Beyond, Inc. Price & Performance (BYON)

Actual results could differ materially from such statements. Additional information about risks, uncertainties and other important factors that could potentially impact our financial results. Is included in our Form 10 ks for the year ended 12/31/2023, and our Form 10 Q for the quarter ended 09/30/2024, and in our subsequent filings with the SEC. During this call, we'll discuss certain non GAAP financial measures.

Our filings with the SEC, including our fourth quarter and full year earnings release, which are available on our Investor Relations website at investors. Beyond.com contain important additional disclosures regarding these non GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call for questions. A slide presentation with supporting data is available for download on our Investor Relations website.

Please review the important forward looking statements disclosure on Slide two of our presentation. With that, let me turn the call over to you, Marcus.

Thanks, Allison. It always amazes me how these safe harbors get longer and longer over time. I give a lot of credit to the lawyers. They have added a lot of words. As I mentioned, as Allison mentioned, I'm joined today by Adrian Lee, and Dave Nielsen. And what we really want to do on this call is we're going to go through our prepared remarks pretty briefly and we want to leave a lot of time for Q and A. As part of that context for Q and A, we have really divided the presentation into two distinct areas. The first area is our primary core business, the thing that actually drives revenue and what we're fighting to get to profitability on. The second part of our call, we'll lean into blockchain tokenization and a couple of initiatives or ideas that we have out there that we're going to discuss. So when we get into the Q and A section, feel free to break out your questions in those specific areas if you have them. All right. So, look, we have made a lot of progress in the last twelve months. And it has not been an easy twelve months, both for the stock price and for quite frankly the results.

We really have acknowledged that the work that has been done since twelve months ago has really been fruitful. And we feel that we're probably sitting in the best possible spot that we could be. I'm confident to tell you that I believe that the worst is absolutely 100% behind us. Now I'm required to qualify things like that assumes market conditions don't eradicate, but for the most part, if the world stays the way it is today, we are headed in a very, very positive direction. For those of you that want to see more details around the things that are going to be discussed, on our investor page of our website, is the slide presentation that will break down all of these things. That we're going to discuss today, all these key KPI things. And we will continue to update that on a quarterly basis that you're able to compare and contrast and then we put transparency at the front of every single thing. That will address revenue, our vendor consolidation, our margins, our SG and A, our marketing and what we're going show you is not only the good, but the things that we feel like we have a lot of work left to do.

As I sit here today also, I want to be clear that in my mind, as I look at the things that have happened around gross margin, SG and A reduction, marketing efficiency and conversion, the work that we're doing with third parties on improving site experience improving customer segmentation, that we see a path to profitability. And that it is my hope and goal that we find multiple inflection points throughout the year. Well, what is inflection points mean? We believe there are several months where we think there is a real good shot at reaching profitability in that I don't think we'll be profitable for the year. It is our goal. It is our hope. We're going do all the things that are necessary. But as you would imagine, the lawyers and the accountants want me to qualify that. We are taking a no prisoner approach to a multitude of things, including how we're feeling about our gross margin, We set a bold target for Q4 of 21.5%. And we said that we thought we could do a little better than that. Happy to tell you that we landed right around 23%. Now when Dave and I and the other merchants talk about this daily, I want to be as clear as I can.

We need to be north of 27% striving for 30%. And we believe that there's creative ways to do that But some of the principal ways that we're doing that is by rationalizing SKUs.

Meaning that random things that have entered the marketplace over the last twelve months that have either not sold, created a bad site experience or quite frankly have only sold because we've over promoted or over discounted those days are over. We made clear on October 24 that we did not want to be in the business of selling products on our websites of any Beyond on any nameplate that had a negative margin associated with the first cost the cost to sell it would be incrementally more expensive and therefore lead us to a negative contribution margin or any vendors that didn't align to our customer service or customer experience philosophy. We have eliminated millions of SKUs over the last several months and candidly, there are many more to go. Dave and the team have done a spectacular job but much, much work still to be done in consolidating vendors. Today as we look at our vendor lineup, we still believe we have too many. We want to be far more important to fewer vendors because we believe the path to profitability is partially driven by margins.

And those margins are driven by your importance to other people and other creative solutions around that. Until we get to a more refined offering, we believe that we're going to continue to have to do a lot of extra work to get to 27. You should expect sequential margin improvement quarter after quarter after quarter starting with the first quarter. And just to be clear, sequential margin improvement from where we're reporting today simply stated, I expect the margins to be better even if it's only incremental than it was in Q4. The second thing that we want to make clear is that we do not anticipate tariffs to disproportionately negatively affect our company. I point out disproportionately because we believe the entire marketplace, the entire space is subjected to the same first cost model. But where we believe Overstock has a competitive advantage particularly in the next twelve months, If you go on to Overstock's website today, you will see that the management team of specifically that brand has done a spectacular job of restoring the core. And as part of restoring the core, Dave has been working very closely with specific manufacturers have excess inventory. And we're finding that the continual slowdown in the general market that existed in 'twenty four has given him unbelievable opportunities for 25.

Unbelievable opportunities. Additionally, SG and A reduction was the second KPI that really mattered. We committed to cutting $65,000,000 of expenses throughout 2024. And we not only met, but we exceeded that goal through really disciplined execution. As we look at the goal of achieving $165,000,000 of annual G and A and tech run rate, we have more work to do. I'll be honest, I'd like to be a little bolder. I think that in 2025, we could find another $5,000,000 to $10,000,000 on a run rate basis from where we ended our $65,000,000 goal. We believe that there are a lot of additional opportunities. But selling the building and getting out of those fixed costs, rightsizing our headcount, and continuing to leverage third parties as staffing solutions I. E. Vercel or Salesforce or any other third party that can help us improve parts of our business That's allowing our headcount to really be in line and quite frankly sustainable for the future. The next piece is how do we utilize our marketing dollars? It is still our belief today that our performance in Q4 around marketing 17 ish percent is unacceptable. And while we've had little wins here and there, it is our expectation that in short order, we get to below 14 in Q1.

That's our goal. And that we continue to work our way down closer to 12 and then hopefully as we continue to optimize the website. Improve email execution, get much better at our PLA program, improve site experience and add other features to the website that make it a more seamless process, coupled with emails being customized for customers at the right time with the right product with the right price. Of which we've made progress, we then believe we could start to achieve our goal of getting closer to 11. So just to clean that up, we believe that in Q1, we will have additional improvement. Now that's already factored in our internal forecast. What does our internal forecast tell us? It tells us that we expect to continue to have sequential EBITDA performance from Q4 to Q1 to Q2 to Q3 and then on to Q4 a year from now. That is our expectation. And while we are providing direct forecasting, or providing guidance, you can expect margins to continue to improve, while modestly, but they will improve SG and A to come through in fruition in Q1 because we had a little bit of noise in Q4 with some things that were out there.

And you should expect that once we get comfortable that we have achieved the margin targets have consolidated our vendors, have improved site experience, have put all of the guardrails in place which we believe will happen here in short order, you could expect this company to be what it's supposed to be. Which is a growth business. We are not happy about the retraction of our revenue. But we agreed and we made clear that we will not compromise anything causing us to lose more money or to sell products or do business with vendors that cause us to lose money. That establishment of that foundation, that base of seeing a breakeven in the neighborhood of breakeven you will see us push the button and start to grow at a much more accelerated rate. I do not expect that revenue will continue to to contract for the long haul.

I do want you to expect that in the short term, your directive myself and our full management team as Get Profitable, eliminate the unnecessary expenses, get those margins where they belong, put the right vendors in the right place at the right time, and stop wasting money with inefficient marketing. That's what leads us to profitability We have heard you loud and clear.

As we get into the final stages of a strategic and quite frankly total transformation, we're having to look at other companies to that we think are subject matter experts. I think historically in this company, it believed that it could solve every single problem by itself. But in today's technology world, particularly with AI, there is so much subject matter expertise that complements with our company. As opposed to contradicts with our company When we look at partnerships with companies like Vercel, that are entirely redoing the [indiscernible] we see number one, somebody smarter and wiser that has other examples in commerce for us to glean from. And number two, a primary goal of them making money when our conversion improves and when our revenue improves. We have goal alignment. Secondarily, we have finally completed the implementation of Salesforce in our business. And while all of the different parts and pieces are totally implemented, the core is Over the next three to six months, that's only going to get faster and more transformative. We are also we have also been selected as one of the few companies to partner directly with Salesforce to install over the next six to eight months Agentforce across different parts of our business enhancing a unique experience for the customer.

Agentforce takes all of the parts and pieces of our sales force menu. Our portfolio and it ties them all together. To do two things. Drive down our SG and A and increase our conversion. We believe those two companies are key to us achieving that level of profitability that we expect. Across my feed this morning, I've seen a lot of questions around the use of the ATM. I want to be very crystal clear about when it was filed, why it was used and how I think about it, Last spring, our company filed a $200,000,000 shelf registration giving us the ability to pull into the company up to $200,000,000 by selling shares into the market. Through the year and through the summer, I was reluctant to touch it even when the share price was much higher. Because I at the time could not see a clear path to profitability. Myself as a shareholder and as an option holder take very seriously the dilution of our because it not only affects you, but it affects me. We're on the same elevator. Until I saw clear green shoots that showed margin heading in the right direction, conversion moving up in the right direction, SG and A getting to our levels and us starting to see [indiscernible] Which I started to see more clearly in November and December and subsequently in January and even through today, I didn't touch the ATM.

We started to touch the ATM because we need to be we need to rebuild and fortify our balance sheet for two distinct purposes.

Growth and return on investment. The ATM should never be used or should really not be used in my opinion just to burn capital from laziness or sloppiness or poor performance or inefficiency. That's your money and I take it very seriously. It's my money too. I take it seriously as well. As we went through that process, we waited day by day to make sure that all the things that we mandated on October 24 around eliminating SKUs and raising pricing and modifying marketing and making the headcount reductions happen day by day by day. And we all agreed as a management team again, that we weren't going to touch it. That money was principally used to restock the shelves in some cases of the working capital that I think we need to be opportunistic. But it was also used to make very strategic investments and acquisitions. In the fourth quarter, and recently, we completed our transaction to make our investment to own 40% of Kirklands, a $400,000,000 business that for the last two quarters has really turned the tide over their year over year results. I think they reported positive EBITDA in the last quarter. We love the management team there.

And as a reminder, we have structured not only an equity investment in that business, but a mutual partnership to bring Bed Bath and Beyond Overstock, and now our recent acquisition of Buybuy Baby to the market in an omni channel way.

What we love most about that company is how razor thin they run everything. They are locked down on the supply chain side. They have great inventory management. And they are very focused on running profitable locations. That for us was the most impressive reason that we chose to partner with them. Because we find them to be very responsible stewards of capital. Additionally, they understand how to run small format retail, And we believe that Bed Bath and Overstock and Buy Buy Baby should exist in small format retail. That doesn't mean that there won't be a flagship location in a big city like New York or should but those plans aren't on the table today. As we move forward, the ATM is used to make strategic acquisition like that or strategic investments like that. Where I firmly believe to my core, that the accretive nature of that investment outpaces the dilution that is created by using the ATM. Furthermore, we want to get back to Overstock's original core.

And while we are closing our distribution center and eliminating a piece of our supply chain, we have access to other distribution centers including Kirkland's if we ever want to make strategic strategic or opportunistic investments in inventory. More recently, without having to take on the inventory, we cut two transactions with two vendors that are creative and experiential experimental in nature. What we're testing is to see can we partner with big core vendors of ours to deploy capital to pick up no less than 10 to 12 percentage points of incremental margin from where we have been operating historically. It's the thing that I think gets us closer to the '27, 2829 and thirty if all things come together. So we are using your working capital not to burn it and pay our bills, but to drive growth to drive opportunity, to make acquisitions to enhance margin, to deploy new technology on our website, and to leave a little extra dry powder. As we look at that Medici portfolio. All of those acquisitions and all of those investments are really part of our core business.

But what became clear to me in the last twelve months and I apologize it took me a little longer to understand how to connect the dots, is the beauty and the genius of what Overstock created decades ago. When it started to develop blockchain and crypto and all these things, If I had one criticism of what previous management did, it wasn't the creation of those ideas or the creation of the core business. It was the fact that those two things operated on islands and they had never really thought of or made the decision to interweave them.

Over the last twelve months, as we've learned and learned and learned what has become more clear is that our company needs to take a very, very active role in every single part of that Medici portfolio. And while we signed an arrangement to have Pelion manage that portfolio, as you can see, we have had significant write downs in the portfolio as part of our non cash charges this last quarter and over the last several quarters, that are quite frankly unacceptable. We decided to take matters into our own hands and start to build relationships with both TZERO and GrainChain in a very different way. Furthermore, in conversations with companies like VOATs and Ripio, also part of that portfolio, we are seeing lots of different green shoots. Is every one of the 16 companies functioning well? The answer is no. Are some real heavy hitters starting to turn the corner and unlock value that I never could have imagined? Yes. We started to think about what our responsibility was in solving that problem. And so as we looked at all the opportunities that were out there, as I mentioned on MySpace's call a week ago or last week, we have decided to explore the opportunity for us to look at tokenizing certain assets on our balance sheet.

We're looking at certain pieces of intellectual property. But one thing must remain absolutely disciplined, It's a security. And it's an offering it requires compliance. And these aren't mean coins or FART coins or any other nonsensical, non asset backed thing. This is something that we believe we want to take off of our balance sheet establish a value and look to create an opportunity for both our current holders and future holders and potentially private investors to potentially invest in a token that would give them the rights to the monetization of that asset.

That asset should also come with some form of cash flow. Whether that's a rev share or royalty or whatever the lawyers in the account require us to call it, that's the goal. What we're starting to show you is the ability to connect and weave together those things. What we're excited about is we do not need to deploy any SG and A or any headcount or use any of our current capital to execute these things.

All of our current shareholders will have benefited from the hundreds of millions of dollars that were deployed over the last ten years. But it's now time to extract that value So tZERO and our company are working on lots of different things looking at all of our assets and we believe in short order, we could have some really fun and exciting news. Secondarily, our understanding of what GrainChain is doing is just simply spectacular. Those founders and that management team have cracked the code on understanding supply chain, not just in the agriculture business, but across all sorts of other industries, I'm excited that I wish I could reveal, but I know that Louis will be some unbelievable major significant partnerships at GrainChain here is getting ready to announce in the next several weeks and other items in the next several months. So we want to leave a little extra dry powder. If somebody like David Goon, if we see the green shoots or somebody like Luis at GrainChain, and we see the green shoots, can convince us that investing more of your money in their business to give us a greater return is available we definitely want to take a look at that.

I'll close with the final piece. After the call today, there will be a slide presentation that will be posted on a concept that we will own inside of our company. It's called LifeChain. I shared a basic idea on our Spaces call. But Beyond is thinking through ways to advance its blockchain and AI strategy with LifeChain. A next generation platform for secure verifiable and tokenized asset management of your asset.

Initially focused on home ownership, we view LifeChain as an opportunity to potentially expand into broader financial, insurance and asset record keeping. That's why we're in the retail business. Make money and build the database for products like this.

Key features and strategic impact of LifeChain would be blockchain powered security, immutable ownership verification and seamless asset transfer. AI driven automation, including enhanced risk assessment, fraud detection and real time asset valuation. Comprehensive digital ledger including secure storage for property deeds, financial records, estate planning and credentials. And a Salesforce partnership with a deeply integrated relationship with their AI function, Agentforce, for insights around automated document management, and smart contract execution. Beyond is working with regulatory and financial partners to design life James, with secure and compliant adoption in mind, reinforcing blockchain and AI integration, into commerce which is what our core business is, around the home, which is who our target audience customer is. We're hopeful that LifeChain will position us at the forefront of financial and innovative technology and unlock value for investors that you have been waiting for for the last decade. I'll now turn the call over to Adrian.

Thank you, Marcus. I'll take a few minutes to walk us through our fourth quarter financial results. Revenue declined 21% year over year in the fourth quarter as we continue to make trade off decisions to rightsize our margin profile. For the year ending December 2024, we posted $1,400,000,000 of revenue, which was an 11% decline versus full year 2023. As a reminder, we expected revenue to decline year over year we continue on our path to profitability as we swiftly make progress on restoring margin guardrails. We do remain laser focused on the four key areas of conversion, gross margin, sales and marketing efficiency and expense management that we laid out at our October 24 Investor event in which Dave will speak to in greater detail. I will start out with gross margin where we exceeded our targets. Gross margin landed at 23% for the quarter, a three eighty basis point improvement compared to the same period last year. Sequentially, we delivered an accelerated 180 basis point improvement in gross margin as we continued to optimize pricing, improved freight costs, and rationalize assortment. You may recall we targeted a 50 basis point improvement from the third quarter of twenty twenty four and we over delivered by 130 basis points.

We took a significant step forward to return to our historic operating levels. We posted improvements Each quarter of twenty twenty four, as we continue to work the six part plan I outlined at the beginning of last year, renegotiating freight, improving vendor relations, growing the margin accretive overstock brand and integration add ons, embarking on licensing activity and eliminating inefficient discounting. The fourth quarter was a strong execution proof point. G and A and tech expense of $48,000,000 decreased by $6,000,000 year over year as a result of our commitment to reduce fixed cost by an annualized amount of $65,000,000 I am pleased to report we have realized this entire commitment allowing us to reinvest a portion of those savings to support growth initiatives and innovation. We continue to progress towards our goal of $165,000,000 annual G and A and tech run rate.

All in adjusted EBITDA came in at a loss of $28,000,000 a 43% or $21,000,000 improvement versus the fourth quarter of twenty twenty and an improvement of $4,000,000 versus third quarter twenty twenty four.

It's vital that we reestablish the discipline of profitable commerce. And our focus will remain on delivering sequential improvements in adjusted EBITDA.

Reported GAAP EPS was a loss of $1.66 per share for the fourth Excluding losses recognized from our equity method securities, adjusted diluted loss per share was $0.91 As Marcus mentioned, our balance sheet strengthened in the fourth quarter. As we ended the quarter with a cash, cash equivalents and restricted cash balance of $186,000,000 In addition to improving our margin profile, and moderating cash burn, we recognized $17,000,000 in net cash proceeds from the building sale and $43,000,000 of net proceeds from the sale of common stock, pursuant to our ATM. Again, our team is laser focused on rebuilding our Beyond, while we continue to quarter in and quarter out deliver proof points on our path to profitability. We made progress throughout 2024 and I know we need to create a profitable foundation by which to grow. With that, let me turn the call over to Dave. Thanks, Adrian. On October 24 of our investor session in New York, we committed to four key priorities for restoring our core business. Marketing efficiency, sales growth through improved conversion, margin enhancement and expense management. Today, we are pleased to share our fourth quarter progress. While there is still work to do, we see a path to our goal of profitability.

Let's be clear, our immediate focus isn't top line growth. It's about rebuilding a strong profitable foundation. Once that is in place, we'll shift our focus to unlocking long term Now let's dive into the data. The materials in front of you on the chart we reviewed at the October Investor event with Q4 and December's performance added to show how we're tracking. I'll add some color from January results to highlight ongoing areas of focus as we march towards profitability. December was our best performing month of Q4 in terms of marketing efficiency. As you can see on Slide 12, of the prepared materials posted, the Investor Relations page on our website. We hit our target of 12% sales and marketing as a percent of revenue. Driven by reallocating spend to high performing channels focusing on our power categories and refining audience targeting. January came in slightly higher but well below the 2024 run rate of 17%. And while there will be ebbs and flows along the way, I'm encouraged to see the trend moving in the right direction toward our goal of 12%. Next on Slide 12, you can see December conversion trending upward. This was fueled by SKU rationalization and vendor streamlining ensuring customers find our most productive assortment.

As we've said Bed Bath and Beyond was never meant to be a marketplace or curating a sharper, more efficient product mix. Since April of twenty twenty four, we've reduced Bed Bath and Beyond SKU count from 12,000,000 to just under 6,000,000 by November, and further cut an additional million SKUs and 800 more vendor partners in December. January's conversion dipped slightly, expected for seasonality, but slightly lower than anticipated as we continue to make some difficult decisions to remove unprofitable transactions, we've identified additional assortment improvement and we'll continue to curate at Bed Bath and Beyond. We've discovered additional friction points in the overstock experience and are actively addressing to enhance customer experience and improve conversion. We've entered into agreement with a terrific new tech partner who we believe will help us improve our site responsiveness and overall experience first for Overstock, and have already begun that work. This transition is expected to be completed by mid year for the Overstock brand and then we will begin work on Bed Bath and Beyond. We believe this will be a major As you heard from Adrian, gross margin has been steadily improving over the past several quarters as you can see on Slide 12.

We've worked to remove unprofitable transactions by leaning into our most profitable vendor relationships reduced our level of discounting and optimizing pricing where applicable. We've also removed those products where we're losing money. At the same time, we continue driving down outbound shipping costs. While monthly results may fluctuate, we are firmly on a path to achieving our near term gross margin target of 25%. Adrian already mentioned our expense management progress. And with that, I'll turn it back to you, Marcus.

Thanks, Dave. We'll actually turn the call back over to the operator to open up our Q and A section. Thank you. [indiscernible] This comes from the line of Jonathan Matoshevsky from Jefferies. The first one was on just top line. Obviously, you had some good progress recently in terms of bringing sales and marketing expense down Just curious like the monthly cadence of revenue throughout the quarter and kind of revenue trended from a cadence perspective as you brought down ad spend That's my first question. Thanks.

Well, I think we have to be careful. We don't provide revenue. We don't disclose revenue by month. But I will tell you that we're focused on pretty very simply doing profitable transactions. So as we mentioned earlier, when you look at the when you look at the revenue in the month of October compared to November and December, they started to decline. And the reason they started to decline is because we started eliminating vendors and SKUs that we were losing money on. And so when you go through a very explosive loss in October, a double digit loss in October and you get down to a mid single digit loss in December, have to understand that driving margin and eliminating negative SKUs is going to have that effect. As I mentioned earlier, Jonathan, we are going to continue to contract things to get profitable. And I don't know how expansive that's going to be. We obviously want to continue to drive revenue and meet new customers at the front door. But as we continue to eliminate SKUs and eliminate vendors, it does have a contraction on our revenue. I would expect that revenue will continue to be a little tighter here in the first couple of quarters but that EBITDA net income should have an explosive growth on the bottom line.

As we raise margins, as we lower our marketing expense, I would expect to see nice year over year improvement First quarter of last year, we lost a boatload of money. That is not our expectation and the January and February results do that. We will sell less in the first quarter than we did last year. I don't think that's lost on anybody.

That's very helpful. Thanks for the color there. And then just on gross margin, I think you outlined some of the building blocks as we go forward maybe towards that initial North Star of maybe 25%, 27% Maybe just give us some perspective in terms of what inning you're in in terms of moving SKUs from Bed Bath back to overstock? How much kind of work is left there, maybe kind of what inning we're in in terms of sounds like you've made some progress ongoing progress in terms of SKU rationalization. But just trying to understand kind of the biggest buckets in terms of kind of gross margin expansion ahead Yes. So I'll start with the the proclamation as much as I can avoid that word. That will continue to have sequential margin improvement through the balance of this year. A big contributor to that is the growth that we're seeing coming out of over stock. And if you look at that assortment today and you look at that management team that there specifically on Overstock, which by the way we brought people back that were part of Overstock years ago that understand that Beyond. We're going to see some nice revenue growth and the contribution margin and gross margins there are just they're just better.

I think secondarily, we're starting to use our balance sheet and our relationships primarily through vendor consolidation to get our first cost in line with where they need to be across our entire enterprise. I don't want to predict what inning we're in because I think that ultimately there's never going to be an end to the game. The goal going forward is to always improve margin. And while we're setting a short term goal of 27, I'm never going to be happy until we're north of 30. And north of 30 requires a certain mix and assortment and vendor relationship and omni channel mix that allows all that to happen. It shouldn't be lost on anybody that our investment into Kirklands was done to be able to activate the Bed Bath and Beyond omnichannel business And the Bed Bath and Beyond omnichannel business is a fire starter for incrementally better first cost because the vendors are seeing multiple places that they can sell their product and additional revenue opportunities. So we are early in the game, but the game really doesn't end. If I could wave a magic wand and hope and pray, I'd like to get to 27 at some point at the end of this year.

I think that's a little bullish. But we're going to try like the Dickens to get there north of 25 is our absolute absolute have to get there. And so when you start to do the walk of how is the company going to get profitable, You could tweak your gross margins in your model. You can tweak down your SG and A probably another $4,000,000 or $5,000,000 over the next twelve months in your model. And then you can expect in the back half once we establish a margin base, it will start to slowly spend more money growing revenue again. We do not want to contract revenue throughout the twenty twenty five year.

But if we can get to profitability in 2025, that is the primary goal. Any other color or questions on that? Operator?

I believe that Mr. Matoshevsky is on mute, but thank you. Our next question comes from Valai of Thomas Forte from Maxim Group. The line is open. Hi, Tom.

Great. Thanks. So Marcus, I listened to your Medici Ventures related call and X last week. Thought it was very interesting.

Can you talk about your current efforts to generate shareholder value from Medici Ventures portfolio including how you potentially offering a Buy Buy Baby token with TZERO advanced to that effort And then you hinted in your prepared remarks but you let us know when investors can expect an update on GrainChain which sounds like it's doing incredibly well and that you consider it to be potentially a very promising supply chain company Do we have to wait for 1Q twenty twenty five earnings for an update There was a time when you had dedicated investor calls and the Medici Ventures portfolio outside of your quarterly earnings call. Yes, there was a time where the company did have that separate call. On Fortunately, a few years ago, previous management created the the the transaction with Pelion and our ability to communicate is really now distilled down to our ability to get information directly from those as we get We get a report when requested from Pelion, but right now, Adrian, Dave and my focus is we have to figure out how to unlock the value there. And we think the only way to unlock the value is to provide use cases and to bring those plans to the forefront.

Let me back up for just a minute on the motivation behind the blockchaintchnology as it relates to any possible tokenization of any of the IP that we have today. A tokenization, is in the most simple form is for a big company like issuing stock. And for a small company, it's an easier way of doing that. Our motivation to do whether it's 5iBaby or Bed Bath and Beyond in concept our motivation to do that really had multiple prongs associated with them. The first and foremost is to start to rebuild the community of followers that ultimately drives the business. And if you look at other organizations like Costco that are out there that have a club membership for the right to enter, I look at tokenization as the highest level of loyalty program that one could have. And when you start to think about it like a loyalty program, you start to think about what are the attributes that a loyalty program should have. It should have additional benefits at the highest level. It should have access to information at a preview level and it should come with something that I can count on. That doesn't mean that the amount has to be specific.

It has to be in a range. And when you study companies like REI that give rebates [indiscernible] to their customers based on the purchases they made. I really wanted to think about how take an unbelievable technology like tokenization but create connective tissue into our retail business to accomplish the highest level of loyalty. This is just an idea and the lawyers and the accountants require me to say that. But if I could take a piece of our IP and give you the ability to own the monetization of that, you would then be buying tokens in the monetization of that asset. At a fair value. What I want you to get if I could make it all happen is the ability to get incremental benefits but also share in some incremental value that could be created through the driving of that brand. Almost creating an Owners Ambassadors program where if I buy these tokens, I would be able to receive something in addition to great benefits. You'd want to make the ability to enter into that token affordable so that everybody could afford it and you'd want to really make it simple and easy. The second reason that I wanted tokenization to have in addition to the primary was that I wanted to prove out the efficacy of Txero because as I dug into it and spent time with David and Alan and really started to look at what was built over the five years, I don't believe that the asset value has been exploited the way it should.

And rather than waiting for other companies to call David and for David to have success like he's having, with other companies I decided to take the ball and create our own narrative about proving not only the efficacy of our ownership of the business, of which we own 50 ish percent, but but to be able to demonstrate how these two companies can work [indiscernible] The last piece in doing that is that I thought that one in two the combination of one and two would drive revenue and show the value of that asset.

Ultimately unlocking the value.

Look, in a perfect world, we want to continue to find ways to unlock value that require us to not invest capital. And the easiest asset light investment is to exploit the value of GrainChain Txero and some of those other Medici assets. Thank you, Marcus. Next question. Thank you. [indiscernible] Our next question comes from the line of Stephen Forbes from Guggenheim.

The line is open. Good morning. This is Julio Marquez on for C. Forbes. How does the How does the average contribution margin compare between Bed Bath and Beyond overstock today versus back at the twenty twenty four Analyst Day?

Are we in a place where both are acceptable? And then any way you can help us better understand the base level productivity needed to achieve free cash flow neutrality? Initial comments on where you see the greatest productivity opportunities today? Whether it's categorical level or like at a bandit level? Thank you.

So Julio, I'm going to break that into two distinct questions. I'm going to have Dave take the first one breaking down the improvement in contribution margin and how he sees them interplaying between the multiple And then I'm going to turn it over to Adrian to address where does she think revenue need to be to get to breakeven, which is I think what your question was. Thanks, Marcus. So, Mark, Mark has mentioned on the call that Overstock was rebounding and had solid economics. What we're seeing is exactly what the model for Overstock was working exactly as planned. And it is coming along and we continue to grow and develop that brand. It does have a slightly better contribution margin than our Bed Bath and Beyond contribution margin. As we've talked about on the call today, we continue to curate, we continue to remove unprofitable vendors and SKUs and we continue to fine tune that assortment we will continue to grow that contribution margin, but overstock from its initial phases and growing more naturally fits that model and the SKU assortment that we have for it we continue to grow it. We brought back the management team part of the management team that was there previously.

And they have been masterful at moving us forward to our goal of ultimately the contribution margin we know we can be profitable with. Adrian?

Thanks, Dave, and appreciate the question. I would say, if you think about kind of our scripted remarks, today and what we shared at our investor event, all of the pieces we have shared whether it's the conversion targets, the gross margin targets, tech and G and A, those are the places we need to get to in order to be profitable, which will also So I think if you look at some of our operating metrics, pre the Bed Bath and Beyond integration, when we were generating free cash flow and operating profitably. It's really recalibrating those four key metrics we've been talking about to those historic levels.

I want to add something that really ties to cash because I get questions often around what our cash balance is and that is an excellent question when a company is burning money because you want to know what the runway looks like. But as we get closer to profitability, it's important for people to understand that cash goes through the balance sheet in multiple ways. Can go into inventory. It can go into a variety of other things. And so as we get into second, third, fourth quarter, I really want to start to focus on what's the working capital of the business. For example, as Kirkland starts to open up Bed Bath and Buy Buy Baby and even potentially overstock stores, we may choose to partner with them even further to accelerate that growth. But they have a pretty rigid balance sheet that doesn't provide for a ton of runway for a ton of growth in the short term.

And so we want to make sure that every single dollar that's in our kitty and every single dollar that gets spent is with the highest invest use at all times. And you have our commitment that any money that we raise any money that we spend, any money that we invest will always be done to create the maximum return on investment. That is why we are so feverishly working to eliminate any burn as fast as we can because every dollar that gets burned is a dollar that we don't get the opportunity to invest with double and triple digit returns. So that's how that's why you're sensing the vigor in our voice around getting to zero. It's every dollar that's leaving not going where I want it to go. Next question?

Just as a quick follow-up, think you briefly touched on earlier, but any additional color you can give on the contributions to the positive gross margin surprise quarter I think you mentioned like better vendor support or is it a function of like internal and fish capture? Thank you. No. The upside in the margin profile for Q3 four. Was simply the team doing what they're supposed to do, which is to work with their vendors, to execute the proper first cost to consolidate vendors to eliminate unprofitable SKUs, to eliminate unprofitable vendors, and to not waste money on marketing. The expectations that I have for the team over the next several quarters is going to increase and the pressure is going to continue to mount to get us to that 27% margin and ultimately a much better contribution margin. They did a hell of a job. What I'm seeing in January and February is continuing to sequentially contribute to the improvement.

Awesome. Thank you for the color. Really appreciate it.

Yes, sir.

Thank you. Our next question comes from the line of Peter Case from Piper Sandler.

The line is open. Hi. This is Alexia Morgan on for Peter Keith.

For taking our question. So first, you've talked about the importance of conversion rates and gross margin in your path to profitability. And we have some visibility on gross margin. You touched a little bit on conversion rates in the presentation. But could you give any more color on conversion rates and how those performed throughout Q4 and possibly quarter to date in conjunction with marketing spend. And other companies about a slowdown in demand in January and February.

Understanding that you're simultaneously going through some SKU and vendor rationalization, we're just curious if you've been seeing any sort of change in underlying consumer demand?

Quarter to date.

We right now in this moment, we are singularly focused on driving margin, lowering SG and A, improving conversion, and we're operating in our own vacuum right now to get to zero. While everybody else, including what people perceive as our competitors, which they're not, continue to burn money we are in the business of getting to zero and making money. And so I can't speak to what's happening in the overall industry What I can speak to is that our revenue will continue to tighten It's part of our strategy to get to profitability. And so I want to be clear about that. We don't report our contribution margin specifically, but I can tell you that our contribution margin is improving nicely. For those that understand contribution margin, it isn't simply just the gross profit on the transaction. It's all of the frictions that are inside it and our efficiencies inside it. And the site experience inside it and the discounting that's required and the shipping expense that's required and all of the other things that go in [indiscernible] process efficiency gain. Just putting it up on the website and selling it isn't all of it. We have made many, many unfortunate headcount changes bringing in better talent and better staff and we will continue to do that until we get the results where the contribution margin is where it historically was for Overstock.

I believe we are many, many points away but we are more positive than this company has been in eighteen months and seeing sequential improvement every day.

Okay. Thank you.

Our next question comes from the line of Rick Patel from Raymond James.

The line is open.

Thank you. Good morning, everyone. I had a question on marketing. You touched on the opportunity for better efficiency. I was hoping you can expand upon the work that remains to be done and how we should be thinking about marketing from a modeling perspective as you work towards sequential margin improvement? And I also had a second question on the near term outlook for gross margins. I think you touched on near term figures.

Being 25% and then also 27%. I know the goal is obviously maximize what you can do, but just from a modeling perspective with the right reasonable assumption would be?

Great. I'll have Adrian complete my after I go to talk about what her expectations are for March it's really important for people to understand all the parts and pieces that go in to ultimately creating that marketing efficiency. And site experience is at the forefront of that. And we still believe that our site is in anywhere close to where it needs to be. The search function team and we're going to continue to accelerate those standards. Having the right vendors with the right product at the right price at the right time is also part of that strategy. When you get when it gets down to it, the way the customer comes to our site, either through email or through a PLA ad or some other organic methodology is truly important from a performance standpoint. We are not operating at anywhere near the optimal level on the email execution side. And we are making significant human capital changes as we speak right now with some new additions coming on to our team here in the next ten days, are going to bring overstockbed, bath and beyond email execution back to a level of standard that the company historically operated on.

What's important to understand in email execution is the cleansing and the clarity around that email file. We have just begun to work closer with Agentforce and Salesforce in cleansing that but we continue to be disappointed that certain categories and certain buckets and subsets of that email database just isn't performing at all. Some of that was part of the Bed Bath acquisition it could have been either eliminated or discontinued or those emails are no longer viable. So we're going through and cleansing and segmenting in a better way. Every single time that we do that, we see slightly better performance. But if I was on a football field, the goal line is like 60 or 70 yards away. Adrian, on the margin side?

Sure. And I think, Rick, if you were talking about our sales and marketing as a percent of revenue, what I'd say is and Dave mentioned this in his prepared remarks, December at 12% was certainly something that was lower than what we expect to see as we calibrate. So what I would say is kind of first, second, third quarter will all be better than the fourth quarter in total. But in between kind of December and the fourth quarter. Fourth quarter will be probably a little bit higher because of the higher promotional activity generally in the fourth quarter. And for the full year, I don't expect we'll be at our long term target yet, but we'll be making great strides towards that. Dave, if you'll address Rick's other question around gross margin around product He was also asking we're at 23% today, what's our path? We obviously want to be conservative, but for modeling purposes, if you can set some expectations around how you see improvement there, that would be great.

Yes, we are we as we've mentioned, the target is to get to 25. That is not the end target, but the target is to get to 25.

And as we see that progressing sequentially over the quarters, we have a clear path that we're executing against.

To work with our partner base, to coal down some of the partners that are just not driving profitability that we need making stronger relationships with those those partners that are key legacy partners in power categories to us giving them access to more locations on the website, in exchange for better costs associated with that as they get more volume flow through for them. So this is a game of we've got so much demand We're continually working as Marcus mentioned through all of those functions on the marketing side but we're also utilizing our core vendors, our legacy vendors to get back to that historical gross margin that we know we can achieve and beyond.

I'm going to be a little more direct. We're going to partner with vendors that understand that growth is important to both companies. And we're going to partner with vendors that understand that being profitable is a mutual goal, not a singular goal. And while we have vendors out there that have [indiscernible] the marketplace and taken advantage of us over the last twelve to fifteen months those vendors have been eliminated. And those vendors who understand how to be good partners are going to get the lion's share of our business, especially when we press go and we start opening stores and we start spending money again driving e commerce business, Those vendors that are most loyal are going to participate in that upside. And let me be clear, there is going to be an upside. It takes us a while to learn things, but once we learn them in once we get everything built exactly the way we want it, where we are doing profitable things that our SG and A is in line, we will be the kind of company that everybody expects us to be. Which is a growth company. That's who I am and that's what I believe in.

But I will not compromise our cash or anything else in an effort to have growth. Revenue growth needs to be profitable revenue growth. All these pieces that we've done in the last six to eight months are building blocks to getting there. We are very, very close And we appreciate the patience that you guys are giving us to get there.

And understanding the value that is being unlocked as we sit here.

Thanks for all the color.

I don't know if that's the last question. I think it is.

Yes, sir. And seeing as there are no more questions in the queue, that concludes our question and answer session. I will turn the call back over to Marcus Ramos for closing remarks.

Great. Thank you very much. Just to make sure that we don't leave with any lack of clarity, our goal is to make money.

And our goal is to grow our margins improve our efficiencies, improve our marketing conversion, improve our site experience, and integrate our blockchain and other assets into our business. To take all of the investments that we've made in the Kirkland's Buy Buy Baby examples and to start to have them bear fruit. We understand the mandate. We expect to deliver this quarter in hitting the metrics that we are promising you much like we did last quarter. Thank you so much for your support.

Ladies and gentlemen, that concludes today's conference call. Thank you all for joining. Yumi Nang,