Overstock Reports Q3 2020 Financial Results

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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.

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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 %

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