Overstock.com, Inc. (NASDAQ:OSTK) Q4 2022 Earnings Call Transcript

Overstock.com, Inc. (NASDAQ:OSTK) Q4 2022 Earnings Call Transcript February 22, 2023

Operator: Good day and thank you for standing by. Welcome to the Overstock.com, Incorporated Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there’ll be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Lavesh Hemnani, Head of Investor Relations. Please go ahead, sir.

Lavesh Hemnani: Thank you. Good morning and welcome to Overstock’s fourth quarter and full year 2022 earnings conference call. I’m Lavesh Hemnani. Joining me on the call today are CEO, Jonathan Johnson; CFO, Adrianne Lee; and President, Dave Nielsen will be available for Q&A. A slide presentation accompanying today’s webcast has been posted to our Investor Relations website and is available to download. Next slide, please. Please review the important forward-looking statements disclosure on slide two of today’s presentation. The following discussion and our responses to your questions reflect management’s views as of today, February 22, 2023, and may include forward-looking statements. Actual results could differ materially from such statements.

Additional information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2021, and in our subsequent filings with the SEC. During this call, we’ll discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following managements’ prepared remarks, we will open the call for questions. To ask a question please use the registration link available under the Event section of our Investor Relations website. Next slide, please. During today’s call, we will follow the agenda on slide three.

And with that, let me turn the call over to our CEO, Jonathan Johnson.

Jonathan Johnson: Thank you, Lavesh, and good morning, everyone. I’ll begin today’s call with an overview of the Overstock investments story and our progress since the pandemic began, before asking Adrianne to discuss our Q4 and full year financial results. Next slide. Overstock has been on a three year purposeful strategic and transformational journey since I became CEO. We refocused management on the retail business in transition to Overstock to a 100% home-only retailer. This transformation coincided with a dynamic shift in consumer spending behavior within the furniture and home furnishings category, 2023 will be Overstock’s first full year as a homeowner retailer in our 20-plus years of being a public company. Statistics on this slide summarize some of the progress we’ve made over the last three years.

During that period, we have grown revenue by over 50%, outpaced the expansion in the furniture and home furnishings total addressable market and consumer expenditures and gained market share. Notably, our home product assortment has more than doubled since we began our exit from non home products in January 2021. From an operational standpoint, our team managed budgets, found efficiencies in automation opportunities and took costs out of the business to ensure we achieved positive adjusted EBITDA for each of the last 11 quarters. We expanded gross margin nearly 300 basis points and adjusted EBITDA margin nearly 500 basis points. Revenue upfront, progress we’ve made over the last three years does not erase the fact that our 2022 performance was below our own expectations.

Revenues declined 30% year-over-year, resulting in a loss of market share. While we delivered positive adjusted EBITDA in each quarter of the year, our weaker top line performance drove significant expense deleveraging even as our — even with our already lead organizational structure. During today’s call, I will share areas of opportunity that should get us on the path to improve our top line performance as we continue to leverage a differentiated asset light business model. Next slide please. We share this flywheel each quarter. It highlights our growth drivers those efforts critical to supporting growth in the short and long-term. While these key growth drivers are not new, we are always evolving underpinning of our drivers to improve performance.

As an example, from an assortment standpoint, our internal data shows that more than one-third of our revenue during the fourth quarter was driven by skews added over the last two years. Our transition to 100% home retailer is complete. We know we still have a biggest assortment gap relative to competition. Our merchandising team has added more than four million new on trend skews from thousands of partners since the beginning of our home. They continue to identify new opportunities that are helping to close the gap to competition. For example, during our strategic decision to add national branded giftable during Q4, a category which outperformed in the quarter. Mobile app adoption has grown rapidly, but we can still do better. We will continue to focus efforts to accelerate its growth.

It is our best customer engagement platform, one with better order frequency. We’re always working to improve customer retention. Earlier this month, we launched an exciting new loyalty offering, a new co-branded Mastercard credit card in partnership with Citi Retail Services. We’ll comment on this card launch later in the call. Improving product findability and how customers browse and engage with product pages on our site is table stakes for any e-commerce retailer. Still, we can improve our search processing and results recommendation to deliver a better customer experience. And we’re working on just those things. None of these growth driver is capital or resource intensive, all are aligned with our asset light business model, all will help us gain in customers, increase frequency and increase our share , while we continue to appoint managers of our balance sheet and income statement.

We are confident that we have the right people in key positions to lead these growth initiatives. Next slide. Overstock is uniquely positioned with significant white space available in the quadrant where home goods expertise meets Smart Value. This quadrant is so attractive that last year many of our competitors that had a glut of inventory started to look a lot more like us and drifted into our quandary. While this increases competition for a time, I do not believe their business models and balance sheets will allow them to offer Smart Value pricing over a longer period. The furniture and home furnishings market is fragmented, with a total addressable market of over $400 billion. We believe we have an opportunity to gain share by sharpening our focus on our key growth drivers where Smart Value offering resonates with our customers and our pricing competency held up well during the fourth quarter, the quarter in which promotions started with — started earlier with competitors relying on deep discounts to stimulate demand in trying to sell-through extra inventory.

As I mentioned earlier, we went after giftable inventory, as we look to take advantage of market share locked by some of our competitors. We use our strong balance sheet to take some inventory exposure on national brands and categories we have not historically been strong in. This strategy was successful over the Cyber 5 period as we registered year-over-year growth on this inventory. In some cases, we sold through almost two-thirds of the acquired inventory during this five-day period. I usually don’t talk about performance by category. I want to emphasize that we continue to work to grow our presence in the significant white space available to us. Our Renewed Home focus is enabling us to work with partners who we have not worked with in the past, supporting our efforts to drive market share growth.

Next slide. An integral element of our business– our performance supports our efforts to execute key growth drivers is the strength of our balance sheet. In fact, we navigated a difficult fourth quarter, which impacted our ability to generate cash; we managed to end the year with a relatively strong balance sheet. We exited 2022 with $371 million in cash and just $34 million in long term debt, resulting in a net cash position of $337 million. Having amenable debt, a strong cash position in this uncertain macro environment is a great tactical advantage. It allows us to focus on improving our core operations and pursue initiatives without relying on the capital markets. And it has been and will be a big plus for us as we continue to add new partner suppliers.

We repurchase shares in the fourth quarter. Through 2022, we’ve returned $80 million to our shareholders via share repurchases. During 2022, we made a $50 million direct investment in tZERO. Last month, we directly invested $10 million in GrainChain. We believe that both are promising Medici Ventures portfolio companies, more on each later. Considering these investments and share repurchases, we’ve invested over $100 million or about 20% of our cash balance sheet since the beginning of 2022 towards value-driving initiatives for our shareholders. Next slide. Our Medici Ventures portfolio continues to present a differentiated value opportunity for Overstock. It is still a key element in the Overstock investment story. Blockchain investments have made significant progress since we transferred active management of the portfolio to Pelion Venture Partners in April 2021.

Pelion has served as an excellent partner in advancing growth for assets in the Medici Ventures’ fund. During 2022, three of the portfolio companies shown on the left that this slide, raised additional financing at higher valuations. We believe each has potential meaningful long-term value for Overstock and its shareholders. There were two of these companies shown on the right side of the slide in which Overstock chose to make a direct investment alongside Medici Ventures fund and/or Pelion Ventures. While we are not a venture capital fund, given our in-depth knowledge of these companies and their management, and the trust we have in Pelion as the general partner of the Medici fund, we believe that both these companies have such real potential for significant growth and we chose to double down on that.

During 2022, we made an additional $15 million direct investment in tZERO in a round led by Intercontinental Exchange. This coincided with tZERO’s appointment of a new CEO, David Goone, who has experience creating exchanges and delivering against business objectives. tZERO continues to execute toward its goal of democratizing access to capital markets, aided by the appointment of a new CTO, William Andreozzi in early 2023. tZERO revamped its web infrastructure and continues to add new issuers to its fully compliance securities trading platform. Earlier this month, tZERO enabled Aurox, a crypto software ecosystem to begin a crowdfunding campaign under the SEC’s Regulation Crowdfunding, which allows qualified retail investors to purchase shares of Aurox.

This feels like a major step in the democratization of capital raising in pre-IPO companies. I know some may ask for my thoughts on tZERO shuttering its crypto wallet. tZERO was not built to be a crypto exchange and enabling customers to trade cryptocurrencies was never a core area of focus for tZERO. Crypto trading business was an adjacent activity designed to augment tZERO’s focus on bringing unique digital and conventional securities to the market. From what I understand the crypto activity ended up not being accretive to tZERO’s financial results or to its future direction. In January, Overstock made a $10 million direct investment in GrainChain through a convertible note offering. It provides — rather GrainChain provides a software suite to farmer cooperatives that enables farmers to get paid 60% of the value of the commodity upon harvest and the balance upon successful delivery to the end customer.

Farmers who don’t use the GrainChain platform usually get paid up to 180 days after product delivery. So you can see why this is a game changer. GrainChain has received high levels of customer stickiness, once farmers try the platform. As a result, it has been able to grow relatively quickly over the last few years. 2020, the company has grown in an annual compound rate of 125% and revenue has grown nearly 400%, because of its differentiated technology we expect GrainChain to become a market leader in tech space. While I do not expect all our investments to be a regular occurrence, and the bar continues to follow on and investment is high. Both these follow on investments enable Overstock and its shareholders to participate in the future success of tZERO and GrainChain in a greater way.

Next slide. Now for a brief update on recent corporate events. Last spring we introduced our forward or future of remote work and reentry design plan. At that time, most of our employees work remotely almost all the time. When we created this plan, we expected it to evolve and mature as the business environment and financial performance required. We recently tested requiring employees to come into the office more frequently. We saw better cross-functional collaboration and efficiencies. After success of this task, we modified our in-office days under the Forward plan to bring every local employee to the office weekly, most three times a week. The Forward plan has enabled us to attract top talent to the organization from outside of Utah. During 2022, the Overstock leadership team underwent some major changes in marketing, merchandising, supply chain and product groups where we upgraded talent and identified and filled gaps.

For example, just this past week with proven international and supply chain logistics experience in addition that should help spark our efforts to grow in Canada. As we progress to 2023, these new teams will deploy new and exciting strategies to drive growth. We are confident we have the right systems in place and the right people in key positions to lead these growth initiatives. We remain committed to hiring remotely, which allows us to upgrade our talent with the best candidates from across the country to strengthen our operations and return to top-line growth. Now, I will ask Adrianne to review our fourth quarter and full year 2023 financial results.

Adrianne Lee: Thank you, Jonathan. Slide 12, please. Revenue declined by 34% year-over-year in the fourth quarter, which was pressured by an intensely competitive landscape and our strategic decision to remove non-home products from our site. Our gross margin performance was impacted by elevated discounting and increased freight costs. Through this challenging timeframe, we still managed to deliver positive adjusted EBITDA of $7 million in margin of 1.6%. Our reported EPS loss of $0.34 was primarily driven by a non-cash non-operating expense associated with the change in value of our equity securities and the associated tax impact. This change, primarily reflects our proportionate share of the Medici Ventures funds performance, including an updated valuation of the tZERO investment.

We will provide an updated summary of our equity securities, including the Medici Ventures fund in our upcoming form 10k filing. Excluding the impact of our equity securities, we reported adjusted diluted loss per share of $0.04, a decrease of $0.40 versus 2021. The decline in adjusted EPS versus last year it was driven by lower pre-tax income. Our balance sheet remains strong. We ended the quarter with the quarter and year, with a cash balance of $371 million. The year-over-year decline of $132 million was mainly driven by $190 million of investing and financing activities, and a 13 million use of cash and operations. As Jonathan mentioned, we returned $80 million to shareholders via share repurchase and invested $15 million and tZERO. Next slide please.

Photo by Francesca Tosolini on Unsplash

We posted revenue of $405 million in the fourth quarter, a decrease of 34 million €“ excuse me, 34% year-over-year. Weak consumer sentiment and a pressured housing backdrop continued to impact our top line performance, while we also face competitive pressure, mainly from increased and earlier discounting activity during the quarter. The absence of non-home assortment following our transition to home in June of 2022 impacted our year-over-year comparison. Adjusting for non-home revenue €“ our home only revenue declined 30% in the fourth quarter consistent with the third quarter. Performance during the Cyber 5 period was significantly better than the reported 34% decline for the quarter. Our pivot to add strategic national brands and gift able assortment during the fourth quarter drove positive sales performance year-over-year within targeted categories.

Revenue performance is driven by fewer orders compared to last year, partially offset by a 4% increase in average order value. I will discuss our key customer metrics in further detail later. Next slide please. Gross profit was $90 million in the fourth quarter, a decrease of $49 million versus the prior year. Gross margin came in at 22.1%, a 54 basis point decline versus the same period last year. The year-over-year decrease was driven by higher discounting to support price competitiveness and elevated freight costs. This increase was partially offset by merchandising actions, including negotiated product cost reductions. Regarding freight, costs came in higher than expected impacting gross margin. We have already taken remedial actions, and expect to see less freight pressure ahead from structural improvements in our carrier contracts.

Our gross margin performance continues to be a positive proof point of our asset light model. We maintained our competitive pricing KPIs despite the uniquely competitive environment, and delivered gross margin in line with our targeted operating model. Next slide. G&A and tech expenses decreased $5 million year-over-year, primarily due to savings related to the organizational review we referenced last quarter and benefits from efficiencies and automation. As a percentage of revenue G&A and tech expense was 11.5% in the fourth quarter a deleverage of over 300 basis points compared to the fourth quarter of 2021, due to weak top line results. We continue to be disciplined in managing our expenses and finding efficiencies. We run a lean organization, and we have periodically taken actions to ensure we balance our G&A and tech spend, with our top line performance.

Next slide, please. In the fourth quarter, we delivered adjusted EBITDA of $7 million, a decrease of $21 million versus a year ago. Adjusted EBITDA margin was 1.6%. We are certainly not pleased with this result. However, we continue to manage factors within our control to help offset headwinds during a competitive and highly promotional quarter. We remain focused on managing our business efficiently and pursuing strategies that will drive market share gains and shareholder value. Next slide. This slide shows active customers and order frequency. We measure active customers on a trailing 12 month basis. Our active customer base declined to 5.2 million at the end of the fourth quarter. This decline in active customers was driven by three primary key factors.

First, a deceleration in spending on home related goods. Second, shift in spending preferences. Consumer continued to spend on experiences and services. And third, are purposeful shift to transition into a 100% online home retailer. As previously shared, this is the right long term trade off, despite some pain in the short term. Orders for active customer was 1.6 times in the fourth quarter, a decrease of about 4% versus last year and a decrease sequentially. Order frequency continues to hold up relatively better, compared to our decline in order volume. We expect that over time. Our improved association with home, continued mix into mobile app, our platform with the highest frequency and enhance loyalty offerings will help improve this metric.

While our pace of new customer acquisition is lagging, in part, due to navigating an intensely competitive environment, our year-over-year change in customer retention rate is comparable to the average of other online furniture and home furnishing retailers as measured by third-party data. Next slide, please. Average order value improved by 4% year-over-year to $215. Our AOV was primarily driven by the mix within our home product assortment. AOV declined slightly compared to Q3 as we shifted out of seasonal outdoor furniture and into a more giftable assortment. If you reflect on our three year AOV journey, our AOV has improved over 40% or about $70 to a full year average of $231. Well, this is more aligned with our home retailer peers. We still have opportunity for improvement.

Orders delivered were 8.2 million for the trailing 12 month period. This is a decrease of 39% compared to the prior year or 5.3 million orders. As I discussed earlier, the decline was primarily driven by week consumer sentiment and a shift in their spending priorities, along with the cumulative impact of non-home product removal from our site. Our AOV and revenue proactive customer metrics continue to support our future of being a home-only online retailer. The customers retained in our ecosystem purchased higher value items and have compelling reasons to improve our relatively stable frequency. Next slide, please. This slide provides a recasted view of our business, excluding non-home revenue, which allows for a more direct comparison to our peers.

As you can see on the last chart, at the end of the fourth quarter, our comparable home related active customer base declined 31% versus the reported 36%. The chart on the right illustrates our comparable home-only revenue declined 30% versus the reported 34%. On a sequential basis, the impact of the non-home category removal increased due to the cumulative impact of non-home customers exiting our ecosystem. Our home-only revenue trends stabilized during the fourth quarter and we are focused on strategies to improve the sales performance. Next slide. I will wrap up my discussion of the financial section by providing a snapshot of our full year 2022 results. We ended 2022 with $1.9 billion of revenue, a 30% decline year-over-year, but a 34% increase versus 2019.

As Jonathan mentioned earlier, this illustrates the operational improvements we have made in the business. Gross margin was in line with our financial targets, highlighting the benefits of our asset-light model, especially during times of demand volatility. G&A and tech expense deleveraged for the year because of top line performance, despite expenses declining $10 million year-over-year on an absolute basis. This is a result of our focus on expense management and delivering against our EBITDA target. Overall EBITDA was $63.5 million for the year or a 3.3% margin. This was below our mid-single-digit target, but a positive result, driven by a closely managed outcome. With that, back to you, Jonathan.

Jonathan Johnson: Thank you, Adrianne and to our shareholders. Those are not the type of results we like to report. We can and will do better. Next slide. I’d like to provide some thoughts on our outlook for 2023 and our strategic path forward before taking your questions. Next slide. We continue to direct our efforts to drive sustainable profitable market share growth within our financial recipe card targets. While we did not achieve all the elements of this targeted financial model during 2022, we continue to believe this targeted framework is the right model for our business over the long and even medium term. We have clear focus strategies to deliver performance in line with these targets. Our gross margin performance is a good example of this.

Despite the hyper-competitive environment with significantly — significant oversupply in the back half of 2022, our merchandising efforts in our asset-light business model enabled us to deliver on our gross margin target. 2022 topline performance was below expectations. Both the team and I know we must turn around performance. I still firmly believe we can expand our presence in the significant whitespace available to us, take market share, while running a profitable business. That is not an easy task and one that few in our industry achieved. We believe we can and will over time. Next slide. Before I talk about our strategic path forward, I will share some thoughts on our outlook for 2023. I think 2023 will be a tale of two halves in a year of rebuilding for Overstock as we get back on track to recover market share.

From a broader industry perspective, we expect to see the — macro drivers of inflation, rising interest rates, and the weak housing market will influence performance through the year. In 2019, we lapped the year as a strong consumer purchase sentiment during the year. Micro drivers could improve as we move through 2023 predicting consumer activity is difficult. Regarding inventory, based on our conversations with many in the industry, we don’t believe the industry completed its inventory rationalization in 2022. We expect that will continue through at least the first half of 2023. While aggressive discounting should normalize during 2023, the shape of demand will be key determine — remains uncertain. On supply chain, ocean freight costs have decreased significantly.

However, domestic costs remain high due to surcharges and labor headwinds. While some of the industry drivers are difficult to predict, we expect Overstock’s second half performance to be better than the first half due to the following. We will fully wrap the headwinds from non-home products removals from our site in June. Based on conversations with partners, we expect to benefit from newness in product assortment during the second half of the year. Last year, some of our partners had cash locked-in expensive inventory that was not moving. This limited their ability to invest cash on new product innovation. We are expanding our loyalty efforts. As I noted earlier, we launched a co-brand credit card with MasterCard earlier this month. We expect engagement with our €“ within our Club O members to grow as we market this great offering to new and existing customers.

We are also looking at how to best renew our private-label credit card offering and improve our email personalization competency to drive repeat business. During 2022 as I mentioned, the Overstock leadership team underwent some major changes, upgrading talent and identifying and filling gaps. During 2023, we expect these new teams will deploy new and exciting strategies to drive growth. I think you’ll particularly see this in the marketing area. As I indicated earlier, during Q4 we purposefully added national branded and giftable products to our website to capture market share, including from struggling competitors. This was just phase one of our efforts. We will continue to expand our assortment, working with new and existing partners to deliver a fulsome product assortment for our customers.

The current external environment of fluctuations in consumer sentiment, make it difficult for us to provide traditional guidance. Still, I will do my best to provide some selective color, since our renewed focus on home three years ago, sorry €“ since our renewed focus on home three years ago, Overstock is delivered on profitability. This profitability tenant and our strong balance sheet differentiate us among our peers. This will not change in 2023. We expect to be profitable for the year. While we are comfortable saying this on an annual basis given seasonality and other factors. There maybe a time within the year when we aren’t profitable. Now for a quick update on the first quarter. Through the first three weeks of February, our year-over-year sales performance has remained relatively consistent with the fourth quarter.

Based on this, even with a relatively strong Presidents Day weekend we just had. We currently estimate Q1 total revenue to decline in the 30% range year-over-year regarding profitability during Q1, the current sales trajectory and our estimated Q1 sales volume, we expect to see further expensive deleveraging, and while we continuously look for cost savings and process efficiencies, we expect Q1 adjusted EBITDA will be below Q4 levels, given the range of revenue guidance, we are not providing specific adjusted EBITDA margin guidance. Next slide. Before we open the call for questions, let me make a few comments on our strategic path forward. On path which I believe leads us to a better 2023. Next slide. Overstock’s three brand pillars guide how we operate our business in the short and long term.

Our focus is clear and executable. In my opening remarks, I highlighted how we will continue to focus on our key growth drivers, while applying new underlying techniques — tactics to improve performance. We are leveraging aspects of our business that have worked and have further room to spur growth. Let me highlight four. We are improving our website experience and internal search results. I mentioned earlier, we started removing non-home products from our website in January 2021 and have more than doubled our home-only assortment through the end of 2022. Well, assortment available on our website has increased. We have identified gaps within our search experience, which we need to fix to improve how our customers engage with us. Our goal is to provide customers an easy shopping experience on our website to deliver on our product findability brand pillar.

Our product and tech teams are collaborating with leaders in the space to improve our search and web experience in a way that aligns with our asset-light business model. These leaders are at the forefront of technological innovation currently underway in the search environment. Our teams have identified opportunities to improve our search result recommendation engine to cater to our growing home assortment. An improve website experience is critical for us to drive repeat purchases and even more important as the merchandising organization continues to increase breadth and depth of this sort. We will leverage our loyalty offerings to increase our customer engagement. Our loyalty offering primarily included our fee-based Club O membership program.

Our Club O members are our most loyal members who repeat most frequently and spend more than any other customer cohort on an annual basis. I’m excited about the potential growth and engagement as we add new Club O members with the recent launch of our co-brand Mastercard credit card partnership with Citi Retail Services. This card offers Club O memberships at no fee to card holders. We expect our customers special financing offerings. Citi is a great partner among the top five card issuers in the US. Its vast customer network and marketing support will aid us now and into the future. If you have looked at the details of the card you should, it offers Club O members — they can redeem at checkout on our website, purchases on qualifying apparel, department store, gas and other purchases.

This should help us drive repeat purchases. It also provides a special 60-day interest free financing offer, which in our view can help drive customer conversion among customers that may have delayed purchases due to stretch budgets. In essence, this card is an extension of our smart value brand power and offering enabling holders to stretch their dollars further. We are accelerating the growth in our strongest customer experience platform, the Overstock mobile app. The Overstock mobile app has been successful in driving traffic and sales. It helps our customers easily find the products they want with the convenience of their smartphone, something that fits squarely within our product findability brand pillar. Our mobile app customers KPIs are healthier than the desktop driven business.

While we have not shared the actual mix of app sales, we want to highlight its growth trajectory. During 2022 mobile app makes it sales grew around 500 basis points. For 2023, we expected to achieve at least the same level of growth. Mobile app helps us market more efficiently with app exclusive coupons. As a result, we see better conversion in customer KPIs. This platform helps us attract a younger demographic, helping to diversify our customer base. We expect a mobile app to benefit from our increased consumer engagement on social media through our brand ambassadors influence program. We continue to enhance our customer experience. Under our easy delivery and support brand power we are constantly and proactively looking for ways to enhance the customer experience from pre-purchase browsing through our customers post-purchase engagement with us.

Last quarter, we share details about a unique partnership with UPS for handling returns. Here’s an asset light innovative solution to improve returns handling. Returns are always a major friction point impacting customer experience. The initial results of the pilot have been good. We are expanding the pilot to learn more. There’s a lot we’re working on to improve our trajectory that makes me bullish about Overstock’s make shift. There’s a lot €“ of customer. Now, operator, let’s take some questions.

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Q&A Session

Operator: Thank you. Our first question comes from the line of Peter Keith with Piper Sandler. Your line is now open.

Matt Egger: Good morning. This is Matt Egger on for Peter. Thanks for taking our questions. I guess first thing in 2022, you highlighted how your pricing algorithms would remove items from the site if competitors took a mark down on that same item. The feedback we’ve received from suppliers is that that was highly disruptive to their sales through Overstock. So I guess maybe two quick questions. Would you agree that the competitor markdowns wherever disruptive to your 2022 sales? And then, I guess, secondly, are you contemplating an adjustment to your pricing Algo to reduce the number of items getting pulled off the site when that happens? Thanks.

Jonathan Johnson: Great question. I mean, I’ll make initial responses and let the Dave for any more color. It’s important given our smart value proposition that we went on pricing post promotion. While suppliers may like to have little thicker margins, we need their first cost to be low. And we approach them frequently to ask them to lower prices when it’s important when they’re not competitive. Most of the time, they make these adjustments. And so there’s no disruption in sales on the site or customer experience on the site. Some of the time, they choose not to make this adjustment, and we removed the products for the site €“ from the site to ensure that we have our smart value proposition being met. When we do this, partner frequently come back to us quickly, lowering their costs coming back to the site.

When partners behave the second way, it is slightly disruptive. But it’s important that we do this, so that we will maintain our smart value proposition. Dave, anything you want to add on that?

Dave Nielsen: No, I think you answered that perfectly, Jonathan.

Operator: Thank you. One moment for our next question. And our next question comes from Jonathan Matuszewski with Jefferies. Your line is open.

Jonathan Matuszewski: Hey, great. Good morning and thanks for taking my question. A lot of discussion this morning around the highly competitive, highly promotional industry backdrop. Jonathan, I think you outlined an expectation for industry inventory rationalization to continue into at least the first half of this year. So in light of this expectation, do you think it’s reasonable to expect gross margins to trend maybe south of that 22%, at least for the first six months and recover thereafter? Any thoughts on kind of the cadence of how gross margin may trend this year would be helpful? Thank you,

Jonathan Johnson: Yes. Jonathan, great question and I think it relates to that last question we had. Our asset-light business model, even during a period of highly promotional liquidation sales by competitors, allowed us to keep our gross margins at their levels in Q3 and Q4 last year. We don’t own inventory, we haven’t made that buys. That’s why we’re always working with our partners to lower their first costs, so that we can keep our inventory — our gross margins at the level they have. So, part of our differentiated asset-light business model lets us keep gross margins more consistently at the level we shoot for than some of our competitors. We saw that in the third and fourth quarter last year. I think, you’ll continue to see it all throughout slide 23. Adrianne, anything you want to add on that?

Adrianne Lee: Nothing further to add, Jonathan.

Operator: Thank you. One moment. Our next question comes from the line of Thomas Forte with D.A. Davidson. You line is open.

Thomas Forte: Great. Thanks. One question and I’ll go back in the queue. So, Jonathan, can you compare and contrast today’s home e-commerce market with a few prior notable periods, dot-bomb, where a number of players exited the market, took significant share, then the Great Recession, a period of weak consumer spending where you generated your first profits. Thanks.