Good day, ladies and gentlemen, and welcome to the Overstock.com Investor Education Session. At this time, all participants are on a listen-only mode. If anyone should require operator assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mr. Rob Hughes, CFO. You may begin.
Thank you, and welcome to our Investor Education Session. Joining me today is Dr. Patrick Byrne, founder and CEO; Saum Noursalehi, president of our retail business; and Jonathan Johnson, our chairman and president of our Medici business. Let me remind you that the following discussion and our responses to your questions reflect management's views as of today, November 29, 2016, 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 Form 10-Q that we filed on November 3, 2016. Please review the safe harbor statement on slide two. During this call, we may discuss certain non-GAAP financial measures. Despite the company in 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.
Great. Thank you very much, Rob. Let's turn to slide four. First, we're going to just describe our retailer business that we know and love so well. On slide four, there's a model, the IPACE model, that says that retailers have five dimensions upon which they can compete: information, price, assortment, convenience, and entertainment. And the theorist who put this together, Kirthi Kalyanam, our board of directors, is a professor out in Santa Clara. And his argument is that companies, retailers, have to be great, have to compete by being great at one and maybe two things. We think we can compete on three, and those are price, assortment, and convenience. To turn the page, I have hinted about this in previous quarterly board calls. I've hinted about how our business model is really quite dramatically changing, but you've had to really pay attention to the site to know it.
Now I'm unveiling the secret. Our SKU count is going up dramatically, and this is setting aside BMMG, which is another SKU, but just in terms of actual products. We're up to 1.8 million now. That's four or five times just three years ago, and we will be at 5 million in 2017. We spent a great deal of money and time and years building the infrastructure, the logistics infrastructure that lets this be possible. So we have solved the assortment question. We have solved it in a big way, and now I'm going to turn it over to Saum to talk about how we are solving it on the price and convenience dimensions.
Yeah. So on price, we're really focused on cost-cutting out of our operations and supply chain and passing that on to consumers. So strategically, we have several initiatives around that to optimize that. But in addition to that, we're working on a reverse auction within our systems, which will allow our incentives to be aligned with our partners. And by giving us favorable - I don't know how much we want to say on this, Patrick, but.
Not too much, but this went live in late September. It's the piece I always felt that was missing from our business model, that is to say an auction somewhere in the supply chain. Because we had reached the size that it just doesn't scale to have people haggling on the phone trying to get the best deal, we created something we designed with the help, actually, of a Stanford economist, designed an auction for our suppliers that incentivizes them to shave costs down and so forth. How exactly we do that, we're not going to share it, but I can tell you that people are taking to it in a big way just in the last, well, it was introduced less than eight weeks ago, and a number of partners are really jumping on this.
Right. And the last pillar is convenience. And I would say what Patrick mentioned with assortment and price are only possible by the technology we've developed in search and personalization. And several years ago, we took this in-house. We basically tried every product out on the market, including Google, Adobe, RichRelevance.
Third parties who do search.
Third parties we use. And we found that we could do it better ourselves. And so we've only, in the last few years, built the capability to really grow our assortment, as the chart shows here, without impacting user experience.
Well said. So that is just our core retail business is doing fine, ticking over nicely. Because people always ask us about Wayfair, I did want to throw up a couple comparisons. Look at slide six. Wayfair's ad per visitor versus ours. And this data comes out of Hitwise and our financials. And they basically spend two and a half times, Wayfair spends two and a half times what Overstock spends to draw a visitor. And if you turn to slide seven, you see how that is working through this quarter. Our sales are, I mean, our visitors have really just stayed a notch under Wayfair's and now have even crossed it since late last week. And I just think that's useful to point out, given that they spend two and a half times what we spend on marketing.
I'd also point out we've burned $150 million of capital in our history. I'm not quite sure how to read their balance sheet because there seems to have been some event a few years ago that - but it looks to us like they've burned sort of $400 million or more in their history. We've burned about a third of what they've burned, and we have about the same size, and we spend about 40% of what they do on marketing. That's our business. Those three - we organize all our efforts internally. Saum was speaking around that price, assortment, and convenience. We think we have a knockout offering in each one that are just getting better and better. With that, I will now get to blockchain fintech.
Jonathan, why don't I turn—so within Overstock, we now have taken the cash flow and created a blockchain incubator/venture capitalist, not just blockchain, but fintech, and they're in businesses that are all related to something we were already doing, but Jonathan, why don't I turn it over to you to talk?
Thanks, Patrick. If you look at slide seven, it shows the emerging structure for Medici Ventures, the wholly-owned blockchain subsidiary of Overstock. We have five companies in which we've invested in. tZERO is the one which we have the largest holdings in, and it's the one on whose platform we're doing the rights offering that we'll be talking about shortly. It's blockchainizing the capital markets. This effort to do the rights offering, I think, is yet another example of the blockchain in use. And we continue to talk with banks and others about how we can, through tZERO, service their market needs.
The other companies that Medici Ventures has invested in, we've talked about on our last earnings call, are PeerNova, which is building immutable systems for large-scale commercial applications. Bitt, which is a company in the Caribbean that's providing a quick and secure and easy way to manage funds. It will really, I think, be a crucial player in banking the unbanked in many developing countries. We've invested in IdentityMind, which is a Silicon Valley-based company that's helping construct electronic identities and is working to do that on the blockchain as well. And then the new company which we signed a term sheet for and are in the process of finalizing our investment is SettleMint. It's a Belgian-based company that's using the blockchain to develop solutions for voting and land titling. We have a strategy for investing in different blockchain companies.
We think we see the first look at deals all the time. We talk to two to three potential investment companies a week, at least, and we see lots of opportunities, and we're trying to remain focused.
Yes.
Anything you want to add to that, Patrick?
Just that we really do get first look at so much going on in the blockchain space because of our historic affiliation with blockchain, with Bitcoin. So we are very well regarded in that community. And I can see even Medici at some point might become a great vehicle for someone else who wants to get a portfolio of blockchain investments that they would not be able to get access to on their own. And we seem to be able to get into every single deal you're hearing about. Okay. Thank you, Jonathan. Let's go to slide 10.
Slide 10 is the march toward the first public blockchain equity offering, this rights offering that we're talking about today. Just to review a little bit of history, back in late 2014, Overstock announced its Medici blockchain capital markets initiative. It was in June of the next year that we issued the first crypto bond. It was a private placement bond done on the blockchain. Two months later, in August, we did a publicly traded crypto bond. Both of those were small, but they were testing the pipes, so to speak, to make sure that the blockchain worked for trading debt. We then announced our acquisition of SpeedRoute and other companies. These are the routing and execution companies and the broker-dealer that we now own in New York. In late 2015, the SEC declared effective our universal shelf, which allowed us to issue digital securities.
Throughout the year, we've announced deals with our transfer agent that was Computershare, the information agent, Georgeson, the broker-dealer that's doing this crypto security Keystone, the custodian, ETC. And then last month, we filed our prospectus supplement on the 14th of November. That is this rights offering. The subscription period began on the 15th of November and will end on the 6th of December unless we choose to extend it. But we are in the process of doing what we call our Chuck Yeager moment, in effect breaking the speed of sound by being the first company to offer blockchain-based crypto security.
We do think this is a red-letter date in history. In a decade or two, everything's going to be blockchain, all securities, maybe all money itself. People are going to remember the first public issuance of a blockchain security. And we did ours. We are doing ours from the beginning, right down the middle of the fairway, working with the SEC and FINRA and getting everything. This is not Mt. Gox. We've done everything within the four corners of the U.S. regulation. It's been quite costly to do it that way, but that's how we wanted to do it. Next slide.
The next set of slides describes the two series of preferred stock that we are issuing in the rights offering. Slides 12 and 13 describe the Series A Preferred Stock. That's the digital share that will trade on the tZERO platform and on the blockchain. It will trade using PRO Securities ATS. In order to purchase the share, an investor must open an online brokerage with Keystone, the broker-dealer. The only broker-dealer that's currently plugged into the tZERO platform. We do invite other broker-dealers to contact us and get plugged in. But we do think this is the future. And being able to have your clients trade in blockchain-based securities, we think, is a good idea. All access to the Series A will be through a Keystone account for now. Digital wallets will be created when you open your Keystone account.
And those wallets will have the address and entire trading history in your shares and in all Series A Overstock shares. One thing that's unique about our digital shares is that all trades will settle on the same day as trade. I think most people know that historically, trades settle on trade plus three days or T plus three. With these shares, the trade is the settlement, in effect. And that is why our subsidiary is known as tZERO. It takes zero days to settle the trade. There are restrictions on ownership for the digital Series A shares. It must be a U.S. resident. The shares have to be held in the name of the beneficial owner. There are no street name or other nominee accounts.
Both the Series A and the Series B are substantially similar to our common stock, but they all have a preferential right to an annual dividend of 1% of the subscription price. Subscription price will be no more than $15.68. Overstock can redeem the Series A and the Series B shares for three years. And Overstock can convert the Series A shares into Series B at any time. There's no minimum subscription. We'd ask if you want to exercise your subscription rights, you talk to your broker. You set up an account with Keystone, and you can exercise your rights at the website mydigitalshares.com. If you have any questions, you can contact our information agent, Georgeson. The phone number is 866-432-2791, or you can send an email to overstock@georgeson.com. On the Series B shares, these are non-digital shares. These are paper shares like our traditional common stock, ink.
They can be redeemed for three years. They will trade not on the NASDAQ, but on the OTC market, the over-the-counter market. They're not subject to the ownership restrictions that apply to Series A. Again, trading may be limited. You can get more information by talking to Georgeson. For those that did not own Overstock shares on the record date of November 10th, the secondary market for both the Series A and the Series B will begin on December 16th. If you would like to purchase in the open market the digital shares, the Series A shares, you will need to open a brokerage account at Keystone, and you can do that by going to kccbd.tzero.com. Patrick, any questions or anything to add on that?
Just that the preferred has really been designed to be as close as possible to a share of common. It can, of course, be exactly a share of common for legal reasons. But the idea is to make the blockchain have the legal rights of common, plus a little bit. So ideally, one might expect it to trade a few quarters above or something. But who knows? It's going to be interesting to see where it trades. Nothing left on that. Jonathan, what else do you want to?
I think that's it. There's some questions we'll address in the Q&A, but that's really it.
Okay. You want to go to general corporate information?
Please.
Highlights. I'll just do year to date. I've pointed out in the last quarterly conference call that our growth, I think top-line growth was sort of 3% in Q1, then 8% in 2013, and I've indicated that that trend would continue. So you can kind of figure out what our growth is for Q4. Pardon me. I think that getting Overstock retail having a pre-tax income of $26 million year to date, I was thinking that it'll be $40 million-ish this year, but we've had that $4 million setback at a mark of VIP disclosed in the last quarterly call, and it also has a large settlement in our numbers this year to our benefit. My goal for next year is that Overstock can have the $40 million pre-tax income Overstock retail without that loss of settlement. I think that's reasonable.
Medici has cost us quite a bit more than we expected this year. We are the iceberg. We are plowing the way forward in terms of getting all this built in a way that the regulators are happy with. So we are carrying a lot of load in that regard. But I think the Medici investment is, unless you're living under a rock, you see how valuable this is. And the $75 million operating cash flow we have in this past year, pardon me, we've been building a building. So that hurt our free cash flow. But sort of going forward, I think you can expect that these growth rates, sort of $75 million operating cash flow, and it costs us about $25 million the ongoing capital expenditure. Our typical capital expenditure costs us about $25 million.
I think that we can, and I guess at different growth rates, at 10% growth, things should look next year like $75 million operating cash flow and $50 million free cash flow. At higher growth rates, that might start looking like $100 million. On the next slide, slide 18, Saum's great work has a. I screwed up marketing. Again, last year, in the last part of last year, Saum has taken over and has been rebuilding it. Saum, anything you want to say?
Yeah. I'd say late last year, early this year, we had some challenges with a Google algorithm change. And the team reacted nicely and had been focused on customer experience or the convenience that we mentioned earlier. And growth has really climbed back. Nice to see.
Yeah. Next slide, 19. Now, here's the cash flow. So $75 million, but we put $50 million into a new building. We're not doing that again. So really, we run on about $25 million depreciation and normalized CapEx. Next slide. You know me, Jonathan. You know these people. Never had we had an executive team like this. Really, not a flat spot on the wheel. So let's go to questions.
Patrick, we've had several questions come in. Some relate to the offering, some relate to the general business. I'll just go through them as they've come in, and you can say who you'd like to answer them. First question is, what went as planned with the rights offering and what didn't? What surprises were there?
I'd say the expense, the time and the expense was higher than anticipated. It was also more difficult than anticipated to form alliances with various companies already in the ecosystem. And it really took us all year to get tied together, integrated, and in agreement with our friends who were helping us in this offering: Georgeson, Computershare, ETC, Keystone. It took the whole year to get those alliances forged and the connections built.
I would add that the technology did go as planned. Our dev team has worked wonderfully, and the technology, we really like. I also think that as hard as it was to initially get some of this declared effective and to work with the regulators, I think one of the surprises is that the regulators get that this is the future, and particularly as we've communicated with FINRA back and forth with questions, their questions are intelligent, and I think they see where the future is going.
Yeah, I would say intelligent and not obstructive. When you consider our history with the powers that be in Washington and the way we were fighting with them 10 years ago, I think it shows a lot that they actually, for the last two years, have been quite productive to work with. They understood what's happened is they've come to understand that a blockchain capital market makes impossible people doing the things that the regulators are in the business of preventing anyway. They've really turned to it because they understand this lets them create a capital market that people can't cheat in all kinds of ways they've cheated.
Another one of the surprises or what maybe hasn't worked as well as we thought is getting the information on the rights offering out to our shareholders through the broker-dealers. Whether it's because other broker-dealers don't understand the offering or have their own interests in mind, we have been answering shareholder questions. And Georgeson, our information agent, has been answering a lot of questions. So if there are any Overstock shareholders who have been having difficulty exercising their subscription rights, contact your broker, but also contact Georgeson so they can help walk you through it.
Right. I've been hearing stories like brokers telling clients, "Oh, if you want this, just tell us, and we'll go buy it for you. You tell us how much you want to buy." That's not how it works. And they're lying to you. The brokers who are saying that are lying to you. Just like, frankly, the Google IPO was really sabotaged some years ago because people didn't want to see the Dutch auction catch fire. Brokers are telling clients, you just tell us, and we'll put in an order for you." And it does not work that way. You need to open an account with Keystone. I think there's a great opportunity. I'm aware of, I think, one large investor whom my sense is from the last time I spoke to him is out there accumulating.
I just have to point out, but our stock is so thinly traded that you can't accumulate very much before it moves on you. Someone who wants to accumulate, now you shut me up, Jonathan, if I'm saying anything I shouldn't. Okay?
Oh, I will.
Someone who wanted to accumulate now, remember if you have a million shares, you're getting the right to buy 100,000 in the blockchain offering. But that's just the first cycle of the rights offering. If there's anything left over, which I'm sure there will be, you can buy more.
We are allowing our investors to exercise their full subscription rights. So in your example, if you have a million shares and 100,000 subscription rights, that would be purchasing 100,000. But you may also oversubscribe. So if the full amount isn't subscribed, the board may issue up to what's been authorized as an oversubscription.
2.5 million shares.
Two million shares total is the max. It's a million-share offering up to two million.
Right now, I mean, I see our common is trading at $1,770. I saw this morning. We have set a maximum price on this offering for what? What is it now?
1,568.
So if you accept the premise that these blockchain shares are the same as common, or at least as good as common, they have the same liquidation preference, and so forth, and they actually have a little...
Dividend.
Dividend, 1% dividend, that they're at least as valuable as the common, then they're at least as valuable as that 1,770. You can go out and buy all that you want of them in this offering at whatever, 1,564?
1,568. All that you want, subject to our cap.
Right. So for that large investor out there who I know, I suspect, is listening, he was complaining to me not so long ago of not being able to accumulate to his desire. He can now step in and oversubscribe in this and get an accumulated large position and do it at a, what, a 10-ish% discount to a 9-ish% discount to.
That's good. That's good. So next question that came in is, will there be a separately traded ticker for the preferred shares? The answer for the Series A digital shares is they will not trade on an exchange. They will trade on the tZERO platform. The ticker will be OSTK.D. D as in digital. The Series B shares will trade on the over-the-counter market. They will have a separate ticker symbol, but it's not yet been assigned. The over-the-counter market does that close to the time of issue. The next question is, now that you've completed the offering, do you have a pipeline of transactions for other companies for other additional offerings?
Why don't you take that?
So we've been so focused on our deal that we have not created a pipeline. The dealer manager in our deal has been talking to other companies. We think that once this has been done and done successfully, there'll be other companies to line up. But we have not been actively creating a pipeline yet.
I might even say we've been discouraging a pipeline. Last summer, we realized there's an awful lot of people floating around talking about this, but they don't really have anything to show, and we decided, rather than (pardon me, I have a cold) rather than get knee-deep in negotiations while we had yet to finish our technology, that we should just stiff-arm those relationships until we got this built and done and live and showing the world indisputably that we have something that everyone else says they're working on and a couple of years out, and we not only have something, we have it, and it meets the standards of the United States Securities and Exchange Commission, so we've really been stiff-arming those kinds of conversations.
But as soon as this gets done, I think it is time. There's some very large entities we've had conversations with, and we've said, basically, get back to us after we do this deal. And I think that I'll give you a lay of the strategic landscape is in each capital market around the world, there are the broker-dealers, the CSDs, the central security depositories like the DTCC, and the exchanges themselves. And what's happened, I would say, in 2016 is everyone's gotten the joke together. They've gotten the punchline, which is that this is a disruption event for their industries as they currently know them. Someone's going to get a hold, and each capital market is going to make the right play with blockchain and be able to disintermediate the other two. And so I've been all over the world this year talking to participants in capital markets.
And it's basically the same story in each one. It's like a Game of Thrones. There are three people, three entities vying for who's going to end up with that technology. So that's something to be. We'll be pursuing that area. On the other hand, we like the pre-IPO market. There's so much logic for a pre-IPO company that doesn't want to go public, but for, say, a Silicon Valley venture capital deal, for us to tokenize it. And so before they're actually going to the public, that they could still. It's something like the second market business model. But we can do that on our system, and we think it makes so much sense. We also think it makes sense for issuers to go public on our system because your stock can't be manipulated. What are the advantages of going public on this system versus a current traditional system?
The digital shares cannot be shorted or manipulated through naked short selling. If we need to go back in our history.
Abuse of the option market maker exemptions.
Abuse of the system. We also trade and settle immediately. Anytime you take out middlemen and take out time in the middle, I think you've created a more efficient and less capable of being abused market.
And we also take out, we think, 80% of the expenses involved in the whole settlement process will fall out of this. So anyway.
Let me ask the next question here. Do you need additional regulatory approvals to leverage the technologies to raise money for other companies? I'm not getting a first shot at that. As far as our technology, we don't think we need any more regulatory approvals. Patrick said earlier on the call, we've gone straight down the middle of the fairway on this. Other companies would need to file registration statements like Overstock did that allowed for the issuance of digital shares. But as far as the regulatory work on our side, on the tZERO side, we think it's done for U.S. markets. Next question. Do you plan on committing capital to provide liquidity for shares of other companies following stock offerings using your technology?
We do not.
Yeah. Our goal is not to become an investment bank. We want to be a technology company. Question. Have a significant number of shares traded since the rights offering was completed? The rights offering has been open, but it's not completed. So no preferred shares of either the Series A or Series B traded yet.
They will. If all goes according to Hoyle, they will actually start trading on December 15th, right?
16th.
16th. So they will get issued on the 13th?
15th.
15th? And then trading on the 16th.
Next question. To what extent, if at all, do you plan on working with legacy investment banking institutions on future transactions? Patrick, here I would say your comment on the pre-IPO or crowdfunding market. We know there is lots of interest there. We've been talking to banks, both traditional and investment, working with them. We see banks using our technology to build their business.
Yes. And we really want to be in the, our revenue model is to license this. There are countries who have invited us to go and set up a blockchain exchange in their country and run it. I don't really see us doing that. I'd much rather license the technology to the people out there.
That goes to another question that came in. What are the economics for tZERO for future transactions leveraging its technology? And like you said, we see this as licensing. There may be a set fee or a transaction-based fee, but we're not going to be in the investment banking business. We're going to be in the licensing business.
Right. We'll license it to people in the investment banking business, and I think that, well, we have, so for example, and it's not a big deal, but it's worth, we can mention. We have an MOU. Can we mention this?
With a customer, a potential customer? I would not mention this.
Okay. Sorry.
I would not mention this.
Yeah. We have not been pursuing these other than sort of keeping the conversations warm. We've not been pursuing them because we wanted to get the actual technology done.
Right. What are our thoughts on making additional acquisitions of traditional financial companies or fintech companies to round out our skill set as it pertains to future transactions? Well, I would say we look at deals almost every day. The trick here will be making right acquisitions, not just making acquisitions. And so we are looking for people, companies that round out what we're doing, whether it's allowing for, we've looked at companies that would allow for after-hours trading and different things. I think you will see us active in making acquisitions to round out our skill set. Patrick?
Yes. Agreed. And I can give you this, I think that we're far enough along. I'd like to share the strategy behind the Bitcoin, the blockchain investments. As everybody should know by now, there is a new age coming to mankind. I think it's going to be more disruptive than the way the internet disrupted newspapers. And in this new age, we picked out some really fundamental processes of the new age we want to have investments in. One just in sort of industrial strength, underlying ledger. One in blockchain meets central banking. One in blockchain meets capital markets. And then one in KYC, blockchain meets KYC, AML, identity. And then lastly, voting, blockchain voting. Because even in this new age, one hopes that the consent of the governed still matters.
So we have been really, for over a year, building a portfolio of investments that give us a ringside seat on those processes. And I think they're all, at this point, we have an investment in each one of those processes. Land titling, I would slide in there too as the other fundamental process of the new age. But now that we have those assets invested in, I'm not sure I have any great desire to go keep on making investments. On the other hand, we are in such a catbird seat and that all these people, the premier companies in the blockchain space, are coming to us—and offering chance to invest at their current rounds just because they want us involved. We developed such a nice name in this.
So, you might see small ones, but I don't have any hankering to do to deploy the kind of capital we've done now. You, Jonathan? You may.
I do. I do. I think we see real opportunity in the bounds and companies with bright futures. So Medici Ventures will be bringing to the Overstock board opportunities for it to consider. Just to clarify one thing Patrick said as he was talking about our strategy. KYC stands for Know Your Customer and AML are Anti-Money Laundering laws. There's a question that's come in that may have been banned at some Thanksgiving dinner tables this year. But the question is, does the new Trump administration in Washington, D.C., change your view favorably or unfavorably on the regulatory environment for fintech, including tZERO?
No opinion for me.
I have an opinion. I don't think I could have imagined heavy regulatory burdens that we saw over the last eight years. So personally, I think we have a brighter future when we're looking at regulation. But who knows? Here's another question that came in. Do you plan on considering a sale-leaseback of your new headquarters? These calls.
We have considered it. We have considered it. If we could find some insurance company that would give us to do it at 450 basis points and we give them a 20-year lease or something, I think we would do it in a heartbeat. But cash is ample at this point. And I would, so yes, we do plan on considering it. You can assume that we will be considering it early next year.
I would say in our board discussions that we have a lot of discussion around how to manage the balance sheet. That's been considered and will be considered. What are your plans for using excess capacity at the new headquarters at the Coliseum? Do we plan on ramping up fulfillment effort?
No. Not like that. Our new HQ doesn't really have anything to do with fulfillment. The fulfillment's still out at the warehouse on the west side of town. We're about 60% occupied in this new building, I think. I think as we grow organically over the next however many years, we'll go from being quite spacious with 200, what do we have now, about 180 sq ft per person. We'll let that, as we fill it in, it'll drop down to 130 or something.
All right. We have, I think, about 1,100 people in the building today. We'll be closer to 1,500 in January when we move our call center folks here. But we have space to continue to grow, and we expect to continue to grow.
Yep.
Thoughts on efficiency of our marketing spend?
Saum.
Sure. Well, I think our marketing spend is actually very efficient when you look at our competitors. But that said, we can always do a lot better. And we've invested a lot of G&A in data guys and data scientists. And so we're finding a lot of opportunity for smarter personalization and segmentation, which will help our marketing efficiency. In addition to that, as we mentioned, we're focused a lot on our mobile and website experience. And we think through improvements through that, our marketing dollars will go a lot further.
Next question, and Patrick, we may want to have the cat's got our tongue on this one.
Okay.
What is our goal for sales growth in Q4 2016?
What's the cat got your tongue?
That may be a vague answer, but it's actually accurate. It provides the best deals and holiday shopping experience online.
Yeah, and like I said earlier and in the last quarterly conference call, our quarters this year have been three, eight, 13. Now, you may have to take off your shoes to calculate what the next number in that series is, but so far, it looks like that's what we're going to hit.
Okay. Should holders of the Series A and Series B expect to be entitled to participate in any spinoffs that might be distributed to common shareholders in the future? The answer to that is yes.
Absolutely.
The answer to that is yes. This is like common stock in just about every respect. If dividends are declared on Series A and B preferreds, are there any characteristics of those stocks other than perhaps implicit scarcity value that might suggest they would trade in the secondary, where they would trade in the secondary market should one develop, a lower dividend yield than existing preferred stocks of other companies? On this one, Patrick, I'll be mad. I'd like the answer first. I think we can't predict where this will trade. We've got a whole section of risk factors in our prospectus supplement. We'd ask our investors to look at that. I don't know if it's going to trade up or trade down. I can argue round or flat.
I would add that in the eyes of the gods of economics, I think that this should trade at whatever the common is plus 50 cents because it's exactly, it's a share of common stock with this one little, you get what, an extra 15 cents a year in dividends. So if everything works normally, I think it's going to trade at the, it would trade at the price of common plus a nudge. It's just going to be very interesting to me if it trades lower, if it trades, if a gap does widen. I think there will be probably some academic papers in it.
You have two versions of a stock, one in our current national market system with all kinds of shorting and who knows what else involved, and another version of the stock that's essentially the same as a bearer certificate from the Old West where people really putting up money and really taking the stock. It's going to be very interesting to see if there's any divergence in the pricing.
Fair enough. We'll see what the gods of economics say. I would remind our shareholders to look at the risk factors and the prospectus.
Yeah.
Can I participate in the rights offering if I am a non-U.S. resident? The answer to that is yes, but you may not buy the Series A preferred unless you have been a resident in the U.S. for a minimum of one year and have a valid Social Security number. I direct non-U.S. residents to page S49 of our prospectus supplement. It talks about how you may subscribe or not subscribe to Series A and Series B preferred stock. We've got two more questions. What will happen to people that were short shares of common as of the record date? Do they potentially have an obligation to cover shares on the blockchain exchange?
It reminds me of a Buffett story.
That won't be the first time.
Buffett was once, I was working on a deal, and the guy on the other side of the deal was telling me, "But if I do this and this, I have to pay this tax bill, and then the tax bill does this," and it makes it, he kept referring to his taxes. And I was asking Buffett for coaching on how to even respond. And Buffett said, "Tell the guy, 'I have enough trouble figuring out my own taxes, let alone your taxes.'" He said, "Don't ask about your taxes. I have enough, we've had enough trouble figuring this out. I probably should have used some of my extra time looking out for the shorts and what their position is going to be and how they, but I neglected to do that, oddly enough.
Yeah. I guess I would say I don't know either. Like Mr. Buffett, I have enough time figuring out my own taxes. I do know that if my shares had been lent, and they are not, I would still have the rights of a shareholder, and I would want to be able to exercise my subscription rights. Last question. It's a series of questions. It's about something here that he saw in the prospectus. It sounds like PRO Securities is an ATS, and I see it's listed on both the SEC and FINRA websites as an approved ATS. Since this will be the first transaction on the blockchain and the digital security, did the SEC approve PRO Securities ATS trade on this new exchange, or is the approval on the SEC website for U.S. regular exchange?
If the SEC did approve it, like I think, does any other ATS have this approval, or are you ahead? Are you way ahead? Figure this out from the prospectus.
I believe we're the only ATS which has what's called deemed approval from the SEC. Now, where we laid all this out a couple of years ago, what we were doing, a lot of back and forth, and they had the chance to object. The way it works with ATS regulation is you end up saying, "We're going to do this," and the SEC has a certain amount of time to say, "No, you can't." And if they haven't done that within a certain length of time, they have deemed approval. And I've not heard of anyone else having an ATS with deemed approval.
Nor have I. I do think both on the technology front and on the working with regulators front, our combined team is significantly ahead of others.
I think significantly ahead and maybe, as the question indicates, all the way ahead. I mean, I don't know anyone else who has an SEC-approved ATS.
So those are the questions we got ahead of time. Mark, were there any questions that have come in during the call? The answer is no. Patrick or Saum, anything you'd like to add before we sign off?
These guys, Saum, you go first.
I have none.
These guys have coughed up lungs to get this system built this year. It is really a red-letter date. I think that people are going to look back at this as the world's first public crypto security. It's a big event. We're not planning on raising a significant amount of money. It's just to show the Linus Pauling story, was it? The guy who shot himself with his own polio vaccine to prove it worked. That was Linus Pauling, was it?
Jonas Salk.
Jonas Salk. And again, it is an opportunity. I see the name of another large investor who has talked about building his position. Of course, I'm not encouraging people to take part in this or not. But I can say that for the people I've been in touch with in the last couple of months who talk about accumulating a significantly larger position, if I read it correctly, they're having trouble doing that in the current market because it's so thinly traded. Here's a chance to step in. If you even own 1,000 conventional shares, you can step in and oversubscribe and get as much, pretty much as much as you want with a discount from $1,770-$1,568 for the shares. So just if anyone, if that hadn't occurred to anyone, I wanted to point it out.
All right. I would maybe in a last word kind of way, I'd like to thank our Saum and the retail team for working so hard. This is a busy, busy time of year in the retail business. Black Friday, Cyber Monday, have become part of the national lexicon for a reason. And it means there's hard work over the holidays here. It's great to be part of Overstock. I'd also like to thank the people within Medici and tZERO who have worked hard to build a system that allows us to have this Chuck Yeager moment and do something that hasn't been done before. To our investors, if you have questions about how to participate in the rights offering, reach out to Georgeson, our information agent, at 866-432-2791 or email them at overstock@georgeson.com. So thanks for participating, and we're going to get back to work of fulfilling orders.
Yep. Thank you, everyone.
Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day.