Overstock.com, Inc.
Q4 2017 Earnings Call Transcript

Published: 16 Mar 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 2017 Overstock.com, Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today’s conference, Mr. Rob Hughes, Senior Vice President, Finance. Please go ahead, sir.

[Rob Hughes:]

Thank you. Good afternoon, and welcome to our fourth quarter and full year 2017 earnings conference call. Joining me today are Dr. Patrick Byrne, Founder and CEO; Saum Noursalehi, President of our Retail Business; Jonathan Johnson, President of Medici Ventures; and Senior Vice President, Seth Moore. Let me remind you that the following discussion and our responses to your questions reflect management’s views as of today, March 15, 2018, 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 filed this afternoon and in the Form 10-K we also filed today. Please review the safe harbor statement on Slide 2. 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. Patrick, with that, let me turn the call over to you.

[Patrick Byrne:]

Thank you, Robert. Welcome, everybody. We have 800 viewers. Welcome. I’m going to tell you a little story before we start. Some months ago, last summer, when I got thinking of doing something strategically to this company, one of the things, as I mentioned in the last quarter, we are taking it private. I mentioned that in the last quarter conference call. I went to see my rabbi, and my rabbi quick as a wink, this time you know my rabbi, quick as wink said there’s a case you got the thing called Texas Gulf Software. It’s a very famous case, and you have all kinds of strange and difficult to understand assets in your company, and you need to make sure these are all fully explained in the public before you could ever do something like that. So I took it on myself to make may be a much larger effort in the last six months than I have previously for about 10 years to talk to anybody. My goal here is not making stock go up, down, anything. I have no opinion, and I will repeat how risky various things are that we’re doing in blockchain. But I feel my job is to turn all of our cards up on the table. So every sort of the market can figure out what things are worst, and then everyone can make informed choices. So that’s my philosophy, and I – that’s why I’ve taken such length in the last earnings call, and we’re going to take length in this earnings call so anyone trying to understand and remember I used to be a Wall Street analyst. I know what it’s like – I’m turn to like everything else. So people can figure out for themselves what this is worth. Strategic options. I have a shock collar wired to my neck. And if I say one word, Rob Hughes is going to electrocute me. Seth Moore has a statement to read.

[Seth Moore:]

Yes, we announced on our last earnings call that we’d engaged Guggenheim to consider strategic alternatives, one of them being the sale of our e-commerce assets. This work is ongoing, and we’ll provide an update when appropriate. That’s said, our philosophy is that we should always run every asset like we intend to own it forever, and our strategy discussion will be framed that way. That’s a position we think our shareholders should appreciate as well as any potential acquirers.

[Patrick Byrne:]

Can you say anything else about the process or where we are in this process?

[Seth Moore:]

No. Due to confidentiality and everything else around the process, we don’t want to comment further.

[Patrick Byrne:]

May I say anything about this, Seth?

[Seth Moore:]

No.

[Patrick Byrne:]

If you hear me get electrocuted and fall to the ground, you’ll know. Okay. In a nutshell, here’s a little montage. The whole story of what’s going on is contained in these four photos. It’s kind of silly. I know it’s not normal convention to talk directly about a competitor, but it’s kind of silly not to talk about Wayfair. It’s the elephant in the room. It’s changed the whole landscape of the industry we’re in. For example, in the upper left-hand corner, you see their spending eight times – they were eight times many TV spots as we were. That’s just one example. In the upper right-hand corner, you see our earnings history. There, in red, you see a nice Internet company dribbling along at basically 1%, struggling to make $10 million, $15 million, $20 million, $30 million of pretax income per year our Retail business. That picture of those red bars, is as rare as a unicorn. Where are you going to see that? We – but yet, we’ve – it’s just silly not to acknowledge somebody is coming in, taken exactly our business model and has now lost $700 million in the last four years. There’s such a thing as margin compression, and that margin compression when we have a direct competitor who is just doing this, they does lost $0.25 billion and pretax operating income. So we decided we can’t operate – hello? Somebody broken to our line, operator. We decided we can’t play that. I decided we can’t that play that game any longer. We’re in a nice fight, and this time, we’re going to answer in time. And we think we can do so far better and more efficiently. And I think we’re the most efficient e-commerce engine out there. We’ve shown it in the past by showing profits. Now we’re going to show that we can play the game that everyone else played, and we can do it far better than they do. In the lower left-hand side, we’ll be going through these slides a little bit in more detail later, their share of voice. That’s a leading indicator. I’ll tell you how we get there. But the fact that those a cross that we have now crossed the company that was 0.4 times of our size and market cap worth four or five, six times whatever actually closed in terms of share that’s a very important leading indicator. And on the lower right-hand corner, you’ll see another rare thing. Well now everybody use hockey stick projections all the time. This is not a projection. This is actual as we’re doing something unusual, and that we’re showing you January and February customer growth. So this isn’t just a projection. Saum?

[Saum Noursalehi:]

Yes. I would just add, up until now, we’ve really tuned our models for short-term profitability, as you can see from the historicals. The last two months or so, we’re really now starting to optimize for future profitability and lifetime value of the customer.

[Patrick Byrne:]

Yes. Gotten to the point where we can do that. So that led to this slide. What really happened last year is we lost $12 million, net-net-net on Medici and $14 million on retail, net loss before tax changes. What we are doing is we’re taking our net operating loss, or NOL, that we have previously that years ago, four years ago, we booked – what’s the DTA, Rob.

[Rob Hughes:]

Deferred tax asset.

[Patrick Byrne:]

And now that we are changing our strategy and are adopting the strategy that we’ve always eschewed, it’s time to flip that back. So we’re giving that to non-cash tax entry or book entry as well as Trump’s tax cuts. It changed the value of that underlying NOL. So there is some non-cash tax cuts act that takes us to $110 million. And there you see at the bottom what’s going on underneath that stuff. The result is this horrible looking number of $110 million, but $84 million-ish is that non-cash tax stuff and then negative operating cash flow. Moving forward, we’re going to go into the Retail business first. The – both the strategic overview and the – some particulars of what we’re doing. So first, just again on the big picture, we have another – this is our weekly new customer growth. Here’s our monthly new customer growth. We have a nice few second delay in the system. We have broken to the back of the downward spiral.

[Rob Hughes:]

No. I think part of the value of these metrics that we’re sharing around share of choice, traffic, new customers, those are to be understood as leading indicators of what a growth strategy should produce.

[Patrick Byrne:]

Yes, a good point.

[Rob Hughes:]

That when you hit the throttle, you start advertising and you start bringing in new eyeballs. First, attitudes change, then traffic moves, being in the home category in being highly considered. As that traffic starts coming in, it takes a period of week, even up to a month, to make decisions on the buying cycles in the categories we offer. And so then the customers trail next, and then those customers turn into revenues, and finally, profits, as those cohorts of customers you’re bringing in start building on each other.

[Patrick Byrne:]

Great. So these are leading revenues. Great point, great point. I mean – sorry, leading indicators. But and Seth has it exactly right. You’re getting the customers, and then the customers to start coming back and so on and so forth. Here’s capital raise. I’ll just remind you how we’ve done this so sparingly compared to the entire industry. Our retail operating margin, now we’ve added Amazon to this picture. You can see they had, I think, two years of it looks like positive. They’ve slipped back under in a small way. We have now gone negative in our operating margin, and I view that very much as competition from having this kamikaze competitor who has come into our field. It’s very tough to run a business making $20 million, $30 million when you have a copycat who’s losing $0.25 billion. Not insurmountable. We have a way to handle it as you’ll see, but next slide. This is what’s going on underneath it. They’re just spending three to four times what we’re spending. They’re running eight times many spots – peaked at 13 at one point, and when we can do before it. We’re good throwing a bunch of money. And they’re renting customers. As far as we know, they’re renting customers. Here, even with our terrible SEO results, and I explained this in detail in the last earnings call that we had, starting in May, a gradual erosion that just kept continuing of our SEO or search engine traffic. And even with that – and when 40% of your business goes into a 40% to 70% tail slide, it was quite a surprise to us as it emerged over the course of last year and heck of a lot to overcome. And yet even given that cataclysm worse than we’ve ever had, our customer acquisition cost stays better than Wayfair. Seth, can you comment on that?

[Seth Moore:]

Yes. It really speaks to the efficiency of our engine that through technology and through a very strong platform, even with the bunch of free traffic pulled out of the system, we still have almost one-third of our customer acquisition cost than our next closest competitor.

[Patrick Byrne:]

All right. So this is that going up that larger slide again. This is in a nutshell what’s going on. It’s awful tough to maintain a business at 1% when we have a competitor doing this, and it’s silly to be talk about it. We can talk about our affiliate program if you want. But at the end of the day, this is the main event. This is the elephant in the room. We have a direct competitor who’s adopted a – this strategy yet again. Yet again, and just not that I want to sound sore about it. It’s just been 18 years of people coming in and losing. We have – we took a bunch of names off that are slides that you can read it, but all other competitors who’d come and gone won’t blow $0.5 billion, $1 billion, and it’s just got ridiculous. So we have another competitor doing this. It is very directly affected the results of your company. Fortunately, we have Saum Noursalehi and his team. We put them on it and as you can see, our competitive visit share, as of yesterday, we have – going back some months now, where does this go back? At the beginning of January, do you have that? Anyway, we have compressed and compressed Wayfair’s lead over us in visits until this. And you need to do know, this isn’t just we’re blowing a bunch of money, although we are significantly increasing market. We’re adopting a strategy much more like the other people. I believe you’re going to see much more efficient. We’ve been playing the wrong game. We’ve been playing a game that no one else is playing and nobody seems to care. So we’ll – we’ve switched this other game and we can play it much better than anyone that has, and you’re going to see that, I think, this year. This was not just achieved through just increasing marketing like other guys, spending eight times, buying eight times as many TV ads. This is a combination of – in fact, I’m going to go one more slide. This is a combination of our digital marketing efforts, which have gotten – it’s like what I dreamed of in 2002, 2004. And it’s all happened and even better than I dreamed. Our machine learning and AI and other teams that are running all the different channels, it is just spick-and-span and tight as can be. We are pushing more money through those channels now that we have them so good. We are pushing a lot more money through those channels. In addition, I mentioned in the last earnings call that we had sort of created a whole new paradigm that happened to be Saum’s brother thought it up and a whole new paradigm of marketing that we feel the industry has missed. And we launched it around Christmas time, and it’s working quite nicely. We’re extremely happy with it. Now I’ll shut up. Saum, what do you want to add to that?

[Saum Noursalehi:]

Yes. I would just add that, that paradigm allows us to target customers early in their inspirational period where they’re considering shopping. In addition, in the last two quarters, we’ve really talked about the in-house marketing tech that we were building. It’s really starting to pay back now. So while there is increased spending here, we have a much more efficient engine than competitors acquiring customers.

[Seth Moore:]

And we’ve been asked several times why don’t you adopt a growth strategy? Why do you insist on profitability? And part of it was because we believe we need a discipline around retention and monetization of customers before it makes sense to invest in customers. We’ll see as we lay things out over the next few slides, we’ve made material moves in our ability to retain, monetize and scale our business without also scaling costs. So we get better leverage on our G&A that we think enable us to take up the strategy now and increase the value of a customer to us when we acquire it.

[Patrick Byrne:]

Exactly. And this tells the whole picture. We’ve taken so much less capital than the other guys. The other guys are blowing it on in unbelievable marketing budgets. We have something that no one else has had other than Amazon for a couple of years of profitable B2C commerce company but in the face of that sort of gravitational pull, we have to respond. We can’t just be taking body bows and lose market share. So the right path is – and again, I guess is looking up after 18 years and nobody ever cared about our earnings, and nobody seems to care about Wayfair’s losses. And so – we’re other people’s losses. And so if that’s – it’s Warren Buffett says sometimes life is like you play the piano all the way Carnegie Hall. And you get there, and somebody hands you a violin. I thought the game we were in was let’s all – let’s make money and who can see, who can do this smartest and most efficiently and lease capital. Turns out that’s not the game we’re in other people have forced us on it or what doesn’t matter. But we have to wake up. We’re going to play that game, and we can do it this year and play it better than anyone who planned and that sort of – I give credit to business this idea of him saying early on can be about growth and not GAAP net income, but cash flow. We have this very interesting property to our business. I’ve mentioned several times before. And it is that normally, businesses grow like a food factory. If it’s growing and it’s profitable, it sets of cash even if it’s profitable. You feel it inventory and accounts receivable in this amount. But normally, but our Internet businesses, because we have this cap negative cash flow cycle, we get paid in three days and paid in 30, 45, something like that – and anyway, because of that, we generate cash as we grow. Days as figure that out and did it with Amazon. He’s the only guy you sort of state velocity that I know of. We got through a state velocity, I mean, with profitability. I’m super confident we can switch to this strategy, crush in the game that we’ve never played before. But we will now crush in that game. And anytime we want, we can switch back to the other strategy. But if this is the game that we’re in and our competitors have forced upon us or we’ve woken up to and realized it’s the right way to play at this point. We don’t want to lose market share. I’m super confident we can adopt this and do better numbers than anyone else has seen on the field. Saum?

[Saum Noursalehi:]

I think it gives us an advantage. When you’ve had to optimize your engine on very little capital and you’ve really tuned that engine, it’s much easier than to go the growth path, and that’s the position, I think, we’re in.

[Patrick Byrne:]

Yes. It’s a – and we have all the capital in the world, it’s a luxury. Now we had to build the efficient first. So next up, Saum, how are we going to do that? Why don’t we talk about the retail engine itself?

[Saum Noursalehi:]

Yes. So our competitive strengths, and as we’ve said on previous calls, we’re really focused on price assortment and convenience. Our pricing is significantly better than our competitors. Overstock customers, as an example, a 11% less than Wayfair’s on average on pricing that’s displayed on their site.

[Patrick Byrne:]

May I interrupt for a second, Saum? And I ask Seth. I know there’s some very precise – oops, this. I know there’s a very precise wording on that, Seth. Can you say that?

[Seth Moore:]

Yes. The – when an Overstock customer makes a purchase, they are paying on average 11% less than the Wayfair-listed price for that product.

[Saum Noursalehi:]

That’s illegal. I mean, it’s on their display price, actually, to be specific. But that’s on our matching engine, which matches on hundreds of thousands of products.

[Patrick Byrne:]

What are – I have to interrupt for a second. We have this server error show up on our computer but I don’t know. Operator? Crystal, which slide are people seeing right now?

[Operator:]

And I’m sorry, sir, I don’t have access to the slides on my end.

[Patrick Byrne:]

Okay. Well, are you – well, we just had a server error show up on our computer. We can’t tell if anyone’s seeing anything. We will – just a moment. Just a moment.

[Seth Moore:]

Let’s advance Patrick, it looks like it’s working now, but we’ll have somebody check.

[Saum Noursalehi:]

We should be on Slide 18, for everyone to know.

[Patrick Byrne:]

Good.

[Saum Noursalehi:]

On assortment, I just want to highlight some of these items. We had a supplier platform that we know is very efficient based on all the feedback we’ve heard from our partners. It allows us to really scale assortment without human capital. It’s all about automation and incorporating machine learning to optimize SKUs and onboard partners quickly. Lastly, on convenience, we’ve really tuned our site and our mobile experience for speed, and that’s just not me talking about it. We’ve won awards the last five years from Computerware and other companies like Gomez in the past for site performance, which we know is a huge benefit when it’s for a conversion on the site. So our whole infrastructure was designed with page speed in mind.

[Patrick Byrne:]

And I’m going to mention something. Saum is so modest. Our machine learning – there’ve been sort in our 18 years, maybe five big revolutions in the technology of digital marketing. And we probably caught three of those revolutions very early and probably missed one or two of them later than we should have. This machine learning and AI is the sixth, and we are on the ground floor. And I deal with engineers at the largest, the companies are thinking on the largest Silicon Valley companies out there, who are continuously telling me the team that we have assembled here is so elite. What we’re doing is so leading edge. They said there’s only one in fact only one other guy in the field doing this. And Seth recently had – well, Seth has had in the last five months a lot of opportunity to study what other people have. And in terms of on the supply side and on the marketing side, I really think there’s us have to give credit to Wayfair. I think Wayfair’s in the same class. I think us and Amazon are ahead. And then it’s kind of head and shoulders back to everybody else in the field. Seth, you want to expand on that or?

[Seth Moore:]

No. I think that covers that really well.

[Patrick Byrne:]

Okay. Moving on. This is not just talk. Let’s see how long – how long there’s a delay of about 30 seconds. I will – there’s an account for them that in the future. Moving to the next slide, which will show up shortly for you. This is not – wait till it shows up and then this slide will be gone. Okay. This is not just our opinion. We have all won all kinds of awards for our – for Saum’s technology and our customer care. Saum, why don’t you…

[Saum Noursalehi:]

I wouldn’t say me. I think we have the best tech team in the industry. So these are awards in mobile, best mobile experience. We’re building proprietary in-house tech like our recommendation engine and then as well as we have an amazing customer service team. So these are all the awards they’ve won, including Loyalty 360, which was just this year.

[Seth Moore:]

Yes. I think really if you look at the last couple slides about our payments offerings, in-house financing, our customer service program, all of these indicate the improvements that we’ve made at retaining customers and keeping them loyal, which increases the value of customer acquisition. And it’s justifying this pivot for us to move to a more aggressive growth strategy.

[Patrick Byrne:]

Yes. And this is a small thing. For – people don’t even know if it is were Amazon, everybody would notice this. Six years in a row our mobile apps have won the award as the best Android, the best iOS shopping apps, our search engine. We started off as a third-party integrator. We weren’t trying to be a tech company. We integrated all these third party technology for all these functions. Somewhere along the way, the guy called Spock sitting next to me and Saum, Mr. Spock and Saum and from others like them Commander Data, they started building technology internally that replaced those – that measure stacked up against those third-party integration. And we never gave them any advantage, and it’s only when they develop technology they could meet all that third-party stuff. We said we have switched with, and now I think we got like I mentioned this in the last earnings call. McKenzie came into this espionage, and they basically said there’s as far as website and intelligence and out there Amazon, Overstock and then head and shoulders down to the whole crowd. That was two years ago, and we’re substantially better now. Next, Club O and Saum, why don’t you talk about the importance of that.

[Saum Noursalehi:]

The Club O members are about four times more valuable than our nonmembers. And in general, we really focused on investing in our own customers, which our loyalty program Club O falls under. That grew 47% year-over-year. In addition to that, other own type customers our e-mail or our mobile apps, which we’ve talked about. And so those customers have the best customer lifetime value, which is why we invest in it, and we really think that you’ve heard about the challenges we’ve had with SEO. These channels or these areas are going to totally use be much more dominant in the coming quarters and years ahead.

[Patrick Byrne:]

Yes. And there’s a lot of things we can tie into our Club O program and make things – just keep making it more and more appealing. Partner onboarding. Let’s go here. What’s going on here that you want to talk about?

[Saum Noursalehi:]

I mean, we mentioned the partner platform being a competitive advantage. This will allow us to quickly scale our assortment as we grow. And so this shows our partner growth, but our assortment is growing nicely with it.

[Patrick Byrne:]

Okay.

[Seth Moore:]

This is really critical in that a lot of companies in the past have failed to scale. The graveyards of e-commerce are littered with companies that went from 0 to $1 billion in three years and then died. And the story for virtually all of them was that they failed to extract any sort of leverage out of their G&A. Their G&A grew indefinitely with their top line.

[Patrick Byrne:]

Give me an example of how a company’s doing that today. You want to name their names, but just.

[Seth Moore:]

Yes. So a lot of these companies, for example, have been driven by manual human duration. If your business model relies on human picking sets of products, arranging them together to display the customers to create a shopping experience, the more clusters of products you want to display to more customers, the more bodies you have had to build those durations. And you don’t attract leverage on that over time. And there’s not one of those. There are many, many dead e-commerce companies who grew to $500 million, $1 billion, even more only to discover that there’s no leverage in that model over the long run. And so building a partner onboarding platform and a supplier duration platform that’s bringing products in, building content and then doing that duration to create an appealing shopping experience, but doing it algorithmically rather than manually, creates an experience that actually scales and extracts leverage on your technology DNA that you can’t get ever out of human investment.

[Patrick Byrne:]

So we have competitor. Spock here is a competitor of Wayfair who is remind you, their business model is just decommodifying commodity products and marking them up. And so the whole teams of people who’ve give writing, writing and reshooting so there copies is distinguishable from other people’s. And they can like new, and then they just mark them up. That’s all this human labor that doesn’t scale, that’s going to linear. In this case, for example, we can have suppliers from the moment they signed the contract, they can actually live that day. And they can have SKUs on site within minutes with their partners. Saum, how does that compare with like the other big marketplaces?

[Saum Noursalehi:]

So on suppliers, what we’ve heard from our partners is that can take two to – two weeks to a month or more to get the suppliers on-site. SKUs can take days or weeks.

[Patrick Byrne:]

So I’m going to break just a second to inquire into the synch or lack thereof. Just a moment. Okay. Next up, recent SEO performance, it may be a few seconds away from you. But on the upper left-hand corner of the slide, you will see a – our recent SEO performance. And ours is the red line, Amazon is the mustard, Wayfair is the second from the top. And this is terrible. Remember, this was 45% of our 40%, 45% of our business a year ago. It collapsed. Our SEO collapsed, and especially confusing or probably because we’ve always been great with Google other than hitch here or there, different theory just to what’s going on, this may be due to they switched to a machine learning and algorithm last May. So we’re sorry – no one’s sorry, then we or that this happened, and it began crumbling last May, and just kept crumbling through the year. And completely – I mean, it’s not – this isn’t one of your situation for the 100 different things to fix. There was this big problem. And the fact that we haven’t had worse results, is actually a function of the fact that all of our other channels are just singing. And that’s especially I like growing 15%, 20%, even 30%, which is especially odd, because SEO is sort of the freshwater in the top of the aquarium. You would think that, that – and so with that cut off, you would think these other channels are really suffer and they have, and yet they are still doing the head pulled us through. So, but that – so now I’ll turn over to Saum. That was the problem. What do we do about this, Saum?

[Saum Noursalehi:]

Yes. So we have in lost rankings, particularly in head terms, which are getting very competitive. And what we mean by head terms is things like online shopping or living room furniture. So that tracks 50,000 keywords on head terms. And while we lost rankings there, we shifted our strategy to the long tail. And so that’s why you see index pages climbing and as a result, our sales climbing.

[Patrick Byrne:]

Yes. And Seth go ahead.

[Seth Moore:]

Yes. And you’ll see even though the keyword on head keywords has not improved materially, the sales have. As we’ve expanded those long-tail pages ranking, they convert much higher because they have a much higher level of intent.

[Saum Noursalehi:]

That’s right.

[Seth Moore:]

People searching for very specific products. So even though it doesn’t replace all the traffic, it actually does a very good job of replacing sales and it’s helped us clawback a lot of that customer acquisition that we have lost previously and that really kind of bottomed out at the beginning of December.

[Patrick Byrne:]

Yes. So that’s – so let’s move on to FinanceHub. Very proud, and I actually think that previous graph is also a great example of what these guys are good with. We don’t have the billions that other people got. So these guys roll with the punches, something crazy happened and just rippled away over the course of the year, this SEO. And we probably put three or four years of SEO projects together and gone through last year has still not fixed that underlying problem. But, the fact that we’re able to respond and find switch from the heads to the tails and do this and that, and even go from that graph that shows we were as much as 70% down in SEO. And we’ve only gotten back to 20% or 10% down. It’s nothing to cheer about. But when it’s 40% of your business, think of how well the rest of this stuff had to do. And now that we’re sort of coming up on lapping the point without generation started and it’s a smaller part of our business now, it won’t have nearly as big an effect. Okay. FinanceHub, I’m very happy about FinanceHub, because one of the place here maybe a big mash-up, the big honchos between our normal e-commerce world and this world of fintech. There’s a lot of directions that came a lot of places that can emerge. So for example, we now have this $1.99 stock trading. $2.99 to the general public and $1.99 for Club O members. We have – I do see there’s about 45 second lag in the slides. So I’m just going to power through that, and we’ll synch it up and post. We have robo-advising. I’m really excited about and that we have quite a unique product. There’s basically two big robo-advisor each worth a couple billion dollars, they had a couple of hundred thousand people in them. In our case, we – what they do is they offer, you come in, they ask you some questions, they infer risk profile and then you go and say, well, you want to be in mid-cap stocks? Well, we go out and find out ETF and mid-cap stocks. In our robot and then they charge you 25 bps to 75 bps for it. In our case, we go out and we basically trade a personalized ETF. There is some propeller rate up from MIT you know this, but they match the alphas and gammas and everything else, and they create a personalized ETF in the sector you want to be in of 20 stocks. I think it’s a great product, and we charge $9.95 a month worth. Next up is cars. If you have not been on our car cab in the last couple weeks, you probably want to check it out and keep checking it out, in terms of the quality of the technology, the quality of the search and in specific, the fact that you can buy warranties, and bind right on our site and you can finance your cars, new car, used car, even car you already have, you can down and refinance it. It’s a really unique car offering. Anything else you want to say on any of those, Saum, or Seth?

[Saum Noursalehi:]

No.

[Patrick Byrne:]

Okay. Medici Ventures, and there’s a nice description of Medici Ventures. You can come back and read. Medici has five areas of interest. Why don’t I just hold on for a second, so things synch up. Okay. So Medici Ventures has five areas of interest, the personal identity, property and land, money and banking, capital markets and voting. And if you think of the actual chain, that’s kind of a country right there. If you can go and do some rack to country, for example, and install these systems, and this country could have the most bulletproof, inexpensive, leading-edge, subsystems in the world. We have 12 investments. What people are across that area, what people are maybe not haven’t tuned in on, is the type of synergy there is among these investments. And what the guys are building in Identity Mind fits what they’re doing in Bitt and in Bitsy, and what the folks are doing in et cetera, et cetera. There’s all kinds of tZERO and Symbiont are wonderful partners at some point. So there’s a lot of – this ecosystem may seem random, but there’s a real underlying structure to it. Our investments in personal identity and voting, very excited about Identity Mind looked that up, it’s one all kinds of awards. One of the hottest companies in Silicon Valley, hottest start ups all that settlement some really leading-edge payers in Europe, we know quite well, and very fond of. We made an angel investment in that company and votes. There’s a lot of outvoting there. I’m surprised there isn’t more in the general public’s consciousness about if we are questioning our national voting system. How long making it blockchain digital citizenship. All of the questions will be taken out of it. And there’s people in both parties we don’t want to see that happen. Happy when Robert taken out of it. De Soto. I mentioned in the last conference call, you go back and look at the transcript that we were working on something even more excited than tZERO and Bitt. I didn’t say what it was, but it was De Soto. We took a long time to woo Hernando de Soto, let me tell you. We probably saw some announcements around the end of the year. This is bigger – this is so exciting, because I think we changed the lives of five billion people, five years, five billion people, we are building stuff, having the team intensely working away on it. I think that this – we started this, because we thought, we could do something good for the world, and we figured that there’s, of course, some way it’s going to be able to make money when you build something that’s useful. However, I will say then in the course of building this, we got a bunch of people working months on it, whole team just coming back from Hernando’s well-known Peruvian touch, I’ve been there about four times in the last six months. It is starting to appear there’s actually a huge financial opportunity here. It’s not why we started the project. We wanted to do something historic, but there is actually quite a large financial opportunity here. Now, we move into Bitt. And I will – Bitt and the blockchain meets money. We have the nice investments here. Bitt just made an announcement yesterday, and weeks ago that we have the first – that the mighty Ireland Nation of Montserrat has agreed to digitize its currency. And then we just announced yesterday the entire Eastern region of the Eastern Caribbean Central Bank is going to digitize the EECB, and the Eastern Caribbean dollar. And a – but there’s a place right now, the only country – only place in the world, Barbados. You can walk in, download an app, deliver Barbados, download an app go to an ATM, put some money on your phone and that money exist only in the blockchain and on your phone. It’s mobile money without a bank account. And you can go into a shop in Barbados and buy something. So again, a lot of people talking about this stuff or head. Now we get to tZERO. tZERO, it’s in the news lot. It’s blockchain its capital markets. You want to read this carefully. There’s a legacy non-blockchain business we quite like. There’s a blockchain business that has a number of products. You can read about them there. Digital locate receipts. I’ll emphasize, this is in a – this is currently in customer and start process not been commercially licensed. It’s basically how Rob how would you describe this? Testing, but there are actually people paying and using it.

[Rob Hughes:]

Yes. My understanding.

[Patrick Byrne:]

Then, of course, security tokens is the big event. Now we – security tokens. We got here a long time ago, frankly. We said that I think in this world of ICOs, of utility tokens, is largely a prime era and largely you can’t – people are start selling themselves around the securities in order to raise money from the public, but not call it a security. And on June – July 25, the SEC ruled in the case of Dow utility token that it was security. When the Chairman of the SEC came out a couple of weeks ago and he said actually, I’ve never something like I’ve never seen a utility token that is an act like security token. What that means is; a, anyone’s not just keep doing utility tokens. It’s a whole market has to shift the utility tokens there also no Americans will be involved; b, it means that the thousands of things that got issued, I think people have no idea and I’m sadly in this community with these young folks. I don’t think they have any idea of what kind of hot water they’re going to be in with the SEC, if they’d raised money and will they have raise money, and never from the public and never call it got around calling it security. Here’s a map, so to speak, of tZERO. The blue is the conventional system, what they do to different kinds of clients, and how they route using AI into different exchanges and dark blues. We are setting up a security token trading platform. Of course, it is going to be conducted all within the SEC ranks. I will emphasize, because I hear there are some number of head doctors saying how we can’t do this and – we are the first company in the world. Two and a half years ago, we issued the world’s first private blockchain security. And then six months later, in December of 2015, we applied to the SEC with an S-3 for Overstock list issue a public blockchain security. It took a year. The S-3 contemplates, how they’re going to work, and how those blockchain trading system and so forth. In December 2016, the SEC sprinkled holy water on it, which buy which I mean they gave deemed approval. They said, you can sell this to the public, and we did sell it to the public. We today people. We have, you can go right today and buy a public blockchain security. This is exactly one in the world. Those set up an account with Keystone, and you can buy it. And that’s out there, it’s just about SEC, S-3 that’s live in the world. So anybody who tells you otherwise, just tell them what’s the ticker. I can name a ticker, OSTK.P. And if they’re telling you that we can’t do this because I tell them or if they say that they can do it, ask them for one ticker because ours is OSTK.P. That’s digital security the only one in the world. Saum, do you want to add?

[Saum Noursalehi:]

Well, I just want to make sure you highlight crypto chain, which you haven’t discussed yet.

[Patrick Byrne:]

You’re right. Thank you. Sales on Black on the right side, there is a wonderful business opportunity. We don’t want to set up our own crypto exchange. We could change this tZERO wonderful – by the way, the folks at SpeedRoute, I get told again and again by people deep in Wall Street that these are the most knowledgeable guys in the country on routing and exchanges. They are incredibly knowledgeable, it’s a very unique company, SpeedRoute. It’s the only broker-dealer in the America with only other broker-dealers supplying. It’s a specialist in routing. We can take its technology and apply it, integrate to these exchanges and create a bridge across between these two different ecosystems and a very smart bridge. However, given Secretary Commissioner Clayton’s statement, if all of these utility tokens that have been issued are, in fact, securities, then not only people who did that breaking the rights but the exchanges that those coins are trading on, if they’re trading a security and they’re not a SEC-approved venue, then they’re breaking the rights too. So whether we in fact, build that dotted bridge has a lot to do is driven by the regulatory clarity. On the next slide, blockchain meets capital markets. You’ve seen a number of interesting transactions from us since we last spoke, including buying interest in StockCross. So we’re not going to explain how the puzzle adds up yet. There are pieces of puzzle that we have to reveal, but we can’t x-ray the whole picture. But you should be able to fit them together, we bought an interest in StockCross, which is a self-clearing firm at the DTCC. Muriel Siebert, we bought a prime interest in a prime broker, we and there’s a letter of intent that’s been accepted. And there’s other things that are being considered. And then lastly, we do have a security token offering going. I warn everybody because again, I saw some of them burns forget to tell people there’s going to be competition. Yes, there’s going to be huge competition. We’re trying to raising $250 million in creating an alternative ecosystem the Wall Street. I expect we’re going to have some competition. I expect we’re going to have some regulators to talk to. It’s going to be all kinds of pushback and all kinds of problems. They warn people all the time. It’s extremely risky. My money’s on it. I think it’s a – I love it, but the public should stay away the hell away from that security token offering and even in credit it should be very careful in understand what they’re getting involved with. Next, just so I never mention or could be accused of not mentioning it, I’m going to mention Reagan coin, which is put this in the category of Texas Gulf Sulphur. I have now officially been publicly mentioned Reagan coin. Don’t know what it’s worth. I probably should disclose. We have over 60 million of these. It’s currently trading at $0.03 a piece, so a couple million bucks, nothing to get excited about. Who knows? It’s not our coin. It’s an open source project, which we became quite enamored we threw in several millions of dollars of developers to help it along in such. It’s very interesting project, and that’s enough. So now moving to retail strategy. We have strategic options. Seth, why don’t you comment again on the strategic option you’re managing?

[Seth Moore:]

Yes. So again, like we said that the top of the call, we announced last call that we’d engaged Guggenheim. We’re considering strategic alternatives, including the sale of the e-commerce assets. Because the work is ongoing and because it’s confidential, we’re not going to comment further until it’s appropriate to do so at the public.

[Patrick Byrne:]

Can I say anything else Seth?

[Seth Moore:]

No, that’s it.

[Patrick Byrne:]

That’s it, okay. Short collar and then see-through. Okay. I will not comment on that. But I feel that I probably should not say a word passed what you’ve said.

[Seth Moore:]

Yes.

[Patrick Byrne:]

Growth strategy, Saum?

[Saum Noursalehi:]

Yes. So we’ve built one of the most efficient pure-play commerce businesses, and we’ve delivered consecutive years of profitability. Our focus going forward, as Patrick has mentioned, we’re going to go after growth now in market share. And we’re going to do that by focusing on our technology, which has given us these great results we’ve had in the past few years. So doubling down on things like AI, ML and increasing our digital marketing.

[Patrick Byrne:]

ML is machine learning.

[Saum Noursalehi:]

Yes. Thank you. Good point. And so we’re – and we’re also increasing marketing. But with that, we’re doing it very intelligently with in-house tech and really finding the best growth opportunities across all our channels and finding audiences that are the most profitable long term. So the shift in strategy from short-term profits to long-term customer lifetime value and that’s really what we’re going to be doing going forward.

[Patrick Byrne:]

Seth?

[Seth Moore:]

Yes. We really want to see long-term free cash flow. That’s what we’re trying to liberate here.

[Patrick Byrne:]

Yes. And we’ve had lots of free cash flow before. It’s going to take, I think, it takes as you shift the gear from one strategy to another. You got a – there is an effect. I used to describe it when we went to different shifts if you’re on a speedboat on a pond and you hit the throttle, the first thing that happens is you actually sink down your plow and your gas mileage is quite bad for 100 yard. And then you get up on the plane and then your gas miles and gets really good. So we have broken and we have done – distribution facilities. We actually think we can add two distribution facilities this year not much cost and get 95% to 98% of the country within two days. Accelerated private label strategy is working – we kind of not discontinued, but this was much smaller for a decade than it once was. It’s now been taken over and it’s somebody is charging with it. And the expanded Club O rewards program. Saum, you want to…

[Saum Noursalehi:]

Yes. I think we discussed this earlier, but this is one of the cohorts that is making us a lot of money, and we think it it’s going to continue to get better. And we’re adding more and more value to the program, but we can’t really discuss that – beyond that.

[Patrick Byrne:]

If you have any questions, send it to [e-mail]. And lastly, I’ll close for Fresno as we’re waiting for them to come in as with a slide. It tells the whole picture. We’ve gotten, I think it, a great company, a unique earnings history. We’ve just gotten crushed by some dumb money, it feels to me. And – hey, no since they have done with their strategy – strategy we’ve always said was not the strategy. But given I look at this, in the upper right-hand corner, clearly, Wall Street never cared about our earnings. Really Wall Street never cares about Wayfair or anyone’s losses. We’ve been demonstrating, that we have a more intelligent engine and efficient engine by showing the profits that hasn’t gone across what we can do is demonstrate the efficiency another way and achieve high growth and cash flow and such and just show much better numbers than the other guy. So with that said, I see a ton of questions have come in. Seth, what’s up? You want to hit them?

[Seth Moore:]

Yes. So the first questions are from Tom Forte, analyst from D.A. Davidson. His first two questions are, what are the criteria you’re looking for in considering different companies to join? And has anything changed your views on the benefits Overstock could provide to large legacy bricks-and-mortar retailers?

[Patrick Byrne:]

The second one first. Yes, this whole process has changed my view on what we could provide. It’s may realize to a large legacy brick-and-mortar. It’s made me realize I totally understated them because Spock here has spent the last five months carefully building models for various people and models that show connected and it’s unbelievable how many hundreds of millions of dollars can just drop to the bottom line. And it makes me actually realize I probably figured three or four years ago this is the right way to go. Nice meeting. Anyway, the gods of economics is clear to me, the gods of economics. I think this is the right thing with a large brick-and-mortar most likely although there is couple other kinds of companies that are interesting types of people to talk you to. Go ahead, Seth.

[Seth Moore:]

Yes. And I think I would agree with that. I think as we’ve done the modeling and run the data, what we’ve seen is there are unique capabilities that within bricks-and-mortars, particularly from a supply chain standpoint and that we win pure-play e-commerce companies from a technology standpoint. I think what the market is increasingly realizing is that those qualities exist in the genes of the company. They’re not something that have grown or synthetically created. It’s sort of genetically coded. And I think that’s what you’ve seen from Amazon and from others who have started doing these stem cell injections via acquisition to combine those two sets of genes to create new unique offerings. And I think there’s tons of value in it. And I think in the long run, the market will converge that way.

[Patrick Byrne:]

Agree. I see you’ve got added more questions than it ever seen e-mails in 1,300 people watching.

[Seth Moore:]

It says in the event of the sale, how should investors think about the tax impact of how much of a tax would there be. I think I can answer that one. That all depends on structure. We can’t comment yet because that’s still part of ongoing conversations. You recently acquired a small home-related website that consumers can use to find rentals. What was the strategy behind that acquisition?

[Patrick Byrne:]

Saum, you want to or me?

[Saum Noursalehi:]

We’ve spent a lot of – we are very good with people who move homes and people whose – when they move is a very good time for us to reach them. We spent a lot of money and time trying to find people as they move. I really always wanted some natural reason for people to come to our sites, when I go just buying traffic. And so we put those two things together and rental routes, a site that in the past had been able to build a good traffic base and that we can rebuild. It seems to me it’s going to give us great access to people who are likely customers.

[Seth Moore:]

What gives you confidence and your ability in general to offer consumers and financial services to drive home e-commerce products?

[Patrick Byrne:]

Well, we actually have since we’ve introduced financial products, a couple – probably not a couple, four or five years ago. It’s actually been – I mean, the – we saw 100 demand dollars of worth of stuff on credit. Now we are refining ways we offer credit. But people are okay. People already have this wonderful trusted relationship with us, so – and that’s really the hurdle when you got to get over. So now that they already have trust and relationship, bringing them mortgages, bringing them stock advice, bringing them, I think can be a very powerful way to get more integrated. And of course, the value of somebody’s financial customer is about 50 times their value as a customer who buys you – buys toasters from you. I saw a couple years ago, somebody actually – there was an article by somebody smart, I’m trying to think who it was, but pointing out why haven’t e-commerce company big play is e-commerce company bringing in financial products. And it has really been my plan for about 11 years. I was worried someone else will get there first. But anyway, we’re already seeing people are signing up for Merrill cheaper accounts through us and all kinds of things.

[Saum Noursalehi:]

Yes. It’s already set a significant part of our business, and they are some of the most valuable customers. So we’re doubling down.

[Patrick Byrne:]

Yes. Well said.

[Seth Moore:]

Regardless and potential for pending sale of the home e-commerce business, why is it in the best interest of shareholders to invest or not in marketing spending to compete against Amazon and Wayfair? I think we’ve actually spoken at length about that. We think we reached a point in our maturity in terms of our ability to retain customers and leverage our G&A where it now does make sense to start doing so, either as a standalone or as part of a sale, we think that’s a strategy that adds value.

[Patrick Byrne:]

Somebody’s asking why haven’t we done this before basically. Yes, I think you’re right. Maybe it was not – may not to do this before. We have – we have scram jet. If somebody builds out a smart model, they will see something interesting that as we grow, we can spit out lots of cash not this year and we will consume some cash. But going forward, these – we can generate the cash we need to keep accelerating. So anyway, it probably is – I never adopted this strategy before because I evolve industry by background, and everything is about making money and limited use of capital and all that stuff. But I’ve just got to recognize that game is the three-point shot came along or the jump shot came along, it’s about time we adjust our game to it.

[Seth Moore:]

How should investors think about the importance of two-day shipping for home purchases? And would it be worthwhile to add additional fulfillment centers beyond the ones we have in Salt Lake City. I think I can take that one. We think it’s valuable. We have added additional fulfillment centers. We fulfill products for our drop-ship partners. That business is growing nicely, and we intend to expand it in the coming year.

[Patrick Byrne:]

We took that slide out, but we should assume that slide of – we have a business that supplier ways that competes basically with Amazon fulfillment services only it’s better in a sense of Amazon fulfillment services, you put your inventory in their warehouse, and then you sell them on Amazon and they’ll fulfill on Amazon. But if you sell on eBay, the last I checked, they were in support of your sales on eBay. In our…

[Seth Moore:]

Before they charge you on arm and leg for.

[Patrick Byrne:]

Yes, that’s particularly they charge you, they way up the charges. In our system, you put it in our warehouse, and we’ll support sales through any of the channels. Most of those sales do come to us. That is actually taken our warehouse utilization to 80% – over 80%. You know what warehouse is to really get about 85% of everything starts gridlocking. So we actually know that this is working, and it’s a significant part of our warehouse utilization. It is the time, we can expand a couple warehouses and fill them up. We have sort of gotten over the hump on that.

[Seth Moore:]

Now pivoting to Medici and fintech. After tZERO, Bitt and DeSoto, which of your holdings in your view has the greatest likelihood of driving shareholder value and why?

[Patrick Byrne:]

Well, after this is actually, which of my children I love most. But – so I guess, I should do short answer it. What can I say here?

[Seth Moore:]

I think we’ve had a pretty fulsome discussion of a number of them that we think are going to had a lot of value, so how should your investors think about…

[Patrick Byrne:]

Before you go on, JJ, I can’t – there are the question is about these beautiful 12 love children you and I have made in Medici. After tZERO, Bitt and DeSoto, which ones do you love the most?

[Jonathan Johnson:]

I can’t say, which one I love the most, but I will tell you, I think our recent purchase of an ownership interest in Votes is really exciting. I think the world of voting is just screaming for blockchain, and it’s an area where I think the adoption curve will not be a gentle as, but a steep as. And once it’s proven, it should just flourish.

[Patrick Byrne:]

And Jonathan, who I shall mention ran for governor a couple years ago in Utah and then lost in a speaker, developed some political connections that he got – that he helped – anyway, people in Utah had opened their mind to this. And there’s an election that’s just been held somewhere in Utah using this system?

[Jonathan Johnson:]

Next week, there’ll be neighborhood caucus meetings, which are part of a unique way that Utah does elections. It will happen next week and one of the larger counties in Utah will be using the votes application.

[Patrick Byrne:]

Good. A lot of things in Utah it’s little strange.

[Seth Moore:]

All right. How should your investors think about the SEC investigating ICOs, including yours?

[Patrick Byrne:]

I love it. The better, the more, the harder they look, the better we look. We – I was shocked last year people out there, they’re putting a term paper up online and they raised $100 million. And I was kind of shocked that the SEC was not acting. And they really did so in the flimsiest of excuses. So everybody who understands what’s going on in this token world, there are two kinds of tokens

[Seth Moore:]

2015.

[Patrick Byrne:]

2015, I’m sorry.

[Seth Moore:]

Where do you stand on the digital receipt locate efforts?

[Patrick Byrne:]

Love the product. Incidentally, I think this market is about a $20 billion market – $20 billion to $30 billion. The industry itself says it’s $17 billion. But there’s a refill market that’s $100 billion, and I’ve been under the belief that the refill market actually includes some of the securities lending market and there is something else. So with a – it’s not enough, as someone pointed out. I thought $20 billion to $30 billion might be enough to fix the pension crisis. It’s not enough to fix the pension crisis. It would take $200 billion or $300 billion to fix the pension crisis, and there’s not enough in this market for that. But there is $20-ish billion. And we – it’s over-the-counter, in the dark now, and we can make it the exchange traded. We have a system up and not just test. I mean, actual consumers are doing it and getting locate – not consumers, but traders are getting locate shorting stock and so on and so forth. But to Seth’s point, we want to get the system really refined. Because I know – I mean, look at this file the SEC hunts down. I want mentioned the bank, there is recently one who recently that got caught for three years getting that locate went right to the top the SEC said and this a major, major bank, one of the biggest in the world. And the SEC find them 1 million – $250,000. And I know if we make one mistake, the SEC is going to fine me $100 million. So this has to be really locked tight.

[Seth Moore:]

Yes. You talked in the past about other companies taking a minority interest in tZERO. Can you update your thoughts?

[Patrick Byrne:]

People contact us, people contact, talking about valuations that are right now they’re interested in investing in. I don’t want have those conversations. Because it so screw up our security token offering right now to go and take a big slug of money from somebody. However, the truth is, there are people were talking to us about putting money if they can build put money in the security token offering and money in at the tZERO level or at the Overstock level. There is different those are kind of the nature of the conversations. But at the moment, I’m trying to keep it all nice and clean and simple.

[Rob Hughes:]

Yes. And I think the key is we want good partners to work with.

[Patrick Byrne:]

Yes, exactly. We want – we can get checks anywhere. I literally wake up some days with people calling me from overseas, wanting to put in dramatic amounts of money. We’re looking for the right partners who bring something to the party. And I also have gotten a message repeatedly, I let you know I should disclose this, repeatedly and the Wall Street have gotten a message that burn, nobody partner to you. You’ve got to get out. Gosh, I thought people have turned out long memory there. Well, we had 80% of this company, and I think it has cold fusion, which means it’s getting slicing the world and I will come into we will get our ownership down from 80% down to 40% or something. In the process, I’d like to sell those pieces off to those percentages off of three or four of the right partners who can take my daughter and show – and take her to greatness. And I need – so it’s really about finding the right partners. And at that moment, we are focused – I mean, the security token offering has been an immense amount of work.

[Seth Moore:]

Should we expect sales and profits from tZERO to be reported in the future as provided in the white paper an offering memorandum?

[Patrick Byrne:]

Everything will be reported just as in the – just as described in that white paper. By the way, go ahead, Saum.

[Saum Noursalehi:]

Yes. I think what the question is referring to is in the offering memorandum, they did include standalone financials for tZERO. Today, Overstock overall financials, tZERO is part of the segment data, so you can actually see that. But this tZERO and other aspects of Medici. As noted in the offering memorandum, it may be that next year, tZERO needs to do public 10-K reporting and so then you would see it in that fashion next year, 2019 for 2018.

[Seth Moore:]

How should we think about the ability of your discounted brokerage efforts improved – oh sorry, wrong one. You made some investments to date. Can you walk us through the rationale of each one?

[Patrick Byrne:]

In tZERO…

[Seth Moore:]

This one was just open ended.

[Patrick Byrne:]

Okay, on the – if you’re talking about, presumably this is about – if it’s about tZERO, if you layout these different pieces we have invested in and you line up the right way, you will see the pieces of this jigsaw puzzle turn into something really well, I’ve described it, there are alternative capital markets just the basic. But there are pieces that are not blocked in and it all fixed together very nicely. If you’re talking about the bigger picture of blockchain, the rationale – at rationale for the investments are first those – five areas of interest we identified and then looking for the best companies with any – we’re looking are growing.

[Seth Moore:]

Assuming you raised $250 million to $300 million in ICO, will that cover your capital needs?

[Patrick Byrne:]

For tZERO, yes. I believe so with plenty of operating capital, we have immense opportunities in tZERO. We have some capital not for acquisition, but just for underlying some trading. There is real opportunities and we could cost ourselves money by not having the capital to put under it. But, yeah, there are some real opportunities to put some capital work under trading.

[Seth Moore:]

The options exercised in Bitt brought your ownership stake to what percentage from 11%?

[Patrick Byrne:]

I think we want about 19% plus or minus 1%, it would be my estimate.

[Seth Moore:]

And you thoughts on exercising more options?

[Patrick Byrne:]

I think if they continue with – the next options, we have had a five-year tale. There’s no point in exercising them before – giving up the optionality value, but they would take us to about 34%. We exercise them. Bitt is on a wonderful role with digitizing Fiat currency is an enormous opportunity. And they are a leader. I mean, once again, I think we can get credit for this. There is no place you can go by a blockchain public security, and there is one place you can use a blockchain Fiat currency to go buy a drumstick. And what’s that, that’s tZERO and Bitt. And, okay, go ahead…

[Seth Moore:]

Why is the Bitt going after larger markets, no disrespect to our friends in Barbados and Montserrat?

[Patrick Byrne:]

Well, as Montserrat goes, so goes St. Kitts. Montserrat, we are going after bigger targets. We’re – I forget how many central banks somewhere around the world have reached out. We think getting started in a country with 35,000 people in nice manageable is a lovely way to start. And now that your Eastern Caribbean Central Bank with, I think, eight countries under it that is adopting our system as well. You’re going to have a couple hundred thousand people can be using on our system. I think that’s just the right amount for a couple months.

[Seth Moore:]

How if it all is Bitt like PayPall and how, if at all, is it like point based or other crypto wallets?

[Patrick Byrne:]

Bitt is quite a bit better. You can go and download end money, go to bitt.com, download the wallet, you can see for yourself, it’s the rails are crypto, but the wallet is for Fiat currency. So you can imagine the time. You can be in Barbados, for example, I have beige, beige is the local world, beige dollar, and you want to send some due a friend of yours in Montserrat and they’re getting converted from your phone, mobile money into – something the rail, a crypto currency is the rail, probably Bitcoin, maybe foreign coin or something, goes over to the guy in Barbados and gets turned into a – I’m sorry, Montserrat, gets turned into their digital currency, which is I think the Eastern Caribbean dollar. And you’ve taken out – well, for one thing, the Caribbean is in a really better positioned because it’s derisking. And all these relations with the U.S. banks have gotten snipped. Well, since today the U.S. banks with the subs to their spokes, now interisland trade is really difficult because they can’t even pay each other. Well if the central banks through the region adopt this, the islands can go back to trading with each other and it’s devastating. Look at what’s happening to the economies of Barbados and Belize, the derisking thing, which I’m not fighting. I understand the U.S. is KYC, AML concerns, but it is really screwing up economies of some developing countries.

[Seth Moore:]

Is it true that Bit still has more money when you first funded it because if it’s invested money in cryptocurrencies?

[Patrick Byrne:]

Yes, it is. They’ve put the whole bunch of the money that we first invested into Bitcoin and Ethereum. And we put $4 million in and turned into $13 million or $14 million, in which they have spent $3 million or $4 million. So there is $10 million in it. So there is $10 million in the bank the last I heard.

[Seth Moore:]

Alright in his 2,000 De Soto acknowledges that technology plays a role in unlocking debt capital but so do legislation and politics. What will the blockchain do to fix the problem?

[Patrick Byrne:]

Well this dramatically changed the nature of the problem because we can do through the wonders of digital marketing, social media, mobile apps and blockchain, we can do very quickly what it would’ve taken an army of government employees to do in the past. And it just so happens that there is, I think one place on earth where those four technologies intersect, like mobile apps and blockchain and digital marketing. There is one place in there earth that’s very good at all those technologies. And I’m standing on it.

[Seth Moore:]

As a business what could De Soto look like and how would it generate revenue?

[Patrick Byrne:]

They only want to talk about the business model yet other than why we did this expecting there to a business model would come along, I think it’s safe to say, we think we can unlock. Fernando thinks we can unlock tens of trillions or he thinks $170 trillion by one calculation, of debt capital. If we can unlock tens of trillions of dead capital I am sure there is a few shuffles that we can make in the process. It is not why we ran into it, we think five billion people is going to be historic, what I think is going to happen here. And it going to happen starting, you will see something this year. But there is going to be little more locking not much capital, there is lots of places that we are going to be able make money. But it is not what we are, reminds of me of that little joke. Somebody said to Alice Wrought, what are you doing in Africa, Baby, there is no money in Morphins somebody has asked me the question here, why are you doing this so well. There is actually kind of lot of money, while there could be a lot of money in this whole project, that is not why I flew to Peru four times last fall.

[Seth Moore:]

How should investors think about the problems with the Bitcoin related to orders around the fork and Bitcoin, is Overstock responsible for those issues.

[Patrick Byrne:]

Well, I don’t want to drag anybody out, but a vendor had a problem, their software got updated, there – it cost us about 1 Bitcoin incidentally. So 1 Bitcoin, so for the all the articles and blogs I have seen about this, just under the effect on us was about 1 Bitcoin.

[Seth Moore:]

And who are the executives for De Soto?

[Patrick Byrne:]

Fernando DeSoto, was the Chairman, I am but a student, I am the clay in the masters hands but I am the CEO and Ali Husseini is the President and there is a wonderful assembly of people we have brought together with block chain and other kinds of talents underneath him. Ali Husseini was a close family friend from Lebanon who came over here went to college and got his Ph.D here while working his way from the warehouse up in this company for about 12 years. And he recently ran Globals and got it turned around very nicely last year. And he is Aristocratic, he is Arab, he is French speaking, he is Fernando, Fernando chosen him as President. And he is going to be a great President of De Soto.

[Seth Moore:]

Another one, please explain to the listeners the actual co-relation between Bitcoin prices and value of metallurgy. Well, I think this is implying both, what is happening and should there be any co-relation.

[Patrick Byrne:]

There is an enormous value, I happen to just run this because I’ve noticed that I wish I almost included the slide going back to 2017 the correlation between Bitcoin movements and over stocks is 91%, even in 2018, it’s 70-something percent. That’s ridiculous just so people know, and what you do is running business just so you know, we don’t have much Bitcoin. As we disclosed, we sold a whole bunch of it to the fall. And yes, we’ve been accumulating several hundred thousand dollars again of it probably I don’t know but nothing massive and nothing that if anyone’s trading us some sort of proxy on Bitcoin, up or down, it’s silliness. If you – why don’t I suggest you do the graph for the last 52 weeks the price of Bitcoin and the price of Overstock, lay them on top of each other and you’ll see that it kind of to me it explains like 91% Hoffman Aero stock. And it’s just I feel like I got to warn people are. If you think there’s a big Bitcoin bank at Chile.

[Patrick Byrne:]

Yes. Bitcoin also does not correlate to the technology underlying our Medici applications so.

[Seth Moore:]

Well, what are your plans to scale tZERO? With an institutional sales force we hired? And to market the technology, the pension funds that hedge funds?

[Patrick Byrne:]

Yes, an institutional sales force is being hired as a world-class as I really understand the SpeedRoute tZERO folks to be. The surface area of this opportunity is so much bigger then there are people there to handle it that they are out there, scrambling to get in good industry talent, including a wonderful happened to met two days ago, who’s an institutional sales guy. But in particular, a wonderful CFO as well, whom Rob Hughes hand selected, Mister never had a place for Rob Huges. What can you say about this CFO?

[Seth Moore:]

Great new hire. We’re really pleased to have him join the tZERO team.

[Patrick Byrne:]

Industry experience, public company experience.

[Seth Moore:]

Exactly all of the box we wanted to check

[Patrick Byrne:]

Risk control, all that kind of stuff. Risk control and okay Seth?

[Seth Moore:]

This tZERO still have a lead in the SEO-compliant token exchange rates, particularly B2B, Goldman and Pallone x?

[Patrick Byrne:]

Well I’d Pallone x but first lead in ATS that is the SEC said they trade blockchain even to catch us. And in addition, the people should understand, we built and took a public security based in blockchain And to do that we had to build certain functionality, certain blockchain functionality. Ether came out around the time we were doing that and then Ether came ERC 20 came out which is just a protocol that has of that does that stuff that we to do. So we got for that the ERC protocol and it’s like you’re on Microsoft Word but shifted from PC to Mac or something, but it’s still Microsoft Word. Well, there’s nothing magic about token. It’s – we have deemed approval from the SEC to run an ATS I might run a trading platform on blockchain instruments, which – and ERC 20 is just a blockchain instrument.

[Unidentified Analyst:]

Please address the SEC request for information pertaining to the tZERO ICO.

[Patrick Byrne:]

The SEC speaks for itself. I am looking forward to seeing them again. It’s been some – a decade, and I want to help them. I’ve been I think that is overdue. I’ve been saying publicly for about six months where the hell is the SEC. So overdue and I’m looking forward to meeting with them soon.

[Seth Moore:]

Hi thoughts on turning on timing to turn retail around to go positive free cash flow.

[Patrick Byrne:]

I think for one year we have to stock up that we’re going to have so we fit the Jets, I think we’re going to have wonderful growth that will emerge over quarters three and four. Quarter one we’ve already indicated, is the vise versa. That’s where the kilo bar speed mode is dug deep as we hit the throttle. Quarter one is terrible. I think you’ll see us making nice progress in quarter two. I think you’ll see real growth being iconic growth that people on Wall Street think of as good growth. I think we’re there by quarters three and four. And this year, the year that we switched from one strategy to another you will note that if you model this there is this sort of this effective year of speed boat haul, heeling down the water. But once we get that growth going I think we’ll return to a satisfactory cash flow position next year. And then by the year after, huge cash, frankly, if we grow in the kind of rates, I think, we’re capable of putting this by the rules the other people they buy.

[Seth Moore:]

If somebody else is asking the effective growth strategy on the potential of an acquisition. I think acquirers will be grateful that we’ve already had the throttle and that we’re already pulling the boat up on the plane.

[Patrick Byrne:]

And especially because when we’re hitting the throttle doesn’t just mean doing something stupid and buying 13x as many TV spots. It’s really building out Saum and his team really building out the technology. What we’re investing in and what we are building now to achieve that growth is something that any potential acquirer is going to be glad we did. I mean, it’s been pretty – I think it’s been pretty eye-opening to some people who have see what we have under the hood here. There’s nothing – I think there are companies who understand they could work for 10 years and take $1 billion and they couldn’t build but Saum and his guys have built here.

[Seth Moore:]

Got it.

[Patrick Byrne:]

I see. Sorry, there is a bunch of them that are repeats of the deal.

[Seth Moore:]

A bunch of people are texting in or what’s this from.

[Patrick Byrne:]

Emailing in.

[Seth Moore:]

Emailing in. Anything else?

[Patrick Byrne:]

That we haven’t covered already Seth.

[Seth Moore:]

That’s what I’m going to see.

[Patrick Byrne:]

I think that’s enough. You have been jumping out this is enough.

[Seth Moore:]

Okay.

[Patrick Byrne:]

Okay. Folks, so this is what happened. We radically shifted our strategy the first time in our 18 years. We’re going to play the game everyone else plays and the fact – I believe we are technologically and in other ways, superior company. It has shown up in the past by what you’ve seen on your screen the profitability nobody seems to care nobody seems to care about the guys who lose the lose the money. We’re going to play who lose the money, we’re going to play the high growth and play cash flow game that others have. And I think that same efficiency and technological edge will show up in much better numbers than they can deliver buying their game. Thank you very much. Nice working for smart owners. We’re working – we have of a team of people here working insanely hard for you, from Spock here who has been through five months bringing this Guggenheim process, to Saum and his team. So thank you very much to a bunch of guys out there in the blockchain and blockchain investments. I thank our shareholders very much. It’s nice working for smart owners. Bye-bye.

[Seth Moore:]

Thank you.

[Operator:]

Ladies and gentlemen thank you for participating in today’s conference. This does conclude the program. You may all disconnect.