Beyond(US:BYON)2023-02-23 16:00Part I Business Overview The company, established in 1997, is an online retailer of furniture and home goods, leveraging its platform and partner network for sales and logistics, while also offering various ancillary services - The company primarily sells furniture and home goods through its website and mobile applications, targeting consumers seeking high-value, stylish home products199213214 - The company collaborates with approximately 2,600 partners, leveraging their logistics capabilities to ship directly from partners or owned warehouses, expanding product variety and meeting customer demand200214 - The company offers various ancillary services, including website advertising, marketing services, international sales, and the Supplier Oasis platform, complementing its core retail business218 - As of December 31, 2022, the company had approximately 1,050 full-time employees, committed to managing human capital through diversity, inclusion, competitive compensation, talent acquisition and retention, employee safety and health, and continuous development233234236243246247 Risk Factors The company faces substantial risks from third-party dependencies, market competition, macroeconomic factors, cybersecurity threats, and legal challenges, potentially impacting its operations and financial health - The company heavily relies on third-party carriers, fulfillment partners, payment processors, and cloud service providers, where any service disruption or cost increase could significantly impact operations303304 - The online retail market is highly competitive, with the company facing rivals from online, specialty, and traditional retailers who may possess stronger brand recognition, larger customer bases, and greater resources305306 - Macroeconomic factors, including recession, 6.5% consumer price inflation from December 2021 to December 2022, rising interest rates, and a weak U.S. housing market, have negatively impacted company sales and may continue to reduce consumer discretionary spending310311 - The company faces cybersecurity risks, data loss or breach risks, and operational disruptions and legal liabilities due to software defects, system failures, or external attacks327367 - The company holds approximately $296.3 million in equity method investments, which are in early or growth stages with high market uncertainty, potentially leading to future losses330 - The company, along with its former and current officers and directors, faces multiple securities class action and shareholder derivative lawsuits, as well as an SEC investigation, which could result in substantial legal fees, fines, and reputational damage334335372373375376 - The company faces the risk of becoming an investment company under the Investment Company Act, which could restrict its business operations and strategic decisions, leading to significant adverse consequences120149 Unresolved Staff Comments The company reports no unresolved staff comments as of the end of the current reporting period - The company has no unresolved staff comments151 Properties As of December 31, 2022, the company owned and leased 1,291 thousand square feet of facilities globally for operations - As of December 31, 2022, the company owned and leased a total of 1,291 thousand square feet of facilities in the U.S. and internationally for offices, data centers, warehouses, and customer service157 Facility Overview as of December 31, 2022 (Thousands of Square Feet) | Type | U.S. | International | Total | | :------------------- | :------ | :------------ | :------ | | Owned Facilities | 260 | — | 260 | | Leased Facilities | 1,018 | 13 | 1,031 | | Total Facilities | 1,278 | 13 | 1,291 | Legal Proceedings The company is involved in various legal proceedings, including consumer protection and securities claims, with potential for significant financial and operational impacts - The company is involved in consumer protection, employment, intellectual property, securities law claims, and other commercial litigation in the normal course of business152 - These lawsuits could result in significant damages, related costs, or equitable relief, divert management's attention, and materially adversely affect the business, operating results, financial condition, or cash flows152 - Detailed information regarding legal proceedings is disclosed in Note 12, 'Commitments and Contingencies,' to the financial statements152 Mine Safety Disclosures The company states that mine safety disclosures are not applicable to its operations - Mine safety disclosures are not applicable153 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under 'OSTK,' with 333 holders, no cash dividends, and completed preferred stock conversion, with $19.9 million remaining for future repurchases - The company's common stock trades on the Nasdaq Global Market under the ticker symbol 'OSTK'148 - As of February 17, 2023, the company had 333 registered holders of its common stock156 - The company has never paid cash dividends on its common stock and plans to retain earnings for future growth in the foreseeable future179 - On June 10, 2022, the company completed the automatic conversion of its Series A-1 and Series B preferred stock into 4,097,697 shares of common stock66204 Common Stock Repurchases in Q4 2022 | Period | Total Shares Purchased | Average Price Per Share (USD) | Shares Purchased Under Publicly Announced Plans or Programs | Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (Thousands of USD) | | :------------- | :--------------------- | :---------------------------- | :-------------------------------------------------------- | :---------------------------------------------------------------------------------------------------- | | October 1-31 | — | $— | — | 39,923 | | November 1-30 | 808,803 | $24.76 | 808,803 | 19,884 | | December 1-31 | — | $— | — | 19,884 | | Total | 808,803 | | 808,803 | | - As of December 31, 2022, the company had $19.9 million remaining under its repurchase program for future stock repurchases82 Reserved This section is reserved, containing no specific disclosures for the reporting period - This section's content is reserved253 Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operating results, highlighting a 30% revenue decline in 2022 due to macroeconomic factors, alongside strategic growth initiatives and key accounting considerations - The company focuses on driving growth by expanding home product assortments, increasing mobile app adoption, optimizing marketing strategies, expanding into the Canadian market, and strengthening brand pillars like 'Product Findability,' 'Smart Value,' and 'Convenient Delivery & Support'255 Changes in Cash and Cash Equivalents in 2022 | Metric | December 31, 2021 (Millions of USD) | December 31, 2022 (Millions of USD) | Change (Millions of USD) | | :------------------------------- | :---------------------------------- | :---------------------------------- | :----------------------- | | Cash and Cash Equivalents | 503.3 | 371.3 | (132.1) | | Primary Reasons for Change | | | | | Stock Repurchases | | | (80.1) | | Equity Security Purchases | | | (18.9) | | Property and Equipment Expenditures | | | (14.9) | | Net Cash Outflow from Operating Activities | | | (12.5) | Comparison of Operating Results for 2022 vs. 2021 (Thousands of USD) | Metric | 2022 | 2021 | Year-over-Year Change Rate (%) | | :----------------------------------- | :---------- | :---------- | :----------------------------- | | Net Revenue | 1,929,334 | 2,756,446 | (30.0)% | | Cost of Goods Sold | 1,485,990 | 2,132,544 | (30.3)% | | Gross Profit | 443,344 | 623,902 | (28.9)% | | Gross Margin | 23.0% | 22.6% | +0.4% | | Sales and Marketing Expenses | 215,477 | 302,430 | (28.8)% | | Sales and Marketing Expenses as % of Net Revenue | 11.2% | 11.0% | +0.2% | | Technology Expenses | 121,158 | 123,001 | (1.5)% | | General and Administrative Expenses | 79,701 | 87,399 | (8.8)% | | Other Income (Expense), Net | (63,825) | 12,500 | (76.3) Million USD Decrease | | Income (Loss) from Continuing Operations Before Income Taxes | (33,852) | 123,016 | | | Income Tax Provision (Benefit) | 1,384 | (48,775) | | | Income (Loss) from Continuing Operations | (35,236) | 171,791 | | - Net revenue decreased by 30% in 2022, primarily due to a 39% reduction in customer orders, partially offset by a 15% increase in average order value, reflecting a continued shift in product mix towards furniture and home goods, the disappearance of pandemic-related shopping behaviors, and macroeconomic factors258338 - The company continuously monitors macroeconomic trends, including the Russia-Ukraine conflict, inflation, and rising interest rates, for their impact on supply chains, customers, and employees, and strives to improve gross margins by working with partners to limit price increases262263265382 Cash Flows for 2022 (Thousands of USD) | Activity | 2022 | 2021 | | :------------------------------- | :---------- | :---------- | | Cash Outflow from Operating Activities | (12,535) | 98,047 | | Cash Outflow from Investing Activities | (33,034) | (56,433) | | Cash Outflow from Financing Activities | (86,340) | (12,683) | Contractual Obligations as of December 31, 2022 (Thousands of USD) | Contractual Obligation | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :--------------------------- | :--------- | :--------------- | :-------- | :-------- | :---------------- | | Operating Leases | 8,718 | 4,816 | 3,569 | 333 | — | | Loan Agreements | 49,331 | 5,264 | 3,261 | 2,968 | 37,838 | | Total Contractual Cash Obligations | 58,049 | 10,080 | 6,830 | 3,301 | 37,838 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rates, foreign exchange, and investment values, with minimal direct exposure to interest rate changes and limited foreign exchange risk due to USD-denominated operations - The fair value of the company's cash and cash equivalents (original maturities of 90 days or less) is not significantly affected by interest rate changes361 - The company's loan agreements carry a fixed annual interest rate of 4.45%, thus posing no direct financial risk from interest rate changes361 - Most of the company's sales and operating expenses are denominated in U.S. dollars, making foreign exchange risk currently insignificant381 - The company continuously monitors the impact of inflation on its business and operations, working with partners to limit cost increases, though it cannot fully offset all incremental inflationary pressures382 - As of December 31, 2022, the company's equity securities had a carrying value of $296.3 million, with $82.823 million measured at fair value, subject to market fluctuations and economic conditions, particularly with higher complexity in private company valuations363 Financial Statements and Supplementary Data This section includes the company's audited consolidated financial statements for the year ended December 31, 2022, with detailed notes on accounting policies, financial performance, and key disclosures, alongside an unqualified audit opinion - KPMG LLP issued an unqualified opinion on the company's consolidated financial statements and the effectiveness of internal control as of December 31, 2022140141387 Report of Independent Registered Public Accounting Firm The independent registered public accounting firm issued an unqualified opinion on the company's consolidated financial statements and internal control over financial reporting, highlighting the valuation of certain equity method securities as a critical audit matter - KPMG LLP issued an unqualified opinion on the company's consolidated financial statements and the effectiveness of internal control as of December 31, 2022140141387 - Auditors identified the valuation of certain equity method securities (using a market transaction back-solve approach adjusted for changes in comparable public company enterprise values) as a critical audit matter due to its highly subjective judgment and sensitivity to valuation391392 Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and stockholders' equity as of December 31, 2022, and 2021 Consolidated Balance Sheets (Thousands of USD) | Asset | December 31, 2022 | December 31, 2021 | | :--------------------------------------------------------------------------------------------------------- | :---------------- | :---------------- | | Current Assets: | | | | Cash and Cash Equivalents | 371,263 | 503,341 | | Restricted Cash | 194 | 25 | | Accounts Receivable, Net of Allowance for Credit Losses | 17,693 | 21,190 | | Inventory | 6,526 | 5,137 | | Prepaid Expenses and Other Current Assets | 18,833 | 22,097 | | Total Current Assets | 414,509 | 551,790 | | Property and Equipment, Net | 109,906 | 109,479 | | Deferred Tax Assets, Net | 41,439 | 40,035 | | Goodwill | 6,160 | 6,160 | | Equity Securities, Including Securities Measured at Fair Value | 296,317 | 342,682 | | Operating Lease Right-of-Use Assets | 7,460 | 12,584 | | Other Long-Term Assets, Net | 2,755 | 3,236 | | Total Assets | 878,546 | 1,065,966 | | Liabilities and Stockholders' Equity | | | | Current Liabilities: | | | | Accounts Payable | 75,130 | 102,293 | | Accrued Liabilities | 63,614 | 101,902 | | Unearned Revenue | 44,480 | 59,387 | | Operating Lease Liabilities, Current Portion | 4,410 | 5,402 | | Other Current Liabilities | 3,508 | 3,349 | | Total Current Liabilities | 191,142 | 272,333 | | Long-Term Debt, Net | 34,476 | 37,984 | | Operating Lease Liabilities, Noncurrent Portion | 3,626 | 7,960 | | Other Long-Term Liabilities | 3,476 | 3,303 | | Total Liabilities | 232,720 | 321,580 | | Stockholders' Equity: | | | | Common Stock | 5 | 4 | | Additional Paid-in Capital | 982,718 | 960,544 | | Accumulated Deficit | (173,829) | (136,590) | | Accumulated Other Comprehensive Loss | (522) | (537) | | Treasury Stock | (162,546) | (79,035) | | Total Stockholders' Equity Attributable to Overstock.com, Inc. | 645,826 | 744,386 | | Total Stockholders' Equity | 645,826 | 744,386 | | Total Liabilities and Stockholders' Equity | 878,546 | 1,065,966 | Consolidated Statements of Operations This section presents the company's consolidated statements of operations, detailing revenues, expenses, and net income (loss) for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Operations (Thousands of USD, Except Per Share Data) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------------------------------- | :---------- | :---------- | :---------- | | Net Revenue | 1,929,334 | 2,756,446 | 2,493,915 | | Cost of Goods Sold | 1,485,990 | 2,132,544 | 1,922,559 | | Gross Profit | 443,344 | 623,902 | 571,356 | | Operating Expenses: | | | | | Sales and Marketing | 215,477 | 302,430 | 260,714 | | Technology | 121,158 | 123,001 | 116,248 | | General and Administrative | 79,701 | 87,399 | 97,679 | | Total Operating Expenses | 416,336 | 512,830 | 474,641 | | Operating Income | 27,008 | 111,072 | 96,715 | | Interest Income (Expense), Net | 2,965 | (556) | (838) | | Other Income (Expense), Net | (63,825) | 12,500 | 613 | | Income (Loss) from Continuing Operations Before Income Taxes | (33,852) | 123,016 | 96,490 | | Income Tax Provision (Benefit) | 1,384 | (48,775) | 1,363 | | Income (Loss) from Continuing Operations | (35,236) | 171,791 | 95,127 | | Income (Loss) from Discontinued Operations, Net of Income Taxes | — | 217,246 | (48,956) | | Consolidated Net Income (Loss) | (35,236)| 389,037 | 46,171 | | Net Income (Loss) Attributable to Overstock.com, Inc. Stockholders | (35,236) | 389,372 | 56,001 | | Net Income (Loss) Per Common Share—Basic: | | | | | Continuing Operations | (0.83) | 3.60 | 2.13 | | Discontinued Operations | — | 4.58 | (0.88) | | Total | (0.83) | 8.18 | 1.25 | | Net Income (Loss) Per Common Share—Diluted: | | | | | Continuing Operations | (0.83) | 3.57 | 2.12 | | Discontinued Operations | — | 4.54 | (0.88) | | Total | (0.83) | 8.11 | 1.24 | | Weighted-Average Common Shares Outstanding: | | | | | Basic | 44,323 | 42,981 | 41,217 | | Diluted | 44,323 | 43,332 | 41,607 | Consolidated Statements of Comprehensive Income (Loss) This section presents the company's consolidated statements of comprehensive income (loss), detailing net income (loss) and other comprehensive income for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Comprehensive Income (Loss) (Thousands of USD) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------------------------------------ | :----------- | :---------- | :---------- | | Consolidated Net Income (Loss) | (35,236) | 389,037 | 46,171 | | Other Comprehensive Income: | | | | | Unrealized gain on cash flow hedges, net of tax | 15 | 16 | 15 | | Other Comprehensive Income | 15 | 16 | 15 | | Comprehensive Income (Loss) | (35,221) | 389,053 | 46,186 | | Less: Comprehensive loss attributable to noncontrolling interest—discontinued operations | — | (335) | (9,830) | | Comprehensive Income (Loss) Attributable to Overstock.com, Inc. Stockholders | (35,221) | 389,388 | 56,016 | Consolidated Statements of Changes in Stockholders' Equity This section presents the company's consolidated statements of changes in stockholders' equity, detailing movements in common stock, additional paid-in capital, accumulated deficit, and treasury stock for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Changes in Stockholders' Equity (Partial, Thousands of USD) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------------------------------- | :---------- | :---------- | :---------- | | Stockholders' Equity Attributable to Overstock.com, Inc. Stockholders | | | | | Common Shares Issued | | | | | Balance at Beginning of Year | 46,625 | 46,331 | 42,790 | | Common stock issued upon vesting of restricted stock awards | 295 | 294 | 710 | | Common stock issued for ESPP purchases | 84 | — | — | | Preferred stock conversion | 4,098 | — | — | | Common stock issued for stock offering sales | — | — | 2,831 | | Balance at End of Year | 51,102 | 46,625 | 46,331 | | Treasury Shares | | | | | Balance at Beginning of Year | 3,602 | 3,563 | 3,326 | | Common stock repurchases | 2,461 | — | — | | Tax withholdings upon vesting of employee stock awards | 88 | 86 | 237 | | Treasury stock sales | — | (47) | — | | Balance at End of Year | 6,151 | 3,602 | 3,563 | | Total Common Shares Outstanding | 44,951 | 43,023 | 42,768 | | Additional Paid-in Capital | | | | | Balance at Beginning of Year | 960,544 | 970,873 | 764,845 | | Stock-based compensation for employees and directors | 18,318 | 11,700 | 12,930 | | Common stock issued for ESPP purchases | 2,779 | — | — | | Preferred stock conversion and cancellation | 1,043 | — | — | | Stock offering sales, net | — | — | 192,692 | | Balance at End of Year | 982,718 | 960,544 | 970,873 | | Accumulated Deficit | | | | | Balance at Beginning of Year | (136,590) | (525,233) | (580,390) | | Net income (loss) attributable to Overstock.com, Inc. stockholders | (35,236) | 389,372 | 56,001 | | Dividends distributed upon preferred stock conversion and cancellation | (1,697) | — | — | | Preferred stock conversion and cancellation | (306) | — | — | | Preferred stock dividends declared and paid | — | (729) | (731) | | Balance at End of Year | (173,829) | (136,590) | (525,233) | | Treasury Stock | | | | | Balance at Beginning of Year | (79,035) | (71,399) | (68,807) | | Common stock and Series A-1 preferred stock repurchases | (80,117) | — | — | | Tax withholdings upon vesting of restricted stock | (3,700) | (8,279) | (2,592) | | Preferred stock conversion and cancellation | 306 | — | — | | Balance at End of Year | (162,546) | (79,035) | (71,399) | | Total Stockholders' Equity | 645,826 | 744,386 | 436,326 | Consolidated Statements of Cash Flows This section presents the company's consolidated statements of cash flows, detailing cash flows from operating, investing, and financing activities for the years ended December 31, 2022, 2021, and 2020 Consolidated Statements of Cash Flows (Thousands of USD) | Activity | 2022 | 2021 | 2020 | | :---------------------------------------------------------------------------------------------------------- | :----------- | :---------- | :---------- | | Cash Flows from Operating Activities: | | | | | Consolidated Net Income (Loss) | (35,236) | 389,037 | 46,171 | | Income (loss) from discontinued operations, net of income taxes | — | (217,246) | 48,956 | | Net cash provided by (used in) continuing operating activities | (12,535) | 98,047 | 226,626 | | Net cash used in discontinued operating activities | — | (17,128) | (30,152) | | Net Cash Provided by (Used in) Operating Activities | (12,535) | 80,919 | 196,474 | | Cash Flows from Investing Activities: | | | | | Equity security purchases | (18,920) | — | — | | Capital contributions | — | (41,122) | — | | Distributions of invested capital | 1,224 | — | — | | Property and equipment expenditures | (14,899) | (13,617) | (14,874) | | Net cash used in continuing investing activities | (33,034) | (56,433) | (15,271) | | Net cash used in discontinued investing activities | — | (29,703) | (8,284) | | Net Cash Used in Investing Activities | (33,034) | (86,136)| (23,555)| | Cash Flows from Financing Activities: | | | | | Share repurchases | (80,117) | — | — | | Payments of long-term debt | (3,447) | (3,030) | (2,635) | | Proceeds from long-term debt | — | — | 47,500 | | Proceeds from common stock sales, net of issuance costs | — | — | 195,540 | | Payments for tax withholdings upon vesting of employee stock awards | (3,700) | (8,279) | (2,592) | | Proceeds from employee stock purchase plan | 924 | — | — | | Net cash provided by (used in) continuing financing activities | (86,340) | (12,683) | 231,364 | | Net cash provided by discontinued financing activities | — | 2,085 | — | | Net Cash Provided by (Used in) Financing Activities | (86,340) | (10,598)| 231,364 | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | (131,909)| (15,815)| 404,283 | | Cash, cash equivalents, and restricted cash at beginning of year, including cash balances of discontinued operations | 503,366 | 519,181 | 114,898 | | Cash, cash equivalents, and restricted cash at end of year, including cash balances of discontinued operations | 371,457 | 503,366 | 519,181 | | Less: Cash, cash equivalents, and restricted cash of discontinued operations | — | — | 22,559 | | Cash, Cash Equivalents, and Restricted Cash at End of Year | 371,457 | 503,366 | 496,622 | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, explaining the company's accounting policies, significant estimates, and specific financial disclosures Note 1. BASIS OF PRESENTATION This note outlines the company's formation, reincorporation, and the basis for preparing its consolidated financial statements, focusing on continuing operations - The company was founded in 1997, reorganized as a C-corporation in 1998, reincorporated in Delaware in 2002, and changed its name to Overstock.com, Inc. on October 25, 1999430 - Consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP) and reflect only continuing operations, with former subsidiaries Medici Ventures Inc. and tZERO Group, Inc. presented as discontinued operations421431 Note 2. ACCOUNTING POLICIES AND SUPPLEMENTAL DISCLOSURES This note details the company's significant accounting policies and supplemental disclosures, covering consolidation, estimates, cash flows, fair value, and asset valuation - The company's consolidated financial statements include its own accounts and those of its wholly-owned subsidiaries, with all intercompany account balances and transactions eliminated422 - Financial statement preparation involves estimates and assumptions for accounts receivable valuation, revenue recognition, Club O and gift card breakage, sales returns, inventory valuation, depreciation lives, equity security valuations, income taxes, stock-based compensation, performance-based compensation, self-insured health insurance liabilities, and contingencies423 Supplemental Cash Flow Information (Thousands of USD) | Metric | 2022 | 2021 | 2020 | | :--------------------------------------------------------------- | :---- | :---- | :---- | | Cash Paid During the Period: | | | | | Interest paid, net of amounts capitalized | 1,777 | 1,775 | 1,808 | | Income taxes paid, net | 2,562 | 2,262 | 1,452 | | Noncash Investing and Financing Activities: | | | | | Purchases of property and equipment included in accounts payable and accrued liabilities | 2,527 | 508 | 336 | - The company classifies all highly liquid instruments, including those with original maturities of three months or less, as cash equivalents435 - Restricted cash includes legally restricted cash and compensating balances held for credit arrangements436 - The company values assets and liabilities using a three-level fair value hierarchy (Level 1, Level 2, Level 3) to minimize the use of unobservable inputs437 - Accounts receivable primarily include trade amounts from U.S. customers and unliquidated credit card transactions at period-end, with an allowance for expected credit losses based on customer financial condition, historical collection experience, and future economic conditions440 - Inventory includes goods acquired for resale and processed returns, accounted for using the standard cost method (approximating first-in, first-out), and measured at the lower of cost or net realizable value441 - Prepaid expenses and other current assets include advertising, license fees, maintenance, packaging, insurance, prepaid inventory, other miscellaneous costs, and cryptocurrency442 - Property and equipment are recorded at cost, net of depreciation and amortization, and depreciated using the straight-line method over their estimated useful lives or lease terms443 Estimated Useful Lives of Property and Equipment (Years) | Asset Type | Life (Years) | | :----------------------------------------------- | :----------- | | Buildings | 40 | | Land Improvements | 20 | | Building Machinery and Equipment | 15-20 | | Furniture and Fixtures | 5-7 | | Computer Hardware | 3-4 | | Computer Software, Including Internally Developed Software and Website Development | 2-4 | - The company amortizes capitalized costs related to internally developed software and website development, recognizing gains or losses upon asset disposal or retirement444445 - For initial valuation of noncontrolling interests in former subsidiaries, in the absence of public market quotes, the company uses a combination of market and income approaches, with third-party valuation firms assisting in fair value determination, involving significant unobservable inputs (Level 3)162447 - The company holds minority equity interests (less than 20%) in certain public entities, measured at fair value under ASC 321 (based on Level 1 inputs), with fair value changes recognized in other income (expense), net448 - The company holds minority equity interests in private entities such as Medici Ventures, L.P., tZERO, and SpeedRoute, LLC, accounted for under the equity method per ASC 323, with a fair value option elected for direct minority interests in tZERO and SpeedRoute, valued using market approaches involving Level 3 inputs449451453454 Level 3 Equity Securities Fair Value Measurement Valuation Techniques and Unobservable Inputs | Investment | Fair Value (Thousands of USD) | Valuation Technique | Unobservable Input | Input Value | | :--------- | :---------------------------- | :------------------------------------------------- | :------------------------------------------------------- | :---------------- | | tZERO | 78,867 | Market Approach - Transaction Back-Solve with Option Pricing Model | Liquidity Term | 5.0 Years | | | | | Volatility | 125% | | | | | Percentage Change in Enterprise Value of Comparable Public Companies | (32.4)% | | SpeedRoute | 3,920 | Market Approach - Recent Transactions | Not Applicable | Not Applicable | | Total | 82,787 | | | | - The company classifies lease agreements as operating or finance leases, recognizing lease assets and liabilities based on the present value of future minimum lease payments455 - Goodwill represents the excess of the acquisition price over the fair value of net assets acquired, is not amortized, but is tested for impairment at least annually or when a triggering event occurs457 - The company reviews property and equipment, right-of-use assets, and other long-term assets for impairment, recognizing an impairment loss when the carrying value of an asset group may not be recoverable458 - Other long-term assets, net, primarily include long-term prepaid expenses and deposits166 - Revenue is recognized when control of products or services is transferred to customers, reflecting the consideration expected to be received, and excludes government-imposed taxes167175459 - The company primarily sells goods through its website, with most sales fulfilled from partner inventory, and revenue recognized on a gross basis460464 - Club O loyalty program membership fees are recognized as unearned revenue and amortized proportionally over the membership period; Club O rewards are recognized as revenue upon customer redemption, based on estimated breakage rates3168177465 - Advertising revenue, primarily from sponsored links and display ads on the website, is recognized when advertising services are provided, accounting for approximately 2% of total net revenue178 - Sales return allowances are estimated based on current period revenue and historical return experience, and are included in accrued liabilities4176 - Cost of goods sold includes product costs, warehousing costs, outbound shipping costs, processing and fulfillment costs, customer service costs, and merchant fees, recorded in the same period as the related revenue recognition5 - Advertising expenses are recognized when the advertisement first occurs or over the period the advertising space/airtime is used, with internet advertising expenses recognized based on agreement terms, typically sales commissions or click-through referral fees6 - Stock-based compensation is measured at the fair value of unvested restricted stock awards on the grant date and recognized as expense over the service period using either the straight-line or accelerated method783 - Loss contingencies are accrued when a loss is probable and the amount can be reasonably estimated, with legal fees expensed as incurred9 - Income taxes are accounted for using the asset and liability method, recognizing deferred tax assets and liabilities, and assessing the realizability of deferred tax assets based on projections of future taxable income1112 - Net income (loss) per share is calculated using the two-class method, with basic earnings per share computed by dividing net income (loss) attributable to common stock by the weighted-average common shares outstanding, and diluted earnings per share including potential common shares141516 Note 3. FAIR VALUE MEASUREMENT This note details the company's fair value measurements for assets and liabilities, categorized by Level 1, Level 2, and Level 3 inputs, and outlines changes in Level 3 investments Fair Value Measurements as of December 31, 2022 (Thousands of USD) | | Total | Level 1 | Level 2 | Level 3 | | :------------------------------------------------------------ | :---------- | :---------- | :------ | :---------- | | Assets: | | | | | | Cash equivalents—money market mutual funds | 252,650 | 252,650 | — | — | | Equity securities, at fair value | 82,823 | 36 | — | 82,787 | | Trading securities held in "rabbi trust" | 399 | 399 | — | — | | Total Assets | 335,872 | 253,085 | — | 82,787 | | Liabilities: | | | | | | Deferred compensation accrual "rabbi trust" | 396 | 396 | — | — | | Total Liabilities | 396 | 396 | — | — | Fair Value Measurements as of December 31, 2021 (Thousands of USD) | | Total | Level 1 | Level 2 | Level 3 | | :------------------------------------------------------------ | :---------- | :---------- | :------ | :---------- | | Assets: | | | | | | Cash equivalents—money market mutual funds | — | — | — | — | | Equity securities, at fair value | 102,529 | 174 | — | 102,355 | | Trading securities held in "rabbi trust" | 179 | 179 | — | — | | Total Assets | 102,708 | 353 | — | 102,355 | | Liabilities: | | | | | | Deferred compensation accrual "rabbi trust" | 188 | 188 | — | — | | Total Liabilities | 188 | 188 | — | — | Level 3 Investment Activity (Thousands of USD) | Description | Amount | | :----------------------------------------- | :---------- | | Level 3 investments at December 31, 2020 | $— | | Additions due to acquisition of Level 3 investments | 99,723 | | Increase in fair value of Level 3 investments | 2,632 | | Level 3 Investments at December 31, 2021 | 102,355 | | Additions due to purchases of Level 3 investments | 18,920 | | Decrease in fair value of Level 3 investments | (38,488) | | Level 3 Investments at December 31, 2022 | $82,787 | Note 4. DISCONTINUED OPERATIONS This note details the company's discontinued operations, specifically the conversion of Medici Ventures into a limited partnership and the reclassification of retained equity interests - On January 25, 2021, the company entered into an agreement with Medici Ventures, Pelion, and Pelion, Inc., converting Medici Ventures into a limited partnership, with Pelion as the general partner and the company as a limited partner21 - The company's retained equity interests in Medici Ventures, L.P. and tZERO were classified as equity method securities, as the company has significant influence but not control21 - Upon the closing of Medici Ventures, the fair value of the company's retained equity interests in the partnership and tZERO was $288.8 million, with approximately $149.9 million of Level 3 equity securities valued using unadjusted external inputs22 Key Unobservable Inputs for Level 3 Equity Securities Fair Value Measurement | Valuation Technique | Unobservable Input | Range (1) | Weighted Average (2) | | :--------------------------- | :------------------------------------------------------- | :-------------- | :------------------- | | Market Approach | Enterprise Value to Revenue Multiple | 0.88x | 0.88x | | | Discount Rate | 9.0% - 35.0% | 32.4% | | Discounted Cash Flow - Exit Multiple | Enterprise Value to Revenue Multiple | 0.75x - 5.00x | 4.40x | | | Projected Terminal Year | 2023 - 2027 | 2025 | | | Annual Revenue Growth Rate | 1.3% - 124.0% | 109.4% | | | Annual EBITDA as a Percentage of Revenue | 5.2% - 41.2% | 36.3% | | Discounted Cash Flow - Perpetual Growth | Discount Rate | 30.0% | 30.0% | | | Projected Terminal Year | 2028 | 2028 | | | Perpetual Revenue Growth Rate | 3.0% | 3.0% | | | Annual Revenue Growth Rate | 25.7% | 25.7% | | | Annual EBITDA as a Percentage of Revenue | 14.9% | 14.9% | - The company recognized a $243.5 million gain upon deconsolidation of the discontinued operations, primarily from the fair value remeasurement of retained equity method interests23 Discontinued Operations Performance (Thousands of USD) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------------------------------- | :--- | :---------- | :---------- | | Net Revenue | — | 17,394 | 55,868 | | Cost of Goods Sold | — | 13,716 | 47,691 | | Gross Profit | — | 3,678 | 8,177 | | Total Operating Expenses | — | 20,642 | 52,666 | | Operating Loss from Discontinued Operations | — | (16,964) | (44,489) | | Interest Income, Net | — | 192 | 600 | | Other Income (Loss), Net | — | 4,081 | (5,441) | | Gain on Deconsolidation | — | 243,541 | — | | Income (Loss) from Discontinued Operations Before Income Taxes | — | 230,850 | (49,330) | | Income Tax Provision (Benefit) | — | 13,604 | (374) | | Income (Loss) from Discontinued Operations, Net of Income Taxes | — | 217,246 | (48,956) | | Less: Net loss attributable to noncontrolling interest from discontinued operations | — | (335) | (9,830) | | Net Income (Loss) from Discontinued Operations Attributable to Overstock.com, Inc. Stockholders | — | 217,581 | (39,126) | Note 5. ACCOUNTS RECEIVABLE, NET This note provides a breakdown of the company's accounts receivable, net, including trade receivables, other receivables, and the allowance for credit losses Accounts Receivable, Net (Thousands of USD) | Metric | December 31, 2022 | December 31, 2021 | | :----------------------------------- | :---------------- | :---------------- | | Credit card receivables, trade | 10,595 | 14,148 | | Accounts receivable, trade | 5,760 | 6,501 | | Other accounts receivable | 4,561 | 2,970 | | Subtotal | 20,916 | 23,619 | | Less: Allowance for credit losses | (3,223) | (2,429) | | Total Accounts Receivable, Net | 17,693 | 21,190 | Note 6. PREPAIDS AND OTHER CURRENT ASSETS This note details the composition of the company's prepaid expenses and other current assets, including prepaid maintenance, other current assets, and other prepayments Prepaid Expenses and Other Current Assets (Thousands of USD) | Metric | December 31, 2022 | December 31, 2021 | | :--------------------------------------- | :---------------- | :---------------- | | Prepaid maintenance | 8,767 | 10,780 | | Other current assets | 5,467 | 5,071 | | Other prepaid expenses | 4,599 | 6,246 | | Total Prepaid Expenses and Other Current Assets | 18,833 | 22,097 | Note 7. PROPERTY AND EQUIPMENT, NET This note provides a detailed breakdown of the company's property and equipment, net, including computer hardware, buildings, land, and accumulated depreciation Property and Equipment, Net (Thousands of USD) | Metric | December 31, 2022 | December 31, 2021 | | :------------------------------------------------------------------ | :---------------- | :---------------- | | Computer hardware and software, including internally developed software and website development | 240,148 | 225,256 | | Buildings | 69,350 | 69,293 | | Land | 12,781 | 12,781 | | Furniture and fixtures | 12,642 | 12,067 | | Building machinery and equipment | 9,791 | 9,809 | | Land improvements | 7,060 | 7,025 | | Leasehold improvements | 2,904 | 2,601 | | Subtotal | 354,676 | 338,832 | | Less: Accumulated depreciation | (244,770) | (229,353) | | Total Property and Equipment, Net | 109,906 | 109,479 | Capitalized Internally Developed Software and Website Development Costs and Depreciation (Thousands of USD) | Metric | 2022 | 2021 | 2020 | | :------------------------------------------- | :---- | :---- | :----- | | Capitalized internally developed software and website development | 7,915 | 6,126 | 10,246 | | Depreciation of internally developed software and website development | 6,571 | 7,237 | 10,262 | Depreciation Expense by Category (Thousands of USD) | Category | 2022 | 2021 | 2020 | | :---------------------- | :------ | :------ | :------ | | Cost of Goods Sold | 682 | 605 | 680 | | Technology | 12,233 | 13,801 | 15,708 | | General and Administrative | 3,742 | 4,064 | 5,279 | | Total Depreciation | 16,657| 18,470| 21,667| Note 8. EQUITY SECURITIES This note details the company's equity securities, including those accounted for under the equity method and fair value option, and outlines related investment activities and financial performance Composition of Equity Securities (Thousands of USD) | Metric | December 31, 2022 | December 31, 2021 | | :------------------------------------------------------------------ | :---------------- | :---------------- | | Equity securities accounted for under the equity method per ASC 323 | 213,494 | 240,153 | | Equity securities accounted for under the equity method with fair value option | 82,787 | 102,355 | | Equity securities accounted for under ASC 321 | 36 | 174 | | Total Equity Securities | 296,317 | 342,682 | - As of December 31, 2022, the company's equity method security holdings in Medici Ventures, L.P., tZERO Group, Inc., and SpeedRoute, LLC were 99%, 29%, and 49%, respectively44 - In 2022, the company made an additional $15 million investment in tZERO and expanded its investment portfolio by acquiring an equity interest in SpeedRoute, LLC, a former tZERO subsidiary31 Equity Method Securities Income (Loss) (Thousands of USD) | Metric | 2022 | 2021 | | :------------------------------------------------------------------ | :---------- | :-------- | | Net income (loss) recognized from proportional share of equity method securities' net assets | (25,435) | 9,953 | | Increase (decrease) in fair value of equity method securities held at fair value option | (38,488) | 2,632 | - As of December 31, 2022, the company's equity method securities had a carrying value of $296.3 million, with $82.8 million valued at fair value option (tZERO and SpeedRoute), representing 24.6% of assets measured at fair value44 Summarized Financial Information for Equity Method Securities Meeting Significance Criteria (Thousands of USD) | Metric | December 31, 2022 | December 31, 2021 | | :--------------------------------- | :---------------- | :---------------- | | Balance Sheet: | | | | Assets | 122,015 | 76,192 | | Liabilities | (25,055) | (21,683) | | Equity | (96,960) | (54,509)