Thank you, Rob, and thanks to each of our shareholders and analysts that are here today. I'm Jonathan Johnson, CEO of Overstock, and our goal is to hold more of these analyst and investor days. Questions and communicating with our shareholders more regularly so that you understand what's happening within the company. We're pleased to welcome each of you that are here in person at One World Trade Center, Freedom Tower. What a great view we have. Unfortunately, you don't have that great view. We're looking out at these beautiful windows. You're looking at us, but hopefully after we've answered your questions, that you'll feel like it was, it was worth coming up here and for those on the phone, thanks for joining us. We will be taking questions. I don't have a lot of opening remarks, but I, I did wanna say this.
Within the retail business, we remain focused on bringing value to the business. And that means giving a great customer experience, providing real value to our customers, and ultimately getting to a place of sustainable, profitable growth for the long term. That's what retail's focused on. That's what, Seth and Rob and I will discuss as questions arise. With Medici Ventures, we think we have a unique set of blockchain-based assets, that don't exist anywhere else in the world. We think the promise of the various companies, in the Medici Ventures family are real and significant. None more so than tZERO, which is really the crown jewel of the Medici Ventures family. So, it's great to be here in tZERO's offices, and we hope that any of you that are here live will take advantage of getting a tour of the tZERO offices, after this.
Tom and Steve and I are here to discuss tZERO and any of the other Medici Ventures portfolio or companies as questions come up. So that's the introduction. We're gonna start by, we've got some questions that have come in ahead of time and some which we know you're gonna wanna ask in person. We're gonna start with a few of the questions that have come in ahead of time, and we'll start with some questions for tZERO. Here's one that's come in. Please provide more guidance on the revenue model for tZERO. It seems near-term revenue more likely to have come for broker-dealer services, and it goes on. So, we talk about the revenue model.
Yeah, sure. Thank you, Jonathan. There's really three key drivers of revenue that we're focused on. One is capital formation or the issuance business, so as you guys may have saw, we announced a deal with River Plaza to tokenize commercial real estate. $25 million in this round, up to $600 million in the future, so we're doing kind of a proof of concept to start with. We're charging for that service of tokenizing assets, and so that's one of the pillars of revenue. The other is trading fees and listing on the ATS, so both the ATS trading and to be listed on the ATS, we charge a flat fee plus a transaction fee for. And then lastly, it's licensing fees, which is all the technology we've built for broker-dealers to plug into this ecosystem, and for clearing firms to custody them.
We're giving that away for free at the moment, but down the road, we really plan to monetize that through licensing fees. So those were the three key areas we see revenues.
I'll pause for a moment. Another question that came in for regarding tZERO. Is there a plan in place to bring more liquidity sooner than later to the tZERO platform?
Yeah, we really have at this point, we have three priorities. One is liquidity. It's more tokens and getting our national exchange with BSTX or the BOX Options Exchange, joint venture up and running. As far as liquidity, since the last earnings call, we've actually signed up two more broker-dealers that want to plug in and trade security tokens. So we have Dino up and running. We had agreements with ETC and another firm called ChoiceTrade, and we just added two more, agreements just got signed to plug in and trade security tokens. So we're taking that very serious. OSTKO's dividend, the digital dividend, we think will be a key driver in bringing investors and liquidity. But we are very focused on getting more broker-dealers, and some of the names are very big names.
A lot of these are kind of middle-tier, broker-dealers, but we're going after some much bigger names, and hopefully we can close those in the near future.
Just a clarification. The two you're talking about, Dino, ETC, and ChoiceTrade?
Yes.
What are they?
They didn't at this time. They didn't really want it to be announced, but there were two. One of them, fairly well-known name.
When is that? Why?
It just happened, and I think they wanna look for the right timing to make it broadcast it. And so we'll probably do some joint releases in the near future.
Okay.
One other piece of that is, as you know, once they decide to subscribe to the Pro Securities ATS, they've gotta inform their regulators, and the last thing they really want is for us to tell their regulators they're gonna do this before they've had the opportunity to discuss it with them.
Right.
One of the things I think we're gonna be very careful with going forward is disclosing things when they've happened, not when we hope they will happen or what we hope the future will look like. We'll talk a little bit about what we hope the future will look like, but we don't wanna get out in front of our headlights and promising things to shareholders that involve some third parties and how, you know, i-if we can't control it, we're gonna be a little bit more careful in, in predicting the future. Speaking of things we cannot control, a question. If this is Seth, I'd like you to answer this one. If the U.S. and China move forward with Phase one of the trade agreement, how might that benefit the retail business?
That's an excellent transition, Jonathan. So we would see significant benefit if the U.S. and China move forward with an agreement. One of, and probably the biggest headwinds we faced in Q3 was the advent of significant tariffs on Chinese imported goods. We saw more than 10% drag in sales on the items that receive those tariffs. We're not alone. You heard that all over the home goods industry and really in all of pure-play retail. So we think there's a significant headwind removed once that comes through. We've taken a lot of steps to mitigate, but there is definitely some significant upside from what you saw in Q3 based on a Chinese-U.S. trade agreement.
Please, Alan.
The lag, well, the fact that it's tariffs, does that impact margins on those products, or is it more just a function of, like, demand? If they went away, would it have an impact on margin, or would it really just be more on volume?
Yeah, so the question is, is there an impact on margin or on volume from the tariffs? And likewise, when the tariffs go away, where has that impact fallen? I think the answer is a little bit of both. You know, we have excellent software for tracking prices across online retail, and as these items had the tariffs roll into effect, we watched the whole market move up in price on them, which is what caused a lot of the decrease in sales volume. But obviously, given competitive pressure, you can't pass all of that on to customers. And so after the initial rise in price, we've all kind of compressed each other back down somewhat, which is why some of it's manifest in terms of decreased sales volume and some is manifest in terms of decreased margin.
There is a split effect on both that would unravel or would unwind if we get that trade agreement into place.
To address your question, Alan, you know, one thing I think is we see if there's a trade agreement and the tariffs ease or go away, I think the market is gonna dictate much of that answer. You know, if others are able to keep it in their margins, I think we will too. If others quickly pass that price tariff price saving along, we will too as well. The goal is to keep up with the competition, so that sales keep growing. Is that fair?
What percentage of your products are affected by tariffs at this point?
So 50% of our products come from China. That said, not all of them are subject to the tariffs. So I don't think we've done a public disclosure around the percentage of sales that had tariff exposure, but it's a significant double-digit percentage.
I'd also say there are some products which have been subject to tariffs that our suppliers have been able to seek relief from. There are rules in place that if a product can't be made in the United States at a certain cost, that there's tariff relief, and many of our suppliers have sought and are seeking that. So, another question for retail. Historically, your Q4 sales focused on consumers decorating their homes leading up to Thanksgiving. After Thanksgiving, what happens? Seth, do you wanna take that one too?
Yeah, so really what this question is centering around is, in our former liquidator days, we were very gift-oriented. Today, we really have sort of a bimodal sales peak around the holidays. One is a big push of products right now leading up to the Thanksgiving holiday. And that's why you have to excuse Dave Nielsen for not joining us. He is managing that sales peak right now admirably, back in Salt Lake. The second comes after Thanksgiving as people do another wave of decorating and preparing to entertain going into Christmas. And so while there is some gifting, it's also probably the bigger piece of the sales spike for us revolves around accommodating those major sort of entertaining holidays and the push before them to get your home ready for that entertaining activity.
Jonathan, can I just go follow on?
Please.
So do you still feel the same way then about customer acquisition? So I feel like you've talked about this historically where the customer acquisition of the first customer, the decorating-for-home customer, is a worthwhile possible one. The second one is less possible. So do you still feel that way, and are your marketing efforts toward that end?
Yeah, absolutely. So one of the question is, is it more or less profitable to acquire customers during these periods? Gifting customers are not as valuable as decorating customers to us. When you buy a gift online and you ship it to somebody else, you literally never even see the product you bought, and so you don't get the emotional payoff, which makes those customers less valuable. The decorating customers preparing to entertain are much more valuable, and so we are doing more of that acquisition now during the period that's really preparing to entertain rather than during the prime gifting periods that we would have in the past because those customers are more valuable customers.
Tom's not adequately addressed your question. Okay. Here's a question for the Medici Ventures Q2, and I'm gonna look to Rob to answer this, who wears two hats. Not only is our acting CFO, but is president of Medici Land Governance, or MLG. How is MLG finding opportunities to work with local governments? Do we have a dedicated sales force making outbound calls?
Our chief salesperson is actually our CEO, Dr. Ali El-Husseini. But he's backed up by business development and marketing people in the organization. He also works with a lot of business partners, you know, multinational organizations who support what we're doing in the developing world. It's been a great entree for him to get contacts for us. Over time, I think we will, as the business matures, we'll also add salespeople.
I would note, Ali is working closely with several non-government organizations, NGOs, to try and get access to decision-makers in the countries where MLG is doing business and trying to do business. Boy, Ali is good in that environment as anyone I've seen. Very smooth, very polished, really great at what he's doing. I think it's why MLG is still a relatively new company, a little over a year, has been able to get significant government contracts in different countries. As most know, government contracts tend to have a long sales cycle. I think it's a testament to Ali's ability that we have as many as we do at MLG thus far.
Jonathan, just a follow-up.
Please.
So, would there be? I know that you provide engineering talent to the Medici Ventures portfolio. Would there be thought to doing a unified sales force to take advantage?
Question is, we provide engineering and technology talent to some of the companies in the Medici Ventures. Would we do the same on a sales force? Yes, if it makes sense. You know, I have to think how that works. The focus is so often different. You know, let me just give an example in the United States. If MLG is trying to deal with Teton County, it's looking at the land recorder. If Voatz is trying to deal with Teton County, it's looking at the county recorder. I mean, it's the county clerk. While they may be in the same building, they really don't have the same focus. That said, I think what we're trying to do in building a technology stack for society at Medici Ventures does play into that.
I will tell you, some of the greatest leads that Voatz has received overseas have been from MLG's efforts. We do bring our Keiretsu family together a couple of times a year. We just had all the technologists in Salt Lake last month. We're planning our CEO and leadership summit in the first quarter of next year. They know what each other are doing, and their desire to help one another is pretty strong. Does that address the question, Tom?
Yeah. I have another, follow-on about this later on, just evolution of blockchain. But I can ask now or today for later.
We've wet our whistle. Why don't you ask the question?
So I feel like,
I'm keeping you from asking another question. You submit it, but I'll take this one.
The beauty of OSTK is basically the two undervalued assets, the legacy retail and then the Medici Ventures portfolio. And what I want to note is what I think the Medici Ventures portfolio is ahead of its peers in blockchain. So if you look at the evolution of blockchain, I think there was a lot of enthusiasm for it, a lot of enthusiasm for it tied to Bitcoin. I think that your company has made real progress, and you talked in the past how they're generating revenue, which I think also sets them apart from the rest of the industry. So I guess two points. How do you look at, I guess, the evolution of blockchain, I guess, with and without Bitcoin?
Do you personally feel like your Medici Ventures companies are ahead of their peers when it comes to building real business models and monetizing their assets?
So how do we look at blockchain, the future of blockchain, also how does that relate to Bitcoin? And the other is, how are the KY2 companies doing as far as generating revenue, and are they ahead of their peers? Fair summary. Frankly, I think we benefited with the buzz early on of Bitcoin. And so when Bitcoin went from 2,000 to 20,000, people got really excited about blockchain. The downside was people got really excited about Bitcoin, and they confused the two. And they're very different. Bitcoin is the first killer app built on blockchain technology, much like email was the first killer app built on the internet. And to pretend that email is the internet in 2019 would just be, you know, foolish. When Bitcoin came down significantly, we went into crypto winter.
I think that was actually good for Medici Ventures because it got people focused on what is blockchain, how can it be monetized. Let's not focus on an initial coin offering and get caught up in that bubble. Let's focus on building products that work that use blockchain technology. So I think it's we benefited as Bitcoin went up with some detriment because there was so much focus on Bitcoin. But we've really benefited as Bitcoin has kind of taken a step back, because we're not a Bitcoin company. Medici Ventures is not a Bitcoin company. We're a blockchain company focused on advancing blockchain technology, to eliminate middlemen, to democratize capital, and ultimately to rehumanize commerce where people are dealing one with another directly through technology rather than through middlemen. So, I think that's the first answer to the first question, Tom.
The second question, how are our companies compared to their peers in the market? Well, with you know, somewhere between 16 and 20 companies, it's a different answer for each. But for those that are in the four, what you, Tom, sometimes like to refer to as the Mount Rushmore, you know, the top four or six or seven of the Medici Ventures companies, I think they're outpacing their peers. No one else has a trading platform like tZERO does. Many are trying, none are doing. I think the regulatory approval that tZERO's got has put it ahead of everyone else. Voatz, the only system in the United States being used for mobile digital voting is blockchain-based. No one else is doing that. I think it's, again, ahead of its peers.
BIT, working with Eastern Caribbean Central Bank to develop a digital fiat currency that that bank can issue. That's not yet a product in production, but it's a product coming toward production and getting closer and closer. Not like all software projects. It will probably be a little longer than anticipated. But again, I think it's out there. With MLG, the work it's done in Africa, the work it's doing in Mexico, the fact that a county in the United States, Teton County, Wyoming, has actually used its services, that's way ahead of any competition if there is competition. So I do think we are staying ahead of ahead of the pack. That doesn't mean others aren't trying to do things, and, you know, we'll catch up. So I think we have an advantage with many of the more advanced in the KY2. Does that address the question?
One real quick follow-on. Do you think it was to your benefit or to your detriment, the Facebook Libra, meaning that it brought a lot of attention to blockchain, which was good, or there are challenges in getting through or having a negative impact? You did a great job explaining Bitcoin and how that has impacted, positive and negative.
So Facebook Libra, and has that helped us or hurt us? It's probably a mixed bag, Tom. You know, I think the good news of Facebook Libra is it has central banks looking at digital currency. I saw Chairman Powell quoted the other day saying that the Fed is looking at a U.S. digital currency. Would that have happened at this pace without Libra? I think the answer is certainly not. Does that mean other central banks are probably quickening their pace? I think so too. But anytime, you know, regulators get and members of Congress or parliaments get worried about things, it does create the potential for more regulatory hurdles for our companies. But overall, I think at least vis-à-vis BIT, Libra's been good for the industry. Another question about Medici Ventures. What's the total investment in blockchain?
Medici Ventures has invested roughly $275 million to date in the different KY2 companies, about $185 million of that being in tZERO. So those are some rough numbers, and I know we've been asked that question quite a bit, and so we're glad to get it out there. So I have a question about tZERO. Is the fact that the tZERO token is trading below $1 having a negative impact on tZERO's ability to attract issuers either to the tZERO platform, or do we think it will hinder as we go to the BOX joint venture?
No, it hasn't been hurting our issuance team. They're actually, I think, gaining momentum as with time. So the market seems much more ready for security tokens now than it did a year ago, and now that we've built the platform and have transitioned kind of from the build mode, which was essentially since I started, to really now the growth mode, there's definitely a lot more interest, and I think we have the right team to do it. The token, we feel is a long-term play, and I think a lot of investors that weren't mature institutional investors came in maybe hoping for short-term profits. But it's really, as we the next year or two, as we go into growth mode and grow the business, that's when we'll start to show value for the token.
I mean, we launched trading in late January, launched our crypto trading in June. A lot of these things have just been productionized. The next year or two is really as we really generate more revenues. I think you'll see more value in the token. We're also looking at some creative applications of the token in our ecosystem, which I think will generate more interest in the tokens themselves.
Quick follow-up, Tom.
Yeah.
Do you think that, because you don't have more tokens currently trading on your ATS?
Yeah.
Do you think that's had a dampening effect on how?
Yeah, yeah, I would agree with that. With not having more tokens trading today, is it hurting the token price? I would say so. We're very close, as I said on the earnings call, to having another handful trading. They're kind of in the final stages of due diligence. That has taken longer than I would have liked, but it's an important process that we don't want to put a bunch of tokens out there with companies that go to zero. So we want to be very careful what assets we trade next. And we also have market participants that are involved in our ecosystem: broker dealers, clearing firms, and they need to do their due diligence, especially early on as we're kind of onboarding these early tokens.
That has taken more time than I would have liked, but that said, we're, it's moving forward.
Can I speak to that first? So a group of us developed a group of broker dealers in due diligence. What, what is happening? Is there a data room that they go into?
So yeah, we do legal financial reviews of the assets, and the clearing firms and stuff that these issuers as well. So, they, yeah, they have their process for, but yeah, getting financials is part of that.
Steve, do you want to add any color on?
One of the other issues is everyone has really unique relationships with their own regulators. And so even as we get comfortable or our partners get comfortable, we need to always bring the regulators up to speed as well. So if you look at it, there's just a number of people that have to get to a level of comfort. And part of the problem is we can't just run something through. It's just we have to move at everyone else's pace. Right. So the first two assets trading are basically within this portfolio of companies, Overstock assets as well as tZERO's. As the regulators get comfortable with a few more tokens, we think we could get kind of more broad approval to just onboard quicker. But the first, you know, 5 to 10 may take a bit more time.
And then just a quick follow-up.
Yeah.
Did you put any numbers to the level of interest in terms of broker dealers specifically?
Yeah, so we're – I – and I said this on the earnings call. We're talking to 120 broker dealers right now. There's probably, you know, five to 10 that are more serious that are closer to getting subscriptions signed to our ATS. So we have a pretty big group that we're talking to. And the dividend, especially with the announcements we've made, there's been a lot more interest, inbound requests coming in to become a broker dealer trading these assets. A lot of these broker dealers don't want to lose investors to, you know, move off their platform onto Dino, one of the approved BDs. So they want to participate in this. And a lot of them are now – a lot of these people in this ecosystem are starting to see digital as the main thing that threatens their businesses.
And so they're building small teams of, like, digital officers. And that's how we've been finding broker-dealers. We're reaching out to these firms and finding if they are starting to form teams for a digital and understanding the digital asset space. And so we're finding leads that way as well.
We really do think that when Overstock is able to do the digital dividend where it gives one share of Series A-1 preferred stock, OSTKO, for 10 shares of Overstock or either of the preferred shares, that will increase the liquidity on the tZERO platform two ways. One, it will have more shareholders there because current Overstock shareholders will not have a share that trades on the tZERO platform, and we hope that it causes broker dealers that are broker dealers of our shareholders today and don't want to tell their clientele to go to one of the broker dealers that's already plugged into the tZERO platform. We hope it encourages those broker dealers to plug into the tZERO platform, so we really see that dividend as a way to increase the ecosystem and the liquidity on the tZERO platform. That's how I'm handing it back.
Yeah, Thomas, I think. Yeah.
Just a quick question. Is there a little bit of an update on the kind of paperwork on the ecosystem that are out there and how you're approximating to get to where it is?
Yeah. Yeah, my goal has been to excel.
Can you repeat the question?
Yes. Just an update on competition to tZERO and the landscape out there. We see a lot of the issuance platforms gaining momentum, so some we're partnering with to be able to take their tokens and trade them on our platform. On the trading side, actually, I don't see the progress that should have been made, and I think we're accelerating our lead there, so you know, we have some competitors live and trading. I don't think the way they're doing it or the user experience is the right way to do this long-term, but there's a lot in the issuance space and specifically businesses focused on issuance that I think are starting to show traction. One of them, you know, Securitize, who we partner with, I think is gaining good momentum.
Brad, did you have a follow-up?
Yeah, just asking for everyone. Could you walk us through clearly, if I wanted to tokenize my platform today, give me a timeline, what steps do I need to do, what's required from a legal regulatory perspective so we can understand you have the pipeline of 160 issuers, you have 5-10 that maybe are more timely, but what is from day one to day X? What does it look like? How long does it take?
Yeah, the sales cycle we're finding is a little longer than I had originally hoped, but it's somewhere around six to eight, six to 12 months, I would say, is the typical sales cycle. And these are for new token offerings to raise capital. So the first step is, are you just tokenizing your existing cap table, or are you trying to raise capital through a token offering? And so that token offering is where our issuance team is primarily focused. And yeah, it's about six to 12 months. And we expect that to get tighter as these gain more adoption, but it's still very early on. And from there, there's yeah, just a series of due diligence around financials, around legal, regulatory. And I don't know if Brooke is on, but she could probably walk you through in more detail. Brooke, were you able to join? Were we able to get her?
Hi, Saum. Yes, I am on the line. I'm just having a little bit of a hard time hearing the questions from her.
Brooke's actually in Dubai doing business development, so that's why she couldn't join us. She's at a actually very big conference down there, so Brooke, the question is the process to do a token offering kind of start to finish.
Sure. So, pardon me, my voice is a bit scratchy. So, I'd say it falls into two buckets. Some folks come to us with something that is relatively well-baked. They have advisors on board, be it lawyers, banks that are going to be underwriting, etc., and we get plugged into the process largely from a diligence standpoint and then meet tokenization technology and aftermarket trading. That's a fewer and far between. Most folks who come to us have part of their issuance or their plan baked, but it tends to be a little bit earlier stage. It's something they're, you know, they have down the road, but they need to get all their ducks in a row before they can actually commence the capital raise because we are seeing most folks do this in conjunction with the capital raise.
So, you know, if you think about just a traditional private placement, most of these are private placements or registered offering, which takes even longer. But that in and of itself, just to get all the documentation, diligence, parties in place, does generally take at least a couple of months. We often get brought in somewhere along the line there. We align with that issuer. If they need an additional underwriter or placement agent to help them with the capital raise, we can plug them into the network of banks that we work with. And then once they agree to work with us, they still need to go out and do their capital raise. Many folks, as we saw with the Alliance deal, want to announce the tokenization alongside the capital raise.
But others are doing things, you know, a bit differently where they don't necessarily announce it right off the bat. So we do have a couple of folks who are, you know, pretty far down the line, but have not yet been in the position where they want to broadly announce that they intend to work with us. So I think sometimes, yeah, I wish it was a straightforward process to say somebody comes in, we do A, B, and C, and then it's over with. But it really depends on each situation, what the issuer's trying to achieve, how much they've already done on their end before we get brought in, and then what they need to do on their end to complete their capital raise or their offering. But folks are definitely, you know, eager to move as quickly as they can.
Unfortunately, just the capital markets sometimes don't move, you know, as fast as we would like or as fast as sometimes many of our issuers would like.
Yeah, I would also add, and I don't know if we've really talked about this, so we see ourselves primarily as a tech company, and for the actual, investment banking aspects and placement side, we've signed commission-sharing agreements with several big, investment banks to actually help issuers do the placement. A lot of times they have their own bank that they want to use, but if they don't, we, we've made agreements with several, investment banks that could come in and help issuers do that.
Who does that?
I don't think we can disclose. Brooke, do you want to? I don't know what level of transparency we can have with those. I know a lot of them didn't want us to speak about it, which is why I didn't talk about it on the earnings call.
And I believe, the question was who are the banks or what is the nature of the.
Agreement with, yeah.
Yeah. So what I would say is generally most folks are what I would consider some of the smaller boutique shops and kind of lower middle market banks. We're in active dialogue with both Bulge Bracket and, you know, kind of more the upper middle market banks. You know, as I think folks can appreciate and imagine, I think the larger the institution, the more hurdles sometimes there are to jump through. But I would say the receptivity at those organizations broadly has been very good. For the folks that we have already brought on, some of the smaller firms, or the more boutique, kind of, you know, perhaps fintech-focused firms, they've been very excited, and we've already been able to connect them with quite a few issuers.
You know, they do see that it is something that brings them a pipeline of potential transactions that, quite frankly, generally, you know, a private placement, when you think about, deals that get done, still generally have pretty attractive economics for the underwriters or the placement agents. So it is an attractive line of business for folks who are working with us.
Thank you, Brooke. And Brooke, never apologize for a scratchy voice. Mine is perfect. We cannot have a call with investors without this question coming up. What is the current status of the sale of Overstock Retail? I'm going to give the answer that I gave on the earnings call and will give going forward. When we have something to announce, we will announce it, and I think that's somewhat related to another question that came in about retail. Can retail be profitable next year? The answer is that is our goal, and we believe it can be profitable by the end of the year. As we mentioned in a press release earlier in the third quarter and on our third quarter earnings call and in our third quarter 10-Q, we had some headwinds in the third quarter that set that back a little.
But we still are very much focused on being profitable by the end of next year. And let me just comment on that. I became the president of Overstock in 2008 and was the president from 2008 to 2013. Everyone remembers what kind of year 2008 was in America. Our goal was to be profitable for the first time ever in our history in 2008. We did not make it because of 2008. We remained focused. We got profitable in 2009. The first year Overstock was ever profitable, and for seven of the next eight years, Overstock remained profitable. We've had some headwinds in the third quarter. It means we will not be profitable in 2019. We're going to put the same focus we had in 2009 on 2020.
I'm confident in this team, confident in my own management and leadership ability that the focus we're putting will get us to where we want to be and where our shareholders want to be. That's a hand to pop up.
[audio distortion] Almost maybe just following up on that, I was just sad that the e-commerce market has gotten more competitive and exponential since then, with some of the bigger companies. So how do you deal with that?
I'm going to turn to Seth, but let me just. The e-commerce market has gotten more competitive since then, and we've gotten better since then. We are more. We use more and better technology. We are more focused on our market segments. We have become more home-focused, which I think has been really useful to us. Yes, the market has changed, but I think we've improved as it's changed. Seth, I'll let you augment that.
Yeah. I would say Jonathan hit on something key. A big piece of it is differentiation and targeting. You could compete generically in digital retail 15 years ago. Today you have to provide customized experience to specific customer segments to create really deep satisfaction within a niche, and we are in the process of doing that. That's really what our retail strategy is focused on, is creating that long-term competitive differentiation. I would say the second point, and we really experienced this in 2008, market disruption works to our favor. You know, as a very nimble, adaptive technology company, bad markets, while they hit us too at first, we tend to move through quicker.
And so while 2008 was a bad year for everybody, in 2009, on the other side of that recession, while most people were still choking on their supply chain and shrinking, oftentimes by double digits, we had the best quarter of growth in the last 15 years in Q4 of 2009, because we were able to harness that disruption in the market and use it to our benefit. And we feel the same way about the current disruptions. While they're hitting us now, we think we adapt quicker than others. And you're already seeing that. You'll hear from a number of calls with major pure plays. They're making significant changes to the amount they're spending in digital advertising. They're making big adjustments in their supply chains, all of which are very slow and will require very long-term adaptations from them to work in structurally.
And we've been able to adapt to those things relatively quickly and see big opportunity in it.
[audio distortion] So following up, but as there's pressure to deliver, within two days, sometimes even one day, how do you think about, like, the time frame and cost that it's going to take you to get? I know you said that you're doing two days, but to get to where you want to get competitive?
Yeah. And the question is specifically around two-day delivery and what kind of cost is involved in that, and what sort of infrastructure do we need. If you look at our last couple of earnings calls, we've showed the percentage of products, that we're messaging and delivering in two days, and that's gone from about 10% to 25% just over the space of this year.
We captured a lot of low-hanging fruit this year, but we actually see that progressing with the infrastructure we have. We have a network that can accommodate 99% of the country in two days, and so as we build out and fill out that network with more and more of our partners' products, we think without a lot of additional capital investment, much more on sort of the biz dev side of things, that we can continue to expand that metric, and you'll see it continue to be reported and show progress in our earnings calls. The other thing that I think was particularly of note that I would have people look at from our earnings call, this year we moved, the overwhelming majority, it's not quite all, but very close to all, of our Black Friday doorbusters into that network, and so they will all have two-day delivery.
And that's a big step moving that direction and has gotten a lot of new suppliers integrated into that network with that 99% two-day coverage. For the people living in North Dakota, we're sorry we still don't have you covered yet, but.
Of course.
[audio distortion] Just talk about the challenges. There was data that came out of the SEMrush website on the changes in the Google algorithm. Just talk about the challenges associated with converting, I guess, browsers and people that have to use a card for an actual sale. Mm-hmm. And what you're seeing in terms of those metrics and what you're doing about that. That data was super compelling and you had to check on a number of different sources and just doing some really cool research.
Yeah, absolutely. So the question is about two things, about SEO and about turning those search visitors into purchasers. I would unpack that into the two parts. First, in terms of SEO, we did see nice improvement in terms of our rankings with the search engines as well as the traffic we're getting out of the search engines over the course of the quarter.
As they've made adjustments, typically the way these things happen, the search engines roll an adjustment, they follow the traffic, and then they tune that adjustment, usually pull back some of whatever they did. And we did see that in October. Some of the rankings that we gained in Q3 came back, but it's still significantly up from where it was in Q2 and still trending towards improvement. And we are still seeing stability and improvement year over year, in our search engine rankings, commensurate with what we showed you on the earnings call. The second piece of that is translating those visitors into purchasers. And with all of the market headwind that we saw and that you heard throughout e-commerce, we were not alone in that. It became much more of a struggle, particularly on high-dollar purchases, to convert those users into shoppers.
Now, the encouraging thing to us is that the general forecast is that while Q3 was a big negative in the environment around the converting those initial visitors and that early shopping behavior into purchasers, they're expecting in the holiday period for that to get somewhat better, and, and so we think there's definitely opportunity to do that. As we dug in, we found some specific opportunities that we can take advantage of to optimize our conversion cycle. But we think as the market comes through that initial hit that came following the tariffs, that we'll have opportunity to improve on that conversion rate from those customers and that we'll get more of a windfall from those improvements we've seen in our experience and in our rankings. Just a follow-up to that.
[audio distortion] I mean, in terms of, I mean, big difference out of 2008 to 2018 is not that big in the recession, right, as you mentioned, right? Mm-hmm. There's been paradigm shift that the companies did not really see the changes. Yeah. So how do you feel about the impact of the recession on the business and potentially what you're seeing in terms of user conversion as an early indicator of a recession?
Well, I would say you see similar behavior going into recessions, lots of people shopping, but with a lot less buying for the amount of time they spent shopping. Whether or not this translates into a user recession, I'll leave to others above my pay grade. But in terms of the consumer environment, we actually see opportunity in recessions.
Like Jonathan was sharing, coming out of the 2008 recession, it became a great opportunity for us to take market share and improve our standing with customers.
You know, the language, the new word that I learned in 2009 was staycation, and it was people staying home and decorating their homes, and looking to do so inexpensively. That's what Overstock was good at in 2009. It's what we're better at today, and so, while every economic up and down is a little different than the past, we think we're well-positioned should there be a downturn. We hope there's not. We hope people are buying not because they're staycationing, but because they're remodeling and flush and excited, but we're good either way. One of the things we did then and we are doing now is we're trying to be more focused in the projects that we bite off and where we're trying to segment. We became more focused 2009 forward going on, more focused on the home over those years.
Today we're very focused on that, and we're more focused on the customer segments, what we call the Savvy Shopper and the Reluctant Refresher, that we think are best for us. When I look at what we've done in the last 90 days, paring down the initiatives that we're working on in the retail business to get them done quickly. If you've got 13 initiatives versus 4 initiatives company-wide, you're going to be much more focused with 4. That's what we have going into 2020. We think that's going to make us more nimble going forward. Focus is the mantra that I've been talking to the retail executives about. It's what I've been talking to the Medici Ventures executives about. Try and get focused on what brings us profitability sooner than later. And that leads to another question we've got for Tom. Why did tZERO pause on DLRs?
Yeah. So the reason we paused on DLRs, we actually completed the platform, the version 2.0 of it. But as we looked to kind of Jonathan's point on where we should focus as an organization to win and be the best in the world at that, we really felt the bigger opportunity right now is in security tokens and that ecosystem. So we decided to do that. We paused on it. We think once down the road, once we have a retail broker-dealer and we have a customer base and investor base using that, there is the potential to revive DLRs and integrate it into that. But at this time where we're getting the most traction and starting to see revenue, like significant revenue growth is in security tokens. So that's what we're focusing on.
I think DLRs are something that are in tZERO's future. I think they're likely to best be used for tokens trading on the tZERO platform. And that will, frankly, I think, be a sales point for the tZERO platform that if you list your shares there, or are trading your shares there, that there'll be a way to monetize the lending process. Another question that's come in about some of the Medici Ventures portfolio companies. Will blockchain businesses like Voatz and Medici Land Governance look to partner with other companies who already have strong relationships among government agencies to help sell or co-develop products? The answer is absolutely, and that's already happening. Every most places that Voatz has gone into to provide its digital or its mobile voting application, it's done so with a company called Clear Ballot, which is already registered and licensed to conduct voting in the different jurisdictions.
So where it makes sense, that will always happen. I think you should remember, though, that some of these established businesses are the very businesses that the KRSU companies are trying to displace, and so partnering with those that will be displaced is a little difficult. If it makes sense, they will, but I think you can see that some of the time they're going to be in direct competition with them. Okay. Mike, I've got a bunch more questions, but if we have some come in on email, okay. Got it. Just want to make sure we're not ignoring folks that aren't in the room. A question about, many questions have come in about the prospectus supplement that the company filed last week in the ATM that we announced, and I, if I were to summarize them, I guess it would be why or what's up with that.
And the answer is having a prospectus supplement in place and an ability to access the capital markets quickly is, frankly, good corporate housekeeping. It's, should the company need money, it's good to have a way to raise it quickly. The question that came up earlier was, will we be profitable in 2020? The answer is that's our goal, and we think we can be there by the end of the year. That prospectus supplement is really a bridge should there be, should we need to walk across a few planks of the bridge. There is no intention, nor has the board approved, raising $150 million at these prices. And I don't think the board would approve that, in the current state. That's in place as a safeguard, to help the company bridge to a place of profitability.
Tom, I know that was a question that came in from you. Didn't I want to make sure I adequately addressed that?
Yeah, you did. And a quick follow-up. Since earnings call, I think you indicated you're intending to pay the dividend. So it seems like you wouldn't pay the dividend to use the capital. Is that fair to say?
Well, let me so Tom's asked about paying the dividend. I want to be really careful when we say the dividend because there's a couple different dividends at play here. When Overstock put its Series A-1 share in place, the one that trades under the ticker OSTKO on the tZERO platform, that is a preferred share that pays a dividend each year. The board's intent is to honor that commitment to Series A-1 shareholders and pay a cash dividend every year that the company can. That dividend, the cost of that dividend, that cash dividend on the preferred Series A-1 share this year is all of $77,000. I think keeping our commitment to our preferred shareholders is important. That's why the board's approved that. So, yeah.
[audio distortion] Can you take a quick question?
Anytime you have a question, Brad, it's our time now.
I have so many so we're going to go off the capital bridge for the next, let's call it, 18 months.
Mm-hmm.
What does that look like to you?
Well, it looks like as little as possible when the stock is trading at $8 a share. It looks like as little as possible. I mean, that's the answer. You know, what do the next 18 months look like? We think we'll be at a profitability before then, and that, you know, it won't be an 18-month bridge. Look, while the stock trades at $8, there's very low desire to sell any more than we feel like is prudent to have adequate reserves. Does that answer the question?
Yeah, I guess. You know, you think about the historical seasonality of the business. Fourth quarter, it's been generating cash. Then the first half of the year, that's more used to cash. Then the second half, generating cash that obviously doesn't have as much to say in the third quarter. But, with that cadence, is there something you can do? Is there something you can do to maybe alleviate those cash needs in January and the first half of 2020?
A couple things, and Seth, correct me if I get this too incorrect. Our cadence over the years, particularly as we've become D ream Homes for All company, has changed. We are not as Black Friday, you know, retail-oriented. We have huge days for huge sales and generate nice cash at President's Day, at Memorial Day, at Labor Day, at the typical appliance and furniture shopping holiday. I think we are much less lumpy than we used to be. I'm going to pause there before I give part two of that answer and just look to Seth to maybe give some more color on that.
Yeah. And I'll point people back. In it was either our Q earnings call this year. We disclosed that we had made changes in our payment cycles with our partners that makes our cash flow less lumpy. You know, most people in e-commerce try to post the biggest end-of-year number that they can on their cash, and so their payments tend to come in big lump sums that all go out the door on January 1st, so they show a big end-of-year balance. We have a much smoother cycle now, so the peaks are less high and the valleys are less low in terms of our cash payment cycle, and so you would not expect to see the Q4 number pop as much this year, but you would also expect our NTOs to be considerably higher as well.
At least on the table, I think this year you're at $40 million in cash. So again, if I'm looking at the business over 10, 16 years, that's an enormous number, like way off the chart. Is that something you expect to normalize or not? Or is there something I don't understand about the business cost?
Last year, we were trying the high-growth strategy, and that by definition would tend to drive payables up very high towards the end of the year and requiring it to come down. The business has, you know, gone back to the more profitable approach. So I think that's probably why you saw. I wasn't the CFO at the time, so Seth, correct me if I'm mistaken, but I think the change in the retail strategy probably had a lot to do with that. Yeah. Also that change in the payment cycle means rather than having a big lump of payables that get paid out at the first of the quarter, that's also some of the leveling you're seeing is that change in the payment cycle.
Let me just add part two to the answer, and then I'll come back to you, Brad, because I think it's a good discussion point. Part two of the answer is we're looking at our G&A all the time. tZERO recently made some cuts in its payroll, to lower its G&A as it's matured at some of its software level development levels. It's been able to spend less there. One of the things that's been really useful is moving human capital across the organization. We've taken developers at tZERO and at Medici Ventures, and put them into retail when they have projects, and that just happened as recently as last month. You know, eight to 10 developers went from tZERO back to the retail business.
That's a way, I think, one, to, as tZERO went through reducing its force, make that less painful because our best people are still within the organization. Two, it helps us in recruiting. And I think everyone knows when you have to recruit new people, there's significant cost to that. There's significant learning time. Take people that are familiar with the organization. Many of the tZERO people have been at Overstock retail in the past. It's this load balancing, I think, really reduces G&A over time.
[audio distortion] Just on that point, so what kind of sales declines do you need to achieve or any flat sales before you can say, "Okay, we're going to be in a positive cash flow generation for the retail business?
Well, I think if you look back, even in Q2, our retail business turned a positive adjusted EBITDA. You know, it's not like this is a long reach from where we are today. And you know, we were essentially flat in adjusted EBITDA in Q3 in spite of all the challenges. So I don't think it's a huge stretch for us from where we are today to get there. You know, we're really talking about fairly modest incremental improvements, both on the expense management side as well as on the sales side that get us back into a place of generating positive adjusted EBITDA.
So, Brad, our goal for the next year is profitable growth. We can be profitable before growth, but we think it's really important to the business to have both those goals: profitable and grow. But we can certainly be profitable before growth, yes.
[audio distortion] Can I go back to what I said earlier? In the context of the profitable growth goal, I respect the achievements you guys have done over the last 10, 15 years as e-commerce operators. It's certainly appreciated in the marketplace, and I understand, hey, you guys operated in the department all the way online. That's how you did as well as you did. However, let's get to James's point and ultimately, it's a little bit nebulous to me as to like, what are you actually going to do to improve the business? You pointed out a couple things, you know, focusing on the supply chain or the reallocation of resources.
[audio distortion] I mean, I don't know if you can give me four or five things that are a little bit more granular and just say, "Here are the areas where we need to either lose focus, can execute better, can take off costs." Let me think.
Let me give one. Let me give one thread, and then I'll maybe send others. We had a slide on our earnings call that talked about time to load, time to interact with a page. We had a, there was a mobile graph, meaning mobile web, and there was a web graph, meaning PC or, you know, on your computer. The on-your-computer graph times are very low and are, you know, competitive and good. The mobile web was trending quicker, trending down, down being good, but not where they need to be. One of the primary initiatives that we are focused on as a company right now and through 2020 is to improve the mobile web experience. That's where people are shopping. That's how people are shopping today. That's one of the ways where we will be nimble, and we think we'll increase visitors, get visitors going to purchasers.
Because if you're doing it on a mobile web device, it just needs to be better. It needs to be faster. Comment?
Yeah. So I think if you look through in our last earnings deck, the metrics we're tracking are the areas of the business we're looking to, to really drive the growth and improvement, like Jonathan said. It's faster render times. That generates higher conversion, better customer satisfaction. It's improving the repeat rates and our cadence of speaking to our customers, to keep them coming back and keep them highly engaged with interested, relevant content. It's improving the post-purchase experience by expanding that two-day shipping network and the amount of flow-through that we have moving through it. You know, we more than doubled it in 2019. We expect to continue to see that improve in 2020 and to be a driver for growth, and then you'll also see we had a significant amount of focus in that deck around improving the value experience for customers.
And when you look at those customer segments we're shopping in, they're not people who love spending their time shopping. They're people who love spending their time in deal chasing. And that feels like a nuanced difference to me because I think of them as the same thing. But to our customers, it's not. They don't want to spend time looking for products. They want to spend time driving deals and feel like they're fundamentally beating everybody else in the pricing that they're getting. And so we're embracing that and seeing that as we've embraced it, that there is a serious lever for growth there, that poses a great opportunity to expand our share with those customers.
[audio distortion] Can you speak to the point that you made about developers crossing over from tZERO, back to the retail business for a moment? Because to me, it's simply not exactly congruent with a longer sales process, right? You know, these things are going to be easier. The future of your business, the retail business, is kind of the legacy business. So I'm just curious if you could maybe give a little detail on how you're thinking about that and something kind of from the back of this project. The other question I have, you know, before we do the comment about the sales process, we have talked in the past about data driven, you know, and their role. Are they still engaged? Or is it somebody else now running the process?
We'll take those questions in that order. First is managing developers across the system and moving folks from tZERO to retail. How is that congruous with the growth? And then we'll talk about Guggenheim's engagement. And, Tom, you should answer that first one. First is the, as a developer by training and as the head of tZERO.
Yeah, so a year and a half ago when I joined tZERO, we, one of the goals was we need to move significantly faster than competition and get this platform out there. And so as part of that, I was able to borrow from both Overstock and Medici some of the best engineers in the company and really scale that technology team. And I think it went to something like 6X what it was when I had started. And now that we've gotten both the tokenization tech, the trading platform, all the broker-dealer, customer-facing stuff live, we didn't need the level of technology team that we had. I think we had something like 75 or 80 technologists. And so as part of just being responsible, we did reduce headcount where we thought people were for performance reasons where they weren't contributing.
There were also about seven or so engineers that were very high-caliber engineers that we had borrowed that we thought we could give back. This also, as part of this reduced focus, we didn't need that additional seven or so. We thought it's the responsible thing to do, and we can still outpace from a product and technology standpoint over competition with the resources we have today.
As far as Guggenheim, I guess I'll use an analogy. If your home is for sale, you have a real estate agent, and you usually have a sign in front of your home. I would say the sign is not in front of Overstock's home. We still have a real estate agent. That's Guggenheim. You know, when there's not a sign in front of your home, people still drive by. They look at it. They know it's been for sale. They may knock on the door. We've had some drive-bys. We've had some knocks on the door. But retail is not for sale at a buyer's sale price. We've made that very clear to anyone who's knocked on the door, and we've made it very clear to Guggenheim. They're in place should someone, you know, be interested at a right price.
But, you know, given what the market cap is today, you know, someone's not going to come and steal what's really a nice little business. Did I address the question?
Absolutely. Maybe just follow up on that. If retail was buying with another company, what would hypothetically be the cost that could get cut out of it?
Well, I mean, there's significant costs. You know, if it was, it's hard to know, and it depends on what that company is, right? If it's a PE firm that comes in and does it, there's probably not as many synergies as if it's a brick-and-mortar, right? If it's a brick-and-mortar, there's certainly all the back office costs, and those aren't insignificant. There's public company costs. Those aren't insignificant. Here we are today, incurring costs being, you know, retail's part of a public company. Staff that are around, you may have some sense of dollar amounts, but they're not insignificant.
Yeah. I think the answer is really it depends on the buyer. But one thing that's very clear about the e-commerce market, e-commerce is expensive to start, but scales magnificently. And so as we are paired, you know, if our retail business is paired with a larger organization, the assets that we have scale very efficiently across a much bigger base, and create significant savings and synergy benefit there. And so, you know, the technology, the, MarTech, the scalable supply chain, all of that scales very, very cheaply. And so it provides a great synergy opportunity. You know, we think on the order, depending on the buyer, of, you know, $100 million plus. It just depends on who it is and how those synergies square up.
One more question on that in terms of synergy. Certainly people that are driven by and not going to grow, whatever the case may be, have they looked at Overstock as their sort of opportunity to enter into an off-price channel? Or would it be something where they would absorb the business into their own umbrella and kind of grow it in there? What, what, what's the general?
Yes. I don't want to be snarky. Yes to both. I mean, it depends on who it's been, and it depends on when they've come and knocked on the door. I mean, when the for sale sign was up, and many came through, there were some that were looking at this as their way to get into e-commerce. There were some that were looking in their way as a way to, this is a chance to create another channel within a series of brands leveraging the Overstock name. Now, I should remind everyone, Overstock is our name. Overstock is not our goods, right? I mean, we're a first-run brand name, goods. Liquidation is, what, 2% or 3% of the business.
Folks have, some folks that have driven by, knocked on the door, even walked through the house have understood that there's real value in the Overstock name. Most have been looking at the technology, which is, in my mind, fantastic.
Yeah. To follow up on that question, with the change in management, is there a different philosophical view about, you know, you're not taking the signs from the stores and the states, but a different philosophical view on what is a reasonable outcome for potential sales?
Yes, kind of. I mean, the board, ultimately, that's a board decision. The board is 80% the same as it was before management changed, so the company has never had the view that it should be a fire sale. You know, management, prior management may have thought a bigger number than a smaller number. Doesn't mean this management thinks it should be a small number. I just want to be clear. There's no fire sale here.
Got it.
Yeah. Yeah. A few more questions, and then we'll, we've gone through the questions that came in earlier. Can we get an assessment from the company regarding the merit of the shareholder suits and the number of shareholder suits that have been filed? I mentioned this on the earnings call a little bit. The way these shareholder class action suits work is one attorney finds one shareholder and files a suit. Then another attorney finds another shareholder and files a copycat suit. And then another and another. And ultimately, they're putting out press releases because their goal is to attract the most shareholders to themselves. Next month, those, all of those suits, four, will be consolidated, and a lead attorney will be appointed. So the number of suits is not disconcerting at all. That's just how the game is played. It will ultimately be one suit.
Today, the allegations made in the current suits are not disconcerting either. Whether that changes because when they're consolidated, a revised complaint is filed or not, I don't know. But all I can tell you is what I know today. The claims made today are ones that we will defend and ones that we think we will win on. I'll just note that the last time, and I think it was sometime in the last 12-18 months this happened, once the shareholder suits, the numerous suits were consolidated, the lead plaintiff attorney, the one appointed by the court, looked at the claims he might bring and decided on his own to dismiss the suit. I don't know if that'll happen this time or not. I know it's happened in the past, and I know that because these cases are done on contingency, that they're easy to file.
But when you decide to prosecute them, you've got to start, you know, a plaintiff's clerk, security class action attorney is going to start spending his or her own money. And they don't do that as kind of freely as they do file a suit. So the number of suits isn't disconcerting. The claims made today aren't disconcerting, either. A number of questions have come in about the digital dividend. Let me talk about that. Management and the board are still committed to the digital dividend, for all the reasons I mentioned on our earnings call, one of which is we think it provides greater transparency to Series A-1 holders. That's been something we've been about as a company for a long time, trying to clean up the capital markets and make them more transparent. We think that's one thing that the Series A-1 dividend does.
Another thing we think it does, and I mentioned this earlier, we think it provides greater liquidity to tZERO. We own over 80% of tZERO. It's important to us that tZERO succeeds. Bringing Overstock shareholders to the tZERO platform, incentivizing broker-dealers to plug into the tZERO platform is important. We put a pause on the dividend for a reason. As we looked more closely at the certificate of designation for the Series A-1 shares, what, you know, kind of the bylaws for those shares, we saw that it was not as easy to transfer at certain times as we'd hoped and not as easy to transfer as our common stock was, particularly in death or divorce. Second, it could not be held by as many institutions or held by people in an institution as we had hoped. It was hard for banks to hold it.
As we've announced, we will file a proxy to change the certificate of designation on that Series A-1 share. The goal of that is to make it easier to hold and to transfer. We have also decided to register the Series A-1 shares. That registration statement has been filed, and it's going through the process with the regulators. When that Series A-1 registration is effective, it means that if and when we pay the dividend in Series A-1 shares, those shares will be transferable on date of distribution. That was not the case when we initially announced the digital dividend. We're limited in what we can say about it because we're in the registration process, and we've announced we will be filing a proxy to get shareholder approval of that change to the Series A-1 certificate of designation. We remain committed to the digital dividend.
I hope that I may be clipped a little bit by the lawyers and how I can answer the rest of the questions, but I'll take them, and then I'll tell you if I'm clipped or not and how I answer. Now.
One follow-up on that. What's your current understanding on if a shareholder can deliver value in kind instead of the actual digital preferred?
So let me just back up and give a little bit of explanation as to what goes on. My understanding of how the markets work is, if there is a short, and a dividend, a cash dividend is paid, there are many ways, many actions the short can take. The short seller can cover the short, give the share back to the lender. The lender will receive the cash dividend. The short seller can do what's called a payment in lieu, reach into his own pocket and pay the cash dividend to the lender because cash is very fungible. Whether a payment in lieu can be done on this, I don't know the answer. No. I think that was the question.
[audio distortion] Okay. I just had a question to throw out at her. Mentioned that you just talked about the loop for headquarters. I think of that as kind of a pillar of book value and stock. Certainly seems a better option using shelves instead of just leaving it in the back or, you know, things like that. Did you account for that?
Yeah. So we own our headquarters. We call it Peace Coliseum, 19-acre campus. We have no debt on it. The company has virtually no debt, period. So the question is, how can we leverage the building, which might be a better thing to do than leverage the shelf, particularly if the stock's trading at $8 a share? Is that basically the question?
[audio distortion] Yeah. I mean, my understanding is the building is sort of capital in some version of a home.
Mm-hmm.
[audio distortion] And you know, potentially a pretty healthy real estate market out there in New Orleans, New Orleans coast, so.
No stone is going unturned in figuring out how to best capitalize the business. And I know, you know, Rob is talking to brokers that might have a sale-leaseback. We've talked about potentially tokenizing our headquarters and having them listed on the tZERO platform. There are a lot of ways, a lot of things we are looking at. Nothing's been decided. As I mentioned earlier, we're going to be very careful about what we say we're looking at as if we're going to do it. We're going to get something done and announce it. Is that a fair question?
What do you think the building is worth?
You know, the building is unique, and it's worth to us is enormous. It's a great retention tool. It's a great hiring tool. You know, as I think everyone knows, we're in the process of a CFO search, and we've brought some very qualified candidates in, as recently as that last week and this week. The building is a selling point. We like being there. Because it is the way it's designed, it's more of a single-tenant building. It could be, you know, reconfigured to not be that way. But as a single-tenant building, the feedback we get is, you know, in a sale lease back, we might not get as much as we put into the building because of its uniqueness.
That has us very thoughtful, because we love the space, and it has great value to us, from a culture, recruiting, retention, all kinds of kind of soft benefit.
[audio distortion] Ed, you were talking about the SEC investigation.
Mm-hmm.
[audio distortion] You mentioned, on I believe one of your calls, debt servicing for the last filing, which I actually really appreciated. You updated the detail of the number, which is something you hadn't disclosed before, and I think that was really helpful. What steps do you take to resolve those? Obviously, that's a big overhang on the company.
Yeah. So let me talk a little bit about the SEC. And by the way, saying something is almost dormant 90 days ago and having people say it's dormant today, totally different. You know, and we've been very, I think, transparent in saying where it's gone, over time. What we're doing at tZERO and what Overstock is doing with the digital dividend is attracting a lot of interest. It's attracting interest of the market. It's attracting interest of competitors, and it attracts the interest of regulators. And I want to be careful when we talk about our relationship with the SEC. We are in regular contact with what I would call non-enforcement, trading markets, office of compliance, CorpFin, as we file our registration statement for the Series A shares, as we work on the tZERO platform, as we are getting the BOX rules book in place.
There are regulators we're dealing with regularly. A partnership may be too strong a word with those regulators. We have very fluid back and forth. And when they suggest we do something differently, we do, particularly when it advances our mission, which happens to coincide with the SEC and other regulators' mission, more transparency, more shareholder security, all the things that tZERO can do. So we talk about the SEC a lot, and probably my bad for not being clear, much of the interaction with the SEC is in this working together relationship as tZERO and Overstock, I think, innovate into the future. Now there's the enforcement piece of the SEC, and we've disclosed that, we had two requests for information. The most recent was December of 2018. We'd responded to those requests.
I think the last response on that at the time of our filing of a 10-Q was six months ago. We also disclosed that we received a subpoena from the SEC, which is different than a request for information. It's a little more formal, asking for information about the dividend and for 10b5-1 trading plans of Overstock executives. Now, I don't know why they've asked for those things. We are quick to respond. We will continue to cooperate. I learned long ago that the best way to deal with regulators, enforcement or otherwise, is to cooperate. We don't have anything to hide. We'll, and if we did, it would be found. And if we've slipped a stitch somewhere, I would rather voluntarily show what that is. I don't think we have, but you know, those move forward.
We cannot predict or force the pace of the SEC or other regulators, particularly enforcement. Is it an issue? Do we understand that it is, there's some kind of overhang? Feels like it. I mean, we understand that it feels like it, and we're doing all that we can to cooperate. But that's where things stand today, and you know, I think that's what we talked about on the earnings call and in our Q&A. Does that address the question?
Yeah.
And I wish, I wish, I wish I could say, you know, they, the SEC has until next Wednesday to make a decision. They don't. And I, you know, they'll act on their own time. So.
[audio distortion] Can you, unrelated follow-up, say you still commit funding to development of Ravencoin and 2020 probably Atari movie?
Yeah. I'll let Tom talk about Atari, and then I'll talk about Ravencoin.
Yeah. The Atari movie, they're doing their capital raise. So they're. I know they've had some committed capital, but they have a pretty aggressive number they'd like to hit. And so we're kind of in that placement stage of that asset. And as soon as that's done, we can talk about trading it. So that's kind of the stat. They're in the raise mode.
Ravencoin. Ravencoin is like Bitcoin. It's not owned by anyone. It's a kind of open-source community coin. We do have a handful of developers that work on it full-time. We own 120 million Ravencoin. We have portfolio companies in the keiretsu that operate on the Ravencoin network. The tZERO crypto wallet accepts, you know, is a uses Rav or is a place where you can buy and hold Ravencoin, sell Ravencoin. We're committed to it. But I don't want to confuse that as a corporate asset. It's an open-source community-developed platform that we like and we're, you know, involved in. Does that address the question, Brad?
Yes.
Okay. Brad.
I would like to. tZERO, it's one I think for a lot of us. I have a sense for it, but maybe not as granular as I would like. Two questions. One, between issuance, trading, and listing fees, can you break it down into what those actually look like per issuer, or what you expect? And I know with the issue side, you probably just looked at what's built. So what that looks like is that we as investors can say, "Okay, I think this is going to be how many tokens will trade on this platform over what time." And then secondly, you talk about your operating cost structure. What does the business look like at some sort of scale from a market perspective?
Yeah. As far as what fees we're charging and how much, I actually originally had some kind of estimates in there. We decided to remove them from the earnings calls. We do charge a percentage, as you know, on Dino for trading of assets. We charge very modest subscription fees for the ATS. The licensing of tech, we're essentially giving away for free, as I said. For tokenization, we charge a flat fee and a due diligence fee. We do have tech consulting as part of that. But one thing we're really looking forward to is having that retail broker-dealer license that can allow us to do private placements. And at that point, we can start charging a percentage of capital raised. But at the moment, it's they're all relatively small fees. I think we can, so we had, you know, fairly modest revenues this year.
I think we could do significant growth on top of that in 2020, maybe, maybe even 10x. So we're pretty bullish on it. But right now, it's really more an adoption play than just trying to get a ton of money coming in. What was the second part of your question was?
I think.
Oh, the cost margins. We see, I mean, very rich margins potential in this space. But at this time, they're very, very small. I don't know if I want to forecast the number, the specific percentage. Do you want to add anything?
Yeah. I was just going to add, we're exploring this at the same time as you. You know, this is a new business. We're, there's no science to exactly what we're able to charge or not charge. And what we're trying to do is, we're comfortable that we're providing valuable services, and we're trying to, as we get more and more people onto the platform, we'll be able to see where, you know, where people are willing to pay more, where people aren't willing to pay as much.
Yeah. It's really we're the only ones who have this full ecosystem. And so the licensing area, we expect significant margin, more like a SaaS company would, somewhere in the 60%-80% margins. On trading, it's more a volume play. It'll be low margins. On capital formation, we think we can get decent margins, but so it sort of varies by those three verticals, from very rich margins up to 80% to, you know, maybe in the single digits on trading and others.
When you get the retail broker-dealer license, are you going to change? I know you have to work out there, but are you going to ramp up with things? Can capital needs actually be more of a like a better term underwriter, or is that something you still need to rely on third-party?
Yeah. We're a little reluctant to do that function. We don't think that's our core competency. We may experiment with it at some point, but for now, it's mostly through partnerships on that front.
And then from a sourcing perspective, I mean, you have a huge backlog or a pipeline of a lot of that is going into existing fields. And unless you were, I know there's some verticals, not based fully on you, but in other parts of the world, whether it's film financing, obviously real estate, biotech companies, Cannabis Group, or particular, drugs. Can you talk about the verticals in which you're seeing the most traction? How do you think about sourcing deal flow and ultimately token issuance in those verticals?
Yeah. So, I thank you for getting to repeat the question. The question is, what verticals do we think we're going to get the most traction for security tokens? Where we've been seeing the most progress is probably real estate, commercial real estate. That one and the liquidity things that solve the democratization of investing in those assets seem to be really helping. So real estate definitely is a significant portion of our pipeline. We have also funds, venture capital, private equity, funds that want to tokenize. And then in the private company space, it, it's kind of a mixed bag. A lot of them are tech, obviously in tech and understand this technology. But a lot of this has been education. We're starting to see some maybe traction in pharma. But it's, it's mixed.
But I would put real estate at the top of the list.
[audio distortion] Just to follow on that, can you describe, I guess, the venture capital, private equity funds, markets, user base? How many prospects do you have?
In funds?
Capital?
There's really two, like, I can think of off the top of my head that we're, that are in progress right now. They are actually existing assets that we are doing due diligence on and hope to have trading on the platform. Brooke is on the line. She can probably talk about there are other funds in her pipeline. Brooke, I think you know which two I'm talking about, the existing, assets. But, how many more other funds do you have in your pipeline?
And just to make sure that I'm, pardon me, that I'm clear on the question because I couldn't hear it, is just in terms of listing a fund, a financial fund, what do we see?
Yes.
I, you know, would say there's a handful. You know, in general, I would still say the pipeline skews more towards hard assets and operating companies. But there are definitely a few funds, you know, again, things in the you know potentially in the real estate space or just a more you know kind of a more general investment fund, where people are exploring it. And it's certainly something that you know folks are definitely interested in the idea of being able to provide some liquidity for investors that you know doesn't require a very heavy lift on their end. But I would not say that's necessarily you know what I anticipate to be a huge driving force going forward.
I do think, as Tom pointed out, real estate and some of the other, operating companies, I still expect to be the majority for the near term in terms of what we see for assets.
Does it fall into that?
Sure.
In terms of the actual VC fund or fund that would hypothetically be using a platform, is that typically a fund that's gone past end of its life and you have trouble liquidating the assets? Just looking for, is there a successful walk to put it in, in this case?
I don't believe, sorry, the question was, are these kind of end of life? What's the term you used? Kind of.
Typically, a private equity fund would have a 10-year life.
Right.
It provides some assets that maybe they spawn a few years later.
I don't believe so. Brooke, the question is, are a lot of these funds kind of in their at the end of their life cycle, that are looking to create some liquidity and have access to capital? Or is it more, how does it vary?
I would say in general, the way most people, not just funds, but even for existing operating companies or, you know, other folks who are coming to us, the biggest driver is not necessarily things that are end of life, but that there is something where there are existing investors, be it a broader pool of investors or be it a handful of, a few select investors who are looking for liquidity for a variety of reasons. In some cases, it's, you know, an operator, a real estate developer, a corporate looking to be able to deploy that capital elsewhere, but they certainly are not looking to cash out the asset.
In other cases, it's folks who maybe been, you know, had an investment and been invested for a while but are looking for liquidity, you know, because they don't, their timeline doesn't necessarily match up with the horizon of the asset, which is exactly in line with, I think, what we've expected, the idea of tokenization to be able to provide, and give some liquidity that allows shareholders to exit at various points in time versus forcing everybody to be, you know, on the exact same time horizon for an investment.
What's the typical size of the funds is the next question. Brooke, do you want to answer? A lot of these, the two I'm thinking of are newer funds that have invested heavily in blockchain. I'm not speaking about Medici, although that is an interesting application.
Absolutely. It's an interesting one.
But Brooke, what? Can you answer that?
I would say broadly speaking, again, not just limited to funds, but really the entire pipeline. In general, we're looking at people who want to float somewhere in the $25 million to about $100 million area. It tends to be the sweet spot. We have folks who are, you know, maybe slightly smaller, but we really don't go much smaller than that. And we do have folks that are, you know, several hundred million up to, you know, even $500 million. Those are certainly more outliers than the norm. But that $25-$100 million area, as a float tends to be where most folks are coming out right now.
Last question.
Sure.
What's the sales process associated with, or is she going out to funds and basically pitching them? Or is it all inbound where people are coming to you for the first solution?
So the next question for you, Brooke, is what's the sales cycle? How are these mostly inbound requests or are you going out and finding these businesses or companies?
It's definitely, it's definitely a mix. And I'd say even in the time that I've been here now, about four and a half months, it has evolved to some degree. What we find to be probably the most effective sale is with some of the relationships we've built with, you know, for champions of this technology and what we're trying to do here, be it, other folks in finance, be it some of the folks looking to list on our platform, be it, you know, blockchain enthusiasts who see this as a way to modernize capital markets. Really, once we've built some of those relationships, they often, you know, will make introductions to others where they think this could be, something where there is a level of interest. There's a bit of a word of mouth, for lack of a better term.
So it's a bit of a hybrid, versus us going out and trying to pick up individual issues one by one. We certainly, you know, spend a lot of time having outbound conversations, but, you know, kind of cold calling individual companies one-off is, I think, most folks could understand, is generally not a very efficient method of bringing folks through the door. So it is really working to build these partnerships, building very deep relationships with respected people in both the finance, legal, and technology worlds who appreciate our technology and our trading liquidity. And then there are some inbounds, you know, completely unsolicited. You know, there's a good volume of those. I would say, you know, the quality of those issuers, or just the fit for our platform tends to be somewhat mixed.
But there's no question that our name and our being known for the level of liquidity that we have for this space definitely helps bring people through the door as well.
Yeah. I'll just comment on that too. I, you know, I do a lot of evangelizing in the, for the, in the blockchain community. Very rarely am I at an event where someone doesn't come up to me and says, "How can I use tZERO?" I'm just thinking the last two years I've been at San Francisco Blockchain Week, someone I was there last month and, you know, made a referral to Brooke the very next day. And someone in my office last week who I'd met at San Francisco Blockchain Week a year ago, we've ridden back on a plane together and had a long conversation. He's at a point now where he's interested in tokenizing his business, second referral to Brooke. So I think we have a good brand at Medici Ventures. I think tZERO has a good brand.
I think that people who are interested in tokenizing know where to come. I think the next step is to get more tokens out there so that those that are interested, that universe of people interested in tokenizing goes from, you know, a small pool to an ocean.
Do you see someone that's too much time with the team like the evangelical community that's kind of interested in some of this stuff, you know, sort of the blockchain funders, the guys who have the blockchain world building? That what I'm thinking about is generally the competition with the tZERO from secondary markets, right? It's providing liquidity to people that are interested in tracking.
I do.
Steve?
Yeah. Well, I'd like to respond to that one, Nick. I think that the short answer is that that is where it definitely was a year ago. It's really moving in my mind. I think, you know, most of the most recent one that we announced. I'm sorry, this was.
River Plaza.
River Plaza. Thanks, Tom. It's a perfect example. Nothing to do with the blockchain community. The real estate people are literally finding us. They're very interested in this. And I think that, while some of the funds may be more related, like Tom was saying, and they were people who came to us earlier, I would say even over the last six months, there's been a very marked movement into much more traditional spaces, you know. And when we brought Brooke on, I think that more people are finding ways to find us that maybe didn't know how before. I don't know, Brooke, what's your take on that? I don't want to answer for you.
It sounds like the question was it something about how much are folks in the blockchain business versus traditional assets and companies?
That's right. Sorry, I didn't repeat the question.
Okay. No worries. Yeah, I would definitely say the majority of the folks we speak to really are not connected to blockchain. There are certainly a sizable number of assets and companies that are, and it's, you know, natural, and it's a pretty easy, you know, selling point for them why you would do this. But I think ultimately part of it goes back to where we're looking to focus our platform. We're really looking for what I call high-quality, high-grade institutional-level assets, right? Things that are going to appeal to both institutional and retail, but primarily more the institutional investor. Things with size, scale, liquidity, operating track record.
While there are plenty of very good companies in the blockchain space, it is a newer industry, and it is something where there's generally, you know, some smaller, younger companies, companies where the track record may not be as proven. And so for them, sometimes it's more of an exploratory conversation or something they're looking at doing down the road, or they're not in a position to raise as large an amount of capital as some of our other more traditional issuers are. So, we do find that the conversations in terms of near-term assets and things that make the most sense to get on the platform in the near term and people being ready to go out there and digitize and trade does tend to skew more to the traditional assets.
I think as blockchain continues to evolve as an industry, as, you know, digital securities continuing to evolve, that mix will likely shift a bit. But it does have somewhat to do with the focus of our platform versus, you know, I think some other folks in the space who are maybe focused on kind of smaller, earlier-stage companies as well.
I think part of what's going to happen here is we need some successful trailblazers. I think what we're doing with River Plaza is going to be a trailblazer in the real estate space. I think what Overstock is doing is going to be a trailblazer for public companies adding a security or migrating a security. I think what Atari is doing is going to be seen as a way to fund movies and other new businesses. I think as trailblazers jump into this, it's not going to take long before a trail becomes a highway, and that it's a paved highway that lots of people can travel on pretty easily. We're coming up on the end market, two hours.
I want to comment. Friday will mark three months since I've taken the helm. Anytime you have a two-decade-long founder leave the business, there are changes in culture, and there are, there can be seismic shakes. The ground is settled. The company is stable. As I mentioned at the beginning, there's an increased emphasis on focus, doing the number of things, which usually means fewer, the right number of things and the right things to get us to sustainable, profitable growth in retail and as an enterprise is going forward. I said on the, at the end of the earnings call, and I'll say at the end of this analyst and shareholder meeting, I get up, my head pop out of bed excited every morning, and I think that's true for many, if not most of the company, and when my head hits the pillow at night, I'm exhausted.
That's the way owners should want their business leaders to run. That's what we're doing. Allen, Brad, Tom, Elliot, and Sean, thank you for being analysts, for studying our company, for being thoughtful about what you write. We're going to try and do these, analyst days more frequently. We want you to be informed so that you can do your jobs better. And to our shareholders who've shown up here and have listened on the call, thank you for your interest. We're trying to be good stewards of your investment, and that's why we're working so hard. Know that we're focused, know that it's stable, and know that we're moving forward toward our goal of sustainable, profitable growth by the end of next year. Thanks for coming, and with that, we'll end.