Good day, and thank you for standing by. Welcome to the Overstock Third Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Allison Fletcher. Please go ahead.

Thank you, operator. Good morning, and welcome to Overstock's Third Quarter 2021 Earnings Conference Call. I'm Allison Fletcher, Deputy General Counsel and Senior Director of Legal Affairs. Joining me today are Jonathan Johnson, CEO; and Adrianne Lee, CFO. Dave Nielsen, President of Overstock, will also be available for Q&A at the end of the call. Please note that we are conducting today's call remotely. Let me remind you that the following discussion and our responses to your questions reflect management's views as of today, October 28, 2021, 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, 2020, and our Form 10-Qs for the first and second quarters of 2021 in the press release we filed this morning and in our subsequent filings with the SEC. Please review the important forward-looking statements disclosure on Slide 2 of today's presentation. During this call, we'll discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC, each posted on our Investor Relations website, contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. This presentation is available for download on our Investor Relations website, and our summary side contains instructions for asking questions during our Q&A session. With that, let me turn the call over to you, Jonathan.

Thank you, Allison, and good morning, everyone. Overstock delivered another strong quarter, even as we lapped our highest quarter of revenue growth since 2004 and navigated significant industry-wide supply chain disruptions. As you'll see when Adrianne reviews the financial results, we once again exceeded quarterly consensus expectations on both the top and bottom lines. And the metrics we look at indicate Overstock gained about 50 basis points of online market share year-over-year compared to our top home goods retailer peers. I'm eager to see this confirmed as others release results in the coming weeks. Before I jump into the specifics on the quarter, I'm reminded of a Warren Buffett quote, "Only when the tide goes out do you discover who's been swimming naked." Well, the pandemic tide that lifted all online home retail, home furnishing companies in 2020 has begun to go out. And Overstock continues to operate at over 2x our pre-pandemic sales level and to consistently deliver profits within our stated targets. This is because in the 6 months that preceded the pandemic and in the months since, this management team made and continues to make foundational improvements to our business operation. The pandemic tide is receding, and we are wearing an operational wetsuit, if you will. For the last 6 quarters, we've consistently delivered results well above our pre-pandemic numbers. During today's call, we will follow the agenda on Slide 3. Next slide, please. I'll start with a comment on macro-economic trends. They remained strong and favorable. We've shown these numbers before, but I'll quickly review them. In 2020, 1 in 10 Americans moved. When people move, that creates great opportunities for us as a furniture and home furnishings purchases are often moved and project-based. Even if customers start with 1 room and move to the next…

Thank you, Jonathan. Slide 6, please. As announced on last quarter's earnings call, the Medici Venture businesses are deconsolidated from our financial statements, and the Medici Fund is recorded as an asset on our balance sheet. On a quarterly basis, we record our proportionate share of the fund's reported net income or loss. I will begin with a high-level summary of our third quarter results followed by a review of key customer metrics and performance indicators. Next slide, please. The third quarter of 2021 was another strong quarter and in line with our near- to mid-term financial targets. We are maintaining the significant sales gains from the pandemic and delivering financial results in line with what we committed to deliver: market share growth and profitability. Revenue declined by 4% year-over-year but more than doubled versus the third quarter of 2019. Adjusted EBITDA was $36 million in the third quarter, a year-over-year decrease of $10 million driven by lower sales and onetime gross margin benefits recognized in 2020. Adjusted EBITDA improved $41 million compared to the third quarter of 2019. We reported diluted earnings per share of $0.63. Excluding the impact of truing up our tax valuation allowance, which is customary when a release is done during an interim period as opposed to year-end, diluted earnings per share was $0.54 in the quarter, a decrease of $0.27 versus 2020 and an improvement of $0.94 per share compared to the third quarter of 2019. We ended the third quarter with a healthy balance sheet and $512 million in cash. As Jonathan discussed, our Board authorized a $100 million stock repurchase program that we have yet to execute against. I will speak to these financial metrics in greater detail in the following slides. Next slide, please. We posted revenue of $689 million in…

Thanks, Adrianne. The team again executed well during the third quarter, navigating competitive pressure, iOS privacy changes and pervasive supply chain kinks to deliver solid financial results, profitable results that are in line with our targeted margin guardrails. Our team is focused and committed in proving that we have implemented and continue to implement meaningful foundational operational changes. Slide 14, please. We have had 20 months of sales performance that has been double or nearly double our pre-pandemic run rate despite numerous and varying supply chain challenges. I'm eager to see what we can do when the bottlenecks in the supply chain subside. I suspect we will be able to significantly grow the number of SKUs we offer as we increase the breadth and depth of our home products. Slide 15. Next, I'll provide some additional insights into our e-commerce business, including where our focused strategy is paying off, our agile operations that are key in today's environment, and where we are targeting and driving growth. Slide 16, please. We believe online penetration continues to grow and will finish the year at a pre-pandemic growth rate. It's nice to again see nice growth in that penetration in 2021 even after the large surge we saw last year. Importantly, third-party forecasts project continued migration in 2022 and beyond as customers recognize the broad assortment available, value and ease of purchasing furniture and home furnishings online. Add to this online migration, the growth in the home market TAM and Overstock has 2 nice tailwind factors. Slide 17, please. We shared this slide for several quarters and continue to believe and illustrates well where Overstock fits in the overall market and the significant white space available in the quadrant where home goods expertise meets Smart Value. This quadrant is the right place for…

[Operator Instructions] Our first question will come from the line of Lavesh Hemnani from Credit Suisse. Lavesh Hemnani;Credit Suisse;Vice President: Thank you for the color on 2022. Just to start with that, with regard to your expectations for 2022, how incremental does GSA become as we move through the year? Is it going to be a major factor for 2022? And then I have a follow-up.

Yes. A great question -- Lavesh, great question. GSA we do not think is going to be an incremental factor in 2022. GSA is a long-term play. As I've mentioned before, it started slower than we had hoped and expected, but that's okay. It has helped us add partners that we think will grow for us. It started as a pilot-worthy site, which is now a full-fledged site. The GSA has limited our ability to advertise to customers, but it's now loosened somewhat, and it's taken time to expand our product offerings, but that's taking off. So GSA is not a big factor in our 2022 plan. Lavesh Hemnani;Credit Suisse;Vice President: Got it. And just a quick follow-up on the short-term trends. If I go back to the last call, you sort of indicated expectations for trends to improve later in the quarter. So if you can just provide some cadence on the Q3 sales trends by month? And what are you seeing in October so far?

That's a great question. Let me give some color on Q3 intra-quarter sales. Our year-over-year revenue comp was better in August than it was in July. Our year-over-year revenue comp was better in September than it was in August. And I expect our year-over-year revenue comp for Q4 will be better than it was in Q3, and that will be growing top line again. Now we've been giving intra-quarter color since the start of the pandemic based on some SEC guidance about early pandemic color and disclosure. Now that we've lapped our 2 toughest quarters to comp, it no longer seems necessary or, frankly, prudent to give intra-company quarter, and instead, we're focused on a longer horizon. That's the comments in the prepared remarks about our current view of 2020. I will say this. Even as we sharpen our focus on home, we do expect to be competitive and provide a great assortment of home giftables for the holiday season. I hope that's helpful.

Our next question comes from the line of Anna Andreeva from Needham.

Great. And congrats, guys. Really great results. Two questions to Jonathan. Really excited about the SKU opportunity. Can you maybe talk about some of the new sub-categories where Overstock has the right to win? I think you mentioned Casper and KitchenAid. And also where you plan to add the additional depths? And what's the time line which you think of next year as you begin to flow in those SKUs? And second question to Adrianne. Really solid expense control. I think right, this is the second quarter in a row that OpEx dollars are declining. It sounds like we should expect leverage to continue. Maybe, Adrianne, can you talk about some of the specific buckets where you're seeing the opportunity?

Thank you. As far as increased SKUs, as I've mentioned, our distributed and diverse supply chains help us on this front. As people have been expanding their living spaces from the 4 walls of their home to the 4 corners of their property, outdoor furniture was a big deal. And our merchandising team was able to work with our partners despite supply chain challenges to do this well. We are working on expanding breadth and depth. And I'll turn it to Dave to talk a little bit about where we're focused without giving away too much of our inside baseball and some of the timing on this.

Yes. Thank you, Jonathan. We are adding products every day in multiple categories. And there are categories where we are well penetrated, and we own the categories, as Jonathan mentioned, with outdoor furniture earlier. And then there are categories where we're under-penetrated, and we're focusing on adding products always in those areas. And with that vast distributed network of partners, we like the potential that they bring us to add these new product categories. And just to give you a couple of them, like, storage and organization, to be specific, is one that has just really taken off for us recently, and we're continuing to put resources behind it. Having our home strategy of removing some of our nonhome products has allowed our teams to focus even more on those home categories where we are under-penetrated and see opportunity for future growth. Jonathan?

Thanks, Dave. Adrianne, why don't you address the question on expense controls, [ then I'd come ], I want to say on that?

Certainly. Anna, yes, our kind of absolute dollars, as you've noted, have been relatively consistent over the last 9 quarters. I think 2 things, obviously, to take away is that we don't need to add a significant amount of G&A and Tech expense to support additional sales. We've got a lot of scalability in our business. And the second is just we're very disciplined with our investing, and so as we invest dollars into the business, we're very focused on ROIs and on making sure that we can have our guardrails work within our investments. So I would just say, nothing in particular that we're targeting as takeouts. It's more of just being really measured in our spending and investing. Jonathan?

Yes. Anna, this is a great question. We follow the financial recipe card, so we call it internally that we share with the Street. We are going to have 22%-ish gross margins, and then we're going to manage expenses tightly to bring in mid-single-digit adjusted EBITDA. I sometimes hear that the only reason Overstock is taking market share is we're cutting price. Not so. We're taking market share because we are running a great business type and because we're offering Smart Value to our customers. This is a growing segment, and we're a growing business [ entity ]. I think as long as we follow that financial recipe card, there's market share to be taken. And as I've said so many times, keeping our gross margins at this level for now is, we think, absolutely the right thing to do. An example I've given so many times is the Oklahoma land rush. When the bell went off, the prairie schooners started going. They didn't take time to water the horses and feed the oxen. They ran. We're not taking time to water the horses and feed the oxen. We're staying at 22% gross margin and taking market share.

Next question will come from the line of Peter Keith from Piper Sandler.

Great results and a nice summary with the prepared remarks as well. Jonathan, you guys talk about sustaining this 22% gross margin and sustaining the mid-single-digit EBITDA margin. We get a lot of questions and pushback that right now we're in a low promotional environment and that as we go into 2022 and inventory availability gets better and promotions pick up that Overstock is going to get beat up and see margin pressure. Why would that thinking be wrong?

Well, we think we're -- yes, we're in a low-promotion environment, but we're also in a very competitive advertising environment. I mean ad spend is aggressive. It felt like there was [ cooped up ] ad dollars from last year. People are spending more on their ads than they have in the past. Maybe it's low competitive because there's limited -- some have limited SKUs. We seem to be able to find the SKUs we need. And if we don't have the exact SKU we need, we have a replacement SKU that our customers are finding, liking and buying. So look, when the supply chain kinks get unkinked and products flow a little more smoothly, we think that's going to be great for us. We're going to increase the number of SKUs we have on the site. We're going to have more products to offer. We're going to continue to compete on price and do so well. That's just -- I get that there will always be a bear case. That's the best bear case. I don't get it. That's not a very good one.

Okay. Yes. Fair enough. And then -- so you did just tease out a little bit of commentary around Q4 in the previous question. So is it -- to understand you would expect year-on-year growth or it's quarter-on-quarter growth for the quarter?

I said I think we'll be growing our top line again. I think that's year-on-year growth.

Our next question will come from the line of Victoria James from D.A. Davidson. Victoria James;D.A. Davidson Companies;Equity Research Associate: So I have 2 questions, but let's take them one at a time. You've commented a bit on the last question about the supply chain. So from your vantage point, what is it going to take to improve the supply chain and logistic challenges? And when should we expect a significant improvement?

Well, that is The $64,000 Question, to go back to 1970's game show parlance. It's going to take some time. I think it's going to go beyond the end of the year and into 2022. And the supply chain has many links, and different of those links have been kinked at different times. Early on, it was the manufacturers. That doesn't seem to be the kink right now. Then it was the carriers from warehouse to customers. We were worried about [ ship again ], which by the way didn't affect us because of our forecast. Then it was the ports and the containers, and it's still containers. Today, it seems to us that the worst kink is the trucks and chassis, as containers -- empty containers are piled up at the ports. The supply chain is fragile, and that's why we like our model. It's so well distributed that if one supplier is not getting something, others can. And one thing we've noticed. Our supplier partners are nimble. Some of them were smaller, and their ability to call in a favor with a trucking or shipping company to deliver a smaller number of containers rather than hundreds or thousands of containers has been real. And so it's part of the reason we like our model. I think this is here to stay for a while, unfortunately. Dave, you're much deeper into the logistics than I am, do you have anything to add to that?

No. I think that was well answered. Victoria James;D.A. Davidson Companies;Equity Research Associate: And then my next question would be, at Davidson, we've been monitoring a bunch of different data about what consumer trends are doing. Specifically, we've been looking at TSA throughput data, and we've seen that consumers are clearly traveling more this year than they were last year. How, if at all, do you believe that's impacting the home category?

Fair question. We think -- as I mentioned on our call in Q2, we think it did have an impact -- negative impact in Q3. There's pent-up travel demand, particularly at the end of the summer. People got to the beaches. They got to the mountains. They got to wherever they were going. I think that's still -- there's some of that there. My premise is there's pent-up gathering demand. And people will gather during the holidays. They're going to travel and gather. I know I'm just so eager to be with family and friends in Thanksgiving and Christmas. I think gathering demand spills over into home demand. When you go to a house, people make sure the house just looks a little bit better. The home is going to feel a little more homely. And so we -- yes, there is that demand, but we think that some of it's correlated. Again, Dave, anything you would add to that?

The only other thing I would add is, in this new work environment where people are working more remotely, people are more aware of their home surroundings. And they are remodeling, and they are updating more frequently than they did before. So we think that plays to our advantage as well. Even though the travel restrictions are easing, there are other counter-activities going on that are holding that demand high.

And our last question for today will come from the line of Curtis Nagle from Bank of America.

So apologies if I missed this, but John, just, I guess, a quick question on 3Q in terms of the incremental supply chain improvements, vendor improvement, or I should say, product improvement. Like what specific categories did you really see an incremental benefit really made a difference in what looked like a pretty nice quarter?

Yes. Curtis, good question. We did talk about that a little bit in the prepared remarks. I think the category we'd highlight is outdoor furniture. We take the #1 space in that in summer. We beat everybody in that this summer. And I think it's because we've got this broad supply chain, our partners were there for us, and we were there for them. They needed to move it because outdoor furniture is seasonal. And they know who they can move product with. That's us. That's us. And so that's why we think we're getting a good first look at inventory. As I also mentioned, they don't like tying up their inventory in any particular 1 supply chain. And when they feel pressured, and pressured, I think, is a euphemism, when they feel pressured to put their product in 1 channel DC, they don't want to do that because they're not sure that, that distribution channel can deliver what they need. So they keep it out and that's why we don't require or pressure people to put product in our Supplier Oasis Fulfillment Center -- Services warehouses. And we think it makes a big difference for us.

Got it. Exceptional. Then just as a follow-up, yes, how should we think about capital allocation? Balance sheet in great shape. Where does that -- where do the cash go with extra couple of years in terms of deployment?

Great question. As we, Adrianne and I, mentioned, we have a $100 million stock repurchase program. We haven't executed on that at all. We've got dry powder on that. I think as we learn from our Canadian expansion, in the future we can use that capital to expand internationally. I will say there's not a second country that's imminent right now, but we are learning from Canada, and when we feel like we're ready to go, we'll release that one. We'll release that course and have it up and running. And then we get pitched M&A deals over time. And we look at them carefully. Thus far, none seem like right -- the perfect, right fit. But when we find one, it's nice to have some capital and reserve as a dry powder. Well, we appreciate everyone participating on today's call. We're passionate about the business we're in and our business model. Flexible and scalable macro trends support the category, and the gains achieved during the pandemic are proving sustainable. The business model is resilient within economic cycles, especially with our foundational operating improvements. As the pandemic tide goes out, Overstock is wearing an operational wetsuit that will allow us to continue to take market share. We appreciate your interest in ownership in Overstock. Until next time, we'll keep working hard to consistently deliver sustainable, profitable market share growth. Talk to you after the first of the year.

This concludes today's conference call. Thank you for participating. You may now disconnect.