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Overstock.com, Inc. (NASDAQ:OSTK)

Q2 2009 Earnings Call Transcript

July 22, 2009 3:00 pm ET

Executives

Jonathan Johnson – President

Patrick Byrne – Chairman and CEO

Steve Chesnut – SVP of Finance

Analysts

Sam Antar

Steve Rubis – Stifel Nicolaus

George Cassey [ph]

Mike Scott [ph]

Nat Schindler – Banc of America

Operator

Good afternoon. My name is Christy, and I'll be your conference operator today. At this time, I would like to welcome everyone to the second quarter 2009 Overstock.com conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator instructions) Thank you.

I'll now turn the call over to Mr. Jonathan Johnson, President of Overstock.com.

Jonathan Johnson

Thanks, Christy. Good afternoon and welcome to our second quarter 2009 conference call. Joining me today on the call are Dr. Patrick Byrne, Overstock's Chairman and CEO; and Steve Chesnut, Overstock's Senior Vice President of Finance. The following discussion and our responses to your questions reflect management's views as of today, July 22, 2009, and will include forward-looking statements.

Actual results may differ materially. Additional information about factors that could potentially impact our financial result is included in today's press release and in our filings with the SEC, including our 2008 annual report on Form 10-K/A. As you listen to today's call, I encourage you to have today's press release in front of you, since our financial results, detailed commentary, and the CEO's letter to the shareholders are included and will correspond too much of the discussion that follows.

During this call, we'll discuss certain non-GAAP financial measures, our Press Release slides accompanying this webcast and our filings with the SEC, each of which is posted on our Investor Relations website, contain additional disclosures regarding these non-GAAP measures, including reconciliation of these measures to the most comparable GAAP results.

Lastly, we expect to file our Form 10-Q for the second quarter of 2009 in the near future and I encourage you to read it as well for additional information on our financial results. With that preliminary business out of the way, let me turn the call over to Steve to review some of our financial results.

Steve Chesnut

Thank you, Jonathan. Following is a brief review of our financial results for the second quarter ending June 30, 2009. Please refer to the earnings press release for full financial statements and further details regarding our results, and keep in mind that unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2008. Our results for the quarter are detailed in today's press release, but I'll summarize a few of them for you today.

Total revenue was $176.1 million, down 7% from last year. Direct revenue was down 28% and accounted for 16% of our total sales, while fulfillment partner revenue was down 1% and accounted for 84% of our sales. Gross profit was $35.9 million, an 8% increase.

Gross margin was 20.4%, a 280 basis point improvement, and for this one this is a historical all-time high for the company. The improvement in gross margin is largely the result of supply chain efficiencies created through initiatives we have implemented throughout the year.

We have also been focused on and running our sales and marketing efforts more efficiently. As a result, sales and marketing expenses declined 22% over last year to $11.1 million, and marketing as a percent of sales fell 123 basis points to 6.3%. Contribution expanded by 31% to $24.8 million and contribution margin for the quarter was 14.1%, a 403 basis point improvement.

Combined technology and G&A expenses fell 5% to $24.9 million. Technology costs were down 17% largely due to lower depreciation, while G&A cost increased 12%, due primarily to increase in salaries, benefits, and facilities cost. Operating income for the quarter was a positive $151,000 compared to a loss of last year of $7.2 million. This is a $7.1 million improvement.

Net income for the quarter was a positive $389,000, a $7.7 million improvement over last year. Earnings per share were $0.02. Net income was a modestly higher while operating income, due mainly to the gain on the extinguishment of $2.5 million of our senior convertible note that we bought back at a discount. This offset the higher net interest expense we saw in the quarter.

Adjusted EBITDA was $4 million in Q2 and $18.1 million on a trailing 12 month basis, representing a $3.8 million and $12.5 million improvement respectively. Total cash and cash equivalents was $69.8 million as of June 30, 2009 and working capital was $33.2 million.

Operating cash flow for the quarter was $5 million outflow compared to an inflow of $449,000 last year. On a trailing 12 month basis, operating cash flow was a positive $10.4 million and $12.7 million respectively. That concludes my financial summary. So Patrick, let me turn the call over to you.

Patrick Byrne

Thank you, Mr. Chesnut. Well done. I welcome everybody to our first GAAP positive second quarter. Going to go through the slide deck, you'll advance your own slides.

I'll be on Slide 3 to begin with. The highlights have already been covered by Steve, so I will run through these quickly. Of course, the gross margin was an all-time high. The 22% decrease in marketing was a – we have said for a couple years now that we're focusing really hard on marketing efficiency, and that what we're measuring ourselves by, as we think of growth, it isn't that we've given up growth. But we're focused very hard on driving the contribution dollar growth.

So that grew 31% this quarter and all of the other numbers Steve has covered.

Please turn to Slide 4. Quarterly revenue growth, we felt like we were back on the wave last year. We can almost look at our daily numbers and see when the bad headlines started hitting, but again, we're still shrinking modestly – 6.7% for Q2. That's not been overly – we haven't panicked about that.

Again the number we look at when we think of our growth is that contribution dollar number. And of course, we can't grow that forever at a 31% rate while the company is shrinking, but we're encouraged that we're able to be growing that as quickly as it is and it really just reflects a lot of marketing efficiencies and margin improvements, which come about from supply chain efficiencies.

So, I think of that as fine tuning the system, and the fact that that's able to grow so quickly, while the business is flat or modestly down and tells me that we are finding the efficiencies that we need to find. I'll move on.

Quarterly gross profit growth, Slide 5, that's up 8%. Again, this number, Slide 6 is really what we're very focused in this business on and how quickly we can grow that. And I think that there's still some real upside in where we can take this and where we can take its growth rate even. And you don't have to project very far out to see we can have a very nice business if we can just keep this growing at a rate anything like this.

Slide 7, our quarterly gross margin and contribution, contribution is the gross profit dollars minus the sales and marketing expense. That's at an all-time high of 14.1%. I wouldn't expect to see that going up. In fact if you turn to Slide 8, we plotted that against Amazon, and you have to compare – to get Amazon's gross margin you've got to make some adjustments because they have different system than we do and where they put as I recall where they put logistics costs and such.

But if you true them out, and at the end of the day – we look at the – our contribution number or NECTR [ph] number compared to Amazon's, and we've now passed it, although they haven't announced I think this quarter results. We do have ultimately, we have surpassed them in the sense that we're at 14.1% and they're 12.2%.

Again, I don't expect to see that go up, but in fact I said – I indicated in the last phone call, maybe the right place for that is 12% to 13%, maybe it's 14% to 15%. But we have a lot of optimization programs that should be finding that.

It's not an order from on high. It's going to be found by experiments and optimization. So, I really – reality is going to tell us where that deserves to be, not me. But I suspect that might even be a little bit starchier than where it will end up optimizing.

Slide 9, quarterly adjusted EBITDA, you see this graph looks nice heading in the right direction, trailing 12 months. Same with quarterly cash flow, trailing 12 months.

Slide 11 GAAP, annualized inventory turns. On a GAAP basis, they're 43. On even an internal basis they are at 8, which is comfortable for retail. I think we should be – I'd like to see us get a little bit better than this.

I'd love it if we can operate in the 10 to 12 range. I'm not promising that, but that's whereas we get more and more scientific in our planning and demand chain forecasting, we might be able to see some remaining improvements there. And in any case, the GIMRY [ph], it's almost at 1000% on a GAAP basis and it's over a 114% on a direct basis.

So – but again, we can be better on that direct basis I think. Slide 13, the Net Promoter Score. I will call – again our overall Net Promoter Score is just fantastic. Everybody should, I'm sure knows that we are, our customer satisfaction gets voted by the NRF and American Express and a national survey every year and customer service now has scored number four and this year number two, so we're phenomenal on Customer Service.

Even people who contact our company with a problem, that's the red line below, they now score us 38; however, I will mention – and I won't mention this going forward every quarter – I will mention that we change technology vendors this quarter and did we change it this quarter?

Jonathan Johnson

First of the year.

Patrick Byrne

First of the year. So, we changed it the first of the year, the vendor that was doing this measurement for us and on the other hand – so does that raise the question is this real or is it that we change the manufacture of the yardstick? And there may be some difference. I think that this is real.

I know that at least part of it is real. We've just gotten very, very good on customer service, and in fact if there is a difference between the two technologies that we use, this one is even more accurate. It's more real-time, the feedback loop is even tighter, so. But I think that we've actually just gotten – I don't know how to distinguish how much of this improvement is from the change in the technology vendor versus how much our customer service has gotten better.

But I think that it's largely our customer service has just gotten even better. And it's certainly more real-time than the other way we were measuring it. And that's all to be compared with an average American company, who scores an 8% according to Fred Reichheld's book, The Ultimate Question.

So the green line – do they see colors on their screen?

Jonathan Johnson

Yes.

Patrick Byrne

Okay. Then the green line is directly comparable to the blue line and the red line is a line I've never seen anyone give publicly. But we just have great customer service – even when somebody has a problem they call and they end up being satisfied.

And then Page 14 again, just the highlights. Our gross margin is at an all-time high.

Our contribution dollars were at an all-time high for Q2 or probably for any non-Q4. Net Promoter Score for customer service contact, all-time high, or adjusted EBITDA. Everything seems to be moving in the right direction. I think we have a – short of I don't know what happens in the global environment, but short of what I call the Mad Max scenario, I would imagine that things just, we seem to have a nice business emerging.

Question-and-Answer Session

Patrick Byrne

I'll hit some questions that have come in. I'm going to start with Sam Antar, who – Sam Antar the Crook, as I like to call him, he always identifies himself as a felon, but he – as people who follow the company knows, Sam Antar the Crook sends all kinds of questions. He's probably published these questions somewhere.

First question is when the under-billing was originally discovered, we determined that the recovery of such amounts was not assured and consequently the potential recovery constituted a gain contingency.

That's correct, as we unraveled in the fourth quarter last year, and so Sam then asks a whole bunch of questions about this.

What had happened, what did we discover – you pick your toes [ph] kind of questions. But the short answer is we unraveled this in the fourth quarter. It all came about simultaneously with the facts leading to the restatement. And when you discover that you owe people money, or that you're not owed money that you thought you were owed, you announce that immediately when you discover that you think you've under-billed other people, that's called a contingent gain, and you don't get to book the entire thing as an asset immediately, because you got to go and collect it.

And you may collect some of it and you may not. There was $87,000 in this quarter of that gain that we collected and I think that's essentially the end. So, we won't see any more of that?

Steve Chesnut

Just very little. It's virtually behind us.

Patrick Byrne

Okay, so there was $87,000 of that in this quarter. Anything else you – Jonathan or Steve want to say about this?

Steve Chesnut

Nope. Very well summarized.

Patrick Byrne

Okay, you sound surprised.

Steve Chesnut

Not in the least little bit.

Patrick Byrne

And then there's questions – a bunch of questions about the litigation from Sam Antar. Jonathan – why don't you take that Jonathan?

Jonathan Johnson

Sam has asked about the increase noted on our press release and our 8-K about an increase being partially offset by a settlement, and he's asked – describe the litigation and dispute involved and identify the parties to the litigation. As I'm sure Sam well knows, most settlements are confidential and this one was.

So we cannot provide that detail or the names. And he's asked how the recognition of legal fees related to that litigation affected comparable quarters last year. Those litigation expenses were included in our G&A for Q1 and Q2, and we've never disclosed detail amounts of legal expenses in any of our litigation matters.

Patrick Byrne

And is Sam afraid his checks may stop clearing?

Jonathan Johnson

That could be.

Patrick Byrne

I'm going to get whacked for that one later. So, that was Sam. Anything else we want to say about Sam Antar?

Steve Chesnut

No.

Patrick Byrne

But if Sam's worrying that we've shut down the litigation against his friends, he shouldn't worry. It's still going on, right?

Jonathan Johnson

That continues and we're pleased with how it continues. They're going well.

Patrick Byrne

So maybe you should go to pay in advance, Sam. Okay, question from Steve Rubis of Stifel Nicolaus.

Steve Rubis – Stifel Nicolaus

Please explain how the affiliate taxation issue affects Overstock. Can you quantify the amount of revenue derived from affiliate relationships – at which the affiliate populations and can you report any progress updates on New York?

Patrick Byrne

I'll leave New York to Jonathan. Let me explain this issue quickly. We derive slightly less than 10% of our revenue from affiliates. The distribution of population of customers is just like the US. There's a slight emphasis on rural versus city and things like that, but basically the population, our customers distribute just like they do around the states.

And if a state says they're going to tax all our sales in that state if we have any affiliate in that state, then the way the times I've done the math it's usually been something like – if for us to start, we look at the – say New York, we look at the operating profit line on the sales we're making in New York, and through affiliates, and what would we give up by cutting off those affiliates.

And let's say it's $1. Well, if we had to start charging tax to all customers in New York, whether they bought through affiliates or not or whatever, if we charge tax to all customers, when I've looked, it varies State by State, but it would be like $7 of tax. We would start charging $7 of tax to rescue that $1 of benefit.

And it just doesn't make any sense for us to do that, or even if we can pass the $7 of costs on to our consumers, so we just cut the affiliate. In some states it's just five and some states it may be four. I think in some states it's 10. But that's basically the calculation.

It doesn't make sense if we're going to have to start – we have structured ourselves so we have only operations in Utah.

Customer service is here, warehouse is here – when we had a warehouse in other places we paid tax, but we don't anymore. And we have – so we're a Utah company. And if somebody wants to order and we'll ship it to them, that's how we do business. But we don't have any nexus in other states.

And so these affiliates, that same equation applies in each state like I say, with some variation. Now, Jonathan would you like – so all these states are going to do is get people who affiliates, there are affiliates who make nice incomes from being affiliates and they are just going to get them, cost them their jobs. Jonathan, why don't you?

Jonathan Johnson

Before commenting on New York, let me add a little color to that if that's okay. When we turn off an affiliate, it doesn't necessarily mean the same amount affiliate revenue goes away, because customers who shop through affiliates bargain sites know to find them somewhere else. So if we turn off affiliate A, customers that were good customers at affiliate A are going to go to affiliates B, C, and D, so our experience is we don't lose that much revenue.

As I think most people know, when California was threatening and the legislature had actually passed a bill or a budget that was going to make us a tax collector in California if we kept our California affiliates, we terminated all of our California affiliates. And Governor Schwarzenegger did the right thing by vetoing that budget and saying no budget that he would sign would include it. So we've turned back on our California affiliates.

In New York, we've had our affiliates off for a number of years now. So we're not collecting sales tax on New York sales. We did sue the State of New York saying that their Affiliate Nexus Bill was unconstitutional. We lost at the trial court, but the case has been appealed. Our brief was filed last month in that case. The states got some number of days, 30 or 45 or 60 to respond, and then at some point oral arguments will get heard.

We're pretty confident that the appellate court is going to decide that the New York bill was unconstitutional, and when it does or if it does, we'll turn back on our affiliates. But otherwise, we continue to just sell to New York residents and not have any New York affiliates.

Patrick Byrne

Okay. It seems the next question is from George Cassey [ph], shareholder.

George Cassey

It seems the present economic environment permits some retailers to grow revenue, e.g. Ross, T.J. Maxx, Amazon, while others can't. What are the reasons for – Overstock didn't in the past two quarters? And can we grow, and if so, when?

Patrick Byrne

Yes, we can, but our emphasis is growth in contribution dollars. Definitely the general downdraft took us – we grew 27% in the first half of last year and then we got the, we actually, I was surprised how quickly that contracted or went negative once the times got bad, but we've gradually come out of it. Well, we've gradually come back towards zero but I'm not nearly as focused on that as I am on marking efficiency and growing the contribution line. So I'm not even going to worry about – I would say I think the right thing to do for the business is to focus on getting the overall economics good, sustainable, making a nice cash machine before we worry too much about what the growth is.

All that said – yes, we can grow. In fact, we can grow tomorrow. The question is can it be profitable growth? We can turn some levers here and be growing as quickly as we want. It's just at what cost. So again, we're just focusing on the contribution. I'm not going to make any predictions about when you will see growth positive top line growth emerge.

For your indirect business, can you explain the similarities and differences between Overstock and Amazon and eBay, as well as other similarities and differences with Ross and T.J. Maxx?

Well, that's a very general question. We've probably talked about it a hundred times, so I'm not going to go into any great detail, but there are differences in the types of goods we carry, the types of goods that are focused on. There are differences in the manufacturers, their willingness to liquidate in these different channels and the cost to them polluting their sales channel, for example. In our view going on eBay for a very high end brand would be a disastrous way for them to liquidate their goods. So that's a general answer but it's a very big picture question. Anything else you want to say about that, Jonathan?

Jonathan Johnson

No.

Patrick Byrne

Okay. Then we have Mike Scott [ph], a shareholder.

Mike Scott

Can you provide an update on international expansion – results to date as well as on thoughts of viability and potential of these operations?

Patrick Byrne

We've recently, we basically have been in Western Europe and Central Europe for a year, about 34 countries we're shipping to. We recently expanded to – we now ship to Hong Kong, Australia, and Singapore. They will be through the rest of this year perhaps some – well, we'll be shipping to Alaska and Hawaii I hope by the end of August. I know that's not international but from a logistics point of view it is, almost. We'll be shipping – we are working on opening some additional Pacific Rim and Latin American countries.

In general, I can say that I think we consider international one of the skunk [ph] works programs and in general, I think there's some real potential. Our auction business, collectively our real estate cars auctions, especially, and international are nice little businesses now – each of them are, well, on our internal accounting they're profitable. I'm not sure on a GAAP basis, but in terms of we charge the payroll and the marketing and everything of each of these companies against them. And they're spitting out a nice little profit, not material enough for us to have to announce it, but pretty I would imagine pretty close actually. And anyway, they are auctions in particular I'm very proud of. It's turned into a nice little business and people who are unhappy with eBay are discovering it.

International, at this point, it's still mostly the logistics and then developing a logistics systems that let us work in these other places, but that just seems to be picking up speed on its own. So collectively, this is a nice set of four still small businesses that don't reach the level of having to disclose their profit or revenue I imagine. Do we disclose the international revenue yet?

Jonathan Johnson

No, and I think all of these four skunk works that you've mentioned Patrick are nice little businesses that we're letting grow organically and we're not focusing on a lot. We've got small teams that that is their job. But our focus continues to be on our main shopping business, and as – we really don't want to lose focus on that, because we think that's the crown jewel that needs polishing and can shine the brightest.

Patrick Byrne

But I do think international has a huge opportunity. There are some big opportunities and some things that we thought of doing that maybe nobody else has done yet that we can find, and it's very inexpensive comparatively for us to develop these businesses.

Jonathan Johnson

Right. I agree with that, but just our focus remains on the core business.

Patrick Byrne

Okay. So that is the end of the submitted questions. Are there any, – hang on a second. Okay, there's a Nat Schindler.

Jonathan Johnson

Christy, why don't you let us know who is on and we'll take the first call.

Operator

(Operator instructions) Your first question comes from Nat Schindler with Banc of America.

Nat Schindler – Banc of America

Yes, hi, guys. Thanks for taking my question and it seems like a very strong quarter this quarter. One thing I wanted to know a little bit about and go a little further on was your question you were talking about the sales tax issues. Have you guys done much studies about the effect of actually taking sales tax on your business and how e-commerce companies' growth rates are affected by being forced to collect sales tax?

Patrick Byrne

Do you mind me asking first what are your thoughts on that?

Nat Schindler – Banc of America

I've heard different things, and I've seen some studies that suggest that where – in the very few places that Amazon for example, has to collect sales tax, they have no fundamental difference in their growth rates. I don't know and I haven't seen very definitive work on it. I also, it just comes up as a question a lot right now because everybody seems to think that eventually this out of state sales tax issue is going to go away.

Patrick Byrne

Well, I can tell you we spend a lot of time now focusing on price in elasticity’s and elasticity’s. And I suspect from what I've seen that when you increase price from sales, there's more demand – the demand is less elastic than when you increase a price from – just by increasing your prices, which would go, which would support your point. I don't believe its zero, but I am under the impression that when you increase prices by a tax, people don't change their behavior as much as if you increased it the same amount from just a price increase.

Nat Schindler – Banc of America

And certainly if it's universal, they have no other option. They're always going to have to pay that increase.

Patrick Byrne

Yes, except that some people's other option is brick and mortar and they choose the Internet in part because they don't pay the taxes. And so when you take that away, there will be some less consumption of, well, the move from brick and mortar to Internet would slow down. So I am under the impression that it is less elastic when you talk about a tax increase, but we don't have anything definitive.

Nat Schindler – Banc of America

Okay, that's similar to what I would think. Another question was going back to the partner gross margins, looks like a relatively clean number this quarter at 20%, though I think there was $87,000 – I guess I could take that out but I don't think that's going to make a very big difference. Is that 20% really sustainable and especially relative you look at third party business for Amazon as considerably lower than that, but doesn't offer exactly the same comparable service. So I was wondering if you believe that's long term sustainable at that level.

Patrick Byrne

Well, we do offer a lot different service than Amazon does and in terms of the returns, customer service and so on. I think that – I just hear from the partners who are on both that they have much better results for the money they pay by getting on ours. I think that the way the gods of economics want it to play out is probably there's got to be two. There's going to be the Nordstroms and there's going to be the Overstock, I'm sorry.

So I think that ultimately, Amazon – so is 20% sustainable? I don't know. Again that's one of those optimization processes and I'm not sure what the right number is. If its lower, it's only because we think that it turns out by being lower it generates more for both us and our partners. But I hear a lot from our partners that they have better results for what they're paying us than what they are experiencing with the same products on Amazon. Steve, do you want to address this?

Steve Chesnut

Yes, I think your perspective is right on that, Patrick, which is – the natural economics on this thing are going to play out. And for the partners, we become a much more efficient engine for them to work with because we deal with the customer issues. They're just the fulfillment side. And so for them, it's a cheaper model inherently for them to work with, plus the customer in this case gets a better experience because we've got a professional staff headed up by store managers [ph] who really help drive that.

Patrick Byrne

And we have homogenized that whole front end for the customer. It's not going into Amazon marketplace and – which some people are fine with and some people want a more homogenized front end. Also, I know that on electronics, they're a lot lower, but on some of their areas, there's not as much lower as we thought they were, stand by just a moment. Or do you actually have the tax on that in front of you, Nat?

Nat Schindler – Banc of America

On what –?

Patrick Byrne

What Amazon is charging?

Nat Schindler – Banc of America

No, I don't have that in front of me right now, but I thought their averages were around 15%.

Patrick Byrne

Yes, okay. There's some people who thought it was significantly lower and then we checked and they thought it was lower than 15% and then we checked into it and no, it wasn't.

Nat Schindler – Banc of America

And I think it also depends if you include in other partners like Target who are on the white label service, but that's not comparable. And going into a final question, you've said in the past that tech and G&A combined would be roughly 105 to 110 for the year, but given this quarter, you look like you're probably heading a little lower than that. Would you still hold to that number?

Patrick Byrne

I'd say I would bias down, Steve.

Steve Chesnut

Yes, we'll clearly be at the lower end of that range.

Patrick Byrne

Yes, but still in that range?

Steve Chesnut

We may be just a tad below that range.

Patrick Byrne

And then I think for your planning, I think we're at a point where technology, $15 million a year of CapEx is probably a good number for the foreseeable future. And then in terms of how much does that – inside the CapEx, how much does that expense grow, there's – we've really filled out the team. I don't think that you see that expense grow 20% a year. You might see it grow, we hire a lot of developers. We're hiring a lot of developers. But it's not, the days of it sort of rocketing seem to be well behind us.

Jonathan Johnson

Well, we like to hire developers and we think that they quickly pay for themselves and that's part of the reason that the results have improved. So I'm not sure we're shying away from hiring developers.

Patrick Byrne

No, I'm saying that we are, but I think that – I don't know, I think of that 105 to 110 number growing sort of 5 to 10% now, maybe a little bit more than that, but maybe I don't see why it really should. Are you wincing, Jonathan? When I said 10% is that a –?

Jonathan Johnson

I don't like any type of guidance, but there it is.

Patrick Byrne

So okay, I'll stop there.

Nat Schindler – Banc of America

But just going a little bit more then into that tech number, it's down about $1.1 million sequentially, and I know that you've been dropping off depreciation for a while, but you did start hiring again with a lot of people. So I wouldn't expect that much of a sequential drop. Is there something that happens in Q1 that causes it to be unnaturally high?

Steve Chesnut

I think now your perspective is right is that the depreciation is dropping off, and while we're hiring to fill in, we aren't hiring faster than what the depreciation is dropping off.

Patrick Byrne

But isn't the depreciation now about stable?

Steve Chesnut

Yes, but when we get through this year, we'll be very stable, 15 million CapEx, 15 million depreciation type scenario.

Nat Schindler – Banc of America

Okay, post this year, about 15 million a year in depreciation per year?

Patrick Byrne

But this year, what do you expect it to be Steve?

Steve Chesnut

We'll be about 15, so as we go through this year, we're going to be pretty much now flat [ph] line.

Patrick Byrne

And the only, I can't even think of any big CapEx expense other than we may have to buy one big box in a couple years and we are thinking of moving out to the warehouse – I've talked in a couple of other conference calls. We would have to build a corporate center there, which would be a high single digit million number. But those are the two –

Jonathan Johnson

And we're being very thoughtful about when that happens. It won't be premature from our standpoint.

Patrick Byrne

Right.

Nat Schindler – Banc of America

Okay. Well, thank you very much.

Patrick Byrne

Thanks, Nat.

Operator

(Operator instructions)

Patrick Byrne

Okay, I'm looking over for Mr. Poundo [ph]. Doesn't look like there's anybody. So, thank you once again for joining our conference call and we look forward to talking to you in a few months.

Jonathan Johnson

Thanks.

Operator

Thank you for participating in today's call. You may now disconnect.

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Source: Overstock.com, Inc. Q2 2009 Earnings Call Transcript

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