RECAP: The OSTK call was less eventful than what we've come to expect from Byrne, but there was the usual hint of conspiracy and gratuitous media bashing (see Roddy Boyd, swipes at; Wall Street Journal, accusations of fabricated quotes). Byrne also says that one of the "big three" bulge bracket banks has been calling up some of OSTK's partners and telling them to drop OSTK. And guidance: next quarter will look exactly like this quarter.
11:59 - final comments. Jason: we stumbled and we know we stumbled and don't let anything we say make you think we're making excuses.. but in the long run it might be a good thing for the business... when we had the debacle we had, replacing all of our systems this year, and we shrunk a lot... it's given us time to take a deep breath and harden our systems. [our core business] is getting a lot of attention. As bad as the systems got, i think the core shopping business, as far as somebody orders a product and they get it on time, i'm not sure our business has ever been better... i think investors should be pleased and in the next 6 months to a year, you'll see a big difference in our financial performance. Byrne - to me this is all a function of bad decisions i made in the first half of '05, both in that they were belated, and that... we stumbled... To jason's point... we couldn't have gotten better or more refined looks at inventory or more refined looks at marketing... travel beat budget for the quarter, auctions was just a little behind budget...we don't really have any great new businesses planned. we're just refining what we have... i'm sure you welcome having Jason back to provide adult supervision... Expect that same thing for one more quarter..
11:57 - question: how much cash do you think you'll need to re-ignite growth for q4? byrne - i don't think we need more cash. i think we can run our inventory much better than we did before. what we have now is probably the right amount to enter 4th quarter with. chidester - [agrees], the inventory we have on hand now is plenty. we don't need excess cash to build our inventory... our mix will change. Jason agrees that it will decline then swell up again in September and October.
11:56 - brings Jason Lindsay on. explains that he left due to health problems in the family, but back now. Byrne - jason's been behind the scenes, coming in one day a week and helping... he's come back full time for this year so far and will be full time going forward.
11:51 - question about whether free shipping affected volatility, and notes that volitility doesn't exist in the fulfillment business, so why not build out that? - chidester: part of the reason the direct biz has more volatility is that we have our BtoB and BMV businesses...depending on how those move.. Byrne: we're cutting back on the free shipping. the smallest element of the volatility is the warehouse handling costs... it's not like suddenly the warehouse started running badly; it's much more pricing... we've built to 700 partners. we're about to have a way to increase that severalfold if we want... we will have our pick of increasing it in areas where we have no been selling products yet...what we're also learning is not having too many products. we're wondering if we have too many SKUs. we're not trying to overwhelm the customer with too many choices anymore.
11;46 - question about accounts payable, explanation for that? chidester - a lot of that's just a reflection of the slowing growth. we're still paying partners the way we've always paid them. as growth has slowed and we move away from the partner business to the core business, [we 've seen it go down]. Byrne - we always pay our vendors; i want to have the best reputation with them. about a year and a half ago we went to paying them electronically. when we started having these problems last fall, i said to david, let's pay them the high side of whatever we think we owe them...it was just good karma to always pay...now we can pay them precisely to the penny, but in the first quarter we were still ahead a little bit... one of the major prime brokers have gone to some of our largest partners and...trying to, we had one of our major partners call and say 'you won't believe one of the calls i just got from one of the bulge bracket banks trying to get me to shut you off'"
11:37 - Lehman - Lot of things going on that need to be finished by the June/July time period--warehouse buildout, etc. What's your confidence that that will get done on time? Will you break even?
Byrne - my confidence level is good on customer service. [CRM] is an ASP model--we'll be one of their larger commercial clients. we've been working on it a month or six weeks. a lot of our increase is in technology spin... "we had a truckfull of important cards coming in from Utah that ran into a cow, but short of anymore cows on the interstate..." it would be hard for us to break even on a GAAP basis, but... CHidester - if we can bring the inventory down we do believe we can be break even for the year. Byrne - says systems have improved and they can do much more sophisticated inventory analysis now. Lehman - you mentioned that site redesign gave you a lift. can you tell us more about it? Byrne - there is a company we're working with that's got some very cool technology - very sophisticated, it's called "genetic algorithms"--the company's called Optimos. They come and take a product page and say here's 5 or 6 different ways i could have the button placed... you have 20 different values with 5 or 6 ways the buttons could be placed. They run tests on a subset of your traffic... it evolves into the right combination. we're doing that one page at a time. we're going to do that each month, page by page...but there's a lot of setup time for each one of these tests."
11:35 - piper jaffrey - why did we see customer aquisition costs go down? how much of brand marketing translated to growth.
chidester - flat over q1 of last year. below $20. reflection of new customer growth slowing. less new customers over spend. moving more towards repeat business. byrne - the value of the customer is above $20 for us, so we're fine with that. we've cut way back on brand marketing. but measured in terms of name recognition, i think we've built a very good brand. went to 29% name recognition over the last two years. we don't need to keep drilling people in the forehead with the same message over and over.
11:35 - Going to questions...
11:31 - Common questions slide - Byrne says they cu marketing, ultimately thinks it's a 17-18 percent gross margin business. "i'd like to see in Q4 around 17%." re: liquidity - "i don't see us having a liquidity crisis... "
11:28 - propeller has been integrated site-wide. New version expected in Q2. Site design: new design "it's so powerful i don't even want to tell the name of this company, they're so overwhelmed with demand...." "we have started personalizing emails. it has given us a somewhere between satisfactory and remarkable lift.. we could only do 100,000 at first... we'll be able to do 2 million personalized emails a day starting in September or October."
11:27 - Operations slide - upgrade warehouse management stystem. last year costs us about $3.50 in variable cost per package. thinks it's possible to get it down to $2.50.
11;25 - Customer satisfaction slide - we've been operating customer service on a package that Sam Peterson wrote in the space of a couple of weeks. Now going from a "prop -to-jet conversation" - new CRM system. (doesn't say which one.) right now customer service is costing over 2.5 percent of sales. byrne thinks it's possible to get it to 1. "i've heard that Amazon is less than that."
11;23 - Customer Care slide - Byrne says he read The Loyalty Effect a few years ago and "it really affected me" . new book called "the ultimate question" - net promoters, people who would "recommend [the product] to a friend." care metrics back to where they were in 5/05, according to "net promoter score"
11:22 - Marketing efficiency slide
11:21 - Chidester "I think everybody advances the slide with the little arrows at the bottom." Byrne - "I just have some HTML gibberish.."
11:19 - Back to Patrick - says he's doing the call off site. slide technology isn't working. no one knows how to work slide technology. "I'll explain what the first slide is going to tell you.."
11:16 - Back to Chidester - total revenue 180 million, gross margins - 14%. S&M costs - 7.3% of sales. (decrease in marketing) technology, G&A - 15% of sales. larger expense structure in '06. big portion is depreciation 7 million this quarter, 30 million this year. approximately 35% of expense - 15 million operating loss. 52 million in cash. 30 million availability on line of credit. included 42 million in foreign currency bonds, but converted to cash. 73 million in operating cash flows.
11:15 - i think we're going to lose 14 - 18 million in the second quarter. in the third quarter we'll start growing somewhat faster again. in the fourth quarter we're back and we've got the momentum back up...
11:15 - I am right. and i think folks are going to start finding that out any minute now.
11:14 - says Roddy Boyd of the Post will "have a field day with what I've said already--oh my god he said dharma! he said kosher" the new york post is for folks moving their lips when they read People. ""
11:12 - "I didn't want to fight this fight. i know it sounds corny..." says there are phantom shares affecting the market.
11:11 - Accuses Journal reporter of fabricating quote where Byrne said if he were crazy, he wouldn't be running a public company...
11:09 - "i want to correct something: over and over you see reporters saying Byrne blames his stock price on naked shorting. That's a lie... i've never lamented Overstock's price. I've never said we were undervalued...I've never said that naked shorting has driven our stock down... "
11:07 - Byrne says that if he asked for shareholder approval for his "crusade" "65% of [his shareholders] would be against it and 210% would be for it". (Eh?)
11:05 - Some will say this crusade is a betrayal of my responsibilities as a CEO...This is a moment where i can talk to you without being filtered through a few dishonest journalists...
11:05 - Call turned over to Patrick. 40 people on the call, but several hundred trying to login
11:03 - SVP says Patrick Byrne will participate in the call.
11:03 - David Chidester - SVP of finance.
11:00 - Bill conference coordinator introduces. Q&A towards the end.
10:58 Bad, bad musak
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