Overstock.com Inc (OSTK) 2005 Q2 法說會逐字稿

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.

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.

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 defined as plus or minus 1% GAAP net income. Growth at this point is 86%, not too far away from what I want. I expect our Q3 operating results to be similar to Q2 operating results, but for the full year, we should be able to break even, if not above.

Our model that we are developing and I'll be getting into a little bit how we've gotten quite a bit more sophisticated in our modeling, shows something funny: that we are learning that the more we push out there in Q3 seems to be for every extra dollar we push out in Q3 we make back a dollar or maybe more than a dollar in Q4. I'm often asked how long it is we're going to chant this Overstock mantra.

I thought it was time I defined for folks where I'm really shooting for as a place I'd like to be. I want Overstock.com to be a company with revenues north of $2 billion, growing at 25% a year, with operating income of 4% or 5%. And which would bring us to the $6 billion range. Actually GAAP income of 3-5%, I'm sorry. That's something I think we can achieve the year after next.

We have to keep growing at these kind of paces and get to 900 plus or minus 50 or 70 this year, and 1.5 billion or something next year. That would position us to get us north of $2 billion the year after next, slow down our growth and have a company that can make a lot of money. Like any -- we call this O Town. That's where we're trying to settle. O Town must complete certain infrastructure before the infrastructure is needed.

In a letter to owners, I described some stairstep improvements in our technology infrastructure. These have not been cheep. But to continue the metaphor, I would say during the last nine months really we've gone from being a country hamlet with dirt roads with modern town with asphalt streets. We're shooting to be like Singapore. We're making progress in online advertising. We're just at the point where we can really focus on our site design, propeller, CRM initiatives,and improved IT infrastructure that supports the projects mentioned in my letter.

A couple of quick announcements: Katherine Huang is gone. She was our head of IR and I know many of you knew her. She served wonderfully for us for two years. I believe I actually said this a conference call or two ago. She's actually married to a doctor who finished his residency here in Utah, Dr. Hadley, and they moved off, he took a position in Michigan and they moved off together. I think people knew about that six months to a year-ago. I'm sure that won't keep there from being any stories about the mystery of where Katherine Huang went. But she -- I know a lot of people were given prior notice.

She's been replaced by Kevin Moon who is terrific. Kevin comes from your side of the table. He's an investor. He worked at a local investment fund called CrossRoads MBA. Terrific. We're happy to have him aboard.

Secondly, thought I'd give people advance notice that I've asked my father to become Chairman, and we're going to do that I think at the next board meeting. I'm doing that just because I like -- I think that the Chairman-CEO relationship is an analog to the father-son relationship, and it's healthy corporate governance to split CEO and Chairman. He was Chairman the first couple few years of our existence. Because of Sarbanes-Oxley he had to get off the board. So I'm letting you know in advance, I'm going to propose him for that. I'm not sure if nominated he'll run and if wins he'll serve, but we're trying to get him to be chairman.

Let me turn to some slides that will give you a sense of how your business is running. As I recall, you folks are about 15 seconds behind me on this, so I'm going to try to adjust my voice to respect that fact. On slide 3, we -- we've gone from 87.8 to 150 million. 72% growth there. 124% growth in the gross profits line. 119% in sales and marketing. G&A, other than technology, 101. Technology and depreciation is what is short here, and that's really because we hit -- we've taken this step over a stair. Most of the quote, unquote increase in operating loss came in this increase in technology spending. I'm very glad we've done it and I'll be going extensively into what you got for your money.

Slide 4, again, 72% growth on GAAP revenue. Gross margins did slide a bit. And I described in my letter what's going on. Now, every time I try to explain what's going on, I know I have some saying out there, you're making excuses. I'm not. I literally take me letter to the Board and the CFO's letter to the Board and I clean it up a little bit and I give it to you guys.

So we actually did make a little bit of improvement in the expenses within logistics. The problem that we thought were going to deliver 20 to 30 basis points a quarter are two or three months delayed in their implementation. I thought they would be done in March, April. It really happened in June, July, so they didn't really affect the quarter much. They did give us about 20 basis points. We had this 55 basis point head wind as a result of the way we expense inbound freight, which is something we might revisit at the end of the year. What happens is we sort of had a 55% head wind against us and it all comes back to us in the fourth quarter.

I explained in my letter what happened and Dave tells me most companies actually account for it, they would capitalize it. We may revisit it and Dave may have an opinion on that.

We'll definitely revisit that. Most people expense it as you sell the inventory. It makes for a nice flatter movement in your margins.

So we expense it not as we sell it, but as we take it in. And that means that we get some noise both directions in our margins. Anyway, still all that said, we are a little bit slower than I thought we would be in the infrastructure, the logistics improvements that should be adding 20, 30, 40 basis points a quarter. But they are ticking in. They just took eight to ten weeks longer to implement than I expected.

Slide 6, what we like is to see the green line diverge from the red line. We can grow the red line as much as we want as long the green line is higher. They have diverged. They have now converged. And that's really -- that's the stair stepping. When you reach the stair step, it's hard to keep them apart.

Slide 7 -- I'm having trouble. Slide 7 is not coming up for me. There it goes. Gross profit per transaction. This is nice. Up 44% versus last year at almost $14.

Slide 8, quarterly net margins, minus 1.7. That's the best it's been in any non-Q4 quarter. Other than -- well at least in the last few years. I think in Q2 it was a little bit better. Next slide, slide 9. There's a delay. Unique visitors were up 62%. 62% growth underlying 72% quarterly growth. Revenue growth. Unique customers, 61% growth. New customers, 45%. So we're having 45% more new customers, but again, the 72% growth.

Year-over-year growth in customers up to almost 7 million customers, that's 81%. That's a pretty good analog with the overall growth in the last four quarters. Customer orders, 55%. Again, so of get 72% growth, we've got to be getting more per order. Gender, few slides about our visitor demographics. Our visitor demographics were the Internet is 51% female, we're 56% female. I said in the past that our customer demographics are 66% female. Our visitor demographics are 56% female. Draw your own conclusions from that. Household income, slide 15, we have a nice, sort of seems to me a middle class, upper mid class base visitors. Education.

Slide 17, there's a couple of things I want to correct. I have got to correct two things that I have given you in previous phone calls. One, it's better than it was in the past and one is worse than it was. The one that's worse is this: At the end of the the fourth quarter in the January conference call I said I thought we had done $10 million of BMV, gross merchandise value in our auctions in the fourth quarter. That was a mistake.

I know exactly where I got the information, I know exactly who I asked and I was given the wrong information. I'm not sure if there was cross talk between us or our reporting with the auctions was so fresh. Our reporting in auctions wasn't very good. Fortunately on a GAAP basis it's a very immaterial difference.

The truth is in our fourth quarter, it turns out we did 7.1 million of auctions, dropped in the first quarter, and has come back in the second quarter. I still have hopes -- the loss is contracted from 1.6 million, 1.2 million. I want to see this under a million this quarter. By as quickly as possible not having any quarterly loss. Not costing us anything to keep auctions going.

Then some good news. Things that are a little bit better than I've reported in the past. In the past we've been reporting this CTA, and cost for acquisition, and we showed you a bar that was broken near the top, this is for shopping only and this is it if you add auctions. We were actually adding the cost of auction marketing to the numerator, but we were adding nothing to the denominator. We were not adding any of the acquisitions in auctions. So the whole thing got -- the whole thing was kind of meaningless.

We decided to break it out between shopping and auctions. Shopping has seen this 39% increase in the CTA. Something else is going on. If you look at the red line here, you see that the marketing expense as a percentage of revenue fell. It was down to the 6% to 8%. Came up to 10% last quarter. Then it fell half a point this quarter, or more. That's really the key number for us, is the percentage of revenue that we spend on marketing.

What's happening that may seem paradoxical is the cost of acquisitions is going up, although that percentage spent on marketing came down a little bit. The reason is there's less new customers within our traffic -- within the traffic stream that you get from online advertising. That may have to do with things going on on the Internet, it may have to do with where we're advertising. I know it has to do with that. That's kind of an interesting paradox. If you would asked us two years ago we would have said you would never have seen that happen, but now we see it happen. And we understand it.

We're going to continue splitting up auctions and shopping from now on. If you go to the auction CTA, you see this is the CTA for auctions. Actually if we had combined them appropriately and added the costs together and added the acquisitions, we would have gotten the lower number than the 22 or whatever. Not a higher number.

Okay. Repeat revenue analysis. My first comment is let's stop the madness. I've given you different ways of calculating it, and I keep on trying to explain it, and each time I try to explain it, I probably made matters worse and people get confused and they rate about it as if I mean one thing when I mean another.

What I've decided to do is take a couple of minutes and really carefully explain this. And then I won't have to do it again. I'll just give you the results from now on. The first way we reported this ran like this. Calculate the repeat revenue for any quarter as being equal to the revenue in that quarter generated by non-first time invoices divided by the total revenue for the quarter. Well, the result of that is, each customer in at that calculation, each customer from inception is included, including customers that purchase twice in the current quarter.

The problem with that is that if a new customer comes in in the quarter and purchases once and then purchases again, that second purchase counts as a non-first time invoice, and introduces noise into what you're trying to measure, which is really how the customer base that pre-existed, that predated the quarter, how they behaved. So that was version one. We gave that to you for a year, year and a half. Then I think we did version two for a quarter, which is to say, only count the existing customers before a quarter starts in the calculation. The calculation would be the same as the version one, except exclude all customers from the current quarter, all new customers from the current quarter.

Well, that's -- that has problems, too. One is it's affected by growth. Your growth -- your growth rate introduces noise, as well as the problem is as time goes on and the tail gets longer it creates a built in inflation. There's a longer tail from which you can draw your customers to buy in the current quarter, so you get a built inflation.

Looked at those two ways, version one and version two, version one is the number we reported for quite a while. It dipped a little bit. It's come back up. Version two is now 50.5. They've both done well. But as I say, I don't think those are the right ways to report it. I tried to report it the right way the last time and I think I caused more confusion than I should have.

I'm walking through this so carefully this time in hope that in the future people can refer to this slide deck if they need an explanation. Okay. The right way is to take a bracket, a period of 12 months and look at all the active people in that period and say, everybody who was active in that 12 month period, how did they behave over the following 12 months? For every $100 they spent within the blue bracket period, how much did they spend within the green bracket period? As time goes on, these two brackets can slide to the right. That's a good measure of your churn, loyalty, et cetera. On that number, this is what's happened over time.

And in turns out that this is the -- now that we're not just trying to figure all this out for ourselves, but we actually have hired a bunch of pros, this turns out to be one of the major ways people measure churn and loyalty. That shows nice progress in the high 20s up to 54, over the three years that we didn't even know -- we weren't even measuring this. We weren't even -- we weren't even looking at it. To me, the gain that we'vee seen so far is mostly a function of, it's a reflection of the fact that we were answering the phones right and shipping on time and satisfying people and they were just getting more and more loyal. We weren't diagnose anything to manage to this number.

Now I'm going to dive into that in more detail, going into this quickly, breaking it up not by quarters, but by weeks. I've been asked these questions so many times, over the last three years, I'm happy to give you information. Our new customer repeat rate; someone who buys in week one, how did they do in the weeks 52 to 53? We're up to about 40% repeat. Average repeat orders per customer is a little over two -- a little over one. The average repeat orders per customer who repeats is 2.5.

Again, I'm sort of glossing over all the improvements that have been made in this, and I think that those improvements mostly reflect not that we've become -- that we became over the last two years terrific in CRF. We didn't even know what it stood for. We became better and better in shipping on time and things like. Average repeat revenue per customer, and you see it went up and then it dropped and came back up. I think that dip came from when we introduced BMV and starting getting into BMV because those orders are about a third of the size.

Those customers turned out to be pretty loyal, but the order quantities are smaller. Now it's climbing back up to where it was pre-PMV. Average repeat revenue per -- and this is key -- average repeat revenue per -- sorry, my slide's not loading. Per repeat customer. Of the people who repeat, they come back and buy at this point $250 to $300 after their first purchase within the first year.

So this will present to people who are familiar with CRM, you see the opportunities here. On the one hand I think these graphs show something good. We've gotten better and better with loyalty, even without focus on loyalty. Now that we're able to look at this data, it really suggests some powerful techniques we can apply to improve. Okay. What did we spend $35 million of your money on in IT buildout? I'm going to be a little bit technical here. I think there are tech investors on the phone that might be interested in what's going on.

One the key players in the service space are Dell and IBM. You can think of this as a totem pole. And Dell, of course, started off with desktops, and home computers and laptops, and got into servers, and has gotten better and better with servers with one, two, 4 CPUs. IBM has done something very smart. By the way, these guys are both partners of ours, and I don't want to say anything that offends either side, and they have been unbelievable partners. We have their scientists and engineers helping us. I'm trying to call this as we see it and explain what we have built using their technology.

IBM has done something very smart, and that's pushing back up the totem pole by taking technology that's been around on their main frames for many years and putting it on their servers. That's this whole P5 series. It's fantastic. And there's -- I think actually boxes that take 4 to 16 CPUs and 16 to 64. I think there's actually boxes that take 1 to 4. What we decided was the natural break was between -- was to break at the 4 CPU per box level, giving those to Dell and bigger boxes taking -- like the data base servers going with IBM.

So the web and application servers would be Dell and the data servers IBM. So using those, that technology, we've created this kind of a module. This module is a bunch of Dell blade servers that are typically in our case customer facing, and they're clustered. They're wired to IBM key 570s which are the boxes in the 4 to 16 block range and storage solutions from EMC. That -- we did extensive testing, on one side's technology against the other, and this looked like the natural break. And what I find so attractive about this is it gives us a very natural path to scalability.

First of all, you can scale across the Dells, which are very inexpensive as time goes on, and the IBM P570s can be scaled in three directions. They can be scaled horizontally. You can put more products in the box. We have four in ours. You can take them up to 16. And ultimately, of we were many times our current size, you can replace these with the P590s, 16 to 64.

Now, why that's so -- and this front line, as we see it, this is sort of -- this place where we've divided between Dell and IBM is kind of the front line of technology, the technology battle, and Dell is doing something clever. I don't mean to slag their -- they've come up with a technology called Infiniband, that I think is going to be introduced in September, that will help them push down from the four box into the 16 box.

But IBM's got -- I've never worked with IBM. I had no idea how good they are as engineers. So this is the basic module that we're now built around. How that plays out is one of these modules, one of these clusters of clusters, really, under our shopping our BMV tab our auctions our travel maybe in the future, and that's our web store tier. Then you have a back office tier, which is Oracle financials, Oracle customer hub and a quick tracking system, for quick analysis of tracking. I'll get to where we are actually in all these implementations in just a moment.

After the back office tier there's the distribution, the logistics. Salt Lake, and Indiana warehouses, and the hundreds of warehouses of our partners are all tied into Oracle, this is all tied together with Golden Gate, which is the ETL I described in my letter. There's just a massive amount of data that has to be shifted around among these systems. It's all tied together with Golden Gate which then in fact ties it into all of that into Teradata, which is really the best class data warehouse, feeds through Business Objects to Overstock users. This is what we've spent 35 million on, this and the Oracle site license that underlines that we can use as many Oracle -- We have infinite Oracle licenses for databasing.

Where we are, is the web store tier is done, the back office tier, Oracle finance is being turned on next weekend. It's shifted now 14 days from where we hoped. They click -- but they're banging on it in the final stages of testing. In fact, they're telling me they may consider turning it on this weekend, but that's a major -- that's a heart and lung transplant we've undergone. The click tracking system is live. Came on two or three weeks ago. Teradata came on, also in mid July, along with Business Objects Customer Hub is the only piece we're putting out in the fourth quarter.

This may -- I don't know how this sounds to you, but I can say compared to what we had, what we basically had was under shopping an HP N-class box that was doing all of this, and it literally meant that at times we could do no analytics ever. We had very limited reporting. Our click tracking, we would actual turn off when traffic got high in the day. Then we built up things around it and this has been a nine-month process.

But this is the architecture and we're putting the finishing touches on it now, and it's cost us $35 million. But I think it has been brilliant, I think our CIO, Shawn Schwegman, is the best CIO in America. I think he's done a fantastic job over two years taking us from really a rinky dink arrangement into this architecture. And what's beautiful about it is not only heavy duty, it's so scalable. It's scalable at each layer.

Okay, well that may be more than you wanted to know about technology, but I will mention this: The kinds of numbers, for three years folks have been asking me about customer repeat rate, and all I could give was the version one, which was very superficial. Not even a good way to measure it. Even calculating that was weeks of someone's time, dumping things into Excel and twisting and sorting and all this kind of stuff.

To give you the kind of numbers we're showing you now, like version three, and those five weekly scatter graphs that I showed you, that's all practically push button. For the first time, we're able to get an unbelievable look into our customer base and all this data. But it took a massive investment to get there. Okay.

Next slide. SkiWest acquisition. $25million in cash. $5million to $6 million what we think the first year's operating income will be. I'm sure people have questions about this. It will have some effect on our business this year. But people will have questions I'm sure.

Stock buy back program. We spent just short of $92 million, got a 1.7 million shares back, 8% of the shares outstanding. So we had 19.9. Bought back a 1.7 million. Dropped back to 18.2. The reason that didn't -- We also had I think 300,000 of warrants of mine from the early days the company came due. I think we're back up to 18.7 in shares outstanding. We retired 33 million in debt, paying 28 million for it. We have 8 million remaining on the stock buyback program.

Now I'm going to go into one last issue, and that is I want to talk about the short position. Before anybody freaks out, I'm not doing this, I've got no grudge against the shorts, contrary to popular belief, no grudge against the shorts. I'm not trying to do this -- I feel like, as odd as it may sound, I feel like I have a fiduciary duty to the shorts just like I do to the longs. I think it's important to put this information out there from a fiduciary duty and people make up their own minds about what they want to do about it.

So here is slide 47. Here's the short interest in our company over the last year. Got up to 7 million by June 15th. No complaints. Not saying anything wrong with that. More power to them.

Next slide. How much volume was there on any given day. The system is slow. The shareholder.com web cast. I hope it's not as slow for all of you as it is for me. What the volume chart shows is that the volume has come down -- well, mine is hung up. I don't know about anyone else's. Well, I guess we're just going to break off there. And if this ever comes back to life I'll bring it back up. Operator, why don't we go ahead and turn to questions?

Certainly. [OPERATOR INSTRUCTIONS]. Our first question will come from Doug Anmuth with Lehman Brothers.

Thank you. I just have a couple of questions for this morning. First one is regarding your online advertising, or actually your advertising overall. You said how you're seeing an erosion in the terms of online advertising arbitrage, and maybe those seams are widening up and more people getting in there. The question with the CPA coming up as much as it is, when does it make sense to really pull back on some of the advertising spending, given it does seem you're getting as many new customers from some of those same sources. So that's the first question.

Second question is regarding your share and debt buy back. Looks like you're close to the $100 million mark. What's your thinking going forward there? Third question is regarding the travel business, especially the SkiWest situation. Finally, you mention being potentially break-even in 2005. I want to clarify, you have said that before. Can you still be break-even on an operating basis in 2005 or is that on a GAAP net-income basis?

Thank you, Doug. Four big questions. Online advertising, if things -- well, first of all, while it is true that the CPA has gone up, the marketing as a percent of revenue, I think we can bring it down from here. And that, to me, is -- that's -- what we really look at is marketing as a percentage of revenue and subtract is from the gross profit. You get the spread from online marketing. At this point it's kind of funny, even though the CPA has gone up, we have a positive spread in our online marketing. For every dollar we spend, we're actually getting over a dollar in gross profit. I don't think we actually save money by cutting online marketing. At this point.

Secondly, because of these infrastructure improvements, as I mentioned in my letter, we're now at the position where we do really it's important -- we don't want to stall at this level. All that said, what my real thinking is, is this, I expected by this point to be improving conversion through CRM and through personalization. Those have been several months slower getting up than I expected. So what we're doing is kind of doing -- is trying to keep our growth up at the moment, I'd say maybe the dumb way, which is just with extra marketing spending.

My dream and sort of my expectation is that as CRM and propeller and personalization kick in and improve conversion and loyalty, then we can slide back -- we can trim back the marketing spending and not -- trim back the marketing and spending and still be able keep up the hyper growth. What I'm having to do, really, I've decided for a quarter or two I'm going to suffer it and just use cash to keep the growth rates up while we get this other stuff finished. When that other stuff comes live, then it's really going to be -- then I think I should be able to trim back marketing and spending and keep up the growth.

But -- so what's really -- in a way this marketing cost that I see being up over 9, is really a reflection on the fact that we weren't getting the growth we had expected through personalization and CRM because they didn't get done as quickly as we hoped, although we have just been night and day here working on it. It hasn't gotten done and implemented as quickly as we hoped. I'm going to have to sort of bridge things with some extra marketing spend. But if time goes on and we don't -- we don't get there through -- we should be able trim back our marketing cost, but I'm going to wait to do that until we see whatever lift we're going to be getting out of the propeller and CRM.

On the buyback, well, let me save that for last. SkiWest. I'll give you some numbers on SkiWest and let me walk through the numbers and then I'll give you sort of the footnote at the end. Last year Ski West revenue was $30 million. And that means from April 1 until March 31 was $30 million. And then for this year they plan to do at least $60 million. Last year on 30 million of revenue they made a $1 million. This year, meaning from April 2005 to March of 2006, they figure that they would be able to do 2 million, 2.5 million of income operating profit.

A few footnotes on that. If a company is growing that fast, and its April to March number is 60 million, then its July number will be higher. It will be 70 million, 75 million. In addition, they're growing now at faster than 100% pace. So it's possible to be talking about maybe 80 to 90 million in the July to June period, July of this year to June of next year period, 80 to 90 million. In which case, it looks more like something that could make 3.5, 4, something like that.

A few footnotes on that, all those numbers -- oh, we are in contention for a contract that is significantly, that would significantly boost those numbers up. Another 30% or so. And then another footnote is to say all of those numbers were gross bookings. That's how they book their revenue. We're not going to book the revenue that way. Dave Chidester, is it confirmed that it's going to be 100% book net or mostly?

Most likely 100% book net to be on the conservative side.

So on a GAAP basis you obedient it add much to our revenue. It's a work in progress. Terrific entrepreneurs. The two guys running it are terrific and I've been meeting people on their team. I'll really happy to have these folks aboard in our company. And then I think you'll see more of them.

Breaking-even, plus or minus 1 percent. I'm hesitant to try to say is it GAAP or is it operating. I always speak in terms of GAAP and think in terms of GAAP.

I think to clarify, Doug, break-even, we are comfortable plus or minus 1%. We would anticipate the operating income number to be closer to minus 1%. That's right within the bounds that we've set.

I think that's fair. I think that's a fair statement. And then on the buyback. Let me walk through the buyback this way. I'd like to start with the buyback on the bond.

You might want to take a pen and write these numbers down. This is how we look at it: It was trading at about 82. We know that the convert was trading at 82. That's really a combination of a bond plus an option. And if you take out the optionality value of the bond and use a black shoals model. I'll say you take out X, I'm going to let everyone make their own decision. Subtract that from 82 you're left with something, say something in the 60s. And the 3.75% coupon implied a 15% -- oh, just getting a note.

A 15% coupon implied the 3.75% coupon implied a 15% yield to maturity. Which was a little odd, because the treasury of the same duration was trading in the mid fours. And junk bonds. I would argue that my -- and junk bonds were trading to yield 10 at the same duration and if this calculation showed our effective yield, once you took out the option value, to be 15.

In addition, I view it as the -- I don't like black shoals beyond three months or six months or something. Because it doesn't pick up the real -- it's not Browning in motion. It's economics. So I think if you say the option value that was built into the convert was higher than the black shoals, and I'm not going to give out a number, but I'll have my number, I'll call it Y, it dropped the purchase price on the bond to a low enough number that it implied a yield to maturity of about 20%. So I thought that was a radical misprice in the price -- in the value of the bond, so it was an opportunity to step in and take advantage of the misprice.

Why is that going on? Well, I'm told that we have our slides back up. Rich, do you have our slides back up? Can you get it back up, please? I'm sorry. Well, I'll show you this -- I'm only going to use a couple of more of these. I'll save this and I'll save the rest for later.

This is our short interest as of 6/15. This is our trading volume as of the day September 1 to 12. Things have gotten extremely tight in the short position. I'm not seeing anything wrong with that. I'm emphasizing nobody get mad at me for talking about this, I'm not telling people what to do. But things got very tight in the box.

People are paying -- I understand that people who want a shorter stock are paying the 17% to 22% range. July 8th I heard it was30% and Morgan Stanley was offering 15% the other day to anyone who would loan them this stock. So anyway, this box, the borrow has gotten exceedingly tight in the short. I'm not opining on that, making any judgments. An effect of that is about two-thirds of the people who bought our convert did this trade that everybody knows, like you buy a million dollars at the convert but it's 3.75% coupons, and you short 700,000 of the stock.

Everybody's got a Bloomberg Journal, there's a little tool on that that will tell you. Then if you're paying 5% for the borrow, your cost on the borrow is just about covered, or more than covered by the coupon on the convert. That's sort of the normal trade on these converts. Well, with the interest -- with our borrow having gotten so tight and the interest rate on it going to 20%, I think that tightening up over there had this cause and effect relationship. It got very tight over in the box, it means that the convert had to trade down in order to have a yield like the 20% yield I just described.

Which means, I suppose I should send the shorts flowers. I hope they get up to 50% interest rates. We'll be able buy our IOUs back at $0.40 on the dollar. I really like the buyback. The stock I think, you could make the same argument about the stock. You caught us, you found us, we just have it very well priced and we took advantage of it. We have $8 million left in that program.

And I have ceased -- people will notice -- any buying on my part and everything while we had the stock buyback program in place. We only have $8 million left on that. So I hit online advertising, buybacks, SkiWest and the break-even. And I think David did a nice explanation of the break-even.

Thank you.

Thank you, Doug. Next call, operator?

Next question comes from Scott Devitt with Legg Mason.

Hey, Scott.

Hey, Patrick, thanks. You may want to put the slides downloadable in front of the call because they're slow on our end as well. The question first related to just longer term, you started talking about building the business around 2 billion in revenue and 3 to 5% net margins.

I was just wondering if one, you could add some color around maybe '06 and '07, and what you mean in terms of margins, because you said 4 to 5 and then 3 to 5, and I think you were referring to net, not operating margins. And secondly, infrastructure costs outside of sales and marketing now that we're making the investment in the IT infrastructure do you think we're going to start to get scale in the tech line and the G&A line as we go into '06? Then I had two follow-ups. Thanks.

Okay. On the slide downloadable, I will look into doing that for the next quarter. David, do you want to -- I definitely believe, yes, we're at the point of scale. We don't have -- we really were over the stair step and I definitely think you see scale in technology. My gosh, like mad. But Dave Chidester, why don't you --

Yes, I think -- yes, 2006, because of the big investments that we've made, we're not going to see -- that's why Patrick pushes to 2007 to say that's where you'll start seeing 3% to 5%. We go from running break even minus 1% this year hopefully running closer to 1% next year.

And that will -- to do that, we will be scaling technology in G&A closer to 50%. This year you're going to see 150, 100 - 150%. Next year definitely we'll start seeing it closer to 50% range. It's still a big number, just G&A, that you take every quarter. To really start seeing the leverage 2007 is the year we're looking at.

Yeah. You know, I've learned that it's a mistake to think just -- to talk in terms of just revenue and net margin. There's a third dimension, and that is growth. If we're a north of $2 billion company and we're happy growing at a secular 15%, 20% rate, we can do that and I think be very profitable.

If we want to be a $2 billion company and trying to grow again at 86%, or whatever, we're not going to be able to do that and be real profitable. It's basically do you want to be north of 2 billion an making $100 million a year and growing secular or take 90 of that 100 million and put it back into marketing and try to turn into a $4 billion company the next year?

When we think of is sort of home base, safe, is to get to the point where -- and we should be able to, if CRM and these other things kick in and the creek don't rise, we should be able to do somewhere around 1.5 billion or more next year, and that puts us within comfortable distance of being above 2 billion the following year. And if we don't have to be growing like mad to get north of 2 billion, we should be able to be in that 3 - 5% range, 4-5% It's not a science. That's why I say, 3%, 4%, 5%.

Do you still view the business at a mature rate of growth as a 6% opping business, or do you have differing views in terms of long-term gross profit margins and operating expense infrastructure?

I think it's a north of 6% operating income business if we're going to slow it down to 15%. If we're going to be slowing it down to 15% secular, I think that we can do north of 6% at this point. On operating, I still am hopeful you'll be seeing a 16 in front of one of the quarters in this year.

Between auctions and travel -- excuse me, I don't think you see shopping itself get north of that on its own. But I think that with these other businesses, which are much more in our 70%, 80% margin businesses, you'll see -- you can see the GAAP, gross margin go up 16.

To sound like a broken record, I want to remind people that that's already higher than Amazon. Although I think their last numbers came out apples to apples. If you call it gross profit after fulfillment cost, adjust theirs to be apples to apples to ours, you'll see we're actually the same. I think there's -- there are a couple of few points that we should be able to add.

Two quick follow-ups, first on customer metrics. I may have missed it. I didn't see new customers cumulatives or actives.

Secondly, in the SkiWest acquisition, you mentioned the technology you were buying. I'm interested in the technology as well as the overall strategy in travel beyond SkiWest what I see proprietary inventory that makes sense and how you take it beyond SkiWest. Thanks.

The cumulative versus active. Cumulative customers are up to 6.9 million. That's on one of the slides. The active was I believe on one of the slides in the quarter, that I just gave you, I'm not going to given all the problems with the slides, I'm not going to go back and try to find it.

If it's there I'll find it.

All the information we give on customers are on those slides.

On SkiWest, on technology, good question. I forgot you were a technophile. It's a .NET platform, and we're not familiar with .NET. We have 7 or 8 good .NET -- .NET is a Microsoft development platform that's very efficient and very fast. We've stayed away from it.

But I think that -- so this is -- of those -- if you went back to that architecture slide and it showed the web store tier, the one module that doesn't really fit -- doesn't match the other modules is this new system we've gotten in from SkiWest and it's all a .NET architecture. But over time I guess we'll all sort of evolve in the same -- I'm sure over two or three years, I'm not sure that will even still be on .NET.

There are certain efficiencies that getting everybody on the same platform. We're not going to do anything radical about trying to shift them off .NET, and in fact I really admire .NET and how they seem to develop an awful lot with a very limited team.

The strategy for SkiWest, yes, we're already in the Carribean. We're in high margin areas, highly fragmented. For now we're not going to call it SkiWest anymore, it's just travel. You'll see by Labor Day, plus or minus a week, ten days, SkiWest just becomes the Oversock Travel tab. When you click on Overstock Travel, you'll just be within our site, but you'll see that it's more and more SkiWest, but the name SkiWest won't be there.

Our strategy, these guys are terrific. They really understand the travel business and they understand where the margins are. And in particular, they've developed a technology that lets them operate in a highly fragmented and a non-commoditized side of the business. So they can go to -- It's not going into a town and saying you have 100 Econolodge rooms, can you load 20 of them up on my site and they're all identical? Two queen beds or something.

Their stuff is able to go into a ski town or a Mexican Riviera town or the Carribean or a resort in Hilton Head and set up, okay, this is a six-room lodge with horseback riding, two tennis courts, whatever, and in ten minutes they can set up that property, so it's an area where the big guys have not really gotten into.

We really like it and we've -- they have locked several hundred properties into using their system themselves. So I think you'll see us follow that strategy rather than trying to take on Orbitz head to head with a huge universal offering.

Thanks for the detail.

Thank you. Good questions. Hello? Hello?

Are you ready for your next question?

Yes, I am.

Next question comes from Craig Bibb with Brean Murray.

Could you talk about the quarterly revenue growth by month? What was the year-over-year revenue growth in the second quarter and what was July?

Well, Craig -- Dave, you take that.

Not information that we get into month to month.

Why did you presume one dollar shipping?

Well, we're always looking -- people are trying to read that, I notice, as a sign about -- it isn't like we look at how a occurring quarter is going and we try to decide, and we go "it's too low" and go to one dollar shipping. Doesn't work that way. We've done all kinds of experiments trying to balance -- you do get higher conversion with $1 shipping and does the gain and conversion offset the drop, two 2% drop in gross margin?

It will looks to us like it does. At least for us it does. Close. I don't know. I notice there's sort of an industry of people trying to read how we do different promotions. 10% off on jewelry -- there's none of that going on. Dave, do you have any addition to that?

No, I think dollar shipping is just one of the strategies we use to -- it helps increase sales. But you also decrease margins at the same time. So there's a tradeoff. We're always just deciding which tradeoff makes the most sense for us.

We've done dollar shipping once a month for two or three years. Now we're doing these experimental four-week dollar shipping, and we like them, and so, anyway.

I thought it caused BMV sales to rise and average tickets to decline.

It does -- both of those statements are true. The first statement is true and the first causes the second.

Thus it was unattractive?

Well -- we think it covers, at least the gross profit dollars you give up are at least 75% covered by the increase in sales. So we like dollar shipping and our customers love it. We might -- Amazon monkeyed, well played around with a lot of different experiments, and they ended up with going to this free shipping over 25, which is something we may also do an experiment with and try.

What we have learned is people insufficiently -- it's amazing to me, drop from $2.95 shipping to $1 shipping and suddenly people are buying $500 beds. We feel like saying "Hey, it was only $3 the other day to ship. " But it makes a huge difference in people's minds. We may try free shipping over $25.

If your father becomes Chairman, what changes?

Well, I'll have a little less work. He'll have more work. And I think it's good for governance. Even before I got to Overstock.com, I've always thought the Chairman and CEO position should be split in the company. It's two hearts beating in one chest.

Did the structured call or short put tradition is now closed out, is that correct?

Yes. And I can say what those were now, those were structured for June 30 and there was --actually I think we started them when the stock was in the low 50s, and one was at $45, one was at $40, one was at $35. And so we picked up. What we did was we started buying ourselves out of those contracts and -- anyway, it all came out to a blended 38/70 I think for the quarter.

Was there a gain on buying yourself out of those contracts, or is that the 1.7 million shares that you bought back?

No, that was the one point un7 shares.

Were you buying in the market also or --

1.7 million is a blend of both open market purchases and through those contracts we got about -- we spent about 40 million through the structured contracts and 24 on the open market.

I'm sorry. I misunderstood the question. A million through the puts and the 700,000 open market. I wouldn't -- I'm not sure I would do the puts again. For all the heart burn they gave us -- I don't know. You asked me a funny question, Craig, when I met you. You said would Warren Buffet do these structured puts? I don't even understand the connection. Is there something unseemly in your mind about doing --

I can understand a company like Microsoft or Dell, which has a ton, unbelievable amount of cash sitting on their balance sheet shorting puts against their common. But for a fast growing, more nascent company that's still raising capital, or had recently raised capital, it didn't seem as prudent as it might for a company with 10 billion plus in cash.

I understand. I understand. Any other question?

Nope. That's it. Thank you.

Thank you. Operator, Erica, let's go to Aaron Kessler. Piper Jaffray.

Line is open.

Great. Patrick, how are you doing?

Great. How are you, sir?

Great. Quick question for you. The numbers for '05 -- actually '06 and '07, at 1.5 billion, 2 billion, obviously seems pretty good growth. Given you're probably running through large numbers over next couple of years, what's the assumptions underlying this in terms of increased marketing spend do we really to need to see the higher conversion rates to get to those numbers?

Well, I'm sure the rule of large numbers kicks in. What should also kick in are a bunch of things everybody else has done. Amazon has done very well. The whole CRM and personalization stuff. If we're maintaining these growth rates without that stuff, then as that stuff comes in, and I know it's always sort of a couple of weeks over the horizon, or a couple of months, but I think we're there, that should help the growth rate.

On the other hand, we will bump up against the large numbers. I don't know when the law of large numbers overwhelms the improvements, the gains that we're going to make from this improved technology. I just can't -- you know everything I know.

We should expect to start to see the higher conversions in beginning in '06, or is Q4 reasonable to start to see that, or what's the time frame for your expectations?

I can say that along with this equipment, we realized we were getting all this rocket science equipment and we didn't have enough rocket scientists. We've gotten rocket scientists. Good hires from around the industry, including two very senior guys at Teradata.

They say they can make us as good as anyone in the world by next June at CRM. We've hired several PhDs in math and statistics and a bunch of well-known people actually are working with us. So as far as the CRM stuff, by next June we could be very good. They say we should be seeing some effects starting in September. That he was when we started on this, 8 months ago, or 7 months ago. That was the time frame they gave me. Some effect by September and to be as good as anyone by next June.

Great. Thank you. That's my only question.

Thank you. Is Justin Post from Merrill still on the phone? I do have Justin.

First on your own inventory that you're selling, looks like inventory is up 90% and sales are up around 45% year-over-year. Could you talk a little bit about that and do you expect inventories to level off in the second half?

Dave?

Part of what you're seeing in the inflation is the diamonds. 7.5 million of that is diamonds we've set aside for this other business. So some of the inventory increase you're seeing is just inflation, caused by that. I think our inventory balances a little bit higher than it has been. We did that intentionally. We built up inventory in Q2 in some particular areas. I think inventory will build a little bit more in the third quarter, just in preparation for Christmas, but it won't have to build as much as as it might have in the past. Of course we'll flush that down by the end of the year.

But I think that you will see our inventory -- don't we figure it will get up to about 70 million, Dave?

Yes.

70 million at some point. May not show up to you folks that way. But by mid or early November I think we want to be at sort of 65 - 70 million in inventory.

Okay. Secondly, on the fulfillment partnership side, are you adding partners or driving more revenues per partner? What's the rule there? How did you get margins up on the gross margin side on that business?

Well, on the -- we're not adding more partners. We occasionally add -- it's not about adding partners. In fact, more often we cut partners. I'm sure we cut more partners than we add. We're not trying to be Yahoo! stores with 20,000 people. We pick the right two or three partners in each little segment. So we're not adding bunches of new partners. We can. There's many people who want to be our partner, and we get all these overtures. We're very selective.

I don't really think we get margins up -- we don't get margins up there by extracting a higher vague on the transaction. What we can do, what will get margins up there or some of the same things that will get margins up on our core side. Let me give you an example. On our returns processing, we've in the last six weeks implemented, finished, return -- actually finished return it back in May, but we had troubles. It cost us now, it's been costing us 1.50 to initiative a return. 7%, 8% of the orders get returned, which is quite low. But you, do the math, there's 30 or 40 basis points there.

I think we eliminate at least 20 or 30 of that -- we're the only major Internet site until recently you had to pick up the phone and call somebody and get an RMA to initiate a return. Or send an e-mail. And that customer service contact costs several dollars. We've now eliminated that. If you work through the math, there's 20 or 30 basis points you pick up. That applies whether it's core or partner. The way we handle returns in the warehouse has gotten better. There's some points there. Dave, are any of the other projects that we're doing well customer service.

Customer service, yes, I was going to say.

Customer -- we're doing several things to drop customer service costs, which have been too high. One of them is we're hoping to handle -- as I mentioned in my letter, we're going with -- we went with Oracle customer service software. And when that has a built-in expert artificial intelligence or expert intelligence. When you reach Amazon, it's hard to find a telephone number on anyone to call. Send them an e-mail. They have a lot of software that reads your e-mail and in many cases generates an automatic response. That's a whole expert system that comes with our new Oracle package, which should be live in early October.

If we can eliminate 30% or 40% of the customer service contacts, that means that we can get through the fourth quarter without hiring a bunch of new people. That again applies both to the core business and to the partner on the business. In terms of we're not going to do anything to increase the spread with our partners. We don't want to create a pricing umbrella for other people. We take a spread that we think is fair and we don't want to increase that.

Thank you.

Thank you. I think that what I will do, since it's 11 minutes after the hour, is I'm going to go ahead and finish this slide deck. You should have slide 49 in front of you. Okay. I'm just going to walk through some numbers and again, I feel a fiduciary duty to do this.

You're going to see eye. June 15. How long were the longs? 19.9 million is how that reads. 7 million is the reported short. There's this whole question of the naked short. People can no longer say that this is some mysterious whacko theory.

We're on the reg show threshold list. We've been on that since January 27th. The day we went on it we had 4 million shares trade and the next day we had 9 million shares traded. Since then we've been on the threshold list of companies that are seeing excessive failures to deliver for about 185 days, calendar days, with the exception of we were off for 20 odd days straddling March and April. I don't know how many failures to deliver there are. You now know everything I know. I do know that there's people telling me that there's a lot more than I'm showing here. But just for -- I know there's least 100,000 for us to even be on the list. I know some people are going to criticize me and saying, Byrne, you shouldn't be saying if you don't know.

The reason I don't know is because the SEC won't tell me and the DTCC and the NASDAQ won't tell me. They know because they put me on the list every night, but they won't tell me. I don't think they have much business telling me you shouldn't be making guesses. They're the ones that won't let me know. I have come up with three estimates that I think are reasonable. .1, 1 and 5. Make your own guess, given that we've been on this list for 185 days with the exception of that little window. What that means is there's somewhere between 27, 28, 32 million shares that the world thinks they own.

Well, and this is the part where I feel I've got some -- I'm not trying to -- I feel I've got a duty to tell -- listen, my -- my feelings about the shorts are not that they're bad guys. There's this school bus and in this school bus there are good kids, there are bad kids who belong in juvenile hall. There're some kids playing [expletive] with each other. But they're all a bunch of kids. No anger about the kids. They're just being kids. But I think that there's this bridge out, and I'm just going to -- I'm going to talk about that.

You guys make up your own mind. I want everybody to have these facts. How were the shares held? Well, I know that myself and my father owned 7.5 million shares. I think about 6.2 or 6.3 for me. I'm just giving some estimates here, but I know the low end and high end of that estimate is the same. But the others in the Byrne family, now it's verboten in my family for people to -- we don't talk about -- I wanted to emphasize for the record, my father and I do not count as one person. We trade separately. We don't check with each other before we trade, we don't tell each other I'm trading. I'm going not going to cite that argument today. I looked it up yesterday and we're at 7.5.

Other people in the Byrne family do not -- we don't talk about it, but it's family and there's a grapevine, and if I had to guess, I would say that it's sort of a million to 1.4 million shares. Again, I don't know for sure. That is a real guess. But I think that's a reasonably -- have some reasonable confidence in that. If you look at the top ten institutions in mutual funds per Yahoo, March 31 showed 7.6 million shares.

And if you look at other friends, now, here this is just people I know, it's not like we coordinate. Some of them I talk to once a year. But I've heard from somebody back in February and March that he had bought 500,000 shares. I've heard from somebody else, somebody came through the office a week ago, said he had bought 650,000, was on his way to a million. I know of another guy who told me he was buying 500 to a million. People whose first names I knew before I ever started Overstock.com.

I know the board's got a couple - few hundred thousand. I know another friend -- two old friends got 250. You put this all together, and I think a reasonable estimate is at least a million and maybe 2.4. Maybe even more. So I'm just trying to be conservative here. Add these up and you get to 17.1 on the low end and 18.9 on the high end. The mid point of those numbers is 18.0, with a question mark, because I'm acknowledging this is very fuzzy. I'm telling you what I know. It's very fuzzy.

What that means is there is 1.9 million shares that, if you're not in one of the top ten institutions, and your name isn't Byrne or you didn't marry someone named Byrne, or you didn't take a bath at some time in your life with someone named Byrne, there's only 1.9 million shares you can own. Looks like if you take that away from how many of the world thinks they own, there is nine, ten, maybe as much as 14 million shares the world thinks they own. So it's a game of musical chairs with 1.9 million chairs, and at least 9 million and maybe 14 million people in the dance hall playing musical chairs. That's June 15th. Now I say do did this slow down again? June 15. I showed you that already.

What happened in July? July the short interest came down from 7 million to 6.5. But the volume dropped as well. So the days to cover actually went to 14. Again, more power -- that doesn't include any naked shorting. And the naked shorting isn't a theory because we're on the reg show list. So, again, 14 days to cover. You guys are all adults. More power to you. These are just the facts.

If you walk through the same calculation, though, and say how long were the longs? As we said, our amount issued has dropped 18.7 million shares. And the short position dropped to 6.5. I'm going to keep the same estimates for the naked short or the failures to deliver or whatever it is that gets us on the reg show threshold list, which has to be 100,000. Since millions of shares flop around, it could easily be in the millions. Somebody tells me, we have one smart guy in Texas who tells me it's a lot more than 5 million, but I'm stipulating. I don't know. These are guesses based on trading volume.

The same .1, 1 to maybe 5. Which brings the total share count to 26, 27, or maybe, what is that? 30. So somewhere between 25 and 30 million shares is what the world thinks they own. If you walk through who owns what again, Jack and Patrick, not one person, but there it is, are at 7.5 million shares. Rest of the Byrne family I'm still, I'm still -- I've heard that one guy I know owns -- I'm sort of putting through what comes through the grapevine to me, and this is quite imprecise, I would bet 90% the right number is between one and the 1.4. I went on Yahoo yesterday, and the big ten institutions and mutual funds don't own 7.6, they own 8 million.

Close friends and so forth, again, some of these guys, one of these guys I haven't even talked to in the last year, but I got e-mail from him four months ago. Somebody else I talk to every two years. My understanding of what they own, if you add this all up, is 1 million is a conservative estimate, 2.4 is a good estimate. Maybe could even be higher if you walk through the numbers I gave you the last time. On July 15, looks like these folks on the right own 7.0 -- 17.5 to 19.3. The mid point of those estimates is 18.4 million shares. Which means they own all but 300,000 of the outstanding shares, and the problem with that is there's at least seven, maybe eight or 12 million people who think they own those 300,000 shares.

I know what people are going to say. People are going to say well, so this says that if there's somewhere between 25 million and 30 million people who own shares, there's really only 18.7 million shares to be owned, and of the 18.7, 18.4 are owned by ten institutions, folks named Byrne, folks who married someone named Byrne or someone who took a bath with somebody named Byrne. The 300,000 shares in the game of musical chairs, you have at least 7 and who knows, maybe 8 or 12 million people looking for them.

Now, I -- this doesn't add up to me. I feel an obligation to say this doesn't add up to me. And I know the bad guy -- well, I know guys are going to say Byrne doesn't know what he's talking about. He doesn't understand how this works. I know there's always more shares that the world thinks they own than how many shares are issued because of the shorting. But these ratios seem difficult to explain to me in normal terms. They're going to say Byrne doesn't understand this stuff, and maybe I don't. Maybe I don't. Maybe I don't. Maybe I don't.

My impression of how a stock loan desk always worked was always a bunch of guys from Staten Island saying something like, "Tony, you're killing me. I told you this morning we have 500,000 of stock in the box, I loaned 400,000 to Morgan, 300,000 this morning to Cowan, what are you doing? You say this guy needs 250. You're killing me. "

The guy says "this guy does half a million a month with us in vig. What do you want to they will him?" "Okay, okay. Tell him he's got 150. And tell him he don't tell nobody. It will settle. It will settle." That's what I thought a stock loan desk looks like in a typical brokerage. But I could be wrong with that. I could be wrong.

Folks are going to say, well, Byrne tricked us or engineered us. If this bus goes off the bridge, or there's no bridge, if they go off the cliff, and to that I say, "Byrne didn't engineer this. Byrne is the guy who has been making a fool of himself for six months, waving a red flag, saying there's a bridge out ahead. " These numbers don't add up. If they decide to drive off the bridge, if they decide -- I can see the school bus going, and I don't think everybody in the school bus deserves to drive off the bridge.

The other thing is people will say, "Byrne shouldn't have said this. Byrne doesn't know what the naked short position is." Well, again, the reason I don't know what the naked short position is because I've tried from the DTCC, NASDAQ and the SEC to get the information. They refuse to disclose that. I asked them on what grounds.

When we bid our S-1 to go public, we got feedback because we had said we're the leading online liquidation site and the SEC wrote back and said, how do you know you're the leading? You're maybe a leading. You can't mislead investors. You have to make sure they have right information. They're right. They should. Investors need to have the information that -- any information that can affect the valuation of their stock.

It seems to me that this information I've just given is also information that is -- that it would be imprudent, or inappropriate not to point out to people and not to bring their attention to. I'm not telling people what to do. Do anything you want. This information is appropriate to give. By the way, I don't mean to pick on the SEC, and I probably have said things, I've been on TV and talking about them being a captured regulator and stuff. I don't mean to hurt anyone's feelings at the SEC. Especially in the rank and file there are a lot of great people.

When we did our IPO we had a, what's it called? Celebration dinner. I looked around at all these lawyers who make half a million a year. In the SEC there's an examiner making whatever she makes. And I got up and sent her a dozen roses, because I think they're underappreciated. I think that my family, I sort of was brought up on -- there was a few sacred things. One of them is a capital market, and you have to have regulators who take care of the capital market. I don't mean to dis all the time on the SEC. I'm apologizing if anyone's listening. I didn't mean to hurt feelings about it.

At the end of the day I don't work for the SEC. I work for shareholders. The shareholders deserve to, all shareholders and all share shorters deserve to have the facts presented to them. And that's what I've tried to do. Okay, I will get off my soap box. I thank you all for another interesting conference call. And look forward to talking to you in three months.

That does conclude today's conference. We thank you for your participation. Have a great day.