EX-99.1 2 ex991q217pressrelease.htm EXHIBIT 99.1 Exhibit


overstockglogorgba02.jpg

Media Contact:
Mark Delcorps, Overstock.com, Inc.
+1 (801) 947-3564
pr@overstock.com

Investor Contact:
Brian Keller, Overstock.com, Inc.
+1 (801) 947-5374
ir@overstock.com

Overstock.com Reports Q2 2017 Results
Consolidated revenue of $432 million (3% growth) and pre-tax loss of ($9.7) million
Retail pre-tax loss of ($6.4) million
Medici pre-tax loss of ($3.3) million
Retail Site Launches Cars Tab
Medici's t0 Launches Revolutionary Securities Lending System

SALT LAKE CITY - August 3, 2017 - Overstock.com, Inc. Common Shares (NASDAQ:OSTK) / Series A Preferred (Medici Ventures’ t0 platform : OSTKP) / Series B Preferred (OTCQX:OSTBP) today reported financial results for the quarter ended June 30, 2017.

Key Q2 2017 metrics (comparison to Q2 2016):
•
Revenue: $432.0M vs. $418.5M (3% increase);
•
Gross profit: $84.2M vs. $76.3M (10% increase);
•
Gross margin: 19.5% vs. 18.2% (125 basis point increase);
•
Sales and marketing expense: $43.3M vs. $33.4M (30% increase);
•
Contribution (non-GAAP measure): $41.4M vs. $46.9M (12% decrease);
•
G&A/Technology expense: $50.6M vs. $48.5M (4% increase);
•
Pre-tax loss: ($9.7M) vs. ($1.5M) ($8.3M increase);
◦
Pre-tax loss - OSTK retail (non-GAAP financial measure): ($6.4M)
◦
Pre-tax loss - Medici (non-GAAP financial measure): ($3.3M)
•
Benefit for income taxes: ($2.0M) vs. ($243,000) ($1.7M increase);
•
Net loss*: ($7.5M) vs. ($904,000) ($6.6M increase);
•
Diluted EPS: ($0.29)/share vs. ($0.04)/share ($0.25/share decrease);

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

Dear Owner,
The loss on the blockchain side of the business was expected, as we are incurring significant costs building out the most leading edge applications in blockchain. For example, t0 (our blockchain-meets-capital-markets subsidiary) released the single most disruptive application of blockchain yet created: a blockchain-based securities lending system, which will enable t0 to compete with a superior product against the largest prime brokers on Wall Street.
The loss on the retail side was unpleasant, but not as heart-stopping as it might appear. In truth, almost all aspects of our retail business are running well: our sourcing is expanding (we are up to 3 million products and have a clear path to having 5-10X that many), our logistics operations are efficient; our site technology is intelligent and is becoming more so through our work in machine learning; our branding




efforts are showing better responsiveness than they have in years; and our digital marketing channels (with one exception) are run by quants who have finely tuned them.
The one great exception to all this is SEO (search engine optimization). We are traditionally quite good at SEO, and even can be said to punch above our weight on that score. As a result, a large percentage of our traffic is dependent upon Google. In May, Google began its annual algorithm adjustments, but this year the volatility introduced and the length of the tuning has been significantly greater than any previous year of which we are aware. This created tremendous headwind for our business from May through the summer thus far. We have reorganized a large number of resources around addressing this current challenge, as well as preventing it from ever occurring again. In recent weeks we believe that, once again, we have found a way through it, with a variety of innovations and technical improvements, so we are encouraged that we will find ourselves back on the path to market-like growth with profitability quite soon. It is the only channel of our business that has taken this large hit, but it is a particularly important channel to us, and the cost of coming off slipping a stitch in this area translated quickly into a loss for the firm. Q3 has already shown a small bounce back in the right direction, and I believe that by September we will be back on track.

Respectfully,

Patrick M. Byrne

We will hold a conference call and webcast to discuss our Q2 2017 financial results Thursday, August 3, 2017, at 4:30 p.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 51222829 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 7:30 p.m. ET on Thursday, August 3, 2017, through 7:30 p.m. ET on Thursday, August 17, 2017. 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 all 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 for Q2 2017 and 2016 was $432.0 million and $418.5 million, respectively, a 3% increase. The growth in revenue was primarily due to a 4% increase in average order size, coupled with a 2% increase in orders. These increases were partially offset by increased promotional activities, including coupons and site sales (which we recognize as a reduction of revenue) due to our driving a higher proportion of our sales using such promotions. Also, we had an increase in sales for which we record only our commission as revenue. These decreases to revenue were partially offset by a decrease in Club O Rewards earned due to discontinuing rewards on the Club O Silver program in Q4 2016. In addition, the percentage of revenue we defer from orders taken but not delivered was lower due to the timing of quarter ends. Our average order size has increased in recent years due primarily to a sales mix shift into home and garden products. We are uncertain how long this trend will continue.





Gross profit - Gross profit for Q2 2017 and 2016 was $84.2 million and $76.3 million, respectively, a 10% increase, representing 19.5% and 18.2% gross margin for those respective periods. The increase in gross profit was primarily due to revenue growth. The increase in gross margin was primarily due to a continued shift in sales mix into higher margin home and garden products, partially offset by increased promotional activities.

Sales and marketing expenses - Sales and marketing expenses totaled $43.3 million and $33.4 million for Q2 2017 and 2016, respectively, a 30% increase, and representing 10.0% and 8.0% of total net revenue for those respective periods. The increase in sales and marketing expenses as a percent of revenue was primarily due to increased spending in sponsored search and display ads on social media marketing channels.

In Q2 2017 and continuing, we have experienced slowing of our overall revenue growth which we believe is due in part to changes that Google, Inc. ("Google") has made in its natural search engine algorithms, to which we are responding. While we work to adapt to Google’s changes, we have increased our emphasis on other marketing channels, such as sponsored search, which has generated revenue growth but with higher associated marketing expenses than natural search. We expect this trend to continue in the near term while we work to adapt to these changes.

During Q2, we also experienced slower email channel revenue growth than expected due to some issues we encountered implementing a new email marketing platform.

We are also experiencing an increasingly competitive digital marketing landscape. We have competitors who are spending significant amounts on advertising bidding up the cost of certain marketing channels, such as paid keywords. While we may not choose to match their levels of spending, this has increased our marketing costs in recent quarters. We expect this trend to continue.

Consolidated contribution (a non-GAAP financial measure) and contribution margin (a non-GAAP financial measure) - Contribution for Q2 2017 and 2016 was $41.4 million and $46.9 million, respectively, a 12% decrease, representing 9.6% and 11.2% of total net revenue for those respective periods.

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 plus Club O Rewards and gift card breakage 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 and adding back the reductions in revenue that we recognized for Club O Rewards that have subsequently expired and for gift cards whose redemption is remote. 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. Management compensates for these limitations when using this measure by looking at other GAAP measures, such as operating income and net income. You should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. For additional information about our non-GAAP financial measures, including “retail pre-tax income” and “Medici pre-tax loss” please see the "Additional Non-GAAP Financial Measure Reconciliations" section below.

Our calculation of our consolidated contribution and contribution margin is set forth below (in thousands):




 
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
 
2017
 
2016
 
2017
 
2016
Total net revenue
 
$
432,024

 
100
%
 
$
418,540

 
100
%
 
$
864,459

 
100
%
 
$
832,217

 
100
%
Cost of goods sold
 
347,853

 
80.5
%
 
342,218

 
81.8
%
 
693,381

 
80.2
%
 
678,588

 
81.5
%
Gross profit
 
84,171

 
19.5
%
 
76,322

 
18.2
%
 
171,078

 
19.8
%
 
153,629

 
18.5
%
Less: Sales and marketing expense
 
43,297

 
10.0
%
 
33,353

 
8.0
%
 
80,915

 
9.4
%
 
64,809

 
7.8
%
Plus: Club O Rewards and gift card breakage (included in Other income (expense), net)
 
561

 
0.1
%
 
3,916

 
0.9
%
 
1,232

 
0.1
%
 
8,085

 
1.0
%
Contribution and contribution margin
 
$
41,435

 
9.6
%
 
$
46,885

 
11.2
%
 
$
91,395

 
10.6
%
 
$
96,905

 
11.6
%

Technology expenses - Technology expenses totaled $28.2 million and $25.8 million for Q2 2017 and 2016, respectively, a 9% increase, and representing 6.5% and 6.2% of total revenue for those respective periods. The increase was primarily due to an increase in staff related costs of $964,000, an increase in technology licenses and maintenance of $754,000, and an increase in depreciation of $451,000.

General and administrative ("G&A") expenses - G&A expenses totaled $22.4 million and $22.7 million for Q1 2017 and 2016, respectively, a 1% decrease, and representing 5.2% and 5.4% of total revenue for those respective periods. The decrease was primarily due to a decrease in legal costs of $1.4 million, partially offset by an increase in staff related costs of $747,000 and an increase in consulting and outside services of $503,000.

We continue to seek opportunities for growth, in our retail business and through our Medici blockchain and financial technology initiatives and through other means. As a result of these initiatives, we may continue to incur additional expenses or make investments in, or acquisitions of other technologies and businesses. We also anticipate that our Medici initiatives will incur losses in the near term. These losses, additional expenses, acquisitions or investments may be material, and, coupled with existing marketing expense trends and the seasonality of our business, may lead to reduced consolidated income or losses in some periods, and to reduced liquidity. Additionally, we may recognize additional impairment charges from our investments. We are also considering other alternatives for Medici, including raising capital.

Other income, net - Other income, net totaled $593,000 and $4.0 million for Q2 2017 and 2016, respectively. The decrease is primarily due to decreased Club O Rewards breakage of $3.4 million due to discontinuing our Club O Silver rewards program in Q4 2016.

Net cash provided by operating activities - Net cash provided by operating activities was $20.1 million and $75.4 million for the twelve months ended June 30, 2017 and 2016, respectively. The $55.3 million decrease is primarily due to slowing revenue growth, decreased contribution and decreased net income, and the timing of payments. Net cash provided by operating activities for the twelve months ended June 30, 2016 includes litigation settlement proceeds of $19.5 million.

Free cash flow (a non-GAAP financial measure) - Free cash flow totaled ($25.8) million and ($7.9) million for the twelve months ended June 30, 2017 and 2016, respectively. The $17.9 million decrease was due to a $55.3 million decrease in operating cash flow, partially offset by a $37.4 million decrease in capital expenditures including costs related to the development of our recently completed new corporate headquarters.

Free cash flow 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 to “net cash provided by operating activities,” is cash flow




from operations, reduced by “expenditures for fixed assets, including internal-use software and website development.” We believe that cash flows from 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. Also, 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 we have paid our operating expenses. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

Our calculation of free cash flow is set forth below (in thousands):
 
 
Six months ended
 June 30,
 
Twelve months ended
 June 30,
 
 
2017
 
2016
 
2017
 
2016
Net cash provided by (used in) operating activities
 
$
(46,445
)
 
$
(26,982
)
 
$
20,101

 
$
75,401

Expenditures for fixed assets, including internal-use software and website development
 
(16,450
)
 
(42,848
)
 
(45,883
)
 
(83,322
)
Free cash flow
 
$
(62,895
)
 
$
(69,830
)
 
$
(25,782
)
 
$
(7,921
)
Cash and working capital - We had cash and cash equivalents of $104.0 million and $183.1 million and working capital of ($30.3) million and ($4.8) million at June 30, 2017 and December 31, 2016, respectively.


About Overstock.com
Overstock.com, Inc. Common Shares (NASDAQ:OSTK) / Series A Preferred (Medici Ventures’ t0 platform : OSTKP) / Series B Preferred (OTCQX:OSTBP) is an online retailer based in Salt Lake City, Utah that sells a broad range of products at low prices, including furniture, décor, rugs, bedding, and home improvement. In addition to home goods, Overstock.com offers a variety of products including jewelry, electronics, apparel, and more, as well as a marketplace providing customers access to hundreds of thousands of products from third-party sellers. Additional stores include Worldstock.com, dedicated to selling artisan-crafted products from around the world. Forbes ranked Overstock in its list of the Top 100 Most Trustworthy Companies in 2014. Overstock regularly posts information about the company and other related matters under Investor Relations on its website.

O, Overstock.com, O.com, O.co, Club O, Main Street Revolution, Worldstock and OVillage 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 August 3, 2017 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 mix of products we sell, the results of legal proceedings and claims and the amounts we spend relating to them, the extent to which we owe income taxes, competition, fluctuations in operating results, the potential effects on our financial results of new accounting standards we will be required to adopt no later than January 1, 2018, relating to revenue recognition, Google and other search engine companies changing their natural search engine algorithms periodically resulting in lower ranking of our products, any inability to raise capital if needed on acceptable terms, our efforts to expand both domestically and internationally, risks of inventory management and seasonality. Other risks and uncertainties include, among others, risks related to new products and services we may offer, and difficulties with our infrastructure, our fulfillment partners or our payment processors, including cyber-attacks or data breaches affecting us or any of them. More information about factors that could potentially affect our financial results is included in our Form 10-Q for the quarter ended June 30, 2017 which was filed with the Securities and Exchange Commission on August 3, 2017. Our Form 10-Q and our other subsequent filings with the Securities and Exchange Commission identify important factors that could cause our actual results to differ materially from those contained in our projections, estimates and other forward-looking statements.




Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands)
 
June 30,
2017
 
December 31,
2016
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
103,952

 
$
183,098

Restricted cash
543

 
430

Accounts receivable, net
20,751

 
28,142

Inventories, net
15,152

 
18,937

Prepaid inventories, net
1,215

 
2,112

Prepaids and other current assets
20,089

 
11,654

Total current assets
161,702

 
244,373

Fixed assets, net
134,563

 
134,552

Precious metals
9,946

 
9,946

Deferred tax assets, net
68,396

 
56,266

Intangible assets, net
9,171

 
10,913

Goodwill
14,698

 
14,698

Other long-term assets, net
14,399

 
14,328

Total assets
$
412,875

 
$
485,076

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
75,736

 
$
106,337

Accrued liabilities
72,296

 
96,216

Deferred revenue
39,137

 
41,780

Finance obligations, current
3,297

 
3,256

Other current liabilities, net
1,548

 
1,627

Total current liabilities
192,014

 
249,216

Long-term debt, net
43,663

 
44,179

Finance obligations, non-current
10,168

 
11,831

Other long-term liabilities
7,099

 
6,890

Total liabilities
252,944

 
312,116

Stockholders’ equity:
 

 
 

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

 
 

Series A, issued and outstanding - 127
—

 
—

Series B, issued and outstanding - 569
—

 
—

Common stock, $0.0001 par value
 

 
 

Authorized shares - 100,000
 

 
 

Issued shares - 28,131 and 27,895
 

 
 

Outstanding shares - 25,000 and 25,432
3

 
3

Additional paid-in capital
385,987

 
383,348

Accumulated deficit
(157,926
)
 
(153,898
)
Accumulated other comprehensive loss
(1,472
)
 
(1,540
)
Treasury stock:
 

 
 

Shares at cost - 3,131 and 2,463
(63,672
)
 
(52,587
)
Equity attributable to stockholders of Overstock.com, Inc.
162,920

 
175,326

Equity attributable to noncontrolling interests
(2,989
)
 
(2,366
)
Total equity
159,931

 
172,960

Total liabilities and stockholders’ equity
$
412,875

 
$
485,076






Overstock.com, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 
Three months ended
 June 30,
 
Six months ended
 June 30,
 
2017
 
2016
 
2017
 
2016
Revenue, net
 

 
 

 
 

 
 

Direct
$
22,099

 
$
24,630

 
$
44,927

 
$
51,281

Partner and other
409,925

 
393,910

 
819,532

 
780,936

Total net revenue
432,024

 
418,540

 
864,459

 
832,217

Cost of goods sold
 

 
 

 
 

 
 

Direct
21,147

 
23,098

 
42,110

 
48,504

Partner and other
326,706

 
319,120

 
651,271

 
630,084

Total cost of goods sold
347,853

 
342,218

 
693,381

 
678,588

Gross profit
84,171

 
76,322

 
171,078

 
153,629

Operating expenses:
 

 
 

 
 

 
 

Sales and marketing
43,297

 
33,353

 
80,915

 
64,809

Technology
28,244

 
25,800

 
57,236

 
51,510

General and administrative
22,361

 
22,678

 
44,971

 
44,526

Litigation settlement
—

 
—

 
—

 
(19,520
)
Total operating expenses
93,902

 
81,831

 
183,122

 
141,325

Operating income (loss)
(9,731
)
 
(5,509
)
 
(12,044
)
 
12,304

Interest income
136

 
64

 
261

 
155

Interest expense
(716
)
 
(5
)
 
(1,426
)
 
(7
)
Other income (expense), net
593

 
3,992

 
(3,131
)
 
8,148

Income (loss) before income taxes
(9,718
)
 
(1,458
)
 
(16,340
)
 
20,600

Provision (benefit) for income taxes
(1,975
)
 
(243
)
 
(2,315
)
 
8,721

Net Income (Loss)
$
(7,743
)
 
$
(1,215
)
 
$
(14,025
)
 
$
11,879

Less: Net loss attributable to noncontrolling interests
(244
)
 
(311
)
 
(623
)
 
(646
)
Net income (loss) attributable to stockholders of Overstock.com, Inc.
$
(7,499
)
 
$
(904
)
 
$
(13,402
)
 
$
12,525

Net income (loss) per common share—basic:
 

 
 

 
 

 
 

Net income (loss) attributable to common shares—basic
$
(0.29
)
 
$
(0.04
)
 
$
(0.52
)
 
$
0.49

Weighted average common shares outstanding—basic
24,996

 
25,341

 
25,035

 
25,311

Net income (loss) per common share—diluted:
 

 
 

 
 

 
 

Net income (loss) attributable to common shares—diluted
$
(0.29
)
 
$
(0.04
)
 
$
(0.52
)
 
$
0.49

Weighted average common shares outstanding—diluted
24,996

 
25,341

 
25,035

 
25,350






Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
Six months ended
 June 30,
 
Twelve months ended
 June 30,
 
2017
 
2016
 
2017
 
2016
Cash flows from operating activities:
 

 
 

 
 

 
 

Consolidated net income (loss)
$
(14,025
)
 
$
11,879

 
$
(14,656
)
 
$
9,125

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

 
 

 
 

 
 

Depreciation of fixed assets
14,909

 
12,296

 
29,896

 
24,660

Amortization of intangible assets
1,891

 
2,222

 
3,637

 
3,741

Stock-based compensation to employees and directors
1,985

 
2,715

 
4,161

 
4,503

Deferred income taxes, net
(2,796
)
 
7,368

 
(2,445
)
 
5,548

Loss on investment in precious metals
—

 
—

 
(201
)
 
1,131

Loss on investment in cryptocurrency
—

 
—

 
—

 
46

Impairment of cost method investment
4,500

 
—

 
7,350

 
—

Ineffective portion of loss on cash flow hedge
—

 
—

 
—

 
124

Termination costs of cryptobond financing
—

 
—

 
—

 
850

Other
65

 
(2
)
 
423

 
25

Changes in operating assets and liabilities, net of acquisitions:
 

 
 

 
 

 
 

Restricted cash
(188
)
 
(27
)
 
(161
)
 
(27
)
Accounts receivable, net
7,391

 
(1,169
)
 
(1,446
)
 
(826
)
Inventories, net
3,785

 
2,524

 
2,366

 
10,010

Prepaid inventories, net
897

 
93

 
3

 
1,230

Prepaids and other current assets
(9,213
)
 
(3,015
)
 
(3,809
)
 
994

Other long-term assets, net
(147
)
 
(204
)
 
(729
)
 
(563
)
Accounts payable
(30,601
)
 
(46,297
)
 
(3,127
)
 
8,189

Accrued liabilities
(22,391
)
 
(9,033
)
 
3,578

 
7,413

Deferred revenue
(2,643
)
 
(6,874
)
 
(4,933
)
 
(1,770
)
Other long-term liabilities
136

 
542

 
194

 
998

Net cash (used in) provided by operating activities
(46,445
)
 
(26,982
)
 
20,101

 
75,401

Cash flows from investing activities:
 

 
 

 
 

 
 

Proceeds from sale of precious metals
—

 
—

 
1,610

 
—

Investment in precious metals
—

 
—

 
(1,633
)
 
—

Disbursement of note receivable
(250
)
 
(3,050
)
 
(868
)
 
(8,050
)
Cost method investments
(1,188
)
 
(4,000
)
 
(1,938
)
 
(4,000
)
Equity method investment
(2,000
)
 
—

 
(2,000
)
 
38

Acquisitions of businesses, net of cash acquired
—

 
1,220

 
28

 
(9,381
)
Expenditures for fixed assets, including internal-use software and website development
(16,450
)
 
(42,848
)
 
(45,883
)
 
(83,322
)
Other
(115
)
 
30

 
(118
)
 
(91
)
Net cash used in investing activities
(20,003
)
 
(48,648
)
 
(50,802
)
 
(104,806
)
Cash flows from financing activities:
 

 
 

 
 

 
 

Paydown on direct financing arrangement
—

 
(54
)
 
—

 
(212
)
Payments on finance obligations
(1,622
)
 
(797
)
 
(2,731
)
 
(901
)
Payments on interest swap
—

 
(339
)
 
(224
)
 
(396
)
Proceeds from finance obligations
—

 
6,074

 
5,325

 
11,772

Proceeds from short-term debt
—

 
—

 
—

 
5,000

Payments on short-term debt
—

 
—

 
—

 
(750
)
Proceeds from long-term debt
—

 
23,652

 
12,621

 
33,140

Payments on long-term debt
(469
)
 
—

 
(469
)
 
—

Change in restricted cash
75

 
—

 
75

 
75

Proceeds from exercise of stock options
654

 
—

 
1,473

 
—

Proceeds from rights offering, net of offering costs
—

 
—

 
7,591

 
—

Purchase of treasury stock
(11,085
)
 
(602
)
 
(11,323
)
 
(607
)
Payment of debt issuance costs
(251
)
 
—

 
(251
)
 
(621
)
Net cash (used in) provided by financing activities
(12,698
)
 
27,934

 
12,087

 
46,500

Net (decrease) increase in cash and cash equivalents
(79,146
)
 
(47,696
)
 
(18,614
)
 
17,095

Cash and cash equivalents, beginning of period
183,098

 
170,262

 
122,566

 
105,471

Cash and cash equivalents, end of period
$
103,952

 
$
122,566

 
$
103,952

 
$
122,566






Additional Non-GAAP Financial Measure Reconciliations

As described above, 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 plus Club O Rewards and gift card breakage and reflects an additional way of viewing our results. Contribution margin is contribution as a percentage of total net revenue.

OSTK Retail and Medici pre-tax income or loss (non-GAAP financial measures - which we reconcile to Consolidated pre-tax income or loss) consist of income or loss before taxes of our Retail and Medici businesses, excluding intercompany transactions eliminated in consolidation. We believe these measures provide management and users of the financial statements useful information, because they provide financial results for our separate businesses which are distinct in nature. The material limitation associated with these measures is that they are an incomplete measure of our consolidated operations.

We determined our segments based on how we manage our business, which, in our view, consists primarily of our Retail and Medici businesses. Our Retail business consists of our Direct and Partner reportable segments. We use gross profit as the measure to determine our reportable segments because there is not discrete financial information available below gross profit for our Direct and Partner segments. As a result, our Medici business is not significant as compared to our Direct and Partner segments. Our Other segment includes Medici and equity method investments. We do not allocate assets between our segments for our internal management purposes.

Contribution, contribution margin, OSTK Retail pre-tax income or loss and Medici pre-tax income or loss 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. You should review our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure.





Our calculations of our contribution and contribution margin by Retail Total (which consists of Direct and Partner) and Other (which includes Medici and equity method investments) are set forth below (in thousands):
 
Three months ended
 June 30,
 
Direct
Partner
Retail Total
 
Other
 
Total
2017
 
 
 
 
 
 
 

Total net revenue
$
22,099

$
405,856

$
427,955

 
$
4,069

 
$
432,024

Cost of goods sold
21,147

323,892

345,039

 
2,814

 
347,853

Gross profit
$
952

$
81,964

$
82,916

 
$
1,255

 
$
84,171

Less: Sales and marketing expense
 
 
43,077

 
220

 
43,297

Plus: Club O Rewards and gift card breakage (included in Other income (expense), net)
 
 
561

 
—

 
561

Contribution
 
 
$
40,400

 
$
1,035

 
$
41,435

Contribution margin
 
 
9.4
%
 
25.4
%
 
9.6
%
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 

Total net revenue
$
24,630

$
390,143

$
414,773

 
$
3,767

 
$
418,540

Cost of goods sold
23,098

316,623

339,721

 
2,497

 
342,218

Gross profit
$
1,532

$
73,520

$
75,052

 
$
1,270

 
$
76,322

Less: Sales and marketing expense
 
 
33,192

 
161

 
33,353

Plus: Club O Rewards and gift card breakage (included in Other income (expense), net)
 
 
3,916

 
—

 
3,916

Contribution
 
 
$
45,776

 
$
1,109

 
$
46,885

Contribution margin
 
 
11.0
%
 
29.4
%
 
11.2
%
 
Six months ended
 June 30,
 
Direct
Partner
Retail Total
 
Other
 
Total
2017
 
 
 
 
 
 
 

Total net revenue
$
44,927

$
811,117

$
856,044

 
$
8,415

 
$
864,459

Cost of goods sold
42,110

645,189

687,299

 
6,082

 
693,381

Gross profit
$
2,817

$
165,928

$
168,745

 
$
2,333

 
$
171,078

Less: Sales and marketing expense
 
 
80,402

 
513

 
80,915

Plus: Club O Rewards and gift card breakage (included in Other income (expense), net)
 
 
1,232

 
—

 
1,232

Contribution
 
 
$
89,575

 
$
1,820

 
$
91,395

Contribution margin
 
 
10.5
%
 
21.6
%
 
10.6
%
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 

Total net revenue
$
51,281

$
774,412

$
825,693

 
$
6,524

 
$
832,217

Cost of goods sold
48,504

625,920

674,424

 
4,164

 
678,588

Gross profit
$
2,777

$
148,492

$
151,269

 
$
2,360

 
$
153,629

Less: Sales and marketing expense
 
 
64,503

 
306

 
64,809

Plus: Club O Rewards and gift card breakage (included in Other income (expense), net)
 
 
8,085

 
—

 
8,085

Contribution
 
 
$
94,851

 
$
2,054

 
$
96,905

Contribution margin
 
 
11.5
%
 
31.5
%
 
11.6
%





Our calculations of OSTK Retail Total (which consists of Direct and Partner) and Other (which includes Medici and equity method investments) pre-tax income or loss are set forth below excluding intercompany transactions eliminated in consolidation (in thousands):
 
Three months ended
 June 30,
 
Direct
Partner
Retail Total
 
Other
 
Total
2017
 

 

 
 
 
 
 

Revenue, net
$
22,099

$
405,856

$
427,955

 
$
4,069

 
$
432,024

Cost of goods sold
21,147

323,892

345,039

 
2,814

 
347,853

Gross profit
$
952

$
81,964

$
82,916

 
$
1,255

 
$
84,171

Operating expenses
 
 
89,325

 
4,577

 
93,902

Interest and other income (expense), net
 
 
13

 
—

 
13

Pre-tax loss
 
 
(6,396
)
 
(3,322
)
 
(9,718
)
Benefit for income taxes
 
 
(176
)
 
(1,799
)
 
(1,975
)
Net loss
 
 
$
(6,220
)
 
$
(1,523
)
 
$
(7,743
)
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
Revenue, net
$
24,630

$
390,143

$
414,773

 
$
3,767

 
$
418,540

Cost of goods sold
23,098

316,623

339,721

 
2,497

 
342,218

Gross profit
$
1,532

$
73,520

$
75,052

 
$
1,270

 
$
76,322

Operating expenses
 
 
77,625

 
4,206

 
81,831

Interest and other income (expense), net
 
 
3,987

 
64

 
4,051

Pre-tax income (loss)
 
 
1,414

 
(2,872
)
 
(1,458
)
Provision (benefit) for income taxes
 
 
868

 
(1,111
)
 
(243
)
Net income (loss)
 
 
$
546

 
$
(1,761
)
 
$
(1,215
)
 
Six months ended
 June 30,
 
Direct
Partner
Retail Total
 
Other
 
Total
2017
 

 

 
 
 
 
 

Revenue, net
$
44,927

$
811,117

$
856,044

 
$
8,415

 
$
864,459

Cost of goods sold
42,110

645,189

687,299

 
6,082

 
693,381

Gross profit
$
2,817

$
165,928

$
168,745

 
$
2,333

 
$
171,078

Operating expenses
 
 
173,863

 
9,259

 
183,122

Interest and other income (expense), net (1)
 
 
115

 
(4,411
)
 
(4,296
)
Pre-tax loss
 
 
(5,003
)
 
(11,337
)
 
(16,340
)
Benefit for income taxes
 
 
713

 
(3,028
)
 
(2,315
)
Net loss
 
 
$
(5,716
)
 
$
(8,309
)
 
$
(14,025
)
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
Revenue, net
$
51,281

$
774,412

$
825,693

 
$
6,524

 
$
832,217

Cost of goods sold
48,504

625,920

674,424

 
4,164

 
678,588

Gross profit
$
2,777

$
148,492

$
151,269

 
$
2,360

 
$
153,629

Operating expenses
 
 
133,005

 
8,320

 
141,325

Interest and other income (expense), net
 
 
8,232

 
64

 
8,296

Pre-tax income (loss)
 
 
26,496

 
(5,896
)
 
20,600

Provision (benefit) for income taxes
 
 
10,913

 
(2,192
)
 
8,721

Net income (loss)
 
 
$
15,583

 
$
(3,704
)
 
$
11,879

___________________________________________
(1) — Interest and other income (expense), net for the Other segment includes a $4.5 million impairment charge related to a cost method investment.