Overstock.com, Inc. (NASDAQ:OSTK), a tech-driven online retailer
and advancer of blockchain technology, today reported financial
results for the quarter ended September 30, 2019.
Key Metrics (Q3 2019 vs. Q3 2018):
- Revenue: $347.1M vs. $440.6M (21% decrease);
- Gross profit: $69.5M vs. $86.7M (20% decrease);
- Gross margin: 20.0% vs. 19.7% (35 basis point increase);
- Sales and marketing expense: $34.2M vs. $55.3M (38%
decrease);
- G&A/Technology expense: $65.5M vs. $79.2M (17%
decrease);
- Pre-tax loss: $34.5M vs. $49.4M ($14.9M improvement);
- Pre-tax loss - Retail: $9.3M
- Pre-tax loss - tZERO: $13.3M
- Pre-tax loss - MVI: $8.5M
- Pre-tax loss - Other: $3.5M
- Net loss*: $30.9M vs. $47.9M ($17.0M improvement);
- Diluted net loss per share: $0.89/share vs. $1.55/share
($0.66/share improvement);
- Adjusted EBITDA (non-GAAP financial measure): ($18.0M) vs.
($26.8M) ($8.8M improvement);
- Adjusted EBITDA - Retail: ($0.6M)
- Adjusted EBITDA - tZERO: ($11.2M)
- Adjusted EBITDA - MVI: ($2.7M)
- Adjusted EBITDA - Other: ($3.5M)
*Net loss refers to Net loss attributable to
stockholders of Overstock.com, Inc.
"The results of our third quarter were in line with our revised
guidance," said Overstock CEO Jonathan Johnson. "Our retail
business continues its path to sustained profitability, despite a
few external headwinds, thanks to the focused leadership of an
executive team with a proven track record of success. tZERO
continues to reach milestones on its product roadmap, which is no
small feat in the highly regulated capital markets environment.
Other Medici Ventures companies are bringing their products into
production and increasing their leads in their respective
verticals. I am eager to talk with our shareholders during today's
conference call to discuss the progress the business is making. On
the call, I will also talk about the status of the digital dividend
and the book of patents that our industry-leading retail and
blockchain businesses have quietly built. The focus of the
leadership teams within Overstock has me excited for our coming
quarters."
The company will hold a conference call and webcast to discuss
our Q3 2019 financial results Tuesday, November 12, 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 2087933
when prompted. Participants outside the U.S. or Canada who do not
have Internet access should dial +1 (724) 498-4326 and 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 Tuesday,
November 12, 2019, through 11:30 a.m. ET on Tuesday,
November 26, 2019. To listen to the recorded webcast by phone,
dial (855) 859-2056 and 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 in assessing the company and its financial
results.
Total net revenue - Total net revenue was
$347.1 million and $440.6 million for Q3 2019 and 2018,
respectively, a 21% decrease. This decrease was primarily due to
decreased product sales that resulted from a significant reduction
in sales and marketing activities, as described below, which was
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 returned to a more disciplined approach to marketing. In
addition, we have seen our revenues negatively impacted due to
increased tariffs on goods manufactured in China, search traffic
taking longer than expected to translate into purchasing customers,
waning consumer confidence decreasing conversion on high dollar
purchases industry wide, and other more general decreases in
conversion.
Gross profit - Gross profit was $69.5 million
and $86.7 million for Q3 2019 and 2018, respectively, a 20%
decrease, representing 20.0% and 19.7% gross margin for those
respective periods. The decrease in gross profit was primarily due
to the decrease in net revenue in the retail business described
above. The increase in gross margin was primarily due to
improvements in our promotional pricing strategy and a higher
proportion of our revenue coming from marketplace sales, which we
recognize on a net basis. These increases to gross margin were
partially offset by increased freight costs resulting from the
business closure of one of our freight carriers, cancellation of
services with a freight carrier that failed to deliver acceptable
service levels, and an increase in volume of large package
shipments.
Sales and marketing expenses - Sales and
marketing expenses totaled $34.2 million and $55.3 million for Q3
2019 and 2018, respectively, a 38% decrease, representing 9.9% and
12.6% 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 and display ads on social media
marketing channels.
Technology expenses - Technology expenses
totaled $32.8 million and $33.9 million in Q3 2019 and 2018,
respectively, a 3% decrease, representing 9.4% and 7.7% of total
revenue for those respective periods. The decrease was primarily
due to a $435,000 decrease in outside service costs and a $413,000
decrease in technology licenses and maintenance costs.
General and administrative ("G&A") expenses
- G&A expenses totaled $32.7 million and $45.4 million in Q3
2019 and 2018, respectively, a 28% decrease, representing 9.4% and
10.3% of total revenue for those respective periods. The decrease
was primarily due to $10.8 million in special legal costs in Q3
2018 related to our gift card escheatment case in Delaware and
capital raising efforts. In addition, we had a $1.8 million
decrease in consulting expenses, an $862,000 decrease in
staff-related costs, and an $834,000 decrease in travel expenses.
These decreases were partially offset by a $1.4 million impairment
charge on certain intangible assets and an $844,000 increase in
corporate insurance costs.
Other expense, net - Other expense, net totaled
$4.8 million and $1.8 million for Q3 2019 and 2018, respectively.
The increase was primarily due to a $3.6 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 $89.2 million and $120.3
million for the nine months ended September 30, 2019 and 2018,
respectively. The $31.1 million improvement was primarily due to
decreased losses.
Free cash flow (a non-GAAP financial measure) -
Free cash flow was ($107.1) million and ($141.0) million for the
nine months ended September 30, 2019 and 2018, respectively. The
$33.9 million improvement was due to a $31.1 million improvement in
operating cash flow and a $2.8 million decrease in capital
expenditures.
Cash - We had cash and cash equivalents of
$83.5 million and $141.5 million at September 30, 2019 and December
31, 2018, respectively. The decrease was primarily due to funding
of operating losses, partially offset by $52.1 million net proceeds
received from an "at-the-market" offering during the first half of
2019.
Non-GAAP Financial PresentationWe are providing
certain non-GAAP financial measures in this release because we
believe that these figures are helpful in allowing investors to
more accurately assess the ongoing nature of our operations and
measure our performance more consistently across periods. The
presentation of this additional non-GAAP financial information is
not intended to be considered in isolation or as a substitute for
the financial information prepared and presented in accordance with
GAAP. The tables at the end of this release provide reconciliations
of these non-GAAP items to the most nearly equivalent GAAP
measures, our rationale and a discussion of the limitations of
these non-GAAP measures.
About Overstock.comOverstock.com, Inc Common
Shares (NASDAQ:OSTK) / Digital Voting Series A-1 Preferred Stock
(Medici Ventures’ tZERO platform:OSTKO) / 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, 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 November 12, 2019 conference call and
webcast to discuss our financial results may contain
forward-looking statements within the meaning of the federal
securities laws. 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 results of our ongoing
review of strategic initiatives, adverse tax, regulatory or legal
developments, competition, any inability to raise capital or borrow
funds in a timely manner or on acceptable terms, and our ability
and timing to complete our previously-announced dividend payable in
shares of our Series A-1 Preferred Stock. 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 and the timing for doing such, the effect of
the departure of key business personnel, 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, our Form 10-Q for the
quarter ended March 31, 2019, our Form 10-Q for the quarter ended
June 30, 2019, and our Form 10-Q for the quarter ended September
30, 2019, which were filed with the Securities and Exchange
Commission on March 18, 2019, May 9, 2019, August 8, 2019, and
November 12, 2019, respectively, and in our subsequent filings with
the Securities and Exchange Commission. The Form 10-K, 10-Q's, 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)
| |
September 30, 2019 |
|
December 31, 2018 |
|
Assets |
|
|
|
| Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
83,546 |
|
|
$ |
141,512 |
|
|
Restricted cash |
2,251 |
|
|
1,302 |
|
|
Accounts receivable, net |
22,407 |
|
|
35,930 |
|
|
Inventories, net |
7,244 |
|
|
14,108 |
|
|
Prepaids and other current assets |
18,233 |
|
|
22,415 |
|
|
Total current assets |
133,681 |
|
|
215,267 |
|
| Property and equipment,
net |
132,696 |
|
|
134,687 |
|
| Intangible assets, net |
12,879 |
|
|
13,370 |
|
| Goodwill |
27,120 |
|
|
22,895 |
|
| Equity securities |
41,713 |
|
|
60,427 |
|
| Operating lease right-of-use
assets |
43,266 |
|
|
— |
|
| Other long-term assets,
net |
8,446 |
|
|
14,573 |
|
|
Total assets |
$ |
399,801 |
|
|
$ |
461,219 |
|
|
Liabilities and Stockholders' Equity |
|
|
|
| Current liabilities: |
|
|
|
|
Accounts payable |
$ |
60,557 |
|
|
$ |
102,574 |
|
|
Accrued liabilities |
79,440 |
|
|
87,858 |
|
|
Deferred revenue |
40,512 |
|
|
50,578 |
|
|
Operating lease liabilities, current |
5,725 |
|
|
— |
|
|
Other current liabilities |
489 |
|
|
476 |
|
|
Total current liabilities |
186,723 |
|
|
241,486 |
|
| Long-term debt, net |
— |
|
|
3,069 |
|
| Operating lease liabilities,
non-current |
42,510 |
|
|
— |
|
| Other long-term
liabilities |
1,616 |
|
|
5,958 |
|
|
Total liabilities |
230,849 |
|
|
250,513 |
|
| Stockholders' equity: |
|
|
|
|
Preferred stock, $0.0001 par value, authorized shares - 5,000 |
|
|
|
|
Series A, issued and outstanding - 0 and 127 |
— |
|
|
— |
|
|
Series A-1, issued and outstanding - 3,702 and 0 (including 3,577
shares declared as a stock dividend) |
— |
|
|
— |
|
|
Series B, issued and outstanding - 357 and 355 |
— |
|
|
— |
|
|
Common stock, $0.0001 par value, authorized shares - 100,000 |
|
|
|
|
Issued shares - 38,565 and 35,346 |
|
|
|
|
Outstanding shares - 35,242 and 32,146 |
3 |
|
|
3 |
|
|
Additional paid-in capital |
726,132 |
|
|
657,981 |
|
|
Accumulated deficit |
(553,335 |
) |
|
(458,897 |
) |
|
Accumulated other comprehensive loss |
(572 |
) |
|
(584 |
) |
|
Treasury stock at cost - 3,323 and 3,200 |
(68,773 |
) |
|
(66,757 |
) |
|
Equity attributable to stockholders of Overstock.com, Inc. |
103,455 |
|
|
131,746 |
|
|
Equity attributable to noncontrolling interests |
65,497 |
|
|
78,960 |
|
|
Total stockholders' equity |
168,952 |
|
|
210,706 |
|
|
Total liabilities and
stockholders' equity |
$ |
399,801 |
|
|
$ |
461,219 |
|
Overstock.com, Inc.Consolidated
Statements of Operations (Unaudited)(in thousands,
except per share data)
| |
Three months ended September 30, |
|
Nine months ended September 30, |
| |
2019 |
|
2018 |
|
2019 |
|
2018 |
| Revenue, net |
|
|
|
|
|
|
|
|
Retail |
$ |
340,798 |
|
|
$ |
435,775 |
|
|
$ |
1,070,898 |
|
|
$ |
1,353,454 |
|
|
Other |
6,301 |
|
|
4,805 |
|
|
17,639 |
|
|
15,590 |
|
|
Total net revenue |
347,099 |
|
|
440,580 |
|
|
1,088,537 |
|
|
1,369,044 |
|
| Cost of goods sold |
|
|
|
|
|
|
|
|
Retail |
272,545 |
|
|
350,651 |
|
|
858,169 |
|
|
1,085,483 |
|
|
Other |
5,006 |
|
|
3,213 |
|
|
13,797 |
|
|
11,233 |
|
|
Total cost of goods sold |
277,551 |
|
|
353,864 |
|
|
871,966 |
|
|
1,096,716 |
|
|
Gross profit |
69,548 |
|
|
86,716 |
|
|
216,571 |
|
|
272,328 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
Sales and marketing |
34,215 |
|
|
55,312 |
|
|
102,252 |
|
|
226,942 |
|
|
Technology |
32,782 |
|
|
33,880 |
|
|
101,368 |
|
|
97,597 |
|
|
General and administrative |
32,681 |
|
|
45,356 |
|
|
104,877 |
|
|
116,551 |
|
|
Total operating expenses |
99,678 |
|
|
134,548 |
|
|
308,497 |
|
|
441,090 |
|
| Operating loss |
(30,130 |
) |
|
(47,832 |
) |
|
(91,926 |
) |
|
(168,762 |
) |
| Interest income |
449 |
|
|
383 |
|
|
1,482 |
|
|
1,547 |
|
| Interest expense |
(57 |
) |
|
(101 |
) |
|
(289 |
) |
|
(1,370 |
) |
| Other expense, net |
(4,781 |
) |
|
(1,848 |
) |
|
(14,048 |
) |
|
(1,489 |
) |
|
Loss before income taxes |
(34,519 |
) |
|
(49,398 |
) |
|
(104,781 |
) |
|
(170,074 |
) |
| Provision (benefit) from
income taxes |
23 |
|
|
(141 |
) |
|
279 |
|
|
(445 |
) |
| Net loss |
$ |
(34,542 |
) |
|
$ |
(49,257 |
) |
|
$ |
(105,060 |
) |
|
$ |
(169,629 |
) |
|
Less: Net loss attributable to noncontrolling interests |
(3,604 |
) |
|
(1,334 |
) |
|
(10,197 |
) |
|
(5,886 |
) |
| Net loss attributable to
stockholders of Overstock.com, Inc. |
$ |
(30,938 |
) |
|
$ |
(47,923 |
) |
|
$ |
(94,863 |
) |
|
$ |
(163,743 |
) |
| Net loss per common
share—basic: |
|
|
|
|
|
|
|
| Net loss attributable to
common shares—basic |
$ |
(0.89 |
) |
|
$ |
(1.55 |
) |
|
$ |
(2.74 |
) |
|
$ |
(5.47 |
) |
| Weighted average common shares
outstanding—basic |
35,241 |
|
|
30,279 |
|
|
34,289 |
|
|
29,256 |
|
| Net loss per common
share—diluted: |
|
|
|
|
|
|
|
| Net loss attributable to
common shares—diluted |
$ |
(0.89 |
) |
|
$ |
(1.55 |
) |
|
$ |
(2.74 |
) |
|
$ |
(5.47 |
) |
| Weighted average common shares
outstanding—diluted |
35,241 |
|
|
30,279 |
|
|
34,289 |
|
|
29,256 |
|
Overstock.com, Inc.Consolidated
Statements of Cash Flows (Unaudited)(in
thousands)
| |
Nine months ended September 30, |
| |
2019 |
|
2018 |
|
Cash flows from operating activities: |
|
|
|
|
Net loss |
$ |
(105,060 |
) |
|
$ |
(169,629 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
Depreciation of property and equipment |
19,387 |
|
|
19,437 |
|
|
Amortization of intangible assets |
3,646 |
|
|
3,596 |
|
|
Non-cash operating lease cost |
4,940 |
|
|
— |
|
|
Stock-based compensation to employees and directors |
13,623 |
|
|
11,654 |
|
|
Deferred income taxes, net |
(26 |
) |
|
(383 |
) |
|
Gain on sale of cryptocurrencies |
(311 |
) |
|
(8,412 |
) |
|
Impairment of cryptocurrencies |
318 |
|
|
9,641 |
|
|
Impairment of equity securities |
6,964 |
|
|
511 |
|
|
Losses on equity method securities |
4,922 |
|
|
2,504 |
|
|
Impairments on intangible assets |
1,406 |
|
|
— |
|
|
Other non-cash adjustments |
1,997 |
|
|
(1,480 |
) |
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
|
Accounts receivable, net |
12,858 |
|
|
(73 |
) |
|
Inventories, net |
6,864 |
|
|
(1,833 |
) |
|
Prepaids and other current assets |
5,473 |
|
|
(4,806 |
) |
|
Other long-term assets, net |
(1,046 |
) |
|
(4,120 |
) |
|
Accounts payable |
(42,110 |
) |
|
7,143 |
|
|
Accrued liabilities |
(8,683 |
) |
|
18,044 |
|
|
Deferred revenue |
(10,066 |
) |
|
(1,511 |
) |
|
Operating lease liabilities |
(4,086 |
) |
|
— |
|
|
Other long-term liabilities |
(205 |
) |
|
(583 |
) |
|
Net cash used in operating activities |
(89,195 |
) |
|
(120,300 |
) |
| Cash flows from investing activities: |
|
|
|
|
Purchase of intangible assets |
— |
|
|
(9,583 |
) |
|
Purchase of equity securities |
(5,106 |
) |
|
(43,670 |
) |
|
Proceeds from sale of equity securities |
7,082 |
|
|
— |
|
|
Disbursement of notes receivable |
(3,250 |
) |
|
(2,700 |
) |
|
Acquisitions of businesses, net of cash acquired |
4,886 |
|
|
(12,912 |
) |
|
Expenditures for property and equipment |
(17,902 |
) |
|
(20,677 |
) |
|
Other investing activities, net |
31 |
|
|
34 |
|
|
Net cash used in investing activities |
(14,259 |
) |
|
(89,508 |
) |
| Cash flows from financing activities: |
|
|
|
|
Payments on long-term debt |
(3,141 |
) |
|
(40,000 |
) |
|
Proceeds from issuance and exercise of stock warrants |
— |
|
|
50,587 |
|
|
Proceeds from security token offering, net of offering costs and
withdrawals |
— |
|
|
82,610 |
|
|
Proceeds from sale of common stock, net of offering costs |
52,112 |
|
|
94,624 |
|
|
Paid in capital for noncontrolling interest |
— |
|
|
6,700 |
|
|
Payments of taxes withheld upon vesting of restricted stock |
(1,373 |
) |
|
(4,574 |
) |
|
Other financing activities, net |
(1,161 |
) |
|
(372 |
) |
|
Net cash provided by financing activities |
46,437 |
|
|
189,575 |
|
| Net decrease in cash, cash equivalents and restricted cash |
(57,017 |
) |
|
(20,233 |
) |
| Cash, cash equivalents and restricted cash, beginning of
period |
142,814 |
|
|
203,670 |
|
| Cash, cash equivalents and restricted cash, end of period |
$ |
85,797 |
|
|
$ |
183,437 |
|
| Supplemental disclosures of cash flow
information: |
|
|
|
|
|
|
|
| Cash paid during the period: |
|
|
|
|
|
|
|
|
Interest paid, net of amounts capitalized |
$ |
218 |
|
|
|
1,232 |
|
|
Income taxes paid (refunded), net |
|
(469 |
) |
|
|
59 |
|
| Non-cash investing and financing
activities: |
|
|
|
|
|
|
|
|
Property and equipment financed through accounts payable and
accrued liabilities |
|
227 |
|
|
|
731 |
|
|
Acquisition of assets through stock issuance |
|
— |
|
|
|
4,430 |
|
|
Common stock repurchased through business combination |
|
643 |
|
|
|
— |
|
|
Receivables converted to equity security |
|
1,024 |
|
|
|
200 |
|
|
Deposit applied to business combination purchase price |
|
7,347 |
|
|
|
— |
|
|
Equity method security applied to business combination purchase
price |
|
3,800 |
|
|
|
— |
|
|
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 two reportable segments, tZERO and the unconsolidated
financial information for Medici Ventures ("MVI"). MVI consists of
the Medici business not associated with tZERO or Medici Land
Governance ("MLG"). We use pre-tax net income (loss) as the measure
to determine our reportable segments. As a result, the MLG portion
of our Medici business is not significant as compared to our
Retail, tZERO, and MVI segments. Our Other segment consists of MLG
and our unallocated corporate support costs.
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.
Our MVI segment primarily consists of costs incurred to develop
and advance the concept of a "Technology Stack for Civilization",
excluding intercompany transactions eliminated in
consolidation.
The following table summarizes information about reportable
segments and includes a reconciliation to consolidated net loss (in
thousands):
| |
Three months ended September 30, |
| |
Retail |
|
tZERO |
|
MVI |
|
Other |
|
Total |
| 2019 |
|
|
|
|
|
|
|
|
|
|
Revenue, net |
$ |
340,798 |
|
|
$ |
5,662 |
|
|
$ |
639 |
|
|
$ |
— |
|
|
$ |
347,099 |
|
| Cost of goods sold |
272,545 |
|
|
4,367 |
|
|
639 |
|
|
— |
|
|
277,551 |
|
| Gross profit |
$ |
68,253 |
|
|
$ |
1,295 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
69,548 |
|
| Operating expenses (1) |
77,641 |
|
|
14,114 |
|
|
4,427 |
|
|
3,496 |
|
|
99,678 |
|
| Interest and other income
(expense), net (2) |
137 |
|
|
(475 |
) |
|
(4,057 |
) |
|
6 |
|
|
(4,389 |
) |
| Pre-tax loss |
$ |
(9,251 |
) |
|
$ |
(13,294 |
) |
|
$ |
(8,484 |
) |
|
$ |
(3,490 |
) |
|
(34,519 |
) |
| Provision for income taxes |
|
|
|
|
|
|
|
|
23 |
|
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(34,542 |
) |
| |
|
|
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
|
|
|
|
|
| Revenue, net |
$ |
435,775 |
|
|
$ |
4,338 |
|
|
$ |
467 |
|
|
$ |
— |
|
|
$ |
440,580 |
|
| Cost of goods sold |
350,651 |
|
|
2,746 |
|
|
467 |
|
|
— |
|
|
353,864 |
|
| Gross profit |
$ |
85,124 |
|
|
$ |
1,592 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
86,716 |
|
| Operating expenses |
124,571 |
|
|
7,235 |
|
|
1,845 |
|
|
897 |
|
|
134,548 |
|
| Interest and other income
(expense), net (2) |
(515 |
) |
|
96 |
|
|
(1,147 |
) |
|
— |
|
|
(1,566 |
) |
| Pre-tax loss |
$ |
(39,962 |
) |
|
$ |
(5,547 |
) |
|
$ |
(2,992 |
) |
|
$ |
(897 |
) |
|
(49,398 |
) |
| Benefit from income taxes |
|
|
|
|
|
|
|
|
(141 |
) |
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(49,257 |
) |
| |
Nine months ended September 30, |
| |
Retail |
|
tZERO |
|
MVI |
|
Other |
|
Total |
| 2019 |
|
|
|
|
|
|
|
|
|
|
Revenue, net |
$ |
1,070,898 |
|
|
$ |
15,709 |
|
|
$ |
1,930 |
|
|
$ |
— |
|
|
$ |
1,088,537 |
|
| Cost of goods sold |
858,169 |
|
|
11,867 |
|
|
1,930 |
|
|
— |
|
|
871,966 |
|
| Gross profit |
$ |
212,729 |
|
|
$ |
3,842 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
216,571 |
|
| Operating expenses (1) |
244,571 |
|
|
41,410 |
|
|
11,583 |
|
|
10,933 |
|
|
308,497 |
|
| Interest and other income
(expense), net (2) |
312 |
|
|
(1,098 |
) |
|
(12,068 |
) |
|
(1 |
) |
|
(12,855 |
) |
| Pre-tax loss |
$ |
(31,530 |
) |
|
$ |
(38,666 |
) |
|
$ |
(23,651 |
) |
|
$ |
(10,934 |
) |
|
$ |
(104,781 |
) |
| Provision for income taxes |
|
|
|
|
|
|
|
|
279 |
|
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(105,060 |
) |
| |
|
|
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
|
|
|
|
|
| Revenue, net |
$ |
1,353,454 |
|
|
$ |
14,080 |
|
|
$ |
1,510 |
|
|
$ |
— |
|
|
$ |
1,369,044 |
|
| Cost of goods sold |
1,085,483 |
|
|
9,723 |
|
|
1,510 |
|
|
— |
|
|
1,096,716 |
|
| Gross profit |
$ |
267,971 |
|
|
$ |
4,357 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
272,328 |
|
| Operating expenses |
399,540 |
|
|
33,119 |
|
|
6,445 |
|
|
1,986 |
|
|
441,090 |
|
| Interest and other income
(expense), net (2) |
654 |
|
|
513 |
|
|
(2,479 |
) |
|
— |
|
|
(1,312 |
) |
| Pre-tax loss |
$ |
(130,915 |
) |
|
$ |
(28,249 |
) |
|
$ |
(8,924 |
) |
|
$ |
(1,986 |
) |
|
(170,074 |
) |
| Benefit from income taxes |
|
|
|
|
|
|
|
|
(445 |
) |
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(169,629 |
) |
- Corporate support costs for three months ended September 30,
2019 have been allocated $9.4 million, $1.3 million, $0.9 million,
and $1.8 million to Retail, tZERO, MVI, and Other, respectively.
Unallocated corporate support costs of $1.3 million are included in
Other. Corporate support costs for the nine months ended September
30, 2019 have been allocated $31.5 million, $4.5 million, $3.1
million and $5.8 million to Retail, tZERO, MVI, and Other,
respectively. Unallocated corporate support costs of $4.5 million
are included in Other.
- Excludes intercompany transactions eliminated in consolidation,
which consist primarily of service fees and interest. The net
amounts of these intercompany transactions were $739,000 and
$539,000 for the three months ended September 30, 2019 and 2018 and
$1.7 million and $3.0 million for the nine months ended September
30, 2019 and 2018.
- Net loss presented for segment reporting purposes is before any
adjustments attributable to noncontrolling interests.
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
(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 that we believe 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 September 30, |
| |
2019 |
|
2018 |
| Adjusted
EBITDA |
|
|
|
|
Retail |
$ |
(575 |
) |
|
$ |
(20,160 |
) |
| tZERO |
(11,233 |
) |
|
(4,056 |
) |
| MVI |
(2,691 |
) |
|
(1,691 |
) |
| Other |
(3,461 |
) |
|
(897 |
) |
| Adjusted
EBITDA |
(17,960 |
) |
|
(26,804 |
) |
|
Less: Special items (see table below) |
185 |
|
|
10,783 |
|
|
Less: Depreciation and amortization |
7,518 |
|
|
7,999 |
|
|
Less: Stock-based compensation |
4,467 |
|
|
2,246 |
|
|
Less: Interest income, net |
(392 |
) |
|
(282 |
) |
|
Less: Other expense, net (1) |
4,781 |
|
|
1,848 |
|
|
Less: Provision (benefit) for income taxes |
23 |
|
|
(141 |
) |
| Net loss |
$ |
(34,542 |
) |
|
$ |
(49,257 |
) |
| |
|
|
|
| Special items: |
|
|
|
|
Impairment on intangible assets |
$ |
1,406 |
|
|
$ |
— |
|
|
Special legal expenses (2) |
(1,221 |
) |
|
10,783 |
|
| |
$ |
185 |
|
|
$ |
10,783 |
|
| |
Nine months endedSeptember
30, |
| |
2019 |
|
2018 |
| Adjusted
EBITDA |
|
|
|
|
Retail |
$ |
(1,452 |
) |
|
$ |
(94,681 |
) |
| tZERO |
(33,169 |
) |
|
(18,013 |
) |
| MVI |
(9,285 |
) |
|
(5,583 |
) |
| Other |
(10,859 |
) |
|
(1,961 |
) |
| Adjusted
EBITDA |
(54,765 |
) |
|
(120,238 |
) |
|
Less: Special items (see table below) |
1,942 |
|
|
13,837 |
|
|
Less: Depreciation and amortization |
21,596 |
|
|
23,033 |
|
|
Less: Stock-based compensation |
13,623 |
|
|
11,654 |
|
|
Less: Interest income, net |
(1,193 |
) |
|
(177 |
) |
|
Less: Other expense, net (1) |
14,048 |
|
|
1,489 |
|
|
Less: Provision (benefit) for income taxes |
279 |
|
|
(445 |
) |
| Net loss |
$ |
(105,060 |
) |
|
$ |
(169,629 |
) |
| |
|
|
|
| Special items: |
|
|
|
|
Cryptocurrency impairments and gains on sale, net |
$ |
— |
|
|
$ |
443 |
|
|
Impairment on intangible assets |
1,406 |
|
|
— |
|
|
Special legal expenses (2) |
(1,221 |
) |
|
11,794 |
|
|
Severance |
1,757 |
|
|
1,600 |
|
| |
$ |
1,942 |
|
|
$ |
13,837 |
|
- Other expense, net for the three months ended September 30,
2019 includes $5.3 million of non-cash losses on equity holdings
and other assets. Other expense, net for the nine months ended
September 30, 2019 includes $15.2 million of non-cash losses on
equity holdings and other assets.
- Special legal expenses include charges and credits associated
with our gift card escheatment case in Delaware 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):
| |
Nine months ended September 30, |
| |
2019 |
|
2018 |
|
Net cash used in operating activities |
$ |
(89,195 |
) |
|
$ |
(120,300 |
) |
| Expenditures for property and
equipment |
(17,902 |
) |
|
(20,677 |
) |
| Free cash flow |
$ |
(107,097 |
) |
|
$ |
(140,977 |
) |
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 September 30, |
| |
Retail |
|
Other (1) |
|
Total |
| 2019 |
|
|
|
|
|
|
Total net revenue |
$ |
340,798 |
|
|
$ |
6,301 |
|
|
$ |
347,099 |
|
| Cost of goods sold |
272,545 |
|
|
5,006 |
|
|
277,551 |
|
| Gross profit |
68,253 |
|
|
1,295 |
|
|
69,548 |
|
| Less: Sales and marketing
expense |
33,551 |
|
|
664 |
|
|
34,215 |
|
| Contribution |
$ |
34,702 |
|
|
$ |
631 |
|
|
$ |
35,333 |
|
| Contribution margin |
10.2 |
% |
|
10.0 |
% |
|
10.2 |
% |
| |
|
|
|
|
|
| 2018 |
|
|
|
|
|
| Total net revenue |
$ |
435,775 |
|
|
$ |
4,805 |
|
|
$ |
440,580 |
|
| Cost of goods sold |
350,651 |
|
|
3,213 |
|
|
353,864 |
|
| Gross profit |
85,124 |
|
|
1,592 |
|
|
86,716 |
|
| Less: Sales and marketing
expense |
55,183 |
|
|
129 |
|
|
55,312 |
|
| Contribution |
$ |
29,941 |
|
|
$ |
1,463 |
|
|
$ |
31,404 |
|
| Contribution margin |
6.9 |
% |
|
30.4 |
% |
|
7.1 |
% |
| |
Nine months ended September 30, |
| |
Retail |
|
Other (1) |
|
Total |
| 2019 |
|
|
|
|
|
|
Total net revenue |
$ |
1,070,898 |
|
|
$ |
17,639 |
|
|
$ |
1,088,537 |
|
| Cost of goods sold |
858,169 |
|
|
13,797 |
|
|
871,966 |
|
| Gross profit |
212,729 |
|
|
3,842 |
|
|
216,571 |
|
| Less: Sales and marketing
expense |
100,429 |
|
|
1,823 |
|
|
102,252 |
|
| Contribution |
$ |
112,300 |
|
|
$ |
2,019 |
|
|
$ |
114,319 |
|
| Contribution margin |
10.5 |
% |
|
11.4 |
% |
|
10.5 |
% |
| |
|
|
|
|
|
| 2018 |
|
|
|
|
|
| Total net revenue |
$ |
1,353,454 |
|
|
$ |
15,590 |
|
|
$ |
1,369,044 |
|
| Cost of goods sold |
1,085,483 |
|
|
11,233 |
|
|
1,096,716 |
|
| Gross profit |
267,971 |
|
|
4,357 |
|
|
272,328 |
|
| Less: Sales and marketing
expense |
222,846 |
|
|
4,096 |
|
|
226,942 |
|
| Contribution |
$ |
45,125 |
|
|
$ |
261 |
|
|
$ |
45,386 |
|
| Contribution margin |
3.3 |
% |
|
1.7 |
% |
|
3.3 |
% |
- Other includes our tZERO, MVI, and Other reportable
segments.
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Investor Relations:ir@overstock.com
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