OSTK
$14.97
Overstock.com
($.60)
(3.85%)
Earnings Details
2nd Quarter June 2019
Thursday, August 08, 2019 4:05:00 PM
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Summary

Overstock.com (OSTK) Recent Earnings

Overstock.com (OSTK) reported a 2nd Quarter June 2019 loss of $0.69 per share on revenue of $373.7 million. The consensus estimate was a loss of $0.92 per share on revenue of $385.6 million. Revenue fell 22.6% compared to the same quarter a year ago.

Overstock.com, Inc. is an online retailer offering closeout and discount brand and non-brand name merchandise, including bed-and-bath goods, home décor, kitchenware, watches, jewelry, electronics and computers, apparel, and designer accessories.

Results
Reported Earnings
($0.69)
Earnings Whisper
-
Consensus Estimate
($0.92)
Reported Revenue
$373.7 Mil
Revenue Estimate
$385.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Overstock.com Reports Q2 2019 Results

Consolidated revenue of $374 million and pre-tax loss of $28 million;
Retail adjusted EBITDA of $1.6 million

SALT LAKE CITY, Aug. 08, 2019 (GLOBE NEWSWIRE) -- Overstock.com, Inc. (NASDAQ:OSTK), a tech-driven online retailer and advancer of blockchain technology, today reported financial results for the quarter ended June 30, 2019.

Fellow Shareholders,

Our second quarter brought strong results for both our blockchain and retail businesses as we continue to innovate in both areas with our disruptive technologies.

tZERO, the crown jewel of our Medici Ventures keiretsu, continues to expand its lead over the competition in the field of security tokens (which we believe is the killer app of the blockchain revolution).

Most of Medici Ventures' keiretsu companies are generally progressing as planned, leading the effort to introduce blockchain products into the real world while focusing on the six areas we've identified as key components to building a technology stack for civilization.

Our retail business has returned to positive adjusted EBITDA for the first time since the second quarter of 2017 and shows no signs of stopping.

Finally, the recently announced shareholder dividend to be issued in shares of our Digital Voting Series A-1 Preferred Stock, OSTKO, has opened a wormhole that will further connect our retail, blockchain, and crypto universes.

I urge you to listen to the company's Q2 2019 Earnings Call for more context on each of the above points, and thank you, as always, for your continued support of our mutual business.

Respectfully,

Patrick M. Byrne
CEO and Founder
Overstock.com

Key metrics (Q2 2019 vs. Q2 2018):

  • Revenue: $373.7M vs. $483.1M (23% decrease);
  • Gross profit: $73.9M vs. $91.7M (19% decrease);
  • Gross margin: 19.8% vs. 19.0% (79 basis point increase);
  • Sales and marketing expense: $34.6M vs. $94.4M (63% decrease);
  • G&A/Technology expense: $65.1M vs. $63.9M (2% increase);
  • Pre-tax loss: $28.2M vs. $65.9M ($37.7M improvement);
    °  Pre-tax loss - Retail: $9.1M
    °  Pre-tax loss - tZERO: $10.0M
    °  Pre-tax loss - Other: $9.2M
  • Net loss*: $24.7M vs. $64.9M ($40.2M improvement);
  • Diluted net loss per share: $0.69/share vs. $2.20/share ($1.51/share improvement);
  • Adjusted EBITDA (non-GAAP financial measure): ($13.1M) vs. ($62.8M) ($49.7M improvement);
    °  Adjusted EBITDA - Retail: $1.6M
    °  Adjusted EBITDA - tZERO: ($8.7M)
    °  Adjusted EBITDA - Other: ($6.0M).

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

We will hold a conference call and webcast to discuss our Q2 2019 financial results Thursday, August 8, 2019, at 4:30 p.m. ET.

Webcast information

To access the live webcast and presentation slides, go to http://investors.overstock.com. To listen to the conference call via telephone, dial (877) 673-5346 and enter conference ID 8197248 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 7:30 p.m. ET on Thursday, August 8, 2019, through 7:30 p.m. ET on Thursday, August 22, 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.

Total net revenue - Total net revenue was $373.7 million and $483.1 million for Q2 2019 and 2018, respectively, a 23% 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 disciplined approach to marketing.

Gross profit - Gross profit was $73.9 million and $91.7 million for Q2 2019 and 2018, respectively, a 19% decrease, representing 19.8% and 19.0% gross margin for those respective periods. The decrease in gross profit was primarily due to the decrease in net revenue in the retail business. The increase in gross margin was primarily due to decreased product costs and decreased promotional activities, including coupons and site sales, due to our driving a lower proportion of our sales using such promotions. These decreases in gross margin components were partially offset by increased freight costs.

Sales and marketing expenses - Sales and marketing expenses totaled $34.6 million and $94.4 million for Q2 2019 and 2018, respectively, a 63% decrease, representing 9.2% and 19.5% 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, display ads on social media, and television marketing channels.

Technology expenses - Technology expenses totaled $33.2 million and $32.4 million in Q2 2019 and 2018, respectively, a 2% increase, representing 8.9% and 6.7% of total revenue for those respective periods. The increase was primarily due to a $678,000 increase in technology licenses and maintenance costs.

General and administrative ("G&A") expenses - G&A expenses totaled $32.0 million and $31.4 million in Q2 2019 and 2018, respectively, a 2% increase, representing 8.6% and 6.5% of total revenue for those respective periods. The increase was primarily due to a $6.0 million decrease in cryptocurrency gains from our Q2 2018 sale of cryptocurrency received during the tZERO security token offering, with no similar activity in Q2 2019. In addition, we had a $1.0 million increase in staff-related expenses and a $722,000 increase in corporate insurance costs. These increases were partially offset by a $3.6 million decrease in legal fees, a $2.7 million decrease in consulting expenses, and a $1.2 million decrease in travel expenses.

Other income (expense), net - Other income (expense), net totaled ($3.0) million and $368,000 for Q2 2019 and 2018, respectively. The decrease was primarily due to a $3.7 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 $65.9 million and $70.6 million for the six months ended June 30, 2019 and 2018, respectively. The $4.7 million improvement was primarily due to decreased losses.

Free cash flow (a non-GAAP financial measure) - Free cash flow was ($76.4) million and ($83.3) million for the six months ended June 30, 2019 and 2018, respectively. The $6.9 million increase was due to a $4.7 million increase in operating cash flow and a $2.2 million decrease in capital expenditures.

Cash - We had cash and cash equivalents of $121.3 million and $141.5 million at June 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 August 8, 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 significant increases in our marketing expenditures in the first half of 2018 and the subsequent reduction of those expenditures, the results of our ongoing review of strategic initiatives including the possible sale of our e-commerce business, adverse tax, regulatory or legal developments, competition, and any inability to raise capital or borrow funds in a timely manner or on acceptable terms. 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, the effects of key business personnel moving from our retail business to our Medici Ventures and tZERO businesses, 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, and our Form 10-Q for the quarter ended June 30, 2019, which were filed with the Securities and Exchange Commission on March 18, 2019, May 9, 2019, and August 8, 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)
 
 June 30,
2019
 December 31,
2018
Assets   
Current assets:   
Cash and cash equivalents$121,294  $141,512 
Restricted cash2,313  1,302 
Accounts receivable, net23,635  35,930 
Inventories, net11,877  14,108 
Prepaids and other current assets19,513  22,415 
Total current assets178,632  215,267 
Property and equipment, net131,633  134,687 
Intangible assets, net15,474  13,370 
Goodwill27,120  22,895 
Equity securities43,757  60,427 
Operating lease right-of-use assets45,066   
Other long-term assets, net7,492  14,573 
Total assets$449,174  $461,219 
Liabilities and Stockholders' Equity   
Current liabilities:   
Accounts payable$70,857  $102,574 
Accrued liabilities82,710  87,858 
Deferred revenue40,950  50,578 
Operating lease liabilities, current5,731   
Short-term debt3,108   
Other current liabilities486  476 
Total current liabilities203,842  241,486 
Long-term debt, net  3,069 
Operating lease liabilities, non-current44,105   
Deferred tax liabilities, long-term   
Other long-term liabilities2,147  5,958 
Total liabilities250,094  250,513 
Stockholders' equity:   
Preferred stock, $0.0001 par value, authorized shares - 5,000   
Series A, issued and outstanding - 3 and 127   
Series A-1, issued and outstanding - 123 and 0   
Series B, issued and outstanding - 356 and 355   
Common stock, $0.0001 par value, authorized shares - 100,000   
Issued shares - 38,561 and 35,346   
Outstanding shares - 35,239 and 32,1463  3 
Additional paid-in capital719,010  657,981 
Accumulated deficit(522,397) (458,897)
Accumulated other comprehensive loss(576) (584)
Treasury stock at cost - 3,322 and 3,200(68,746) (66,757)
Equity attributable to stockholders of Overstock.com, Inc.127,294  131,746 
Equity attributable to noncontrolling interests71,786  78,960 
Total stockholders' equity199,080  210,706 
  Total liabilities and stockholders' equity$449,174  $461,219 
 


 
Overstock.com, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
 
 Three months ended
June 30,
 Six months ended
June 30,
 2019 2018 2019 2018
Revenue, net       
Retail$367,475  $477,683  $730,100  $917,679 
Other6,234  5,450  11,338  10,785 
Total net revenue373,709  483,133  741,438  928,464 
Cost of goods sold       
Retail294,984  387,252  585,624  734,832 
Other4,826  4,138  8,791  8,020 
Total cost of goods sold299,810  391,390  594,415  742,852 
Gross profit73,899  91,743  147,023  185,612 
Operating expenses:       
Sales and marketing34,560  94,416  68,037  171,630 
Technology33,153  32,423  68,586  63,717 
General and administrative31,964  31,440  72,196  71,195 
Total operating expenses99,677  158,279  208,819  306,542 
Operating loss(25,778) (66,536) (61,796) (120,930)
Interest income630  620  1,033  1,164 
Interest expense(105) (395) (232) (1,269)
Other income (expense), net(2,995) 368  (9,267) 359 
Loss before income taxes(28,248) (65,943) (70,262) (120,676)
Provision (benefit) from income taxes(622) (27) 256  (304)
Net loss$(27,626) $(65,916) $(70,518) $(120,372)
Less: Net loss attributable to noncontrolling interests(2,945) (1,005) (6,593) (4,552)
Net loss attributable to stockholders of Overstock.com, Inc.$(24,681) $(64,911) $(63,925) $(115,820)
Net loss per common share—basic:       
Net loss attributable to common shares—basic$(0.69) $(2.20) $(1.85) $(3.94)
Weighted average common shares outstanding—basic35,225  28,903  33,806  28,736 
Net loss per common share—diluted:       
Net loss attributable to common shares—diluted$(0.69) $(2.20) $(1.85) $(3.94)
Weighted average common shares outstanding—diluted35,225  28,903  33,806  28,736 
 


 
Overstock.com, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
 
 Six months ended
June 30,
 2019 2018
Cash flows from operating activities:   
Net loss$(70,518) $(120,372)
Adjustments to reconcile net loss to net cash used in operating activities:   
Depreciation of property and equipment12,914  12,983 
Amortization of intangible assets2,604  2,051 
Amortization of right-of-use assets2,992   
Stock-based compensation to employees and directors9,156  9,408 
Deferred income taxes, net102  (298)
Gain on sale of cryptocurrencies(128) (8,348)
Impairment of cryptocurrencies318  9,491 
Impairment of equity securities4,214   
Losses on equity method securities3,058  1,381 
Other non-cash adjustments1,068  (1,707)
Changes in operating assets and liabilities, net of acquisitions:   
Accounts receivable, net12,295  1,882 
Inventories, net2,231  120 
Prepaids and other current assets3,311  (7,680)
Other long-term assets, net(547) (3,827)
Accounts payable(31,722) 6,686 
Accrued liabilities(5,317) 26,911 
Deferred revenue(9,628) 1,216 
Operating lease liabilities(2,340)  
Other long-term liabilities85  (476)
Net cash used in operating activities(65,852) (70,579)
Cash flows from investing activities:   
Purchase of intangible assets  (9,241)
Purchase of equity securities(2,500) (29,570)
Proceeds from sale of equity securities7,082   
Disbursement of notes receivable(2,000) (200)
Acquisitions of businesses, net of cash acquired4,886  (12,912)
Expenditures for property and equipment(10,586) (12,749)
Other investing activities, net3  22 
Net cash used in investing activities(3,115) (64,650)
Cash flows from financing activities:   
Payments on long-term debt  (40,000)
Proceeds from issuance and exercise of stock warrants  50,587 
Proceeds from security token offering, net of offering costs and withdrawals  78,442 
Proceeds from sale of common stock, net of offering costs52,112   
Payments of taxes withheld upon vesting of restricted stock(1,346) (4,526)
Other financing activities, net(1,006) (248)
Net cash provided by financing activities49,760  84,255 
Net increase (decrease) in cash, cash equivalents and restricted cash(19,207) (50,974)
Cash, cash equivalents and restricted cash, beginning of period142,814  203,670 
Cash, cash equivalents and restricted cash, end of period$123,607  $152,696 


 Six months ended
June 30,
 2019 2018
Supplemental disclosures of cash flow information:   
Cash paid during the period:   
Interest paid, net of amounts capitalized$173  $1,113 
Income taxes paid (refunded), net(469) 7 
Non-cash investing and financing activities:   
Property and equipment financed through accounts payable and accrued liabilities$43  $735 
Acquisition of assets through stock issuance  2,930 
Common stock repurchased through business combination643   
Note receivable converted to equity security359  200 
Deposit applied to business combination purchase price7,347   
Equity method security applied to business combination purchase price3,800   
Recognition of right-of-use assets upon adoption of ASC 84230,968   
 

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 one reportable segment, tZERO. We use pre-tax net income (loss) as the measure to determine our reportable segments. As a result, the remainder of our Medici business is not significant as compared to our Retail and tZERO segments. Our Other segment consists of Medici Ventures' remaining operations and the remainder of our unallocated corporate support costs (administrative functions such as finance, human resources, and legal).

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.

The following table summarizes information about reportable segments and includes a reconciliation to consolidated net loss (in thousands):

  
 Three months ended June 30,
 Retail tZERO Other Total
2019       
Revenue, net$367,475  $5,551  $683  $373,709 
Cost of goods sold294,984  4,143  683  299,810 
Gross profit$72,491  $1,408  $  $73,899 
Operating expenses (1)81,596  11,743  6,338  99,677 
Interest and other income (expense), net40  340  (2,850) (2,470)
Pre-tax loss$(9,065) $(9,995) $(9,188) (28,248)
Benefit from income taxes      (622)
Net loss      $(27,626)
        
2018       
Revenue, net$477,683  $4,890  $560  $483,133 
Cost of goods sold387,252  3,578  560  391,390 
Gross profit$90,431  $1,312  $  $91,743 
Operating expenses149,437  5,927  2,915  158,279 
Interest and other income (expense), net1,624  (36) (995) 593 
Pre-tax loss$(57,382) $(4,651) $(3,910) (65,943)
Benefit from income taxes      (27)
Net loss      $(65,916)
 


  
 Six months ended June 30,
 Retail tZERO Other Total
2019       
Revenue, net$730,100  $10,047  $1,291  $741,438 
Cost of goods sold585,624  7,500  1,291  594,415 
Gross profit$144,476  $2,547  $  $147,023 
Operating expenses (1)166,929  27,297  14,593  208,819 
Interest and other income (expense), net175  (623) (8,018) (8,466)
Pre-tax loss$(22,278) $(25,373) $(22,611) $(70,262)
Benefit from income taxes      256 
Net loss      $(70,518)
     `  
2018       
Revenue, net$917,679  $9,742  $1,043  $928,464 
Cost of goods sold734,832  6,977  1,043  742,852 
Gross profit$182,847  $2,765  $  $185,612 
Operating expenses274,969  25,886  5,687  306,542 
Interest and other income (expense), net1,169  417  (1,332) 254 
Pre-tax loss$(90,953) $(22,704) $(7,019) (120,676)
Benefit from income taxes      (304)
Net loss      $(120,372)
                
 
(1)  Corporate support costs for three months ended June 30, 2019 have been allocated $9.4 million, $1.3 million, and $2.7 million to Retail, tZERO, and Other, respectively. Unallocated corporate support costs of $1.3 million are included in Other. Corporate support costs for the six months ended June 30, 2019 have been allocated $22.0 million, $3.1 million, and $6.3 million to Retail, tZERO, and Other, respectively. Unallocated corporate support costs of $3.1 million are included in Other.
 

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 June 30,
 2019 2018
Adjusted EBITDA   
Retail$1,581  $(50,149)
tZERO(8,729) (9,577)
Other(5,995) (3,118)
Adjusted EBITDA(13,143) (62,844)
Less: Special items (see table below)  (6,816)
Less: Depreciation and amortization7,464  7,535 
Less: Stock-based compensation5,171  2,973 
Less: Interest (income) expense, net(525) (225)
Less: Other income (expense), net (1)2,995  (368)
Less: Provision (benefit) for income taxes(622) (27)
Net loss$(27,626) $(65,916)
    
Special items:   
Cryptocurrency impairments and gains on sale, net  (6,816)
 $  $(6,816)
        
 
(1)  Other income (expense), net for the three months ended June 30, 2019 includes $3.7 million of non-cash losses on equity holdings and other assets.
 


  
 Six months ended June 30,
 2019 2018
Adjusted EBITDA   
Retail$(876) $(74,521)
tZERO(21,937) (13,959)
Other(13,992) (4,954)
Adjusted EBITDA(36,805) (93,434)
Less: Special items (see table below)1,757  3,054 
Less: Depreciation and amortization14,078  15,034 
Less: Stock-based compensation9,156  9,408 
Less: Interest (income) expense, net(801) 105 
Less: Other income (expense), net (1)9,267  (359)
Less: Provision (benefit) for income taxes256  (304)
Net loss$(70,518) $(120,372)
    
Special items:   
Cryptocurrency impairments and gains on sale, net$  $443 
Special legal expenses (2)  1,011 
Severance1,757  1,600 
 $1,757  $3,054 
        
 
(1)  Other income (expense), net for the six months ended June 30, 2019 includes $10.1 million of non-cash losses on equity holdings and other assets.
(2)  Special legal expenses include 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):

  
 Six months ended June 30,
 2019 2018
Net cash used in operating activities$(65,852) $(70,579)
Expenditures for property and equipment(10,586) (12,749)
Free cash flow$(76,438) $(83,328)
 

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 June 30,
 Retail tZERO & Other Total
2019     
Total net revenue$367,475  $6,234  $373,709 
Cost of goods sold294,984  4,826  299,810 
Gross profit72,491  1,408  73,899 
Less: Sales and marketing expense33,947  613  34,560 
Contribution$38,544  $795  $39,339 
Contribution margin10.5% 12.8% 10.5%
      
2018     
Total net revenue$477,683  $5,450  $483,133 
Cost of goods sold387,252  4,138  391,390 
Gross profit90,431  1,312  91,743 
Less: Sales and marketing expense93,747  669  94,416 
Contribution$(3,316) $643  $(2,673)
Contribution margin(0.7)% 11.8% (0.6)%
 


  
 Six months ended June 30,
 Retail tZERO & Other Total
2019     
Total net revenue$730,100  $11,338  $741,438 
Cost of goods sold585,624  8,791  594,415 
Gross profit144,476  2,547  147,023 
Less: Sales and marketing expense66,878  1,159  68,037 
Contribution$77,598  $1,388  $78,986 
Contribution margin10.6% 12.2% 10.7%
      
2018     
Total net revenue$917,679  $10,785  $928,464 
Cost of goods sold734,832  8,020  742,852 
Gross profit182,847  2,765  185,612 
Less: Sales and marketing expense167,663  3,967  171,630 
Contribution$15,184  $(1,202) $13,982 
Contribution margin1.7% (11.1)% 1.5%
 
 

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