FY 2017 revenue of $1.7 billion (-3% growth) and pre-tax loss of
($47.7) millionQ4 2017 revenue of $456 million (-13% growth) and
pre-tax loss of ($24.9) million
Overstock.com, Inc. (NASDAQ:OSTK) today reported financial
results for the quarter and fiscal year ended December 31, 2017.
Dear Owners,
Your business has two sides: ecommerce and blockchain.
- We announced on our last earnings call that we had engaged
Guggenheim to consider strategic alternatives, one of them being a
sale of our ecommerce assets. This work is ongoing and we will
provide an update when appropriate. That said, our philosophy has
always been to run every asset like we intend to own it forever and
our strategy discussion will be framed in that mindset. Our
ecommerce business had its second annual pre-tax loss ($25 million)
in nine years faced with a competitor called Wayfair running a
pre-tax loss of $244 million for 2017. In fact, in the last four
years, while our retail business has had pre-tax income of $30
million, Wayfair has lost $663 million: this is creating no small
amount of margin compression. Because I do not want to watch this
play out over years, I believe it is time for us to respond in
kind. Thus, I am announcing that we are for the first time adopting
the classic internet "growth strategy" I have previously eschewed:
high growth, negative GAAP net income, funded out of our negative
cash conversion cycle. We have already turned on the jets, and will
demonstrate this year that our growth engine is far more
efficient.
- Because of this change in strategy and recent losses, we have
changed the treatment of our deferred tax assets. We are providing
a full valuation allowance on our deferred tax assets, causing a
$59 million non-cash tax charge in 2017. Additionally, the effect
of Trump's Tax Cuts and Jobs Act has created another $25 million
non-cash tax charge in 2017, primarily due to the reduction of the
corporate tax rate.
- Our blockchain enterprises under Medici are progressing nicely.
We have a strong head start in a number of products under
development. DeSoto, Bitt, and tZERO are most known, but there are
some other developments within Medici that bear watching.
Our earnings call is going to be unusually robust and
informative, geared for the analysts and shareholders trying to
make sense out of a complex tale. We will also discuss our
strategy. I strongly recommend anyone trying to understand this
complex tale start by hitting this link to the recording of the
call and slides which will be live two hours after the call's
completion: https://www.overstock.com/2017-FY-earnings.
Your humble servant,Patrick M. Byrne
Key FY 2017 metrics (comparison to FY 2016):
- Revenue: $1.745B vs. $1.800B (3% decrease);
- Gross profit: $340.6M vs. $331.3M (3% increase);
- Gross margin: 19.5% vs. 18.4% (111 basis point increase);
- Sales and marketing expense: $180.6M vs. $147.9M (22%
increase);
- Contribution (non-GAAP measure): $162.7M vs. $200.3M (19%
decrease);
- G&A/Technology expense: $206.6M vs. $196.1M (5%
increase);
- Pre-tax income (loss): ($47.7M) vs. $20.5M ($68.3M decrease);
- Pre-tax loss - OSTK retail (non-GAAP financial measure):
($25.4M)
- Pre-tax loss - Medici (non-GAAP financial measure):
($22.3M)
- Provision for income taxes: $64.2M vs. $9.3M ($54.9M increase
including non-cash adjustments for the Tax Cuts and Jobs Act and
other factors described below);
- Net income (loss)*: ($109.9M) vs. $12.5M ($122.4M
decrease);
- Diluted net income (loss) per share: ($4.28)/share vs.
$0.49/share ($4.77/share decrease).
Key Q4 2017 metrics (comparison to Q4 2016):
- Revenue: $456.3M vs. $526.2M (13% decrease);
- Gross profit: $85.8M vs. $98.0M (12% decrease);
- Gross margin: 18.8% vs. 18.6% (18 basis point increase);
- Sales and marketing expense: $54.5M vs. $48.4M (13%
increase);
- Contribution (non-GAAP measure): $32.1 vs. $54.2M (41%
decrease);
- G&A/Technology expense: $54.0M vs. $50.0M (8%
increase);
- Pre-tax income (loss): ($24.9M) vs. $3.9M ($28.8M decrease);
- Pre-tax loss - OSTK retail (non-GAAP financial measure):
($17.6M)
- Pre-tax loss - Medici (non-GAAP financial measure):
($7.3M)
- Provision for income taxes: $71.9M vs. $1.1M ($70.8M increase
including non-cash adjustments for the Tax Cuts and Jobs Act and
other factors described below);
- Net income (loss)*: ($95.7M) vs. $3.1M ($98.8M decrease);
- Diluted net income (loss) per share: ($3.72)/share vs.
$0.12/share ($3.84/share decrease).
*Net income (loss) refers to Net income (loss) attributable to
stockholders of Overstock.com, Inc.
We will hold a conference call and webcast to discuss our Q4 and
fiscal year 2017 financial results on Thursday, March 15, 2018, at
4:30 p.m. ET.
Webcast information
To access the live webcast and presentation slides, go to
http://investors.overstock.com. To listen to the conference call
via telephone, dial (877) 673-5346 and enter conference ID 7786695
when prompted. Participants outside the U.S. or Canada who do not
have Internet access should dial +1 (724) 498-4326 then enter the
conference ID provided above.
A replay of the conference call will be available at
http://investors.overstock.com starting two hours after the live
call has ended, or on Overstock's YouTube channel, accessible at
https://www.overstock.com/2017-FY-earnings. An audio replay of the
webcast will be available via telephone starting at 7:30 p.m. ET on
Thursday, March 15, 2018, through 6:30 p.m. ET on Thursday, March
29, 2018. To listen to the recorded webcast by phone, dial (855)
859-2056 then enter the conference ID provided above. Outside the
U.S. or Canada dial +1 (404) 537-3406 and enter the conference ID
provided above.
Please email all questions in advance of the call to
ir@overstock.com.
Key financial and operating metrics:
Investors should review our financial statements and
publicly-filed reports in their entirety and not rely on any single
financial measure.
Total net revenue - Total net revenue was $456.3 million and
$526.2 million for Q4 2017 and 2016, respectively, a 13% decrease.
Total net revenue for FY 2017 and 2016 was $1.745 billion and
$1.800 billion, respectively, a 3% decrease. Beginning in mid-2017
and continuing in the fourth quarter of 2017, we experienced
difficulties which we believe were due in part to changes that
Google, Inc. ("Google") has made in its natural search engine
algorithms. It is taking us longer to analyze and to seek to adapt
to the 2017 algorithm adjustments than it took us to respond to
Google's changes in previous years. We have reorganized a large
number of resources around addressing this challenge, as well as
seeking to prevent it from occurring again. We have implemented a
variety of innovations and technical improvements in this area and
expect to continue to do so. This decrease to revenue was partially
offset by efforts to increase revenue in other marketing channels
such as sponsored search and email.
Gross profit - Gross profit was $85.8 million and $98.0 million
for Q4 2017 and 2016, respectively, a 12% decrease, representing
18.8% and 18.6% gross margin for those respective periods. Gross
profit for FY 2017 and 2016 was $340.6 million and $331.3 million,
respectively, a 3% increase, representing 19.5% and 18.4% gross
margin for those respective periods. The increase in gross margin
was primarily due to a continued shift in sales mix into higher
margin home and garden products and an increase in marketplace
sales (which we recognize on a net basis), partially offset by
increased promotional activities.
Sales and marketing expenses - Sales and marketing expenses
totaled $54.5 million and $48.4 million for Q4 2017 and 2016,
respectively, a 13% increase, representing 11.9% and 9.2% of total
net revenue for those respective periods. Sales and marketing
expenses totaled $180.6 million and $147.9 million for FY 2017 and
2016, respectively, a 22% increase, representing 10.4% and 8.2% of
total net revenue for those respective periods. The increase in
sales and marketing expenses as a percent of revenue was primarily
due to increased spending in the sponsored search, display ads on
social media, and television marketing channels, due in part to our
seeking to increase revenue in these channels to offset the effects
of the Google algorithm changes described above.
We are experiencing an increasingly competitive digital
marketing landscape. We have competitors who are spending
significant amounts on advertising bidding up the cost of certain
marketing channels, such as paid keywords. While we may not choose
to match their levels of spending, this has increased our marketing
costs in recent quarters. We expect this trend to continue.
However, we do have a number of important digital marketing
initiatives that we are testing and implementing that we believe
will improve our competitive position in this area.
Consolidated contribution (a non-GAAP financial measure) and
contribution margin (a non-GAAP financial measure) - Contribution
for Q4 2017 and 2016 was $32.1 million and $54.2 million,
respectively, a 41% decrease, representing 7.0% and 10.3% of total
net revenue for those respective periods. Contribution for FY 2017
and 2016 was $162.7 million and $200.3 million, respectively, a 19%
decrease, representing 9.3% and 11.1% of total net revenue for
those respective periods.
Contribution and contribution margin (non-GAAP financial
measures - which we reconcile to "Gross Profit" in our consolidated
statement of operations) consist of gross profit less sales and
marketing expense plus Club O Rewards and gift card breakage and
reflects an additional way of viewing our results. Contribution
margin is contribution as a percentage of total net revenue. We
believe contribution and contribution margin provide management and
users of the financial statements information about our ability to
cover our operating costs, such as technology and general and
administrative expenses, while reflecting the selling costs we
incurred to generate our revenues and adding back the reductions in
revenue that we recognized for Club O Rewards that have
subsequently expired and for gift cards whose redemption is remote.
Contribution and contribution margin are used in addition to and in
conjunction with results presented in accordance with GAAP and
should not be relied upon to the exclusion of GAAP financial
measures. The material limitation associated with the use of
contribution is that it is an incomplete measure of profitability
as it does not include all operating expenses or all non-operating
income and expenses. Management compensates for these limitations
when using this measure by looking at other GAAP measures, such as
operating income and net income. You should review our financial
statements and publicly-filed reports in their entirety and not
rely on any single financial measure. For additional information
about our non-GAAP financial measures, including “retail pre-tax
income (loss)” and “Medici pre-tax loss” please see the "Additional
Non-GAAP Financial Measure Reconciliations" section below.
Our calculation of our consolidated contribution and
contribution margin is set forth below (in thousands):
| |
|
| |
Three months ended |
| |
December 31, |
| |
2017 |
|
2016 |
| Total net revenue |
$ |
456,290 |
|
|
100.0 |
% |
|
$ |
526,182 |
|
|
100.0 |
% |
| Cost of goods sold |
370,492 |
|
|
81.2 |
% |
|
428,178 |
|
|
81.4 |
% |
| Gross profit |
85,798 |
|
|
18.8 |
% |
|
98,004 |
|
|
18.6 |
% |
| Less: Sales and
marketing expense |
54,521 |
|
|
11.9 |
% |
|
48,380 |
|
|
9.2 |
% |
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
818 |
|
|
0.2 |
% |
|
4,561 |
|
|
0.9 |
% |
| Contribution and
contribution margin |
$ |
32,095 |
|
|
7.0 |
% |
|
$ |
54,185 |
|
|
10.3 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Year ended |
| |
December 31, |
| |
2017 |
|
2016 |
| Total net revenue |
$ |
1,744,756 |
|
|
100.0 |
% |
|
$ |
1,799,963 |
|
|
100.0 |
% |
| Cost of goods sold |
1,404,205 |
|
|
80.5 |
% |
|
1,468,614 |
|
|
81.6 |
% |
| Gross profit |
340,551 |
|
|
19.5 |
% |
|
331,349 |
|
|
18.4 |
% |
| Less: Sales and
marketing expense |
180,589 |
|
|
10.4 |
% |
|
147,896 |
|
|
8.2 |
% |
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
2,742 |
|
|
0.2 |
% |
|
16,808 |
|
|
0.9 |
% |
| Contribution and
contribution margin |
$ |
162,704 |
|
|
9.3 |
% |
|
$ |
200,261 |
|
|
11.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology expenses - Technology expenses totaled
$29.9 million and $28.5 million for Q4 2017 and 2016,
respectively, a 5% increase, representing 6.6% and 5.4% of total
revenue for those respective periods. The increase was primarily
due to an increase in staff related costs of $1.4 million, an
increase in technology licenses and maintenance costs of $1.0
million, partially offset by a decrease in depreciation of
$962,000. Technology expenses totaled $115.9 million and $106.8
million for FY 2017 and 2016, respectively, a 9% increase,
representing 6.6% and 5.9% of total revenue for those respective
periods. The increase was primarily due to an increase in staff
related costs of $4.9 million and an increase in technology
licenses and maintenance costs of $4.0 million.
General and administrative ("G&A") expenses - G&A
expenses totaled $24.1 million and $21.5 million for Q4 2017
and 2016, respectively, a 12% increase, representing 5.3% and 4.1%
of total revenue for those respective periods. The increase was
primarily due to an increase in staff related costs of $1.7
million, an increase in depreciation of $815,000, an increase in
travel expenses of $334,000, and an increase in consulting and
outside services expense of $282,000. These increases were
partially offset by a decrease in legal fees of $1.2 million.
G&A expenses totaled $90.7 million and $89.3 million for FY
2017 and 2016, respectively, representing 5.2% and 5.0% of total
revenue for those respective periods. The increase was primarily
due to an increase in staff related costs of $4.9 million,
partially offset by a decrease in legal fees of $3.0 million and a
decrease in bad debt expense of $1.1 million.
We continue to seek opportunities for growth, in our retail
business and through our Medici blockchain and financial technology
initiatives and through other means. As a result of these
initiatives, we will continue to incur additional expenses and may
purchase interest in, or make acquisitions of other technologies
and businesses. We anticipate that our initiatives may cause us to
incur losses in the foreseeable future. These losses, additional
expenses, acquisitions or purchases may be material, and, coupled
with existing marketing expense trends, our plans to increase our
marketing and branding expenditures, and strategic changes in our
retail business, may lead to increased consolidated losses in some
periods, and to reduced liquidity. Additionally, we may recognize
additional impairment charges from our ownership interest in other
entities.
Other income (expense), net - Other income (expense), net
totaled ($1.6) million and $4.8 million for Q4 2017 and 2016,
respectively. The decrease is primarily due to a decrease in Club O
Rewards breakage of $3.8 million due to discontinuing our Club O
Silver rewards program in Q4 2016, an increase in early
extinguishment of debt costs of $2.2 million from refinancing our
headquarters loan in Q4 2017, and an increase in impairment charges
of $1.0 million, partially offset by an increase in realized gains
on sales of cryptocurrencies of $1.2 million. Other income, net
totaled $1.2 million and $14.2 million for FY 2017 and 2016,
respectively. The decrease is primarily due to a decrease in Club O
Rewards breakage of $14.2 million due to discontinuing our Club O
Silver rewards program in Q4 2016, an increase in impairment
charges of $2.6 million, and an increase in early extinguishment of
debt costs of $2.5 million, partially offset by an increase in
realized gains on sales of cryptocurrencies and precious metals of
$6.6 million.
Litigation settlement - In Q1 2016, we entered into a settlement
agreement in our prime broker litigation which concluded the
litigation in its entirety and we recognized settlement proceeds of
$19.5 million. Related costs associated with the litigation and
settlement of approximately $1.0 million were included in G&A
expenses during Q1 2016.
Provision for income taxes - Provision for income taxes totaled
$71.9 million and $1.1 million for Q4 2017 and 2016, respectively.
Provision for income taxes totaled $64.2 million and $9.3 million
for FY 2017 and 2016, respectively. On December 22, 2017, the
President signed into law the Tax Cuts and Jobs Act. Among many
other changes, the new law lowers the corporate tax rate from 35%
to 21% for tax years beginning in 2018. Therefore, we re-valued our
deferred tax assets in Q4 2017 due to the federal rate reduction,
which resulted in an increase to our Q4 2017 income tax expense by
$25.3 million. Additionally, each quarter we assess available
positive and negative evidence to estimate whether we will generate
sufficient future taxable income to use our existing deferred tax
assets. Due to losses incurred in 2017 and the potential for future
losses, we have recorded a full valuation allowance on our deferred
tax assets, which further increased our 2017 income tax expense by
$59.0 million.
Net cash provided by (used in) operating activities - Net cash
provided by (used in) operating activities was ($35.3) million and
$39.6 million for the twelve months ended December 31, 2017 and
2016, respectively. The $74.9 million decrease is primarily due to
decreased revenue growth, contribution and income, and the timing
of certain payments. Also, net cash provided by operating
activities for the twelve months ended December 31, 2016 includes
litigation settlement proceeds of $19.5 million.
Free cash flow (a non-GAAP financial measure) - Free cash flow
totaled ($58.9) million and ($32.7) million for the twelve months
ended December 31, 2017 and 2016, respectively. The $26.2 million
decrease was due to a $74.9 million decrease in operating cash
flow, partially offset by a $48.7 million decrease in capital
expenditures including costs related to the development of our new
corporate headquarters.
Free cash flow reflects an additional way of viewing our cash
flows and liquidity that, when viewed with our GAAP results,
provides a more complete understanding of factors and trends
affecting our cash flows and liquidity. Free cash flow, which we
reconcile to “net cash provided by (used in) operating activities,”
is cash flow from operations, reduced by “expenditures for fixed
assets, including internal-use software and website development.”
We believe that cash flows from operating activities is an
important measure since it includes both the cash impact of the
continuing operations of the business and changes in the balance
sheet that impact cash. Also, we believe free cash flow is a useful
measure to evaluate our business since purchases of fixed assets
are a necessary component of ongoing operations and free cash flow
measures the amount of cash we have available for mandatory debt
service and financing obligations, changes in our capital
structure, and future investments, after we have paid our operating
expenses. Therefore, we believe it is important to view free cash
flow as a complement to our entire consolidated statements of cash
flows.
Our calculation of free cash flow is set forth below (in
thousands):
| |
Year ended December 31, |
| |
2017 |
|
2016 |
| Net cash provided by
(used in) operating activities |
$ |
(35,321) |
|
|
$ |
39,564 |
|
| Expenditures for fixed
assets, including internal-use software and website
development |
(23,586) |
|
|
(72,281) |
|
| Free cash flow |
$ |
(58,907) |
|
|
$ |
(32,717) |
|
| |
Cash and working capital - We had cash and cash equivalents of
$203.2 million and $183.1 million and working capital of $50.5
million and ($4.8) million at December 31, 2017 and December 31,
2016, respectively. Cash at December 31, 2017 includes $100 million
received from the exercise of a warrant in late December.
Preliminary Estimates for the Quarter ending March 31, 2018:
We have determined to switch to a growth strategy in our
ecommerce business, which we believe will lead to higher revenue
growth, but also incur significant losses in the process. In
pursuit of this growth strategy, in Q1 2018 we have increased our
sales and marketing expenditures substantially to increase revenue
growth and to test new marketing initiatives. Largely as a result
of this new strategy, we expect to incur a total pre-tax loss of
approximately $50 million in Q1 2018 ($35 million ecommerce, $15
million Medici).
Our estimated results for the quarter ended March 31, 2018 are
preliminary and subject to substantial uncertainty and numerous
risks including those outlined in Item 1A of Part I, "Risk Factors"
of our Form 10-K for the year ended December 31, 2017 which was
filed with the Securities and Exchange Commission on March 15,
2018. We caution you that our estimates are forward-looking
statements and are not guarantees of future performance or outcomes
and that actual results may differ materially.
About Overstock.comOverstock.com, Inc. Common
Shares (NASDAQ:OSTK) / Series A Preferred (Medici Ventures’ tZERO
platform:OSTKP) / Series B Preferred (OTCQX:OSTBP) is an online
retailer based in Salt Lake City, Utah that sells a broad range of
products at low prices, including furniture, décor, rugs, bedding,
and home improvement. In addition to home goods, Overstock.com
offers a variety of products including jewelry, electronics,
apparel, and more, as well as a marketplace providing customers
access to hundreds of thousands of products from third-party
sellers. Additional stores include Worldstock.com, dedicated to
selling artisan-crafted products from around the world. Forbes
ranked Overstock in its list of the Top 100 Most Trustworthy
Companies in 2014. Overstock regularly posts information about the
company and other related matters under Investor Relations on its
website.
O, Overstock.com, O.com, O.co, Club O, Main Street
Revolution, Worldstock and OVillage are registered
trademarks of Overstock.com, Inc. O.biz and
Space Shift are also trademarks of Overstock.com, Inc.
Other service marks, trademarks and trade names which may be
referred to herein are the property of their respective
owners.
This press release and the March 15, 2018 conference call and
webcast to discuss our financial results may contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Such forward-looking statements include all statements
other than statements of historical fact, including forecasts of
trends. These forward-looking statements are inherently difficult
to predict. Actual results could differ materially for a variety of
reasons, including the amount and timing of our capital
expenditures, the mix of products we sell, the results of legal
proceedings and claims and the amounts we spend relating to them,
the extent to which we owe income taxes, competition, fluctuations
in operating results, the potential effects on our financial
results of new accounting standards we will be required to adopt no
later than January 1, 2018, relating to revenue recognition, Google
and other search engine companies changing their natural search
engine algorithms periodically resulting in lower ranking of our
products, any inability to raise capital if needed on acceptable
terms, our efforts to expand both domestically and internationally,
risks of inventory management and seasonality. Other risks and
uncertainties include, among others, risks related to new products
and services we may offer, and difficulties with our
infrastructure, our fulfillment partners or our payment processors,
including cyber-attacks or data breaches affecting us or any of
them. More information about factors that could potentially affect
our financial results is included in our Form 10-K for the year
ended December 31, 2017 which was filed with the Securities and
Exchange Commission on March 15, 2018. Our Form 10-K and our other
subsequent filings with the Securities and Exchange Commission
identify important factors that could cause our actual results to
differ materially from those contained in our projections,
estimates and other forward-looking statements.
| |
| |
| Overstock.com, Inc. |
| Consolidated Balance Sheets |
| (in thousands, unaudited) |
| |
| |
December 31, 2017 |
|
December 31, 2016 |
|
Assets |
|
|
|
| Current assets: |
|
|
|
| Cash and
cash equivalents |
$ |
203,215 |
|
|
$ |
183,098 |
|
|
Restricted cash |
455 |
|
|
430 |
|
| Accounts
receivable, net |
30,080 |
|
|
28,142 |
|
|
Inventories, net |
13,703 |
|
|
18,937 |
|
| Prepaid
inventories, net |
1,625 |
|
|
2,112 |
|
| Prepaids
and other current assets |
16,119 |
|
|
11,654 |
|
| Total
current assets |
265,197 |
|
|
244,373 |
|
| Fixed assets, net |
129,343 |
|
|
134,552 |
|
| Precious metals |
— |
|
|
9,946 |
|
| Deferred tax assets,
net |
— |
|
|
56,266 |
|
| Intangible assets,
net |
7,337 |
|
|
10,913 |
|
| Goodwill |
14,698 |
|
|
14,698 |
|
| Other long-term assets,
net |
17,240 |
|
|
14,328 |
|
| Total
assets |
$ |
433,815 |
|
|
$ |
485,076 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
| Current
liabilities: |
|
|
|
| Accounts
payable |
$ |
85,406 |
|
|
$ |
106,337 |
|
| Accrued
liabilities |
82,611 |
|
|
96,216 |
|
| Deferred
revenue |
46,468 |
|
|
41,780 |
|
| Finance
obligations, current |
— |
|
|
3,256 |
|
| Other
current liabilities, net |
178 |
|
|
1,627 |
|
| Total
current liabilities |
214,663 |
|
|
249,216 |
|
| Long-term debt,
net |
— |
|
|
44,179 |
|
| Long-term debt, net -
related party |
39,909 |
|
|
— |
|
| Finance obligations,
non-current |
— |
|
|
11,831 |
|
| Other long-term
liabilities |
7,120 |
|
|
6,890 |
|
| Total
liabilities |
261,692 |
|
|
312,116 |
|
| Commitments and
contingencies |
|
|
|
| Stockholders’
equity: |
|
|
|
| Preferred
stock, $0.0001 par value, authorized shares - 5,000 |
|
|
|
| Series A,
issued and outstanding - 127 and 127 |
— |
|
|
— |
|
| Series B,
issued and outstanding - 555 and 569 |
— |
|
|
— |
|
| Common
stock, $0.0001 par value |
|
|
|
|
Authorized shares - 100,000 |
|
|
|
| Issued
shares - 30,632 and 27,895 |
|
|
|
|
Outstanding shares - 27,497 and 25,432 |
3 |
|
|
3 |
|
|
Additional paid-in capital |
494,732 |
|
|
383,348 |
|
|
Accumulated deficit |
(254,692 |
) |
|
(153,898 |
) |
|
Accumulated other comprehensive loss |
(599 |
) |
|
(1,540 |
) |
| Treasury
stock: |
|
|
|
| Shares at
cost - 3,135 and 2,463 |
(63,816 |
) |
|
(52,587 |
) |
| Equity
attributable to stockholders of Overstock.com, Inc. |
175,628 |
|
|
175,326 |
|
| Equity
attributable to noncontrolling interests |
(3,505 |
) |
|
(2,366 |
) |
| Total
stockholders' equity |
172,123 |
|
|
172,960 |
|
| Total
liabilities and stockholders' equity |
$ |
433,815 |
|
|
$ |
485,076 |
|
|
|
|
|
|
|
|
|
|
| Overstock.com, Inc. |
| Consolidated Statements of
Operations |
| (in thousands, except per share
data) |
| (unaudited) |
| |
| |
Three months ended December
31, |
| |
2017 |
|
2016 |
| Revenue, net |
|
|
|
|
Direct |
$ |
18,480 |
|
|
$ |
25,677 |
|
| Partner
and other |
437,810 |
|
|
500,505 |
|
| Total net
revenue |
456,290 |
|
|
526,182 |
|
| Cost of goods sold |
|
|
|
|
Direct |
18,898 |
|
|
23,812 |
|
| Partner
and other |
351,594 |
|
|
404,366 |
|
| Total
cost of goods sold |
370,492 |
|
|
428,178 |
|
| Gross
profit |
85,798 |
|
|
98,004 |
|
| Operating
expenses: |
|
|
|
| Sales and
marketing |
54,521 |
|
|
48,380 |
|
|
Technology |
29,896 |
|
|
28,511 |
|
| General
and administrative |
24,096 |
|
|
21,455 |
|
| Total
operating expenses |
108,513 |
|
|
98,346 |
|
| Operating loss |
(22,715 |
) |
|
(342 |
) |
| Interest income |
209 |
|
|
98 |
|
| Interest expense |
(798 |
) |
|
(658 |
) |
| Other income (expense),
net |
(1,573 |
) |
|
4,782 |
|
| Income
(loss) before income taxes |
(24,877 |
) |
|
3,880 |
|
| Provision for income
taxes |
71,915 |
|
|
1,119 |
|
| Consolidated net income
(loss) |
$ |
(96,792 |
) |
|
$ |
2,761 |
|
| Less: Net
loss attributable to noncontrolling interests |
(1,102 |
) |
|
(334 |
) |
| Net income (loss)
attributable to stockholders of Overstock.com, Inc. |
$ |
(95,690 |
) |
|
$ |
3,095 |
|
| Net income (loss) per
common share—basic: |
|
|
|
| Net income (loss)
attributable to common shares—basic |
$ |
(3.72 |
) |
|
$ |
0.12 |
|
| Weighted average common
shares outstanding—basic |
25,103 |
|
|
25,391 |
|
| Net income (loss) per
common share—diluted: |
|
|
|
| Net income (loss)
attributable to common shares—diluted |
$ |
(3.72 |
) |
|
$ |
0.12 |
|
| Weighted average common
shares outstanding—diluted |
25,103 |
|
|
25,540 |
|
| |
|
|
|
|
|
| |
|
|
|
|
|
| Overstock.com, Inc. |
| Consolidated Statements of
Operations |
| (in thousands, except per share
data) |
| (unaudited) |
| |
| |
Year ended December 31, |
| |
2017 |
|
2016 |
| Revenue, net |
|
|
|
|
Direct |
$ |
83,052 |
|
|
$ |
101,578 |
|
| Partner
and other |
1,661,704 |
|
|
1,698,385 |
|
| Total net
revenue |
1,744,756 |
|
|
1,799,963 |
|
| Cost of goods sold |
|
|
|
|
Direct |
80,585 |
|
|
96,271 |
|
| Partner
and other |
1,323,620 |
|
|
1,372,343 |
|
| Total
cost of goods sold |
1,404,205 |
|
|
1,468,614 |
|
| Gross
profit |
340,551 |
|
|
331,349 |
|
| Operating
expenses: |
|
|
|
| Sales and
marketing |
180,589 |
|
|
147,896 |
|
|
Technology |
115,878 |
|
|
106,760 |
|
| General
and administrative |
90,718 |
|
|
89,298 |
|
|
Litigation settlement |
— |
|
|
(19,520 |
) |
| Total
operating expenses |
387,185 |
|
|
324,434 |
|
| Operating income
(loss) |
(46,634 |
) |
|
6,915 |
|
| Interest income |
659 |
|
|
326 |
|
| Interest expense |
(2,937 |
) |
|
(877 |
) |
| Other income, net |
1,178 |
|
|
14,181 |
|
| Income
(loss) before income taxes |
(47,734 |
) |
|
20,545 |
|
| Provision for income
taxes |
64,188 |
|
|
9,297 |
|
| Consolidated net income
(loss) |
$ |
(111,922 |
) |
|
$ |
11,248 |
|
| Less: Net
loss attributable to noncontrolling interests |
(2,044 |
) |
|
(1,274 |
) |
| Net income (loss)
attributable to stockholders of Overstock.com, Inc. |
$ |
(109,878 |
) |
|
$ |
12,522 |
|
| Net income (loss) per
common share—basic: |
|
|
|
| Net income (loss)
attributable to common shares—basic |
$ |
(4.28 |
) |
|
$ |
0.49 |
|
| Weighted average common
shares outstanding—basic |
25,044 |
|
|
25,342 |
|
| Net income (loss) per
common share—diluted: |
|
|
|
| Net income (loss)
attributable to common shares—diluted |
$ |
(4.28 |
) |
|
$ |
0.49 |
|
| Weighted average common
shares outstanding—diluted |
25,044 |
|
|
25,426 |
|
| |
| |
| Overstock.com, Inc. |
| Consolidated Statements of Cash
Flows |
| (in thousands, unaudited) |
| |
Year ended December 31, |
| |
2017 |
|
2016 |
|
Cash flows from operating activities: |
|
|
|
|
Consolidated net income (loss) |
$ |
(111,922 |
) |
|
$ |
11,248 |
|
|
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities: |
|
|
|
|
Depreciation of fixed assets |
28,848 |
|
|
27,283 |
|
|
Amortization of intangible assets |
3,999 |
|
|
3,968 |
|
|
Stock-based compensation to employees and directors |
4,077 |
|
|
4,891 |
|
| Deferred
income taxes, net |
65,199 |
|
|
7,719 |
|
| Gain on
investment in precious metals |
(1,971 |
) |
|
(201 |
) |
| Gain on
sale of cryptocurrencies |
(1,995 |
) |
|
— |
|
|
Impairment of cost method investments |
5,487 |
|
|
2,850 |
|
| Early
termination costs of long term debts |
2,464 |
|
|
— |
|
|
Other |
876 |
|
|
356 |
|
| Changes
in operating assets and liabilities, net of acquisitions: |
|
|
|
|
Restricted cash |
(100 |
) |
|
— |
|
| Accounts
receivable, net |
(1,938 |
) |
|
(10,006 |
) |
|
Inventories, net |
5,234 |
|
|
1,105 |
|
| Prepaid
inventories, net |
487 |
|
|
(801 |
) |
| Prepaids
and other current assets |
(3,286 |
) |
|
2,389 |
|
| Other
long-term assets, net |
(2,307 |
) |
|
(786 |
) |
| Accounts
payable |
(20,995 |
) |
|
(18,823 |
) |
| Accrued
liabilities |
(12,311 |
) |
|
16,936 |
|
| Deferred
revenue |
4,688 |
|
|
(9,164 |
) |
| Other
long-term liabilities |
145 |
|
|
600 |
|
| Net cash
provided by (used in) operating activities |
(35,321 |
) |
|
39,564 |
|
| Cash flows from
investing activities: |
|
|
|
| Proceeds
from sale of precious metals |
11,917 |
|
|
1,610 |
|
|
Investment in precious metals |
— |
|
|
(1,633 |
) |
| Equity
method investment |
(3,000 |
) |
|
— |
|
|
Disbursements for note receivable |
(750 |
) |
|
(3,668 |
) |
| Cost
method investments |
(2,188 |
) |
|
(4,750 |
) |
|
Acquisitions of businesses, net of cash acquired |
— |
|
|
1,248 |
|
|
Expenditures for fixed assets, including internal-use software and
website development |
(23,586 |
) |
|
(72,281 |
) |
|
Other |
(353 |
) |
|
27 |
|
| Net cash
used in investing activities |
(17,960 |
) |
|
(79,447 |
) |
| Cash flows from
financing activities: |
|
|
|
| Payments
on capital lease obligations |
(83 |
) |
|
— |
|
| Paydown
on direct financing arrangement |
— |
|
|
(54 |
) |
| Payments
on finance obligations |
(15,316 |
) |
|
(1,906 |
) |
| Payments
on interest swap |
(1,535 |
) |
|
(563 |
) |
| Proceeds
from finance obligations |
— |
|
|
11,399 |
|
| Payments
on long-term debt |
(45,766 |
) |
|
— |
|
| Proceeds
from long-term debt |
40,000 |
|
|
36,273 |
|
| Payments
of preferred dividends |
(109 |
) |
|
— |
|
| Change in
restricted cash |
75 |
|
|
— |
|
| Proceeds
from issuance of stock warrants |
6,462 |
|
|
— |
|
| Proceeds
from exercise of stock options |
664 |
|
|
819 |
|
| Proceeds
from rights offering, net of offering costs |
— |
|
|
7,591 |
|
| Proceeds
from exercise of stock warrants |
100,000 |
|
|
— |
|
| Proceeds
from security token offering |
905 |
|
|
— |
|
| Purchase
of treasury stock |
(11,229 |
) |
|
(840 |
) |
| Payment
of debt issuance costs |
(670 |
) |
|
— |
|
| Net cash
provided by financing activities |
73,398 |
|
|
52,719 |
|
| Net increase in cash
and cash equivalents |
20,117 |
|
|
12,836 |
|
| Cash and cash
equivalents, beginning of period |
183,098 |
|
|
170,262 |
|
| Cash and cash
equivalents, end of period |
$ |
203,215 |
|
|
$ |
183,098 |
|
| |
| |
Additional Non-GAAP Financial
Measure Reconciliations
As described in further detail above, contribution and
contribution margin (non-GAAP financial measures - which we
reconcile to "Gross Profit" in our consolidated statement of
operations) consist of gross profit less sales and marketing
expense plus Club O Rewards and gift card breakage and reflects an
additional way of viewing our results. Contribution margin is
contribution as a percentage of total net revenue.
OSTK Retail and Medici pre-tax income or loss (non-GAAP
financial measures - which we reconcile to Consolidated pre-tax
income or loss) consist of income or loss before taxes of our
Retail and Medici businesses, excluding intercompany transactions
eliminated in consolidation. We believe these measures provide
management and users of the financial statements useful information
about the results of our separate businesses. The material
limitation associated with these measures is that they are an
incomplete measure of our consolidated operations.
We determined our segments based on how we manage our business,
which, in our view, consists primarily of our Direct and Partner
Retail and Medici businesses. We use gross profit as the measure to
determine our reportable segments because there is not discrete
financial information available below gross profit for our Direct
and Partner segments. As a result, our Medici business is not
significant as compared to our Direct and Partner segments. Our
other segment consists of Medici. We do not allocate assets between
our segments for our internal management purposes.
Contribution, contribution margin, OSTK Retail pre-tax income or
loss and Medici pre-tax income or loss are used in addition to and
in conjunction with results presented in accordance with GAAP and
should not be relied upon to the exclusion of GAAP financial
measures. You should review our financial statements and
publicly-filed reports in their entirety and not rely on any single
financial measure.
Our calculations of our contribution and contribution margin by
Retail Total (which consists of Direct and Partner) and Other
(which consists of Medici) are set forth below (in thousands):
| |
|
| |
Three months ended, December 31 |
| |
Direct |
Partner |
Retail Total(Direct and
Partner) |
|
Other |
|
Consolidated |
|
2017 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
18,480 |
|
$ |
433,516 |
|
$ |
451,996 |
|
|
$ |
4,294 |
|
|
$ |
456,290 |
|
| Cost of goods sold |
18,898 |
|
348,663 |
|
367,561 |
|
|
2,931 |
|
|
370,492 |
|
| Gross profit |
$ |
(418 |
) |
$ |
84,853 |
|
$ |
84,435 |
|
|
$ |
1,363 |
|
|
$ |
85,798 |
|
| Less: Sales and
marketing expense |
|
|
54,237 |
|
|
284 |
|
|
54,521 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
818 |
|
|
— |
|
|
818 |
|
| Contribution |
|
|
$ |
31,016 |
|
|
$ |
1,079 |
|
|
$ |
32,095 |
|
| Contribution
margin |
|
|
6.9 |
% |
|
25.1 |
% |
|
7.0 |
% |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
25,677 |
|
$ |
495,836 |
|
$ |
521,513 |
|
|
$ |
4,669 |
|
|
$ |
526,182 |
|
| Cost of goods sold |
23,812 |
|
400,913 |
|
424,725 |
|
|
3,453 |
|
|
428,178 |
|
| Gross profit |
$ |
1,865 |
|
$ |
94,923 |
|
$ |
96,788 |
|
|
$ |
1,216 |
|
|
$ |
98,004 |
|
| Less: Sales and
marketing expense |
|
|
48,271 |
|
|
109 |
|
|
48,380 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
4,561 |
|
|
— |
|
|
4,561 |
|
| Contribution |
|
|
$ |
53,078 |
|
|
$ |
1,107 |
|
|
$ |
54,185 |
|
| Contribution
margin |
|
|
10.2 |
% |
|
23.7 |
% |
|
10.3 |
% |
| |
|
| |
|
| |
Year ended, December 31 |
| |
Direct |
Partner |
Retail Total(Direct and
Partner) |
|
Other |
|
Consolidated |
|
2017 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
83,052 |
|
$ |
1,645,052 |
|
$ |
1,728,104 |
|
|
$ |
16,652 |
|
|
$ |
1,744,756 |
|
| Cost of goods sold |
80,585 |
|
1,311,973 |
|
1,392,558 |
|
|
11,647 |
|
|
1,404,205 |
|
| Gross profit |
$ |
2,467 |
|
$ |
333,079 |
|
$ |
335,546 |
|
|
$ |
5,005 |
|
|
$ |
340,551 |
|
| Less: Sales and
marketing expense |
|
|
179,549 |
|
|
1,040 |
|
|
180,589 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
2,742 |
|
|
— |
|
|
2,742 |
|
| Contribution |
|
|
$ |
158,739 |
|
|
$ |
3,965 |
|
|
$ |
162,704 |
|
| Contribution
margin |
|
|
9.2 |
% |
|
23.8 |
% |
|
9.3 |
% |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
101,578 |
|
$ |
1,683,204 |
|
$ |
1,784,782 |
|
|
$ |
15,181 |
|
|
$ |
1,799,963 |
|
| Cost of goods sold |
96,271 |
|
1,362,140 |
|
1,458,411 |
|
|
10,203 |
|
|
1,468,614 |
|
| Gross profit |
$ |
5,307 |
|
$ |
321,064 |
|
$ |
326,371 |
|
|
$ |
4,978 |
|
|
$ |
331,349 |
|
| Less: Sales and
marketing expense |
|
|
147,368 |
|
|
528 |
|
|
147,896 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
16,808 |
|
|
— |
|
|
16,808 |
|
| Contribution |
|
|
$ |
195,811 |
|
|
$ |
4,450 |
|
|
$ |
200,261 |
|
| Contribution
margin |
|
|
11.0 |
% |
|
29.3 |
% |
|
11.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
Our calculations of OSTK Retail Total (which consists of Direct
and Partner) and Other (which consists of Medici) pre-tax income or
loss are set forth below excluding intercompany transactions
eliminated in consolidation (in thousands):
| |
Three months ended, December 31 |
| |
Direct |
Partner |
Retail Total(Direct and
Partner) |
|
Other |
|
Consolidated |
|
2017 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
18,480 |
|
$ |
433,516 |
|
$ |
451,996 |
|
|
$ |
4,294 |
|
|
$ |
456,290 |
|
| Cost of goods sold |
18,898 |
|
348,663 |
|
367,561 |
|
|
2,931 |
|
|
370,492 |
|
| Gross profit |
$ |
(418 |
) |
$ |
84,853 |
|
$ |
84,435 |
|
|
$ |
1,363 |
|
|
$ |
85,798 |
|
| Operating expenses |
|
|
101,193 |
|
|
7,320 |
|
|
108,513 |
|
| Interest and other
expense, net |
|
|
(810 |
) |
|
(1,352 |
) |
|
(2,162 |
) |
| Pre-tax loss |
|
|
(17,568 |
) |
|
(7,309 |
) |
|
(24,877 |
) |
| Provision for income
taxes |
|
|
69,408 |
|
|
2,507 |
|
|
71,915 |
|
| Net loss |
|
|
$ |
(86,976 |
) |
|
$ |
(9,816 |
) |
|
$ |
(96,792 |
) |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
25,677 |
|
$ |
495,836 |
|
$ |
521,513 |
|
|
$ |
4,669 |
|
|
$ |
526,182 |
|
| Cost of goods sold |
23,812 |
|
400,913 |
|
424,725 |
|
|
3,453 |
|
|
428,178 |
|
| Gross profit |
$ |
1,865 |
|
$ |
94,923 |
|
$ |
96,788 |
|
|
$ |
1,216 |
|
|
$ |
98,004 |
|
| Operating expenses |
|
|
94,167 |
|
|
4,179 |
|
|
98,346 |
|
| Interest and other
income, net |
|
|
4,222 |
|
|
— |
|
|
4,222 |
|
| Pre-tax income
(loss) |
|
|
6,843 |
|
|
(2,963 |
) |
|
3,880 |
|
| Provision (benefit) for
income taxes |
|
|
2,171 |
|
|
(1,052 |
) |
|
1,119 |
|
| Net income (loss) |
|
|
$ |
4,672 |
|
|
$ |
(1,911 |
) |
|
$ |
2,761 |
|
| |
|
| |
|
| |
Year ended, December 31 |
| |
Direct |
Partner |
Retail Total(Direct and
Partner) |
|
Other |
|
Consolidated |
|
2017 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
83,052 |
|
$ |
1,645,052 |
|
$ |
1,728,104 |
|
|
$ |
16,652 |
|
|
$ |
1,744,756 |
|
| Cost of goods sold |
80,585 |
|
1,311,973 |
|
1,392,558 |
|
|
11,647 |
|
|
1,404,205 |
|
| Gross profit |
$ |
2,467 |
|
$ |
333,079 |
|
$ |
335,546 |
|
|
$ |
5,005 |
|
|
$ |
340,551 |
|
| Operating expenses |
|
|
365,648 |
|
|
21,537 |
|
|
387,185 |
|
| Interest and other
income (expense), net |
|
|
4,680 |
|
|
(5,780 |
) |
|
(1,100 |
) |
| Pre-tax loss |
|
|
(25,422 |
) |
|
(22,312 |
) |
|
(47,734 |
) |
| Provision (benefit) for
income taxes |
|
|
66,128 |
|
|
(1,940 |
) |
|
64,188 |
|
| Net loss |
|
|
$ |
(91,550 |
) |
|
$ |
(20,372 |
) |
|
$ |
(111,922 |
) |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
101,578 |
|
$ |
1,683,204 |
|
$ |
1,784,782 |
|
|
$ |
15,181 |
|
|
$ |
1,799,963 |
|
| Cost of goods sold |
96,271 |
|
1,362,140 |
|
1,458,411 |
|
|
10,203 |
|
|
1,468,614 |
|
| Gross profit |
$ |
5,307 |
|
$ |
321,064 |
|
$ |
326,371 |
|
|
$ |
4,978 |
|
|
$ |
331,349 |
|
| Operating expenses |
|
|
307,669 |
|
|
16,765 |
|
|
324,434 |
|
| Interest and other
income, net |
|
|
13,630 |
|
|
— |
|
|
13,630 |
|
| Pre-tax income
(loss) |
|
|
32,332 |
|
|
(11,787 |
) |
|
20,545 |
|
| Provision (benefit) for
income taxes |
|
|
13,797 |
|
|
(4,500 |
) |
|
9,297 |
|
| Net income (loss) |
|
|
$ |
18,535 |
|
|
$ |
(7,287 |
) |
|
$ |
11,248 |
|
Media Contact:Mark Delcorps, Overstock.com,
Inc.+1 (801) 947-3564pr@overstock.com
Investor Contact:Brian Keller, Overstock.com,
Inc.+1 (801) 947-5374ir@overstock.com
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