EX-99.1 2 ex991q319pressrelease.htm EXHIBIT 99.1 Exhibit



overstocklogoa09.jpg

Public Relations:
pr@overstock.com

Investor Relations:
ir@overstock.com


Overstock.com Reports Q3 2019 Results
Consolidated revenue of $347 million and pre-tax loss of $34.5 million;
Retail adjusted EBITDA of ($0.6) million

SALT LAKE CITY - November 12, 2019 - Overstock.com, Inc. (NASDAQ:OSTK), a tech-driven online retailer and advancer of blockchain technology, today reported financial results for the quarter ended September 30, 2019.

Key Metrics (Q3 2019 vs. Q3 2018):
•
Revenue: $347.1M vs. $440.6M (21% decrease);
•
Gross profit: $69.5M vs. $86.7M (20% decrease);
•
Gross margin: 20.0% vs. 19.7% (35 basis point increase);
•
Sales and marketing expense: $34.2M vs. $55.3M (38% decrease);
•
G&A/Technology expense: $65.5M vs. $79.2M (17% decrease);
•
Pre-tax loss: $34.5M vs. $49.4M ($14.9M improvement);
◦
Pre-tax loss - Retail: $9.3M
◦
Pre-tax loss - tZERO: $13.3M
◦
Pre-tax loss - MVI: $8.5M
◦
Pre-tax loss - Other: $3.5M
•
Net loss*: $30.9M vs. $47.9M ($17.0M improvement);
•
Diluted net loss per share: $0.89/share vs. $1.55/share ($0.66/share improvement);
•
Adjusted EBITDA (non-GAAP financial measure): ($18.0M) vs. ($26.8M) ($8.8M improvement);
◦
Adjusted EBITDA - Retail: ($0.6M)
◦
Adjusted EBITDA - tZERO: ($11.2M)
◦
Adjusted EBITDA - MVI: ($2.7M)
◦
Adjusted EBITDA - Other: ($3.5M)

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

"The results of our third quarter were in line with our revised guidance," said Overstock CEO Jonathan Johnson. "Our retail business continues its path to sustained profitability, despite a few external headwinds, thanks to the focused leadership of an executive team with a proven track record of success. tZERO continues to reach milestones on its product roadmap, which is no small feat in the highly regulated capital markets environment. Other Medici Ventures companies are bringing their products into production and increasing their leads in their respective verticals. I am eager to talk with our shareholders during today's conference call to discuss the progress the business is making. On the call, I will also talk about the status of the digital dividend and the book of patents that our industry-leading retail and blockchain businesses have quietly built. The focus of the leadership teams within Overstock has me excited for our coming quarters."






The company will hold a conference call and webcast to discuss our Q3 2019 financial results Tuesday, November 12, 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 2087933 when prompted. Participants outside the U.S. or Canada who do not have Internet access should dial +1 (724) 498-4326 and 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 Tuesday, November 12, 2019, through 11:30 a.m. ET on Tuesday, November 26, 2019. To listen to the recorded webcast by phone, dial (855) 859-2056 and 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 in assessing the company and its financial results.

Total net revenue - Total net revenue was $347.1 million and $440.6 million for Q3 2019 and 2018, respectively, a 21% decrease. This decrease was primarily due to decreased product sales that resulted from a significant reduction in sales and marketing activities, as described below, which was 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 returned to a more disciplined approach to marketing. In addition, we have seen our revenues negatively impacted due to increased tariffs on goods manufactured in China, search traffic taking longer than expected to translate into purchasing customers, waning consumer confidence decreasing conversion on high dollar purchases industry wide, and other more general decreases in conversion.

Gross profit - Gross profit was $69.5 million and $86.7 million for Q3 2019 and 2018, respectively, a 20% decrease, representing 20.0% and 19.7% gross margin for those respective periods. The decrease in gross profit was primarily due to the decrease in net revenue in the retail business described above. The increase in gross margin was primarily due to improvements in our promotional pricing strategy and a higher proportion of our revenue coming from marketplace sales, which we recognize on a net basis. These increases to gross margin were partially offset by increased freight costs resulting from the business closure of one of our freight carriers, cancellation of services with a freight carrier that failed to deliver acceptable service levels, and an increase in volume of large package shipments.

Sales and marketing expenses - Sales and marketing expenses totaled $34.2 million and $55.3 million for Q3 2019 and 2018, respectively, a 38% decrease, representing 9.9% and 12.6% 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 and display ads on social media marketing channels.

Technology expenses - Technology expenses totaled $32.8 million and $33.9 million in Q3 2019 and 2018, respectively, a 3% decrease, representing 9.4% and 7.7% of total revenue for those respective




periods. The decrease was primarily due to a $435,000 decrease in outside service costs and a $413,000 decrease in technology licenses and maintenance costs.

General and administrative ("G&A") expenses - G&A expenses totaled $32.7 million and $45.4 million in Q3 2019 and 2018, respectively, a 28% decrease, representing 9.4% and 10.3% of total revenue for those respective periods. The decrease was primarily due to $10.8 million in special legal costs in Q3 2018 related to our gift card escheatment case in Delaware and capital raising efforts. In addition, we had a $1.8 million decrease in consulting expenses, an $862,000 decrease in staff-related costs, and an $834,000 decrease in travel expenses. These decreases were partially offset by a $1.4 million impairment charge on certain intangible assets and an $844,000 increase in corporate insurance costs.

Other expense, net - Other expense, net totaled $4.8 million and $1.8 million for Q3 2019 and 2018, respectively. The increase was primarily due to a $3.6 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 $89.2 million and $120.3 million for the nine months ended September 30, 2019 and 2018, respectively. The $31.1 million improvement was primarily due to decreased losses.

Free cash flow (a non-GAAP financial measure) - Free cash flow was ($107.1) million and ($141.0) million for the nine months ended September 30, 2019 and 2018, respectively. The $33.9 million improvement was due to a $31.1 million improvement in operating cash flow and a $2.8 million decrease in capital expenditures.

Cash - We had cash and cash equivalents of $83.5 million and $141.5 million at September 30, 2019 and December 31, 2018, respectively. The decrease was primarily due to funding of operating losses, partially offset by $52.1 million net proceeds received from an "at-the-market" offering during the first half of 2019.

Non-GAAP Financial Presentation
We are providing certain non-GAAP financial measures in this release because we believe that these figures are helpful in allowing investors to more accurately assess the ongoing nature of our operations and measure our performance more consistently across periods. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. The tables at the end of this release provide reconciliations of these non-GAAP items to the most nearly equivalent GAAP measures, our rationale and a discussion of the limitations of these non-GAAP measures.

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. It’s leading e-commerce website sells a broad range of new products at low prices, including furniture, décor, rugs, bedding, home improvement, 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 November 12, 2019 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 the amount and timing of our capital expenditures, the results of our ongoing review of strategic initiatives, adverse tax, regulatory or legal developments, competition, any inability to raise capital or borrow funds in a timely manner or on acceptable terms, and our ability and timing to complete our previously-announced dividend payable in shares of our Series A-1 Preferred Stock. 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 and the timing for doing such, the effect of the departure of key business personnel, 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, our Form 10-Q for the quarter ended March 31, 2019, our Form 10-Q for the quarter ended June 30, 2019, and our Form 10-Q for the quarter ended September 30, 2019, which were filed with the Securities and Exchange Commission on March 18, 2019, May 9, 2019, August 8, 2019, and November 12, 2019, 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.




Overstock.com, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands)
 
September 30,
2019
 
December 31,
2018
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
83,546

 
$
141,512

Restricted cash
2,251

 
1,302

Accounts receivable, net
22,407

 
35,930

Inventories, net
7,244

 
14,108

Prepaids and other current assets
18,233

 
22,415

Total current assets
133,681

 
215,267

Property and equipment, net
132,696

 
134,687

Intangible assets, net
12,879

 
13,370

Goodwill
27,120

 
22,895

Equity securities
41,713

 
60,427

Operating lease right-of-use assets
43,266

 
—

Other long-term assets, net
8,446

 
14,573

Total assets
$
399,801

 
$
461,219

Liabilities and Stockholders' Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
60,557

 
$
102,574

Accrued liabilities
79,440

 
87,858

Deferred revenue
40,512

 
50,578

Operating lease liabilities, current
5,725

 
—

Other current liabilities
489

 
476

Total current liabilities
186,723

 
241,486

Long-term debt, net
—

 
3,069

Operating lease liabilities, non-current
42,510

 
—

Other long-term liabilities
1,616

 
5,958

Total liabilities
230,849

 
250,513

Stockholders' equity:
 

 
 

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

 
 

Series A, issued and outstanding - 0 and 127
—

 
—

Series A-1, issued and outstanding - 3,702 and 0 (including 3,577 shares declared as a stock dividend, not yet distributed)
—

 
—

Series B, issued and outstanding - 357 and 355
—

 
—

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

 
 

Issued shares - 38,565 and 35,346
 

 
 

Outstanding shares - 35,242 and 32,146
3

 
3

Additional paid-in capital
726,132

 
657,981

Accumulated deficit
(553,335
)
 
(458,897
)
Accumulated other comprehensive loss
(572
)
 
(584
)
Treasury stock at cost - 3,323 and 3,200
(68,773
)
 
(66,757
)
Equity attributable to stockholders of Overstock.com, Inc.
103,455

 
131,746

Equity attributable to noncontrolling interests
65,497

 
78,960

Total stockholders' equity
168,952

 
210,706

Total liabilities and stockholders' equity
$
399,801

 
$
461,219






Overstock.com, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenue, net
 

 
 

 
 

 
 

Retail
$
340,798

 
$
435,775

 
$
1,070,898

 
$
1,353,454

Other
6,301

 
4,805

 
17,639

 
15,590

Total net revenue
347,099

 
440,580

 
1,088,537

 
1,369,044

Cost of goods sold
 

 
 

 
 

 
 

Retail
272,545

 
350,651

 
858,169

 
1,085,483

Other
5,006

 
3,213

 
13,797

 
11,233

Total cost of goods sold
277,551

 
353,864

 
871,966

 
1,096,716

Gross profit
69,548

 
86,716

 
216,571

 
272,328

Operating expenses:
 

 
 

 
 

 
 

Sales and marketing
34,215

 
55,312

 
102,252

 
226,942

Technology
32,782

 
33,880

 
101,368

 
97,597

General and administrative
32,681

 
45,356

 
104,877

 
116,551

Total operating expenses
99,678

 
134,548

 
308,497

 
441,090

Operating loss
(30,130
)
 
(47,832
)
 
(91,926
)
 
(168,762
)
Interest income
449

 
383

 
1,482

 
1,547

Interest expense
(57
)
 
(101
)
 
(289
)
 
(1,370
)
Other expense, net
(4,781
)
 
(1,848
)
 
(14,048
)
 
(1,489
)
Loss before income taxes
(34,519
)
 
(49,398
)
 
(104,781
)
 
(170,074
)
Provision (benefit) from income taxes
23

 
(141
)
 
279

 
(445
)
Net loss
$
(34,542
)
 
$
(49,257
)
 
$
(105,060
)
 
$
(169,629
)
Less: Net loss attributable to noncontrolling interests
(3,604
)
 
(1,334
)
 
(10,197
)
 
(5,886
)
Net loss attributable to stockholders of Overstock.com, Inc.
$
(30,938
)
 
$
(47,923
)
 
$
(94,863
)
 
$
(163,743
)
Net loss per common share—basic:
 

 
 

 
 

 
 

Net loss attributable to common shares—basic
$
(0.89
)
 
$
(1.55
)
 
$
(2.74
)
 
$
(5.47
)
Weighted average common shares outstanding—basic
35,241

 
30,279

 
34,289

 
29,256

Net loss per common share—diluted:
 

 
 

 
 

 
 

Net loss attributable to common shares—diluted
$
(0.89
)
 
$
(1.55
)
 
$
(2.74
)
 
$
(5.47
)
Weighted average common shares outstanding—diluted
35,241

 
30,279

 
34,289

 
29,256





Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
Nine months ended
September 30,
 
2019
 
2018
Cash flows from operating activities:
 

 
 

Net loss
$
(105,060
)
 
$
(169,629
)
Adjustments to reconcile net loss to net cash used in operating activities:
 

 
 

Depreciation of property and equipment
19,387

 
19,437

Amortization of intangible assets
3,646

 
3,596

Non-cash operating lease cost
4,940

 
—

Stock-based compensation to employees and directors
13,623

 
11,654

Deferred income taxes, net
(26
)
 
(383
)
Gain on sale of cryptocurrencies
(311
)
 
(8,412
)
Impairment of cryptocurrencies
318

 
9,641

Impairment of equity securities
6,964

 
511

Losses on equity method securities
4,922

 
2,504

Impairments on intangible assets
1,406

 
—

Other non-cash adjustments
1,997

 
(1,480
)
Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable, net
12,858

 
(73
)
Inventories, net
6,864

 
(1,833
)
Prepaids and other current assets
5,473

 
(4,806
)
Other long-term assets, net
(1,046
)
 
(4,120
)
Accounts payable
(42,110
)
 
7,143

Accrued liabilities
(8,683
)
 
18,044

Deferred revenue
(10,066
)
 
(1,511
)
Operating lease liabilities
(4,086
)
 
—

Other long-term liabilities
(205
)
 
(583
)
Net cash used in operating activities
(89,195
)
 
(120,300
)
Cash flows from investing activities:
 

 
 

Purchase of intangible assets
—

 
(9,583
)
Purchase of equity securities
(5,106
)
 
(43,670
)
Proceeds from sale of equity securities
7,082

 
—

Disbursement of notes receivable
(3,250
)
 
(2,700
)
Acquisitions of businesses, net of cash acquired
4,886

 
(12,912
)
Expenditures for property and equipment
(17,902
)
 
(20,677
)
Other investing activities, net
31

 
34

Net cash used in investing activities
(14,259
)
 
(89,508
)
Cash flows from financing activities:
 

 
 

Payments on long-term debt
(3,141
)
 
(40,000
)
Proceeds from issuance and exercise of stock warrants
—

 
50,587

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

 
82,610

Proceeds from sale of common stock, net of offering costs
52,112

 
94,624

Paid in capital for noncontrolling interest
—

 
6,700

Payments of taxes withheld upon vesting of restricted stock
(1,373
)
 
(4,574
)
Other financing activities, net
(1,161
)
 
(372
)
Net cash provided by financing activities
46,437

 
189,575

Net decrease in cash, cash equivalents and restricted cash
(57,017
)
 
(20,233
)
Cash, cash equivalents and restricted cash, beginning of period
142,814

 
203,670

Cash, cash equivalents and restricted cash, end of period
$
85,797

 
$
183,437

Continued on the following page




Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
Nine months ended
September 30,
 
2019
 
2018
Supplemental disclosures of cash flow information:
 

 
 

Cash paid during the period:
 

 
 

Interest paid, net of amounts capitalized
$
218

 
$
1,232

Income taxes paid (refunded), net
(469
)
 
59

Non-cash investing and financing activities:
 

 
 

Property and equipment financed through accounts payable and accrued liabilities
$
227

 
$
731

Acquisition of assets through stock issuance
—

 
4,430

Common stock repurchased through business combination
643

 
—

Receivables converted to equity security
1,024

 
200

Deposit applied to business combination purchase price
7,347

 
—

Equity method security applied to business combination purchase price
3,800

 
—

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 two reportable segments, tZERO and the unconsolidated financial information for Medici Ventures ("MVI"). MVI consists of the Medici business not associated with tZERO or Medici Land Governance ("MLG"). We use pre-tax net income (loss) as the measure to determine our reportable segments. As a result, the MLG portion of our Medici business is not significant as compared to our Retail, tZERO, and MVI segments. Our Other segment consists of MLG and our unallocated corporate support costs.

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.

Our MVI segment primarily consists of costs incurred to develop and advance the concept of a "Technology Stack for Civilization", excluding intercompany transactions eliminated in consolidation.





The following table summarizes information about reportable segments and includes a reconciliation to consolidated net loss (in thousands):
 
Three months ended September 30,
 
Retail
 
tZERO
 
MVI
 
Other
 
Total
2019
 
 
 
 


 


 
 

Revenue, net
$
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 (1)
77,641

 
14,114

 
4,427

 
3,496

 
99,678

Interest and other income (expense), net (2)
137

 
(475
)
 
(4,057
)
 
6

 
(4,389
)
Pre-tax loss
$
(9,251
)
 
$
(13,294
)
 
$
(8,484
)
 
$
(3,490
)
 
(34,519
)
Provision for income taxes


 
 
 
 
 
 
 
23

Net loss (3)
 
 
 
 
 
 
 
 
$
(34,542
)

 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 

Revenue, net
$
435,775

 
$
4,338

 
$
467

 
$
—

 
$
440,580

Cost of goods sold
350,651

 
2,746

 
467

 
—

 
353,864

Gross profit
$
85,124

 
$
1,592

 
$
—

 
$
—

 
$
86,716

Operating expenses
124,571

 
7,235

 
1,845

 
897

 
134,548

Interest and other income (expense), net (2)
(515
)
 
96

 
(1,147
)
 
—

 
(1,566
)
Pre-tax loss
$
(39,962
)
 
$
(5,547
)
 
$
(2,992
)
 
$
(897
)
 
(49,398
)
Benefit from income taxes


 
 
 
 
 


 
(141
)
Net loss (3)
 
 
 
 
 
 
 
 
$
(49,257
)

 
Nine months ended September 30,
 
Retail
 
tZERO
 
MVI
 
Other
 
Total
2019
 
 
 
 


 


 
 

Revenue, net
$
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 (1)
244,571

 
41,410

 
11,583

 
10,933

 
308,497

Interest and other income (expense), net (2)
312

 
(1,098
)
 
(12,068
)
 
(1
)
 
(12,855
)
Pre-tax loss
$
(31,530
)
 
$
(38,666
)
 
$
(23,651
)
 
$
(10,934
)
 
$
(104,781
)
Provision for income taxes
 
 
 
 
 
 
 
 
279

Net loss (3)
 
 
 
 
 
 
 
 
$
(105,060
)

 
 
 
 
 
 
 
 
 
2018
 
 
 
 
 
 
 
 
 

Revenue, net
$
1,353,454

 
$
14,080

 
$
1,510

 
$
—

 
$
1,369,044

Cost of goods sold
1,085,483

 
9,723

 
1,510

 
—

 
1,096,716

Gross profit
$
267,971

 
$
4,357

 
$
—

 
$
—

 
$
272,328

Operating expenses
399,540

 
33,119

 
6,445

 
1,986

 
441,090

Interest and other income (expense), net (2)
654

 
513

 
(2,479
)
 
—

 
(1,312
)
Pre-tax loss
$
(130,915
)
 
$
(28,249
)
 
$
(8,924
)
 
$
(1,986
)
 
(170,074
)
Benefit from income taxes
 
 
 
 
 
 
 
 
(445
)
Net loss (3)
 
 
 
 
 
 
 
 
$
(169,629
)
__________________________________________
(1)
Corporate support costs for three months ended September 30, 2019 have been allocated $9.4 million, $1.3 million, $0.9 million, and $1.8 million to Retail, tZERO, MVI, and Other, respectively. Unallocated corporate support costs of $1.3 million are included in Other. Corporate support costs for the nine months ended September 30, 2019 have been allocated $31.5 million, $4.5 million, $3.1 million and $5.8 million to Retail, tZERO, MVI, and Other, respectively. Unallocated corporate support costs of $4.5 million are included in Other.
(2)
Excludes intercompany transactions eliminated in consolidation, which consist primarily of service fees and interest. The net amounts of these intercompany transactions were $739,000 and $539,000 for the three months ended September 30, 2019 and 2018 and $1.7 million and $3.0 million for the nine months ended September 30, 2019 and 2018.
(3)
Net loss presented for segment reporting purposes is before any adjustments attributable to noncontrolling interests.




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 (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 that we believe 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 September 30,
 
2019
 
2018
Adjusted EBITDA
 
 
 
Retail
$
(575
)
 
$
(20,160
)
tZERO
(11,233
)
 
(4,056
)
MVI
(2,691
)
 
(1,691
)
Other
(3,461
)
 
(897
)
Adjusted EBITDA
(17,960
)
 
(26,804
)
Less: Special items (see table below)
185

 
10,783

Less: Depreciation and amortization
7,518

 
7,999

Less: Stock-based compensation
4,467

 
2,246

Less: Interest income, net
(392
)
 
(282
)
Less: Other expense, net (1)
4,781

 
1,848

Less: Provision (benefit) for income taxes
23

 
(141
)
Net loss
$
(34,542
)
 
$
(49,257
)
 


 


Special items:


 


Impairment on intangible assets
$
1,406

 
$
—

Special legal expenses (2)
(1,221
)
 
10,783

 
$
185

 
$
10,783



Nine months ended
September 30,
 
2019
 
2018
Adjusted EBITDA
 
 
 
Retail
$
(1,452
)
 
$
(94,681
)
tZERO
(33,169
)
 
(18,013
)
MVI
(9,285
)
 
(5,583
)
Other
(10,859
)
 
(1,961
)
Adjusted EBITDA
(54,765
)
 
(120,238
)
Less: Special items (see table below)
1,942

 
13,837

Less: Depreciation and amortization
21,596

 
23,033

Less: Stock-based compensation
13,623

 
11,654

Less: Interest income, net
(1,193
)
 
(177
)
Less: Other expense, net (1)
14,048

 
1,489

Less: Provision (benefit) for income taxes
279

 
(445
)
Net loss
$
(105,060
)
 
$
(169,629
)
 


 


Special items:


 


Cryptocurrency impairments and gains on sale, net
$
—

 
$
443

Impairment on intangible assets
1,406

 
—

Special legal expenses (2)
(1,221
)
 
11,794

Severance
1,757

 
1,600

 
$
1,942

 
$
13,837

__________________________________________
(1)
Other expense, net for the three months ended September 30, 2019 includes $5.3 million of non-cash losses on equity holdings and other assets. Other expense, net for the nine months ended September 30, 2019 includes $15.2 million of non-cash losses on equity holdings and other assets.
(2)
Special legal expenses include charges and credits associated with our gift card escheatment case in Delaware 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):

 
Nine months ended September 30,
 
2019
 
2018
Net cash used in operating activities
$
(89,195
)
 
$
(120,300
)
Expenditures for property and equipment
(17,902
)
 
(20,677
)
Free cash flow
$
(107,097
)
 
$
(140,977
)

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 September 30,
 
Retail
 
Other (1)
 
Total
2019
 
 
 
 


Total net revenue
$
340,798

 
$
6,301

 
$
347,099

Cost of goods sold
272,545

 
5,006

 
277,551

Gross profit
68,253

 
1,295

 
69,548

Less: Sales and marketing expense
33,551

 
664

 
34,215

Contribution
$
34,702

 
$
631

 
$
35,333

Contribution margin
10.2
%
 
10.0
%
 
10.2
%
 
 
 
 
 
 
2018
 
 
 
 
 

Total net revenue
$
435,775

 
$
4,805

 
$
440,580

Cost of goods sold
350,651

 
3,213

 
353,864

Gross profit
85,124

 
1,592

 
86,716

Less: Sales and marketing expense
55,183

 
129

 
55,312

Contribution
$
29,941

 
$
1,463

 
$
31,404

Contribution margin
6.9
%
 
30.4
%
 
7.1
%

 
Nine months ended September 30,
 
Retail
 
Other (1)
 
Total
2019
 
 
 
 
 
Total net revenue
$
1,070,898

 
$
17,639

 
$
1,088,537

Cost of goods sold
858,169

 
13,797

 
871,966

Gross profit
212,729

 
3,842

 
216,571

Less: Sales and marketing expense
100,429

 
1,823

 
102,252

Contribution
$
112,300

 
$
2,019

 
$
114,319

Contribution margin
10.5
%
 
11.4
%
 
10.5
%
 
 
 
 
 
 
2018
 
 
 
 
 

Total net revenue
$
1,353,454

 
$
15,590

 
$
1,369,044

Cost of goods sold
1,085,483

 
11,233

 
1,096,716

Gross profit
267,971

 
4,357

 
272,328

Less: Sales and marketing expense
222,846

 
4,096

 
226,942

Contribution
$
45,125

 
$
261

 
$
45,386

Contribution margin
3.3
%
 
1.7
%
 
3.3
%
__________________________________________
(1)
Other includes our tZERO, MVI, and Other reportable segments.