Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

May 9, 2019
Date of Report (date of earliest event reported)
Overstock.com, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
 
000-49799
 
87-0634302
(State or other jurisdiction of
 
(Commission File Number)
 
(I.R.S. Employer
incorporation or organization)
 
 
 
Identification Number)

799 W. Coliseum Way
Midvale, Utah 84047
(Address of principal executive offices)
 
(801) 947-3100
(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 


1



Item 2.02. Results of Operations and Financial Condition

On May 9, 2019, Overstock.com, Inc. (the “Company”) issued a press release announcing the Company’s financial results for the three months ended March 31, 2019. The press release includes Adjusted EBITDA tables for the three and twelve months ended December 31, 2018 and 2017, which have been corrected from the previously reported amounts. A copy of the press release is furnished as Exhibit 99.1.

The information in this Current Report on Form 8-K and in Exhibit 99.1 hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section, nor shall it be incorporated by reference into any filing under the Securities Act of 1933, as amended, except as may expressly be set forth in any such filing by specific reference.

Item 9.01. Financial Statements and Exhibits

(d)    Exhibits.
    
The following exhibit is furnished with this report:
    
99.1 Press release issued May 9, 2019.


This press release and the May 9, 2019 conference call and webcast to discuss our financial results may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include all statements other than statements of historical fact, including forecasts of trends. These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including the amount and timing of our capital expenditures, the significant increases in our marketing expenditures in the first half of 2018 and the subsequent reduction of those expenditures, the results of our ongoing review of strategic initiatives including the possible sale of our e-commerce business, 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 risks of the businesses Medici Ventures and tZERO are pursuing, including whether tZERO's joint venture with Box Digital Markets, LLC, will be able to achieve its objectives, the effects of key business personnel moving from our retail business to our Medici Ventures and tZERO businesses, our continually evolving business model, and difficulties we may have with our infrastructure, our fulfillment partners or our payment processors, including cyber-attacks or data breaches affecting us or any of them, and difficulties we may have with our search engine optimization results. More information about factors that could potentially affect our financial results are included in our Form 10-K for the year ended December 31, 2018 and our Form 10-Q for the quarter ended March 31, 2019, which were filed with the Securities and Exchange Commission on March 18, 2019 and May 9, 2019, respectively, and in our subsequent filings with the Securities and Exchange Commission. The Form 10-K, 10-Q, 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.


2



SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
OVERSTOCK.COM, INC.
 
 
 
 
By:
/s/ PATRICK M. BYRNE
 
 
Patrick M. Byrne
 
 
Chief Executive Officer
 
Date:
May 9, 2019


3
Exhibit



https://cdn.kscope.io/d442feb81a3c54c6e4de2fa320a07af8-overstocklogoa07.jpg

Public Relations:
pr@overstock.com

Investor Relations:
ir@overstock.com


Overstock.com Reports Q1 2019 Results
Consolidated revenue of $368 million (17% decline) and pre-tax loss of $42 million;
Retail contribution (non-GAAP financial measure) of $39 million (111% growth)

SALT LAKE CITY - May 9, 2019 - Overstock.com, Inc. (NASDAQ:OSTK), a tech-driven online retailer and advancer of blockchain technology, today reported financial results for the quarter ended March 31, 2019.

Dear Shareholders,

Both the Retail and Medici (blockchain) sides of our business are progressing ahead of schedule, and below I raise guidance for Retail by 50%. I look forward to discussing these further in our earnings call.

1.
Blockchain: Jonathan Johnson’s organization and management of Medici has been superb.

a.
tZERO:

i.
As described on the last earnings call, I calculate the security token opportunity could be in the range of tens or hundreds of billions of dollars (“as with all estimates, this rests on the validity of assumptions and extrapolations described in that call,” interject the lawyers). As a result, over four years ago we began building, buying, and assembling the components of a blockchain-based capital market. We have deployed well over $100 million of your capital over four years in that quest. Maximizing our lead in the field is an organizational imperative.

ii.
For that reason, our decision last year to move Saum Noursalehi to tZERO and give him wide latitude to develop and run that business was a great one. Saum made great strides developing tZERO's corporate roster, adding top-shelf talent in key roles and trimming legacy functions that will not fit the company as it continues to evolve. In the year he has been running tZERO, Saum has also been quick at designing and building products, again. Saum figured out how to accomplish what was needed, built the product roadmaps, and marshalled a Manhattan Project's worth of development successfully.

iii.
Our security token capital market that we dreamed of four years ago is now ready (this month) for the public to use. Starting in a few weeks and running into September, we are rolling out our full kit of technology and apps for security token trading: a great crypto trading app, a migration of OSTKP to a token, an integration





with issuance platform Securitize allowing us to bring live on tZERO tokens issued by Securitize, and DLR 2.0 (in August). In sum, starting this quarter (even this month), you will see on tZERO's platform live security tokens which (we are working with regulators to ensure) the public will be able to trade legally.

iv.
There is an extremely broad range of people who want to work with us to create security token solutions for REITs, funds (VC and PE), bonds, Hollywood finance, agricultural commodities, etc. We will be walking through some of this in our earnings call, but the main event is this: we have completed the system, it is launching in weeks, and we expect to start seeing revenue from actual security token trading in June.

v.
tZERO headquarters have moved to Freedom Tower, 58th floor. It is surprisingly affordable, and a statement.

b.
Bitt continues to break new ground in the field of blockchain central banking. Bitt’s deal with the Eastern Caribbean Central Bank (ECCB) is a global first. The Digital Central Banking platform is being built in a collaboration between Barbados and Utah, where we have much experience in building enterprise class systems (this is the strength of the model of using our Utah operations as a hatchery). My meetings with numerous central bankers, ministers of finance, heads of state, and global development institutions suggest to me that central bankers are watching the ECCB experience closely and may be eager to see digital central banking introduced in their nations.

c.
Medici Land Governance (MLG) has developed products that we believe can disrupt the field of titling with products that drop the cost of titling far below the competition and can act much faster.

i.
In Lusaka, Zambia, our pilot project of 50,000 peri-urban homes went well. I am proud to announce that we have signed a contract to do a minimum of 250,000 additional homes (and potentially a million or more) in Lusaka over 10 years (we in fact think we will complete the project far more quickly than that). This contract is a PPP (Public Private Partnership) with economics for MLG that are respectable enough that it validates the whole business model.

ii.
In Rwanda, MLG is completing the online platform through which Rwandans will be able to manage 8 million titles.

iii.
MLG’s products, working in the field successfully, are now ready to be taken global. Besides the recently announced deal in Tulum, Mexico, there are nations in the Caribbean, South Asia, the Middle East, and Latin America with which MLG is in discussions. Bringing land governance to the world's five billion people who live outside the rule of law is an opportunity measured in trillions of dollars.

d.
Other members of Medici’s keiretsu of blockchain firms continue to make headlines, from supply chains for sorghum in Mexico to handling voting in West Virginia and Denver.

e.
Going forward, we plan to focus on nurturing and guiding the firms in our keiretsu, rather than focus on expanding that cohort much more.

2.
Retail is returning to be a source of positive cash flow rather than a consumer of it.

a.
Contribution:






i.
I told shareholders that this would be a year of extraordinary growth in “contribution” (gross profit minus sales and marketing expenses). It grew 111% for Q1. I expect it to hold or increase for at least two more quarters. Why?

ii.
Our search engine rankings have seen seven consecutive months of sequential improvements. That’s real headway. Six more months of similar headway would result in a full recovery in SEO.

iii.
A new ad tech system that will allow us to better monetize our site traffic went into alpha release this week.

iv.
We have made a significant change in the architecture of our logistics. We anticipate this could lead to a savings of as much as several tens of millions of dollars per year. The nature of the change actually is hurting margins slightly now, but starting in Q3 the change pays excellent dividends. Note that notwithstanding this fact about the logistics change hurting gross margin slightly for the first half of this year, at 10.8% our contribution margin is double digit for the first time in many quarters.

v.
Last quarter, I gave guidance that our 2019 contribution would be $160 million. I am now raising that to $165 million.

b.
G&A Expenses: Our expense management has been aggressive. We have taken a tremendous (>25%) amount of cost out of our expense structure in the last 5 months. We are lean and fit as an organization.

c.
Taking the previous two points together, I am raising my Retail Adjusted EBITDA guidance for 2019 from $10 million to $15 million. I believe that by 2020, Retail positive Operating Cash Flows will be comparable with the past.

d.
It is time to cap off the Retail restructuring by naming Dave Nielsen President of Retail. Dave and I first worked together a decade ago. He has a background both in brick-and-mortar (Payless Shoes) and logistics (Global Access) and has been a star contributor to our firm. I know him to be a first-rate professional, and he is extremely highly regarded within the firm. This promotion marks the completion of a redesign of our executive structure that began near the end of last year: the result of the process is a highly skilled, competent, and cohesive Retail executive team, of which Dave is now the leader.

3.
Balance sheet & liquidity:

a.
We completed our $150 million ATM.

b.
We have accepted a $5 million investment from GSR at a $1 billion valuation, and released them from all previous binding contracts. We are still working with Makara and feel optimistic (but not certain) that something can be consummated with them (and GSR may join in again at that point).

c.
My ambition is to structure things so that for 2020, the cash thrown off by Retail largely covers the cash burn required to fuel our Medici blockchain keiretsu, without assuming that those firms find their own capitalization, and without assuming that any of them become oil gushers (though with tZERO, anything is possible).






Respectfully submitted,
Patrick


Key metrics (Q1 2019 vs. Q1 2018):
Revenue: $367.7M vs. $445.3M (17% decrease);
Gross profit: $73.1M vs. $93.9M (22% decrease);
Gross margin: 19.9% vs. 21.1% (119 basis point decrease);
Sales and marketing expense: $33.5M vs. $77.2M (57% decrease);
G&A/Technology expense: $75.7M vs. $71.0M (6% increase);
Pre-tax loss: $42.0M vs. $54.7M ($12.7M decrease);
Pre-tax loss - Retail: $13.2M
Pre-tax loss - tZERO: $15.4M
Pre-tax loss - Other: $13.4M
Net loss*: $39.2M vs. $50.9M ($11.7M decrease);
Diluted net loss per share: $1.18/share vs. $1.74/share ($0.56/share decrease);
Adjusted EBITDA (non-GAAP financial measure): ($23.7M) vs. ($30.6M) ($6.9M increase);
Adjusted EBITDA - Retail: ($2.5M)
Adjusted EBITDA - tZERO: ($13.2M)
Adjusted EBITDA - Other: ($8.0M).

*Net loss refers to Net loss attributable to stockholders of Overstock.com, Inc.

We will hold a conference call and webcast to discuss our Q1 2019 financial results Thursday, May 9, 2019, at 8:30 a.m. ET.

Webcast information

To access the live webcast and presentation slides, go to http://investors.overstock.com. To listen to the conference call via telephone, dial (877) 673-5346 and enter conference ID 2798972 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 Thursday, May 9, 2019, through 11:30 a.m. ET on Thursday, May 23, 2019. 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.

Total net revenue - Total net revenue was $367.7 million and $445.3 million for Q1 2019 and 2018, respectively, a 17% decrease. This decrease was primarily due to a significant reduction in sales and marketing expenses as part of our effort to return to retail profitability. In January 2018, we shifted our retail strategy to aggressively pursue revenue growth and new customers with a large increase in sales and marketing expenses. We discontinued this strategy in August 2018 and have now returned to a disciplined approach to marketing.






Gross profit - Gross profit was $73.1 million and $93.9 million for Q1 2019 and 2018, respectively, a 22% decrease, representing 19.9% and 21.1% gross margin for those respective periods. The decrease in gross margin was primarily due to increased freight costs, partially offset by decreased promotional activities, including coupons and site sales, due to our driving a lower proportion of our sales using such promotions.

Sales and marketing expenses - Sales and marketing expenses totaled $33.5 million and $77.2 million for Q1 2019 and 2018, respectively, a 57% decrease, representing 9.1% and 17.3% of total net revenue for those respective periods. This decrease in sales and marketing expenses was primarily due to our return to our historical focus on operational efficiency as we have shifted away from our aggressive retail marketing strategy from early 2018. As part of this effort, we significantly reduced spending in the sponsored search, display ads on social media, and television marketing channels.

Technology expenses - Technology expenses totaled $35.4 million and $31.3 million for Q1 2019 and 2018, respectively, a 13% increase, representing 9.6% and 7.0% of total revenue for those respective periods. The increase was primarily due to a $2.8 million increase in staff-related costs, a $555,000 increase in technology licenses and maintenance costs, and a $538,000 increase in consulting expenses.

General and administrative ("G&A") expenses - G&A expenses totaled $40.2 million and $39.8 million for Q1 2019 and 2018, respectively, a 1% increase, representing 10.9% and 8.9% of total revenue for those respective periods. The increase was primarily due to a $3.1 million increase in consulting expenses, a $2.6 million increase in legal fees, a $1.8 million increase in staff-related costs due to employee severance, and an $820,000 increase in audit and tax preparation fees. These increases were largely offset by a $6.9 million decrease in cryptocurrency losses and a $783,000 decrease in depreciation. The cryptocurrency losses in Q1 2018 were primarily related to a decline in the value of cryptocurrency received during the tZERO STO.

Other expense, net - Other expense, net totaled $6.3 million and $9,000 for Q1 2019 and 2018, respectively. The increase was primarily due to a $6.4 million increase in non-cash losses on equity holdings and other assets.

Net cash used in operating activities - Net cash used in operating activities was $51.4 million and $10.2 million for the three months ended March 31, 2019 and 2018, respectively. The $41.2 million increase was primarily due to lower sales volume during the three months ended March 31, 2019 compared to the same period in the prior year and the timing of payments to suppliers following the holiday sales season.

Free cash flow (a non-GAAP financial measure) - Free cash flow was ($55.6) million and ($14.2) million for the three months ended March 31, 2019 and 2018, respectively. The $41.4 million decrease was primarily due to a $41.2 million decrease in operating cash flow.

Cash - We had cash and cash equivalents of $119.6 million and $141.5 million at March 31, 2019 and December 31, 2018, respectively. The decrease was primarily due to operating losses, partially offset by proceeds received from an at-the-market offering during Q1 2019.


About Overstock.com
Overstock.com, Inc Common Shares (NASDAQ:OSTK) / Series A Preferred (Medici Ventures’ tZERO platform: OSTKP) / Series B Preferred (OTCQX:OSTBP) is an online retailer and technology company based in Salt Lake City, Utah. It’s leading e-commerce website sells a broad range of new products at low prices, including furniture, décor, rugs, bedding, home improvement, jewelry, and more. The online shopping site, which is visited by nearly 40 million customers a month, also features a marketplace providing customers access to millions of products from third-party sellers. Overstock was the first major retailer to accept cryptocurrency in 2014, and in the same year founded Medici Ventures, its wholly-owned subsidiary developing and accelerating blockchain technologies to democratize capital, eliminate middlemen, and re-humanize commerce. Overstock





regularly posts information about the company and other related matters on the Newsroom and Investor Relations pages on its website, Overstock.com.

# # #

O, Overstock.com, O.com, Club O, Main Street Revolution, and Worldstock are registered trademarks of Overstock.com, Inc. O.biz and Space Shift are also trademarks of Overstock.com, Inc. Other service marks, trademarks and trade names which may be referred to herein are the property of their respective owners.


This press release and the May 9, 2019 conference call and webcast to discuss our financial results may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include all statements other than statements of historical fact, including forecasts of trends. These forward-looking statements are inherently difficult to predict. Actual results could differ materially for a variety of reasons, including the amount and timing of our capital expenditures, the significant increases in our marketing expenditures in the first half of 2018 and the subsequent reduction of those expenditures, the results of our ongoing review of strategic initiatives including the possible sale of our e-commerce business, 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 risks of the businesses Medici Ventures and tZERO are pursuing, including whether tZERO's joint venture with Box Digital Markets, LLC, will be able to achieve its objectives, the effects of key business personnel moving from our retail business to our Medici Ventures and tZERO businesses, our continually evolving business model, and difficulties we may have with our infrastructure, our fulfillment partners or our payment processors, including cyber-attacks or data breaches affecting us or any of them, and difficulties we may have with our search engine optimization results. More information about factors that could potentially affect our financial results are included in our Form 10-K for the year ended December 31, 2018 and our Form 10-Q for the quarter ended March 31, 2019, which were filed with the Securities and Exchange Commission on March 18, 2019 and May 9, 2019, respectively, and in our subsequent filings with the Securities and Exchange Commission. The Form 10-K, 10-Q, and our subsequent filings with the Securities and Exchange Commission identify important factors that could cause our actual results to differ materially from those contained in or contemplated by our projections, estimates and other forward-looking statements.






Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands)
 
March 31,
2019
 
December 31,
2018
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
119,632

 
$
141,512

Restricted cash
2,483

 
1,302

Accounts receivable, net
30,819

 
35,930

Inventories, net
13,554

 
14,108

Prepaids and other current assets
18,465

 
22,415

Total current assets
184,953

 
215,267

Property and equipment, net
131,656

 
134,687

Intangible assets, net
17,243

 
13,370

Goodwill
25,434

 
22,895

Equity securities
48,466

 
60,427

Operating lease right-of-use assets
37,262

 

Other long-term assets, net
7,875

 
14,573

Total assets
$
452,889

 
$
461,219

Liabilities and Stockholders' Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
74,658

 
$
102,574

Accrued liabilities
81,224

 
87,858

Deferred revenue
39,938

 
50,578

Operating lease liabilities, current
5,726

 

Other current liabilities
482

 
476

Total current liabilities
202,028

 
241,486

Long-term debt, net
3,098

 
3,069

Operating lease liabilities, non-current
36,108

 

Other long-term liabilities
2,093

 
5,958

Total liabilities
243,327

 
250,513

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 - 355 and 355

 

Common stock, $0.0001 par value, Authorized shares - 100,000
 

 
 

Authorized shares - 100,000
 

 
 

Issued shares - 37,802 and 35,346
 

 
 

Outstanding shares - 34,483 and 32,146
3

 
3

Additional paid-in capital
701,877

 
657,981

Accumulated deficit
(497,716
)
 
(458,897
)
Accumulated other comprehensive loss
(580
)
 
(584
)
Treasury stock at cost - 3,319 and 3,200
(68,753
)
 
(66,757
)
Equity attributable to stockholders of Overstock.com, Inc.
134,831

 
131,746

Equity attributable to noncontrolling interests
74,731

 
78,960

Total stockholders' equity
209,562

 
210,706

Total liabilities and stockholders' equity
$
452,889

 
$
461,219







Overstock.com, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 
Three months ended
March 31,
 
2019
 
2018
Revenue, net
 

 
 

Retail
$
362,625

 
$
439,996

Other
5,104

 
5,335

Total net revenue
367,729

 
445,331

Cost of goods sold
 

 
 

Retail
290,640

 
347,580

Other
3,965

 
3,882

Total cost of goods sold
294,605

 
351,462

Gross profit
73,124

 
93,869

Operating expenses:
 

 
 

Sales and marketing
33,477

 
77,214

Technology
35,433

 
31,294

General and administrative
40,232

 
39,755

Total operating expenses
109,142

 
148,263

Operating loss
(36,018
)
 
(54,394
)
Interest income
403

 
544

Interest expense
(127
)
 
(874
)
Other income (expense), net
(6,272
)
 
(9
)
Loss before income taxes
(42,014
)
 
(54,733
)
Provision (benefit) from income taxes
878

 
(277
)
Net loss
$
(42,892
)
 
$
(54,456
)
Less: Net loss attributable to noncontrolling interests
(3,648
)
 
(3,547
)
Net loss attributable to stockholders of Overstock.com, Inc.
$
(39,244
)
 
$
(50,909
)
Net loss per common share—basic:
 

 
 

Net loss attributable to common shares—basic
$
(1.18
)
 
$
(1.74
)
Weighted average common shares outstanding—basic
32,370

 
28,566

Net loss per common share—diluted:
 

 
 

Net loss attributable to common shares—diluted
$
(1.18
)
 
$
(1.74
)
Weighted average common shares outstanding—diluted
32,370

 
28,566







Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
Three months ended
March 31,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net loss
$
(42,892
)
 
$
(54,456
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation of property and equipment
6,575

 
6,581

Amortization of intangible assets
1,481

 
918

Amortization of right-of-use assets
1,667

 

Stock-based compensation to employees and directors
3,985

 
6,435

Deferred income taxes, net
895

 
(267
)
Purchase price allocation adjustments
(1,988
)
 

(Gain)/loss on sale of cryptocurrencies
9

 
(1,529
)
Impairment of cryptocurrencies
318

 
8,793

Loss on sale of equity securities
977

 

Impairment of and loss on equity securities, net
4,601

 

Allowance on notes receivable
1,237

 

Other
1,014

 
185

Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable, net
14,068

 
8,282

Inventories, net
554

 
1,232

Prepaids and other current assets
3,106

 
2,238

Other long-term assets, net
(189
)
 
(2,261
)
Accounts payable
(28,023
)
 
4,325

Accrued liabilities
(6,962
)
 
9,274

Deferred revenue
(10,640
)
 
284

Operating lease liabilities
(1,249
)
 

Other long-term liabilities
27

 
(216
)
Net cash used in operating activities
(51,429
)
 
(10,182
)
Cash flows from investing activities:
 

 
 

Purchase of intangible assets

 
(9,181
)
Purchase of equity securities
(2,500
)
 
(16,970
)
Proceeds from sale of equity securities
5,535

 

Disbursement of notes receivable
(2,000
)
 

Acquisitions of businesses, net of cash acquired
4,885

 
(11,769
)
Expenditures for property and equipment, including internal-use software and website development
(4,144
)
 
(4,029
)
Other
(2
)
 
(1
)
Net cash provided by (used in) investing activities
1,774

 
(41,950
)
Cash flows from financing activities:
 

 
 

Payments on finance/capital lease obligations
(126
)
 
(123
)
Proceeds from issuance and exercise of stock warrants

 
50,562

Proceeds from security token offering, net of offering costs and withdrawals

 
62,073

Proceeds from sale of common stock, net of offering costs
30,957

 

Payments of taxes withheld upon vesting of restricted stock
(1,353
)
 
(4,034
)
Other
(522
)
 

Net cash provided by financing activities
28,956

 
108,478

Net increase (decrease) in cash, cash equivalents and restricted cash
(20,699
)
 
56,346

Cash, cash equivalents and restricted cash, beginning of period
142,814

 
203,670

Cash, cash equivalents and restricted cash, end of period
$
122,115

 
$
260,016


Continued on the following page





Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(Continued)
(in thousands)
 
Three months ended
March 31,
 
2019
 
2018
Supplemental disclosures of cash flow information:
 

 
 

Cash paid during the period:
 

 
 

Interest paid, net of amounts capitalized
$
86

 
$
789

Income taxes paid, net
130

 
7

Non-cash investing and financing activities:
 

 
 

Property and equipment, including internal-use software and website development costs, financed through accounts payable and accrued liabilities
$
304

 
$
965

Common stock repurchased through business combination
643

 

Note receivable converted to equity security
359

 
200

Cryptocurrency received in security token offering

 
13,878

Proceeds from sale of common stock included in accounts receivable
8,957

 

Deposit applied to business combination purchase price
7,347

 

Equity method security applied to business combination purchase price
3,707

 

Recognition of right-of-use assets upon adoption of ASC 842
30,968

 








Segment Financial Information

Segment information has been prepared in accordance with ASC Topic 280 Segment Reporting. We determined our segments based on how we manage our business. In the fourth quarter of 2018, we completed our review of our segment reporting and in light of a strategic shift in our Chief Operating Decision Maker's long-term strategic focus for our organization, we no longer consider the split of retail direct and retail partner as a distinct and relevant measure of our business. Accordingly, Direct and Partner are no longer considered separate reportable segments but are included under Retail in our Business Segment disclosures. Beginning in the first quarter of 2019, we began allocating corporate support costs (administrative functions such as finance, human resources, and legal) to our operating segments based on their estimated usage and based on how we manage our business. Comparative prior year information has not been recast and as a result our corporate support costs for those comparative prior periods remain allocated to our Retail segment. Our Medici business includes one reportable segment, tZERO. We use pre-tax net income (loss) as the measure to determine our reportable segments. As a result, the remainder of our Medici business is not significant as compared to our Retail and tZERO segments. Our Other segment consists of Medici Ventures' remaining operations and the remainder of our unallocated corporate support costs (administrative functions such as finance, human resources, and legal).

Our Retail segment primarily consists of amounts earned through e-commerce sales through our Website, excluding intercompany transactions eliminated in consolidation. 

Our tZERO segment primarily consists of amounts earned through securities transactions through our broker-dealers and costs incurred to execute our tZERO business initiatives, excluding intercompany transactions eliminated in consolidation.

The following table summarizes information about reportable segments and includes a reconciliation to consolidated net income (loss) (in thousands):

 
Three months ended March 31,
 
Retail
 
tZERO
 
Other
 
Total
2019
 
 
 
 
 
 
 

Revenue, net
$
362,625

 
$
4,496

 
$
608

 
$
367,729

Cost of goods sold
290,640

 
3,357

 
608

 
294,605

Gross profit
$
71,985

 
$
1,139

 
$

 
$
73,124

Operating expenses (1)
85,336

 
15,553

 
8,253

 
109,142

Interest and other income (expense), net
135

 
(963
)
 
(5,168
)
 
(5,996
)
Pre-tax loss
$
(13,216
)
 
$
(15,377
)
 
$
(13,421
)
 
(42,014
)
Provision for income taxes


 
 
 


 
878

Net loss
 
 
 
 
 
 
$
(42,892
)
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 

Revenue, net
$
439,996

 
$
4,852

 
$
483

 
$
445,331

Cost of goods sold
347,580

 
3,399

 
483

 
351,462

Gross profit
$
92,416

 
$
1,453

 
$

 
$
93,869

Operating expenses
125,532

 
19,959

 
2,772

 
148,263

Interest and other income (expense), net
(455
)
 
453

 
(337
)
 
(339
)
Pre-tax loss
$
(33,571
)
 
$
(18,053
)
 
$
(3,109
)
 
(54,733
)
Benefit from income taxes


 
 
 


 
(277
)
Net loss
 
 
 
 
 
 
$
(54,456
)
__________________________________________
(1)
 — Corporate support costs have been allocated $12.6 million, $1.8 million, and $3.6 million to Retail, tZERO, and Other, respectively. Unallocated corporate support costs of $1.8 million are included in Other.





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 and (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
March 31,
 
2019
 
2018
Adjusted EBITDA
 
 
 
Retail
$
(2,460
)
 
$
(24,372
)
tZERO
(13,207
)
 
(4,382
)
Other
(7,995
)
 
(1,836
)
Adjusted EBITDA
(23,662
)
 
(30,590
)
Less: Special items (see table below)
1,757

 
9,870

Less: Depreciation and amortization
6,614

 
7,499

Less: Stock-based compensation
3,985

 
6,435

Less: Interest (income) expense, net
(276
)
 
330

Less: Other income (expense), net (1)
6,272

 
9

Less: Provision (benefit) for income taxes
878

 
(277
)
Net loss
$
(42,892
)
 
$
(54,456
)
 
 
 
 
Special items:
 
 
 
Severance
$
1,757

 
$
1,600

Cryptocurrency impairments and gains on sale, net

 
7,259

Legal contingencies and strategic charges

 
1,011

 
$
1,757

 
$
9,870

 ___________________________________________
(1) Other income (expense), net for the three months ended March 31, 2019 includes $6.4 million of non-cash losses on equity holdings and other assets.

The following Adjusted EBITDA tables for the three and twelve months ended December 31, 2018 and 2017 have been provided to correct the previously reported amounts in our press release dated March 18, 2019.

 
 Three months ended December 31,
 
2018
 
2017
Adjusted EBITDA
 
 
 
Retail
$
(16,856
)
 
$
(8,988
)
tZERO
(7,256
)
 
(2,077
)
Other
(3,401
)
 
(2,469
)
Adjusted EBITDA
(27,513
)
 
(13,534
)
Less: Special items (see table below)
9,565

 

Less: Depreciation and amortization
8,664

 
8,113

Less: Stock-based compensation
2,702

 
1,068

Less: Interest (income) expense, net
(563
)
 
589

Less: Other income (expense), net
1,999

 
1,573

Less: Provision (benefit) for income taxes
(1,939
)
 
71,915

Net loss
$
(47,941
)
 
$
(96,792
)
 
 
 
 
Special items:
 
 
 
Impairments on intangible assets
$
6,000

 
$

Losses on the disposal of various businesses and assets
3,565

 

 
$
9,565

 
$







 
 Year ended December 31,
 
2018
 
2017
Adjusted EBITDA
 
 
 
Retail
$
(111,537
)
 
$
1,795

tZERO
(25,271
)
 
(7,252
)
Other
(10,943
)
 
(4,253
)
Adjusted EBITDA
(147,751
)
 
(9,710
)
Less: Special items (see table below)
23,402

 

Less: Depreciation and amortization
31,697

 
32,847

Less: Stock-based compensation
14,356

 
4,077

Less: Interest (income) expense, net
(740
)
 
2,278

Less: Other income (expense), net
3,488

 
(1,178
)
Less: Provision (benefit) for income taxes
(2,384
)
 
64,188

Net loss
$
(217,570
)
 
$
(111,922
)
 
 
 
 
Special items:
 
 
 
Impairments on intangible assets
$
6,000

 
$

Losses on the disposal of various businesses
3,565

 

Cryptocurrency impairments and gains on sale, net
443

 

Severance
1,600

 

Special legal expenses (1)
11,794

 

 
$
23,402

 
$

 ___________________________________________
(1) Special legal expenses include charges associated with our Delaware gift card escheatment matter and legal fees associated with pursuing our strategic alternatives.

Free Cash Flow

Free cash flow is a non-GAAP financial measure that reflects an additional way of viewing our cash flows and liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows and liquidity. Free cash flow, which we reconcile below to "Net cash provided by (used in) operating activities," the nearest GAAP financial measure, is net cash provided by (used in) operating activities reduced by "Expenditures for fixed assets, including internal-use software and website development." We believe that net cash provided by (used in) operating activities is an important measure, since it includes both the cash impact of the continuing operations of the business and changes in the balance sheet that impact cash. We believe free cash flow is a useful measure to evaluate our business since purchases of fixed assets are a necessary component of ongoing operations and free cash flow measures the amount of cash we have available for mandatory debt service and financing obligations, changes in our capital structure, and future investments after purchases of fixed assets. Free cash flow measures have limitations as they omit certain components of the overall consolidated statement of cash flows and do not represent the residual cash flow available for discretionary expenditures. Free cash flow should not be considered a substitute for net income or cash flow data prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows as reconciled below (in thousands):

 
Three months ended March 31,
 
2019
 
2018
Net cash provided by (used in) operating activities
$
(51,429
)
 
$
(10,182
)
Expenditures for fixed assets, including internal-use software and website development
(4,144
)
 
(4,029
)
Free cash flow
$
(55,573
)
 
$
(14,211
)






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 March 31,
 
Retail
 
tZERO & Other
 
Total
2019
 
 
 
 


Total net revenue
$
362,625

 
$
5,104

 
$
367,729

Cost of goods sold
290,640

 
3,965

 
294,605

Gross profit
71,985

 
1,139

 
73,124

Less: Sales and marketing expense
32,933

 
544

 
33,477

Contribution
$
39,052

 
$
595

 
$
39,647

Contribution margin
10.8
%
 
11.7
 %
 
10.8
%
 
 
 
 
 
 
2018
 
 
 
 
 

Total net revenue
$
439,996

 
$
5,335

 
$
445,331

Cost of goods sold
347,580

 
3,882

 
351,462

Gross profit
92,416

 
1,453

 
93,869

Less: Sales and marketing expense
73,917

 
3,297

 
77,214

Contribution
$
18,499

 
$
(1,844
)
 
$
16,655

Contribution margin
4.2
%
 
(34.6
)%
 
3.7
%