Overstock.com Inc (OSTK) 2003 Q3 法說會逐字稿

I would like to welcome everyone to Overstock.com's third-quarter 2003 financial results conference call. At this time all lines are in a listen-only mode. Later we will announce the opportunity for questions and in instructions will be given at that time. (OPERATOR INSTRUCTIONS) This call is being recorded and will be available for replay beginning today through November 7, 2003, and 11 PM Central time. The replay can be accessed by dialing 719-457-0820 or 888-203-1112 and entering the access code of 37 1575. At this time I would like to turn the conference call over to the Treasurer of Overstock.com, Ms. Kathryn Huang.

Good morning and welcome to Overstock.com's third-quarter 2003 conference call. Participating on the call today are Patrick Byrne, Chairman and CEO; and David Chidester, acting CFO. Before I turn the call over to David, please keep in mind that the following discussion and responses to your questions management reflect management's views as of today October 30, 2003, only. As you listen to today's call I urge you to have our press release in front abuse at our financial results as well as commentary in the quarter 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 will make statements in the course of this conference call that did our intentions, hopes, beliefs, and expectation or prediction of the future. These constitute forward-looking statements for the purpose of the State Harbor provisions under the Private Securities Litigation Reform within the meaning of Section 27 A. of the Securities Act of 1933 and section 21E of the Securities Exchange Act of 1934.

These forward-looking looking statements involve certain risks and uncertainties that could cause Overstock.com's actual results to differ materially from those projected in these forward-looking statements. Overstock.com disclaims any intention or obligation to revise any forward-looking statements or additional information concerning important factors that could cause a results to differ materially from those in the forward-looking statements is contained from time to time in documents that the company files with the SEC, including but not limited to the most recent reports on Forms 10k, 10Q, 8-K and S1 With that introduction, I would now like to turn the call over to Dave.

Before I go over the financial reports for the quarter I want to start with clarification of an important change in our fulfillment partner sales return policies and procedures as it will have a significant effect on reported GAAP revenues and margins from this quarter forward.

As we have discussed previously we have fulfillment partners throughout the country that the fulfill sales to Overstock customers from their perspective warehouses and previously customer returns from a sales were returned by the customer directly to our partners. However as we mentioned in the Q2 conference call, as of July 1, 2003, customer returns from sales shipped by our fulfillment partners are now returned directly to Overstock.com where they are processed through our Salt Lake City warehouse. We made this decision to change the policy in an effort to have more control over the Overstock customer experience. We can now verify the partner products have been packaged and shipped to our standards and as all customer returns are not ship to one address, process is much more simple and convenient for our customers.

We believe a seamless customer experience is key to creating long-term customers. So this change is another step toward achieving that goal. As a result of this policy change we now record these sales transactions on a gross basis instead of a net basis as we have historically done. Therefore from Q3 2003 going forward, GAAP revenue will increase significantly and gross margins will decrease significantly from our reported results in previous SEC filing.

As a result for this quarter and the next three quarters following we believe that Forbses’ (ph) gross merchandise sales comparisons year-over-year may be more relevant than GAAP revenue comparisons. We also believe that gross profit dollar comparisons year-over-year may be more relevant than gross margin comparisons. Just as a reminder, this change was a policy change, not an accounting change therefore there is no direct reconciliation back to our previous reporting. As a general rule, however GAAP revenue has historically been somewhere in the range of 55 to 60 percent of gross merchandise sales. Now it will be in the low to mid-90s as a percent of GMS and gross margins are now approximately 7 to 8 percent less than they were previously but once again this information is only to be used as a general rule. That said I will now review the key financial results for the third-quarter 2003.

Total GAAP revenue for the third-quarter 2003 was 57.8 million, up from 23.4 million in Q3, 2002.

Gross merchandise sales for the third-quarter increased 57 percent to 61 million from 38.8 million in the third-quarter 2002.

Gross margins for the third-quarter 2003 were 7.4 percent compared to 19.1 percent in Q3, 2002. Gross profit dollars for the third-quarter were 4.3 million compared to 4.6 million in Q3, 2002.

Total operating expenses for the third-quarter 2003 were 8.1 million compared to operating expenses of 5.1 million in Q3, 2002. And the net loss attributable to common shares for the third-quarter was 3.7 million or 23 cents per share compared to a net loss of 371,000 or three cents per share in Q3 2003.

As of September 30, 2003, cash flow of 20.7 million in working capital totaled 49.5 million. Now we realized the loss this quarter was much higher than was anticipated, about 2.5 to 2.7 million more than was originally expected. There were some specific reasons for this and the shortfall in earnings can be broken down basically into four categories. Approximately $1 million related to our returns process, 300,000 to wrap up our relationship with a refurbisher, 400,000 to 500,000 to increase scale in our operations and another million related to specific Q3 projects that were unveiled during the quarter.

I will shed some more light on the returns issue and then Patrick will address in more detail the other three categories.

In discussing returns it would be easy to jump to the conclusion that the increase in returns-related costs was a direct result of our new policy to accept partner returns. And we realize there were costs related to the implementation of this new policy including increased staffing and training, new processes as well as expansion of returns capacity at the warehouse as we now handle more than twice the number of returns. However, the increased return costs were also due to hiccups in our overall returns process which affected both our direct and partner businesses in Q3.

Fortunately early on in Q3 we realized we had some problems. We were able to identify some process issues and put some fixes in place by the end of the quarter. Going into Q4 we thought the issues had been remedied, but we are continuing to monitor this process very closely as we move into the next quarter. That covers my financial overview. I will now turn things over to Patrick.

Thank all of you for attending our 2003 third-quarter conference call. As I wrote in our earnings release, our revenue has started to move in the right direction again but we have had incremental expenses in the business. Some I am proud of, some I am not. Dave has mentioned that roughly $2.5 million difference between expected and actual losses and has outlined the $800,000 returns issue. I'm going to continue in three other group areas.

Six months ago I mentioned a refurbishing company to which we were again joined at the hip economically, Opus 18. Last quarter I mentioned we were severing ourselves from them and had about 700,000 or more expenses hit us last quarter. Early in Q3 the last of these amputation costs flowed through our income statement. They totaled 300,000. I promise you that we will never again eat anyone else's economic cooking. We will own and run an entity or just have arms length relationship with them.

Scale, we have radically increased the scale of our operations over the last five months. Our warehouse -- we've taken our warehouse from being able to support a $70 million quarter to one that can support a $250 million quarter and with a few mall expansions could support a $400 million quarter which we think is equal to a $1 billion year.

We threw the switch on a project (technical difficulty) cycles over six months, that is an Oracle database cluster. I am given to understand that there are only about ten companies who are successfully operating on this platform and only five that have built as large a cluster as we have. That just went live a few weeks ago.

Our telephone in customer service system was until last week entirely homegrown. Last week we turned on a new-third party system, Genesis. In total these expansion efforts took nearly $3 million in capital investment. The warehouse expansion cost a million 5, the database cluster, 500,000 and the Genesis system between half a million and a million.

Of course the implementation and depreciation cost effect our income statement a few hundred thousand dollars, however there is a deeper issue at work. Capacity expansion in most systems is nonlinear. Having made the decision to take our warehouse capacity beyond $70 million a quarter we could have invested 600,000 and gone to $125 million capacity but the business risk of only having that much capacity is high and given our current sales level and momentum and so for 1.5 million we knew we could achieve $250 million capacity, so we did.

That leaves us however with a great deal of unused capacity and unused capacity is never free. In the warehouse it shows up in the form of additional rent for unused space systems it's on. Our data center we have a cluster that can support many times our current level of traffic and sales but must employ the step necessary to maintain such a cluster even at our current level of sales.

In customer service we have been steadily hiring and training the reps. We now have three shifts running 24-7 in preparation for the Christmas season, but again, this imposes tremendous costs during the third-quarter costs which are amplified by the uncertainty of the size of Q4 and my decision to prepare for the higher end of the range of the estimates.

In sum, these dis-economies of scale associated with supporting much more capacity than we presently need, I estimate caused about 500,000 in incremental expense this last quarter, expenses that we would not have had if we had been comfortable risking operating with capacity that might constrain us in the fourth quarter.

Projects, in the Q2 conference call I mention four projects. These projects collectively accounted for $1 million in incremental costs this past quarter. Of the four projects mentioned in the Q2 conference call we have announced three.

First, search, I know and many of you reminded our search was poor. We wrote a program when we had a few hundred tables and lamps and rugs and so on. Once we added, once we got the 6000 normal products and 10,000 apparel products and then 350,000 books, movies, video, the search just wasn't right. We knew we had to get some good off-the-shelf technology to accommodate this increase in products. We spent money in Q3 on the search technology and its integration into our system. Search is a four-step process.

It is a dis-implementation as a four step process. We've really only completed one of those steps, the raw implementation. And within a week or two should have completed step two, the basic (technical difficulty) of the data dictionary and the dictionary accuracy. We have already seen a substantial increase in a percentage of visitors searching. There are steps three and four, three is an enhanced navigation that this search technology will allow us but I think is beautiful it will be very appropriate for our apparel. I only see one other site on the Internet that has this navigation, it is Tower Rescores. If you go to Tower records, you see there is a way to drill down through the products. We should have that live within a couple of weeks. And then there is the fourth.

The second project of which you may have heard was a nationwide radio, television advertising campaign that we launched centered around Overstock.com. The Big O. I know this is out of character for us. We eschew branding and I have been vocal over the last four years about how crazy branding is. There are some strategicness and I cannot go into all of them right now but there is one strategic reason I can go into. There is (indiscernible) in the public consciousness. The Internet already has it's Nordstrom, that being Amazon, it has eBay as the B to B provider and whatever it's brand really is, it has Expedia hotels, Orbits, a few others but I believe all one place that remains to be staked out, one (indiscernible) remains, that is the online outlets. That is where we are going. We are doing this very carefully as controlled; the spending is as controlled and measured as has ever been done in this kind of a campaign. We started off with a $15,000, 1200 household survey in August, showing that we had four percent of adult Americans could name us unprompted. When asked are you a -- where do you go online for discount shopping or where can one go online for discount shopping, four percent knew and unprompted. And if prompted, twelve percent said yes.

After the radio campaign and before even the start of the TV campaign, or I think the TV campaign had just been running for a couple of days, we repeated that survey and the four percent, same company running at same system, same questions, the unprompted awareness of Overstock had gone from 4 to 10 percent of American public and the prompted awareness had gone from 12 to 23. So you probably have to take some of those numbers with a grain of salt, awareness includes false positives and so forth but that is a dramatic rise and to give you an idea of the ceiling, Amazon and eBay each have about a 70 percent prompted awareness, which means that 30 percent of adult Americans if asked have you ever heard of Amazon or eBay they say no, which may sound strange if you are in New York. But if you live out in Vernal, Utah it may not sound so strange.

These commercials not only reached an audience that could become potential customers but also manufacturers who may decide to use Overstock as their liquidation channel. It has given us some benefit in that regard.

The third project was the travel store. The travel store was launched to provide our customers a convenient and price competitive one stop shop for all of their needs and no, it is a work in progress. All of our categories started off that way. But we will chip away at this over time.

Metrics. Last quarter I had mentioned that metrics such as number of visitors or conversion would no longer be released due to the noise in our traffic data that is affecting our metrics (technical difficulty) However, I will provide some metrics for the past quarter.

We had nearly 340,000 new customers. This is a 20 percent increase from the previous quarter and 110 percent increase from Q3, 2002. Nearly 480,000 total customers purchased in Q3, 21 percent growth from last quarter, and 116 percent growth from Q3 last year. In the trailing 120 days, that is trailing up until this Monday, we have had more than 631,000 customers purchase from us, 219 percent increase from the same period last year. I think that that is actually a very telling statistic and I am going to get back to it in a moment.

In the past twelve months 1.7 million people have purchased from us in the trailing 12 months. Our customers are becoming more loyal. They have now become 55 percent of our revenue. Media has generated a lot of new customers for us. In Q3 the BMV, that is books, music video category has accounted for 15 percent of our total revenue increasing from only a few percentage points last year.

Costs per customer acquisition. Without radio and television expense was 878 a slight increase from 869 in the last quarter including radio and television advertising, CPA is 1097. Of course I think that latter is a much more meaningful number.

Per package handling costs this quarter, 284. There is an increase from the previous but still standing on its own, it is an excellent number, it is an increase from the previous quarter, I think it actually slipped under two. But again there is some things to do with scale as well as our Palm deal that changed that number. So again directional I am resetting -- Palm introduces some noise into there so I'm resetting my clock at that and I want to see that tickdown.

Lastly, we want to become the first place on the Internet for customers to check for products when they need to purchase something. We want to be a convenient place for our customers to shop and encourage repeat behavior thus we have enhanced the look and the feel of the site and we reduced the checkout process from 7 to 4 steps. We've introduced natural language search technology which we are still have our screwdrivers out on, or are still improving. We have a new travel store and a new advertising campaign to generate and reinforce the public's understanding of us as an upscale online outlet store.

I'll be the first admit that this is all a work in progress, but all of a projects that we have completed or are still working on are intended to increase shareholder value. I believe we have come a long way down that path in the last year.

Lastly, I should mention that I love taking calls from investors. I get a number each week and there is a number I enjoy talking to, but I would note that after every call I get advice from about half a dozen people on saying that is not the way to pump the stock. That is not what you should be saying, you should be saying this to pump the stock and I don’t know what I have to say to get the philosophy across. We actually had somebody call last time and say you missed by $170,000, you should've changed some reserves and you missed by a penny, you could have made it by a penny if -- and I just wonder first of all, do people think we don't know that on a $50 million a quarter business that it is very easy to change a couple of reserves and you get your penny and you made your number. We don't do that. And it is kind of funny to me that people still don't quite get it.

This is a big morality play to us and we are seeing if you can give -- you can refuse to play those games whether eventually some investors are going to recognize it and reward you for or it or at least believe in you.

As much as I like to hear from people, please no more calls after the conference call telling me how you can give me much better advice on how to pump the stock. With that admonition, Kathryn, why don't you get us back up.

At this time we are ready for questions.

The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS) Bill Lennan at W.R. Hambrecht.

Good morning. Just one or two (technical difficulty) points and then onto some meatier questions. Could you give an idea of the number of transactions and conversion in the quarter, or Dave or somebody?

Sure. I can. On the B to C side, the conversion showed back up from 2.3 and the number of transactions -- the number of B to C orders was 662,000.

Okay. Then if we could move on to this grow margin issue, there has been a lot of confusion, lots of people's numbers moving around, including ours. What is a steady state we should be thinking about in gross margins and will in fact any of the returns issues that we saw in this quarter unwind over either the next quarter or next few quarters?

You should see the returns issues improve. Bottom line is 10 percent but I am actually optimistic you're going to see gross margins of 12 or 13 percent, fairly quickly. About 5 points higher than we reported here.

Okay. Could you talk about the mystery project number four and I guess this actually applies to all others that are not mysteries anymore. What sort of -- if we go back before these four products were launched, we had a pretty good idea what expenditure would be, sales and marketing, G&A. What is the incremental impact that you think we haven't all factored in yet for what you're going to spend in Q4 on advertising and on mystery project number four and so on.

On mystery project number four, there is about a $200,000 cost this quarter. There was actually there has been 75 or so so far, 75 or 100. The others, the travel nothing incremental. The branding, branding, no I would say it is more awareness raising than real branding. But the awareness raising, TV and nationwide maybe as much as a few million dollars, maybe as much as $4 million.

Okay. Could you give as an update on the Tiffany situation ?

The update on the Tiffany situation is -- it is now my belief of what happened is, of course I'm getting hostile looks here from our counselor but what the hell, is these were supplied to us by a very well-know jobber and a very credible jobber in Canada. And they are a big jobber, the guy who is sort of the king of the high-end closeout world and I believe he bought them directly from a factory that supplies Tiffany.

And then as a means to -- and it is either a Tiffany factory in Italy or a factory that supplies Tiffany, millions of units allegedly and then in an effort to protect them, prepared an invoice -- someone down the chain prepared an invoice that was supposed to show they came from a Tiffany store. In fact it looks like we now have another invoice. It looks like he bought it just directly from this Tiffany vendor, which would make it authentic Tiffany product but manufactured out of license, or in license, depending on Tiffany and that factory but it is actually looking like that to us now.

That is based on other paperwork that we've gotten from a guy who I already know has doctored one set of paperwork so would I stake my life on that, no. But I think that is really what happened, he bought it from a company, called La Certosa (ph) , a manufacturing plant in Florence, Italy and we have seen paperwork to that effect. And La Certosa is evidently a main supplier of Tiffany. And he was trying to mask that. It means that it is authentic product and maybe under license or maybe they manufactured not under license.

Given how nice the revenue was, nice subsite surprise, can we comfortably assume there was no material discounting in the third-quarter and what is the situation? Actually I will leave it at that.

Yes. You can assume that. There was nothing beyond standard discounting, nothing like the first quarter to get pump from. In fact, I would say the margins of the people what we call above the line, meaning the main buyers if you leave out Media and you leave out Safeway, and me who is cleaning up some fast mistakes, their margins have done extremely well, almost too well. I do want them to create too much of raising umbrella here.

The current quarter, the Christmas quarter, I know you are an anti-guidance person and company. Can you give us some general, I mean two goalposts, no matter how wide they are apart -- can you make some general commentary on what you're seeing in this quarter and what your expectations are year-over-year for GMS growth?

Yes, I see that people have us out there about 96 GAAP, which would be about 105 GMS and that seems like a reasonable goal. I am not just anti-guidance to be pernicious, or persnickety, I have no idea. I can tell you that there is a couple of big unknowns, there is a few big unknowns. We have gone from -- our conversion has gotten better. Our conversion is really running north of three these days. Usually, well that version increased 50 percent during the last part of the holiday season.

Our traffic is running a good 30 or 40 percent ahead of last year. Maybe even a little more and now we are doing this mass media campaign. The mass media campaign has doubled at least or unprompted (technical difficulty) and before the game is over it may have at 15 or 20 percent. I know that is worth something. I don't think it is going to pay for itself in the same in the same way all of our pay-for-performance does, but I think it is going to pay for itself.

And then media, we have had -- this is the important number I referred to earlier. Pretend for a moment the holiday season started this week and of course this is a couple of weeks early. And I say, define active customers as people who have a bought from us in the last 120 days, and that seems to be a pretty reasonable way to think of it. How many active customers to you have going into the holiday? (technical difficulty) We have 220 percent or 219 percent and on this day last year it was 288,000, and this date this year it is 631,000 people. How many, admittedly a bunch of those new people did nothing but buy media and or mostly media and some of them just bought media. And so what good does that do when the holiday season comes? Do they come back and buy a toaster or a TV or a radio.

I'm not anti-guidance because I am anti-guidance, I just don't know the answer to that and I don't know how those four different dynamics build with each other. But October has gotten off to a brisk start and I am comfortable with the idea of 105 million of gross merchandise sales. And I think there is some chance that the likely range is that to 10 percent above that with an 80 percent expectation, it falls somewhere within that range.

But I really just -- I am not anti-guidance here because I want to keep something from people. You now know all of the relevant things that I know and you don't know how all those dynamics combine.

Okay, great answer.

Derek Brown of Pacific Growth Equities

Two questions. First of all, B to B has certainly not taken up any part of this call and so I am trying to give a sense for where that initiative is. Whether it is growing, whether you're looking to shut it down, whether you're looking to replace the Safeway business?

Number one and number two, kind of a much broader discussion is profitability for you. If we are profitable in last Q4 and it doesn't seem like that is a possibility in Q4 this year and I am wondering what your thoughts are on when the buildout stops and when the profits start?

Okay. Two fair questions. One, on B to B, B to B is up 40 percent over last quarter and actually contributed several hundred thousand dollars of juice beyond the, profits beyond the commissions so they are actually doing nicely. It has evolved to a different model internally on how it works. It is a smaller group of very savvy people rather than a huge field of people who were calling, you know 50,000 mom and pops in a month.

Safeway is discouraging. It is winding down. It may go forward, it may now we are not really talking yet about continuing it. But there are people lined up to do business with us that we can't ship until Safeway makes a decision whether they want to continue with us or not. Whether to extend the contract or not before we ship to take these other people on as customers.

I'm afraid that B to B is a little bit like Brazil. Brazil is perennially the country of the future. You go back to the 1907's Encyclopedia Britannica, they were predicting that in 10 years Brazil is going to be like the United States and that is what I learned in college anyway. Vis-a-vis, it is potentially the business of the future but I shed a lot of confidence they are getting skilled. We may redesign a little bit the B-to-B situation and the value proposition and how they interact and if not one of the mystery projects but that may be a mystery project next year.

Lastly, on the profitability. Where it really comes out is I think we choked off our growth last year. We got through the third quarter with 38 million. We actually had operating profit of the few hundred thousand and I think we had a 67 -- and we barely made it then. But we were rushing around and buying scanners and more printers for the warehouse and we barely got to support it at the $67 million quarter. We were log jammed and the Company's $70 million quarter, last fourth quarter would have been tight, maybe more than tight.

We were using all of our systems then. Right to their red-line maximum capacity and you get great efficiencies when you do that. Now we have stepped in and everything will pretty much hold together for $250 million. I mean we can do 60,000 and we have stressed tested this and shock tested this and we can do 60,000 packages a day now at the warehouse. That is over five times what our maximum was last year. That does cost something.

So we are right at the very worst place on the curve you can be. We’re using the least amount of capacity that we could be using, but there are business reasons to have taken those steps.

So at what point do you think you stop investing as much in the business? Could you be profitable in 2004 for the full year? Does it happen midway through the year? Is it only in Q4 of next year?

I think that is a projection and in a first-quarter I do plan on making a projection. I have a very good idea of what I will be saying next year. I think that you would likely see three small negatives and a positive in the fourth next year. But I don't want to go into more detail now. In January I do plan on giving a form of guidance, a pretty concrete form of guidance.

Okay, thank you.

Patrick Duff.

Thank you very much for all the detail this morning. This is a great call. Could you just help us out a little bit on the current inventory situation, if you are adequately staffed in terms of this inventory personnel and you're all set to go here in the fourth quarter and as it relates to that? You know, the current cash position which is still substantial but with the investments coming down somewhat, how you feel about your balance sheet in terms of the working capital side?

I think the fourth quarter is unusual for us. It should generate $20 million or more in cash, 25 even. Some of that is kind of phony as I look at it. It’s the whole partner program and we end the year holding $10 million of other people's money and that is just it. It is not really our cash. We're holding it for somebody and so you take that out of it, you still generate a lot of cash. Our inventory will come down. Our inventory is really running today about 33 million when you include prepaids. And I am the guy who is saying let's build it to 50, let's use every last penny we have, maximize it in October and then just flush through it in doing that has the least risk of choking off your sales, because you didn't buy enough.

Of course there are other people here, Jason is still providing guidance and they don't let me do that, but even getting to 33 million was a bit of a stretch.

The risk of having too little inventory is of course to choke off your fourth quarter and we have to bring it and for a soft landing in the sense of having just enough that in the first quarter it doesn't choke off late which is something it is one of the things that happened this year. That we just ran out of inventory and it takes, even when you recognize that you are going to be running low it takes you six weeks or so to spin up and get the new stuff in and on site. So you put all that together and we ended up basically with the idea of going to 35 but finishing at around 20 and I will be happy with those results. And that should put us well-positioned for the first quarter, and in the meantime that should itself flush down 13 or 14 million in cash. (technical difficulty) profit on that inventory plus the whole partner float thing which is probably good for another 10 million or so. So this is the quarter where we flush through a lot of things and we end up with -- we will generate 20 million or 25 million in cash.

Again, not asking for a projection, but as you look at the business and you look at the scale that you're able to take on in sales, the warehouse how you have configured it and what have you. You are comfortable with the balance sheet as it is currently configured in terms of cash on hand, projected cash that you can get to the next level with your existing financial capabilities?

Yes, a few reasons. For two reasons really. The Safeway relationship unwinding, will generate about 4 or $5 million cash for us. Secondly, I know that you see us haven't gotten fat, really fat on inventory now which was a conscious decision. We have gotten fat on inventory but going forward I think we are going to make more, be more strict about holding it to less than 90 days and just holding it less than 90 days generates another 15 million of cash. So in a sense there is a round of capital raising that we could have which just comes from the Safeway deal unraveling and the inventory getting managed tighter in the first quarter.

We have managed inventory down to 30 or 40 days but at some point it chokes sales. We have done a lot of things that operationally -- if 15 of those 40 days stuff is sitting on your loading dock waiting to be put away, that kills you. So we have tightened up all of these things so it only sits on our loading dock for half a day. Things like that or a day. But so we can run it down to 35 or 40 days, that chokes off sales, but I think just keeping it between 60 and 90 that itself gives you an extra round of capital. And then there is always the possibility we have banks who always willing to lend (technical difficulty) . So I think it all works without that. Then you say there are some banks -- the inventory is bankable if we choose to go that direction.

Thanks very much.

This does conclude today's question-and-answer session. Mr. Byrne, I will turn the conference back over to you for any additional or closing comments.

Okay. I don't have any substantial comments. I appreciate the belief of those who have invested in us. I consider ourselves as stewards of your capital and we eat our own cooking. We're also in the game and we are trying to build great long-term value for the company. Where long-term value is in my mind we are maximizing what we can be making three years out. I appreciate the confidence of those who believe us. Thank you very much for attending.

This does conclude today's Overstock.com conference call. We do appreciate your participation. You may now disconnect.