Consolidated revenue of $424 million (-4% growth) and net loss
of ($786,000)Retail net income of $1.1 millionMedici net loss of
($1.9) millionUpdated tZERO ICO informationSale of warrants for
3,722,188 common shares
Overstock.com, Inc. Common Shares (NASDAQ:OSTK) / Series A
Preferred (Medici Ventures’ tZERO platform:OSTKP) / Series B
Preferred (OTCQX:OSTBP) today reported financial results for the
quarter ended September 30, 2017.
Dear Owners,
There is a tremendous amount of activity going on within your
firm. I will mention one key event, then describe the retail side
of the business, then the Medici side, and then strategic
considerations.
I am pleased to announce that we have sold a warrant to a fund
affiliated with Passport Capital LLC for $2.6 million to purchase
1,250,000 shares of our common stock at $40.45 per share until
February 7, 2018. We also sold a warrant to Quantum Partners LP for
$4 million to purchase 2,472,188 shares of our common stock at
$40.45 per share until January 2, 2018. Quantum Partners LP is a
private investment fund managed by Soros Fund Management LLC.
On the retail side, all systems are running better than they
have in a long time, with the exception of one marketing channel
(SEO) which has suffered significantly since May (to address this,
we have formed our largest war room to date in response). However,
our Paid Digital Marketing and Branding metrics are doing well,
especially given that we have a loss-gushing direct competitor who
is outspending us on Paid Digital Marketing by 4.6X, and who on
Branding is running 6X-7X as many television spots as we are
running. The fact that we are holding our own against their
decision to distort all previously known prices in the digital
marketing landscape is purely a function of the fact that over the
last few years we have made a prop-to-jet conversion, so that a
large proportion of our channels are run by quantitatively-oriented
people, including data scientists and machine learning experts, who
keep tweaking more efficiency out of the numbers to seek to stay
ahead of the loss-gushing competitors.
On the Medici front: There may be no better-positioned company
for blockchain investments in the world. We have made nine such
investments, and under the guidance of our President of Medici
Ventures, Jonathan Johnson, Medici has brought a lot of value to
our investments by tapping into various Overstock resources to help
nurture the firms that desire it (some of which have been fairly
nascent). The formula is proving to be quite a success. One of
those successes is our blockchain-meets-Wall-Street firm, tZERO,
which has drawn much attention this quarter due to the SEC’s July
25 ruling regarding DAO tokens: if the ICO world is going to shift
towards security ICOs (and hence, securities, as the SEC decision
has been read by most), then those instruments need to trade upon
an SEC-compliant venue that is technologically capable of handling
blockchain. Furthermore, we believe there is precisely one such
venue in the world, and tZERO owns it. In addition, tZERO’s Digital
Locate Receipt (“DLR”) product is hitting full stride today, with
approximately $100 billion in securities on which tZERO can
generate a DLR representing a pre-borrow (which is better than a
“locate”). As of this week, the DLR platform is now integrated into
multiple trading platforms allowing thousands of active traders,
access to billions of dollars of available DLR inventory. All in
all, there are historic possibilities piling up in tZERO alone (to
say nothing of other blockchain opportunities we are already
developing, including one I suspect is bigger even than tZERO).
Regarding tZERO: we intend to proceed with our ICO, but the form
the ICO will take has evolved:
- As you know, for 4 years we have been at the forefront of
nearly every major development in the area of Blockchain and
capital markets. Due to our vision and unique structure and a focus
on maintaining that leading edge, we are offering what we view as a
truly revolutionary construct for the tZERO ICO.
- Our token will be a Security Token with a unique
characteristic, in that it will have a Utility function which can
be used throughout tZERO’s growing suite of products and
ecosystem.
- We anticipate that the ICO will be issued as a Security Token
and offered as a private placement pursuant to an exemption from
the registration requirements of the U.S. Securities Act.
- Our team has worked diligently to design the token to ensure
that it will be tradable on our U.S.-regulated ATS operated by one
of tZERO’s subsidiary FINRA Broker Dealers.
- We are working with our strategic, financial and legal advisors
to structure the unique features of the tZERO token to provide the
utmost flexibility and value for purchasers. We currently
contemplate that the token's features will include:
- a right to share in a portion of tZERO's top-line revenue (with
such payments deposited into holders' digital wallets);
- utility to pay for fees on the ATS, with a reduced fee schedule
for token holders;
- additional utility features and functionality that will be
announced at a later date.
- The proceeds of the pre-sale will be used, among other things,
for strategic acquisitions and enhancements to the tZERO
platform.
- Since announcing our intention to do an ICO on October 24 we
have been overwhelmed with interest. The feedback we have received
is positive, and many have expressed questions or concerns about
the approaching Hard Fork, which as of today is a question. To that
end we have decided to defer to the wisdom of the crowd, and
address any uncertainty in committing to a firm ICO date.
Therefore, we have decided to move the ICO pre-sale process out to
allow for broadening the registration of all interested
participants and account for any uncertainty regarding the
potential fork.
- tZERO expects to launch the ICO process around November 30,
2017, subject to market conditions and regulatory
developments.
I have indicated for about 18 months (and loud-and-clear in the
last earnings call) that I hear the Gods of Economics whispering
that the best model is a brick-and-click model, and that around the
end of 2017 I would be working on exploring such a hybridization,
which could take various forms (by way of non-exhaustive examples,
click-buying-brick or brick-buying-click, or a strategic
partnership formed with the right large partner). I stand by my
earlier statements regarding the exploration of strategic
alternatives.
This earnings call will be unusually interesting and
informative, especially for investors who are new to this story and
who are trying to get an understanding of how to think about an
admittedly unusual collection of values. I urge you to make time
for it. For those who cannot, a recording of it will be available
at 10:00 p.m. ET on our PR YouTube channel.
Your humble servant,Patrick M. Byrne
Key Q3 2017 metrics (comparison to Q3 2016):
- Revenue: $424.0M vs. $441.6M (4% decrease);
- Gross profit: $83.7M vs. $79.7M (5% increase);
- Gross margin: 19.7% vs. 18.1% (168 basis point increase);
- Sales and marketing expense: $45.2M vs. $34.7M (30%
increase);
- Contribution (non-GAAP measure): $39.2M vs. $49.2M (20%
decrease);
- G&A/Technology expense: $50.4M vs. $50.1M (1%
increase);
- Pre-tax loss: ($6.5M) vs. ($3.9M) ($2.6M increase);
- Pre-tax loss - OSTK retail (non-GAAP financial measure):
($2.9M)
- Pre-tax loss - Medici (non-GAAP financial measure):
($3.7M)
- Benefit for income taxes: ($5.4M) vs. ($543,000) ($4.9M
increase);
- Net loss*: ($786,000) vs. ($3.1M) ($2.3M decrease);
- Diluted net loss per share: ($0.03)/share vs. ($0.12)/share
($0.09/share decrease);
*Net loss refers to Net loss attributable to stockholders of
Overstock.com, Inc.
We will hold a conference call and webcast to discuss our Q3
2017 financial results Wednesday, November 8, 2017, 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 4188309
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 or on the Overstock.com PR
YouTube channel, https://goo.gl/AYZYY7 at 10:00 p.m. ET on
Wednesday, November 8, 2017. An audio replay of the webcast will be
available via telephone starting at 7:30 p.m. ET on Wednesday,
November 8, 2017, through 6:30 p.m. ET on Wednesday, November 22,
2017. 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 $424.0 million and
$441.6 million for Q3 2017 and 2016, respectively, a 4% decrease.
In Q2 2017 and continuing in Q3 2017, we have experienced slowing
of our overall revenue growth which we believe is due in part to
changes that Google, Inc. ("Google") has made in its natural search
engine algorithms. We have found that the algorithm adjustments
that Google has made have introduced more volatility than past
years and the length of the tuning has been significantly greater
than previous years. This has created tremendous headwind for our
business beginning in May and continuing. We have reorganized a
large number of resources around addressing this current 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 $83.7 million and $79.7 million
for Q3 2017 and 2016, respectively, a 5% increase, representing
19.7% and 18.1% 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, partially
offset by increased promotional activities.
Sales and marketing expenses - Sales and marketing expenses
totaled $45.2 million and $34.7 million for Q3 2017 and 2016,
respectively, a 30% increase, and representing 10.6% and 7.9% 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 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 variety of countermeasures spinning up week
by week. These countermeasures, one of which involves a quite
creative alliance never before seen in e-commerce, and others of
which involve applying our now-hearty AI systems up to wider and
wider application across our Digital Marketing portfolio, will play
out in just a handful of months.
Consolidated contribution (a non-GAAP financial measure) and
contribution margin (a non-GAAP financial measure) - Contribution
for Q3 2017 and 2016 was $39.2 million and $49.2 million,
respectively, a 20% decrease, representing 9.2% 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” 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 September
30, |
|
Nine months ended September
30, |
| |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| Total net revenue |
|
$ |
424,007 |
|
|
100 |
% |
|
$ |
441,564 |
|
|
100 |
% |
|
$ |
1,288,466 |
|
|
100 |
% |
|
$ |
1,273,781 |
|
|
100 |
% |
| Cost of goods sold |
|
340,332 |
|
|
80.3 |
% |
|
361,848 |
|
|
81.9 |
% |
|
1,033,713 |
|
|
80.2 |
% |
|
1,040,436 |
|
|
81.7 |
% |
| Gross profit |
|
83,675 |
|
|
19.7 |
% |
|
79,716 |
|
|
18.1 |
% |
|
254,753 |
|
|
19.8 |
% |
|
233,345 |
|
|
18.3 |
% |
| Less: Sales and
marketing expense |
|
45,153 |
|
|
10.6 |
% |
|
34,707 |
|
|
7.9 |
% |
|
126,068 |
|
|
9.8 |
% |
|
99,516 |
|
|
7.8 |
% |
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
692 |
|
|
0.2 |
% |
|
4,162 |
|
|
0.9 |
% |
|
1,924 |
|
|
0.1 |
% |
|
12,247 |
|
|
1.0 |
% |
| Contribution and
contribution margin |
|
$ |
39,214 |
|
|
9.2 |
% |
|
$ |
49,171 |
|
|
11.1 |
% |
|
$ |
130,609 |
|
|
10.1 |
% |
|
$ |
146,076 |
|
|
11.5 |
% |
Technology expenses - Technology expenses totaled
$28.7 million and $26.7 million for Q3 2017 and 2016,
respectively, an 8% increase, and representing 6.8% and 6.1% of
total revenue for those respective periods. The increase was
primarily due to an increase in staff related costs of $1.5
million, an increase in technology licenses and maintenance costs
of $1.3 million, partially offset by a decrease in depreciation of
$848,000.
General and administrative ("G&A") expenses - G&A
expenses totaled $21.7 million and $23.3 million for Q3 2017
and 2016, respectively, a 7% decrease, and representing 5.1% and
5.3% of total revenue for those respective periods. The decrease
was primarily due to a decrease in bad debt expense of $1.1
million, a decrease in consulting and outside services expense of
$479,000, and a decrease in legal fees of $434,000. These decreases
were partially offset by an increase in staff related costs of
$509,000.
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 may continue to incur additional expenses or make
investments in, or acquisitions of other technologies and
businesses. We also anticipate that our Medici initiatives will
incur losses in the near term. These losses, additional expenses,
acquisitions or investments may be material, and, coupled with
existing marketing expense trends and the seasonality of our
business, may lead to reduced consolidated income or losses in some
periods, and to reduced liquidity. Additionally, we may recognize
additional impairment charges from our investments. We are also
considering other alternatives for Medici, including raising
capital.
Other income, net - Other income, net totaled $5.9 million and
$1.3 million for Q3 2017 and 2016, respectively. The increase is
primarily due to an increase in realized gains on sales of
cryptocurrencies and precious metals of $5.5 million, and a
decrease in impairment charges of $2.8 million, partially offset by
a decrease in Club O Rewards breakage of $3.5 million due to
discontinuing our Club O Silver rewards program in Q4 2016.
Net cash (used in) provided by operating activities - Net cash
(used in) provided by operating activities was ($7.7) million and
$75.5 million for the twelve months ended September 30, 2017 and
2016, respectively. The $83.1 million decrease is primarily due to
slowing revenue growth, decreased contribution and income, and the
timing of certain payments. Net cash provided by operating
activities for the twelve months ended September 30, 2016 includes
litigation settlement proceeds of $19.5 million.
Free cash flow (a non-GAAP financial measure) - Free cash flow
totaled ($41.4) million and ($37,000) for the twelve months ended
September 30, 2017 and 2016, respectively. The $41.4 million
decrease was due to an $83.1 million decrease in operating cash
flow, partially offset by a $41.7 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 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):
| |
|
Nine months ended September
30, |
|
Twelve months ended September
30, |
| |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
| Net cash (used in)
provided by operating activities |
|
$ |
(62,655 |
) |
|
$ |
(15,439 |
) |
|
$ |
(7,652 |
) |
|
$ |
75,477 |
|
| Expenditures for fixed
assets, including internal-use software and website
development |
|
(20,873 |
) |
|
(59,382 |
) |
|
(33,772 |
) |
|
(75,514 |
) |
| Free cash flow |
|
$ |
(83,528 |
) |
|
$ |
(74,821 |
) |
|
$ |
(41,424 |
) |
|
$ |
(37 |
) |
Cash and working capital - We had cash and cash equivalents of
$92.3 million and $183.1 million and working capital of ($24.7)
million and ($4.8) million at September 30, 2017 and December 31,
2016, respectively.
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 November 8, 2017 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-Q for the quarter
ended September 30, 2017 which was filed with the Securities and
Exchange Commission on November 8, 2017. Our Form 10-Q 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 (Unaudited)(in
thousands)
| |
September 30, 2017 |
|
December 31, 2016 |
|
Assets |
|
|
|
| Current assets: |
|
|
|
| Cash and
cash equivalents |
$ |
92,266 |
|
|
$ |
183,098 |
|
|
Restricted cash |
562 |
|
|
430 |
|
| Accounts
receivable, net |
24,328 |
|
|
28,142 |
|
|
Inventories, net |
13,562 |
|
|
18,937 |
|
| Prepaid
inventories, net |
1,766 |
|
|
2,112 |
|
| Prepaids
and other current assets |
18,498 |
|
|
11,654 |
|
| Total
current assets |
150,982 |
|
|
244,373 |
|
| Fixed assets, net |
131,981 |
|
|
134,552 |
|
| Precious metals |
250 |
|
|
9,946 |
|
| Deferred tax assets,
net |
74,250 |
|
|
56,266 |
|
| Intangible assets,
net |
8,288 |
|
|
10,913 |
|
| Goodwill |
14,698 |
|
|
14,698 |
|
| Other long-term assets,
net |
14,992 |
|
|
14,328 |
|
| Total
assets |
$ |
395,441 |
|
|
$ |
485,076 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
| Current
liabilities: |
|
|
|
| Accounts
payable |
$ |
70,543 |
|
|
$ |
106,337 |
|
| Accrued
liabilities |
58,784 |
|
|
96,216 |
|
| Deferred
revenue |
41,505 |
|
|
41,780 |
|
| Finance
obligations, current |
3,326 |
|
|
3,256 |
|
| Other
current liabilities, net |
1,507 |
|
|
1,627 |
|
| Total
current liabilities |
175,665 |
|
|
249,216 |
|
| Long-term debt,
net |
43,406 |
|
|
44,179 |
|
| Finance obligations,
non-current |
9,325 |
|
|
11,831 |
|
| Other long-term
liabilities |
7,159 |
|
|
6,890 |
|
| Total
liabilities |
235,555 |
|
|
312,116 |
|
| 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 - 28,149 and 27,895 |
|
|
|
|
Outstanding shares - 25,017 and 25,432 |
3 |
|
|
3 |
|
|
Additional paid-in capital |
387,195 |
|
|
383,348 |
|
|
Accumulated deficit |
(158,893 |
) |
|
(153,898 |
) |
|
Accumulated other comprehensive loss |
(1,420 |
) |
|
(1,540 |
) |
| Treasury
stock: |
|
|
|
| Shares at
cost - 3,132 and 2,463 |
(63,691 |
) |
|
(52,587 |
) |
| Equity
attributable to stockholders of Overstock.com, Inc. |
163,194 |
|
|
175,326 |
|
| Equity
attributable to noncontrolling interests |
(3,308 |
) |
|
(2,366 |
) |
| Total
equity |
159,886 |
|
|
172,960 |
|
|
Total liabilities and stockholders’ equity |
$ |
395,441 |
|
|
$ |
485,076 |
|
Overstock.com, Inc.Consolidated
Statements of Operations (Unaudited)(in thousands,
except per share data)
| |
Three months ended September
30, |
|
Nine months ended September
30, |
| |
2017 |
|
2016 |
|
2017 |
|
2016 |
| Revenue, net |
|
|
|
|
|
|
|
|
Direct |
$ |
19,645 |
|
|
$ |
24,620 |
|
|
$ |
64,572 |
|
|
$ |
75,901 |
|
| Partner
and other |
404,362 |
|
|
416,944 |
|
|
1,223,894 |
|
|
1,197,880 |
|
| Total net
revenue |
424,007 |
|
|
441,564 |
|
|
1,288,466 |
|
|
1,273,781 |
|
| Cost of goods sold |
|
|
|
|
|
|
|
|
Direct |
19,577 |
|
|
23,955 |
|
|
61,687 |
|
|
72,459 |
|
| Partner
and other |
320,755 |
|
|
337,893 |
|
|
972,026 |
|
|
967,977 |
|
| Total
cost of goods sold |
340,332 |
|
|
361,848 |
|
|
1,033,713 |
|
|
1,040,436 |
|
| Gross
profit |
83,675 |
|
|
79,716 |
|
|
254,753 |
|
|
233,345 |
|
| Operating
expenses: |
|
|
|
|
|
|
|
| Sales and
marketing |
45,153 |
|
|
34,707 |
|
|
126,068 |
|
|
99,516 |
|
|
Technology |
28,746 |
|
|
26,739 |
|
|
85,982 |
|
|
78,249 |
|
| General
and administrative |
21,651 |
|
|
23,317 |
|
|
66,622 |
|
|
67,843 |
|
|
Litigation settlement |
— |
|
|
— |
|
|
— |
|
|
(19,520 |
) |
| Total
operating expenses |
95,550 |
|
|
84,763 |
|
|
278,672 |
|
|
226,088 |
|
| Operating income
(loss) |
(11,875 |
) |
|
(5,047 |
) |
|
(23,919 |
) |
|
7,257 |
|
| Interest income |
189 |
|
|
73 |
|
|
450 |
|
|
228 |
|
| Interest expense |
(713 |
) |
|
(212 |
) |
|
(2,139 |
) |
|
(219 |
) |
| Other income, net |
5,882 |
|
|
1,251 |
|
|
2,751 |
|
|
9,399 |
|
| Income
(loss) before income taxes |
(6,517 |
) |
|
(3,935 |
) |
|
(22,857 |
) |
|
16,665 |
|
| Provision (benefit) for
income taxes |
(5,412 |
) |
|
(543 |
) |
|
(7,727 |
) |
|
8,178 |
|
| Net income (loss) |
$ |
(1,105 |
) |
|
$ |
(3,392 |
) |
|
$ |
(15,130 |
) |
|
$ |
8,487 |
|
| Less: Net
loss attributable to noncontrolling interests |
(319 |
) |
|
(294 |
) |
|
(942 |
) |
|
(940 |
) |
| Net income (loss)
attributable to stockholders of Overstock.com, Inc. |
$ |
(786 |
) |
|
$ |
(3,098 |
) |
|
$ |
(14,188 |
) |
|
$ |
9,427 |
|
| Net income (loss) per
common share—basic: |
|
|
|
|
|
|
|
| Net income (loss)
attributable to common shares—basic |
$ |
(0.03 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.55 |
) |
|
$ |
0.37 |
|
| Weighted average common
shares outstanding—basic |
25,003 |
|
|
25,356 |
|
|
25,024 |
|
|
25,326 |
|
| Net income (loss) per
common share—diluted: |
|
|
|
|
|
|
|
| Net income (loss)
attributable to common shares—diluted |
$ |
(0.03 |
) |
|
$ |
(0.12 |
) |
|
$ |
(0.55 |
) |
|
$ |
0.37 |
|
| Weighted average common
shares outstanding—diluted |
25,003 |
|
|
25,356 |
|
|
25,024 |
|
|
25,388 |
|
Overstock.com, Inc.Consolidated
Statements of Cash Flows (Unaudited)(in
thousands)
| |
Nine months ended September
30, |
|
Twelve months ended September
30, |
| |
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Consolidated net income (loss) |
$ |
(15,130 |
) |
|
$ |
8,487 |
|
|
$ |
(12,369 |
) |
|
$ |
8,350 |
|
|
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation of fixed assets |
21,895 |
|
|
19,710 |
|
|
29,468 |
|
|
26,729 |
|
|
Amortization of intangible assets |
2,839 |
|
|
3,193 |
|
|
3,614 |
|
|
3,444 |
|
|
Stock-based compensation to employees and directors |
3,009 |
|
|
4,105 |
|
|
3,795 |
|
|
5,054 |
|
| Deferred
income taxes, net |
(8,682 |
) |
|
6,688 |
|
|
(7,651 |
) |
|
4,701 |
|
| (Gain)
loss on investment in precious metals |
(1,907 |
) |
|
— |
|
|
(2,108 |
) |
|
521 |
|
| Gain on
sale of cryptocurrencies |
(845 |
) |
|
— |
|
|
(845 |
) |
|
— |
|
|
Impairment of cost method investment |
4,500 |
|
|
2,850 |
|
|
4,500 |
|
|
2,850 |
|
|
Termination costs of cryptobond financing |
— |
|
|
— |
|
|
— |
|
|
850 |
|
|
Other |
420 |
|
|
207 |
|
|
569 |
|
|
212 |
|
| Changes
in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
Restricted cash |
(207 |
) |
|
— |
|
|
(207 |
) |
|
— |
|
|
Accounts receivable, net |
3,814 |
|
|
(2,909 |
) |
|
(3,283 |
) |
|
(2,108 |
) |
|
Inventories, net |
5,375 |
|
|
4,325 |
|
|
2,155 |
|
|
7,489 |
|
|
Prepaid inventories, net |
346 |
|
|
(226 |
) |
|
(229 |
) |
|
(259 |
) |
|
Prepaids and other current assets |
(6,296 |
) |
|
(3,456 |
) |
|
(451 |
) |
|
(1,012 |
) |
|
Other long-term assets, net |
(121 |
) |
|
(356 |
) |
|
(551 |
) |
|
(670 |
) |
|
Accounts payable |
(35,794 |
) |
|
(40,247 |
) |
|
(14,370 |
) |
|
17,548 |
|
|
Accrued liabilities |
(35,831 |
) |
|
(8,678 |
) |
|
(10,217 |
) |
|
4,920 |
|
|
Deferred revenue |
(275 |
) |
|
(9,687 |
) |
|
248 |
|
|
(3,896 |
) |
|
Other long-term liabilities |
235 |
|
|
555 |
|
|
280 |
|
|
754 |
|
|
Net cash (used in) provided by operating
activities |
(62,655 |
) |
|
(15,439 |
) |
|
(7,652 |
) |
|
75,477 |
|
| Cash flows from
investing activities: |
|
|
|
|
|
|
|
| Proceeds
from sale of precious metals |
11,603 |
|
|
— |
|
|
13,213 |
|
|
— |
|
|
Investment in precious metals |
— |
|
|
— |
|
|
(1,633 |
) |
|
— |
|
|
Disbursement of note receivable |
(750 |
) |
|
(3,050 |
) |
|
(1,368 |
) |
|
(3,050 |
) |
| Cost
method investments |
(2,188 |
) |
|
(4,000 |
) |
|
(2,938 |
) |
|
(4,000 |
) |
| Equity
method investment |
(2,000 |
) |
|
— |
|
|
(2,000 |
) |
|
— |
|
|
Acquisitions of businesses, net of cash acquired |
— |
|
|
1,220 |
|
|
28 |
|
|
1,192 |
|
|
Expenditures for fixed assets, including internal-use software and
website development |
(20,873 |
) |
|
(59,382 |
) |
|
(33,772 |
) |
|
(75,514 |
) |
|
Other |
(160 |
) |
|
46 |
|
|
(179 |
) |
|
14 |
|
| Net cash
used in investing activities |
(14,368 |
) |
|
(65,166 |
) |
|
(28,649 |
) |
|
(81,358 |
) |
| Cash flows from
financing activities: |
|
|
|
|
|
|
|
| Paydown
on direct financing arrangement |
— |
|
|
(54 |
) |
|
— |
|
|
(134 |
) |
| Payments
on finance obligations |
(2,436 |
) |
|
(1,354 |
) |
|
(2,988 |
) |
|
(1,458 |
) |
| Payments
on interest swap |
— |
|
|
(563 |
) |
|
— |
|
|
(620 |
) |
| Proceeds
from finance obligations |
— |
|
|
6,075 |
|
|
5,324 |
|
|
11,773 |
|
| Payments
on short-term debt |
— |
|
|
— |
|
|
— |
|
|
(750 |
) |
| Proceeds
from long-term debt |
— |
|
|
31,447 |
|
|
4,826 |
|
|
40,935 |
|
| Payments
on long-term debt |
(750 |
) |
|
— |
|
|
(750 |
) |
|
— |
|
| Change in
restricted cash |
75 |
|
|
— |
|
|
75 |
|
|
75 |
|
| Proceeds
from exercise of stock options |
654 |
|
|
— |
|
|
1,473 |
|
|
— |
|
| Proceeds
from rights offering, net of offering costs |
— |
|
|
— |
|
|
7,591 |
|
|
— |
|
| Proceeds
from issuance of stock warrants |
3 |
|
|
— |
|
|
3 |
|
|
— |
|
| Purchase
of treasury stock |
(11,104 |
) |
|
(737 |
) |
|
(11,207 |
) |
|
(737 |
) |
| Payment
of debt issuance costs |
(251 |
) |
|
— |
|
|
(251 |
) |
|
— |
|
| Net cash
(used in) provided by financing activities |
(13,809 |
) |
|
34,814 |
|
|
4,096 |
|
|
49,084 |
|
| Net (decrease) increase
in cash and cash equivalents |
(90,832 |
) |
|
(45,791 |
) |
|
(32,205 |
) |
|
43,203 |
|
| Cash and cash
equivalents, beginning of period |
183,098 |
|
|
170,262 |
|
|
124,471 |
|
|
81,268 |
|
| Cash and cash
equivalents, end of period |
$ |
92,266 |
|
|
$ |
124,471 |
|
|
$ |
92,266 |
|
|
$ |
124,471 |
|
Additional Non-GAAP Financial Measure
Reconciliations
As described 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, because they provide financial results for our
separate businesses which are distinct in nature. 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 Retail and Medici
businesses. Our Retail business consists of our Direct and Partner
reportable segments. 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 September
30, |
| |
Direct |
Partner |
Retail Total |
|
Other |
|
Total |
|
2017 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
19,645 |
|
$ |
400,419 |
|
$ |
420,064 |
|
|
$ |
3,943 |
|
|
$ |
424,007 |
|
| Cost of goods sold |
19,577 |
|
318,121 |
|
337,698 |
|
|
2,634 |
|
|
340,332 |
|
| Gross profit |
$ |
68 |
|
$ |
82,298 |
|
$ |
82,366 |
|
|
$ |
1,309 |
|
|
$ |
83,675 |
|
| Less: Sales and
marketing expense |
|
|
44,910 |
|
|
243 |
|
|
45,153 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
692 |
|
|
— |
|
|
692 |
|
| Contribution |
|
|
$ |
38,148 |
|
|
$ |
1,066 |
|
|
$ |
39,214 |
|
| Contribution
margin |
|
|
9.1 |
% |
|
27.0 |
% |
|
9.2 |
% |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
24,620 |
|
$ |
413,019 |
|
$ |
437,639 |
|
|
$ |
3,925 |
|
|
$ |
441,564 |
|
| Cost of goods sold |
23,955 |
|
335,306 |
|
359,261 |
|
|
2,587 |
|
|
361,848 |
|
| Gross profit |
$ |
665 |
|
$ |
77,713 |
|
$ |
78,378 |
|
|
$ |
1,338 |
|
|
$ |
79,716 |
|
| Less: Sales and
marketing expense |
|
|
34,594 |
|
|
113 |
|
|
34,707 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
4,162 |
|
|
— |
|
|
4,162 |
|
| Contribution |
|
|
$ |
47,946 |
|
|
$ |
1,225 |
|
|
$ |
49,171 |
|
| Contribution
margin |
|
|
11.0 |
% |
|
31.2 |
% |
|
11.1 |
% |
| |
Nine months ended September
30, |
| |
Direct |
Partner |
Retail Total |
|
Other |
|
Total |
|
2017 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
64,572 |
|
$ |
1,211,536 |
|
$ |
1,276,108 |
|
|
$ |
12,358 |
|
|
$ |
1,288,466 |
|
| Cost of goods sold |
61,687 |
|
963,310 |
|
1,024,997 |
|
|
8,716 |
|
|
1,033,713 |
|
| Gross profit |
$ |
2,885 |
|
$ |
248,226 |
|
$ |
251,111 |
|
|
$ |
3,642 |
|
|
$ |
254,753 |
|
| Less: Sales and
marketing expense |
|
|
125,312 |
|
|
756 |
|
|
126,068 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
1,924 |
|
|
— |
|
|
1,924 |
|
| Contribution |
|
|
$ |
127,723 |
|
|
$ |
2,886 |
|
|
$ |
130,609 |
|
| Contribution
margin |
|
|
10.0 |
% |
|
23.4 |
% |
|
10.1 |
% |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Total net revenue |
$ |
75,901 |
|
$ |
1,187,364 |
|
$ |
1,263,265 |
|
|
$ |
10,516 |
|
|
$ |
1,273,781 |
|
| Cost of goods sold |
72,459 |
|
961,227 |
|
1,033,686 |
|
|
6,750 |
|
|
1,040,436 |
|
| Gross profit |
$ |
3,442 |
|
$ |
226,137 |
|
$ |
229,579 |
|
|
$ |
3,766 |
|
|
$ |
233,345 |
|
| Less: Sales and
marketing expense |
|
|
99,097 |
|
|
419 |
|
|
99,516 |
|
| Plus: Club O Rewards
and gift card breakage (included in Other income, net) |
|
|
12,247 |
|
|
— |
|
|
12,247 |
|
| Contribution |
|
|
$ |
142,729 |
|
|
$ |
3,347 |
|
|
$ |
146,076 |
|
| Contribution
margin |
|
|
11.3 |
% |
|
31.8 |
% |
|
11.5 |
% |
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 September
30, |
| |
Direct |
Partner |
Retail Total |
|
Other |
|
Total |
|
2017 |
|
|
|
|
|
|
|
| Revenue, net |
$ |
19,645 |
|
$ |
400,419 |
|
$ |
420,064 |
|
|
$ |
3,943 |
|
|
$ |
424,007 |
|
| Cost of goods sold |
19,577 |
|
318,121 |
|
337,698 |
|
|
2,634 |
|
|
340,332 |
|
| Gross profit |
$ |
68 |
|
$ |
82,298 |
|
$ |
82,366 |
|
|
$ |
1,309 |
|
|
$ |
83,675 |
|
| Operating expenses |
|
|
90,592 |
|
|
4,958 |
|
|
95,550 |
|
| Interest and other
income (expense), net |
|
|
5,375 |
|
|
(17 |
) |
|
5,358 |
|
| Pre-tax loss |
|
|
(2,851 |
) |
|
(3,666 |
) |
|
(6,517 |
) |
| Benefit for income
taxes |
|
|
(3,993 |
) |
|
(1,419 |
) |
|
(5,412 |
) |
| Net income (loss) |
|
|
$ |
1,142 |
|
|
$ |
(2,247 |
) |
|
$ |
(1,105 |
) |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Revenue, net |
$ |
24,620 |
|
$ |
413,019 |
|
$ |
437,639 |
|
|
$ |
3,925 |
|
|
$ |
441,564 |
|
| Cost of goods sold |
23,955 |
|
335,306 |
|
359,261 |
|
|
2,587 |
|
|
361,848 |
|
| Gross profit |
$ |
665 |
|
$ |
77,713 |
|
$ |
78,378 |
|
|
$ |
1,338 |
|
|
$ |
79,716 |
|
| Operating expenses |
|
|
80,497 |
|
|
4,266 |
|
|
84,763 |
|
| Interest and other
income (expense), net |
|
|
1,177 |
|
|
(65 |
) |
|
1,112 |
|
| Pre-tax loss |
|
|
(942 |
) |
|
(2,993 |
) |
|
(3,935 |
) |
| Provision (benefit) for
income taxes |
|
|
713 |
|
|
(1,256 |
) |
|
(543 |
) |
| Net loss |
|
|
$ |
(1,655 |
) |
|
$ |
(1,737 |
) |
|
$ |
(3,392 |
) |
| |
Nine months ended September
30, |
| |
Direct |
Partner |
Retail Total |
|
Other |
|
Total |
|
2017 |
|
|
|
|
|
|
|
| Revenue, net |
$ |
64,572 |
|
$ |
1,211,536 |
|
$ |
1,276,108 |
|
|
$ |
12,358 |
|
|
$ |
1,288,466 |
|
| Cost of goods sold |
61,687 |
|
963,310 |
|
1,024,997 |
|
|
8,716 |
|
|
1,033,713 |
|
| Gross profit |
$ |
2,885 |
|
$ |
248,226 |
|
$ |
251,111 |
|
|
$ |
3,642 |
|
|
$ |
254,753 |
|
| Operating expenses |
|
|
264,455 |
|
|
14,217 |
|
|
278,672 |
|
| Interest and other
income (expense), net |
|
|
5,490 |
|
|
(4,428 |
) |
|
1,062 |
|
| Pre-tax loss |
|
|
(7,854 |
) |
|
(15,003 |
) |
|
(22,857 |
) |
| Benefit for income
taxes |
|
|
(3,280 |
) |
|
(4,447 |
) |
|
(7,727 |
) |
| Net loss |
|
|
$ |
(4,574 |
) |
|
$ |
(10,556 |
) |
|
$ |
(15,130 |
) |
| |
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
| Revenue, net |
$ |
75,901 |
|
$ |
1,187,364 |
|
$ |
1,263,265 |
|
|
$ |
10,516 |
|
|
$ |
1,273,781 |
|
| Cost of goods sold |
72,459 |
|
961,227 |
|
1,033,686 |
|
|
6,750 |
|
|
1,040,436 |
|
| Gross profit |
$ |
3,442 |
|
$ |
226,137 |
|
$ |
229,579 |
|
|
$ |
3,766 |
|
|
$ |
233,345 |
|
| Operating expenses |
|
|
213,502 |
|
|
12,586 |
|
|
226,088 |
|
| Interest and other
income (expense), net |
|
|
9,409 |
|
|
(1 |
) |
|
9,408 |
|
| Pre-tax income
(loss) |
|
|
25,486 |
|
|
(8,821 |
) |
|
16,665 |
|
| Provision (benefit) for
income taxes |
|
|
11,626 |
|
|
(3,448 |
) |
|
8,178 |
|
| Net income (loss) |
|
|
$ |
13,860 |
|
|
$ |
(5,373 |
) |
|
$ |
8,487 |
|
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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