Overstock.com(OSTK) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) Overstock.com reported a Q1 2023 net loss of $10.3 million, a reversal from prior year's net income, driven by a 28.9% revenue decline Consolidated Balance Sheets Total assets increased to $887.4 million, while total liabilities rose to $246.9 million, and equity slightly decreased Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $374,711 | $371,263 | | Total current assets | $421,249 | $414,509 | | Total assets | $887,389 | $878,546 | | Liabilities & Equity | | | | Accounts payable | $83,621 | $75,130 | | Total current liabilities | $206,119 | $191,142 | | Total liabilities | $246,884 | $232,720 | | Total stockholders' equity | $640,505 | $645,826 | Consolidated Statements of Operations Q1 2023 saw a net loss of $10.3 million and a 28.9% revenue decline to $381.1 million, reversing prior year's operating income Q1 2023 Statement of Operations (in thousands, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net revenue | $381,140 | $536,037 | | Gross profit | $89,713 | $125,212 | | Operating income (loss) | $(8,364) | $12,454 | | Net income (loss) | $(10,307) | $10,123 | | Diluted EPS | $(0.23) | $0.21 | Consolidated Statements of Cash Flows Operating cash flow decreased to $20.0 million, while investing and financing cash outflows were $14.8 million and $1.7 million respectively Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,007 | $33,193 | | Net cash used in investing activities | $(14,831) | $(13,795) | | Net cash used in financing activities | $(1,705) | $(29,286) | Notes to Financial Statements Notes detail accounting policies, financial instrument valuations, legal proceedings, and the status of the stock repurchase program - The company is cooperating with an SEC investigation related to its 2019 Series A-1 Preferred stock dividend, 10b5-1 plans, and retail guidance[58] - No shares were repurchased in Q1 2023, while in Q1 2022, the company repurchased $24.9 million of common stock, with $19.9 million remaining available for future repurchases as of March 31, 2023[66] - Total equity securities were valued at $289.1 million as of March 31, 2023, including investments in Medici Ventures, L.P. and tZERO Group, Inc[43][44] - As of March 31, 2023, total outstanding debt was $37.1 million, net of issuance costs, related to loan agreements for the corporate headquarters[49][50] Management's Discussion and Analysis (MD&A) Management attributes the 28.9% revenue decline to macroeconomic pressures and strategic shifts, while gross margin slightly improved Executive Commentary Executive commentary highlights a 28.9% revenue decrease driven by a 29% drop in customer orders amid macroeconomic challenges Q1 2023 vs Q1 2022 Performance | Metric | Change | | :--- | :--- | | Net Revenue | -28.9% | | Customer Orders | -29% | | Average Order Value | Relatively flat | - The company's strategic focus is on strengthening its brand pillars: "Product Findability," "Smart Value," and "Easy Delivery and Support"[85] Results of Operations Net revenue declined 28.9% to $381.1 million, while gross margin slightly improved to 23.5%, and operating expenses shifted Operating Expenses as a Percentage of Net Revenue | Expense Category | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Sales and marketing | 12.3% | 10.9% | | Technology | 8.0% | 6.2% | | General and administrative | 5.4% | 4.0% | - Gross margin increased slightly to 23.5% in Q1 2023 from 23.4% in Q1 2022, attributed to merchandising actions and operational efficiencies, despite higher promotional discounting[99] - The company recorded a tax benefit of $2.9 million in Q1 2023, compared to a tax provision of $2.1 million in Q1 2022, primarily due to the pre-tax loss[113] Liquidity and Capital Resources The company maintains strong liquidity with $374.7 million in cash, $20.0 million in operating cash flow, and $55.4 million in contractual obligations Contractual Cash Obligations (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | Operating leases | $7,389 | $4,203 | $2,916 | $270 | $— | | Loan agreements | $48,015 | $4,607 | $2,968 | $2,972 | $37,468 | | Total | $55,404 | $8,810 | $5,884 | $3,242 | $37,468 | - Cash provided by operating activities decreased to $20.0 million in Q1 2023 from $33.2 million in Q1 2022[119] - The company believes existing cash and future cash flows will be sufficient for operations for at least the next twelve months[116] Market Risk Disclosures Primary market risks include inflation, interest rates, and foreign currency, with inflation being a key concern - Inflation is identified as a key risk, with rising commodity, shipping, energy, and labor costs creating pressure across the business, which the company may not be able to fully offset[133] - Interest rate risk is minimal as the company's loan agreements have a fixed blended annual interest rate of 4.45%[131] - Foreign currency risk is not significant because the majority of sales and operating expenses are denominated in U.S. dollars[132] Controls and Procedures Management concluded disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[137] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[139] PART II. OTHER INFORMATION Legal Proceedings The company is involved in ongoing legal proceedings, including an SEC investigation and a pending securities class action appeal - The company is awaiting a ruling from the U.S. Court of Appeals for the Tenth Circuit regarding an appeal by plaintiffs in a securities class action lawsuit that was previously dismissed in the company's favor[59] - A shareholder derivative suit remains stayed pending the outcome of the appeal in the securities class action lawsuit[60] Risk Factors No material changes to risk factors were reported from the previous Annual Report on Form 10-K - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022[142] Unregistered Sales of Equity Securities and Use of Proceeds No equity securities were repurchased in Q1 2023, with $19.9 million remaining available for future repurchases - No share repurchases were made during the three months ended March 31, 2023[143] - As of March 31, 2023, the remaining authorized amount for the stock repurchase program is $19.9 million[143]