QUOTE(Pwok @ Sat 1st September 2007, 10:41pm)
Oh, please, Mr. Byrne!
You don't know me and you're not going to meet me, so you can believe this or not: You just happened to have run into someone who is completely disinterested in your company or your stock, but who has been around the block 10 or 20 thousand times.
And from what I've been gleaning in my limited research in what's now about a half-hour, Overstock has been playing all kinds of games with its books. It stands out like the sound of a senator's wingtips tapping on the floor in the bathroom stall next to me in the airport.
What's this "pro-forma EDITDA" crapola I read about in your Q2 conference call?
Pwok,
I suggest we return to the real world for a moment, and then we can revisit your fantasy world, where you have nimbly illustrated precisely the point I am trying to make to all readers.
The Bloomberg Special Report to which I linked (and which works, incidentally, in the Firefox browsers here), describes a grave crime affecting tens of millions of people in our country. The cover-up works like this. If any member of the public at large tries to discuss this crime, the Party Line response is "He must just be a shareholder who is mad that his stock went down." If a CEO tries to discuss it then it is, "He is just a CEO who is mad that his stock went down" (incidentally, our stock is up nearly 40% this year, but this does not make me right about the enormity of this financial crime against America any more than when it went down it made me wrong). These responses are given reflexively, automatically, and without hesitation; they are spewed on message boards at great length; and within Wikipedia.org are maintained as the great prophylactic against reason and evidence debate, no matter what economic data emerges.
Again, returning to the real world,
I am the one who pushes GAAP as the standard and denounce all appeals to "pro forma" (Latin for, "as if") accounting, and have repeatedly made clear my aversion to "pro forma" approaches to
financial statements . In addition, though essentially every analyst wants to discuss things within an EBITDA paradigm, I have repeatedly discussed my aversion to "EBITDA" instead of GAAP, saying that there are at most two conditions when EBITDA is meaningful (when cash is tight, and when large infrastructure has been completed whose depreciation will exceed ongoing capital improvements). Ourselves, we are happy to live and die by GAAP. It is simply an aspect of the Chewbacca Defense that is part of the cover-up to lie about what I say in this regrd, over and over, in the hopes that no one checks the actual record.
Now here is the transcript of the call to which you refer.
QUOTE
Dr. Patrick Byrne - Overstock.com, Inc. - Chairman, CEO
...Okay, slide 19. EBITDA. Now I'm going to preempt the knuckleheads who go out there and find quotes from the -- oh, Byrne has said in the past he doesn't like EBITDA. Well, yes, I have said that over and over. I have also said there's only two times EBITDA matters. And it is -- one is one when cash is real tight, which -- we were low on cash, but we have come back very nicely. And that doesn't seem to be an issue. The other it is if a company is in the odd position of having made massive capital investments that it is now seeing the depreciation expenses run through its income statement, and it doesn't have to replace that capital equipment, then EBITDA is actually an interesting thing to know.
I'd call that a stand-up explanation. Anything in it that supports the accusations you have blindly parroted?
The next piece may get a bit technical for the non-financial reader, so I broke it out:
QUOTE
Well, that second point really does define us. We are -- have I think about $40 million of noncash -- or $38 million of noncash a year. $35 million or so is depreciation. And so far this year we have spent, I think, about $2 million on CapEx. I bet we get through the whole year with less than $5 million. And that seems normal for now. For the foreseeable future we way overbuilt our infrastructure, so throwing back in that depreciation seems pretty good. As you can see the line -- we used to be EBITDA positive in the fourth quarter. And our goal was basically to make enough back in the fourth quarter to basically breakeven for the first three quarters in the preceding years. Everything came off the rails two years ago. We have recovered, and we are actually back EBITDA positive in the third quarter. And I don't think we have done that-" (interruption, Jason corrected me on something, I fumble to find my place) "...But anyway now that is all EBITDA excluding these restructuring costs, which is the shaded area on the screen. Like Jason just said, that shaded area is -- that should be collapsing to a line against starting this quarter.
Jason, comments on this?
Jason Lindsey - Overstock.com, Inc. - President, COO
I think it is great. I think it is nice to be generating again, I guess excluding restructuring, to be generating cash again. A big improvement."
Next comes the piece on "pro forma." An analyst I do not know came on the phone and used the term:
QUOTE
Quint Slattery - - Analyst
A quick question. In terms of topline growth when should we see a resumption of year-over-year topline growth? And also, when do you guys expect to be earnings positive on an EPS basis?
Dr. Patrick Byrne - Overstock.com, Inc. - Chairman, CEO
On a GAAP basis?
Quint Slattery - - Analyst
No, on a pro forma basis.
Dr. Patrick Byrne - Overstock.com, Inc. - Chairman, CEO
Well, I will take the first question, and I will said this quarter. I think that you will see topline showing year-over-year growth this quarter. Jason, why don't you take the -- on a pro forma basis, I think we can show profit now. But, Jason, what do you want to say about that?
Jason Lindsey - Overstock.com, Inc. - President, COO
We have stayed out the giving guidance realm. We have tried to tell you what we know about our business and facts, pro and con, and let you make up your own mind. If you believe in EBITDA is profitable, and you believe that the restructuring charges really are one time, or they're not recurring, and that is your definition of pro forma, then we were $2 million profitable this quarter.
Dr. Patrick Byrne - Overstock.com, Inc. - Chairman, CEO
But you're talking GAAP.
Jason Lindsey - Overstock.com, Inc. - President, COO
If you're talking GAAP, then again I don't want to tell you my opinion. I will tell you all the facts that I know of and you make your own opinion.
Dr. Patrick Byrne - Overstock.com, Inc. - Chairman, CEO
So sorry. That was a typically oracular answer from Jason. Anyway, we will -- anything else you want to ask, sir?
Quint Slattery - - Analyst
No, that's all. Thank you.
So in the real world, someone came on the phone and asked a question using the term "pro forma," and we tried to gracefully, if perplexedly, never having used the term ourselves except by way of derision (my "on a pro forma basis, I think we can show profit now" was a moment of sarcasm conveyed by the recording even better than the transcript).
Of course, the bleating continues in a predictable fashion: Sam Antar, a convicted felon who ratted out his family members to reduce his own sentence (no kidding, look it up) and who now takes his instructions from hedge funds, wrote at length pretending that I had been appealing to "pro forma" without mentioning that an analyst called in asking that question. Gary Weiss (whom Judd has
unmasked so beautifully on antisocialmedia.net) chimed in quoting Sam. Now you are regurgitating it as though on command, all while professing to have no interest, etc. etc.
A few posts back you wrote something puerile: "Look, your company had $93 million in cash as of the end of June. Of course, that's $30 million less than it had at the end of last year... " - silly because retailers always end the year with their highest levels of cash (something happens every December, remember?). That is why
real financial analysts look at trailing 12 months (over which, incidentally, we have had nicely positive cash flow). Given that you seem to understand how to read a financial statement, writing something so obviously silly led me to wonder if you were not just trying to pull the wool over the eyes of other readers. I fear your latest post, parroting as it does so faithfully the Party Line, does little to disabuse me of this sense.
By the way, for those who were not able to play that Bloomberg documentary, here is a lovely
article they published on the same subject: I predict that my interlocutor here will come back with whatever
non sequitors he can muster to avoid discussing the issues raised in this article. Call me "Kreskin". But I have seen this movie before.
Sincerely,
Patrick
PS Before any reader gets sucked in by this guy, I strongly suggest reading Wordbomb's posts on
http://antisocialmedia.net/?s=gary+weiss . This fellow uses precisely the same turns of phrase and lines of argument used by Gary and his cronies (e.g., Scipio) from on InvestorVillage. I have watched these guys for long enough to know that they were not going to let the unmasking of Slim Virgin go unanswered: they are going to try to infiltrate your site.