Thank you for standing by, and welcome to the Beyond, Inc. Second Quarter 2024 Earnings Conference Call. At this time all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Alexis Callahan, Vice President of Investor Relations and Public Relations. Please go ahead.

Thank you, operator. Good morning, and welcome to Beyond, Inc.’s second quarter 2024 earnings conference call. Joining me on the call today are Executive Chairman, Marcus Lemonis; Chief Financial and Administrative Officer, Adrianne Lee; and President, Dave Nielsen. Today’s discussion and our responses to your questions reflect management’s views as of today, July 30, 2024, and may include forward-looking statements, including without limitation regarding our future goals, revenue, file size, financial performance, our outlook for the remainder of the year or any other period, growth, stock price, profitability, strategy, macroeconomic conditions, customer demand, the value of any of our brands or investments, relationships with third parties and agreements we are entering into with them, margin improvement, customer experience and related efficiencies, loyalty programs, the launch, relaunch or other upcoming changes for any brands or websites and the timing of any of the foregoing. 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-K for the year ended December 31, 2023, and our Form 10-Q for the quarter ended March 31, 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 second quarter earnings release, which is 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 2 of that presentation. With that, let me turn the call over to you, Marcus.

Good morning, and thank you. As Alexis mentioned, I’m joined today by Adrian Lee and Dave Nielsen. This morning, we’ll be summarizing our second quarter results as well as answering specific questions about our company and the meaningful progress we are making. As a refresher, there are a number of imperatives we entered this quarter with that have framed the remainder of the year. I’ll start off with my reaffirmation that I not only believe but expect this company to do great things. My conviction is around this company’s ability to operate multiple brands profitably, all while growing revenue and file size. Earlier in the second quarter, our shareholders approved a performance stock unit plan that awarded me options that vest when the stock price reaches $45, $50, and $60. I appreciate the acknowledgment, but recognize that I only make money when we all make money. I personally believe we’ll get there. For those invested in the company today or contemplating it, I want you to know the topics on our mind every single day as the management team, in some cases, things that even keep us up at night. It’s imperative that every decision we make is to drive towards profitability. And once there, we maintain that rigor along with holding firm to an asset-light model. Establishing a definitive strategy for Bed Bath & Beyond, not only to be a $1 billion plus e-commerce brand, but find thoughtful and creative ways to expand the brand, generate cash flow off the IP, while also expanding its brand presence even further, increasing the brand value while maintaining its position as one of the world’s most well-known home brands. We also want to focus on the relaunch of Overstock in a way that allows it to return to its roots of retailing furniture, patio and rugs, but leverage its strong brand name in value shopping to more than just its historical categories. It is our vision, particularly with many off-price retailers leaving the e-commerce space to become the North American leader where companies big and small, can utilize the platform to reduce inventory in their own businesses and improve their turns and margins. They are essentially our vendors and suppliers. In addition to our traditional vendors, we are in the early innings of entering the true liquidation reverse logistics and closeout business. We have formed material relationships with liquidators, jobbers, wholesalers, and reverse logistics companies and are finalizing a formal agreement with a large-scale closeout and reverse logistics company. We are working to normalize margins through proper curation with the right product listed on the appropriate brand platform at the right time, especially at the right price. The merchandising team, led by Stacey Shively, our Chief Merchant, has done exceptional work to begin the curation process around key products and vendors. They have successfully reestablished direct relationships with key vendors, improving both profitability and process for both sides. As we continue that work, along with entering the closeout space, we expect to continue to see continued quarterly sequential margin improvement over the next 12 to 18 months. Look, we need to achieve new technology – excuse me, we need to activate new technology and innovative thinking to attract and retain our customer files. We have made significant strides in improving search functionality with a constant push to catch up and keep up with fast moving tech all around us. Part of attracting and retaining customers is the data management around them, building customized experiences for specific audience attributes, improving conversion and annual spend as a solid roadmap. Our relationship with Salesforce and companies like Vercel will help us create that efficiency and experience over the next 6 to 9 months. Over the next 18 months, we expect to develop a world-class loyalty program, utilizing both our database as well as other companies who coexist with us who do not compete in the same sector as us. That loyalty shall be rewarded with unique content, information, ideas and inspiration delivered to them through various mediums. Most of the content will be delivered across the streaming platform, YouTube channels, social channels and funnel marketing programs. We will move slowly towards this to test and ensure that we feel the return on investment can be realized over the lifetime value of the newly acquired customer. We have made significant progress in the past several months, and will continue to execute on our plan to achieve growth and profitability. To recap, in the second quarter, we achieved our revenue target and improved our bottom line by roughly 25%. We improved our gross margin through improved vendor relations, curation and the launch of Overstock. We increased our active customer base and their average order, we established new partnerships around liquidation, closeouts in factory direct. We launched Overstock.com, our mobile app for Overstock and launched our CRM process with Salesforce. We completed the architecture and POV on Zulily; signed and are trading over 100 legacy vendors with another 100 suppliers in the onboarding pipeline. And the site is now in the internal testing phase. We are targeting to launch Zulily on September 10. This effort has been led by a combination of our own and existing staff as well as an unbelievable team of added key legacy Zulily leaders. We also reduced fixed costs, all of which resulted in sequential improvement of more than $11 million in adjusted EBITDA. Lastly, we also refined our org structure during the quarter. And I’m pleased to see the flatter structure working so well with teams really starting to gel in getting their sea legs. With that, I’ll now turn it over to Dave Nielsen to talk more about the progress of our business.

Thank you, Marcus. I echo that sentiment. I am pleased with what the team achieved in the second quarter and remain committed to continuous improvement and bringing each of these brands back to the $1 billion-plus brands they have the potential to be. To that end, I would like to walk through some key operational highlights for each brand. On Bed Bath & Beyond, we saw growth in core legacy categories like bedding, bath and decor, as well as emerging strength in categories like patio and outdoor furniture, which are not historically endemic to the brand, but are highly accretive to average order value. This is encouraging as customers are recognizing product adjacencies, for example, bedroom furniture and feeling more comfortable shopping the entire room. While we continue expanding our assortment within the four rooms we are exclusively focused on, we’re simultaneously curating down from a marketplace like assortment of roughly 12 million SKUs to one that has enough breadth and depth to be category-leading but small enough to ensure an easy and seamless customer experience. This curation also impacts our supplier base, making key suppliers more meaningful, resulting in better margins for us. as their volume increases. Our merchandise team is also working hard to bring back a number of important name brands that left years ago, which we think will move the needle in reviving Bed Bath & Beyond. In addition to an uptick in average order value, it was also encouraging to see a higher proportion of sales from repeat customers during the quarter, a trend we expect to continue as we further refine our targeting and promotional models. Next, on Overstock. This was our first full quarter of operations since our relaunch at the end of March, and we are encouraged by the early progress we’ve seen. Historically, dominant product categories of area rugs, furniture, and patio and outdoor furniture continue to top the list of performing categories in the relaunch, confirming the loyal Overstock customer is excited we’re back. As we continue to increase our assortment, which has gone from a few hundred thousand to several million SKUs and improve our site experience, we anticipate momentum accelerating across the balance of the year. We are also leaning heavily into the white space that exists in online liquidation, as Marcus mentioned earlier. Finally, we launched Google Search on the website. And in conjunction with our grand reopening launched a new marketing campaign to reengage with customers in a creative way, utilizing AI, which is not only bold, but more importantly, inexpensive enabling us to offer even more crazy good deals to our customers. And lastly, Zulily, we hired a team of experienced merchants who were with legacy Zulily, know the Zulily customer and have established working relationships with important brand partners and their efforts are bearing fruit as we’ve made great progress on onboarding key legacy vendors, while also adding some new vendors to the mix. In addition to offering exciting flash cells, we will also be offering an evergreen assortment of must-have basics on site, which will require a member login and be additive to the P&L. In summary, there has been a lot accomplished during the quarter across the three brand platforms and those efforts are clearly starting to turn our ship around. I’ll now turn the call over to Adrianne.

Thank you, Dave. Revenue declined 6% year-over-year in the second quarter. Sequentially, revenue increased by 4%, driven by an 18% AOV improvement as we mixed out of bedding and into patio furniture. As a reminder, our intent was to deliver revenue in line with the first quarter, while improving profitability, and we accomplished just that in the second quarter. Gross margin landed at 20.1% for the quarter a 530 basis point decline compared to the same period last year. Elevated discounting and higher carrier costs continue to be the main sources of margin pressure. Sequentially, however, we delivered a 70 basis point improvement in gross margin as we work to optimize discounting and improve carrier costs. These were slightly improved – excuse me – these were slightly offset by our seasonal mix into patio furniture. I want to reiterate our six-part plan we outlined in our fourth quarter earnings call that we continue to execute on to improve our gross margin profile. Renegotiating freight rates with our carriers. This is now complete. We saw some benefit this quarter, and we will continue to see improvement in our run rate going forward. Improving vendor relations for more favorable product costs. This is an ongoing effort by our merchandising team and a key area of focus for our upcoming Partner Summit. Relaunching Overstock.com. Thus far, the brand has been accretive to our overall gross margin, providing integration add-ons. In late June, we launched our partnership with Angie, which will provide customers with installation and assembly services. We continue to market warranties and shipping insurance and are pleased with early performance. Reintroducing owned brands and embarking on licensing activity, we continue to opportunistically pursue these. And lastly, eliminating inefficient discounting. We made progress in the second quarter and expect continued improvements over time as our brands and corresponding value propositions become clearer to customers. G&A and tech expense of $46 million decreased by $3.5 million year-over-year driven by execution of our commitment to reduce fixed costs by an annualized amount of $45 million. Through the end of the second quarter, I am pleased to report we have now realized approximately two thirds of that commitment, allowing us to reinvest a portion of those savings to support our brand launches. All-in, adjusted EBITDA came in at a loss of $36 million, an improvement of $11 million versus the first quarter of 2024. Our focus remains on managing the business to profitability and driving sequential improvements in adjusted EBITDA. Reported GAAP EPS was a loss of $0.93 per share for the second quarter, excluding losses recognized from our equity method securities, adjusted diluted loss per share was $0.76. Lastly, our balance sheet remains strong as we ended the quarter with a cash balance of $186 million. In addition to our efforts to improve our margin profile, we will continue to evaluate opportunities to monetize non-performing assets and create liquidity. We have made progress in our efforts to sell our headquarters building and have accelerated actions to explore ways to drive value within our investment in the Medici fund, including more active discussions with Pelion and some of the funds more promising companies. In summary, our teams are laser-focused on building our three brands, while we simultaneously improve our margin profile. We made progress in the second quarter and acknowledge that significant work remains. Our goal is to deliver sequential improvements on our path to profitability. I would now like to turn the call back over to Marcus for final comments before we open up for Q&A.

Thanks, Adrianne. Before we move into Q&A, I want to make one final comment. While our company does not provide specific guidance, we feel it’s very important at this time to give our investors a range of our performance expectations. When you look at the history of both Bed Bath & Beyond and Overstock separately, you’ll notice that Q2 typically outperforms Q3 from a revenue standpoint by anywhere from 12% to 14%. It is our goal to have our third quarter revenue performance be in line with that, if not better than that historical trend. It is also our expectation that we have sequential gross margin improvement as well as a minimum low double-digit percentage sequential improvement to adjusted EBITDA. It is our belief that as we continue to curate and calibrate our business that we will set ourselves up to enjoy the tailwinds that could potentially come from improvements in interest rates, ultimately sparking home demand and demand for home products. With that, we’ll take some questions.

Certainly. And our first question for today comes from the line of Steven Forbes from Guggenheim Partners. Your question, please.

Good morning, everybody. Marcus, it sounds like you’re talking about an 18-month timeframe or I don’t know if I’m overreading that, but is that how you sort of currently see the business on its path to profitability? Is that a fair sort of timeframe behind the potential achievement of sort of a neutral EBITDA margin profile? Or any updates on – I know you’re not providing longer term guidance, just like how do you see the business sort of capturing that state of neutrality as it relates to cash flow dynamics and overall profit?

Yes, it better be long before the 12 to 18 months. And the reason I identified 12 to 18 months in a few topics is because there’s the maturation process, and we want to set proper expectations and not wreck the business. But it is our expectation that at some point in 2025, we are able to achieve profitability. That is how we’re building our plan. That is how we’re looking at our overall headcount, and that’s how we’re looking at managing the different parts of our business.

Appreciate that clarity. And then given the second quarter cash flow dynamics, is there days payable outstanding ratio we should be modeling OWC needs around or any help sort of as you think about the business, reestablishing relationships with vendors, the SKU sort of optimization path, how we should think about OWC needs and/or usage for the remainder of the year?

Hi Steve, this is Adrianne. And I would just say, as we’re working to onboard new vendors within these brands, we’re staying within kind of our typical guardrails of kind of payables and receivables. So I would say kind of no change in modeling as you think about onboarding Zulily vendors or curating Bed Bath vendors, staying really within our guardrails of kind of what you’ve seen us historically have as payable.

Yes, let me add one thing to that. As our performance continues to improve and vendor consolidation comes to light and those vendors enjoy that consolidation while also appreciating our improvement in performance, it is our expectation that we’ll be able to renegotiate even better terms with certain providers. In some cases, some of the terms that we have don’t meet my standards, but we understand that we need to earn the right to make that request, and that is a huge focus for us as we look at growing our profitability.

That’s great to hear. Thank you.

Thank you. And our next question comes from the line of Thomas Forte from Maxim Group. Your question, please.

Great, thanks. I have one question and one follow-up. And first off, congrats on the performance in the quarter. So the first question I have is, Marcus, can you talk about your capital allocation priorities, especially as it relates to potentially monetizing the non-performing assets, either selling the headquarters or anything related to Medici Ventures.

Yes. So from a capital allocation standpoint, we are laser-focused today, tomorrow and deep into the future on continuing to be an asset-light business. And candidly, we have entered into an LOI with a party here in Salt Lake that will allow us to even be more asset-light. That obviously reduce about $34 million of debt off our balance sheet and potentially bring in cash flow in the neighborhood of $20 million-ish after paying fees. As we look at the Medici assets, Adrianne and I have taken a slightly more active role. And while we appreciate the nature of the agreement between our company and Pelion, we have started to open up some dialogue and recently made the request for Pelion to put on a Medici days. Now they’re not obligated to do that, but we have strongly encouraged them to help our shareholders understand the value of that portfolio. Furthermore, it is our expectation, and quite frankly, our mandate for Adrianne and I to increase the level of communication with those companies that are part of our investment portfolio. The money left our company, and it went in to help these other companies start or fuel their ideas and a number of them we have very high hopes for. We think it’s our responsibility to have a direct relationship with leadership and management in those companies, so we can understand how our company can better help them achieve their goals. And so while we will always respect the direct relationship that Pelion has with them because of the engagement that we put in place, we are not precluded from having our own relationship, having our own understanding and driving results that we expect for our shareholders. Now we’re always looking at exploring alternatives with the portfolio, but it is our expectation that we want to maximize the results of that investment, and there are a few companies that we believe have a real significant opportunity. Now we don’t know what that opportunity is and oftentimes, investors ask us to quantify that. We today use an outside independent third-party to establish the value of those assets as they see it. If it was up to us, we probably would put more on the balance sheet, but we really believe that an independent third-party who doesn’t have a dog in the fight has to really tell our investors what they believe the current value of that portfolio is. It is our expectation that a few of those companies could exceed that, but we’re realists. And the best way for us to stand behind that valuation, not just on paper, but in practicality, is for us to develop a much deeper relationship with those companies and be able to talk more freely and more intelligently about the results or lack thereof with those respective companies. When I think about the cash that can be generated from them, the one thing that I want to reiterate 10 times on this call is that we are an asset-light company, and we will continue to be such. But I am of the firm belief both through the acquisition of intellectual property like they made with Bed Bath or we did with Zulily or the decades-long establishment of the Overstock brand that they are untapped. I firmly believe that both the Overstock brand and the Bed Bath & Beyond brand deserve to be in marketplaces that our company may not be in because of our asset-light nature. We’re in the final stages of documentation on working with what we consider a very, very large player in the liquidation of reverse logistics business. We expect them to leverage the Overstock brand, the Overstock website, the Overstock vendor relationships and expect to be financially rewarded for our participation in that partnership. There is a small investment that’s being contemplated in the form of debt that we will be providing to that company in a secured way. And in addition to that, a very lucrative royalty that will come directly to Dave’s business for all of the things that Dave brings to the table, including allowing their product to be sold directly on Overstock.com, where he will also make a fee allowing that company to leverage Dave’s multiple relationships with vendors who may need to move product or we need to handle their own returns and to help them figure out ways to optimize their performance by utilizing the Overstock.com database, all of that for a very, very healthy return. We see that the owners of this company have historically not necessarily had investments made that are in the line of sight of the business. And you could expect that going forward, anything that we do will have a very, very strong adjacency to not only one of our brands and expanding them and exploring new ideas, but will provide very healthy cash-on-cash returns in quarters, not just waiting for the air ball of opportunity.

Thank you, Marcus. For my second question, I wanted to ask you about the changes you’ve made to management and your efforts to deepen your bench.

From my perspective, I love subject matter experts who are willing to roll up their sleeves. And as I tell them all the time, we have a body on the table, and that body requires seven days a week, 24-hour at least availability. When you run an e-commerce business, its open 24/7, and we need to have a management team and a supporting staff underneath them that understands that the customer experience can never be impaired. We were fortunate to not have any disruption in our business since the beginning of the year in light of all of the outages that you’ve seen on the Internet. And I attribute the strength of our team, the savviness of our team to a lot of that. But when it comes to understanding this company, there’s one thing that I believe has been historically missing, and that’s their love of product. And Dave has reset the expectation along with Stacey Shively in our company’s necessity to fall in love with not only brand new product from the world’s greatest vendors, but from closeouts to liquidations to reverse logistics. It is our responsibility to bring the right product to the customer at the right time and most importantly, to be able to serve a wide swath of customers by doing it at the right price for them, which is why we have these various entry points. From my perspective, a flatter, a leaner organization is a more nimble and responsive organization. I think the other thing we’ve learned is we’ve added talent like Guncha and promoted people like Carlisha is that those folks truly are subject matter experts in their respective business, and they definitively understand the sense of urgency that I demand in this business. Profitability is not an option or a casual observation. It is a mandate, and we will do everything we have to, to reach that level of profitability. I do want to clarify one thing. I don’t want anybody on this call to be confused with an absolute laser focus on profitability and the calibration around assortments or around revenue to think that we are not a growth company. For those that have known me for decades, growth is my middle name. But I have never operated in the business that’s starting from the hole. And until we reach out of that hole, growth will be our middle name and not our first name because profitability needs to come before growth. Once we reach that level of profitability, or more importantly have a very clear line of sight to it. You could expect me to, as I have traditionally put my foot on the gas. I think we have the team. We are building the systems but I need to be confident that the way our customers travel through our websites, the way the search functionality works, the way our vendors price their product and present it to consumers, including the information, the pictures, the videos, the how twos [ph] until those things are right, and we’ve achieved our margins the way we need to we will not be pressing the gas or wasting money on anything. Look, I feel that margin is the single biggest thing this company can now do to find its way to profitability. Of course, generating revenue does that, but not if the transaction isn’t profitable after all the costs are accounted for, which means we need to improve our marketing costs. Our ROAs, our conversion on our website, our delivery expense and all the other added items. Upon my first call of joining this company, I did tell the market one specific thing. My ultimate goal is to build a global database that can be monetized in a different way. That goal has not changed, and the focus on growing the customer file is a small piece of that. Another piece is building alliances. And so over the next 3 months to 6 months, whether it’s the reverse logistics or liquidation company or a variety of other partners, you can expect us to have that goal of building the database to the ultimate goal of monetizing IP and monetizing the customer file as the way this company starts to see real levels of profitability, not marginal levels of profitability. That is not a six or 12-month thing. So when I say, 12 to 18 months, 24 months, 36 months, I’m talking about our North Star goal, and that’s important for us to have that distinction.

Thank you, Marcus.

Thank you. And our next question comes from the line of Seth Sigman from Barclays. Your question please.

Great. Good morning, everyone. Marcus, the philosophy going into the quarter was to use Q2 as a test period, I think, not to chase sales but to really try to understand the demand sensitivity to marketing and promotions and create this baseline. Can you elaborate on that? And how did that play out? What did you learn? And I realize a lot of this is still ongoing, right, as you guys figure things out. But what is the philosophy as you think about the third quarter here and maybe tie that in with the expectation for EBITDA to improve sequentially? Thanks so much.

Yes. So I think there’s a couple of things. We went into the quarter and month after month in the quarter, we saw a nice progress as it related to our fixed expenses, our gross margin improvement and started to see that as we closed out each month, we were marching towards that. Now the first month of the quarter, unfortunately, did not meet the same expectations as the second and third month did of the quarter. As we entered the third quarter, we sat down as a team and had some very candid conversations about the macro environment, about how the consumer was feeling around the noise, around the geopolitical environment, the upcoming Olympics. And we looked at ourselves and said, listen, we need to improve profitability, and we have a choice in the first month, do we chase revenue, overspend to try to attract new customers or hold on to them or do we very strategically learn to find ways to use our e-mail database more effectively, improve our PLA spend and do things to improve contribution margin, including raising prices? Now we all know that when you raise prices, you’re going to get some level of resistance, and we saw it in small pockets. But I’m here to tell you that I’m happy with the profitability performance thus far in July and feel like as we marinate towards August and September and get ready for Labor Day, we will have continued to make improvements in margin, in our ad spend and our fixed costs. When you look at the third quarter in comparison to the second quarter, as I mentioned earlier, the second quarter always performed for Bed Bath and Overstock separately and now together, to be about 12% to 14% lighter in the third quarter. We feel confident that we can not only meet that objective or that historical trend line, but our goal is to outperform that while also sequentially improving margins and sequentially improving EBITDA. As we head into the fourth quarter, we’re getting ready for what we would call our mini Super Bowl. And the reason I call it the mini Super Bowl is that we want to test other things. It will be the first year where our quarter-over-quarter where our Bed Bath & Beyond brand really drove the volume of transactions. But when we look back on Q4 of last year, none of us will accept the margin performance, the expense performance or the EBITDA performance. So our clear goal in Q4 is to have a significant, significant year-over-year improvement on the bottom line. And we believe it could be the first quarter where we start to lap and improved year-over-year results that we’re really looking forward to. As we transition into 2025, we expect that sequential margin improvement the continual growth of Overstock, which is trending very nicely by the way. When I look at the launch of Overstock starting at the end of March, essentially April 1, I now look at my daily dashboard, and I’m seeing average sales around $300,000 and $310,000. You can extrapolate out what that looks like, but we believe those daily sales will continue to grow nicely over the next several months. And then additionally, we’ll be launching the Zulily business, right around September 10, we’ll call it mid-September and expect that to contribute more in Q4 than it will in Q3, we’ll have some ramp-up costs in Q3, but from a revenue standpoint, more in Q4.

Okay. Super helpful. Thank you for that. And then just one follow-up, thinking about revenue from this past quarter, it came in slightly ahead of how you are forecasting it. It looks like AOV was maybe the surprise. Can you speak to that? It sounds like, it was maybe some success selling bigger ticket things on Bed Bath also Overstock relaunching, how did that play a role in that? And how do you think about how that could play out through the rest of the year? Thanks.

Seth, that’s a great question. Average order side, as I mentioned in my comments, they had an uptick, and the adjacencies of bedroom furniture, patio and outdoor furniture and those areas that we’ve talked about the four specific rooms that Bed Bath is focused on from the bedroom, bathroom, the kitchen and patio and furniture. As the bedroom was traditionally and historically for legacy Bed Bath, more of the soft goods, we’re seeing that migration that it’s okay to shop that entire room and buy that bed and buy that mattress, buy that bedroom furniture. And we’re seeing that in these categories, and that’s an advantage to us. Again, Overstock becoming more meaningful, as Marcus just mentioned, as we progressed through the quarter, is also on a very healthy right back to where it was before, average order value which we expected and anticipated, and that also contributed to that uptick.

One thing that everybody does have to start to think about as Zulily launches, is that we’ll be operating three distinct businesses with two similar portfolios kind of between Bed Bath and Overstock. But if you go on to Overstock today and you compare it to the Overstock of quite frankly, a year ago, where Overstock was a year ago just selling primarily furniture, patio furniture, rugs and some other home decor. It is now an entirely different marketplace. You can go on to the liquidation tab and see name brand apparel starting from $20. And when you start to see transactions like that, or factory direct furniture or closeouts or open boxes, it will put pressure on some of the average order. As we launch Zulily, which is apparel and beauty, it will put pressure on the average order, and we will do our best going forward to try to call out the differences between the average orders to the extent that we’re permitted, the differences in the average orders between the categories. So if we look at furniture, rugs, patio, things like that, we can show AOV but we will break out apparel and other small items to not distort from the overall performance of the brand as we expect those transaction counts to be ultimately very meaningful.

Great. Thanks guys.

Thank you. And our next question comes from the line of Rick Patel from Raymond James. Your question please.

Thank you. Good morning, and nice to see the progress. Can you provide some more color on active customers? How much of the increase versus the first quarter came from Bed Bath customers versus Overstock customers? And what’s the right way to think about the shape of growth going forward. We had your expectations for revenue between 2Q and 3Q, but I’m curious about your customers follow a similar or different path since you’ll be stacking cohorts from the platforms that are both ramping?

Yes. I mean, listen, we – as we get into the third and fourth quarter, the comps are becoming far more meaningful because, in our opinion, the company significantly overspent in Q3 and Q4 last year, particularly once August hit to acquire new customers. When you look at the customer file in the second quarter, most of it was largely attributable to Bed Bath & Beyond. And as you looked at the first quarter performance of Overstock, we largely kept spend very minimal as we were testing out the algorithm and rebuilding the site and looking at the taxonomy and looking at ways to improve the customer experience, we did want to go out and spend a ton of money and then have conversion be unacceptable to us. So we relaunched the email. And it has not been as easy as we initially thought it would be to reengage that Overstock customer. We sat dormant for a number of months. And so we’re having to be very creative about how we’re doing that. We’re having to incentivize customers. But we’re balancing that against overpromoting site sale, which is a mistake that Bed Bath did starting in Q4 and trying to have overstock have positive contribution margin to the company, all while trying to reactivate the file. As we get deeper into the third quarter and we’re happier with our assortment, we’ll start spending a little bit of money and we’ll start learning how it performs, and we’ll start seeing how the conversion works. But we want to be very clear about something. This is not a fast fix where we’re just going to pour a bunch of money into the market. The macro environment is already difficult. The advertising environment, particularly the right now, and we hope that other companies pay attention to this is very expensive in light of all the geopolitical spend that’s happening. So we’re trying to be very surgical and very thoughtful about days of the week, times of the day, products that we’re picking to see how efficient we can be. Remember that as we do those things, the algorithms learning, Google search is learning, we’re learning. And as we take those learnings and we start to forecast of three, six, nine months, we’re able to extrapolate those learnings and leverage on top of them, particularly when we see positive ROAS, and we know that we can chase that. When we try things and we try them in small doses and we see flat to negative ROAS, we’ll, of course, ask ourselves one question. Is that negative ROAS because we’re investing in a customer that we believe is going to give us lifetime value? Or is that transaction with negative ROAS, nothing more than a discount value transaction where they’re buying one thing from us. So we start doing a very deep dive on. Are they buying one item? What’s the size of their basket? How many items do they have? How do they engage with us on their customer service emails, how do they engage with us on other offers immediately following? And we use that information to create a bit of a prospect model to understand who we should chase and who we shouldn’t chase. And that may seem far more scientific than people want us to be, but that is how we find our path to profitability. That is how we create a true customer attribution model where we understand their behavior and how it’s going to perform. Now one thing that we are going to be testing here over the next three months is a new technology concept called Versal [ph], which takes those learnings and takes that information and create a layer on top of the Shopify site. That layer allows us to customize the offering and customize the communication with each specific customer in milliseconds. We know that price matters with conversion. We know that site experience matters with conversion, but we also know that speed matters. And we believe there is a tremendous amount of room for opportunity when we start to think about ways to get very granular on how we communicate with each specific customer.

Can you also impact the potential to cross-pollinate customers between the banners. I know the platforms are being run independently, but when a new customer or a relapsed one, comes on board. What are you doing to entice them to shop the other banner?

Look, I think that there was a lot of early hope that there would be this pool of a database and that, that pool of the database would transfer across each brand. We want to be very careful as we establish very specific point of views and brand attributes to each one of the brands to not confuse the customer. The one way that we believe that will ultimately solve that is by creating a global loyalty program, and that loyalty program allows them to understand how they can use their reward points their Club O points or any other loyalty program that may exist to be specific to that brand to transfer up to this. Think about it like a Bonvoy at Marriott or a Star Alliance in the airlines. The reason I mentioned Star Alliance is the one thing you could expect from me and our company in the next several months, as we have this North Star goal about creating this overall global loyalty program is that we believe there’s parts of the home and family-type industry that we may never specifically play in because of our asset-light model. But we want to bring those particular companies who don’t compete with us but complement us, whether they’re another CPG company or whether they’re a services business, to participate in our alliance. It’s a very difficult proposition for companies of our size to make it on their own. And what we’re finding and what you’ll find with me is that I believe in creating a community, a cooperative that allows whether it’s a finance company, a services company, a pool service company a retail company that sees customers, all playing in that same space to be able to live in that global database. That global database will have a global loyalty program. And ultimately, once that customer is in that system, we’ll then start to do what I mentioned six months ago, which is to sell them other high-margin recurring revenue products once we build their trust and their loyalty.

Thanks very much.

Thank you. And our next question is the line of Curtis Nagel from BofA. Your question please.

Good morning. Thanks very much for taking it. Just quickly going back to 3Q. One, just if you comment on quarter-to-date trends. And then I just want to make sure I understand, I guess, the mechanics of, I guess, what I’ll call the guide. right? So 10% to 12% below 2Q on basic seasonality. It doesn’t sound like you’re factoring any sort of basic, I guess, ramping from the brand, but I’m not quite sure. And I think also we’re factoring kind of comps from the overspending on customer acquisition last year. But just could you just walk through kind of how all that bounces out and sort of what’s incorporated in terms of that’s down 10% to 12% as you said?

Yes. Yes. So just as a reminder, we don’t provide guidance as a company, but I felt obligated – feel obligated to provide our investors particularly until we reach a level of profitability with a lot more insight on all the parts of our business, transparencies, how we want to operate. Just looking back, and I actually went back and looked at even historical Bed Bath & Beyond financials when it was a public company and I looked at Overstock as well. The third quarter always was a little softer, and it’s a terrible word to use, but it sequentially steps down by 12% to 14%. Ironically enough, both businesses look the same, which means that probably that overall home space steps down when it’s coming out of big patio furniture and things like that out of the summer and cleaning things for spring and getting organized. And what we always have called it is like a transition quarter in preparation for Q4. We’re also spending a lot of time and a lot of energy learning how to calibrate our business. And being very specific about how we’re going to approach each specific day inside of the 90 days of the quarter. It’s a Monday, what’s the holiday? It’s a Tuesday, what’s coming up that weekend? When is the big sporting event, when are the Olympics? When are the primaries? And we’re doing a much better job of overanalyzing behavior patterns and weather patterns and trying to lean on other companies and other expert advice to help us think about that. In using just the historical facts, I wanted to set an expectation just based on historical information. And if 12% to 14% is the walk down from Q2 to Q3, then people can do the math, it’s 12% to 14% of $398 million. We feel confident that we could achieve, but candidly are most – more focused on bucking that trend, that even though the companies have both historically done that, we’re looking at ways at outperforming that. Now we’re not going to overspend or be reckless with how we do that because we also want to have margin improvement and EBITDA improvement at the same time. So our goal for the quarter is to outperform the historical step-down to improve margins sequentially from the previous quarter and to improve EBITDA no less than low double digits in the third quarter on a percentage basis. We think we can do better than that, but we are doing, we hope, a much better job of setting the proper expectations.

Got it. And then just a quick follow-up if I can. Just how to think about the sales and marketing spend as a percentage of total revenues in the back half of the year, right? How dependent is that on total revenue. Marcus, you mentioned, obviously, customer acquisition costs are up given election alters and other things. So if you could just frame out kind of how at least you’re thinking about that for the remainder of the year, that would be helpful.

Yes. We are not satisfied by any stretch of the imagination at our ad spend as a percentage of our revenue. It doesn’t even come close to meeting our standards, and we know we have to improve that. But when we say that in one breadth at the same time, we need to keep growing our file and finding new customers, particularly ones that have an affinity to our company. We need to continue to engage with the customers we have now, as Dave mentioned, he was very happy with the level of repeat buyers that we have seen. We also need to be – do a good job of reengaging those legacy Bed Bath & Beyond customers that have still not come back. And we want to find the balance of inducing them at our payroll and inducing them to our benefit. As we launch and continue to grow the Overstock business, we are going to have to spend money to go find new customers who really believe that there is a tremendous amount of right space in this liquidation closeout business that Overstock is leaning towards. And then lastly, we are planning on launching Zulily in – at the end of Q3. So when you see all those things happening, lodging Zulily throttling up Overstock, reengaging old Bed Bath, you would probably be surprised that at the same time, we’re telling you that we’re going to have margin improvement and EBITDA improvement, but that’s largely part of what we think we’re going to do to continue to tighten down on fixed costs in other areas. We can’t afford to just start cutting marketing spend to find our way to a profit. I’m not going to do that as addicted to growth as I am normally and historically, I still want to find the balance of getting to where I ultimately believe we can get to, but doing it with temperance and rationalization.

Got it. Thank you. Appreciate it.

Thank you. [Operator Instructions] Our next question comes from the line of Marvin Fong from BTIG. Your question, please.

Yes, good morning. Thanks for taking my questions. A lot of them have been answered, but maybe two if I could. So just first one, basically the time a year ago, just for Bed Bath, we were kind of talking about 22% gross margin as sort of a goal for that business? I mean, is that still sort of guiding light for what you’d like gross margin in that business to be? Or should we just kind of tear that up and you’ve entirely rethought the gross margin target for the core Bed Bath business? And then I have a follow-up.

Okay. Marvin, it’s Adrianne. And I think the 2022 – so if we were talking last year, just one reminder, we did change our presentation of gross margin conference call [ph] to be kind of more similar to our peer set. There’s about four points that we moved out of gross margin into OpEx. So if you did that apples-to-apples today, that number would be something like 26%. And I think as we talked about, our goal is to continue to improve gross margin. And we know that somewhere, if you look at each of these brands and their historic operating performance, they’ve been in those ZIP codes and/or better. So I think on our path to profitability, we’ll continue to kind of chip away at that gross margin and get closer and closer to that mid-20 number.

Okay.

And Marvin, I would…

Go ahead.

Marvin, it’s Dave. For your second question, I’d just like to add on to that. A couple of ways in which we are going about that as a leadership team, and we’ll be talking about this at our upcoming Partner Summit. As we think about curation and making assortments more meaningful for our customers and the customer experience, there is a lot – that has a lot to do with as well our supplier base. And as our supplier base narrows and deepen in the amount of volume flowing through them, that is a real opportunity for us and our partner base to renegotiate and to get more entrenched together in this business, giving better margins to us with more volume and more scale to those partners. And again, it aligns us with the customer experience and the shopping experience, which are needed.

I think there’s two other – a couple of other points, Marvin, and then we’ll wrap-up that point. You’re seeing a lot of focus for the company to explore this, what I believe is unchartered white space in e-commerce and liquidation closeouts, factory direct and things of that nature. And I have seen a number of comments around about the fact that off-price and closeouts have never been successful in liquidation. And I will tell you that they haven’t done business with us. Overstock is principally an off-price closeout business, and prior to it being transferred over to Bed Bath, it was $1.5 billion business. If Dave had been in charge of the business years ago, it would have never left jewelry. It would have never left apparel and footwear. And so what we’re doing is not only going back to those things that Dave wanted to do because he’s truly a merchant and understands it but we are going to become the leader in the closeout liquidation for closure space. We believe, and we’ve seen early doses of that that people are now starting to come to us. Two more other points is that we have also eliminated a number of distributor relationships that our company was required to go through both when it was overstock and Bed Bath & Beyond went through bankruptcy. We sat down – all three of us sat down with dozens of vendors who are a little unsure historically about Overstock and the brand sort of cast on it or they were unsure about Bed Bath & Beyond because they had been burned by a vendor, and we’re requiring that everybody buys through a distributor. We have mitigated a number of those relationships and will enjoy margin just from those direct relationships alone with big-big global brands that in some cases didn’t even sell to the company. And lastly, you could expect over the next six to 12 months, we’ll be rolling out a private label program, a private label program that will be sold in multiple channels. And when I say multiple channels that means we are going to make margin in every marketplace that we can both in our own marketplaces, but when we build the brand we think there’s other places we can make money as well. And so we’re looking for every way that we can love on product, source it, improve our first cost or buy it a close out and bring it to consumers in different ways.

Got it. Thanks for that. And my follow-up, just hearing good to hear that patio and outdoor did well in the Bed Bath Channel. As I sort of think about how you guys were kind of talking about that last quarter, it seemed like maybe you guys thought that maybe build type of products from better suited to overstock and there might be some transition there. So should we kind of take what we learned or saw in the second quarter as you’ll be kind of keeping those product – that product on Bed Bath and you’ll continue to grow those categories?

Yes. Before Dave takes a deep dive on, Patio, I would tell you that I was not satisfied with how Patio performed. And so while it performed better and while Bed Bath & Beyond is actually getting more comfortable selling that and the consumer is more comfortable buying it from it, I wanted to see better performance out of that category. And we know where we slipped up and we are documenting day-by-day, week-by-week what our missteps were so that we build the playbook for 2025 in that area.

Marvin, there are opportunities, as we mentioned this theme of curation and calibration as we move forward. The curation component of our one of the four rooms that we’re really focused on with Bed Bath & Beyond is that Patio and Outdoor. But it’s not going to be everything to everybody. Over the last few years, we have seen so many pop-up suppliers of outdoor and Patio Furniture. They don’t provide a good customer experience. They don’t understand packaging. But we have a very deep and solid relationship with several of the top providers in these product categories and working with Stacy and the merchandising team and really curating down that assortment there are margin opportunities and there are as Marcus mentioned private label opportunities, branding opportunities there that we believe for Bed Bath & Beyond can really create another opportunity for this business. On the Overstock side of things, I just want to touch again just a little bit on the advantages of this liquidation piece of the business. Liquidation historically for Overstock when we would buy physically millions of dollars of sheets of distressed merchandise, those were incredible to drive traffic to our website. They were what we considered many times marketing spend. With these partnerships and these alliances that we’re making with liquidators, with reverse logistics companies where we don’t have to invest in the assets and we can remain in our asset-light model, we can provide access to products through our partner base that are incredible for these individuals. I mean we have thousands of partners who have distressed merchandise. At the same time, getting access to a model of distressed merchandise in the local area, where we have built the technology to be able to drop ship out of some of those locations. That when you don’t have to move the merchandise is where margin is very accretive for all of us.

Yes. Look, there is thousands, if not tens of thousands of companies of all sizes from the small business on Main Street to a Fortune 500 company that needs to be able to deal with excess inventory, mistakes in their inventory, and particularly for a medium to small business that has cash trapped in their inventory and not in their bank account, we will become the solution for those folks to plug right in and we have started to onboard small businesses, medium and large businesses today through our Supplier Oasis, through a platform with Shopify, through a number of different plug-ins that will give people that ability. The reason that that’s so important is that there are a lot of brands out there who don’t want to necessarily have to open their comuna and air their dirty laundry out about any inventory mistake. Even myself as a multiple business owner, I’m not proud of inventory mistakes. And if I could find a place to monetize my inventory and do it in a marketplace where everybody doesn’t have to see it and my brand isn’t damaged that’s really where things excel. And when you look at Overstock and Zulily together, that marketplace provides that safe place for big companies to find that and whether that’s in the pet space and whether that’s in the outdoor space, the patio space, the jewelry space, the collectibles space, the reverse logistics space and the list goes on and on, we don’t see any borders or barriers to overstock ability to dominate in that space. I joke with Dave all the time. I’ll let you know when we’re done when we’re selling chickens and cars. And I know that seems extreme, but that shows the width in which we believe Overstock can ultimately play. We will be visiting trade shows, and we’ll be doing a lot of other things to sort of expand on that.

Oh, that’s great color, everyone. Thanks so much.

Thank you. And our final question for today comes from the line of Jonathan Matuszewski from Jefferies. Your question please.

Great. Good morning, Marcus, Dave, and Adrianne. Thanks for taking my questions. The first one is just on your vendor conversations and vendor strategy. I think the prepared remarks referenced the upcoming Partner Summit. So just wanted to get some perspective on your goals for that event in terms of conversations with suppliers and efforts to reengage them I think you mentioned a strategy of narrowing the supplier base, which sounds encouraging from a unit economic perspective, is there any risk there from a consumer choice angle? Thanks.

Yes, great question, Jonathan. We’re really excited about this upcoming summit. And I was just in Vegas actually on Sunday, spending time with many of these partners, giving them a little preload into some of the thinking that we’ll be working on and presenting and talking to them about. There is always risk to any transition, but we are confident in the work that we’ve done with these partners and what these partners have to offer. Many of these partners can scale so much larger than they are and have additional assortments. Our strategy a few years back of just bringing on everybody and everybody jumping in to the patio furniture business to the furniture business, basically to furniture and home furnishings businesses since COVID. It is very important from a margin-accretive perspective that we do this. We see it as low risk on the sales side and the selection side. There’s only so much you can process as a human as you’re processing and going down through search pages, but it’s more than that. It’s about the customer experience, the shopping experience, and providing that customer with a look and a feel that makes sense, that makes them excited to shop that doesn’t confuse them it doesn’t disappoint them with poor packaging or poor ship confirmation timing. So there is – there are so many elements that eliminate cost in our ecosystem by taking this approach of making our relationships with our key partners, more strategic, more aligned.

That’s really helpful. Thanks for the color. And then just a quick follow-up. In the press release, there was a reference to kind of strategic partnerships and joint ventures ahead. And I think you guys did a nice job of talking about the opportunity there in terms of working with reverse logistics companies and closeouts and whatnot. How do your aspirations for a physical presence for your product play into this? And kind of how should we think about the, the opportunity if Bed Bath were to get product in four walls in a financially accretive way without obviously kind of building stores and just leveraging someone else’s network potentially. How does that fit into your approach going forward? And what’s the opportunity there?

I just want to, first and foremost, clarify we are and will continue to be an asset-light company taking on any contingent liabilities, leases, putting up distribution centers, taking on massive loads of inventory are not in any future that we’re a part of. However, you can expect in short order that it is our mission to put Overstock and Bed Bath & Beyond back in the marketplace. We believe that an omnichannel at least from a perception standpoint for the consumer is quintessential to our growth. That doesn’t mean that we have to do it. There are plenty of other subject matter experts who do quite well at this as their core competency, and we believe that there are multiple opportunities and are in discussions with multiple parties to execute that strategy in short order. Remember that it also has to be part of a larger alliance around database and monetizing the file and monetizing the intellectual property. So as we start to disclose and roll out and finally negotiate certain transactions, all of the investors should rest assured that in every single case, any partnership will be materially accretive to the company and will still be in an asset-light environment.

Very helpful. Thanks.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Marcus Lemonis for any further remarks.

Great. Thank you for joining us on today’s call. We look forward to seeing you next quarter. Take care.

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.