double digit loss in October and you'll get down to a mid single digit loss in December you have to understand that driving margin and eliminating negative skus is going to have that effect as I mentioned earlier, Jonathan we're going to continue to contract things to get profitable and I don't know how expansive that's going to be we.
Jonathan: We want to continue to drive revenue and meet new customers at the front door, but as we continue to eliminate skus and eliminate vendors. It does have a contraction on our revenue I would expect that revenue will continue to be a little tighter here in the first couple of quarters, but that EBITDA and net income should have an explosive growth on the <unk>.
Jonathan: Some lines as we raise margins as we lower our marketing expense I would expect to see nice year over year improvement first quarter of last year, we lost a boatload of money that is not our expectation in the January and February results do that we will sell less than in the first quarter than we did last year.
Jonathan: Thats lost on anybody.
Jonathan: That's very helpful. Thanks for the color there and then just on gross margin.
Jonathan: I think you outlined some of the building blocks as we go forward maybe towards.
Jonathan: That initial Northstar maybe.
Jonathan: 25, 27%.
Speaker Change: Maybe just give us some perspective in terms of what inning, you're in in terms of moving.
Speaker Change: Skus from bed Bath back to overstock, how much kind of work is left there maybe kind of what inning. We're in in terms of it sounds like you've made some progress ongoing progress in terms of SKU rationalization.
Speaker Change: But just trying to understand kind of the the <unk>.
Speaker Change: Biggest buckets in terms of kind of gross margin expansion ahead. Thanks, so much.
So I'll start with the.
Speaker Change: The proclamation as much as I can avoid that word there will continue to have sequential margin margin improvement through the balance of this year a big contributor to that is the growth that we're seeing coming out of overstock and if you look at that assortment today and you look at that management team. That's there specifically on overstock, which by the way.
Speaker Change: We brought people back that were part of overstock years ago that understand that brand, we're going to see some nice revenue growth and the contribution margin and gross margins. There are just they are just better I think secondarily, we're starting to use our balance sheet and our relationships primarily through vendor consolidation to get our first half in.
Speaker Change: In line with where they need to be across our entire enterprise I don't want to predict what inning. We're in because I think that ultimately there's never going to be an end to the game.
Speaker Change: Goal going forward is to always improve margin and while we are setting a short term goal of 27, I'm never going to be happy and so were north of 30, and north of 30 requires a certain mix and assortment and vendor relationship and Omnichannel mix that allows all of that to happen. It shouldnt be lost on anybody that our investment into Kirk.
Speaker Change: <unk> was done to be able to activate the bed Bath <unk> beyond Omnichannel business and then in the bed Bath <unk> beyond Omnichannel business is a fire starter for incrementally better first cost because the vendors are seeing multiple places that they can sell their products and additional revenue opportunities. So we are early in the game, but the gain.
Speaker Change: Doesn't and if I could wave a magic wand, and hope and pray I'd like to get to 2007 at some point at the end of this year I think thats, a little bullish, but we're going to try like the Dickens to get there north of 25 is our absolute absolute half to get there and so when you start to do the work of how is the company going.
Speaker Change: Get profitable.
Speaker Change: Your gross margins in your model you can tweak down your SG&A, probably another $4 million to $5 million over the next 12 months in your model and then you can expect in the back half once we establish a margin base. It will start to slowly spend more money growing revenue again, we do not want to contract revenue throughout.
Speaker Change: For 2025 year, but if we can get to profitability in 2025 that is the primary goal.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Any other color or questions on that.
Speaker Change: Operator.
Speaker Change: I believe that Mr. Master chefs views on mute, but thank you.
Speaker Change: Okay. Our next question comes from the line of Thomas Forte from Maxim Group.
Speaker Change: Your line is open.
Thomas Forte: Hi, Tom.
Thomas Forte: Great. Thanks, So Marcus I listened to your Medici ventures related Con X last week, but it was very interesting can you talk about your current efforts to generate shareholder values Medici ventures portfolio, including how it potentially offering a buy buy baby token with T zero adverse to that effort.
Thomas Forte: You hinted in your prepared remarks.
Thomas Forte: Can you, let us know when investors can expect an update on grade change, which sounds like it's been doing incredibly well and that you consider to be potentially a very promising supply chain companies do we have to wait for <unk> to five earnings for an update there was a time when you have a dedicated investor calls on the Medici ventures portfolio outside of your quarterly earnings call.
Thomas Forte: Yes, there was a time, where the company did have that separate call on.
Thomas Forte: Unfortunately, a few years ago previous management.
Speaker Change: Created the.
Speaker Change: The transaction with <unk> and our ability to communicate is.
Speaker Change: Really now distilled down to our ability to get information directly from those companies. We get we get a report when requested from palliative, but right now Adrian Dave and my focus is we have to figure out how to unlock the value there and we think the only way to unlock the value is to provide use cases and to bring those.
Grants to the forefront let me let me back up for just a minute on the motivation behind the block chain Slash technology as it relates to any possible <unk> of any of the IP that we have today.
Speaker Change: I took innovation.
Speaker Change: In the most simple form is for a big company like issuing stock and for a small company, it's an easier way of doing that our motivation to do.
Speaker Change: Whether it's buy buy baby or bed Bath <unk> beyond in concept or motivation to do that really had multiple prongs associated with them. The first and foremost is to start to rebuild our community of followers that ultimately drives the business and if you look at other organizations like Costco that are out there that have a.
Speaker Change: Club membership for the right to enter I look at <unk> as the highest level of loyalty program that one could have and when you start to think about it like a loyalty program you start to think about what are the attributes that a loyalty program should have it should have additional benefits at the highest level it should have acts.
Speaker Change: The information at a preview level and it should come with something that I can count on that doesn't mean that the amount has to be specific but it has to be in a range and when you study companies like Rei that give rebates to their to their customers based on the purchases. They made I really wanted to think about how to take an unbelievable.
Speaker Change: Both technology like <unk>, but create connective tissue into our retail business to accomplish the highest level of loyalty. This is just an idea and the lawyers and the accountants require me to say that but if I can take a piece of our IP and give you the ability to own the monetization of that you would then.
Speaker Change: The buying tokens in the monetization of that asset at a fair value.
Speaker Change: What I want you to get if I could could make it all happen is the ability to get incremental benefits, but also share in some incremental value that could be created through the driving of that brand almost creating an owner's ambassadors program, where if I buy these tokens I would be able to risk.
Speaker Change: Seeing something in addition to great benefits you'd want to make the ability to enter into that token affordable so that everybody could afford it and you'd want to really make it simple and easy. The second reason that I wanted to <unk> to happen. In addition to the primary was that I wanted to prove out the efficacy of T zero because of that.
Speaker Change: Doug into it and spent time with David and Alan and really started to look at what was built over the last five years I don't believe that the asset value has been exploited the way it should and rather than waiting for other companies to call David in for David to have success like he's having with other companies I decided to take the ball and create.
Speaker Change: Our own narrative about proving not only the efficacy of our ownership of the business of which we own 50 ish percent, but.
Speaker Change: But to be able to demonstrate how these two companies can work together.
Speaker Change: Last piece in doing that.
Speaker Change: Is that I thought that one into the combination of one and two will drive revenue and show the value of that asset ultimately unlocking the value look in a perfect world. We want to continue to find ways to unlock value that require us to not invest capital and the easier.
Speaker Change: Asset light investment is to exploit the value of grain chain T zero in some of those other Medici assets.
Speaker Change: Okay.
Marcus: Thank you Marcus.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Next question. Thank you.
Speaker Change: Alright. Our next question comes from the line of Steven Forbes from Guggenheim.
Speaker Change: Your line is open.
Kazan Forbes: Good morning, this is really more Kazan foresee Forbes.
Speaker Change: How does it how does the average contribution margin compare between bed Bath and beyond overstock today versus back of the 2020 for analyst day are we at a place for both are acceptable and then any way you can help us better understand the base level of productivity needed to achieve free cash flow neutrality.
Speaker Change: In the initial comments on where you see the greatest productivity opportunities today, whether it's categorical level or like at a better level.
Speaker Change: So I'm going to I'm going to break that into two distinct questions I'm going to have Dave take the first one breaking down the improvement in contribution margin.
Adrian Lee: And and how he sees an interplay between the multiple banners and then I'm going to turn it over to Adrian to address where does she think revenue needs to be to get to breakeven, which is I think what your question was.
Dave Nielsen: Thanks Margaret.
Mark Well: So mark.
Speaker Change: Mark has mentioned on the call, but overstock was rebounding and have solid economics.
Speaker Change: What we're seeing is exactly what the model for overstock was.
Speaker Change: Working exactly as planned and it is coming along and we continue to grow and develop our brand. It does have a slightly better contribution margin than our bed Bath <unk> beyond contribution margin as we've talked about on the call today, we continue to curate we continue to.
Speaker Change: Remove unprofitable vendors and Skus and we continue to fine tune that assortment, we will continue to grow the contribution margin, but overstock.
Speaker Change: From its initial phases and growing.
Speaker Change: More naturally fits that model in the SKU assortment that we have for it and we continue to grow it we brought back the management team are part of the management team that was there previously.
Speaker Change: And they have been masterful at moving us forward to to our goals.
Speaker Change: Ultimately the contribution margin, we know we can be profitable.
Speaker Change: Adrian.
Speaker Change: Thanks, Dave and I. Appreciate the question I would say if you think about kind of our scripted remarks today and what we shared at our Investor event all of the pieces, we have shared whether its the conversion targets. The gross margin targets Tech and G&A. Those are the places we need to get to in order to be profitable, which will ultimately.
Speaker Change: Generate free cash flow.
Speaker Change: So I think if you look at some of our operating metrics pre the bed Bath and beyond integration. When we were generating free cash flow and operating profitably. It's really recalibrating. Those four key metrics, we've been talking about to those historic levels.
Speaker Change: I wanted to add something.
Speaker Change: And that really ties to cash because I get questions often around what our cash balances and that is an excellent question. When a company is burning money because you want to know what the runway looks like but as we get closer to profitability. It's important for people to understand that cash goes through the balance sheet in multiple ways. It can.
Speaker Change: Go into inventory it can go into a variety of other things and so as we get into second third and fourth quarter I really want to start to focus on what's the working capital of the business. For example is Kirkland starts to open up bed Bath and buy buy baby and even potentially overstock stores, we may choose to partner with them even.
Speaker Change: Further to.
Speaker Change: To accelerate that growth, but they have a pretty rigid balance sheet that doesn't provide for a ton of runway for a ton of growth in the short term and so we want to make sure that every single dollar thats in our kidney and every single dollar that gets spent is with the highest invest use at all times and you have all.
Speaker Change: Our commitment that any money that we raise any money that we spend any money that we invest will always be done to create the maximum return on investment that is why we are so feverishly working to eliminate any burn as fast as we can because every dollar that gets burned is a dollar.
Speaker Change: We don't get the opportunity to invest with double and triple digit returns. So that's how that's why you're sensing the vigor in our voice around getting to zero. It's every dollar that's leaving is not going where I want it to go.
Next question.
Speaker Change: Yeah.
Speaker Change: Just as a quick follow up I think you briefly touched on earlier, but any additional color you can give on the contributions due to the positive gross margin surprised during the quarter I think you mentioned like better.
Speaker Change: Under support or is it a function of like our internal efficiency capture thank you no.
Speaker Change: The upside in the margin profile for Q4 was simply the team doing what theyre supposed to do which is to work with their vendors to execute the proper first cost to consolidate vendors to eliminate unprofitable skus to eliminate unprofitable vendors and to not waste money on marketing the expectations that I have for the team over the next.
Speaker Change: Several quarters is going to increase and the pressure is going to continue to mount to get us to that 27% margin and ultimately a much better contribution margin they get a hell of a job and what I'm seeing in January and February is contribute is continuing to sequentially contribute to the improvement.
Speaker Change: Awesome. Thank you for the color really appreciate it.
Speaker Change: Yes, Sir.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Peter Keith from Piper Sandler.
Speaker Change: Your line is open.
Alexia Morgan: Hi, This is Alexia Morgan on for Peter Keith Thanks for taking our question John.
Alexia Morgan: First you you've talked about the importance of conversion rates and gross margin your path to profitability.
Alexia Morgan: We have visibility on gross margin you touched a little bit on conversion rates in the presentation, but could you give any more color on conversion rates and how those performed throughout Q4 and possibly quarter to date in conjunction with marketing spend and then the second question. We've been hearing from channel checks and other companies about a slowdown in demand.
Alexia Morgan: And in January and February I'm understanding that you're simultaneously going through some SKU and vendor rationalization. We're just curious if you've been seeing any change in underlying consumer demand.
Alexia Morgan: Thanks.
Alexia Morgan: We right now in this moment, we are singularly focused on driving margin lowering SG&A improving conversion and we're operating in our own vacuum right now to get to zero, while everybody else, including what people perceive as our competitors, which theyre not continue to burn money. We are in the business of getting to <unk>.
Alexia Morgan: ROE and making money and so I can't speak to what's happening in the overall industry, but I can speak to is that our revenue will continue to tighten.
Alexia Morgan: As is part of our strategy to get to profitability and so I wanted to I wanted to be clear about that we don't report our contribution margin specifically, but I can tell you that our contribution margin is improving nicely.
Alexia Morgan: Are those that understand contribution margin it isn't simply just the gross profit on the transaction. It's all of the friction holes that are inside and our efficiencies insiders and the site experience inside it and the discounting that's required in the shipping expense that's required and all of the other things that go into it when you are trying to improve.
Alexia Morgan: Contribution margin it is truly a process efficiency gains just putting it up on the website and selling it isn't all of it we have made many many unfortunate head count changes, bringing in better talent and better staff and we will continue to do that until we get the results where the contribution margin.
Alexia Morgan: Where historically was for overstock I believe we are many many points away, but we are more positive than this company has been in 18 months and seeing sequential improvement every day.
Alexia Morgan: Yeah.
Alexia Morgan: Thank you.
Alexia Morgan: Thank you.
Alexia Morgan: Our next question comes from the line of Rick Patel.
Alexia Morgan: <unk> from Raymond James.
Speaker Change: Your line is open.
Speaker Change: Thank you and good morning, everyone I had a question on marketing you touched on the opportunity for better efficiency was hoping you can expand upon the work that remains to be done and how we should be thinking about.
Speaker Change: Marketing from a modeling perspective is as you work towards sequential margin improvement and also had a second question on the near term outlook for gross margins I think you touched on near term figures.
Speaker Change: <unk>.
Speaker Change: 25% and then also 7% I know the goal is that obviously maximize what you can do but just from a modeling perspective with the right.
Speaker Change: A reasonable assumption would be great.
Speaker Change: Great.
Speaker Change: I'll have Adrian complete.
Speaker Change: My after I go to talk about what her expectations are for margin, Dave will add some color as well on the marketing side, it's really important for people to understand all the parts and pieces that go in to ultimately, creating that marketing efficiency and site experience is at the forefront of that and we still believe that our site experience.
Speaker Change: Is there anywhere close to where it needs to be the search functionality, while materially better than it was doesn't even come close to meeting the standards that we have as a management team and we're going to continue to accelerate those standards, having the right vendors with the right product at the right price at the right time is also part of that strategy.
Speaker Change: When you get when it gets down to it the way the customer comes to our site either through E mail or through a <unk> or some other organic methodology is truly important from a performance standpoint, we are not operating at anywhere near the optimal level on the email execution side and we are making.
Speaker Change: Difficult human capital changes as we speak right now with some new additions coming onto our team here in the next 10 days that are going to bring.
Speaker Change: Overstock slash bed Bath <unk> beyond E mail execution back to a level of standard that the company historically operated on what's important to understand that E. Mail execution is the cleansing and the clarity around that E. Mail file we have just begun to work closer with agent force and Salesforce in cleansing that file.
Speaker Change: But we continue to be disappointed that certain categories in certain buckets and subsets of that email database just isn't performing at all some of that was part of the bed Bath acquisition and it could have been either eliminated or discontinued or those E. Mails are no longer viable. So we're going through in <unk>.
Speaker Change: Cleansing and segmenting in a better way every single time that we do that we see slightly better performance, but if I was on a football field. The goal line is like 60 or 70 yards away Adrian on the margin side.
Speaker Change: Sure and I think Rick if you were talking about our sales and marketing as a percent of revenue what I'd say is.
Dave Nielsen: And Dave mentioned this in his prepared remarks.
Speaker Change: December at 12% was certainly something that was lower than what we expect to see as we calibrate. So what I would say its kind of first second third quarter will all be better than the fourth quarter in total but in between kind of December in the fourth quarter and fourth quarter will be probably a little bit higher because of the higher promotional activity generally in the fourth quarter.
Dave Nielsen: And for the full year.
Dave Nielsen: Expect we'll be at our long term target, yet, but we're making great strides towards that.
Dave Nielsen: Dave If you will the address ricks other question around gross margin around product.
Speaker Change: He was also asking we're at 23 today, what's our path, we obviously want to be conservative but for modeling purposes. If you can set some expectations around how you see improvement there that would be great.
Dave Nielsen: Yeah, we are.
Speaker Change: As we mentioned the.
Speaker Change: The target is to get to 25 that is not the end target, but the target is to get to 25 and as we see that for crest progressing sequentially over the quarters.
Speaker Change: We have a clear path that we're executing against to work with our partner base.
Speaker Change: To coal down some of the partners that are just not driving the profitability, but we need making stronger relationships with those.
Speaker Change: Those partners that are key legacy partners in power categories to us, giving them access to more locations on the website in exchange for better costs associated with that as they get more volume flow through for them. So this is a this is a game of we've got so much demand.
Mark Well: Continually working as Mark just mentioned through all of those functions on the marketing side, but we're also utilizing our core vendors are legacy vendors to get back to the historical.
Speaker Change: Gross margin that we know we can achieve and beyond.
Speaker Change: I'm going to be a little more direct we're going to partner with vendors that understand that growth is important to both companies and we're going to partner with vendors that understand that being profitable is a mutual goal not a singular goal and while we have vendors out there that have abused the marketplace and taken advantage of us over the last 12 to 15.
Speaker Change: Months, those vendors have been eliminated and those vendors who understand how to be good partners are going to get the lion's share of our business, especially when we go and we start opening stores and we start spending money again driving ecommerce business. Those vendors that are most loyal are going to participate in that upside and let me be <unk>.
Speaker Change: Earlier, there is going to be an upside.
Speaker Change: It takes us a while to learn things, but once we learn them and once we get everything built exactly the way we want it where we are doing profitable things that our SG&A is in line, we will be the kind of company that everybody expects us to be which is a growth company.
Speaker Change: That's who I am and that's what I believe in but I will not compromise our cash or anything else in an effort to have growth revenue growth needs to be profitable revenue growth. All of these pieces that we've done in the last six to eight months are building blocks to getting there. We are very very close and we appreciate the <unk>.
Speaker Change: <unk> that you guys are giving us to get there and understanding the value that is being unlocked as we sit here.
Speaker Change: Okay.
Speaker Change: Thanks for all the color.
Speaker Change: I don't know if thats. The last question I think it is.
Speaker Change: Yes, Sir and seeing as there are no more questions in the queue that concludes our question and answer session I will turn the call back over to Martin <unk> for closing remarks, great. Thank you very much just to make sure that we don't leave with any lack of clarity. Our goal is to make money and our goal is to grow our margins improve our <unk>.
Speaker Change: <unk> see us improve our marketing conversion improve our site experience and integrate our blockchain and other assets into our business to take all of the investments that we've made in the Kirkland's Bye Bye baby examples and to start to have them bear fruit, we understand the mandate, we expect to deliver this quarter.
Speaker Change: And hitting the metrics that we put up or a promising you much like we did last quarter. Thank you so much for your support.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Ladies and gentlemen that concludes today's conference call. Thank you all for joining you may now disconnect.
Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change:
Speaker Change:
Speaker Change: Okay.