Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2019, Overstock Dot Com earnings Conference call.
This time, all participant lines are in listen only mode.
I would now like to hand, the conference over to your speaker today Barbecues acting CFO . Please go ahead Sir.
Thank you good morning, and welcome to our third quarter 2019 earnings Conference call. Joining me today are Jonathan Johnson CEO of Overstock, and President of Medici Ventures, Sumner Salahi CEO T zero, and Dave Nelson President of Overstock retail.
Let me remind you that the following discussion in our responses your questions reflect management's views as of today November 12, 2019 and May include forward looking statements actual results may differ materially.
Additional information about factors that could potentially impact or financial results is included in the press release and Form 10-Q filed this morning.
Please review the forward looking statements disclosure on slide two today's presentation.
During this call will discuss certain non-GAAP financial measures the slides accompanying this webcast in our filings with the FCC each posted on our Investor Relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.
Jonathan with that let me turn the call over to you. Thank you Raul good morning.
I'm excited to be talking with our owners and other stakeholders.
The company recently celebrated its twentyth birthday, and the change in leadership, that's it especially rolled enrollment to take an objective look at whereas a company offers real value.
The word needs to be upgraded to maintain its competitive position.
Overstock Dot com as the premier destination for customers shopping online for online deals at home goods.
She ventures is a one of the one of the kind collection.
Industry transforming block chain companies.
Those core propositions remain unchanged, we are focused on maximizing the value experience the profitability of the retail business something David I will discuss today.
Andrew we're focused on assisting the mandatory ventures family of companies get their products in production and produce improve those products value to customers something or some and I will discuss.
One of the things on.
Each of our executives to do is to narrow focus onto what matters most.
All the retail initiatives are now focused on delivering home goods shoppers are excellent deals with quick enjoyable shopping and post purchase experience.
Medici ventures is spending its time and resources.
Those companies getting products and production or what we think are the most transformative block chain markets.
We will discuss some of this narrow focus.
Today, and then provide more details on this narrowed focus on our future earnings calls as we make progress in these areas. It's go to slide four.
Let me briefly review the agenda for todays call.
We'll begin where it's a discussion of the status of the always to carry no digital dividend.
I will then discuss T zero some of the other companies in America, Geoventures family and Overstock retail after highlighting some of our patent activities will give a brief regulatory update. We'll then take questions can be E Mail next slide.
Let me first discuss the topic many of our shareholders are excited about the debutante dividend paid in series a one shares the trade under the U.S.T. Curio Tucker on the T zero platform.
All our shareholder should be aware Overstocks Board has announced a digital dividend of one share of the company's series a one shares Oh STK. So for every 10 shares of the company's common Polish Teekay series, a one or series B stock held by our shareholders anyway.
Working through I think this dividend is so important.
First series J, one shares have preferential access to dividends when declared.
Second because the series a warrants shares trade on the T zero platform I mean, theres a completely transparent record of transactions west retail shareholders have a unique level of transparency of ownership in the securities markets. Each shareholder can know what he.
That's a big deal.
Also the shares of the series a warrants shares have same day.
Other words T plus zero settlement that the current T plus two settlement in the markets.
Third the digital dividend, what tens of thousands of investors to the T zero token trading environment.
And incentivize broker dealers to participate in and connect with the T zero platform.
This is a real value to overstock shareholders.
He zero platform increases its liquidity.
Valued T zero should grow significantly.
Next slide please.
On October 28, Overstock announced a shareholder vote regarding the digital dividend.
The purpose of the shareholder for purposes of the shareholder vote are twofold first.
First we want the series a one always TJ I was shares to be more easily transferable and to allow non broker dealer institutions like banks to custody. The digital shares in other words, we want to make sure always teacher shareholders can hold their digital shares in any location.
Should they choose.
And to be able to transfer those digital shares in the event of divorce or death.
These changes should increase the liquidity at this brown groundbreaking securities.
Second we want to allow the full issuance.
Second we will obviously, what sort of being one to 10 ratio to do this we need shareholder approval to increase the number of series a shares by reducing the number of series B shares I should note that there is no shareholder dilution with any of these proxy proposals.
These proposed changes to the certificates or designation.
We will allow a broader group of shareholders to be able to hold series a one dividend today of its distribution.
No because overstock is in the process of registering the series anyone shares shareholders with an account with a broker dealer connected to the T. Zero platform will also be able to trade.
Kao dividend on the distribution debt.
Now like many of you I'm frustrated with the delay this vote causes but these adjustments are necessary to enable all shareholders to benefit from the digital dividend.
The vote is an important step.
For the first dividend of its kind to give our shareholders access to the next generation of capital markets powered by T zero.
It also gives our shareholders the opportunity to voice their view of the application of block chain technology.
The securities markets next month.
The timeline for the shareholder vote is as follows the record date for the proxy will be on December 18.
Well file the proxy the week of December 20.
Based on NASDAQ rules, the meeting for the shareholder vote would be on February 13th.
I've said before we intend to have no STK no dividend in our shareholders' hands within a month of shareholder approval.
So assuming shareholder approval on February 13, we expect to distribute Accretable series, a one hours to jail dividend on March nine.
Well I would like for the company to distribute the dividend sooner.
Confident in this schedule shareholder vote will significantly improve.
The value of the series a one shares could be worth the wait for our shareholders.
Next line.
None of the business updates managed she is and will continue to be a significant focus for us we're remaining true to our statement if not aggressively adding to the keiretsu and instead, helping our existing family of companies thrive by getting their products into production and ended the hand of customers.
We'll focus on the progress so just a few of those companies today. Thanks a lot.
So Tom will begin strong will begin by walking us through Tcrs current focuses in some of the advancements.
These aerosmith, Tom Thank you Jonathan Kees euros business is transitioning from build growth and we're more focused as an organization than ever before and continue to make progress against our core objectives.
TCOS strongly position heading into 2020, a year, we believe will be an inflection point for the company and the adoption of digital securities.
Before I jump into the business update.
I want to reiterate keys euros value proposition as well as the overall business opportunity.
Go to slide 11.
In the near future the way in which we trade anything of value is going digital and we stand to benefit from this opportunity.
Slide 12.
What is TCOS Roland.
Easier represents the next generation capital markets platform, which allows assets to be digitize in the form of security tokens and provides a compliant way for these tokens to be traded.
It is worth reminding everyone that this platform is live and trading securities today.
Slide 13.
Some of the advantages of security tokens include democratize access an increase liquidity for traditionally exclusive assets.
And this includes investment funds or commercial real estate.
Reducing settlement times from two to three business days to near instant.
And automating regulatory compliance through the use of smart contract technology.
Slide 14.
According to NOAA the World Economic Forum Deloitte in Mckenzie, the global market value of digital assets is expected to double in 2020 from well to one trillion dollars and rights to four trillion by 2022.
This is an eight acts increased from where we are today.
These are of course estimates however, the key takeaways the opportunity is quite large.
On the right you'll see some of the applications of this technology, which range from equity debt real estate funds to find our sports teams uneven athletes and artists.
Slide 15.
How do we monetize this opportunity there are three three key drivers for revenues first capital formation, which includes the Tokenization business.
And while this is primarily a referral fees today, it will evolve to be a percentage of capital raise once we have around retail broker dealer.
Second trading which consist of commissions and listing fees.
And third licensing opportunities to broker dealers clearing firms transfer agents and exchanges.
Note that this revenue stream will become significant down the road as our business scales.
Slide 16.
This is a diagram of our security token platform, both the supply side on the left or Tokenization of asset.
And there and the demand side on the right or investor facing brokerage user interface.
We spent the last year building this ecosystem and look forward to leveraging it to bring more investors and is and issuers together.
I'd also like to point out the bottom right that we have signed a contract with another third party broker dealer choice straight to trade security tokens.
Slide 17.
This was the list of our company goals from last quarter.
Items of which were to streamline investor Onboarding and launched the TCR crypto App both of which are now complete.
Following slides will detail the progress we made on both of these fronts, but before that I'd like to touch on the DLR opportunity.
While we completed the build out of DLR to point out technology.
We are focusing as an organization and believe the biggest opportunity is in security token.
Given the robustness of our token and broker dealer pipeline and the scale of the opportunity. It doesnt make sense at this moment to defer or resources and attention away from that to that end, we made the decision to pause our efforts on DLR.
We see it as having potential in our ecosystem down the road and we'll explore integrating it into our in house broker dealer App and web experience on the times right.
Slide 18.
Upon launching our trading platform with Dinosaur group group, we were able to onboard about five investors per day.
Through process and user experience improvements, we can now process roughly 400 accounts per day and through further technology improvements, we expect that figure to be well over 1000 accounts per day.
This will allow us to handle the 40 to 50000 overstock investors looking to onboard to trade digit digital dividend.
Slide 19.
Through last month, we approved roughly 3500 accounts on our crypto app.
As you can see the number of monthly approved accounts has increased organically every month since launching in June and we're doing this while still awaiting numerous licenses that give us access to some of the largest markets in the us and in the world, including New York.
This app is an important piece of our overall strategy of creating a platform that allows for the seamless trading up all digital assets.
Slide 20.
We have accomplished a lot since our last call.
I will highlight three of these wins.
First as stated earlier, we signed an agreement with our third broker dealer choice trade, which will increase liquidity on our Ats.
Second we signed an agreement with alliance investments to Tokenized 25 million in equity in a Manchester based condominium project named River Plaza.
Note that this could be the first of potentially 600 million in commercial real estate that alliance could tokenize in freight on our platform.
Third our joint joint venture with box digital be Stx recently filed an application and proposed rule book with the FCC regarding the launch of the world's first fully regulated digital Securities Exchange. This filing is now open to public comment.
Which is a big step towards being live and trading.
Slide 21.
We have narrowed our focus as a company from five goals to three goals, which I really like.
These are tokenizing trade quality assets.
Improve liquidity on our Ats.
And as stated earlier launch the BF, TX or Boston security token exchange.
Slide 22.
We have been building out our issuance business development team over the past few months and the benefits are really starting to show.
Currently we are discussing with over 160 potential issuers spanning real estate entertainment asset managers and many more.
A few of these assets are in the final stages of due diligence and we hope to have them trading in the next few months. We're confident we can drive a number of these over the finish line in the near to mid term.
Slide 23.
Finally.
We are taking a multifaceted approach to improve liquidity on the Ats first we're in discussions with approximately 120 broker dealers to trade security tokens.
Dinosaur financial group is up and running and we have agreements in place with FTC and trade Street, which we expect to be up and running in the in the months ahead.
In addition, our CTO digital dividend will be another catalyst for adding additional broker dealers to our ecosystem.
Second we're launching our proprietary broker dealer, which is awaiting regulatory approval currently targeting late Q1, possibly early Q2.
And lastly, we're in discussions with several additional clearing firms to further expand the reach of our digital asset trading.
As you can see we're very busy and moving forward Jonathan Thanks, Tom It's great to see the steady progress can you zero is making under your leadership and Matt.
Under the upgraded to zero executive team I love, the focus and I've never been more confident in two zero.
And I'm excited to see Navios to care dividend enhances that liquidity on the T zero trading platform I hope our shareholders understand the importance VR speaking no dividend next month.
Next I'll highlight for keiretsu companies that have made significant strides recently by 25.
Her name is the only New addition to the K route to since we last spoke and it is one we have been actively pursuing.
We believe identity as a key thread in what Medici ventures is building.
However him as a world is world class, having launched the sovereign Foundation and assisted the worldwide web consortium in creating the gold standard in self sovereign identity.
The promise of self sovereign identity is that the subject of identity data, namely you should be the sole owner of that identity data given breaches leaks and unauthorized selling of identity data since the birth of the Internet. We believe self sovereign identity is done.
Next killer App block chain.
Well, it's hard to place an exact value on the identity management as an industry. Its value is clearly mark and the success of companies like October and arguably the identity management space as large as player Facebook, which allows you to log on to many sites.
Using your Facebook credentials.
It's great to welcome everyone to the Keiretsu and I look forward to its contribution to our block chain technology stack slide 26.
Let's start grain chain.
Looseness CS and his team continue to bring internet of things triggered smart contracts to the world. This time in Honduras with the coffee supply chain.
Spec for growth for grain chain to continue in central and South America as there are thicker margins and greater efficiencies to be gained in those regions.
The Granger platform allows banks to connect with more farmers and reduces cost in friction for X borders and buyers.
Eliminating middle man and reducing overhead.
The smart contracts in the system protect all players by ensuring contracts are paid as written rather than being renegotiated based on human biases.
It's hard to overstate what green chain is achieved wall is starting with a small portion of the coffee supply chain in Honduras, and the grain supply chain in Mexico, having all players in the supply chain recognize the benefits of this technology is no small feat.
We expect to success to grow as farmers bankers buyers and exporters realize the benefits of the transparency and trace ability in the process.
Slide 27.
Yes, again I'm talking about boats. This makes a full year of quarterly calls featuring boats boats as two projects I'd like to highlight.
First you talked county voting pilot I mentioned on our last call went off without a hitch and you can even watch and independent audit of those votes performed on a phase stream a Facebook live stream.
The county that expanded the pilot to the general election to voters with disabilities.
Voting you ran through November 5th and while we don't want to Scoop any news from the county.
Things went well, including Utah's oldest voter 106 year old Maxine Grimmett was born before women had the right to vote voting for home on a mobile device using boats is block chain based safe secure and audit up on mobile application.
Second Jackson, new material or counties in the state of Oregon.
The votes mobile app to enable a secure means for active duty military.
And their dependence in overs other overseas voters to participate in the recently completed November 5th election.
Continuing the theme that went off seamlessly too.
Votes mobile App has now been used to analyze collections in four states West, Virginia, Colorado, Utah and Oregon.
Both record of success should lead to more pilots in new markets and expanded opportunities in existing markets.
Slide 28.
Let me briefly mention Peernova.
In a fairly hostile environment for capital in the block chain space.
It over his $31 million in a series b around.
We were pleased to be part of that round as a follow on to our previous involvement with Peernova.
Peernova carve out the back office portion of the Fintech market expected tax surpassed 300 billion by 2023.
We believe Peernova is on the cost of greatness only held back by the long sales cycles with a large enterprise customers. It seeks to service.
Does the good on the Peernova train will be able to recognize significant increases in efficiency through peernova is use of cryptography and a proprietary block chain to simplify out of it.
Next slide.
Well I've highlighted more companies unusual.
It's it's only because our companies in the K ratziu are maturing and continue to push product to production and into the hands with customers.
The block chain spaces maturing as a whole new customers are beginning to recognize the benefits of block chain.
This trend will only continue.
Next slide.
Let me now turn to the Overstock retail business I want to say, it's great to be back working shoulder to shoulder with this retail team.
Many of our shareholders will remember I was the president of Overstock from 2008 through 2013.
And then overstock had its first profitable year in 2009.
Excellent.
Before I turn to Dave I want to take a minute to talk about few overstock retail team.
And the periods of between 2009 in 2016 overstock had around of seven of a profitable years.
Nine of the 11 retail executive shown on this slide or here's man and were part of the team that produce those results.
This is a team that knows how to grow.
And to make money in e-commerce .
Im confident we will do so again.
So Dave I'll, let you walk our shareholders through our Q3 results and our current focuses in overstock retail.
Thank you Jonathan.
Next slide.
As we told you in our updated retail guidance the third quarter was trending towards flat adjusted EBITDA and the result came in right, where we expected it well we had planned for a higher contribution to team did an admirable job managing expenses in line with contribution.
Let me point out. This is also a significant year over year Q3 improvement.
Next slide.
As we shared in our updated retail guidance, we missed our target contribution number as a result of some headwinds in the market at large and because of some disruptions in the freight side of our supply chain.
We have some additional data around these headwinds further on in the presentation and will elaborate on the challenges we faced in the third quarter.
Before we do I'd like to size of our market for you.
Next slide.
As we mentioned last quarter overstock retail as the mix is an exciting market that while it is facing some headwinds at the moment had a great deal of promise for long term growth and profitability.
The home furnishings market is a 300 billion dollar highly fragmented market with a relatively small online penetration when compared to other product categories at a 19% penetration level, we can be fairly confident that the online segment of this market is going to experience elevated levels of growth for the foreseeable future. We also know that with less than 35.
And at the market consolidated.
In the top five players differences in consumer preference will keep the market relatively fragmented with lots of room for profit enhancing differentiation.
Next slide.
The primary reason for the home goods market being so fragmented is that customers have highly differentiated preferences and how they shop the home experiences that delight. Some will actively turn away others. We've made significant progress in understanding how these consumers breakdown not on a demographic or socioeconomic level, but in terms of their.
Answers and shopping for home goods.
Next slide.
We found a cohort of customers that is fundamentally deal oriented, but who does not enjoy making significant time commitment to shopping for home goods. This market segment represents almost 40% of the total home furnishing spent these are customers that naturally over index in shopping at overstock, and who are most favor our unique experience.
Strategy is to expand our moat around these customer segments and customize our shopping experience to meet their needs.
Next slide.
We do that through three principal areas of investment first we want to be the easiest platform for them to find the products. They want to buy these are not customers, who view home shopping as a form of recreation.
They want to beautiful home, but they don't want to get product that fit but they don't want to work to get products that fits or style. Second these are customers take great satisfaction and getting until they enjoy beating the market on price.
They pay for the quality they desire and finally, we need an excellent post purchase experience with painless delivery returns and customer service to pull brick and mortar customers out of the showrooms and into the online experience. We have a set of metrics that we used to judge our progress against these objectives that we share with our shareholders. So that you can hold us accountable in our progress against.
The strategy.
Next slide.
The first benchmark for product finding is essentially a measure of how quickly and easily.
Customer is able to find a product that interest them as you can see from the chart on the left we made significant progress both year over year and quarter over quarter, we intend to continue to invest in this part of our experience and we'll update you on that progress in coming quarters.
The Middle chart illustrates the improvements we are making in a time of customer has to wait between page loads. There is a significant amount of industry research from Google and others that shows latency between pages significantly reduces our customers' willingness to shopper website.
Again, we will have made gains in recent quarters, while we have made gains in recent quarters. We believe we need to accelerate this progress to meet our objectives and this will be a major emphasis for us in the coming quarters, especially for mobile.
Finally from the chart on the right. We saw a significant continued improvement in our SCR rankings. This quarter. While we were pleased with the elevated rankings. We also note that we and others benefited from the changes Google made in June have given back some portion of those gains in October in conjunction with the most recent Google algorithm update.
As of now those rankings appear stable and we continue to believe that our strategy around customer experience will continue to produce long term improvement in this metric. We also believe that as we solve for some of the market headwinds experienced in Q3, we can better monetize this traffic than we did during the quarter.
Next slide.
In our ongoing effort to provide our customers with the deal rich experience. They love we continue to provide solid results in our private label program insurance costs.
This combined with our other cost reducing in value enhancing initiatives has allowed us to improve our perceive price advantage versus other retailers.
Even while expanding our gross margins year over year that said our rate of improvement has slowed a bit some of the reasons for which can be seen on the next slide.
As you can see from the chart on the left the sales we generate on products that received tariff increases dropped 12.2% post tariff cost increases. It is important to note that not all Chinese manufactured products received cost increases due to tariff increases we've diversified our sourcing over the last several years.
Bringing down the total assortment from China from nearly 85% after the 2008 recession to about 50% now our suppliers continue accelerating this transition to Vietnam and other markets, but tariffs will continue to cause some near term pain.
Another major reason for our updated retail guidance is illustrated in the chart on the right. We've shared with you for several quarters that we were in the midst of a freight rebalance.
The new carrier involved in this rebalance Expo initially performed well during a proof of concept test earlier in the year with very competitive rates based on that test performance, we have projected our outlook and on our last call several million dollars of quarterly savings and freight spend for the rest of the year. We found however that as we scale the program ex fuel.
Service levels deteriorated during that anticipated 1.5 million dollar savings for the third quarter into more than a $2 million loss or a $3.7 million negative net swing.
The good news is as we finished the quarter, we moved up freight back to our existing carriers and our service level snap right back, bringing us inline with our historical rates.
Next slide.
On the chart on the left you see our two day delivery messaging also dipped in the quarter as we scaled our freight with Expo based on the degraded service levels. Previously mentioned, we're pleased that sense, placing that business back with our existing carriers, we realized immediate improvement and we are once again seeing growth in the amount of product with two day delivery method.
Budgeting to our customers finally, we believe the chart on the right as a solid affirmation of our strategy given that even in this very difficult market. We saw nice improvement in the repeat purchase rate of our customers next slide.
In our effort to provide greater transparency and accountability to shareholders last quarter. We began listing the initiatives, we intended to execute on to rollout our strategy.
As you can see we completed a number of these initiatives in the quarter. The notable exception being the failed freight rebalance that we rolled back at the end of the quarter to our existing carriers, hence the red X and the green check.
Some of these initiatives like return cost reductions mobile app improvements on our private label expansion are expected to be ongoing for several periods into the future.
Next slide.
For that reason, you'll see we intend to continue reporting on some ongoing initiatives in Q4 as well as new initiatives like machine learning based style personalization prepositioning of our Black Friday doorbuster deals for lower cost in two day delivery and three returns for club O members.
Next slide.
On our Q3 financial summary, let me call attention to a key point, while macroeconomic and other factors were drivers and lower than expected revenue in the quarter gross margin and in turn contribution margin came in better than anticipated. We believe there is opportunity to reinvest more aggressively and driving the topline without compromising contribution.
Dollars and we intend to do so in the fourth quarter.
Next slide.
While contribution in the quarter did not come in where we had hoped for reasons previously mentioned the team did an admirable job in their expense discipline to preserve contribution dollars.
Next slide and finally, well we had hoped for even greater contribution growth, we still did see a 16% improvement in quarterly retail contribution year over year. We believe in spite of the macro environment our value proposition.
Value positioning in the market represents an opportunity a great example of this is our performance in 2009, when we posted our first your profitability and ended the year with much stronger than market growth. The retail business will continue to pursue its strategy of strengthening that value proposition to take advantage of the current market conditions with that let me turn the time.
Over to Jonathan to discuss some updates on corporate business the large thanks.
I do im confident about the opportunities for overstock retail.
The team and the innovative tactics building to improve experience for deal conscious customers is going to position us very well.
Something I'd like to highlight briefly this quarter that may not be well known by our shareholders is dependent activity throughout the organization.
Let me start by saying each business in the organization manages its own patent protection activities and philosophy.
When you look at the combined to patent activity is should give our shareholders a glimpse into the impressive innovation taking place across the organization by 48.
This first slide shows the patent activity of our overstock retail business.
Under the patents pending grouping you can see the total number of US patent applications filed by Overstock retail.
The issued or allowed grouping speaks for itself.
Overstock retail has had real success receiving patents around e-commerce in online advertising among other innovative ideas.
And the international grouping shows the number of filings outside the United States, regardless of status Slide 49. Please.
This slide shows depend activity from energy ventures and T zero.
The activity in this area is exciting because many of these patent applications pertain to novel applications of block chain technology for capital markets and include issued patent governing the bridge between legacy Wall Street systems and new technology.
The reason there are so many more pending patents than issued patents is the block chain is still such a new area of innovation.
You can also see the heavier emphasis on international filings remember these companies are targeting both domestic and international markets.
Next slide.
This third slide shows the activity of the K read two companies, including the patent activity in the previous two slides Clos all but two of the other keiretsu companies.
There's a lot of meaningful innovation, taking place across the organization.
I should note many of the Canrad two companies are pursuing an open source strategy in the pure spirits block chain and we support that philosophy too.
I share these slides with you because we believe the intellectual property being generated an overstock retail and in the block chain businesses has material value. It is worth protecting.
Slide 51.
Overstock and T zero or on the leading edge of trying to create a block chain base capital market.
We are getting the attention of the marketplace.
And at times regulators.
We have a goal of changing the way capital markets work and doing so in a way that is secure trustworthy and simple for investors.
That includes compliance with all regulatory laws in a highly regulated complex marketplace.
And it means engaging in regular dialogue with and answering requests of regulators.
We have regular meetings in conversation with the Fccs division of market trading in markets and the Division of Corporation finance and with FINRA to give each group insights into the new things, we're doing with our T Zero group broker dealers Pro Securities Ats and the.
So as to scale dividend.
We believe in engagement and dialogue with regulators, we do not hesitate to change direction to get on the same pages regulators, particularly as it advances our mission of creating a more secure trustworthy and simple capital market.
Well partnership maybe too stronger word we respect the important role the FCC and other regulators play to protect investors maintain ferron efficient markets and facilitate capital formation.
It's not just by accident that those ideals parallel owners.
We're also engaged with the Fccs enforcement Division is overstock has received two voluntary document requests with the last one in December 2018.
Stock produce those records the FCC requested about six months ago.
In addition to those request on October seven 2019, we received disappeared from the FCC requesting information and documents related to the dividend we announce to shareholders in June 2019 and copies of stock trading plans of executives we.
Our cooperating fully and we continue to have conversations with the staff to address any questions. It may have.
Of course, we hope the FCC will be satisfied with what we've provided and move on from its inquiry.
Obviously I cannot assure you that commission will do so.
Nor can we know the timing as to any decision the FCC may make on these matters.
As we always have we will continue to engage with the staff. So that it may so that it will have moved would it needs to conduct its review and see our perspective.
Next month.
It's been nearly three months since I took the helm.
I acknowledge this has been a try and corner for our owners.
Good to have a behind us.
I remain excited about the company's prospects I am exhilarated, each morning, as I've pop out of bed and I must admit I'm exhausted each night, where my head hits the pill.
As a company we're focused we are stable and we are moving forward.
Let's take some questions.
We've had some questions emailed in ahead of time, we've had some that have come in during the call.
Tom will start with one of his directed T zero.
Please update investors on the T zero pipeline of potential token issuers for both the T zero platform and the box JV.
Sure as I stated our business development team has in conversations with over 160 issuers from a variety of sectors.
10, plus of these are in due diligence three to five of which are in the final stages and we hope to have them trading either by the end of the year, which was my original target or in the first quarter.
Okay.
There is one that's come in about.
Retail and Wayfair on the wafer earnings call wafer indicated it was being negatively impacted by terrorists. The tariffs are causing the price of merchandise on its platform to fluctuate, which lengthens the buying cycle.
He is overstock experiencing the same kind of thing.
Yes as mentioned on the during the call today, our products that receive tariff increases decreased in revenue by 12.2% close tariff cost increases.
It's important to note that ultimate not all of our Chinese manufacture products receive cost increases and we've diversified our sourcing over the last several years, bringing down the total assortment product in China from nearly 85%. After the 2000 years session to about 50% now and our suppliers continue accelerating this trial.
In addition to Vietnam and other markets, but tariffs will continue to cause near term pain.
Okay. Thank you.
Now the question for the matching holdings, what is our percent ownership and how much capital have we invested in each one.
We get this question off.
Many of the camera to companies as do we know that we not disclosed percent ownership interest in them.
Even with these request as a public company, we must disclosed that information for some.
You can find the information on two zero and LG Americans in our consolidated financial statements and information on moves to the other companies in the 10-Q.
On page 15.
For those non covered in those two locations, we generally own less than 6% of the companies.
Another question evolve Matt achieved as you've suggested recently our primary focus is on existing holdings do you still feel that way or do you see additional opportunities to add more companies to the portfolio.
As I mentioned in the as we went through the slides. The current holdings will be our primary focus for the time being but we've always got our eyes building, our ears to the ground for something world changing.
Future funding is more likely to be follow on funding to companies already in the camera to like we did with Peernova in October .
Couple of questions on the dividend we've had in fact, we've received a lot of questions about the status of the digital dividend and winter will happen I think weve.
Got it into great detail on slides five through seven.
But I will add again that our team has been talking with regulators who've been helpful and guiding us.
Assuming we're successful and getting shareholder approval to amend the series a certificate of designation it feels like we've now crossed all season dotted all lies.
Another question about the dividend someone asks with all the counterfeit shares in existence, how will you ensure that the votes for this dividend will be from those who actually in quotes on the shares.
This is a great question and one near and Dear to me given all that I've worked on in this area.
Let me start off by saying, we recognize the risk of fraud and have policies and procedures in place with computers share and broadridge to make sure only record holders of common series, a and series these shares of Overstock and boat.
That said this question highlights the problem of today's financial record keeping system. This is why T zero with its use of block chain technology is so needed in the capital markets. There is slump they're used OLED there are many opportunities for manipulation and wall streets.
Our tech record keeping system.
Everyone knows it's far from it perfect system.
What is the answer to the mess in my mind, it's simple.
It's the innovation to block chain with its instant clearing.
Suitability immutable ledgers transparency and its exponential deficiency that not only cleans up the existing mass.
But in there and there's new company out there trying harder and better poised sooner dues block chain to capital markets.
And our own T zero.
Another question on T zero speaking easier Solomon of previous conference call. Patrick Byrne said that you would spin off to zero before the end of 2019 should the company be unable to sell retail business. What is current managements thoughts on.
Sure. This is something we are interested in but not right now we get a lot of synergies by being owned by Overstock. This includes leveraging talent, which we.
We get talent from overstock, some when we no longer needed we can shift that talent back to overstock.
We're also working closely with overstock on the digital dividend, which Jonathan described.
And we really see that as a model for many other companies that are interested in digital going digital.
We're also driving capital from Overstock, if necessary. So at this time it just doesn't make sense to spin out, but we are going to.
Look for the right moment to do that.
Synergies are real all way down to summarize showing office on Tom's in Salt Lake.
Speaking of the retail business and its potential sale. We've been asked can you provide an update on where things stand on the potential sale of the retail business.
There's nothing new to report when there is we'll let the market now.
Another question on retail ebay and ATSI are suggesting changes do online.
Sales tax legislation following last year's Supreme Court rulings are negatively impacting their performance how if at all as it affecting overstock sales.
I've been intimately involved in the sales tax matters for years, and we haven't seen any real negative impact likely for two reasons.
First our model was different than that of the ban etsy as we are not an open marketplace for small and individual sellers.
And second we were proactive in preparing for the potential Supreme Court ruling and with US able to implement quickly sales tax collection in remittance without much work that ebay antsy are likely having to do now states aggressively go after small sellers to collect sales to.
Thanks.
We had a question coming in about our CFO to as why did you are less CFO leave and where are you in your efforts to find a long term replacement.
Mr. Iverson gave his notice of 610 PM on the day he left.
Effective immediately.
Then provide a reason.
He did assure our outside auditors that he had no concerns with the Companys financial statements are accounting practices.
The search for replacement is progressing nicely, we've engaged the executive search firm Spencer Stuart and its compiled a nicely interested candidates that I anticipate we will begin interviewing soon.
In the meantime, it's great to be working closely closely when Rob use again.
Stepped into the acting CFO role without missing a beat.
Now rob's easier to get back to MLC full time for these graciously agreed to stay in the acting CFO role until we find the right person to be our full time CEO .
CFO .
A question about some of the class action lawsuits.
We do assessment from the company regarding the Marriott and the class action suit is being filed by the various.
Firms climbing insider trading and mismanagement.
The way security class action attorneys work is new ones, one files ensued, others file copycat suits eventually to judge will consolidate all of them into one suit in a point lead attorney. So the number of suits filed is not disconcerting in all.
Neither is the substance of the claims we think there madness and the company will defend them vigorously.
All right away last time, a gaggle of security class action Attorney sued the company when the judge consolidated to suits into one and appointed a lead attorney that lead attorney thought the case was somewhere less.
He dismiss the suit on Hassan.
David is a retail question there are fewer shopping days this year between Thanksgiving and the holidays.
What if any impact you think that will have on overstocked sales.
Yes, we expect little impact from the shortened holiday period, and 2019, there really isn't any hard evidence that fewer shopping days hurts holiday sell some folks all point to 2013, which was the last time, we had this type of calendar setup as evidenced a fewer shopping days will be a drag on sales.
However, there are a number of factors as to why 2000 thirteen's poor performance was what it was payroll tax hikes that year, the snap reduction hurting lower income consumers.
Previous short holiday season before that was 2008.
Which is when the world started the collapse from the financial crisis that hit in September of 2008, so anyone pointing to the calendar as a driver for weak sales in 2013 or 2018 is really ignoring a number of other large factors.
Good points.
So how will T zero be able to execute its plans, particularly with such high regulatory oversight.
If it were easy everyone would be doing it.
It is challenging with that said, we're working very closely with regulators.
To implement the next evolution of capital markets.
This required.
Providing essentially all the traditional investor deck protections that exist today, while also offering the disruptive benefits of distributed ledger and smart contract technology.
Thanks.
Oh no question.
Free cash flow.
Are you still on track to once again be able to use free cash flow generated from your ecommerce business.
To furniture block chain related efforts.
Well that remains the goal and we still believe it is and achievable goal, but the Q3 headwinds we discussed earlier said that back a bit.
As you will recall, we were well on the path to profitability in 2008 cuts at that by the recession, but still got to profitability in 2009.
We think we can do it again.
Question for me.
Shareholder Michael.
How much effort is going into ending this FCC investigation.
I mentioned in our regulatory update we are fully cooperated with the SEC.
We answer any inquiry of makes as quickly as we can.
And I would say outside legal group. This takes very little time from anyone else into company.
Another question, we have multiple investments in loading related efforts what are they.
And what do you see is the long term opportunities for them.
We have three companies into voting space votes voting man to some extent settlement and I've discussed.
During the slide the real progress the votes is making.
I think there will be a day soon sooner than people think when.
Everyone will be able to use their mobile devices devoted to safe secure inaudible way more waiting in lines and more hanging chads.
No more not knowing if your goal was really counted.
Voting is we do today, we'll feel as outmoded is sending your facts.
Im still will but not many that's the future and voting that IC.
Any thoughts on the revenue model for Ml G.
Yes, and LG is still young and developing its business model that said NLG is in discussions with two government agencies for paid projects.
Jeff different revenue models.
Under one proposed agreement MSG would be paid a per title fee for each title issued.
Under the other proposed agreement.
LG would receive a percentage of all real property related taxes and fees for use of its technology and services. So their various ways that NLG can.
Generating revenue by its activities and.
We're really excited about what MSG is doing.
Another question about Medici ventures, and it's it's keiretsu, which is a holdings attribute most encouraged about their ability to drive long term shareholder value and why.
Well, it's always tough question, it's like asking what you might keds on dry most longer on my most excited about but.
The risk of picking one over another ill answer the question.
With multiple of the company's key zero for all the reasons that some as discussed.
And then LG.
The answer I, just gave in because the idea of unleashing dead capital and most of the world has really need.
Boats began for the reasons I've discussed.
Peernova because of the size of the banking back office compliance market.
Bids.
Because when bid successfully helps the central banks of the World issue digital currencies, we unbanked of the world will be the beneficiaries.
Green Jane because providing away from farmers to get paid more quickly is a great go to market story.
Final question.
Jonathan NAV.
You had time to settle into the CEO role.
How is your long term strategy different from out of your predecessor, and how is it the same.
That's a great question, it's a fair question.
The core value propositions in this company remain unchanged.
We're focused on maximizing the value experience and profitability the retail business.
We're focused on assisting the Medici ventures family of companies to get their products in production and.
Improve their products value to customers.
But we are narrowing our focus to what matters most.
I hope you've got a sense of during this call and.
And I know you will in our calls in the future.
This will continue that I can promise.
We thank our owners, we thank our shareholders and other stakeholders, who will talk with you at the end of the fourth quarter. Thanks, So much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.