Overstock.com, Inc. (NASDAQ:OSTK), a tech-driven online retailer
and advancer of blockchain technology, today reported financial
results for the quarter ended December 31, 2019.
Key metrics (Q4 2019 vs. Q4 2018):
• Revenue: $370.9M vs. $452.5M (18% decrease);•
Gross profit: $76.5M vs. $81.6M (6% decrease);• Gross margin:
20.6% vs. 18.0% (261 basis point increase);• Sales and
marketing expense: $40.9M vs. $47.5M (14% decrease);•
G&A/Technology expense: $67.2M vs. $82.5M (19%
decrease);• Pre-tax loss: $29.8M vs. $49.9M ($20.1M
improvement); • Pre-tax loss -
Retail: $12.3M • Pre-tax loss -
tZERO: $8.8M • Pre-tax loss - MVI:
$5.2M • Pre-tax loss - Other:
$3.5M• Net loss*: $27.0M vs. $42.3M ($15.3M
improvement);• Diluted net loss per share: $0.73/share vs.
$1.39/share ($0.66/share improvement);• Adjusted EBITDA
(non-GAAP financial measure): ($19.0M) vs. ($27.5M) ($8.6M
improvement); • Adjusted EBITDA -
Retail: ($2.2M) • Adjusted EBITDA
- tZERO: ($10.6M) • Adjusted
EBITDA - MVI: ($2.7M) • Adjusted
EBITDA - Other: ($3.4M)
*Net loss refers to Net loss attributable to
stockholders of Overstock.com, Inc.
"The results of our fourth quarter and fiscal year were in line
with our previously revised guidance," said Overstock CEO Jonathan
Johnson. "Our retail business performed well despite a competitive
holiday shopping season, and we continue to make progress toward
our goal of realizing sustainable, profitable growth. Having
achieved stability and identified key areas in which to focus our
efforts, we are now moving into a phase of disciplined execution
against our retail strategy. tZERO has also made impressive
progress on its platform and we look forward to the issuance of our
digital dividend and the increased platform activity we believe
will result. Our other Medici Ventures companies continue to make
progress as well, and I'll discuss those achievements in more
detail during our call. I will also discuss the status of our
dividend and provide other important corporate updates. As we look
ahead in 2020, we are as optimistic as ever and confident about our
ability for the company to continue to be the innovative leader in
the e-commerce space that we've been known for throughout the
years."
The company will hold a conference call and webcast to discuss
its Q4 and full-year 2019 financial results on Friday,
March 13, 2020, 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 3978098
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 Friday,
March 13, 2020, through 11:30 a.m. ET on Friday,
March 27, 2020. 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 in assessing the company and its financial
results.
Total net revenue - Total net revenue was
$370.9 million and $452.5 million for Q4 2019 and 2018,
respectively, an 18% decrease. This decrease was primarily due to
decreased retail product sales that resulted primarily from a
reduction in sales and marketing activities, which was part of our
ongoing 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, but
we continued to see revenue benefits from this strategy in Q4 2018.
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 $76.5 million
and $81.6 million for Q4 2019 and 2018, respectively, a 6%
decrease, representing 20.6% and 18.0% 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, partially offset by an increase in gross margin. The
increase in gross margin was primarily due to a decrease in product
costs resulting from a continued shift in product sales mix into
higher margin products, reduced shipping costs due to renegotiated
rates with our freight carriers, and a higher proportion of our
revenue coming from marketplace sales, which we recognize on a net
basis.
Sales and marketing expenses - Sales and
marketing expenses totaled $40.9 million and $47.5 million for Q4
2019 and 2018, respectively, a 14% decrease, representing 11.0% and
10.5% 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 part
of this effort, we reduced spending in the sponsored search and
direct mail marketing channels.
Technology expenses - Technology expenses
totaled $34.0 million and $34.6 million for Q4 2019 and 2018,
respectively, a 2% decrease, representing 9.2% and 7.6% of total
revenue for those respective periods. The decrease was primarily
due to a $1.3 million decrease in technology licenses and
maintenance costs, a $402,000 decrease in consulting costs, and a
$293,000 decrease in depreciation costs. These decreases were
partially offset by a $1.7 million increase in technology
staff-related costs.
General and administrative ("G&A") expenses
- G&A expenses totaled $33.2 million and $47.9 million for Q4
2019 and 2018, respectively, a 31% decrease, representing 9.0% and
10.6% of total revenue for those respective periods. The decrease
was primarily due to a $10.7 million decrease in intangible asset
impairments and asset disposal losses, a $1.5 million decrease in
administrative staff-related costs, and a $1.3 million decrease in
consulting expenses.
Other income (expense), net - Other income
(expense), net totaled $1.5 million and ($2.0) million for Q4 2019
and 2018, respectively. The increase was due to a $3.5 million
increase in non-cash gains on equity holdings and other assets.
Net cash used in operating activities - Net
cash used in operating activities was $81.6 million and $138.9
million for the twelve months ended December 31, 2019 and
2018, respectively. The $57.3 million improvement was primarily due
to decreased losses largely due to our change in retail strategy,
as described above.
Free cash flow (a non-GAAP financial measure) -
Free cash flow totaled ($103.4) million and ($167.6) million for
the twelve months ended December 31, 2019 and 2018,
respectively. The $64.2 million improvement was due to a $57.3
million improvement in operating cash flow and a $6.9 million
decrease in capital expenditures.
Cash - We had cash and cash equivalents of
$112.3 million and $141.5 million at December 31, 2019 and
December 31, 2018, respectively. The decrease was primarily
due to funding of operating losses, partially offset by $83.0
million in net proceeds received from at-the-market stock offerings
during 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. Its leading e-commerce website sells a broad
range of new home 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
dedicated to the development and acceleration of 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. Other
service marks, trademarks and trade names which may be referred to
herein are the property of their respective owners.
This press release and the March 13, 2020 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, 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 inherent risks
associated with the businesses that 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 effects 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 is
included in our Form 10-K for the year ended December 31, 2019,
which was filed with the Securities and Exchange Commission on
March 13, 2020, and in our subsequent filings with the Securities
and Exchange Commission. The Form 10-K 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(in thousands)
| |
December 31, 2019 |
|
December 31, 2018 |
|
Assets |
|
|
|
| Current assets: |
|
|
|
|
Cash and cash equivalents |
$ |
112,266 |
|
|
$ |
141,512 |
|
|
Restricted cash |
2,632 |
|
|
1,302 |
|
|
Marketable securities at fair value |
10,308 |
|
|
— |
|
|
Accounts receivable, net |
24,728 |
|
|
35,930 |
|
|
Notes receivable, current |
3,111 |
|
|
359 |
|
|
Inventories, net |
5,840 |
|
|
14,108 |
|
|
Prepaids and other current assets |
18,478 |
|
|
22,056 |
|
|
Total current assets |
177,363 |
|
|
215,267 |
|
| Property and equipment,
net |
130,028 |
|
|
134,687 |
|
| Intangible assets, net |
11,756 |
|
|
13,370 |
|
| Goodwill |
27,120 |
|
|
22,895 |
|
| Equity securities |
42,043 |
|
|
60,427 |
|
| Operating lease right-of-use
assets |
25,384 |
|
|
— |
|
| Other long-term assets,
net |
4,033 |
|
|
14,573 |
|
|
Total assets |
$ |
417,727 |
|
|
$ |
461,219 |
|
|
Liabilities and Stockholders’ Equity |
|
|
|
| Current liabilities: |
|
|
|
|
Accounts payable |
$ |
75,416 |
|
|
$ |
102,574 |
|
|
Accrued liabilities |
88,197 |
|
|
87,858 |
|
|
Deferred revenue |
41,821 |
|
|
50,578 |
|
|
Operating lease liabilities, current |
6,603 |
|
|
— |
|
|
Other current liabilities |
3,962 |
|
|
476 |
|
|
Total current liabilities |
215,999 |
|
|
241,486 |
|
| Long-term debt, net |
— |
|
|
3,069 |
|
| Operating lease liabilities,
non-current |
21,554 |
|
|
— |
|
| Other long-term
liabilities |
2,319 |
|
|
5,958 |
|
|
Total liabilities |
239,872 |
|
|
250,513 |
|
| Commitments and
contingencies |
|
|
|
| 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 - 4,210 and 0 (including 4,085
shares declared as a stock dividend, not yet distributed) |
— |
|
|
— |
|
|
Series B, issued and outstanding - 357 and 355 |
— |
|
|
— |
|
|
Common stock, $0.0001 par value, authorized shares - 100,000 |
|
|
|
|
Issued shares - 42,790 and 35,346 |
|
|
|
|
Outstanding shares - 39,464 and 32,146 |
4 |
|
|
3 |
|
|
Additional paid-in capital |
764,845 |
|
|
657,981 |
|
|
Accumulated deficit |
(580,390 |
) |
|
(458,897 |
) |
|
Accumulated other comprehensive loss |
(568 |
) |
|
(584 |
) |
|
Treasury stock at cost - 3,326 and 3,200 |
(68,807 |
) |
|
(66,757 |
) |
|
Equity attributable to stockholders of Overstock.com, Inc. |
115,084 |
|
|
131,746 |
|
|
Equity attributable to noncontrolling interests |
62,771 |
|
|
78,960 |
|
|
Total stockholders' equity |
177,855 |
|
|
210,706 |
|
|
Total liabilities and stockholders' equity |
$ |
417,727 |
|
|
$ |
461,219 |
|
Overstock.com, Inc.Consolidated
Statements of Operations(in thousands, except per
share data)
| |
Three months endedDecember 31, |
| |
2019 |
|
2018 |
| Revenue, net |
|
|
|
|
Retail |
$ |
364,076 |
|
|
$ |
446,733 |
|
|
Other |
6,805 |
|
|
5,815 |
|
|
Total net revenue |
370,881 |
|
|
452,548 |
|
| Cost of goods sold |
|
|
|
|
Retail |
288,856 |
|
|
366,712 |
|
|
Other |
5,503 |
|
|
4,256 |
|
|
Total cost of goods sold |
294,359 |
|
|
370,968 |
|
|
Gross profit |
76,522 |
|
|
81,580 |
|
| Operating expenses: |
|
|
|
|
Sales and marketing |
40,868 |
|
|
47,537 |
|
|
Technology |
33,970 |
|
|
34,557 |
|
|
General and administrative |
33,247 |
|
|
47,930 |
|
|
Total operating expenses |
108,085 |
|
|
130,024 |
|
| Operating loss |
(31,563 |
) |
|
(48,444 |
) |
| Interest income |
315 |
|
|
661 |
|
| Interest expense |
(53 |
) |
|
(98 |
) |
| Other income (expense),
net |
1,547 |
|
|
(1,999 |
) |
|
Loss before income taxes |
(29,754 |
) |
|
(49,880 |
) |
| Benefit for income taxes |
(94 |
) |
|
(1,939 |
) |
| Net loss |
$ |
(29,660 |
) |
|
$ |
(47,941 |
) |
|
Less: Net loss attributable to noncontrolling interests |
(2,682 |
) |
|
(5,614 |
) |
| Net loss attributable to
stockholders of Overstock.com, Inc. |
$ |
(26,978 |
) |
|
$ |
(42,327 |
) |
| Net loss per common
share—basic: |
|
|
|
| Net loss attributable to
common shares—basic |
$ |
(0.73 |
) |
|
$ |
(1.39 |
) |
| Weighted average common shares
outstanding—basic |
36,573 |
|
|
32,112 |
|
| Net loss per common
share—diluted: |
|
|
|
| Net loss attributable to
common shares—diluted |
$ |
(0.73 |
) |
|
$ |
(1.39 |
) |
| Weighted average common shares
outstanding—diluted |
36,573 |
|
|
32,112 |
|
Overstock.com, Inc.Consolidated
Statements of Operations(in thousands, except per
share data)
| |
Year ended December 31, |
| |
2019 |
|
2018 |
| Revenue, net |
|
|
|
|
Retail |
$ |
1,434,974 |
|
|
$ |
1,800,187 |
|
|
Other |
24,444 |
|
|
21,405 |
|
|
Total net revenue |
1,459,418 |
|
|
1,821,592 |
|
| Cost of goods sold |
|
|
|
|
Retail |
1,147,025 |
|
|
1,452,195 |
|
|
Other |
19,300 |
|
|
15,489 |
|
|
Total cost of goods sold |
1,166,325 |
|
|
1,467,684 |
|
|
Gross profit |
293,093 |
|
|
353,908 |
|
| Operating expenses: |
|
|
|
|
Sales and marketing |
143,120 |
|
|
274,479 |
|
|
Technology |
135,338 |
|
|
132,154 |
|
|
General and administrative |
138,124 |
|
|
164,481 |
|
|
Total operating expenses |
416,582 |
|
|
571,114 |
|
| Operating loss |
(123,489 |
) |
|
(217,206 |
) |
| Interest income |
1,797 |
|
|
2,208 |
|
| Interest expense |
(342 |
) |
|
(1,468 |
) |
| Other expense, net |
(12,501 |
) |
|
(3,488 |
) |
|
Loss before income taxes |
(134,535 |
) |
|
(219,954 |
) |
| Provision (benefit) for income
taxes |
185 |
|
|
(2,384 |
) |
| Net loss |
$ |
(134,720 |
) |
|
$ |
(217,570 |
) |
|
Less: Net loss attributable to noncontrolling interests |
(12,879 |
) |
|
(11,500 |
) |
| Net loss attributable to
stockholders of Overstock.com, Inc. |
$ |
(121,841 |
) |
|
$ |
(206,070 |
) |
| Net loss per common
share—basic: |
|
|
|
| Net loss attributable to
common shares—basic |
$ |
(3.46 |
) |
|
$ |
(6.83 |
) |
| Weighted average common shares
outstanding—basic |
34,865 |
|
|
29,976 |
|
| Net loss per common
share—diluted: |
|
|
|
| Net loss attributable to
common shares—diluted |
$ |
(3.46 |
) |
|
$ |
(6.83 |
) |
| Weighted average common shares
outstanding—diluted |
34,865 |
|
|
29,976 |
|
Overstock.com, Inc.Consolidated
Statements of Cash Flows(in
thousands)
| |
Year ended December 31, |
| |
2019 |
|
2018 |
|
Cash flows from operating activities: |
|
|
|
| Consolidated
net loss |
$ |
(134,720 |
) |
|
$ |
(217,570 |
) |
|
Adjustments to reconcile consolidated net loss to net cash used in
operating activities: |
|
|
|
|
Depreciation of property and equipment |
26,262 |
|
|
26,411 |
|
|
Amortization of intangible assets |
4,769 |
|
|
5,286 |
|
|
Non-cash operating lease cost |
6,676 |
|
|
— |
|
|
Stock-based compensation to employees and directors |
18,229 |
|
|
14,356 |
|
|
Deferred income taxes, net |
(69 |
) |
|
(2,386 |
) |
|
Gain on sale of cryptocurrencies |
(569 |
) |
|
(8,370 |
) |
|
Impairment of cryptocurrencies |
334 |
|
|
10,463 |
|
|
Impairment of equity securities |
7,090 |
|
|
536 |
|
|
Losses on equity method securities |
7,734 |
|
|
3,869 |
|
|
Loss on disposal of business and other asset abandonments |
— |
|
|
3,565 |
|
|
Impairments on intangible assets |
1,406 |
|
|
6,000 |
|
|
Other non-cash adjustments |
(2,037 |
) |
|
(583 |
) |
|
Changes in operating assets and liabilities, net of
acquisitions: |
|
|
|
|
Accounts receivable, net |
13,385 |
|
|
(5,558 |
) |
|
Inventories, net |
8,268 |
|
|
628 |
|
|
Prepaids and other current assets |
5,956 |
|
|
(3,622 |
) |
|
Other long-term assets, net |
(660 |
) |
|
(2,870 |
) |
|
Accounts payable |
(27,158 |
) |
|
16,499 |
|
|
Accrued liabilities |
(281 |
) |
|
5,661 |
|
|
Deferred revenue |
(8,757 |
) |
|
9,150 |
|
|
Operating lease liabilities |
(8,013 |
) |
|
— |
|
|
Other long-term liabilities |
543 |
|
|
(399 |
) |
|
Net cash used in operating activities |
(81,612 |
) |
|
(138,934 |
) |
| Cash flows from investing activities: |
|
|
|
|
Purchase of intangible assets |
— |
|
|
(9,597 |
) |
|
Purchase of equity securities |
(12,641 |
) |
|
(48,731 |
) |
|
Proceeds from sale of equity securities and marketable
securities |
7,339 |
|
|
— |
|
|
Disbursement for notes receivable |
(4,715 |
) |
|
(3,059 |
) |
|
Acquisitions of businesses, net of cash acquired |
4,886 |
|
|
(12,912 |
) |
|
Deposit on purchase of a business |
— |
|
|
(8,000 |
) |
|
Expenditures for property and equipment |
(21,774 |
) |
|
(28,680 |
) |
|
Other investing activities, net |
53 |
|
|
56 |
|
|
Net cash used in investing activities |
(26,852 |
) |
|
(110,923 |
) |
| |
| Continued on the
following page |
| |
| |
Year ended December 31, |
| |
2019 |
|
2018 |
| Cash flows from financing activities: |
|
|
|
|
Payment on long-term debt |
(3,141 |
) |
|
(40,000 |
) |
|
Proceeds under short-term contract financing |
4,858 |
|
|
— |
|
|
Payments under short-term contract financing |
(1,353 |
) |
|
— |
|
|
Payments of preferred dividends |
(77 |
) |
|
(77 |
) |
|
Proceeds from issuance and exercise of stock warrants |
— |
|
|
50,588 |
|
|
Proceeds from security token offering, net of offering costs and
withdrawals |
— |
|
|
82,354 |
|
|
Proceeds from sale of common stock, net of offering costs |
82,954 |
|
|
94,554 |
|
|
Paid in capital for noncontrolling interest |
— |
|
|
6,700 |
|
|
Payments of taxes withheld upon vesting of restricted stock |
(1,407 |
) |
|
(4,622 |
) |
|
Other financing activities, net |
(1,286 |
) |
|
(496 |
) |
|
Net cash provided by financing activities |
80,548 |
|
|
189,001 |
|
| Net decrease in cash and cash equivalents |
(27,916 |
) |
|
(60,856 |
) |
| Cash, cash equivalents and restricted cash, beginning of
year |
142,814 |
|
|
203,670 |
|
| Cash, cash
equivalents and restricted cash, end of year |
$ |
114,898 |
|
|
$ |
142,814 |
|
| |
|
|
|
| Supplemental disclosures of cash flow
information: |
|
|
|
| Cash paid during the period: |
|
|
|
|
Interest paid, net of amounts capitalized |
$ |
264 |
|
|
$ |
1,319 |
|
|
Income taxes refunded, net |
(1,259 |
) |
|
(726 |
) |
| Non-cash investing and financing
activities: |
|
|
|
|
Property and equipment financed through accounts payable and
accrued liabilities |
$ |
350 |
|
|
$ |
139 |
|
|
Proceeds from sale of common stock included in accounts
receivable |
2,848 |
|
|
— |
|
|
Acquisition of assets through stock issuance |
— |
|
|
4,430 |
|
|
Common stock repurchased through business combination |
643 |
|
|
— |
|
|
Receivables converted to equity securities |
2,887 |
|
|
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. 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").
The MVI segment 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 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 transaction 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 create
or foster a set of products and solutions that leverage blockchain
technology to generate efficiencies and increase security and
control, excluding intercompany transactions eliminated in
consolidation.
Our Other segment consists of MLG and our unallocated corporate
support costs.
The following table summarizes information about reportable
segments and includes a reconciliation to consolidated net loss (in
thousands):
| |
Three months ended December 31, |
| |
Retail |
|
tZERO |
|
MVI |
|
Other |
|
Total |
| 2019 |
|
|
|
|
|
|
|
|
|
|
Total net revenue |
$ |
364,076 |
|
|
$ |
5,873 |
|
|
$ |
819 |
|
|
$ |
113 |
|
|
$ |
370,881 |
|
| Cost of goods sold |
288,856 |
|
|
4,684 |
|
|
819 |
|
|
— |
|
|
294,359 |
|
| Gross profit |
75,220 |
|
|
1,189 |
|
|
— |
|
|
113 |
|
|
76,522 |
|
| Operating expenses (1) |
87,801 |
|
|
13,501 |
|
|
3,195 |
|
|
3,588 |
|
|
108,085 |
|
| Interest and other income
(expense), net (2) |
247 |
|
|
3,540 |
|
|
(1,971 |
) |
|
(7 |
) |
|
1,809 |
|
| Pre-tax loss |
$ |
(12,334 |
) |
|
$ |
(8,772 |
) |
|
$ |
(5,166 |
) |
|
$ |
(3,482 |
) |
|
(29,754 |
) |
| Benefit for income taxes |
|
|
|
|
|
|
|
|
(94 |
) |
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(29,660 |
) |
| |
|
|
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
|
|
|
|
|
| Total net revenue |
$ |
446,733 |
|
|
$ |
4,963 |
|
|
$ |
852 |
|
|
$ |
— |
|
|
$ |
452,548 |
|
| Cost of goods sold |
366,712 |
|
|
3,404 |
|
|
852 |
|
|
— |
|
|
370,968 |
|
| Gross profit |
80,021 |
|
|
1,559 |
|
|
— |
|
|
— |
|
|
81,580 |
|
| Operating expenses |
106,573 |
|
|
13,885 |
|
|
1,872 |
|
|
7,694 |
|
|
130,024 |
|
| Interest and other expense,
net (2) |
(1,130 |
) |
|
(280 |
) |
|
(19 |
) |
|
(7 |
) |
|
(1,436 |
) |
| Pre-tax loss |
$ |
(27,682 |
) |
|
$ |
(12,606 |
) |
|
$ |
(1,891 |
) |
|
$ |
(7,701 |
) |
|
(49,880 |
) |
| Benefit for income taxes |
|
|
|
|
|
|
|
|
(1,939 |
) |
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(47,941 |
) |
| |
Year ended December 31, |
| |
Retail |
|
tZERO |
|
MVI |
|
Other |
|
Total |
| 2019 |
|
|
|
|
|
|
|
|
|
|
Total net revenue |
$ |
1,434,974 |
|
|
$ |
21,582 |
|
|
$ |
2,749 |
|
|
$ |
113 |
|
|
$ |
1,459,418 |
|
| Cost of goods sold |
1,147,025 |
|
|
16,551 |
|
|
2,749 |
|
|
— |
|
|
1,166,325 |
|
| Gross profit |
287,949 |
|
|
5,031 |
|
|
— |
|
|
113 |
|
|
293,093 |
|
| Operating expenses (1) |
332,372 |
|
|
54,911 |
|
|
14,778 |
|
|
14,521 |
|
|
416,582 |
|
| Interest and other income
(expense), net (2) |
559 |
|
|
2,442 |
|
|
(14,039 |
) |
|
(8 |
) |
|
(11,046 |
) |
| Pre-tax loss |
$ |
(43,864 |
) |
|
$ |
(47,438 |
) |
|
$ |
(28,817 |
) |
|
$ |
(14,416 |
) |
|
(134,535 |
) |
| Provision for income
taxes |
|
|
|
|
|
|
|
|
185 |
|
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(134,720 |
) |
| |
|
|
|
|
|
|
|
|
|
| 2018 |
|
|
|
|
|
|
|
|
|
| Total net revenue |
$ |
1,800,187 |
|
|
$ |
19,043 |
|
|
$ |
2,362 |
|
|
$ |
— |
|
|
$ |
1,821,592 |
|
| Cost of goods sold |
1,452,195 |
|
|
13,127 |
|
|
2,362 |
|
|
— |
|
|
1,467,684 |
|
| Gross profit |
347,992 |
|
|
5,916 |
|
|
— |
|
|
— |
|
|
353,908 |
|
| Operating expenses |
506,113 |
|
|
47,006 |
|
|
8,316 |
|
|
9,679 |
|
|
571,114 |
|
| Interest and other income
(expense), net (2) |
(476 |
) |
|
233 |
|
|
(2,498 |
) |
|
(7 |
) |
|
(2,748 |
) |
| Pre-tax loss |
$ |
(158,597 |
) |
|
$ |
(40,857 |
) |
|
$ |
(10,814 |
) |
|
$ |
(9,686 |
) |
|
(219,954 |
) |
| Benefit for income taxes |
|
|
|
|
|
|
|
|
(2,384 |
) |
| Net loss (3) |
|
|
|
|
|
|
|
|
$ |
(217,570 |
) |
__________________________________________(1) Corporate
support costs for the three months ended December 31, 2019 have
been allocated $10.5 million, $1.5 million, $1.1 million, and $2.0
million to Retail, tZERO, MVI, and Other, respectively. Unallocated
corporate support costs of $1.5 million are included in Other.
Corporate support costs for the year ended December 31, 2019 have
been allocated $42.0 million, $6.0 million, $4.2 million, and $7.8
million to Retail, tZERO, MVI, and Other, respectively. Unallocated
corporate support costs of $6.0 million are included in
Other.(2) Excludes intercompany transactions eliminated in
consolidation, which consist primarily of service fees and
interest. The net amounts of these intercompany transactions were
$934,000 and $432,000 for the three-month periods ended December
31, 2019 and 2018, respectively, and $2.7 million and $3.5 million
for the years ended December 31, 2019 and 2018,
respectively.(3) 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 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 December 31, |
| |
2019 |
|
2018 |
| Adjusted
EBITDA |
|
|
|
|
Retail |
$ |
(2,194 |
) |
|
$ |
(16,856 |
) |
| tZERO |
(10,628 |
) |
|
(7,256 |
) |
| MVI |
(2,695 |
) |
|
(1,714 |
) |
| Other |
(3,442 |
) |
|
(1,687 |
) |
| Adjusted
EBITDA |
(18,959 |
) |
|
(27,513 |
) |
|
Less: Special items (see table below) |
— |
|
|
9,565 |
|
|
Less: Depreciation and amortization |
7,998 |
|
|
8,664 |
|
|
Less: Stock-based compensation |
4,606 |
|
|
2,702 |
|
|
Less: Interest income, net |
(262 |
) |
|
(563 |
) |
|
Less: Other (income) expense, net (1) |
(1,547 |
) |
|
1,999 |
|
|
Less: Provision (benefit) for income taxes |
(94 |
) |
|
(1,939 |
) |
| Net loss |
$ |
(29,660 |
) |
|
$ |
(47,941 |
) |
| |
|
|
|
| Special items: |
|
|
|
|
Impairments on intangible assets |
$ |
— |
|
|
$ |
6,000 |
|
|
Losses on the disposal of various businesses |
— |
|
|
3,565 |
|
| |
$ |
— |
|
|
$ |
9,565 |
|
| |
Year ended December 31, |
| |
2019 |
|
2018 |
| Adjusted
EBITDA |
|
|
|
|
Retail |
$ |
(3,648 |
) |
|
$ |
(111,537 |
) |
| tZERO |
(43,797 |
) |
|
(25,271 |
) |
| MVI |
(11,981 |
) |
|
(7,296 |
) |
| Other |
(14,298 |
) |
|
(3,647 |
) |
| Adjusted
EBITDA |
(73,724 |
) |
|
(147,751 |
) |
|
Less: Special items (see table below) |
1,942 |
|
|
23,402 |
|
|
Less: Depreciation and amortization |
29,594 |
|
|
31,697 |
|
|
Less: Stock-based compensation |
18,229 |
|
|
14,356 |
|
|
Less: Interest income, net |
(1,455 |
) |
|
(740 |
) |
|
Less: Other expense, net (1) |
12,501 |
|
|
3,488 |
|
|
Less: Provision (benefit) for income taxes |
185 |
|
|
(2,384 |
) |
| Net loss |
$ |
(134,720 |
) |
|
$ |
(217,570 |
) |
| |
|
|
|
| Special items: |
|
|
|
|
Impairments on intangible assets |
$ |
1,406 |
|
|
$ |
6,000 |
|
|
Losses on the disposal of various businesses |
— |
|
|
3,565 |
|
|
Cryptocurrency impairments and gains on sale, net |
— |
|
|
443 |
|
|
Severance |
1,757 |
|
|
1,600 |
|
|
Special legal expenses (2) |
(1,221 |
) |
|
11,794 |
|
| |
$ |
1,942 |
|
|
$ |
23,402 |
|
___________________________________________(1) Other
expense, net for the three months ended December 31, 2019 includes
$1.5 million of non-cash gains on equity holdings and other assets.
Other expense, net for the year ended December 31, 2019 includes
$12.5 million of non-cash losses on equity holdings and other
assets.(2) 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
used in operating activities," the nearest GAAP financial measure,
is net cash used in operating activities reduced by "Expenditures
for property and equipment." We believe that net cash 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 property and equipment 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 property and equipment. 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):
| |
Year ended December 31, |
| |
2019 |
|
2018 |
|
Net cash used in operating activities |
$ |
(81,612 |
) |
|
$ |
(138,934 |
) |
| Expenditures for property and
equipment |
(21,774 |
) |
|
(28,680 |
) |
| Free cash flow |
$ |
(103,386 |
) |
|
$ |
(167,614 |
) |
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 December 31, |
| |
Retail |
|
Other (1) |
|
Total |
| 2019 |
|
|
|
|
|
|
Total net revenue |
$ |
364,076 |
|
|
$ |
6,805 |
|
|
$ |
370,881 |
|
| Cost of goods sold |
288,856 |
|
|
5,503 |
|
|
294,359 |
|
| Gross profit |
75,220 |
|
|
1,302 |
|
|
76,522 |
|
| Less: Sales and marketing
expense |
39,946 |
|
|
922 |
|
|
40,868 |
|
| Contribution |
$ |
35,274 |
|
|
$ |
380 |
|
|
$ |
35,654 |
|
| Contribution margin |
9.7 |
% |
|
5.6 |
% |
|
9.6 |
% |
| |
|
|
|
|
|
| 2018 |
|
|
|
|
|
| Total net revenue |
$ |
446,733 |
|
|
$ |
5,815 |
|
|
$ |
452,548 |
|
| Cost of goods sold |
366,712 |
|
|
4,256 |
|
|
370,968 |
|
| Gross profit |
80,021 |
|
|
1,559 |
|
|
81,580 |
|
| Less: Sales and marketing
expense |
47,142 |
|
|
395 |
|
|
47,537 |
|
| Contribution |
$ |
32,879 |
|
|
$ |
1,164 |
|
|
$ |
34,043 |
|
| Contribution margin |
7.4 |
% |
|
20.0 |
% |
|
7.5 |
% |
| |
Year ended December 31, |
| |
Retail |
|
Other (1) |
|
Total |
| 2019 |
|
|
|
|
|
|
Total net revenue |
$ |
1,434,974 |
|
|
$ |
24,444 |
|
|
$ |
1,459,418 |
|
| Cost of goods sold |
1,147,025 |
|
|
19,300 |
|
|
1,166,325 |
|
| Gross profit |
287,949 |
|
|
5,144 |
|
|
293,093 |
|
| Less: Sales and marketing
expense |
140,377 |
|
|
2,743 |
|
|
143,120 |
|
| Contribution |
$ |
147,572 |
|
|
$ |
2,401 |
|
|
$ |
149,973 |
|
| Contribution margin |
10.3 |
% |
|
9.8 |
% |
|
10.3 |
% |
| |
|
|
|
|
|
| 2018 |
|
|
|
|
|
| Total net revenue |
$ |
1,800,187 |
|
|
$ |
21,405 |
|
|
$ |
1,821,592 |
|
| Cost of goods sold |
1,452,195 |
|
|
15,489 |
|
|
1,467,684 |
|
| Gross profit |
347,992 |
|
|
5,916 |
|
|
353,908 |
|
| Less: Sales and marketing
expense |
269,988 |
|
|
4,491 |
|
|
274,479 |
|
| Contribution |
$ |
78,004 |
|
|
$ |
1,425 |
|
|
$ |
79,429 |
|
| Contribution margin |
4.3 |
% |
|
6.7 |
% |
|
4.4 |
% |
__________________________________________(1) Other
includes our tZERO, MVI, and Other segments.
Public Relations:pr@overstock.com
Investor Relations:ir@overstock.com
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