Press Release
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Dear Owners,
Recently an investor lamented to me that Overstock is among the most difficult-to-value stocks on
In preparation for that call, here are a few highlights on tZERO, Other Medici, and Retail, before I dive deeper on each of these in the letter that follows:
- tZERO (owned 80% by our blockchain subsidiary
Medici Ventures ) has:
-
- closed out its Security Token offering raising
$134 million in aggregate consideration (this sum includes$30 million from repayment of intercompany debt between tZERO and Overstock: GSR has signed a repurchase agreement to acquire these tokens)
- closed out its Security Token offering raising
-
- obtained a term sheet agreement from GSR to purchase from tZERO up to
$270 million in tZERO equity at a$1.5 billion post-money valuation; and
- obtained a term sheet agreement from GSR to purchase from tZERO up to
-
- secured a term sheet agreement from GSR to purchase up to 3.1 million shares of OSTK for
$104 million ($33.72 /shareAugust 1 st closing price less 5%)
- secured a term sheet agreement from GSR to purchase up to 3.1 million shares of OSTK for
We will provide thorough descriptions of these agreements in our 10Q.
- Other
Medici Ventures : We are increasingly enthusiastic about blockchain and Medici Ventures’ unique position in the field. In addition to tZERO, we have funded 13 blockchain projects withinMedici Ventures , withJonathan Johnson ably overseeing their build-out. We believe at least one or two of those companies (perhaps more) have tZERO-like potential. Beyond that, we have accumulated a valuable core blockchain development group of approximately 30 (this is in addition to the 11 that Medici recently transferred to tZERO, and to the many dozens who create within the firms which we have helped fund). When it comes to the world of crypto, I am well-traveled, and can assure you that it is an unusually large, strong group of blockchain talent in and aroundMedici Ventures .
- Retail: The strategy adopted earlier this year of running our retail site like a conventional internet firm has produced a 25% revenue acceleration (from -13% in Q4 to +12% in Q2). Yet the marketing and price testing that fueled that growth has come at a significant cost (
$57 million in Q2). Significant dilution always accompanies a growth ecommerce strategy, and, given the rapidly growing value of our non-retail assets, we think shareholders are better served now by a cash-conservative strategy. I believe Overstock can focus on developing more non-traditional means of growth and profitability, something that has been a hallmark of our success over the years. As a result, we recently reverted to a retail strategy that has narrowed these losses significantly in the month of July and will narrow them further this quarter and again next.
I once worked as an equity analyst at First Manhattan under the tutelage of two wonderful gentlemen,
I. tZERO:
tZERO is a leader in the emerging field of Security Tokens. Briefly, Security Tokens are smart contracts embedded within blockchains that represent fractional ownership of assets. Collectively, there is the better part of a quadrillion dollars of fractional ownership around the globe represented in various securities instruments: approximately
- Regulatory advantage:
- OSTKP, the first issuance of a regulated blockchain instrument: We can claim more experience with regulated blockchain instruments than anyone in the field. In
March 2015 , tZERO’s Alternative Trading System, ProSecurities ATS, filed with theSEC its plans to facilitate secondary trading of blockchain instruments. Shortly thereafter, inAugust 2015 , we issued a private blockchain instrument (our$5 million bond). InDecember 2016 , Overstock issued OSTKP, the world’s firstSEC -registered blockchain security, which trades on the ProSecurities ATS.
- Boston Exchange Joint Venture: This quarter we worked with
BOX Digital Markets LLC to form a new company to operate the first U.S. security token exchange, expanding our capabilities beyond what operating only an Alternative Trading System can allow. Our partners have deep experience running a national securities exchange: BOX Digital Markets is owned byBOX Holding Group LLC , a national securities exchange established in 2002 and registered with theSEC .Lisa Fall , the President of BOX, has become the CEO of our new JV. This arrangement puts further regulatory distance between us and any followers.
- OSTKP, the first issuance of a regulated blockchain instrument: We can claim more experience with regulated blockchain instruments than anyone in the field. In
- Technology: There are two technology components of tZERO to understand: our routing and exchange technology, and our blockchain technology.
- Routing and exchange technology: tZERO was built on top of technology originally developed by SpeedRoute, a firm we entered in to an agreement to purchase in 2015. SpeedRoute is a routing and execution firm that is currently routing ~6 billion shares per day and is already deeply integrated into the U.S. National Market System. Thus, the blockchain innovations we are building within tZERO are accessible to the traditional capital markets system, providing current market participants the opportunity to access crypto-securities without having to incur switching costs. tZERO represents a regulated bridge between the traditional securities markets and the fast-emerging world of crypto-securities.
- Blockchain technology: tZERO’s blockchain trading technologies (such as OSTKP) have progressed with the help of development talent from Medici, which has one of the most developed group of blockchain engineers in the world. Now that we’ve completed the tZERO Security Token offering, our objective is to enable secondary trading in non-U.S. markets of the tZERO Security Tokens by Regulation S investors in the fourth quarter.
- Routing and exchange technology: tZERO was built on top of technology originally developed by SpeedRoute, a firm we entered in to an agreement to purchase in 2015. SpeedRoute is a routing and execution firm that is currently routing ~6 billion shares per day and is already deeply integrated into the U.S. National Market System. Thus, the blockchain innovations we are building within tZERO are accessible to the traditional capital markets system, providing current market participants the opportunity to access crypto-securities without having to incur switching costs. tZERO represents a regulated bridge between the traditional securities markets and the fast-emerging world of crypto-securities.
- Human capital: tZERO started with expertise residing in SpeedRoute regarding routing and executing trades that I believe is second to none in the US capital markets. In Q2, the tZERO board appointed Overstock’s former president, Saum Noursalehi, as the CEO of tZERO. I could not be more confident in Saum’s capabilities given his performance at Overstock and leadership over Overstock’s former innovation arm, OLabs. He effectively restructured Overstock Retail during some of our critical years to make our teams more agile and efficient. Since his appointment as CEO of tZERO, Saum has brought a tremendous pool of blockchain and general technologists into tZERO, and he has a significant advantage by being able to draw upon the resources and expertise of
Medici Ventures and Overstock while building that team.
- Capital: Having concluded its Security Token offering, tZERO has raised aggregate consideration of
$134 million . This figured includes$30 million from repayment of intercompany debt between tZERO and Overstock. GSR has signed a repurchase agreement to acquire these tokens. As I will diagram in our earnings call, we have designed quite an ecosystem with a scale that matches the enormous opportunity in front of it. When GSR completes its planned investments, we should have over half-a-billion dollars. We believe this will provide ample capitalization with which to build a company that can upend global capital markets.
- Board: This quarter we made a tremendous addition to the tZERO board:
Bruce Fenton . After having spent over twenty-five years in the traditional securities industry, Bruce has become one of the world’s great visionaries regarding blockchain securities. He is uniquely suited to coach tZERO forward, and to bridge the gap between traditional securities and security tokens.
- Brand: I spent time this quarter meeting with hundreds of crypto-minds from
Israel toSeoul . I am humbly gratified to discover that tZERO already has a remarkable brand globally.
In sum, we believe that Security Tokens are an innovation of historic proportions, and we are leading the field. This scaling up of tZERO reflects the seriousness with which I take this project and my belief in its enormous potential. This year’s infusion of financial and human capital into tZERO will be overwhelmingly positive in preparing tZERO to compete and win the coming competition of security token exchanges.
II. Other
There are other investments within Medici Ventures’ portfolio which we believe have tZERO-like potential. Others have smaller, but still great, potential. Two investments worth mentioning now are Bitsy and Medici Land Governance.
Bitsy: Bitsy is a crypto wallet that we will be introducing in beta in September. We believe it will be superior to competing products in the market (such as Coinbase) for a variety of reasons that will be mentioned on our conference call, but which include superior user experience and key management. We will be using Overstock Retail’s large amount of traffic (31.4 million unique visitors in June) to promote this wallet.
Medici Land Governance: Medici Land Governance (MLG) is applying blockchain to government land governance systems to address global poverty. How? The idea of eradicating poverty by improving land governance has been a part of the intellectual arsenal of development theorists since the 1970’s, but we believe that with blockchain, mobile apps, and digital marketing, the process can be done more quickly, more securely, and at massive scale. MLG has signed agreements with the
In addition to the above-mentioned projects, I am tremendously excited about
Finally, the astute analyst will note that Overstock Retail has grown slightly chubby on payroll. This has been deliberate. We are ready to move close to 10% of our corporate payroll from Retail into Medici and some of its blockchain subsidiaries (primarily, tZERO). We are putting reasonable constraints on this reallocation so as not to impact Overstock Retail operations (e.g. no more than one person from any one team within Retail). The influx of talent into our blockchain assets will provide them a huge advantage and will be a good investment into this enormous opportunity.
III. Overstock Retail
Since
To achieve this acceleration, we made significant investments in pricing, marketing G&A, but most significantly, an enormous advertising push to find new campaigns and audiences across the digital landscape. These tests are often structurally unprofitable to run, but some percentage of the campaigns tested can be leveraged to bring in profitable incremental business when the tests are completed. In the second quarter we gunned the throttle on that testing more than we ever have or (I expect) ever will again. As we started ending tests in the month of July, we found we are able to make significant reductions to previous marketing levels with relatively modest impact to growth. We believe with the benefit of the learnings of these tests, our non-SEO business is significantly stronger than it was at the end of 2017, and this will be manifested as we reduce our spend in Q3 and Q4.
Since last year, we have completed about five years’ worth of SEO projects, which have seen moderate success in that they have arrested decay and, recently, have modestly improved our numbers. As mentioned in the introduction, the growth we have attained this quarter has been costly (
However, this Q2 marketing including a massive dose of one-time experimentation (from which we mapped and quantified with nice clean data) will have both direct and interrelated effects across much of the digital marketing landscape. We have already pulled significantly back on expensive acceleration and are focusing on optimizing channels with our new learnings. This will dramatically reduce cash-burn and benefit both
Given this set of facts, the smart choice is clearly to minimize dilution to our ownership of those emerging assets. The way to do this is to switch to a strategy for Retail that deemphasizes growth and instead emphasizes sharply reduced cash-burn. We have already switched to this strategy, and I expect to see a dramatic narrowing of our losses in Q3 and again in Q4.
Looking ahead, I see four major catalysts possible for Overstock Retail:
- Quick SEO Recovery: A new set of executives has been recruited and promoted among our executive team to tackle this challenge. It is proving healthy to have new sets of eyes look at our SEO, and I am encouraged by their progress so far.
- Customer Lifetime Value Improvement: We are receiving the benefit of one of the world’s leading strategic consulting firms in this area. They have been superb.
- Crypto-Retail Synergies: Between now and the end of the year we are introducing some leading edge crypto products that may find their place to our retail site. It is not out of the question that they will significantly boost organic traffic to Overstock’s retail site.
- Retail Sale: As we have stated publicly several times, we are considering all strategic options. We have an amply-resourced and highly motivated team pursuing these discussions. Discussions with potential buyers have progressed since our last call and based on those discussions, we believe more modest growth and optimized cash flow is also the preferable path to complete a sale.
So, that is our business and our options, laid out as clearly and honestly as I would have hoped for, were I still writing analyst reports for
But if that were not difficult enough, I will add one last significant twist: that point I made above about having new fresh eyes look at some thorny problems was no lip service. Remember my claim is that ultimately, these last quarters of pain have had one root cause, the collapse of SEO. A corollary of that is that if we can fix that one problem, the swing it would create in our results is something only a devout student of digital marketing would appreciate. Towards that end, we have had a fresh crew studying the problem for several months. After a tremendous focused effort, our fresh eyes have come up with a way to make significant improvements in our website’s customer experience. The recent changes and code roll were (for us anyway) semi-massive.
Has it worked? Have our
So, tune into our webcast, and make the call for yourself. I look forward to helping investors understand the facts clearly. Until then, I remain,
Your humble servant,
Key Q2 2018 metrics (comparison to Q2 2017):
- Revenue:
$483.1M vs.$432.0M (12% increase); - Gross profit:
$91.7M vs.$84.2M (9% increase); - Gross margin: 19.0% vs. 19.5% (49 basis point decrease);
- Sales and marketing expense:
$94.4M vs.$43.3M (118% increase); - G&A/Technology expense:
$63.9M vs.$50.6M (26% increase); - Pre-tax loss: (
$65.9M ) vs. ($9.7M ) ($56.2M increase);- Pre-tax loss - Overstock retail (non-GAAP financial measure): (
$57.4M ) - Pre-tax loss - Medici (non-GAAP financial measure): (
$8.6M )
- Pre-tax loss - Overstock retail (non-GAAP financial measure): (
- Net loss*: (
$64.9M ) vs. ($7.5M ) ($57.4M increase); - Diluted net loss per share:
($2.20) /share vs.($0.29) /share ($1.91 /share increase);
*Net loss refers to Net loss attributable to stockholders of
We will hold a conference call and webcast to discuss our Q2 2018 financial results
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 6285767 when prompted. Participants outside the U.S. or
A replay of the conference call will be available at http://investors.overstock.com starting two hours after the live call has ended, or on Overstock's
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
Gross profit - Gross profit was
Sales and marketing expenses - Sales and marketing expenses totaled
Technology expenses - Technology expenses totaled
General and administrative ("G&A") expenses - G&A expenses totaled
We continue to seek opportunities for growth in our retail business, through our Medici blockchain and financial technology initiatives, and through other means. As a result of these initiatives, we will continue to incur additional expenses and expect to purchase interests in, or make acquisitions of, other technologies and businesses. We anticipate that our initiatives will cause us to incur losses in the foreseeable future. These losses, additional expenses, acquisitions or purchases may be material, and, coupled with existing marketing expense trends, increased marketing and branding expenditures, and strategic changes in our retail business, may lead to increased consolidated losses in some periods, and to reduced liquidity. Additionally, we may recognize additional impairment charges from our ownership interest in other entities.
Other income, net - Other income, net totaled
Net cash (used in) provided by operating activities - Net cash (used in) provided by operating activities was
Free cash flow (a non-GAAP financial measure) - Free cash flow totaled
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 (used in) 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, including internal-use software and website development, 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):
Six months ended June 30, |
Twelve months ended June 30, |
|||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net cash (used in) provided by operating activities | $ | (70,579 | ) | $ | (46,257 | ) | $ | (59,543 | ) | $ | 20,262 | |||||
Expenditures for fixed assets, including internal-use software and website development | (12,749 | ) | (16,450 | ) | (19,885 | ) | (45,883 | ) | ||||||||
Free cash flow | $ | (83,328 | ) | $ | (62,707 | ) | $ | (79,428 | ) | $ | (25,621 | ) | ||||
Cash - We had cash and cash equivalents of
About
O,
This press release and the
Overstock.com, Inc. | |||||||
Consolidated Balance Sheets (Unaudited) | |||||||
(in thousands) | |||||||
June 30, 2018 |
December 31, 2017 |
||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 152,228 | $ | 203,215 | |||
Restricted cash | 468 | 455 | |||||
Accounts receivable, net | 28,597 | 30,080 | |||||
Inventories, net | 15,355 | 13,703 | |||||
Prepaid inventories, net | 1,071 | 1,625 | |||||
Prepaids and other current assets | 25,419 | 16,119 | |||||
Total current assets | 223,138 | 265,197 | |||||
Fixed assets, net | 131,923 | 129,343 | |||||
Intangible assets, net | 26,343 | 7,337 | |||||
Goodwill | 22,058 | 14,698 | |||||
Equity Investments | 43,543 | 13,024 | |||||
Other long-term assets, net | 5,888 | 4,216 | |||||
Total assets | $ | 452,893 | $ | 433,815 | |||
Liabilities and Stockholders’ Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 92,712 | $ | 85,406 | |||
Accrued liabilities | 109,732 | 82,611 | |||||
Deferred revenue | 42,644 | 46,468 | |||||
Other current liabilities, net | 468 | 178 | |||||
Total current liabilities | 245,556 | 214,663 | |||||
Long-term debt, net | 3,069 | — | |||||
Long-term debt, net - related party | — | 39,909 | |||||
Other long-term liabilities | 6,160 | 7,120 | |||||
Total liabilities | 254,785 | 261,692 | |||||
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 555 | — | — | |||||
Common stock, $0.0001 par value | |||||||
Authorized shares - 100,000 | |||||||
Issued shares - 32,203 and 30,632 | |||||||
Outstanding shares - 29,007 and 27,497 | 3 | 3 | |||||
Additional paid-in capital | 553,112 | 494,732 | |||||
Accumulated deficit | (365,472 | ) | (254,692 | ) | |||
Accumulated other comprehensive loss | (591 | ) | (599 | ) | |||
Treasury stock: | |||||||
Shares at cost - 3,196 and 3,135 | (66,662 | ) | (63,816 | ) | |||
Equity attributable to stockholders of Overstock.com, Inc. | 120,390 | 175,628 | |||||
Equity attributable to noncontrolling interests | 77,718 | (3,505 | ) | ||||
Total equity | 198,108 | 172,123 | |||||
Total liabilities and stockholders’ equity | $ | 452,893 | $ | 433,815 | |||
Overstock.com, Inc. | |||||||||||||||
Consolidated Statements of Operations (Unaudited) | |||||||||||||||
(in thousands, except per share data) | |||||||||||||||
Three months ended June 30, |
Six months ended June 30, |
||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue, net | |||||||||||||||
Direct | $ | 14,715 | $ | 22,099 | $ | 30,985 | $ | 44,927 | |||||||
Partner and other | 468,418 | 409,925 | 897,479 | 819,532 | |||||||||||
Total net revenue | 483,133 | 432,024 | 928,464 | 864,459 | |||||||||||
Cost of goods sold | |||||||||||||||
Direct | 14,672 | 21,147 | 29,444 | 42,110 | |||||||||||
Partner and other | 376,718 | 326,706 | 713,408 | 651,271 | |||||||||||
Total cost of goods sold | 391,390 | 347,853 | 742,852 | 693,381 | |||||||||||
Gross profit | 91,743 | 84,171 | 185,612 | 171,078 | |||||||||||
Operating expenses: | |||||||||||||||
Sales and marketing | 94,416 | 43,297 | 171,630 | 80,915 | |||||||||||
Technology | 32,423 | 28,244 | 63,717 | 57,236 | |||||||||||
General and administrative | 31,440 | 22,361 | 71,195 | 44,971 | |||||||||||
Total operating expenses | 158,279 | 93,902 | 306,542 | 183,122 | |||||||||||
Operating loss | (66,536 | ) | (9,731 | ) | (120,930 | ) | (12,044 | ) | |||||||
Interest income | 620 | 136 | 1,164 | 261 | |||||||||||
Interest expense | (395 | ) | (716 | ) | (1,269 | ) | (1,426 | ) | |||||||
Other expense, net | 368 | 593 | 359 | (3,131 | ) | ||||||||||
Loss before income taxes | (65,943 | ) | (9,718 | ) | (120,676 | ) | (16,340 | ) | |||||||
Benefit from income taxes | (27 | ) | (1,975 | ) | (304 | ) | (2,315 | ) | |||||||
Net loss | $ | (65,916 | ) | $ | (7,743 | ) | $ | (120,372 | ) | $ | (14,025 | ) | |||
Less: Net loss attributable to noncontrolling interests | (1,005 | ) | (244 | ) | (4,552 | ) | (623 | ) | |||||||
Net loss attributable to stockholders of Overstock.com, Inc. | $ | (64,911 | ) | $ | (7,499 | ) | $ | (115,820 | ) | $ | (13,402 | ) | |||
Net loss per common share—basic: | |||||||||||||||
Net loss attributable to common shares—basic | $ | (2.20 | ) | $ | (0.29 | ) | $ | (3.94 | ) | $ | (0.52 | ) | |||
Weighted average common shares outstanding—basic | 28,903 | 24,996 | 28,736 | 25,035 | |||||||||||
Net loss per common share—diluted: | |||||||||||||||
Net loss attributable to common shares—diluted | $ | (2.20 | ) | $ | (0.29 | ) | $ | (3.94 | ) | $ | (0.52 | ) | |||
Weighted average common shares outstanding—diluted | 28,903 | 24,996 | 28,736 | 25,035 | |||||||||||
Overstock.com, Inc. | |||||||||||||||
Consolidated Statements of Cash Flows (Unaudited) | |||||||||||||||
(in thousands) | |||||||||||||||
Six months ended June 30, |
Twelve months ended June 30, |
||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Cash flows from operating activities: | |||||||||||||||
Consolidated net loss | $ | (120,372 | ) | $ | (14,025 | ) | $ | (218,269 | ) | $ | (14,656 | ) | |||
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||||||||||||||
Depreciation of fixed assets | 12,983 | 14,909 | 26,922 | 29,896 | |||||||||||
Amortization of intangible assets | 2,051 | 1,891 | 4,159 | 3,637 | |||||||||||
Stock-based compensation to employees and directors | 9,408 | 1,985 | 11,500 | 4,161 | |||||||||||
Deferred income taxes, net | (298 | ) | (2,796 | ) | 67,697 | (2,445 | ) | ||||||||
Gain on investment in precious metals | — | — | (1,971 | ) | (201 | ) | |||||||||
Impairment of cryptocurrencies | 9,491 | — | 9,491 | — | |||||||||||
Gain on sale of cryptocurrencies | (8,348 | ) | — | (10,343 | ) | — | |||||||||
Impairment of equity investment | — | 4,500 | 987 | 7,350 | |||||||||||
Early extinguishment costs of long term debts | 283 | — | 2,747 | — | |||||||||||
Other | (609 | ) | 65 | 202 | 423 | ||||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||||||
Accounts receivable, net | 1,882 | 7,391 | (7,447 | ) | (1,446 | ) | |||||||||
Inventories, net | 120 | 3,785 | 1,569 | 2,366 | |||||||||||
Prepaid inventories, net | 554 | 897 | 144 | 3 | |||||||||||
Prepaids and other current assets | (8,234 | ) | (9,213 | ) | (2,307 | ) | (3,809 | ) | |||||||
Other long-term assets, net | (3,827 | ) | (147 | ) | (5,987 | ) | (729 | ) | |||||||
Accounts payable | 6,686 | (30,601 | ) | 16,292 | (3,127 | ) | |||||||||
Accrued liabilities | 26,911 | (22,391 | ) | 36,991 | 3,578 | ||||||||||
Deferred revenue | 1,216 | (2,643 | ) | 8,547 | (4,933 | ) | |||||||||
Other long-term liabilities | (476 | ) | 136 | (467 | ) | 194 | |||||||||
Net cash (used in) provided by operating activities | (70,579 | ) | (46,257 | ) | (59,543 | ) | 20,262 | ||||||||
Cash flows from investing activities: | |||||||||||||||
Purchase of intangible assets | (9,241 | ) | — | (9,664 | ) | — | |||||||||
Proceeds from sale of precious metals | — | — | 11,917 | 1,610 | |||||||||||
Investment in precious metals | — | — | — | (1,633 | ) | ||||||||||
Disbursement of note receivable | (200 | ) | (250 | ) | (700 | ) | (868 | ) | |||||||
Investments in equity securities | (29,570 | ) | (3,188 | ) | (31,570 | ) | (3,938 | ) | |||||||
Acquisitions of businesses, net of cash acquired | (12,912 | ) | — | (12,912 | ) | 28 | |||||||||
Expenditures for fixed assets, including internal-use software and website development | (12,749 | ) | (16,450 | ) | (19,885 | ) | (45,883 | ) | |||||||
Other | 22 | (115 | ) | 207 | (118 | ) | |||||||||
Net cash used in investing activities | (64,650 | ) | (20,003 | ) | (62,607 | ) | (50,802 | ) | |||||||
Cash flows from financing activities: | |||||||||||||||
Payments on capital lease obligations | (248 | ) | — | (331 | ) | — | |||||||||
Payments on interest swap | — | — | (1,535 | ) | (224 | ) | |||||||||
Proceeds from finance obligations | — | — | — | 5,325 | |||||||||||
Payments on finance obligations | — | (1,622 | ) | (13,694 | ) | (2,731 | ) | ||||||||
Proceeds from long-term debt | — | — | 40,000 | 12,621 | |||||||||||
Payments on long-term debt | (40,000 | ) | (469 | ) | (85,297 | ) | (469 | ) | |||||||
Payments of preferred dividends | — | — | (109 | ) | — | ||||||||||
Proceeds from exercise of stock options | — | 654 | 10 | 1,473 | |||||||||||
Proceeds from rights offering, net of offering costs | — | — | — | 7,591 | |||||||||||
Proceeds from issuance and exercise of stock warrants | 50,587 | — | 157,049 | — | |||||||||||
Proceeds from security token offering, net of offering costs | 78,442 | — | 79,347 | — | |||||||||||
Purchase of treasury stock | — | (10,000 | ) | — | (10,000 | ) | |||||||||
Payments of taxes withheld upon vesting of restricted stock | (4,526 | ) | (1,085 | ) | (4,670 | ) | (1,323 | ) | |||||||
Payment of debt issuance costs | — | (251 | ) | (419 | ) | (251 | ) | ||||||||
Net cash provided by (used in) financing activities | 84,255 | (12,773 | ) | 170,351 | 12,012 | ||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (50,974 | ) | (79,033 | ) | 48,201 | (18,528 | ) | ||||||||
Cash, cash equivalents and restricted cash, beginning of period | 203,670 | 183,528 | 104,495 | 123,023 | |||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | 152,696 | $ | 104,495 | $ | 152,696 | $ | 104,495 | |||||||
Overstock.com, Inc. | |||||||||||||||
Consolidated Statements of Cash Flows (Unaudited) | |||||||||||||||
(Continued) | |||||||||||||||
(in thousands) | |||||||||||||||
Six months ended June 30, |
Twelve months ended June 30, |
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2018 | 2017 | 2018 | 2017 | ||||||||||||
Supplemental disclosures of cash flow information: | |||||||||||||||
Cash paid during the period: | |||||||||||||||
Interest paid, net of amounts capitalized | $ | 1,113 | $ | 1,308 | $ | 2,745 | $ | 2,238 | |||||||
Income taxes paid, net of refunds | 7 | 183 | 311 | 977 | |||||||||||
Non-cash investing and financing activities: | |||||||||||||||
Fixed assets, including internal-use software and website development, costs financed through accounts payable and accrued liabilities | $ | 735 | $ | 690 | $ | 735 | $ | 690 | |||||||
Equipment acquired under capital lease obligations | — | — | 1,421 | — | |||||||||||
Capitalized interest cost | — | — | — | 27 | |||||||||||
Change in fair value of cash flow hedge | — | (100 | ) | (1,638 | ) | (3,044 | ) | ||||||||
Note receivable converted to equity investment | 200 | 869 | 699 | 3,719 | |||||||||||
Acquisition of businesses through stock issuance | 2,930 | — | 2,930 | — | |||||||||||
Additional Non-GAAP Financial Measure Reconciliations
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.
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 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 June 30, |
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Direct | Partner | Retail Total | Other | Total | |||||||||||||||
2018 | |||||||||||||||||||
Revenue, net | $ | 14,715 | $ | 462,968 | $ | 477,683 | $ | 5,450 | $ | 483,133 | |||||||||
Cost of goods sold | 14,672 | 372,580 | 387,252 | 4,138 | 391,390 | ||||||||||||||
Gross profit | $ | 43 | $ | 90,388 | $ | 90,431 | $ | 1,312 | $ | 91,743 | |||||||||
Operating expenses | 149,437 | 8,842 | 158,279 | ||||||||||||||||
Interest and other income (expense), net | 1,624 | (1,031 | ) | 593 | |||||||||||||||
Pre-tax loss | (57,382 | ) | (8,561 | ) | (65,943 | ) | |||||||||||||
Provision for (benefit from) income taxes | (40 | ) | 13 | (27 | ) | ||||||||||||||
Net loss | $ | (57,342 | ) | $ | (8,574 | ) | $ | (65,916 | ) | ||||||||||
2017 | |||||||||||||||||||
Revenue, net | $ | 22,099 | $ | 405,856 | $ | 427,955 | $ | 4,069 | $ | 432,024 | |||||||||
Cost of goods sold | 21,147 | 323,892 | 345,039 | 2,814 | 347,853 | ||||||||||||||
Gross profit | $ | 952 | $ | 81,964 | $ | 82,916 | $ | 1,255 | $ | 84,171 | |||||||||
Operating expenses | 89,325 | 4,577 | 93,902 | ||||||||||||||||
Interest and other income, net | 13 | — | 13 | ||||||||||||||||
Pre-tax loss | (6,396 | ) | (3,322 | ) | (9,718 | ) | |||||||||||||
Benefit from income taxes | (176 | ) | (1,799 | ) | (1,975 | ) | |||||||||||||
Net loss | $ | (6,220 | ) | $ | (1,523 | ) | $ | (7,743 | ) |
Six months ended June 30, |
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Direct | Partner | Retail Total | Other | Total | |||||||||||||||
2018 | |||||||||||||||||||
Revenue, net | $ | 30,985 | $ | 886,694 | $ | 917,679 | $ | 10,785 | $ | 928,464 | |||||||||
Cost of goods sold | 29,444 | 705,388 | 734,832 | 8,020 | 742,852 | ||||||||||||||
Gross profit | $ | 1,541 | $ | 181,306 | $ | 182,847 | $ | 2,765 | $ | 185,612 | |||||||||
Operating expenses | 274,969 | 31,573 | 306,542 | ||||||||||||||||
Interest and other income (expense), net | 1,169 | (915 | ) | 254 | |||||||||||||||
Pre-tax loss | (90,953 | ) | (29,723 | ) | (120,676 | ) | |||||||||||||
Benefit from income taxes | (128 | ) | (176 | ) | (304 | ) | |||||||||||||
Net loss | $ | (90,825 | ) | $ | (29,547 | ) | $ | (120,372 | ) | ||||||||||
2017 | |||||||||||||||||||
Revenue, net | $ | 44,927 | $ | 811,117 | $ | 856,044 | $ | 8,415 | $ | 864,459 | |||||||||
Cost of goods sold | 42,110 | 645,189 | 687,299 | 6,082 | 693,381 | ||||||||||||||
Gross profit | $ | 2,817 | $ | 165,928 | $ | 168,745 | $ | 2,333 | $ | 171,078 | |||||||||
Operating expenses | 173,863 | 9,259 | 183,122 | ||||||||||||||||
Interest and other income (expense), net | 115 | (4,411 | ) | (4,296 | ) | ||||||||||||||
Pre-tax loss | (5,003 | ) | (11,337 | ) | (16,340 | ) | |||||||||||||
Provision for (benefit from) income taxes | 713 | (3,028 | ) | (2,315 | ) | ||||||||||||||
Net loss | $ | (5,716 | ) | $ | (8,309 | ) | $ | (14,025 | ) | ||||||||||
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