Overstock.com, Inc. (NASDAQ:OSTK), a tech-driven online retailer
and advancer of blockchain technology, today reported financial
results for the quarter ended March 31, 2019.
Dear Shareholders,
Both the Retail and Medici (blockchain) sides of our business
are progressing ahead of schedule, and below I raise guidance for
Retail by 50%. I look forward to discussing these further in our
earnings call.
- Blockchain: Jonathan Johnson’s organization and management of
Medici has been superb.
- tZERO:
- As described on the last earnings call, I calculate the
security token opportunity could be in the range of tens or
hundreds of billions of dollars (“as with all estimates, this rests
on the validity of assumptions and extrapolations described in that
call,” interject the lawyers). As a result, over four years ago we
began building, buying, and assembling the components of a
blockchain-based capital market. We have deployed well over $100
million of your capital over four years in that quest. Maximizing
our lead in the field is an organizational imperative.
- For that reason, our decision last year to move Saum Noursalehi
to tZERO and give him wide latitude to develop and run that
business was a great one. Saum made great strides developing
tZERO's corporate roster, adding top-shelf talent in key roles and
trimming legacy functions that will not fit the company as it
continues to evolve. In the year he has been running tZERO, Saum
has also been quick at designing and building products, again. Saum
figured out how to accomplish what was needed, built the product
roadmaps, and marshalled a Manhattan Project's worth of development
successfully.
- Our security token capital market that we dreamed of four years
ago is now ready (this month) for the public to use. Starting in a
few weeks and running into September, we are rolling out our full
kit of technology and apps for security token trading: a great
crypto trading app, a migration of OSTKP to a token, an integration
with issuance platform Securitize allowing us to bring live on
tZERO tokens issued by Securitize, and DLR 2.0 (in August). In sum,
starting this quarter (even this month), you will see on tZERO's
platform live security tokens which (we are working with regulators
to ensure) the public will be able to trade legally.
- There is an extremely broad range of people who want to work
with us to create security token solutions for REITs, funds (VC and
PE), bonds, Hollywood finance, agricultural commodities, etc. We
will be walking through some of this in our earnings call, but the
main event is this: we have completed the system, it is launching
in weeks, and we expect to start seeing revenue from actual
security token trading in June.
- tZERO headquarters have moved to Freedom Tower, 58th floor. It
is surprisingly affordable, and a statement.
- Bitt continues to break new ground in the field of blockchain
central banking. Bitt’s deal with the Eastern Caribbean Central
Bank (ECCB) is a global first. The Digital Central Banking platform
is being built in a collaboration between Barbados and Utah, where
we have much experience in building enterprise class systems (this
is the strength of the model of using our Utah operations as a
hatchery). My meetings with numerous central bankers, ministers of
finance, heads of state, and global development institutions
suggest to me that central bankers are watching the ECCB experience
closely and may be eager to see digital central banking introduced
in their nations.
- Medici Land Governance (MLG) has developed products that we
believe can disrupt the field of titling with products that drop
the cost of titling far below the competition and can act much
faster.
- In Lusaka, Zambia, our pilot project of 50,000 peri-urban homes
went well. I am proud to announce that we have signed a contract to
do a minimum of 250,000 additional homes (and potentially a million
or more) in Lusaka over 10 years (we in fact think we will complete
the project far more quickly than that). This contract is a PPP
(Public Private Partnership) with economics for MLG that are
respectable enough that it validates the whole business
model.
- In Rwanda, MLG is completing the online platform through which
Rwandans will be able to manage 8 million titles.
- MLG’s products, working in the field successfully, are now
ready to be taken global. Besides the recently announced deal in
Tulum, Mexico, there are nations in the Caribbean, South Asia, the
Middle East, and Latin America with which MLG is in discussions.
Bringing land governance to the world's five billion people who
live outside the rule of law is an opportunity measured in
trillions of dollars.
- Other members of Medici’s keiretsu of blockchain firms continue
to make headlines, from supply chains for sorghum in Mexico to
handling voting in West Virginia and Denver.
- Going forward, we plan to focus on nurturing and guiding the
firms in our keiretsu, rather than focus on expanding that cohort
much more.
- Retail is returning to be a source of positive cash flow rather
than a consumer of it.
- Contribution:
- I told shareholders that this would be a year of extraordinary
growth in “contribution” (gross profit minus sales and marketing
expenses). It grew 111% for Q1. I expect it to hold or increase for
at least two more quarters. Why?
- Our search engine rankings have seen seven consecutive months
of sequential improvements. That’s real headway. Six more months of
similar headway would result in a full recovery in SEO.
- A new ad tech system that will allow us to better monetize our
site traffic went into alpha release this week.
- We have made a significant change in the architecture of our
logistics. We anticipate this could lead to a savings of as much as
several tens of millions of dollars per year. The nature of the
change actually is hurting margins slightly now, but starting in Q3
the change pays excellent dividends. Note that notwithstanding this
fact about the logistics change hurting gross margin slightly for
the first half of this year, at 10.8% our contribution margin is
double digit for the first time in many quarters.
- Last quarter, I gave guidance that our 2019 contribution would
be $160 million. I am now raising that to $165 million.
- G&A Expenses: Our expense management has been aggressive.
We have taken a tremendous (>25%) amount of cost out of our
expense structure in the last 5 months. We are lean and fit as an
organization.
- Taking the previous two points together, I am raising my Retail
Adjusted EBITDA guidance for 2019 from $10 million to $15 million.
I believe that by 2020, Retail positive Operating Cash Flows will
be comparable with the past.
- It is time to cap off the Retail restructuring by naming Dave
Nielsen President of Retail. Dave and I first worked together a
decade ago. He has a background both in brick-and-mortar (Payless
Shoes) and logistics (Global Access) and has been a star
contributor to our firm. I know him to be a first-rate
professional, and he is extremely highly regarded within the firm.
This promotion marks the completion of a redesign of our executive
structure that began near the end of last year: the result of the
process is a highly skilled, competent, and cohesive Retail
executive team, of which Dave is now the leader.
- Balance sheet & liquidity:
- We completed our $150 million ATM.
- We have accepted a $5 million investment from GSR at a $1
billion valuation, and released them from all previous binding
contracts. We are still working with Makara and feel optimistic
(but not certain) that something can be consummated with them (and
GSR may join in again at that point).
- My ambition is to structure things so that for 2020, the cash
thrown off by Retail largely covers the cash burn required to fuel
our Medici blockchain keiretsu, without assuming that those firms
find their own capitalization, and without assuming that any of
them become oil gushers (though with tZERO, anything is
possible).
Respectfully submitted,Patrick
Key metrics (Q1 2019 vs. Q1 2018):
- Revenue: $367.7M vs. $445.3M (17% decrease);
- Gross profit: $73.1M vs. $93.9M (22% decrease);
- Gross margin: 19.9% vs. 21.1% (119 basis point decrease);
- Sales and marketing expense: $33.5M vs. $77.2M (57%
decrease);
- G&A/Technology expense: $75.7M vs. $71.0M (6%
increase);
- Pre-tax loss: $42.0M vs. $54.7M ($12.7M decrease);• Pre-tax
loss - Retail: $13.2M• Pre-tax loss - tZERO:
$15.4M• Pre-tax loss - Other: $13.4M
- Net loss*: $39.2M vs. $50.9M ($11.7M decrease);
- Diluted net loss per share: $1.18/share vs. $1.74/share
($0.56/share decrease);
- Adjusted EBITDA (non-GAAP financial measure): ($23.7M) vs.
($30.6M) ($6.9M increase);• Adjusted EBITDA - Retail:
($2.5M)• Adjusted EBITDA - tZERO: ($13.2M)• Adjusted
EBITDA - Other: ($8.0M).
*Net loss refers to Net loss attributable to stockholders of
Overstock.com, Inc.
We will hold a conference call and webcast to discuss our Q1
2019 financial results Thursday, May 9, 2019, at 8:30 a.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 2798972
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. An audio replay of the webcast will be
available via telephone starting at 11:30 a.m. ET on Thursday, May
9, 2019, through 11:30 a.m. ET on Thursday, May 23, 2019. 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 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
$367.7 million and $445.3 million for Q1 2019 and 2018,
respectively, a 17% decrease. This decrease was primarily due to a
significant reduction in sales and marketing expenses as part of
our effort to return to retail profitability. In January 2018, we
shifted our retail strategy to aggressively pursue revenue growth
and new customers with a large increase in sales and marketing
expenses. We discontinued this strategy in August 2018 and have now
returned to a disciplined approach to marketing.
Gross profit - Gross profit was $73.1 million
and $93.9 million for Q1 2019 and 2018, respectively, a 22%
decrease, representing 19.9% and 21.1% gross margin for those
respective periods. The decrease in gross margin was primarily due
to increased freight costs, partially offset by decreased
promotional activities, including coupons and site sales, due to
our driving a lower proportion of our sales using such
promotions.
Sales and marketing expenses - Sales and
marketing expenses totaled $33.5 million and $77.2 million for Q1
2019 and 2018, respectively, a 57% decrease, representing 9.1% and
17.3% of total net revenue for those respective periods. This
decrease in sales and marketing expenses was primarily due to our
return to our historical focus on operational efficiency as we have
shifted away from our aggressive retail marketing strategy from
early 2018. As part of this effort, we significantly reduced
spending in the sponsored search, display ads on social media, and
television marketing channels.
Technology expenses - Technology expenses
totaled $35.4 million and $31.3 million for Q1 2019 and
2018, respectively, a 13% increase, representing 9.6% and 7.0% of
total revenue for those respective periods. The increase was
primarily due to a $2.8 million increase in staff-related costs, a
$555,000 increase in technology licenses and maintenance costs, and
a $538,000 increase in consulting expenses.
General and administrative ("G&A") expenses
- G&A expenses totaled $40.2 million and $39.8 million for
Q1 2019 and 2018, respectively, a 1% increase, representing 10.9%
and 8.9% of total revenue for those respective periods. The
increase was primarily due to a $3.1 million increase in consulting
expenses, a $2.6 million increase in legal fees, a $1.8 million
increase in staff-related costs due to employee severance, and an
$820,000 increase in audit and tax preparation fees. These
increases were largely offset by a $6.9 million decrease in
cryptocurrency losses and a $783,000 decrease in depreciation. The
cryptocurrency losses in Q1 2018 were primarily related to a
decline in the value of cryptocurrency received during the tZERO
STO.
Other expense, net - Other expense, net totaled
$6.3 million and $9,000 for Q1 2019 and 2018, respectively. The
increase was primarily due to a $6.4 million increase in non-cash
losses on equity holdings and other assets.
Net cash used in operating activities - Net
cash used in operating activities was $51.4 million and $10.2
million for the three months ended March 31, 2019 and 2018,
respectively. The $41.2 million increase was primarily due to lower
sales volume during the three months ended March 31, 2019 compared
to the same period in the prior year and the timing of payments to
suppliers following the holiday sales season.
Free cash flow (a non-GAAP financial measure) -
Free cash flow was ($55.6) million and ($14.2) million for the
three months ended March 31, 2019 and 2018, respectively. The $41.4
million decrease was primarily due to a $41.2 million decrease in
operating cash flow.
Cash - We had cash and cash equivalents of
$119.6 million and $141.5 million at March 31, 2019 and December
31, 2018, respectively. The decrease was primarily due to operating
losses, partially offset by proceeds received from an at-the-market
offering during Q1 2019.
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 and technology company based in Salt Lake City, Utah. It’s
leading e-commerce website sells a broad range of new products at
low prices, including furniture, décor, rugs, bedding, home
improvement, jewelry, and more. The online shopping site, which is
visited by nearly 40 million customers a month, also features a
marketplace providing customers access to millions of products from
third-party sellers. Overstock was the first major retailer to
accept cryptocurrency in 2014, and in the same year founded Medici
Ventures, its wholly-owned subsidiary developing and accelerating
blockchain technologies to democratize capital, eliminate
middlemen, and re-humanize commerce. Overstock regularly posts
information about the company and other related matters on the
Newsroom and Investor Relations pages on its website,
Overstock.com.
O, Overstock.com, O.com, Club O, Main Street
Revolution, and Worldstock 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 May 9, 2019 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 significant increases in our marketing
expenditures in the first half of 2018 and the subsequent reduction
of those expenditures, the results of our ongoing review of
strategic initiatives including the possible sale of our e-commerce
business, adverse tax, regulatory or legal developments,
competition, and any inability to raise capital or borrow funds in
a timely manner or on acceptable terms. Other risks and
uncertainties include, among others, the risks of the businesses
Medici Ventures and tZERO are pursuing, including whether tZERO's
joint venture with Box Digital Markets, LLC, will be able to
achieve its objectives, the effects of key business personnel
moving from our retail business to our Medici Ventures and tZERO
businesses, our continually evolving business model, and
difficulties we may have with our infrastructure, our fulfillment
partners or our payment processors, including cyber-attacks or data
breaches affecting us or any of them, and difficulties we may have
with our search engine optimization results. More information about
factors that could potentially affect our financial results are
included in our Form 10-K for the year ended December 31, 2018 and
our Form 10-Q for the quarter ended March 31, 2019, which were
filed with the Securities and Exchange Commission on March 18, 2019
and May 9, 2019, respectively, and in our subsequent filings with
the Securities and Exchange Commission. The Form 10-K, 10-Q, and
our subsequent filings with the Securities and Exchange Commission
identify important factors that could cause our actual results to
differ materially from those contained in or contemplated by our
projections, estimates and other forward-looking statements.
Overstock.com, Inc.Consolidated
Balance Sheets (Unaudited)(in
thousands)
| |
March 31, 2019 |
|
December 31, 2018 |
|
Assets |
|
|
|
| Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
119,632 |
|
|
$ |
141,512 |
|
|
Restricted cash |
2,483 |
|
|
1,302 |
|
|
Accounts receivable, net |
30,819 |
|
|
35,930 |
|
|
Inventories, net |
13,554 |
|
|
14,108 |
|
|
Prepaids and other current assets |
18,465 |
|
|
22,415 |
|
|
Total current assets |
184,953 |
|
|
215,267 |
|
| Property and equipment,
net |
131,656 |
|
|
134,687 |
|
| Intangible assets, net |
17,243 |
|
|
13,370 |
|
| Goodwill |
25,434 |
|
|
22,895 |
|
| Equity securities |
48,466 |
|
|
60,427 |
|
| Operating lease right-of-use
assets |
37,262 |
|
|
— |
|
| Other long-term assets,
net |
7,875 |
|
|
14,573 |
|
|
Total assets |
$ |
452,889 |
|
|
$ |
461,219 |
|
|
Liabilities and Stockholders' Equity |
|
|
|
| Current liabilities: |
|
|
|
|
Accounts payable |
$ |
74,658 |
|
|
$ |
102,574 |
|
|
Accrued liabilities |
81,224 |
|
|
87,858 |
|
|
Deferred revenue |
39,938 |
|
|
50,578 |
|
|
Operating lease liabilities, current |
5,726 |
|
|
— |
|
|
Other current liabilities |
482 |
|
|
476 |
|
|
Total current liabilities |
202,028 |
|
|
241,486 |
|
| Long-term debt, net |
3,098 |
|
|
3,069 |
|
| Operating lease liabilities,
non-current |
36,108 |
|
|
— |
|
| Other long-term
liabilities |
2,093 |
|
|
5,958 |
|
|
Total liabilities |
243,327 |
|
|
250,513 |
|
| 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 - 355 and 355 |
— |
|
|
— |
|
|
Common stock, $0.0001 par value, Authorized shares - 100,000 |
|
|
|
|
Authorized shares - 100,000 |
|
|
|
|
Issued shares - 37,802 and 35,346 |
|
|
|
|
Outstanding shares - 34,483 and 32,146 |
3 |
|
|
3 |
|
|
Additional paid-in capital |
701,877 |
|
|
657,981 |
|
|
Accumulated deficit |
(497,716 |
) |
|
(458,897 |
) |
|
Accumulated other comprehensive loss |
(580 |
) |
|
(584 |
) |
|
Treasury stock at cost - 3,319 and 3,200 |
(68,753 |
) |
|
(66,757 |
) |
|
Equity attributable to stockholders of Overstock.com, Inc. |
134,831 |
|
|
131,746 |
|
|
Equity attributable to noncontrolling interests |
74,731 |
|
|
78,960 |
|
|
Total stockholders' equity |
209,562 |
|
|
210,706 |
|
|
Total liabilities and stockholders' equity |
$ |
452,889 |
|
|
$ |
461,219 |
|
|
|
|
|
|
|
|
|
|
Overstock.com, Inc.Consolidated
Statements of Operations (Unaudited)(in thousands,
except per share data)
| |
Three months ended March 31, |
| |
2019 |
|
2018 |
| Revenue, net |
|
|
|
|
Retail |
$ |
362,625 |
|
|
$ |
439,996 |
|
|
Other |
5,104 |
|
|
5,335 |
|
|
Total net revenue |
367,729 |
|
|
445,331 |
|
| Cost of goods sold |
|
|
|
|
Retail |
290,640 |
|
|
347,580 |
|
|
Other |
3,965 |
|
|
3,882 |
|
|
Total cost of goods sold |
294,605 |
|
|
351,462 |
|
|
Gross profit |
73,124 |
|
|
93,869 |
|
| Operating expenses: |
|
|
|
|
Sales and marketing |
33,477 |
|
|
77,214 |
|
|
Technology |
35,433 |
|
|
31,294 |
|
|
General and administrative |
40,232 |
|
|
39,755 |
|
|
Total operating expenses |
109,142 |
|
|
148,263 |
|
| Operating loss |
(36,018 |
) |
|
(54,394 |
) |
| Interest income |
403 |
|
|
544 |
|
| Interest expense |
(127 |
) |
|
(874 |
) |
| Other income (expense),
net |
(6,272 |
) |
|
(9 |
) |
|
Loss before income taxes |
(42,014 |
) |
|
(54,733 |
) |
| Provision (benefit) from
income taxes |
878 |
|
|
(277 |
) |
| Net loss |
$ |
(42,892 |
) |
|
$ |
(54,456 |
) |
|
Less: Net loss attributable to noncontrolling interests |
(3,648 |
) |
|
(3,547 |
) |
| Net loss attributable to
stockholders of Overstock.com, Inc. |
$ |
(39,244 |
) |
|
$ |
(50,909 |
) |
| Net loss per common
share—basic: |
|
|
|
| Net loss attributable to
common shares—basic |
$ |
(1.18 |
) |
|
$ |
(1.74 |
) |
| Weighted average common shares
outstanding—basic |
32,370 |
|
|
28,566 |
|
| Net loss per common
share—diluted: |
|
|
|
| Net loss attributable to
common shares—diluted |
$ |
(1.18 |
) |
|
$ |
(1.74 |
) |
| Weighted average common shares
outstanding—diluted |
32,370 |
|
|
28,566 |
|
Overstock.com, Inc.Consolidated
Statements of Cash Flows (Unaudited)(in
thousands)
| |
Three months ended March 31, |
| |
2019 |
|
2018 |
|
Cash flows from operating activities: |
|
|
|
|
Net loss |
$ |
(42,892 |
) |
|
$ |
(54,456 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
Depreciation of property and equipment |
6,575 |
|
|
6,581 |
|
|
Amortization of intangible assets |
1,481 |
|
|
918 |
|
|
Amortization of right-of-use assets |
1,667 |
|
|
— |
|
|
Stock-based compensation to employees and directors |
3,985 |
|
|
6,435 |
|
|
Deferred income taxes, net |
895 |
|
|
(267 |
) |
|
Purchase price allocation adjustments |
(1,988 |
) |
|
— |
|
|
(Gain)/loss on sale of cryptocurrencies |
9 |
|
|
(1,529 |
) |
|
Impairment of cryptocurrencies |
318 |
|
|
8,793 |
|
|
Loss on sale of equity securities |
977 |
|
|
— |
|
|
Impairment of and loss on equity securities, net |
4,601 |
|
|
— |
|
|
Allowance on notes receivable |
1,237 |
|
|
— |
|
|
Other |
1,014 |
|
|
185 |
|
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
|
Accounts receivable, net |
14,068 |
|
|
8,282 |
|
|
Inventories, net |
554 |
|
|
1,232 |
|
|
Prepaids and other current assets |
3,106 |
|
|
2,238 |
|
|
Other long-term assets, net |
(189 |
) |
|
(2,261 |
) |
|
Accounts payable |
(28,023 |
) |
|
4,325 |
|
|
Accrued liabilities |
(6,962 |
) |
|
9,274 |
|
|
Deferred revenue |
(10,640 |
) |
|
284 |
|
|
Operating lease liabilities |
(1,249 |
) |
|
— |
|
|
Other long-term liabilities |
27 |
|
|
(216 |
) |
|
Net cash used in operating activities |
(51,429 |
) |
|
(10,182 |
) |
| Cash flows from investing
activities: |
|
|
|
|
Purchase of intangible assets |
— |
|
|
(9,181 |
) |
|
Purchase of equity securities |
(2,500 |
) |
|
(16,970 |
) |
|
Proceeds from sale of equity securities |
5,535 |
|
|
— |
|
|
Disbursement of notes receivable |
(2,000 |
) |
|
— |
|
|
Acquisitions of businesses, net of cash acquired |
4,885 |
|
|
(11,769 |
) |
|
Expenditures for property and equipment, including internal-use
software and website development |
(4,144 |
) |
|
(4,029 |
) |
|
Other |
(2 |
) |
|
(1 |
) |
|
Net cash provided by (used in) investing activities |
1,774 |
|
|
(41,950 |
) |
| Cash flows from financing
activities: |
|
|
|
|
Payments on finance/capital lease obligations |
(126 |
) |
|
(123 |
) |
|
Proceeds from issuance and exercise of stock warrants |
— |
|
|
50,562 |
|
|
Proceeds from security token offering, net of offering costs and
withdrawals |
— |
|
|
62,073 |
|
|
Proceeds from sale of common stock, net of offering costs |
30,957 |
|
|
— |
|
|
Payments of taxes withheld upon vesting of restricted stock |
(1,353 |
) |
|
(4,034 |
) |
|
Other |
(522 |
) |
|
— |
|
|
Net cash provided by financing activities |
28,956 |
|
|
108,478 |
|
| Net increase (decrease) in cash, cash equivalents and
restricted cash |
(20,699 |
) |
|
56,346 |
|
| Cash, cash equivalents and restricted cash, beginning
of period |
142,814 |
|
|
203,670 |
|
| Cash, cash equivalents and restricted cash, end of
period |
$ |
122,115 |
|
|
$ |
260,016 |
|
| |
|
|
|
|
|
|
|
Overstock.com, Inc.Consolidated
Statements of Cash Flows
(Unaudited)(Continued)(in
thousands)
| |
Three months ended March 31, |
| |
2019 |
|
2018 |
| Supplemental disclosures of cash flow
information: |
|
|
|
| Cash paid during the period: |
|
|
|
|
Interest paid, net of amounts capitalized |
$ |
86 |
|
|
$ |
789 |
|
|
Income taxes paid, net |
130 |
|
|
7 |
|
| Non-cash investing and financing
activities: |
|
|
|
|
Property and equipment, including internal-use software and website
development costs,financed through accounts payable and accrued
liabilities |
$ |
304 |
|
|
$ |
965 |
|
|
Common stock repurchased through business combination |
643 |
|
|
— |
|
|
Note receivable converted to equity security |
359 |
|
|
200 |
|
|
Cryptocurrency received in security token offering |
— |
|
|
13,878 |
|
|
Proceeds from sale of common stock included in accounts
receivable |
8,957 |
|
|
— |
|
|
Deposit applied to business combination purchase price |
7,347 |
|
|
— |
|
|
Equity method security applied to business combination purchase
price |
3,707 |
|
|
— |
|
|
Recognition of right-of-use assets upon adoption of ASC 842 |
30,968 |
|
|
— |
|
Segment Financial
Information
Segment information has been prepared in accordance with ASC
Topic 280 Segment Reporting. We determined our segments based
on how we manage our business. In the fourth quarter of 2018, we
completed our review of our segment reporting and in light of a
strategic shift in our Chief Operating Decision Maker's long-term
strategic focus for our organization, we no longer consider the
split of retail direct and retail partner as a distinct and
relevant measure of our business. Accordingly, Direct and Partner
are no longer considered separate reportable segments but are
included under Retail in our Business Segment disclosures.
Beginning in the first quarter of 2019, we began allocating
corporate support costs (administrative functions such as finance,
human resources, and legal) to our operating segments based on
their estimated usage and based on how we manage our business.
Comparative prior year information has not been recast and as a
result our corporate support costs for those comparative prior
periods remain allocated to our Retail segment. Our Medici business
includes one reportable segment, tZERO. We use pre-tax net income
(loss) as the measure to determine our reportable segments. As a
result, the remainder of our Medici business is not significant as
compared to our Retail and tZERO segments. Our Other segment
consists of Medici Ventures' remaining operations and the remainder
of our unallocated corporate support costs (administrative
functions such as finance, human resources, and legal).
Our Retail segment primarily consists of amounts earned through
e-commerce sales through our Website, excluding intercompany
transactions eliminated in consolidation.
Our tZERO segment primarily consists of amounts earned through
securities transactions through our broker-dealers and costs
incurred to execute our tZERO business initiatives, excluding
intercompany transactions eliminated in consolidation.
The following table summarizes information about reportable
segments and includes a reconciliation to consolidated net income
(loss) (in thousands):
| |
Three months ended March 31, |
| |
Retail |
|
tZERO |
|
Other |
|
Total |
| 2019 |
|
|
|
|
|
|
|
|
Revenue, net |
$ |
362,625 |
|
|
$ |
4,496 |
|
|
$ |
608 |
|
|
$ |
367,729 |
|
| Cost of goods sold |
290,640 |
|
|
3,357 |
|
|
608 |
|
|
294,605 |
|
| Gross profit |
$ |
71,985 |
|
|
$ |
1,139 |
|
|
$ |
— |
|
|
$ |
73,124 |
|
| Operating expenses (1) |
85,336 |
|
|
15,553 |
|
|
8,253 |
|
|
109,142 |
|
| Interest and other income
(expense), net |
135 |
|
|
(963 |
) |
|
(5,168 |
) |
|
(5,996 |
) |
| Pre-tax loss |
$ |
(13,216 |
) |
|
$ |
(15,377 |
) |
|
$ |
(13,421 |
) |
|
(42,014 |
) |
| Provision for income taxes |
|
|
|
|
|
|
878 |
|
| Net loss |
|
|
|
|
|
|
$ |
(42,892 |
) |
| |
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
|
|
|
| Revenue, net |
$ |
439,996 |
|
|
$ |
4,852 |
|
|
$ |
483 |
|
|
$ |
445,331 |
|
| Cost of goods sold |
347,580 |
|
|
3,399 |
|
|
483 |
|
|
351,462 |
|
| Gross profit |
$ |
92,416 |
|
|
$ |
1,453 |
|
|
$ |
— |
|
|
$ |
93,869 |
|
| Operating expenses |
125,532 |
|
|
19,959 |
|
|
2,772 |
|
|
148,263 |
|
| Interest and other income
(expense), net |
(455 |
) |
|
453 |
|
|
(337 |
) |
|
(339 |
) |
| Pre-tax loss |
$ |
(33,571 |
) |
|
$ |
(18,053 |
) |
|
$ |
(3,109 |
) |
|
(54,733 |
) |
| Benefit from income taxes |
|
|
|
|
|
|
(277 |
) |
| Net loss |
|
|
|
|
|
|
$ |
(54,456 |
) |
| |
|
|
|
|
|
|
|
|
|
__________________________________________
(1) —
Corporate support costs have been allocated $12.6 million, $1.8
million, and $3.6 million to Retail, tZERO, and Other,
respectively. Unallocated corporate support costs of $1.8 million
are included in Other.
Non-GAAP Financial Measure
Reconciliations
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that is
calculated as net income (loss) before depreciation and
amortization, stock-based compensation, interest and other income
and (expense), provision (benefit) for income taxes, and special
items. We have included Adjusted EBITDA in this earnings release
because it reflects an additional way of viewing the operating
performance at both the consolidated and segment level that is used
internally in analyzing our financial results and we believe it is
useful to investors, as a supplement to GAAP measures, in
evaluating our ongoing operational performance. In particular, the
exclusion of certain expenses in calculating Adjusted EBITDA
facilitates operating performance comparisons on a period-to-period
basis. Exclusion of items in the non-GAAP presentation should not
be construed as an inference that these items are unusual,
infrequent or non-recurring. We have provided a reconciliation
below of our segment and consolidated Adjusted EBITDA to net income
(loss), the most directly comparable GAAP financial measure.
Adjusted EBITDA is 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. Adjusted
EBITDA has limitations such as:
- Although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized may have to be replaced
in the future, and Adjusted EBITDA does not reflect cash capital
expenditure requirements for such replacements or for new capital
expenditure requirements;
- Adjusted EBITDA does not reflect stock-based compensation and
related taxes;
- Adjusted EBITDA does not reflect adjustments related to the
carrying values of our equity interests in unconsolidated
entities;
- Adjusted EBITDA does not reflect interest expenses associated
with our borrowings;
- Adjusted EBITDA does not reflect income tax payments that may
represent a reduction in cash available to us;
- Adjusted EBITDA does not reflect changes in our working
capital; and
- Other companies, including companies in our industry, may
calculate Adjusted EBITDA differently, which reduces its usefulness
as a comparative measure.
The following table reflects the reconciliation of Adjusted
EBITDA to net income (loss) for each of the periods indicated (in
thousands):
| |
Three months ended March 31, |
| |
2019 |
|
2018 |
| Adjusted
EBITDA |
|
|
|
|
Retail |
$ |
(2,460 |
) |
|
$ |
(24,372 |
) |
| tZERO |
(13,207 |
) |
|
(4,382 |
) |
| Other |
(7,995 |
) |
|
(1,836 |
) |
| Adjusted
EBITDA |
(23,662 |
) |
|
(30,590 |
) |
|
Less: Special items (see table below) |
1,757 |
|
|
9,870 |
|
|
Less: Depreciation and amortization |
6,614 |
|
|
7,499 |
|
|
Less: Stock-based compensation |
3,985 |
|
|
6,435 |
|
|
Less: Interest (income) expense, net |
(276 |
) |
|
330 |
|
|
Less: Other income (expense), net (1) |
6,272 |
|
|
9 |
|
|
Less: Provision (benefit) for income taxes |
878 |
|
|
(277 |
) |
| Net loss |
$ |
(42,892 |
) |
|
$ |
(54,456 |
) |
| |
|
|
|
| Special items: |
|
|
|
|
Severance |
$ |
1,757 |
|
|
$ |
1,600 |
|
|
Cryptocurrency impairments and gains on sale, net |
— |
|
|
7,259 |
|
|
Legal contingencies and strategic charges |
— |
|
|
1,011 |
|
| |
$ |
1,757 |
|
|
$ |
9,870 |
|
| |
|
|
|
|
|
|
|
___________________________________________
(1) Other income (expense), net for the three months ended March
31, 2019 includes $6.4 million of non-cash losses on equity
holdings and other assets.
The following Adjusted EBITDA tables for the three and twelve
months ended December 31, 2018 and 2017 have been provided to
correct the previously reported amounts in our press release dated
March 18, 2019.
| |
Three months ended December 31, |
| |
2018 |
|
2017 |
| Adjusted
EBITDA |
|
|
|
|
Retail |
$ |
(16,856 |
) |
|
$ |
(8,988 |
) |
| tZERO |
(7,256 |
) |
|
(2,077 |
) |
| Other |
(3,401 |
) |
|
(2,469 |
) |
| Adjusted
EBITDA |
(27,513 |
) |
|
(13,534 |
) |
|
Less: Special items (see table below) |
9,565 |
|
|
— |
|
|
Less: Depreciation and amortization |
8,664 |
|
|
8,113 |
|
|
Less: Stock-based compensation |
2,702 |
|
|
1,068 |
|
|
Less: Interest (income) expense, net |
(563 |
) |
|
589 |
|
|
Less: Other income (expense), net |
1,999 |
|
|
1,573 |
|
|
Less: Provision (benefit) for income taxes |
(1,939 |
) |
|
71,915 |
|
| Net loss |
$ |
(47,941 |
) |
|
$ |
(96,792 |
) |
| |
|
|
|
| Special items: |
|
|
|
|
Impairments on intangible assets |
$ |
6,000 |
|
|
$ |
— |
|
|
Losses on the disposal of various businesses and assets |
3,565 |
|
|
— |
|
| |
$ |
9,565 |
|
|
$ |
— |
|
| |
Year ended December 31, |
| |
2018 |
|
2017 |
| Adjusted
EBITDA |
|
|
|
|
Retail |
$ |
(111,537 |
) |
|
$ |
1,795 |
|
| tZERO |
(25,271 |
) |
|
(7,252 |
) |
| Other |
(10,943 |
) |
|
(4,253 |
) |
| Adjusted
EBITDA |
(147,751 |
) |
|
(9,710 |
) |
|
Less: Special items (see table below) |
23,402 |
|
|
— |
|
|
Less: Depreciation and amortization |
31,697 |
|
|
32,847 |
|
|
Less: Stock-based compensation |
14,356 |
|
|
4,077 |
|
|
Less: Interest (income) expense, net |
(740 |
) |
|
2,278 |
|
|
Less: Other income (expense), net |
3,488 |
|
|
(1,178 |
) |
|
Less: Provision (benefit) for income taxes |
(2,384 |
) |
|
64,188 |
|
| Net loss |
$ |
(217,570 |
) |
|
$ |
(111,922 |
) |
| |
|
|
|
| Special items: |
|
|
|
|
Impairments on intangible assets |
$ |
6,000 |
|
|
$ |
— |
|
|
Losses on the disposal of various businesses |
3,565 |
|
|
— |
|
|
Cryptocurrency impairments and gains on sale, net |
443 |
|
|
— |
|
|
Severance |
1,600 |
|
|
— |
|
|
Special legal expenses (1) |
11,794 |
|
|
— |
|
| |
$ |
23,402 |
|
|
$ |
— |
|
___________________________________________
(1) Special legal expenses include charges associated with our
Delaware gift card escheatment matter and legal fees associated
with pursuing our strategic alternatives.
Free Cash Flow
Free cash flow is a non-GAAP financial measure that 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 below to "Net cash
provided by (used in) operating activities," the nearest GAAP
financial measure, is net cash provided by (used in) operating
activities reduced by "Expenditures for fixed assets, including
internal-use software and website development." We believe that net
cash provided by (used in) 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. 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 purchases of fixed assets.
Free cash flow measures have limitations as they omit certain
components of the overall consolidated statement of cash flows and
do not represent the residual cash flow available for discretionary
expenditures. Free cash flow should not be considered a
substitute for net income or cash flow data prepared in accordance
with GAAP and may not be comparable to similarly titled measures
used by other companies. Therefore, we believe it is important to
view free cash flow as a complement to our entire consolidated
statements of cash flows as reconciled below (in thousands):
| |
Three months ended March 31, |
| |
2019 |
|
2018 |
|
Net cash provided by (used in) operating activities |
$ |
(51,429 |
) |
|
$ |
(10,182 |
) |
| Expenditures for fixed assets,
including internal-use software and website development |
(4,144 |
) |
|
(4,029 |
) |
| Free cash flow |
$ |
(55,573 |
) |
|
$ |
(14,211 |
) |
| |
|
|
|
|
|
|
|
Contribution and Contribution Margin
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 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.
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. You should review our financial statements and
publicly-filed reports in their entirety and not rely on any single
financial measure.
Our calculation of our contribution and contribution margin is
set forth below (in thousands):
| |
Three months ended March 31, |
| |
Retail |
|
tZERO &Other |
|
Total |
| 2019 |
|
|
|
|
|
|
Total net revenue |
$ |
362,625 |
|
|
$ |
5,104 |
|
|
$ |
367,729 |
|
| Cost of goods sold |
290,640 |
|
|
3,965 |
|
|
294,605 |
|
| Gross profit |
71,985 |
|
|
1,139 |
|
|
73,124 |
|
| Less: Sales and marketing
expense |
32,933 |
|
|
544 |
|
|
33,477 |
|
| Contribution |
$ |
39,052 |
|
|
$ |
595 |
|
|
$ |
39,647 |
|
| Contribution margin |
10.8 |
% |
|
11.7 |
% |
|
10.8 |
% |
| |
|
|
|
|
|
| 2018 |
|
|
|
|
|
| Total net revenue |
$ |
439,996 |
|
|
$ |
5,335 |
|
|
$ |
445,331 |
|
| Cost of goods sold |
347,580 |
|
|
3,882 |
|
|
351,462 |
|
| Gross profit |
92,416 |
|
|
1,453 |
|
|
93,869 |
|
| Less: Sales and marketing
expense |
73,917 |
|
|
3,297 |
|
|
77,214 |
|
| Contribution |
$ |
18,499 |
|
|
$ |
(1,844 |
) |
|
$ |
16,655 |
|
| Contribution margin |
4.2 |
% |
|
(34.6 |
)% |
|
3.7 |
% |
Public Relations:pr@overstock.com
Investor Relations:ir@overstock.com
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