Ladies and gentlemen, thank you for standing by, and welcome to the Q4 2019 Overstock.com, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Alexis Callahan, Director of Investor Relations. Thank you. Please go ahead.

Thank you, Gigi. Good morning, and welcome to our fourth quarter 2019 earnings conference call. Joining me today are: Jonathan Johnson, CEO of Overstock and President of Medici Ventures; Dave Nielsen, the President of Overstock Retail; and Saum Noursalehi, CEO of tZERO. Let me remind you that the following discussion and our responses to your questions reflect management's views as of today, March 13, 2020, and may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in the press release and Form 10-K filed this morning. Please review the forward-looking statements disclosure on Slide 2 of today's presentation. During this call, we'll discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC, 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, I would turn the call over to you.

Thank you, Alexis. Welcome, and good morning. We appreciate your interest in Overstock. I am excited to talk again with our shareholders, and I'll start by reviewing the agenda. I'll give a few remarks and updates on topics, I believe, are top of mind for our shareholders. We'll then discuss the Overstock Retail business, progress made by tZERO, updates on other Medici Ventures companies and then take questions. Next slide. The last 2 quarters were all about establishing stability and focus. We've honestly assessed where we provide real value, where we need to improve and upgrade and where we can best leverage our strengths within the market. We have identified areas in which we excel and have real opportunity, places where we should focus our efforts and double down on our strength. For example, and Dave will discuss some of these in more detail, Overstock Retail is improving our mobile website conversion rate and shopping experience, better measuring our discounting and pricing and maximizing the value of our website. We have also actively chosen to end certain projects and businesses that did not fit these criteria, removing distraction and allowing us to remain focused. For example, Overstock Retail turned off the cars, pet adoptions and real estate portions of the website and tZERO has stopped working on the DLR project. We remain committed to returning Overstock Retail to sustainable, profitable growth and growing the blockchain businesses to their potential. This focus, this stability will get us there. In the fourth quarter, we established the right initiatives and set focused objectives with measurable key result targets against which we can track our progress and hold ourselves accountable in 2020. Throughout the organization, we are committed to a disciplined focus. I'm confident in our direction and in the team's ability to execute.…

Thank you, Jonathan. Next slide. Let's jump right into fourth quarter business performance. Adjusted EBITDA came in as expected, which was 60% favorable to the comparable quarter last year, a $10 million improvement. Looking at it through the lens of including only Overstock Retail's portion of the shared services, our retail adjusted EBITDA came in at a negative $2 million. Our full year 2019 adjusted EBITDA improved by $90 million, which was an 81% improvement. And we continue to focus on achieving sustainable, profitable growth. These results are in line with where we thought they would be as the team continues to focus on customer experience, promotional model improvements and expense management. Next slide. Our fourth quarter contribution came in at $35 million, which equates to a 7% improvement year-over-year. For the full year, we came in at $148 million, $70 million above last year, an 89% improvement. We began righting the ship in late 2018, and we'll continue to focus our efforts on this turnaround. In spite of some of the tariff and logistics headwinds we experienced in the second half of 2019, we allocated our resources to ensure that our core profitable focus areas had the most attention. We continue to bring in quality assortment, drive compelling promotions and provide a customer experience that will continue to drive our contribution going forward. Next slide. Some additional Q4 financial results demonstrate Retail's significant progress. Gross margin improved by 275 basis points year-over-year to 20.7%. And contribution dollars correspondingly improved, as described on the previous slide, with contribution margin improving by 233 basis points year-over-year to 9.7%. Next slide. Our annual results show how our strategy to return to our core principles of sustainable, profitable growth is already evident as several of our key performance indicators are moving in the…

Thank you, Dave, and I'm excited about our initiatives and focus. And I'm pleased at how the team is executing on our turnaround. Let's now turn to Medici Ventures and discuss some of the progress being made there. Slide 31. As we always do, let's begin by discussing tZERO. Saum Noursalehi, CEO of tZERO, will talk about some of tZERO's recent progress and go-forward priorities.

Thank you, Jonathan. 2019 was a productive year for tZERO. We achieved several key milestones, setting the stage for our continued success this year. As I previously mentioned, much of our focus last year was on building. We allocated our capital, both human and financial, on meeting and advancing regulatory requirements, developing our trading technology and building the leadership team needed to drive our company vision. In addition to advancing our platform, we shifted our focus towards growth and adoption, where we have been making good progress. I will discuss this further. But first, let's start with an overview of what we do. Next slide. tZERO represents the next-generation capital markets platform, which ultimately allows assets to be digitally represented in the form of security tokens and provides a compliant way for these tokens to be traded. We connect issuers looking to raise capital and access liquidity with investors interested in trading these securities. For example, in the fourth quarter, we signed an agreement with Alliance Investment to tokenize $25 million of River Plaza, a commercial real estate project in Manchester. Upon concluding their capital raise, which is in progress, we intend to tokenize the asset and have it trade on the tZERO ATS. Customers of broker-dealers participating on our ATS will be able to buy and sell that security. Effectively, we are providing River Plaza's investors with secondary liquidity while simultaneously democratizing access to a unique asset that many investors wouldn't traditionally have access to. Slide 34. While we only launched our platform last year, our recent activity relative to other marketplaces is significantly more robust. In 2019, we had over 2 million shares traded, representing $5 million of value transacted and roughly $23,000 traded per day. Slide 35. In addition to our digital security ecosystem, we launched the…

Thanks, Saum. tZERO has made real progress over the last several months. Next slide. I look forward to an acceleration of those trends, given the various catalysts in place. I'll now provide a few additional updates on Medici Ventures. Notice the new addition to our identity pillar, Vital Chain. In a moment, I'll talk about it and another of our keiretsu companies that's made notable recent progress, FinClusive. Next slide. Before I do that, I want to reiterate the Medici Ventures mission statement and talk about our model. Medici Ventures' mission is to change the world by advancing blockchain technology, technology that will fundamentally change the way in which people transact. Just as the Internet changed the way people transfer information, blockchain technology will change the way people transfer digitized assets. To be clear, we are still in the early days of blockchain adoption. But I believe it is only a matter of time until mainstream adoption occurs. For that to really happen, people need to know how and why blockchain solves real world problems, not just how the technology works. We view that as part of Medici Ventures' role as an evangelist educator. We're committed to increasing public awareness of blockchain use cases and the value they bring and do so through public engagement and policymaker outreach. Next slide. Medici isn't just in the business of funding startups. We are also an accelerator. We don't just provide capital, we also offer to help our keiretsu companies extend their runway to profitability, including offering them product development and design services, public and government relations services and assistance in raising capital when they need it. It may not be widely understood, but Medici Ventures has an extraordinary team of over 50 enterprise-grade blockchain developers and designers on staff. We make this…

Thank you, Jonathan. We'll now move into the question-and-answer portion of our call. We've received a significant number of questions in advance of our call, and we'll address several of those first. We'll then open up the line for a few live questions. So our first question is related to Retail, and in particular, our main competitor who has made a significant recent reduction in its 2020 growth forecast. Wayfair is scaling back its marketing spend, is the question. Dave, we'll direct this at you. Will that make it easier to achieve your goals?

Well, we sure hope so. Wayfair scaling back decreases the cost to obtain traffic, everything else held equal, of course. We're watching this closely and are adjusting our marketing spend accordingly to take advantage of those changes as we see them come through.

Great. And a follow-up on Wayfair. What are the implications for Wayfair stepping back from the market? What percentage of Overstock shoppers also visit one of the Wayfair sites?

Yes. Wayfair's stated growth reduction has a potential benefit for all the home goods retailers of several hundreds of millions of dollars annually. We expect Overstock should benefit disproportionately from that amount. And really, because of our -- the traffic, the visits that overlap between Wayfair and Overstock on a typical day are roughly 1/3.

That's helpful, Dave. Thank you. One more on Retail. Where does the company stand on 2-day shipping?

2-day shipping is a very important metric to us. We focus on that. It's one of our brand pillars, easy delivery and support. As I mentioned on the call earlier, we improved our percentage of page views with 2-day delivery messaging by 188% year-over-year in the fourth quarter. We're getting close to 30% of our revenue being delivered within 2 days and working on that quickly.

Thank you, Dave. One last one on Retail. Anecdotally, we've noticed e-mails from Overstock from Black Friday and Cyber Monday through Presidents' Day offering more than 20% discounts. How can you be so generous and still strive for profitable growth?

Well, this is why we believe so strongly in embedding machine learning throughout the organization. We're testing various algorithms that personalize the coupon based on behavioral indicators and margin availability by SKU to maximize return to Overstock. As you can see from our contribution margin performance I covered earlier on the call, we realized an improvement of 233 basis points in the fourth quarter of -- over 2018, and we're moving in the right direction there.

Great. Thank you. Also top of mind to investors is the dividend and specifically potential impact on tZERO. Saum, I'll ask this of you. Has the digital dividend had the desired impact in terms of customer sign-ups and new broker-dealer relationships?

Yes, it has. And it's just the beginning. So we've seen an increased interest from broker-dealers since the announcement. We'll update the market when we have more formal agreements in place. In addition, for investors' sign-ups through Dino, we really expect that to pick up once we announce the record date and distribution date. And that's the behavior we saw last summer when we made those announcements.

Great. Staying with tZERO, Saum, can you provide investors an update on your pipeline of potential token issuers for both your ATS and your BOX JV?

Yes, sure. As far as the ATS, as I mentioned, we're in discussions with now well over 200 potential issuers. Several of these issuers are in their later stages, and we expect to have some announcements coming in the near future. As far as BSTX, it's probably too early to talk about their pipeline. But they've already started business development efforts. So you can expect things, once they're approved from regulators, to operate. You can expect some announcements around potential issuers.

Great. Thank you. And what is the status of the BSTX approval?

Yes. As I mentioned earlier, we expect to get a decision from regulators in Q2. So we're very hopeful that in Q2, we'll get a positive answer and that we can move forward with it.

Great. And sticking with approvals, what is the current status of the Retail broker-dealer approval?

That one, we've been again working closely with regulators, and we expect a second quarter launch for that. It's a really exciting milestone for tZERO and it will allow us to marry the web and mobile platforms into one experience.

Great. Thank you, Saum. Jonathan, I'll address a couple of questions around corporate business at large. The question is there have been a lot of management changes since you became CEO. How do you feel about the team you have in place today?

Alexis, that's a great question. Since I sat in the CEO seat, Dave and I have taken the time to really evaluate the team. And over the last 6 months, we have made some changes. I am very pleased with the current team. We've promoted within some very capable individuals, and we've also brought in top talent from the outside. Change in an organization takes time. We were thoughtful and careful about how we manage this change. We did it in a measured way that was the least disruptive to the business. Had we done it all at once, I think it would have been detrimental to the business. But the bottom line is I can say we're in a good place now.

Thank you, Jonathan. Given recent events, particularly yesterday's market nosedive and trading where it is, is employee retention a concern because of the current stock price?

Well, the stock price is sure at a level significantly lower than we'd like. And that, in my opinion, it should be. But we're confident in our ability to execute against our plan and correspondingly enhance shareholder value. Attrition, particularly regrettable attrition, is low. And it's something we monitor closely. Making sure it stays low is one of my key objectives for the year. We regularly hold company-wide stand-ups, we held one just yesterday, to keep lines of communication open and address potential concerns. I think the employees are happy with the focus, like the direction of the company and are committed to be executing on our plans.

Thank you, Jonathan. Related to the stock price, do you think the stock is being manipulated? And if so, are you doing anything to address it?

We're in the business of running a business. That said, we are aware of trading that looked like market manipulation last year. And we notified regulators to make them aware of this behavior. I should note that while the PRO stock price is down, we are not on the Reg SHO list. But we continue to monitor it and keep regulators, with whom we have an open line of communication, well informed.

Great. Thank you, Jonathan. Gigi, we would like to open up the line for our first live question asker.

[Operator Instructions] Our first question comes from the line of Thomas Forte from D.A. Davidson.

So first, I wanted a point of clarification. So on the supply chain for China, you talked about 50% of your sales are currently supplied out of China. How has that trended over time? And then second, I wanted to make sure that I heard what you said that as of today, March [ 13 ], you have not seen a noticeable disruption in demand as it relates to the coronavirus.

Great questions, Tom. Supply chain coming from China is now approximately 50% of revenue. That has trended down over the years. Dave, anything to add to that?

We shared on the last call, back as far as 2008, 2009, that was 85% of our revenue coming from China or Chinese-sourced products. So it's been significantly decreased.

Yes. And on your question about what we've seen to date with the coronavirus, I will confirm what I said earlier, we have seen -- so far, we have seen no meaningful impact on the business.

Great. And then as a follow-up, I think Dave indicated that through your legacy home e-commerce biz, there's 2 customer segments that make up 40% of the total addressable market. Can you give a little more detail on what those 2 segments are?

Yes, those 2 segments are: We've named them Savannah, Savannah is our savvy shopper; and Rebecca, our reluctant refresher. Now in both instances with these customers, one is obviously looking for a deal. This customer loves our promotional cadence. They are a coupon purchaser. And we have the ability, and we are continuing to build out the ability, as I mentioned, with our machine learning algorithms to be able to personalize the type of offer that she's looking for. For the reluctant refresher, it's more about finding what she wants and not being overwhelmed. She wants a no-hassle solution. And that requires some pretty complicated search and rendering algorithms to be able to provide her something a little more assorted, a lot less in depth.

Let me just comment -- put a footnote on that. These 2 market segments are not chosen randomly. They're the market segments, they're the customer that has a natural affinity for Overstock. So they represent 40%, we think, of the market. But they are people that are looking to purchase from us and already have an affinity with us.

Then one last question for me. On Wayfair, you talked about the opportunity as it pertains to more cheap traffic or being able to get traffic less expensively. And you talked about the supplier opportunity. It seems to me that this could be a catalyst to accelerate your return to profitable sales growth for your legacy home e-commerce biz. Can you give any...

Our next question comes from the line of Brad Safalow from PAA Research.

Brad, before we go to you, I don't know what happened, let's answer Tom's question. So traffic, we see Wayfair's revised guidance as a place where we can increase traffic. And as I mentioned, we share a lot of suppliers. With Wayfair's revised downward guidance, those suppliers have product in pipeline. We think the pipeline is full. Dave, what else would you add to that?

Will play out -- this will play out more over time. When they tune down their marketing models, which is what you would anticipate, it takes some time for those to burn in as we've talked about in the past with some of the ebbs and flows we participated in. As we see that, the inventory availability to us is the real opportunity there.

Okay. Brad, sorry to cut you off.

It's okay. First question really has to do with management and the Board of Directors. One of the things that, I guess, I've been hoping would change is that we'd see an increase in the ownership of the stock by you, other key members of management, the Board. Have you guys contemplated instituting a required stock ownership amounts for high-level executives or the Board? I think it's something that would obviously signal some confidence to the market and certainly is something that feels like it's long overdue, at least from my perspective.

Brad, thanks for that question. We have not considered that. It's an interesting suggestion that we will consider. Some of us have purchased shares relatively recently. But remember, we've been in a blackout period for quite some time, which has prohibited us from doing that. I know there are some who are eager for a blackout period to end.

Okay. Is it the digital dividend that is catching the blackout period? Or is it something else?

Well, part of it is just the end of the year, we -- where we've waited until today to file our K without those results coming out. That's kept us in it. We're working to have a trading period open for some period, at least a short period because we're already fairly close to the end of Q1.

At this time, I'm showing no further questions. I would like to turn the call back over to Jonathan Johnson for closing remarks.

Gigi, thank you, and each of our shareholders, we thank you. We're focused. We're working hard. We are frustrated by the current stock price. We don't think it's a fair representation of the value of the company. But all we can do is execute on our plans to try and deliver value to you. And that's what we're doing every day all day. We'll talk to you at the end of Q1. Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.