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Overstock Reports Q3 2020 Financial Results

Overstock.com, Inc.
·18 min read

Quarterly net income of $23 million and total net revenue of $732 million

SALT LAKE CITY, Oct. 29, 2020 (GLOBE NEWSWIRE) -- Overstock.com, Inc. (NASDAQ:OSTK) today reported financial results for the quarter ended September 30, 2020.

Third Quarter Financial Highlights

  • Total net revenue was $732 million, an increase of 111% year over year

  • Gross profit was $171 million or 23% of total net revenue, an increase of 330 basis points year over year

  • Net income attributable to stockholders of Overstock.com, Inc. was $23 million, an improvement of $54 million year over year

  • Diluted earnings per share was $0.50, an improvement of $1.39 year over year

  • Adjusted EBITDA (non-GAAP) was $40 million, an improvement of $58 million year over year

  • YTD net cash provided by operating activities was $199 million, an improvement of $288 million year over year

  • YTD free cash flow (non-GAAP) improved $291 million year over year

  • At the end of the third quarter, cash and cash equivalents totaled $530 million

"After a record-setting second quarter, we maintained our momentum, continued to outperform expectations, and grew faster than competitors in the third quarter," said Overstock CEO Jonathan Johnson. "Our quarterly gross sales in our Retail business doubled year over year once again and new customers grew 141%. These new customers are making repeat purchases at an increasing rate. Heading into the fourth quarter, I am as confident as ever in our Retail business maintaining sustainable, profitable market share growth."

"Our Medici Ventures blockchain-based businesses also continue to make meaningful advancements," said Johnson. "tZERO received FINRA approval to provide retail brokerage services for digital securities through its subsidiary, tZERO Markets, which officially launched last week. Several of our Medici Ventures companies are raising capital, most are getting products into production, and many are generating revenue. Our organization remains focused and disciplined. We continue to execute against our strategic initiatives that are driving growth and delivering profitability. I look forward to providing an update on our progress and performance during our earnings call."

Other Third Quarter Financial Highlights

  • Retail income before income taxes was $43 million, an improvement of $52 million year over year

  • Retail Adjusted EBITDA (non-GAAP) was $50 million, or 7% of Retail net revenue, an improvement of $51 million (or 720 basis points) year over year

  • Consolidated G&A expenses increased by $2 million but improved by 470 basis points as a percentage of total net revenue year over year

  • tZERO net revenue was $11 million, an increase of 97% year over year, primarily due to SpeedRoute trading volume

Third Quarter Operational Highlights

  • Newly acquired Retail customers increased 141% year over year

  • Gross sales from orders placed on a mobile device were 50% of Retail gross sales in the third quarter of 2020 compared to 44% in the third quarter of 2019

  • Volume on the tZERO ATS increased 856% to a record 4 million shares (equivalent to $39 million in value of shares traded)

Capital Raise

During the third quarter, Overstock announced and completed a public offering of common stock. The size of the offering was increased from its initial announcement due to increased demand, and the underwriters fully exercised the over-allotment option. The offering was completed on August 14, 2020, whereby we issued 2,415,000 shares of common stock at a price of $84.50 per share, raising net proceeds of approximately $193 million. The capital raise was opportunistic in nature, and proceeds will be used to support our continued growth trajectory.

COVID-19 Update

Overstock has continued to respond to the challenges and opportunities created by the COVID-19 pandemic. In our Retail business, customer demand continued to increase significantly in the third quarter, particularly in our key home furnishings categories. We have seen a substantial year-over-year increase in our website traffic and number of new customers. Our Retail gross sales again grew more than 100% year over year in Q3. Our online-only platform and partner network with thousands of fulfillment centers has enabled us to meet this increase in demand. Our three warehouses have remained operational based on our sustained implementation of sound safety measures, including staggered shifts and social distancing. We are also hiring in key areas throughout the company to support our current and expected growth. We continue to face challenges created by the sharp increase in volume, in customer service channels and in fulfillment and delivery, stemming from capacity issues from shipping carriers and some suppliers, including out-of-stock positions on some of our top performing products. Most of our Medici Ventures blockchain companies have seen relatively little disruption, and several are working on solutions to problems exacerbated by the global pandemic. We have evaluated and implemented a phased re-entry plan for our offices; most of our corporate employees continue to work from home without incident. We cannot predict how the COVID-19 pandemic will unfold in the coming months. Nevertheless, the challenges arising from the pandemic have not adversely affected our liquidity, revenues, or capacity to service our debt, nor have these conditions required us to reduce our capital expenditures.

Earnings Webcast Information

The company will hold a conference call and webcast to discuss its Q3 2020 financial results on Thursday, October 29, 2020, at 8:30 a.m. ET. 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 4293477 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, October 29, 2020, through 11:30 a.m. ET on Thursday, November 12, 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.

Questions may be emailed in advance of the call to ir@overstock.com.

About Overstock.com

Overstock.com, Inc. Common Shares (NASDAQ:OSTK) / Digital Voting Series A-1 Preferred Stock (Medici Ventures' tZERO platform:OSTKO) / Series B Preferred (OTCQX:OSTBP) is an online retailer and technology company based in Salt Lake City, Utah. Its leading e-commerce website sells a broad range of new home products at low prices, including furniture, décor, rugs, bedding, home improvement, and more. The online shopping site, which is visited by tens of millions of 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, 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.

Cautionary Note Regarding Forward-Looking Statements

This press release and the October 29, 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 but not limited to, the duration of the COVID-19 pandemic and its ultimate impact on our business and results of operations, adverse tax, regulatory or legal developments, and competition. Other risks and uncertainties include, among others, the inherent risks associated with the businesses that Medici Ventures and tZERO are pursuing, 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, 2019, our Form 10-Q for the quarter ended March 31, 2020, and our Form 10-Q for the quarter ended June 30, 2020, which were filed with the Securities and Exchange Commission on March 13, 2020, May 7, 2020, and August 6, 2020, respectively, and in our subsequent filings with the Securities and Exchange Commission. The Form 10-K, 10-Q's, 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.

Contacts



Investor Relations:
Alexis Callahan
801-947-5126
ir@overstock.com





Media Relations:
Megan Herrick
801-947-3564
pr@overstock.com

Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)

September 30,
2020

December 31,
2019

Assets

Current assets:

Cash and cash equivalents

$

529,710

$

112,266

Restricted cash

2,570

2,632

Marketable securities at fair value

1,355

10,308

Accounts receivable, net of allowance for credit losses of $2,053 and $2,474 at September 30, 2020 and December 31, 2019, respectively

35,403

24,728

Inventories

6,867

5,840

Prepaids and other current assets

19,704

21,589

Total current assets

595,609

177,363

Property and equipment, net

125,142

130,028

Intangible assets, net

9,009

11,756

Goodwill

27,120

27,120

Equity securities

48,983

42,043

Operating lease right-of-use assets

25,402

25,384

Other long-term assets, net

11,717

4,033

Total assets

$

842,982

$

417,727

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

119,663

$

75,416

Accrued liabilities

145,668

88,197

Unearned revenue

78,757

41,821

Operating lease liabilities, current

5,959

6,603

Other current liabilities

3,803

3,962

Total current liabilities

353,850

215,999

Long-term debt, net

42,148

Operating lease liabilities, non-current

21,640

21,554

Other long-term liabilities

6,038

2,319

Total liabilities

423,676

239,872

Commitments and contingencies

Stockholders' equity:

Preferred stock, $0.0001 par value, authorized shares - 5,000

Series A-1, issued and outstanding - 4,204 and 4,210

Series B, issued and outstanding - 357 and 357

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

Issued shares - 46,317 and 42,790

Outstanding shares - 42,758 and 39,464

4

4

Additional paid-in capital

966,299

764,845

Accumulated deficit

(537,089

)

(580,390

)

Accumulated other comprehensive loss

(556

)

(568

)

Treasury stock at cost - 3,559 and 3,326

(71,124

)

(68,807

)

Equity attributable to stockholders of Overstock.com, Inc.

357,534

115,084

Equity attributable to noncontrolling interests

61,772

62,771

Total stockholders' equity

419,306

177,855

Total liabilities and stockholders' equity

$

842,982

$

417,727


Overstock.com, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)

Three months ended September 30,

Nine months ended
September 30,

2020

2019

2020

2019

Revenue, net

Retail

$

717,695

$

340,798

$

1,824,249

$

1,070,898

Other

13,956

6,301

41,519

17,639

Total net revenue

731,651

347,099

1,865,768

1,088,537

Cost of goods sold

Retail

548,982

272,545

1,403,418

858,169

Other

11,901

5,006

35,860

13,797

Total cost of goods sold

560,883

277,551

1,439,278

871,966

Gross profit

170,768

69,548

426,490

216,571

Operating expenses:

Sales and marketing

72,010

34,215

188,562

102,252

Technology

34,984

32,782

101,458

101,368

General and administrative

34,225

32,681

94,022

104,877

Total operating expenses

141,219

99,678

384,042

308,497

Operating income (loss)

29,549

(30,130

)

42,448

(91,926

)

Interest income

402

449

1,288

1,482

Interest expense

(579

)

(57

)

(1,367

)

(289

)

Other income (expense), net

(7,526

)

(4,781

)

(5,014

)

(14,048

)

Income (loss) before income taxes

21,846

(34,519

)

37,355

(104,781

)

Provision for income taxes

620

23

1,313

279

Net income (loss)

21,226

(34,542

)

36,042

(105,060

)

Less: Net loss attributable to noncontrolling interests

(2,165

)

(3,604

)

(7,372

)

(10,197

)

Net income (loss) attributable to stockholders of Overstock.com, Inc.

$

23,391

$

(30,938

)

$

43,414

$

(94,863

)

Net income (loss) per share of common stock:

Net income (loss) attributable to common shares—basic

$

0.50

$

(0.89

)

$

1.00

$

(2.74

)

Net income (loss) attributable to common shares—diluted

$

0.50

$

(0.89

)

$

0.99

$

(2.74

)

Weighted average shares of common stock outstanding:

Basic

41,595

35,241

40,697

34,289

Diluted

42,202

35,241

41,030

34,289


Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)

Nine months ended
September 30,

2020

2019

Cash flows from operating activities:

Consolidated net income (loss)

$

36,042

$

(105,060

)

Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

22,709

23,033

Non-cash operating lease cost

4,379

4,940

Stock-based compensation to employees and directors

8,356

13,623

Impairment of equity securities

813

6,964

Losses on equity method securities

11,909

4,922

Gain on disposal of business

(10,705

)

Impairments on intangible assets

1,406

Other non-cash adjustments

2,587

1,978

Changes in operating assets and liabilities, net of acquisitions:

Accounts receivable, net

(15,715

)

12,858

Inventories

(1,027

)

6,864

Prepaids and other current assets

(42

)

5,473

Other long-term assets, net

26

(1,046

)

Accounts payable

44,101

(42,110

)

Accrued liabilities

59,657

(8,683

)

Unearned revenue

37,161

(10,066

)

Operating lease liabilities

(4,954

)

(4,086

)

Other long-term liabilities

3,413

(205

)

Net cash provided by (used in) operating activities

198,710

(89,195

)

Cash flows from investing activities:

Purchase of equity securities

(1,553

)

(5,106

)

Proceeds from sale of equity securities and marketable securities

6,306

7,082

Acquisitions of businesses, net of cash acquired

4,886

Expenditures for property and equipment

(15,067

)

(17,902

)

Deconsolidation of cash of Medici Land Governance, Inc.

(4,056

)

Other investing activities, net

(1,061

)

(3,219

)

Net cash used in investing activities

(15,431

)

(14,259

)

Cash flows from financing activities:

Payments on long-term debt

(1,566

)

(3,141

)

Proceeds from long-term debt

47,500

Proceeds from sale of common stock, net of offering costs

195,540

52,112

Payments of taxes withheld upon vesting of restricted stock

(2,317

)

(1,373

)

Other financing activities, net

(5,054

)

(1,161

)

Net cash provided by financing activities

234,103

46,437

Net increase (decrease) in cash, cash equivalents and restricted cash

417,382

(57,017

)

Cash, cash equivalents and restricted cash, beginning of period

114,898

142,814

Cash, cash equivalents and restricted cash, end of period

$

532,280

$

85,797

Segment Financial Information

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

Three months ended September 30,

Retail

tZERO

MVI

Other

Total

2020

Net revenue

$

717,695

$

11,151

$

2,805

$

$

731,651

Cost of goods sold

548,982

9,098

2,803

560,883

Gross profit

168,713

2,053

2

170,768

Operating expenses

125,458

10,613

2,923

2,225

141,219

Interest and other expense, net

(205

)

(3,848

)

(3,650

)

(7,703

)

Income (loss) before income taxes

$

43,050

$

(12,408

)

$

(6,571

)

$

(2,225

)

21,846

Provision for income taxes

620

Net income

$

21,226

2019

Net revenue

$

340,798

$

5,662

$

639

$

$

347,099

Cost of goods sold

272,545

4,367

639

277,551

Gross profit

68,253

1,295

69,548

Operating expenses

77,641

14,114

4,427

3,496

99,678

Interest and other income (expense), net

137

(475

)

(4,057

)

6

(4,389

)

Loss before income taxes

$

(9,251

)

$

(13,294

)

$

(8,484

)

$

(3,490

)

(34,519

)

Provision for income taxes

23

Net loss

$

(34,542

)

Nine months ended September 30,

Retail

tZERO

MVI

Other

Total

2020

Net revenue

$

1,824,249

$

34,127

$

7,230

$

162

$

1,865,768

Cost of goods sold

1,403,418

28,634

7,226

1,439,278

Gross profit

420,831

5,493

4

162

426,490

Operating expenses

333,284

34,087

8,374

8,297

384,042

Interest and other income (expense), net

(621

)

(6,898

)

2,423

3

(5,093

)

Income (loss) before income taxes

$

86,926

$

(35,492

)

$

(5,947

)

$

(8,132

)

37,355

Provision for income taxes

1,313

Net income

$

36,042

2019

Net revenue

$

1,070,898

$

15,709

$

1,930

$

$

1,088,537

Cost of goods sold

858,169

11,867

1,930

871,966

Gross profit

212,729

3,842

216,571

Operating expenses

244,571

41,410

11,583

10,933

308,497

Interest and other income (expense), net

312

(1,098

)

(12,068

)

(1

)

(12,855

)

Loss before income taxes

$

(31,530

)

$

(38,666

)

$

(23,651

)

$

(10,934

)

(104,781

)

Provision for income taxes

279

Net loss

$

(105,060

)

Non-GAAP Financial Measures and Reconciliations

We are providing certain non-GAAP financial measures in this release and related earnings conference call, including Adjusted EBITDA, Free cash flow, Retail Contribution and Retail Contribution as a percentage of Retail net revenue ("Contribution margin"). We use these non-GAAP measures internally in analyzing our financial results at both the consolidated and segment level and we believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance in the same manner as our management and board of directors. We have provided reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures in this earnings release. These Non-GAAP financial measures should be used in addition to and in conjunction with the results presented in accordance with GAAP and should not be relied upon to the exclusion of GAAP financial measures.

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 believe 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.

Free cash flow is a non-GAAP financial measure that is calculated as net cash provided by or used in operating activities reduced by expenditures for property and equipment. We believe free cash flow is a useful measure to evaluate the cash impact of the continuing operations of the business including purchases of property and equipment which are a necessary component of our ongoing operations.

Retail Contribution and Retail Contribution margin are non-GAAP financial measures that are calculated as gross profit less sales and marketing expense. We believe contribution and contribution margin provide information relevant to our Retail business about our ability to cover our Retail operating costs, such as technology and general and administrative expenses, while reflecting the selling costs we incurred to generate our Retail revenues.

The following table reflects the reconciliation of Adjusted EBITDA to net income (loss) (in thousands):

Three months ended
September 30,

Nine months ended
September 30,

2020

2019

2020

2019

Net income (loss)

$

21,226

$

(34,542

)

$

36,042

$

(105,060

)

Depreciation and amortization (1)

7,592

7,518

22,709

21,596

Stock-based compensation

2,623

4,467

8,356

13,623

Interest (income) expense, net

177

(392

)

79

(1,193

)

Other expense, net

7,526

4,781

5,014

14,048

Provision for income taxes

620

23

1,313

279

Special items (see table below)

288

185

(8,087

)

1,942

Adjusted EBITDA

$

40,052

$

(17,960

)

$

65,426

$

(54,765

)

Segment Adjusted EBITDA

Retail

$

50,249

$

(575

)

$

101,395

$

(1,452

)

tZERO

(5,675

)

(11,233

)

(20,977

)

(33,169

)

MVI

(2,470

)

(2,691

)

(7,053

)

(9,285

)

Other

(2,052

)

(3,461

)

(7,939

)

(10,859

)

Adjusted EBITDA

$

40,052

$

(17,960

)

$

65,426

$

(54,765

)

Special items:

Special legal charges (2)

$

$

(1,221

)

$

(9,773

)

$

(1,221

)

Severance

288

1,686

1,757

Impairment on Intangible Assets

1,406

1,406

$

288

$

185

$

(8,087

)

$

1,942

__________________________________________
(1) — Depreciation and amortization for the nine months ended September 30, 2019 includes a $1.4 million adjustment related to finalizing our preliminary purchase price accounting for Mac Warehouse.
(2) — Includes amounts associated with the resolution for and adjustments to various legal contingencies.

The following table reflects the reconciliation of Free cash flow to Net cash provided by or used in operating activities (in thousands):

Nine months ended
September 30,

2020

2019

Net cash provided by (used in) operating activities

$

198,710

$

(89,195

)

Expenditures for property and equipment

(15,067

)

(17,902

)

Free cash flow

$

183,643

$

(107,097

)

The following table reflects the reconciliation of Retail Contribution to Retail Gross profit (in thousands):

Three months ended
September 30,

2020

2019

Retail:

Net revenue

$

717,695

$

340,798

Cost of goods sold

548,982

272,545

Gross profit

168,713

68,253

Less: Sales and marketing expense

71,231

33,551

Contribution

$

97,482

$

34,702

Contribution margin

13.6

%

10.2

%