Overstock Q2 2005 Earnings Conference Call Transcript (OSTK)

Overstock.com (ticker: OSTK) has generated a fair amount of controversy since announcing its Q2 results and pre-announcing lower than expected Q3 revenues and profits. With that in mind, here's the full text of Overstock's Q2 conference call for the record. The accompanying slide presentation is here. Q2 transcript in full:

Other OSTK conference call transcripts: Q1 2005, Q4 2004, Q3 2004, Q1 2004.

Q2 2005 Overstock Com Inc Earnings Conference Call
03 Aug 2005 11:00 (ET)

Corporate Participants
David Chidester - Overstock.com - SVP, Finance
Dr. Patrick Byrne - Overstock.com - Chairman and President

Conference Call Participants
Douglas Anmuth - Lehman Brothers - Analyst
Scott Devitt - Legg Mason - Analyst
Craig Bibb - Brean Murray - Analyst
Aaron Kessler - Piper Jaffray - Analyst
Justin Post - Merrill Lynch - Analyst

Overstock Com Inc [OSTK]

Q2 2005 Overstock Com Inc Earnings Conference Call
03 Aug 2005 11:00 (ET)

Operator

Good morning, everyone. My name is Erica and I will be your conference moderator today. I would like to welcome everyone to Overstock.com's second quarter 2005 financial results conference call. At this time all lines are in a listen-only mode. Later,we'll announce the opportunity for questions and instructions will be given at that time. A web based slide presentation will be used during this call and is available for viewing over the Internet on the Company web site, www.shareholder.com/overstock. [OPERATOR INSTRUCTIONS]. This call is being recorded and will be available for replay beginning today at 3:00 p.m. eastern time through 11:59 eastern time August 10th. The replay can be accessed by dialing 888-203-1112 and entering the code of 4443183.

At this time, I would like to turn the conference over to Mr. David Chidester, Overstock.com's Senior Vice President of Finance. Mr. Chidester, you may begin.

David Chidester, Overstock.com - SVP, Finance

Thank you. Good morning and welcome to Overstock.com's second quarter 2005 conference call. Participating with me on the call is Dr. Patrick Byrne, Chairman and President.

Before I turn to the financial results, please keep in mind that the following discussion and responses to your questions reflect management's views as of today, August 3, 2005 only. As you listen to the call, I encourage you to have our press release in front of you, since our financial results, detailed commentary, and the President's letter to shareholders are included and will correspond to much of the discussion that follows.

As we share information today to help you better understand our business, it is important to keep in mind that we'll make statements in the course of this conference call that state our intentions, hopes, beliefs, expectations or predictions of the future. These constitute forward-looking statements for the purpose of the Safe Harbor Provisions under the Private Securities Litigation Reform within the meaning of Section 27A of the Securities Exchange Act of 1933, and Section 21E of the Securities Exchange Act of 1934.

These forward-looking statements involve certain risks and uncertainties that could cause Overstock.com's actual results to different materially from those projected in these forward-looking statements. Overstock.com disclaims any intention or obligation to revise any forward-looking statements. Additional information concerning important factors that could cause actual results to differ in the forward-looking statements is contained from time to time in documents filing with the SEC, included but not limited to its most recent reports on forms 10-K, 10-Q, 8-K, and S-1.

With that said, I'd like to review some of the financial highlights from this past quarter. Please note that all comparisons will be against our results for the comparable period of 2004, unless otherwise stated. Total revenue in the quarter was $151 million, up 72%. Gross margins were 14.7% in Q2 up from 11.3% gross profit dollars increased 124% to 22 million. Operating expenses grew 129% to 28 million.

The overall increase in operating expenses was driven by a 233% increase in technology costs and 119% increase in sales and marketing. Other G&A increased just over 100%. We remain comfortable with our overall G&A and technology estimate for full year 2005, of 60 million, plus or minus 5%.

Our operating loss was 6.1 million, or 4% of sales, versus 2.4%. However, we had 3.5 million of net nonoperating income as a result of a $4.1 million gain on the retirement of 33 million of our convertible debt. So our net loss was 2.5 million, compared to a net loss of 2.3 million, both $0.13 per share. We ended the quarter with 120 million in cash and marketable securities. We had total cash outflow during the quarter of 65 million. 10 million of outflow from operations, 11 million for capital expenditures, and an additional 44 million related to stock and bond buybacks during the quarter.

In total for the buyback program, including the 48 million of outflows for the structured buybacks that we had in Q1, we used approximately 64 million to buy back 1.7 million shares and used and additional 28 million to retire 33 million of debt. One last point to keep in mind regarding cash is that on July 1, 2005, we completed our acquisition of SkiWest for 25 million of cash. That being offset by approximately 8 million of cash returned to us in the first week of July as part of the closing out of the the structured buybacks, leaving us with just over 100 million the beginning the quarter.

Finally the average invoice increased to $97 from $86 last year, and up from $91 in Q1. This is partially due to a change in the sales mix, as BMV fell to 10% of our total gross bookings, versus 12% last year. That covers my financial overview.

I would like to turn the call now over to Patrick.

Dr. Patrick Byrne, Overstock.com - Chairman and President

Thanks for that nice summary. We have got a great slide deck today. I'll keep this preamble short.

One -- first, I'm sure I sound like a broken record quarter after quarter, but I'll reiterate the Overstock mantra: Our internal stretch goal for the Company is 100% growth, break even bottom line, with “break even