Overstock.com, Inc.

This presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lavesh Himnani, Head of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to Overstock's fourth quarter and full year 2022 earnings conference call. I'm Lavesh M. Nani. Joining me on the call today are CEO Jonathan Johnson, CFO Adrian Lee, and President Dave Nielsen will be available for Q&A. A slide presentation accompanying today's webcast has been posted to our investor relations website and is available to download. Next slide, please. Please review the important forward-looking statements disclosure on slide two of today's presentation. The following discussion and our responses to your questions reflect management's views as of today, February 22, 2023, and may include forward-looking statements. Actual results could differ materially from such statements. Additional information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2021, and in our subsequent filings with the SEC. During this call, we discussed certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call for questions. To ask a question, please use the registration link available under the event section of our investor relations website. Next slide, please. During today's call, we will follow the agenda on slide three. And with that, let me turn the call over to our CEO, Jonathan Johnson.

Thank you, Lavash. And good morning, everyone. I'll begin today's call with an overview of the Overstock investment story and our progress since the pandemic began. Before asking Adrian to discuss our Q4 and full year financial results. Next slide. Overstock has been on a three-year purposeful, strategic, and transformational journey since I became CEO. We refocused management on the retail business and transitioned Overstock to a 100% home-only retailer. This transformation coincided with a dynamic shift in consumer spending behavior within the furniture and home furnishings category. 2023 will be Overstock's first full year as a homeowner and retailer in our 20-plus years of being a public company. The statistics on this slide summarize some of the progress we've made over the last three years. During that period, we have grown revenue by over 50%. I'll pace the expansion in the furniture and home furnishings total addressable market and consumer expenditures. and gained market share. Notably, our home product assortment has more than doubled since we began our exit from non-home products in January 2021. From an operational standpoint, our team managed budgets, found efficiencies and automation opportunities, and took costs out of the business to ensure we achieved positive adjusted EBITDA for each of the last 11 quarters. We expanded gross margin nearly 300 basis points and adjusted EBITDA margin nearly 500 basis points. Let me be upfront. Progress we have made over the last three years does not erase the fact that our 2022 performance was below our own expectations. Revenue declined 30% year over year, resulting in a loss of market share. While we delivered positive adjusted EBITDA in each quarter of the year, our weaker top line performance drove significant expense deleveraging, even with our already lead organizational structure. During today's call, I will share areas of opportunity that should get us on the path to improve our top line performance as we continue to leverage our differentiated asset light business model. Next slide, please. We share this flywheel each quarter. It highlights our growth drivers, those efforts critical to supporting growth in the short and long term. While these key growth drivers are not new, we are always evolving the underpinning of our drivers to improve performance. As an example, from an assortment standpoint, our internal data shows that more than a third of our revenue during the fourth quarter was driven by SKUs added over the last two years. While our transition to 100% home retailer is complete, we know we still have a big assortment gap relative to competition. Our merchandising team has added more than 4 million new on-trend SKUs from thousands of partners since the beginning of our move to home only. They continue to identify new opportunities that are helping to close the gap to competition. Good example being our strategic decision to add national branded giftables during Q4, a category which outperformed in the quarter. Mobile app adoption has grown rapidly, but we can still do better. We will continue to focus efforts to accelerate its growth. It is our best customer engagement platform, one with better order frequency. We're always working to improve customer retention. Earlier this month, we launched an exciting new loyalty offering, a new co-branded MasterCard credit card in partnership with Citi Retail Services. come on this card launch later in the call. Improving product findability and how customers browse and engage with product pages on our site is table stakes for any e-commerce retailer. Still, we can improve our search processing and results recommendation to deliver a better customer experience. And we're working on just those things. None of these growth drivers is capital or resource intensive. All are aligned with our asset life business model. All will help us retain our customers, increase our frequency, and market share. While we continue to disappoint the managers of our balance sheet and income statement, we are confident that we have the right system and right people in key positions to lead these growth initiatives. Next slide. Overstock is uniquely positioned with significant white space available in the quadrant where home goods expertise meets smart value. This quadrant is so attractive that last year many of our competitors that had a glut of inventory started to look a lot more like us and drifted into our quadrant. While this increases competition for a time, I do not believe their business models and balance sheets will allow them to offer smart value pricing over a longer period. The furniture and home furnishings market is fragmented with a total addressable market of over $400 billion. We believe that we have an opportunity to gain share by sharpening our focus on our key growth drivers. Our smart value offering resonates with our customers, and our pricing competency held up well during the fourth quarter, a quarter in which promotions started earlier with competitors relying on deep discounts to stimulate demand and trying to sell through excess inventory. As I mentioned earlier, we went after giftable inventory as we looked to take advantage of market share lost by some of our competitors. We used our strong to take some inventory exposure in national brands in categories we have not historically been strong in. This strategy was successful over the Cyber 5 period as we registered year-over-year growth on this inventory. In some cases, we sold through almost two-thirds of the acquired inventory during the five-day period. While I usually don't talk about performance by category, I want to emphasize that we continue to work to grow our presence in the significant white space available to us. Our renewed own focus is enabling us to work with partners who we have not worked with in the past, supporting our efforts to drive market share growth. Next slide. An integral element of our business model, one that supports our efforts to educate key growth drivers, is the strength of our balance sheet. Even as we navigated a difficult fourth quarter, which impacted our ability to generate cash, we managed to end the year with a relatively strong balance sheet. We exited 2022 with $371 million in cash and just $34 million in long-term debt. resulting in a net cash position of $337 million. Having minimal debt and a strong cash position in this uncertain macro environment is a great tactical advantage. It allows us to focus on improving our core operations and pursue initiatives without relying on the capital markets. And it has been and will be a big plus for us as we continue to add new partner suppliers. We repurchased shares in the fourth quarter. During 2022, we've returned $80 million to our shareholders via share repurchases. During 2022, we made a $15 million direct investment in T-Zero. Last month, we directly invested $10 million in GrainChain. We believe that both are promising Medici Ventures portfolio companies. More on each later. Considering these investments and share repurchases, we have invested over $100 million or about 20% of our cash balance sheet since the beginning of 2022 towards value driving initiatives for our shareholders. Next slide. Our Medici Ventures portfolio continues to present a differentiated value opportunity for Overstock. It is still a key element in the Overstock investment story. Our blockchain investments have made significant progress since we transferred active management of the portfolio to Pelliot Venture Partners in April 2021. Pelliot has served as an excellent partner in advancing growth for assets in the Medici Ventures funds. During 2022, three of the portfolio companies shown on the left of this slide raised additional financing at higher valuations. We believe each has potential meaningful long-term value for Overstock and its shareholders. There were two of these companies shown on the right side of this slide in which Overstock chose to make a direct investment alongside the Medici Ventures Fund and or Pellion Ventures. While we are not a venture capital fund, given our in-depth knowledge of these companies and their management and the trust we have in Pellion as the general partner of the Medici Fund, we believe that both these companies have such real potential for significant growth that we chose to double down on them. During 2022, we made an additional $15 million direct investment in T-Zero in a round led by Intercontinental Exchange. This coincided with T-Zero's appointment of a new CEO, David Goon, who has experience creating exchanges and delivering against business objectives. T-Zero continues to execute toward its goal of democratizing access to capital markets aided by the appointment of a new CTO, William Grazoni in early 2023. T-Zero revamped its web infrastructure and continues to add new issuers to its fully compliant securities trading platform. Earlier this month, T-Zero enabled Aurox, a crypto software ecosystem, to begin a crowdfunding campaign under the SEC's regulation crowdfunding. which allows qualified retail investors to purchase shares of Oryx. This feels like a major step in the democratization of capital raising in pre-IPO companies. I know some may ask for my thoughts on TZERO shuttering its crypto wallet. TZERO was not built to be a crypto exchange. and enabling customers to trade cryptocurrencies was never a core area of focus for T-Zero. The crypto trading business was an adjacent activity designed to augment T-Zero's focus on bringing unique digital and conventional securities to the market. From what I understand, the crypto activity ended up not being accretive to T-Zero's financial results or to its future directions. In January, Overstock made a $10 million direct investment in GrainChain through a convertible mode offering. GrainChain provides a software suite to farmer cooperatives that enables farmers to get paid 60% of the value of the commodity upon harvest and the balance upon successful delivery to the end customer. Farmers who don't use the GrainChain platform usually get paid up to 180 days after product delivery. So you can see why this is a game changer. Grain chain has seen high levels of customer stickiness once farmers try the platform. As a result, it has been able to grow relatively quickly over the last few years. 2020, the company has grown at an annual compound rate of 125%, and revenue has grown nearly 400%. With its differentiated technology, we expect GrainChain to become a market leader in tech space. While I do not expect follow-on investments to be a regular occurrence, and the bar for such follow-on investments is high, both these follow-on investments enable Overstock and its shareholders participate in the future success of P0 and grain chain in a greater way. Next slide. Now for a brief update on recent corporate events. Last spring, we introduced our forward or future of remote work and reentry design plan. At that time, most of our employees work remotely almost all the time. When we created this plan, we expected it to evolve and mature as the business environment and financial performance required. We recently tested requiring employees to come into the office more frequently. We saw better cross-functional collaboration and efficiencies. With the success of this test, we modified our in-office days under the forward plan to bring every local employee to the office weekly, most three times a week. The forward plan has enabled us to attract top talent to the organization from outside of Utah. During 2022, the Overstock leadership team underwent some major changes in marketing, merchandising, supply chain, and product groups where we upgraded talent and identified and filled gaps. For example, just this past week with proven international and supply chain logistics experience. In addition, that should help spark our efforts to grow in Canada. As we progress through 2023, these new teams will deploy new and exciting strategies to drive growth. We are confident we have the right systems in place and the right people in key positions to lead these growth initiatives. We remain committed to hiring remotely, which allows us to upgrade our talent with the best candidates from across the country to strengthen our operations and return to top line growth. Now, I will ask Adrienne to review our fourth quarter and full year 2022 financial results.