From time to time, management or the company may publicly disclose certain "non-GAAP financial measures" in our earnings releases, financial presentations, earnings conference calls or otherwise. These non-GAAP measures may include Adjusted EBITDA, contribution, and free cash flow. The company provides a reconciliation to the nearest GAAP measure for these and other non-GAAP measures on a quarterly basis in the respective quarterly earnings press release found in the press release section of this website.
These non-GAAP measures are not in accordance with, or a substitute for, measures prepared in accordance with GAAP, and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with Overstock's results of operations that would be reflected in measures determined in accordance with GAAP. These measures should only be used to evaluate Overstock's results of operations in conjunction with corresponding GAAP measures.
These non-GAAP measures are provided to enhance investors' overall understanding of the company's current financial performance. In addition, because Overstock has reported certain non-GAAP results to investors in the past, the company believes the inclusion of non-GAAP measures provides consistency in the company's financial reporting.
Overstock's measure of Adjusted EBITDA, which the company reconciles to net income (loss) in the statement of operations, consists of earnings before interest, taxes, depreciation, amortization, stock-based compensation, other income (expense), and discontinued operations. Stock-based compensation consists of expenses for stock options, restricted stock and employee stock purchases under Statement of Financial Accounting Standards No. 123 (revised 2004). Overstock's management believes that Adjusted EBITDA is a reasonable measure of actual cash used or cash generated by the continuing operations of the business.
Overstock's measure of Contribution, which the company reconciles to Gross profit, is Gross profit less Sales & Marketing Expense. The company believes that Contribution provides additional information about our ability to cover our fixed costs.
Overstock also discloses free cash flow. Free cash flow, which the company reconciles to net cash provided by (used in) operating activities on the cash flow statement, is operating cash flows less expenditures for fixed assets, including internal-use software and website development. Overstock considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of fixed assets, including internal-use software and website development, which can then be used to, among other things, invest in Overstock's business, make strategic acquisitions, strengthen the balance sheet and repurchase stock or retire debt. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company's cash balance for the period.
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