Overstock.com(OSTK) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's analysis, market risk disclosures, and internal controls Item 1. Financial Statements (Unaudited) Unaudited Q1 2021 financials show significant revenue growth, profitability, and a strategic shift to focus on retail Consolidated Balance Sheets Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $534,776 | $495,425 | | Total current assets | $604,256 | $582,740 | | Long-term assets held for sale | $153,362 | $106,155 | | Total assets | $893,724 | $830,214 | | Liabilities & Equity | | | | Accounts payable | $135,383 | $109,759 | | Unearned revenue | $96,308 | $72,165 | | Total current liabilities | $369,993 | $327,581 | | Total liabilities | $444,784 | $393,888 | | Total stockholders' equity | $448,940 | $436,326 | Consolidated Statements of Operations Consolidated Statements of Operations (Unaudited, in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net revenue | $659,861 | $339,598 | | Gross profit | $153,524 | $74,206 | | Operating income (loss) | $26,592 | $(13,305) | | Income (loss) from continuing operations | $26,018 | $(13,766) | | Loss from discontinued operations, net of tax | $(10,126) | $(5,799) | | Consolidated net income (loss) | $15,892 | $(19,565) | Net Income (Loss) Per Share (Diluted) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Continuing operations | $0.56 | $(0.34) | | Discontinued operations | $(0.23) | $(0.06) | | Total | $0.33 | $(0.40) | Consolidated Statements of Comprehensive Income (Loss) Comprehensive Income (Loss) (Unaudited, in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Consolidated net income (loss) | $15,892 | $(19,565) | | Other comprehensive income | $4 | $4 | | Comprehensive income (loss) | $15,896 | $(19,561) | Consolidated Statements of Changes in Stockholders' Equity - Total stockholders' equity increased from $161.7 million at the end of Q1 2020 to $448.9 million at the end of Q1 2021 This was driven by net income and changes in noncontrolling interest ownership[31] - The accumulated deficit improved, decreasing from $(596.7) million in Q1 2020 to $(509.1) million in Q1 2021, reflecting the recent profitability[29] Consolidated Statements of Cash Flows Cash Flow Summary (Unaudited, in thousands) | Cash Flow Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $61,731 | $(12,227) | | Net cash provided by (used in) investing activities | $2,975 | $(5,999) | | Net cash provided by (used in) financing activities | $(5,759) | $47,249 | | Net increase in cash | $58,947 | $29,023 | - Cash from continuing operating activities was $74.1 million in Q1 2021, a significant turnaround from a use of $1.6 million in Q1 2020, primarily due to higher net income and favorable changes in working capital like accounts payable and unearned revenue[33] Notes to Unaudited Consolidated Financial Statements - Overstock.com, Inc. is an online retailer focused on home products Its e-commerce site features both first-party sales and a third-party marketplace[39] - Effective Q1 2021, the company has one reportable segment: Retail This follows the classification of Medici Ventures and tZERO as discontinued operations[42][105] - On April 23, 2021, Overstock closed a transaction with Pelion MV GP, L.L.C., transferring control of Medici Ventures and its blockchain assets As a result, the Medici Ventures and tZERO businesses (the "Disposal Group") were classified as held for sale and discontinued operations as of March 31, 2021[42][50][52] Net Loss from Discontinued Operations (in thousands) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Revenue, net | $15,592 | $11,975 | | Operating loss | $(14,780) | $(12,839) | | Net loss from discontinued operations | $(10,126) | $(5,799) | - The company is involved in several legal proceedings, including a securities class action lawsuit and ongoing investigations by the SEC related to tZERO, a 2019 preferred stock dividend, and other matters The company has accrued $1.6 million for contingencies as of March 31, 2021[73][75][78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q1 2021 performance, highlighting revenue growth, improved margins, and a strategic shift to core retail Business Overview and Strategy - The company's retail business focuses on providing furniture and home furnishings for "Dream Homes for All," targeting consumers seeking smart value on stylish merchandise[109] - Key strategic initiatives include improving product findability, growing market share in Canada and with government customers, and enhancing the enterprise data platform[110][111] - The financial reporting presentation has been updated to reflect the Medici Ventures/tZERO Disposal Group as discontinued operations, with management now focused on the core e-commerce business[112][114] Results of Operations Q1 2021 vs Q1 2020 Performance (Continuing Operations, in thousands) | Metric | Q1 2021 | Q1 2020 | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $659,861 | $339,598 | 94.3% | | Gross Profit | $153,524 | $74,206 | 106.9% | | Gross Margin | 23.3% | 21.9% | +140 bps | - Revenue growth was driven by a 66% increase in customer orders and a 17% increase in average order size, fueled by new customer growth and strong repeat behavior[115][122] - Sales and marketing expenses increased to 11.1% of revenue from 10.7% in Q1 2020, due to higher spending on paid advertising to support customer acquisition[116][130] - Technology expenses increased by $3.2 million to $30.5 million, while General and Administrative expenses decreased by $1.0 million to $22.9 million year-over-year[117][133][136] - The effective tax rate for Q1 2021 was 0.7%, primarily due to the valuation allowance maintained on the company's net deferred tax assets related to U.S. operations[138] Liquidity and Capital Resources - The company's principal sources of liquidity are its cash and cash equivalents, which stood at $534.8 million as of March 31, 2021[117][144] Cash Flow from Continuing Operations (in thousands) | Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Operating | $74,084 | $(1,647) | | Investing | $(2,762) | $(2,737) | | Financing | $(7,844) | $46,337 | - As of March 31, 2021, the company had $150.0 million available under its "at the market" sales program for common stock[144] - Total contractual cash obligations as of March 31, 2021, were $77.0 million, primarily consisting of operating leases and loan agreements[150] Quantitative and Qualitative Disclosures About Market Risk The company's market risks include interest rate, foreign currency, and investment value changes, with low exposure in most areas - Interest rate risk is minimal as loan agreements carry a fixed blended annual rate of 4.45% and cash equivalents are short-term[164] - Foreign currency risk is not significant because the majority of sales and operating expenses are denominated in U.S. dollars[165] - The company holds $935,000 in equity securities of public companies, which are subject to market price volatility[166] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal controls - An evaluation led by the principal executive and financial officers concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[170] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2021, that have materially affected, or are reasonably likely to materially affect, these controls[172] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and a list of exhibits filed with the report Legal Proceedings The company is involved in various legal proceedings, with details cross-referenced to Note 7 of the financial statements - The company is periodically involved in litigation concerning consumer protection, employment, intellectual property, and securities laws For details, the report refers to Note 7—Commitments and Contingencies[174] Risk Factors No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for 2020 were reported - No material changes from the risk factors disclosed in the Form 10-K for the year ended December 31, 2020, were reported[175] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales or issuer purchases of equity securities, nor new dividend limitations during the period - The company reported no unregistered sales of equity securities or issuer purchases of its equity securities for the period[175] Exhibits This section lists exhibits filed with the Form 10-Q, including transaction agreements, CEO/CFO certifications, and financial statements - Exhibits filed with the report include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and financial statements in Inline XBRL format (101)[176]