Overstock.com(OSTK) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for the period ended June 30, 2021, reflecting the deconsolidation of Medici Ventures and tZERO as discontinued operations, resulting in a significant one-time gain Consolidated Balance Sheets As of June 30, 2021, the balance sheet reflects the deconsolidation of Medici/tZERO entities, showing increased equity securities and total stockholders' equity, with cash and cash equivalents rising to $536.4M - Assets and liabilities of discontinued operations, which were $140.3M and $21.6M respectively at year-end 2020, are zero as of June 30, 2021, following the deconsolidation[18][64] Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $536.4M | $495.4M | | Equity securities | $330.8M | $1.4M | | Total assets | $1,101.7M | $830.2M | | Total liabilities | $425.5M | $393.9M | | Total stockholders' equity | $676.2M | $436.3M | Consolidated Statements of Income For Q2 2021, net revenue from continuing operations grew 3.6% year-over-year to $794.5M, while a significant gain from discontinued operations drove consolidated net income to $309.8M Q2 2021 vs Q2 2020 Performance (in millions, except EPS) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Net Revenue | $794.5M | $767.0M | | Gross Profit | $174.8M | $177.9M | | Operating Income | $36.5M | $48.8M | | Income from Continuing Operations | $82.4M | $47.8M | | Income (loss) from Discontinued Operations | $227.4M | $(13.5M) | | Net Income Attributable to Stockholders | $309.9M | $36.4M | | Diluted EPS | $6.47 | $0.84 | Consolidated Statements of Cash Flows For the first six months of 2021, net cash provided by continuing operating activities decreased to $120.0M, with increased cash used in investing activities primarily due to capital call contributions Six Months Ended June 30 Cash Flows (in millions) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by continuing operating activities | $120.0M | $187.4M | | Net cash used in continuing investing activities | $(47.7M) | $(7.5M) | | Net cash provided by (used in) continuing financing activities | $(9.2M) | $43.8M | Notes to Unaudited Consolidated Financial Statements The notes detail significant accounting events, including the deconsolidation of Medici Ventures and tZERO, resulting in a $243.5M gain, and the company's shift to a single Retail reportable segment - On April 23, 2021, the company closed a transaction with Pelion MV GP, L.L.C., transferring control of Medici Ventures. Overstock deconsolidated the entities and recognized a gain of $243.5M[42][59] - The company is cooperating with an ongoing SEC investigation related to tZERO, the 2019 digital dividend, and other matters[82][83] - Following the deconsolidation, the company determined it has only one reportable segment: Retail[109] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2021 financial results, highlighting a 3.6% revenue increase driven by higher average order value, a slight gross margin decrease, and the release of a $47.0M deferred tax asset valuation allowance - Q2 2021 revenue growth was driven by a 33% increase in average order size, offset by a 22% decrease in customer orders compared to the peak of the COVID-19 pandemic in Q2 2020[117][124] - Gross margin for Q2 2021 decreased to 22.0% from 23.2% in Q2 2020, primarily because 2020 benefited from a lower promotional environment and other one-time items[118][130] - The company released approximately $47.0M of its valuation allowance on deferred tax assets, concluding it is more likely than not that these assets will be realizable[144] Key Financial Metrics (Q2 2021) | Metric | Value | Change (YoY) | | :--- | :--- | :--- | | Net Revenue | $794.5M | +3.6% | | Gross Margin | 22.0% | -120 bps | | S&M as % of Revenue | 10.7% | +40 bps | | Cash & Equivalents | $536.4M | N/A | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks relate to its $330.8M equity securities, mainly in private companies, which are subject to valuation volatility, while interest rate and foreign currency risks are minimal - The company holds $330.8M in equity securities, primarily in private companies, which are subject to valuation risk due to the lack of readily available market data[172] - Interest rate risk is low as the company's loan agreements carry a fixed blended annual interest rate of 4.45%[170] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with enhancements made to internal controls related to tax valuation allowance release and retained noncontrolling interests - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of the end of the reporting period[176] - Internal controls were enhanced during the quarter to support the accounting for the tax valuation allowance release and the valuation of retained interests in deconsolidated subsidiaries[178] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, with details incorporated by reference from Note 8 of the financial statements, covering ongoing matters such as an SEC investigation and class action lawsuits - This section refers to Note 8 for details on legal proceedings, which include an SEC investigation and a securities class action lawsuit[180][82][84] Risk Factors This section highlights new material risk factors, including potential losses from equity interests in startup businesses and the risk of not realizing recently reversed deferred tax assets - A new risk factor highlights the potential for material losses related to the company's direct and indirect noncontrolling interests in startup businesses[183] - A new risk factor was added concerning the potential inability to realize its deferred tax assets if future taxable income is lower than estimated, which could lead to re-establishing a valuation allowance[184][185] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or issuer purchases of equity securities during the period - There were no unregistered sales of equity securities or issuer purchases of equity securities in the quarter[186] Exhibits This section lists the exhibits filed with the Form 10-Q, including the Medici Ventures, L.P. Limited Partnership Agreement, CEO and CFO certifications, and the financial statements formatted in Inline XBRL - Key exhibits filed include the Limited Partnership Agreement for Medici Ventures, L.P. and certifications by the CEO and CFO[188]