Overstock.com Investor

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March 13, 2020 at 8:00 AM EDT
Overstock.com Reports Q4 2019 Results

Consolidated revenue of $370.9 million and net loss of $27.0 million

SALT LAKE CITY, March 13, 2020 (GLOBE NEWSWIRE) -- 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 Presentation
We 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.com
Overstock.com, IncCommon 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 ended
December 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.

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