Bed Bath & Beyond - Earnings Call - Q3 2016

Transcript

Saum Noursalehi (President of Retail)

Good day, ladies and gentlemen, and welcome to the Q3 2016 Overstock.com Inc. earnings conference call. If anyone should request assistance during the conference, please press star then zero and you can touch no on the telephone. As a reminder, this conference is being recorded. I will now turn the conference over to your host, Mr. Robert Hughes. Sir, you may begin.

Robert Hughes (CFO)

Thank you. Good afternoon and welcome to our third quarter 2016 earnings conference call. Joining me today is Dr. Patrick Byrne, founder and CEO; Saum Noursalehi, President of our retail business; 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 3rd, 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 press release filed this afternoon and in the Form 10-Q we also filed today. Please review the Safe Harbor statement on slide two. During this call, we'll discuss certain non-GAAP financial measures.

The slides accompanying this webcast and our filings with the SEC, each posted on our investor relations website, contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Patrick, with that, let me turn the call over to you.

Patrick Byrne (CEO)

Okay. Patrick here. You should be able to download some slides. I will jump right to slide three, the results. The shorthand on the quarter is actually things are going rather nicely in retail. We've bounced back. You're going to see good numbers coming back in terms of growth and even bottom line, other than we took this $3.9 million write-off on debt and investment in a Middle Eastern company. You've seen that we've actually our retail business made $3 million this quarter before that write-off, which I do not intend to be doing again. And that's versus a loss of $2.6 million last year. So the retail business is sound and making money. Then we did have this hickey on an investment, and we have this Medi-Che stuff going on, which I think is world historic.

So on slide three, you see our revenue's up 13%, contribution up, or gross profit dollars up 10%, contribution up 12%. So we're back growing nicely and well, we're back growing at sort of industry rates there, but accelerating, which is key. And if you go to slide four, the retail-only business, you see that's up to 12%. And again, if we go to the pre-tax loss, we get a pre-tax loss of $0.9 million, which was a pre-tax gain of $3 million versus a pre-tax loss last year of a couple million dollars. So the retail business, the core retail business has rebounded nicely. We have everything under control. We're having a great Q4 so far, but we had this hiccup of $3.9 million. Okay. So that was versus pre-tax income of $0.8 million last year. So $0.8 million up to $3 million.

That really, I think, understates how well our retail business is doing. Slide five, quarterly revenue and growth. This is a pattern you've seen before. We were growing in the high teens, made some mistakes last summer in marketing, sort of came off the step, have recovered, are accelerating nicely. You see, we broke. We had to tell you at the end of the year we'd be breaking that spiral down. We did break it. What did we grow on a GAAP basis in Q1? Like 2 or 3%?

Saum Noursalehi (President of Retail)

Yeah.

Patrick Byrne (CEO)

So 2 or 3%, then Q2 was about 7 or 8%. Q3, 13%. I like to think that you'll see, let's say, I think that for Q4, the second derivatives should stay zero. Let's just put it that way. You should ask your high school kid to be able to back into what your son or daughter will be able to back into what we're looking at in Q4. But things are spinning up nicely. We really have with Saum now as president of the company, and the green eyeshade guys are over marketing like they've never been. And I think that you will. I'm happy with our growth this quarter and what we have going on in marketing. I'm really happy with it. Slide five, quarterly gross profit and growth, pretty much the same thing. Slide seven, again, same basic story. We're up on the step.

We had things going nicely in the high teens, while staying profitable. I know people love to compare us with folks who are growing significantly faster, but people who lose $60 million a quarter. Not our style, and we're losing $100-$150 million a year. We like making money, and that's our constraint, and I'd rather have a company growing, well, in the high teens. So it's the same story. We did lose our footing a bit sometime last summer. We took some time to correct it. We've come out of it. That's slide seven. Slide eight, our contribution margin is staying in the 11-12 range. It's a little on the low end for my taste. We do keep finding efficiencies. I think we found another Saum has found another probably $7-$10 million efficiency for next year, but we do pass our gains on to the consumer.

So there we are on slide eight. Go to slide nine, technology and G&A expense. Rob, I may ask you to comment on this. Both of them have both tech. Well, collectively, they're staying within a pretty narrow guardrail. Of course, Q4s throw things off. What do you want to say about this, Rob? I note that our G&A is staying flat as a percentage of sales at this point.

Robert Hughes (CFO)

I just call out that part of that, those losses that we took this quarter on an international investment. $1 million of that is in G&A. So that's already in there, and we kept it flat as a percentage of revenue. And I'd say good expense control is what we're trying to do. And tech is down a little as a percentage, up a little in absolute dollars, and we're usually a little more willing to go higher on that.

Patrick Byrne (CEO)

Yes. I think that you see our G&A, pure G&A, not including tech, dropping down underneath 5% really with changes we've made, moved to the new building, lots of things and you see tech. I'm a little surprised to see it flatten out like this because we are turning more and more into a real tech company but thanks to Saum, who's a technologist by background, we're getting much more efficient on our tech spend so I think that collectively you see those drop well, you do see the G&A should be dropping under 5%, not just in Q4, but say on a going forward basis and tech. I don't want to rein in tech, but we seem to have an ample level of spending where we are and are using resources more efficiently.

Corporate employees, Slide 10. We should probably even break this into tech versus non-tech G&A just so people can see that really our corporate, we have reached and surpassed the point of having leverage on the core and the corporate team. The corporate team does not have to expand now with growth, where I say corporate as opposed to tech. I do like growing tech. It's wonderful, gosh, to think that not so many years ago we were trying to do this with about a fifth as many technologists as we do now. We really like having the technologists, and I'm not committing not to grow that force. Slide 11, operating and free cash flow. Of course, free cash flow doesn't mean so much since we started building this building. We've been building this $100 million building. Free cash flow, operating cash flow trailing 12 months, $75 million is attractive.

What do you think that'll be by year end, Rob?

Robert Hughes (CFO)

Something in the 80-85 range maybe.

Patrick Byrne (CEO)

Yeah. And I think that having shooting for an operating cash flow over $100 million next year is something I feel comfortable saying as a goal. I think that we should beat that. So again, $75 million free cash flow or operating cash flow, a free cash flow of nothing over the last 12 months, but $50 million of that nothing was we built a building, which we won't be doing again anytime soon. Slide 12, our GAAP turns and GMROI are off the charts. In fact, even just on a direct basis, our GMROI is now high enough. I am comfortable and will be encouraging them to probably slide another chunk in, be a little bit more aggressive in using capital to buy next year because we're getting nice returns on capital.

We actually commit, probably have leaned it down a bit too much, and going into next year, just pardon me, just a minor difference. If we've been running, we've been averaging on a GAAP basis on the capital we actually commit to inventory so far this year, 20-ish.

Robert Hughes (CFO)

Less than that now.

Patrick Byrne (CEO)

Less than that now. Like 16 million or something. When you see our inventory number.

Robert Hughes (CFO)

16 at the end of the quarter.

Patrick Byrne (CEO)

How much of that is really the inventory on the partner return?

Robert Hughes (CFO)

Probably about five to six.

Patrick Byrne (CEO)

So, we're really only committing $10 million now to inventory of stuff we buy. We've made analysis on it and bought. And you might see that increase modestly next year, not over 15 or 20. But we've gotten good at deploying capital and making buys. We've gotten that really tight again. And we might think of you might see us run that just a handful of million dollars higher. Slide 13, not much to say. Cost per customer, unique customers all staying fairly flat. Sam, before we go on, do you want to say anything? Sam has especially come up the marketing channel in the last seven years. While he was a technologist, he came up through marketing.

Saum Noursalehi (President of Retail)

Yeah. It is a modest growth for unique customers. I would point out we are focusing on higher value customers. So while it's costing us a bit more than it did last year, they are higher value.

Patrick Byrne (CEO)

Yes. And you'll see that on the next page. Our average order size $192. And when I think back, that's about double of where we were a decade ago. And that reflects both mixed shift and our ability to get better customers, more valuable customers, and put the right things in front of them. So that's really kind of remarkable to me that it's at $192. Next slide, slide 15. Just, there seems to be a question from the phone calls we get of people who have lost track of the internal structure a bit. So just think of it as Overstock. And so also understand the picture we're painting for you is what we want the final structure to look like. There is some corporate stuff in the works that Jonathan can explain.

But think of it as a holding company with on one side a retail company, which we're not that owns a retail company, internet retail company that is spinning off $75 million a year. That's on one side. On the other side is this Medici Ventures. And Medici Ventures has a number of investments in blockchain fintech. And Jonathan, what else would you like to say about this chart?

Jonathan Johnson (Chairman and President of Medici Ventures)

If you look at this chart, we have varying levels of activity in the operating of these businesses. With tZERO, we own a majority of it, and we're very involved in its operation and in managing the operation of its subsidiaries. PeerNova, Bitt, and IdentityMind, we have minority ownerships in them and are active to varying degrees from monitoring our investment to a board level to providing human capital. It's kind of the two extremes in the middle. We like each of these businesses. Some are more nascent than the others. Some are revenue producing. Some are still kind of fledgling startups. But we're pleased with what we're doing with these.

Patrick Byrne (CEO)

Absolutely. We really have a pole position on all this blockchain stuff. We have built out tZERO SpeedRoute, which was the company we acquired last year that routes 3% of the equity flow in U.S. capital markets, have built our blockchain efforts on top of that, have a few want to identify. I think you should identify the leader of tZERO.

Jonathan Johnson (Chairman and President of Medici Ventures)

Yes. The President of tZERO is Joe Cammarata. He was running SpeedRoute when we acquired it. He knows the execution and routing business like nobody else. But he also has a solid vision of the blockchain and how we bring that into fintech and the capital markets. I think after kind of having a few hiccups over the last several months, last couple of quarters, tZERO is in a much better place, and we're looking for big things from it in the future.

Patrick Byrne (CEO)

Right. Joe is a very successful, very good guy, and a very successful fintech entrepreneur, has built and sold a number of fintech businesses in his career. Early 40s guy doing that built SpeedRoute and has taken charge of sort of integrating this blockchain technology. And it's going to do big things with tZERO. I mean, the conversations that we are having with potential partners in tZERO, there are enormous potential partners for us. I'm going to take a moment and explain. I have been adamant that before we enter into any deals or joint ventures, and we did have, I'd say, some organizational got wrapped up in our underwear a little bit on tZERO this year. But with Jonathan here, it's gotten all unscrambled. It's getting nicely organized. We're forming boards of directors and getting all that stuff. Big opportunities for tZERO.

I've put so many air miles this year running around the world talking to people who want to partner with tZERO. I want the Chuck Yeager moment, I call it, which is the first company. There's so much blather going on in this space. People who are familiar with us look at us and say, "Wow, you guys aren't just talking. We are actually doing things." But I want to get the Chuck Yeager moment for me is getting a publicly traded blockchain security. Once we knock that off, we're happy to turn around and start really talking about the alliances that we can, the other things we can do with tZERO.

But to separate us and to show how far ahead we still are from the world, I've been insistent that we get that moment behind us, creating and issuing a public blockchain security that the U.S. regulators have, or whatever their word is. They don't say approved, but so that's the strategy with tZERO. PeerNova is a passive investment. Probably shouldn't say too much about them. They have been in, they were until recently in stealth mode. The people behind PeerNova are some very fine people, including Steve Case, the guy who built AOL, including another couple of fellows. I don't know if Jonathan, you want to say anything.

Jonathan Johnson (Chairman and President of Medici Ventures)

I mean, they're out marketing. They've got proof of concepts out there. They're not generating large revenue, but they are generating revenue. They're well-run. They've got great technology. We're pleased with that and so pleased that we upped our investment a little bit during the third quarter.

Patrick Byrne (CEO)

Yeah. They are out now pursuing an up round. We came in basically at the same price as the Steve Case and the others, and I think just a tad above, but they're now engaged in an up round. We looked at their technology for our own systems. It turned out not to be exactly right for what we wanted to do with tZERO, but our technologist said their technology is a big industrial strength ledger that will be right for certain kinds of operations in the blockchain space. When we looked at it and made the investment, it was because tZERO was considering what underlying ledger to use. We looked at all the ones that were available a year, year and a half ago, and our technologists, the PeerNova guys, really had a great underlying technology that put them ahead of everybody else, so that's why we made the investment.

They're going through an upgrade now, and I think that's a nice investment. Bitt, I'd like to hit each of these for a moment. Bitt is a Barbados-based company. You can think of tZERO as blockchain meets capital markets. Bitt is blockchain meets central banking. We laid out a strategy of, so there's this new age coming to mankind on the blockchain, and there's hundreds of different processes that are going to be disrupted. We picked a small subset of them and said we wanted to get investments in those processes. One is capital markets, blockchain capital markets. One is blockchain meets central banking and hence money and payments and such. Bitt is, there's a surprising subculture devoted to the blockchain down in the Caribbean and some very forward-leaning government officials around the Caribbean who understand the opportunity that blockchain brings to the Caribbean.

It could make the Caribbean the Switzerland of this new age that's coming. There are regulators and finance people in the Caribbean who want to see this happen. We are deeply involved in that community. Bitt is the leading company down there. They are very close to having commercializable products that just, I mean, the creation and transfer of money is quite a large industry in the world. And they're ahead. Just a few weeks after we made this investment, we saw that there was news from the Netherlands and the Bank of England that other central banks are pursuing the same thing. But Bitt's actually creating it, has created it, and is very close to having releasable products to the public. And then IdentityMind.

Jonathan Johnson (Chairman and President of Medici Ventures)

IdentityMind, I would say, again, they're engaged in an upround financing now. They're doing well. They help with fraud prevention. We are not only an investor, but Overstock is a client. We like their technology and we like their management.

Patrick Byrne (CEO)

Yes. A different approach to fraud detection, and they just won. I think they just won the award. They've been named in the top 50 new companies, top 30 Silicon Valley startups, all this kind of stuff. They really have carved out a space for themselves and have a. I think they have a great future, so we have. And I should point out on Bitt just so people understand that our investment there, while it's now $4 million and 11.4%, we basically have calls and such that under the right circumstances, we can own up to 33%.

Jonathan Johnson (Chairman and President of Medici Ventures)

Right. And when we do, we'll be pleased to because they will have made progress to a point that we think owning a third of it would be a steal.

Patrick Byrne (CEO)

Yeah. Okay. Lastly, slide 16, Medici, the march towards history. This is tZERO. We have made this announcement a few weeks ago, and in the last quarterly call, I said that there would be an announcement. I actually then was hoping it would be the first week in September. Took us longer. Everything takes longer than you think it will. But we have opened a rights offering. Well, let's first walk through the results of Medici, and people who come and see us speak always come and point out, "Gee, you have all these companies running around talking about what they're thinking of doing." We really have done things. In October, we announced the creation of this subsidiary. Actually, before June of last year, we had a few, we got an ATS that got deemed approval from the SEC on trading blockchain security.

By June, we did the first private blockchain security in the world. It was a bond, $500,000. I bought it. Didn't mean much, but we actually, the legal instrument was within the blockchain.

Jonathan Johnson (Chairman and President of Medici Ventures)

I think it meant a lot. It may not have been big volume, and it may not have been meaningful economically, but it showed the plumbing works. And when Patrick talks about having a Chuck Yeager moment and breaking the speed of sound, it's showing that we've built a system where the plumbing works. And well, we tested at small levels. We think we can build it and sell it at large levels.

Patrick Byrne (CEO)

Right. And so we got that private one done in June of last year to me. Then we did another private bond, a $5 million bond with a third party, New York Securities, Don Heck.

Jonathan Johnson (Chairman and President of Medici Ventures)

Heck of New York.

Patrick Byrne (CEO)

No, New York Securities.

Jonathan Johnson (Chairman and President of Medici Ventures)

Yeah, New York.

Patrick Byrne (CEO)

Don Motchwiller, great fellow, far-sighted. By October of last year, we had announced the acquisition of tZERO and getting the corporate forms nested up. In December of last year, the SEC declared our S-3 effective, that we could issue a blockchain public security-only company. To my knowledge, it has gotten such a document through the SEC. Of course, they don't call it approval. What do they call it when you get it through? They don't say, "We approved this." They say, "It's effective.

Jonathan Johnson (Chairman and President of Medici Ventures)

It's effective, so we have an effective shelf registration that allows for issuance of digital security that will trade and settle on the blockchain.

Patrick Byrne (CEO)

Right. And then this year has been both completing the technology and stitching up the allies we need to pull off a public blockchain security. Now, remember, we're not trying to actually go around the financial system as it exists. We're integrating pieces. We're not trying to go around the regulators. We've built something that works within the four corners of the U.S. regulatory regime. And so in March of this year, we got Computershare to sign up as the transfer agent and integrate with us as the transfer agent for our public blockchain security. Georgeson as information agent. I think of this as shareholder services, information agent. Do you want to describe what Georgeson's role?

Jonathan Johnson (Chairman and President of Medici Ventures)

They'll be notifying all our shareholders when we file our prospectus supplement that describes our rights offering. They're the ones that pass the information along to each of our shareholders and answer questions for them.

Patrick Byrne (CEO)

Two months ago, Keystone, a Los Angeles broker-dealer, signed on to be the broker-dealer that will handle our digital security. Then in October, ETC signed up as the custodian and the clearing. It's the clearing broker. All the pieces are in place. We have announced that we are doing a public blockchain equity offering. Jonathan, why don't you walk through these dates?

Jonathan Johnson (Chairman and President of Medici Ventures)

The record date, shareholders of record on November 10th, which is next week, will be offered a right, the ability to purchase one preferred share of Overstock stock. It will be a digital share. We'll have a similar analog traditional share that we offer as well. It will be a preferred share similar to common in all respects, except it pays a 1% dividend. The subscription period will begin on the 15th of November. We'll be open for several weeks and close on the 6th of December. We hope to end the rights offering on the 15th of December. And then digital shares trading on the blockchain can happen as soon as December 16th. And those shares will trade and settle on the same day. I will say almost instantaneously. I don't want to be quoted wrong and instantaneously.

But I know the SEC is talking a lot about settlement on T plus two and how big a deal that will be in trading from T changing from T plus three will be going T plus zero or T zero on December 16th.

Patrick Byrne (CEO)

Aptly named. In fact, the move from T plus three to T plus two in U.S. capital markets is supposed to be delivered sometime a couple of years from now with a $500 million budget. They've been aiming on getting it to T two, T plus two. We will have this at T zero in a matter of a few weeks, and so the advantages, Jonathan, what are the advantages to an issuer, so we will have a system that we have demonstrated. We are doing this rights offering. We don't need the capital. We're generating plenty of cash. We're doing this like Jonas Salk when he invented the polio vaccine. People were so afraid of polio, they didn't want to take the vaccine. He actually sat on early television or press conference, and he gave himself the vaccine to show how much confidence he had in it.

We're doing this. We get it live. We demonstrate the system works, and it meets all the needs of the regulators. The only system like this live in the world. There's these folks running all over the world saying that they're building this stuff, and the next few years they'll have a pilot somewhere. We actually have it. It's open for business. We can apply it in so many different ways. We might be able to do, we might go into the world of pre-IPO stocks. A lot of big companies don't want to go public, but they have lots of shareholders. This works for them. We've actually already done one trade that, do you want to describe that trade we did that was a basket of pre-IPO stocks?

Jonathan Johnson (Chairman and President of Medici Ventures)

Yeah. tZERO's done a basket of pre-IPO stock trading within the last 60 days. Went well. It was a non-blockchain transaction. We can bring that to the blockchain, which you were asking what are the benefits to issuers doing something like this with both settling on T plus zero and using the blockchain. T plus zero means there's less, if any, slop in the system. In those three days, a lot of things can happen. And a lot of things have happened as we know from our decade-long lawsuit against some of the big Wall Street players. And we saw what happens in the dark recesses of an extra three days. The beauty of the blockchain is that goes away, and ownership is immutable. Issuers will know who their shareholders are. And for shareholders, they will know that what they are getting is real and valid.

Purchasing title, you should get title. When you're buying shares, you should get those shares. And that's what the blockchain does.

Patrick Byrne (CEO)

Right. I think the short thing is that issuers can know when they issue stock, it's not going to get manipulated.

Jonathan Johnson (Chairman and President of Medici Ventures)

That's right.

Patrick Byrne (CEO)

You can't manipulate the blockchain stock. And so for those who swallow the bromide about markets or there is no manipulation in markets and markets are efficient, God's in his heaven, that won't do anything for you. But for those of us who have actually been out there and know that there's all kinds of mischief that gets played in the capital markets, this makes it impossible. And by the way, we think it takes 80%-90% of the backroom costs out of stock trading.

Jonathan Johnson (Chairman and President of Medici Ventures)

So before we jump to questions, I just want to comment. What we're doing with this rights offering is two things. We're proving the plumbing that it works. And two, we've now built a platform that with some additional development, we'll be able to do pre-IPO. We'll be able to do lots of other things that banks need. And that's when tZERO, I think, turns magic because we will have product to sell and license and do well. So we've spent a lot of time spending money to build an underlying platform that can then have other platforms built and bolted onto it that will have really great commercial application, we hope.

Patrick Byrne (CEO)

Right. And we've actually been turning down many, many discussions of commercial applications for this because we are so intent on, let's get this over the goal line. Let's get the public offering. Once you have an SEC-approved public blockchain security trading, you know the system we have that lets that be possible will be, A, unique to the world, and B, ready. If it meets those standards, we're ready for it to serve all kinds of other needs. And there's groups around the world who are trying to get our ear to work with us. And we actually just want to focus and get this done in several more weeks, and then we'll be ready to talk to them. Okay. Next, our last slide is about questions. You can email questions. We've had a lot of questions come in.

Why don't I take them and just run through briskly what we have so far. Okay. I won't identify unless asked otherwise too. I will not identify who's sending what question. Questions regarding Peace Coliseum. Three questions. To what extent have we completed the move into the new HQ? We've 100%. We're completely out of the old HQ. We were by the end of September. Our lease ran out at the end of September. There are some we were planning on so there's about 1,000 people here now, 1,100 people now. We were planning on bringing about 400 people in from customer service over this quarter, but things were so tight, we left them in their current customer care facility. I'll answer these and then ask you to opine, Rob.

Now that you moved into the HQ, what are the near and long-term benefits to operating expenses from the move? Well, there's huge in the tangible. I think of it this way. Between the rent on our last HQ, which was about $5 million and creeping up to $6 million, and our co-location facility, we had a place downtown where we had a whole bunch of computers, servers. That was the website that was costing us $1 million-$1.5 million a year. There were actually several of those. Those have all consolidated here. So there's about $6.5 million of rent, it feels to me, that we will be foregoing going forward, but we borrowed $50 million, on which we're paying 4.5%. There's $2.25 million.

So call it a net $4 million to the good, but we had two million in savings, but maybe to be conservative and because we're having some transition costs and stuff, call it $3 million to the good. We have $50 million of equity in the building. So it's sort of a 6%-8% return on capital for the capital in the building. On the other hand, which is nothing to write home about, but on the other hand, there are huge efficiency gains. For one thing, we got 75% more total office space than we had. We have people not driving back and forth 15 miles between two facilities. We have just enormous benefits. The way this building has been laid out, and you should read about it online. There's plenty of stories. It's really a collaboration space, and I think it's going to bring great benefits.

Then what's the impact on cash flow for the new HQ? Again, it took $50 million of cash of our own cash over the last 12 months. And typical CapEx should be about $25 million a year past this. Now, given my answers, Rob, why don't you correct me? What do you think?

Robert Hughes (CFO)

I'll just add a couple of comments. A couple of those data centers, the lease will still go into next year. So we're not quite there with the data centers. But I'd characterize it two different ways, I guess. One is when we're all consolidated in here, we'll have about nearly 70% more space than we had before. So in absolute dollars, I think if you compare rent and operating expenses to operating expenses and depreciation and interest in absolute dollars, probably will end up going up $2 million. But on a per sq ft basis, we think it goes down by about 18%. And we think it's a lot less than if we had to renew that lease in our old headquarters and then go find additional space.

It was not a very efficient space, and then we would have split the company up yet again into a third location. On a just cash flow basis, in terms of paying rent and operating expenses versus operating expenses and debt service, it will just be slightly up, I think, when we're all fully in here. On the cash flow statement, absolutely. Most of that is now through. We only have $8 million more in CapEx to pay out, and that'll be in Q4. Then we'll be at the $99 million that we estimated for the project.

Patrick Byrne (CEO)

I'm going to comment on.

Jonathan Johnson (Chairman and President of Medici Ventures)

I just will say this project came in on time and on budget. And I was skeptical that we could do that when it started two and a half years ago. And I had a little wager with Patrick for a crisp $100 bill. That bet's been paid because we came in under budget.

Patrick Byrne (CEO)

We came in at $99.6 million. We said it'd be $100 million and open August 26th. We got Carter Lee and Meghan Tuohig to manage this project to perfection. It came with certificate of occupancy August 26th. It came in at $99.6 million. This could easily have been $120-$130 million, which is what some people expected. If it had not been for tough Green Eyeshade value engineering, and they really you can go online, actually. If you go to glassdoor.com and look at the recruitment video, we have swapped out the recruitment video. Now it shows a lot about this building. I suggest if you're interested in the company, you go to glassdoor.com, look us up, and watch the video.

Jonathan Johnson (Chairman and President of Medici Ventures)

I hope those wager winnings spent well, Patrick.

Patrick Byrne (CEO)

Yeah. There's $100. Nothing spends no money spends. My grandpa taught me that like money, you win gambling. You buy a cheeseburger with it. It's the juiciest, tastiest cheeseburger you ever had. You buy a beer with it. Boy, that beer feels good going down. Okay. So that $100 is spending. Right now, I've got it framed, but someday we'll go out and just to give you I know this is kind of a simple little efficiency, but one of the things I love about this building is we have the co-location facility. And you can look this up in some online journal. It just came out with a story about it. Its efficiency is 1.07. There's some way you measure the efficiency of a co-location facility. The energy efficiency where 1.00 is perfection.

We are at 1.07, which makes it the most efficient co-location facility in the world, and that will last a couple of months until, because we're using some leading-edge technology, someone will get to 1.06. But not only is our co-location facility in the building so efficient, we actually take the waste heat out of it, and there's a lot. If you've ever been in a co-lo facility, there's a lot from those big farms. It's a server farm, and we take that heat and we heat the building, and there's $200,000 savings here. I mean, there's so many places in this building that I think you're going to see savings drop out. I was a little confused. Maybe I misunderstood something you said, Rob.

On what we would have spent had we not done this, but had just stayed where we were and rented more space, do you agree and kept our co-location facility, what would our aggregate rent have been in all those cases?

Robert Hughes (CFO)

If we stayed there and then added equivalent space, it would have been more than I don't know the exact number, but I'm confident this will be less. That wasn't sufficient space for us. We would have had to pay some annual escalating rent increases and signed up for another 10 years. I don't think there's any question that would have been more costly than what we're doing here, and none of the estimates I just gave you factor in anything about retention and recruiting benefits either.

Patrick Byrne (CEO)

Right. Okay. Tom, as a technologist, do you want to say anything about?

Robert Hughes (CFO)

I would say just to add to the intangibles with technology, and I think in business in general, it's all about how quickly you can iterate and deliver value. With having to communicate across multiple locations using phones or traveling, that creates a big inefficiency. That can really slow down the speed at which you can deliver value in projects.

Patrick Byrne (CEO)

Okay. Let me move forward. Cryptocurrency and three questions, and I'll ask Jonathan to comment too. First question, how will the rights offering impact the P&L? Will it increase share count, cryptocurrency balance on the balance sheet? No, it will not affect cryptocurrency balance. We're getting paid in US dollars, not Bitcoin. Jonathan, how else would you answer number one there?

Jonathan Johnson (Chairman and President of Medici Ventures)

We will have more shares issued and outstanding. We're issuing up to a million shares of preferred stock. When the price is set, the maximum price will be on the 14th, we will obviously have proceeds from the issuance of that stock. That will change the balance sheet some too. It will be great to have the offering done because we've incurred a lot of expenses getting it done. There are lawyers' fees and getting through regulators and all kinds of things. Having this behind us will be a good thing.

Patrick Byrne (CEO)

Yeah. And when I think of this and the bond offering, the amount we've burned several million dollars getting the technology, getting our work through with the regulators and so forth. But we really do lead the field in this. And a year, year and a half ago, I was trying to convince people, "Hey, this blockchain thing isn't a fad." And now, unless you're living under a rock, presumably you understand the power of this. And it has been worth it. It's worth it. Costs us $3 million this quarter between this, that, and the other thing. It's worth it to have moved into the position we're in. Last quarter, you suggested that your cryptocurrency efforts are an incubator. How are the efforts progressing on those investments? Are they generating meaningful licensing revenue? Do you have private valuations that weren't spun off to shareholders?

In a perfect world, I'd love to take the Medici Ventures and do a non-taxable spin-off to shareholders. We can't because it has to have a five-year history. As far as licensing revenue, while there are plenty of opportunities that have come our way, and we've had lots of discussions, I have asked Jonathan, "Let's hold off on all those." There are people ready to invest in Medici or who say that they're ready to invest in Medici. I have said, "Let's hold off on all those discussions. Let's get the blockchain, our blockchain security out." The fact that it's out, anyone can trade it, anyone can open an account and trade it. That saves an awful lot of selling.

We'll turn around the next day and start having the meaningful conversations about people who want to invest in either at the tZERO level or the Medici Ventures level.

Jonathan Johnson (Chairman and President of Medici Ventures)

Yeah. And as an incubator and as an investment vehicle, as we noted, two of the three more passive investments are involved in up-round financing. Now, because of our ownership interest, they're not spinning off cash back to Medici Ventures, but they're proving to be, at least through the investment rounds, good investments. So we've held off on trying to license tZERO's blockchain technology till we finish the rights offering of our Chuck Yeager moment of break the speed of sound. But afterward, the priority will shift.

Patrick Byrne (CEO)

Right. And for one thing, we can't have. I mean, literally, there are conversations where people talk about valuations that are higher than the entire market cap of the stock. Now, who knows if they're real? That's what's real talk and what's talk talk. But we can't even have those conversations while we're having an offering for legal reasons. So we have turned away a lot of licensing and investment conversations, that on December 16th, we will be happy to start taking the phone calls. Maybe we'll take them collect.

Jonathan Johnson (Chairman and President of Medici Ventures)

Call collect.

Patrick Byrne (CEO)

Call collect. Last on this cryptocurrency, we've now completed a digital bond and a digital stock. Is there more to be done? No, not in terms of demonstration of these. Now, once we get this behind us, this rights offering, no, we just want to turn around and start working with the community, and it's no more about Chuck Yeager moments.

Jonathan Johnson (Chairman and President of Medici Ventures)

The proof of concept will have been complete.

Patrick Byrne (CEO)

Correct.

Jonathan Johnson (Chairman and President of Medici Ventures)

And then we go to production and sales.

Patrick Byrne (CEO)

Right. Now, retail sales. And there are eight questions have come in, at least eight and more coming in. I'll ask Sam to back me up on some of these. Last quarter, you said you aspired to mid-teens retail growth for the next three years. What are you doing to achieve that? Well, we're back at 13% now. And I've already indicated if our second derivative stays zero, you can figure out what our fourth quarter is looking like. And so we already have met this target. And so it's really a question of, Sam, how are you going to keep us from falling off the step?

Robert Hughes (CFO)

Without getting into specifics, our strategy is pretty clear. We're cutting costs out of our supply chain and passing that on to consumers. Patrick mentioned that earlier. We're expanding our product selection, our assortment, and we're investing in providing the best experience on the web.

Patrick Byrne (CEO)

And that second point of that we are expanding our selection. I have been downplaying this or not harping on this in recent calls, but I have been referring to a significant change in our business model. And that's it. It has started. We now have expanded our selection, several hundred thousand SKUs. If you set aside our books, movies, music, games, we're at about a million and a half. But you will probably be seeing that increase by a factor of four or five over the next 12 months. And that's a significant change in our business model. A wider selection than, say, Wayfair has now. And part of that has been based on needing certain technology to be complete, which has been completed. To what extent are you discounting and promoting to drive sales? It's just happening. And what's the effect on gross margin? Sam?

Robert Hughes (CFO)

So I mean, we are a discount retailer, so it's definitely part of the strategy, but it's not the main event. It is also impacting our margins. But our primary focus, as I mentioned, is cutting the cost, passing the savings to the consumers, and providing the best experience. And by focusing on that, I think it'll help with conversions and repeat customers.

Patrick Byrne (CEO)

We've also gotten much better at the promotion. I'm not a fan of coupons. We do do couponing. I'd love to see that shifted more towards loyalty programs, which brings us to the third question. Can you update us on trends for Club O members, including Club O Gold? Yes. Well, now that we have Club O Silver, collectively, Club O Silver and Club O Gold represent, I believe, over half our sales now. We are making some changes. We have a couple of dedicated fellows on this now who we think we've got this laid out, but there's a lot more we can do with it. Sam, do you want to expand or not really?

Robert Hughes (CFO)

I would say the free membership so far hasn't provided the ROI we wanted, but we did find areas where it was valuable. We're expanding on that. I would say the team is focused back on the paid membership, the Gold membership, and we're expanding the benefits and features there. You'll see more come out of the paid program early to mid next year.

Patrick Byrne (CEO)

International sales. You mentioned goal of 12 countries. You should be live in the Middle East, etc., etc. Well, we did find a model that worked. And we found it in the Middle East. And we had excellent sales spinning up internationally. The company in which we invested in the Middle East has fallen on hard times. That's MarkaVIP. And they owe us a million dollars and a receivable, and we had put in $2.9 million. They have fallen on hard times. They are up for sale. We have written off that whole $3.9 million. There are some deals allegedly on the table. And who knows? If those deals come through, you would see us recovering one to 1.7 million of that $3.9 million. Do I have that right, Rob?

Robert Hughes (CFO)

Yeah.

Patrick Byrne (CEO)

Now, in the process, we did learn what works. And we learned a way to do international. We have a new leadership in international in our global efforts. And we, in fact, have just opened this week a new way of approaching Canada. We think we're probably leaving $100-$200 million of revenue on the table by not having a good logistics system into Canada. This quarter, that was all built. It was turned on. Now, we're giving a new way for Canadian visitors to check out with us directly. That's all turned on this week. And I really want to focus on Canada and then maybe some other nearby countries before we were probably spending too much time worrying about how do we get into the Singapore market? How do we get into Malaysia?

Doing all these arcane kinds of integrations and not just doing the meat and potatoes of getting live in Canada and Mexico as well as we should have been. So that's what's going on with international. I think that if we just focus on Canada, Mexico, maybe Australia, we should be able to add $100-$200 million in revenue. International sales and other questions. Does the persistent strength of the U.S. dollar make us feel less enthusiastic? No. Because, hey, I don't know how I feel about the strength of the U.S. dollar, how long that's going to last. I see that.

Jonathan Johnson (Chairman and President of Medici Ventures)

Maybe through next Tuesday.

Patrick Byrne (CEO)

I did see that the Fed signaled that they might be raising interest rates in December. I think this all is a big house of cards. It won't matter because another thing that's coming live is our ability to have partners in other countries ship to people in other countries. For example, what is live now or is coming within days is there will be partners in Canada who are dropshipping to consumers in Canada. That's a global initiative for us. A Vice President named Ali El-Husseini is managing all this for us. He's really sort of focused what have been a lot of disparate and maybe uncoordinated efforts to get this Canada thing live. The fact that we can now have foreign partners dropshipping to foreign consumers and everyone comes into the U.S. means that this exchange rate stuff doesn't really matter.

4Q 2015, you had strong sales of hoverboards. Does this create a tough comparison for this holiday period? No. The hoverboards, we took off the site. It wasn't some meaningful.

Robert Hughes (CFO)

Yeah. You remember in the news, they were catching on fire as a result of battery issues, so.

Patrick Byrne (CEO)

That's bad, right?

Robert Hughes (CFO)

Yeah. It's bad. So most were recalled. We had a lot of returns. So when you factor all that in, it actually wasn't that profitable for us.

Patrick Byrne (CEO)

Oh, I'm sure it was. Yeah. Well, we don't have those. Maybe we have a whole new class of products that.

Robert Hughes (CFO)

Right. They'll be new hot products.

Patrick Byrne (CEO)

Hopefully not on fire. Hot, though. What, if any, special promotions do you intend to run for Black Friday, Cyber Monday? How promotional do you intend to be on these? In the past, you ramped up your promotional activity up and down based on concerns about the type of sales you were generating and quality of customers you are acquiring. Sam, how about take that?

Robert Hughes (CFO)

I have a nice lawyerly answer for this. We have a strong holiday plan that we think will resonate with consumers. And that's really all I'm going to say. As a % of sales, though, our spend should be roughly what it has been in prior years.

Patrick Byrne (CEO)

Last question on this set that was mailed in. Can anything be done to stop the Wayfair freight train? Yes. We see our sales growth ticking back up. We see theirs dropping. I think we saw them having some disappointments. They took some behavior in September that indicated maybe they were disappointed with their sales for Q3, and they were sort of scrambling and buying traffic and some unprofitably. And they suddenly started spending much more. It seemed like they were willing to get traffic at any price. I will point out they lost $60 million last quarter. I get tired of hearing we've done an analysis. We can make our sales be growing 50%-70% next year. We can grow 50%-70% next year. It makes us lose $50 million GAAP. Now, we can turn that program on at the flip of the switch.

We can grow 50%-70% that lose $50 million. And I just don't want to do that.

Robert Hughes (CFO)

Yeah, and I would point out when you look at comparable categories to Wayfair, we are actually growing much faster than what our overall results are, and that's accelerating quickly, so we have the same amount of traffic. We spend a third of what they do on marketing, and as Patrick mentioned, we could gas that anytime we want, but that's not our strategy. It's not a sustainable strategy.

Patrick Byrne (CEO)

Yeah. Although, to be honest, it's not Jonathan, I mean, what would you say? What would you?

Jonathan Johnson (Chairman and President of Medici Ventures)

I object to the questioner's characterization of Wayfair as a freight train. I would note that we've liquidated plenty of freight train businesses in the past. I think our business is strong. I think we've had times in our history where we purposefully put growth over profits. Those were conscious times. Today, we have a profits with growth mentality that I think is correct.

Patrick Byrne (CEO)

Right. I think I started the year predicting that our retail business would make $40 million operating income. And actually, it's looking like now it would make, say, 41 or 42, but we have this $4 million, $3.9 million hickey on the MarkaVIP investment. So in any case, we got a retail business that can make 40-ish million dollars this year and will grow double-digit for the year. I'd like it if we can maintain and next year, I think we should make $40 million without any of those hickeys or settlements or so forth. And I think I'd rather do that than go and spend an extra $150 million on marketing and lose and take the $40 million plus to minus $50 million and have more growth. I know that's what some people think is we just don't want to get back in that place again.

On the other hand, if Jonathan spins off Medici Ventures for some big check, like the kinds of numbers I hear getting thrown around, maybe we'll care a little bit less on the whole, maybe we'll goose it a little bit on retail.

Jonathan Johnson (Chairman and President of Medici Ventures)

What's the old joke? Hit ball, drag retail?

Patrick Byrne (CEO)

No. Hey, don't retail is.

Jonathan Johnson (Chairman and President of Medici Ventures)

I know I'm the one that's being dragged right now. The goal is to.

Patrick Byrne (CEO)

Flip that.

Jonathan Johnson (Chairman and President of Medici Ventures)

Is to flip that.

Patrick Byrne (CEO)

Mighty cocky for a starting pilgrim. Mighty cocky for a starting pilgrim. Last question. I see there was an extra question that came in.

Jonathan Johnson (Chairman and President of Medici Ventures)

Over here.

Patrick Byrne (CEO)

When the company is considering allocating capital, does it consider buying back its own shares at the current price? So I'm just going to speak the truth. And then Jonathan, as the chairman, I would be buying back right now gobs of our own stock. We're in the middle of an offering. Believe me. I've looked at a could we be buying back this month while we're getting this blockchain offering prepared? There are these lawyers who say that just creates too much. It would be too messy. So on the other hand, if the stock dropped from here, it'd be awful tempting to actually delay the offering and just buy a ton of stock if we can. Yeah. I think, well, I'll put it this way. Where we are now, if we get through this offering and everything's okay, then we announce our numbers in January.

If our stock doesn't move, I'll just, at that point, the only thing we won't be building buildings. The only thing we need to spend our cash flow on at that point is buying in stock starting in late January in the absence of things moving.

Jonathan Johnson (Chairman and President of Medici Ventures)

Much-discussed topic among the board of directors when we meet. Patrick, sentiment is that of the board. We do have a $25 million authorization for stock repurchases. We're going to do it in a way that makes sense and is legal in the middle of an offering that it's hard to thread both those needles.

Patrick Byrne (CEO)

However, just to be strictly honest, it is so attractive at this point. Jonathan and I actually discussed should we be suspending this offering just to go and try to buy in two or three million shares.

Jonathan Johnson (Chairman and President of Medici Ventures)

Absolutely. And frankly, that discussion is not off the table.

Patrick Byrne (CEO)

Yeah. Okay. Now we move on. Here's another set of questions. Two questions. How is the international retail business spinning up in terms of revenue growth and the unit economics look compared to U.S.? Unit economics, the profitability should be about the same on a net basis, actually a little bit higher. We did find a way. They were going gangbusters in the Middle East. We had to throttle the business. We were selling so much, and then the company involved got behind and couldn't even pay us and went under. We do think we have a model that works when we go to other countries. For the moment, we've really refocused on Canada. We've opened just in the last week a new way of selling into Canada. The whole business international will be up slightly this year over last year.

But we haven't really, okay. Next year, I think, is the year for international. Has Medici made any progress in license negotiations?

Jonathan Johnson (Chairman and President of Medici Ventures)

I think we've addressed this one. Yes, but we have purposefully slowed them until we get this offering.

Patrick Byrne (CEO)

Seems like another set of questions. It seems like a lot of value would be created by spinning off Medici. Yeah, I agree. There are some ways that it and the financial services could go with Overstock retail. But primarily, yeah, it could easily be spun off. There's actually some great synergy having us all together in the company and being able to access the right resources and such. So we're not opposed to spinning off Medici or taking a large investment in Medici. But the focus, it's got so many moving pieces, and right now, what we want to do is just get this public blockchain offering complete. We are absolutely willing to consider spinning it off. I want Jonathan to take it and do well with it. The new campus and leadership is an opportunity to create a cohesive focus culture in retail.

Is there anything being done to improve the culture and organizational focus? Yes. Besides moving some in, it's really become so I have been quite sick this year, and I'm sorry if I took my eye off the ball. It's all I'm doing now is focusing on what you might think of as these soft things, culture and training within the retail business. Has wonderful leadership in Sam Noursalehi. Sam, do you want to answer this question at all?

Jonathan Johnson (Chairman and President of Medici Ventures)

I do. I do. I mean, I know it's not necessarily direct as the Medici business, but for someone who's been with Overstock for 14 years, the combination of moving into Peace Coliseum in the new building, having you back, Patrick, Hale, and Hardy, having Sam and the different leadership team, the culture here is as good as it's ever been. People are thrilled to come to work. They're working hard. Things are getting done. So is this an opportunity to improve culture? Yes, and we're taking advantage of it.

Patrick Byrne (CEO)

Yes. And it's one of the big reasons we just did this. Last question from this person. Shareholders have been struggling with mixed results for years. Can we expect positive change with new leadership? Yes, I think you can. I will point out that our mixed results haven't been for years mixed in one way. We stayed profitable. And because we're the only guys out here who seem to care about that, it does create static. It does create noise in other lines in the income statement because we hold ourselves to the standard of staying profitable. So that's my comment on the mixed results. I want to remind everybody, I don't know how much seven of the last eight years or eight of the last nine years or something, we're profitable. Rob, what's the actual stat? Do you know?

Robert Hughes (CFO)

I don't offhand, but most of the periods we have. And again, other than the intentional investment into Medici, we're trying to break that out for people so they better understand retail versus Medici.

Patrick Byrne (CEO)

Yeah, and I'd say that also where we are now is a place we've never been in that what we've always tried to do is blend what I call the Green Eyeshade guys from the retail guys. The Green Eyeshade guys, the people who bring to marketing and sourcing just data. They don't want to know anything about anything, why a product is going to be hot in it. Everything is just data, and then there were, of course, the traditionalists who sort of bring all the retail gut and emotion, and what's really happened is that blend, which has been blended in various ways over the years, has finally become not so much of a blend. It's like they say the perfect martini is the cold gin and the vermouth is in the humidifier. The people who bring the vermouth, the emotional stuff, they're still here.

They're in the humidifier. It's the guys who are just data-driven are now over every channel and every part of the sourcing and every part of the demand creation, and I think that's a civil war that won't be revisited again. It's real data-driven people in every area.

Robert Hughes (CFO)

Yeah. I think that, Patrick, combined with some changes we're making, I don't know, we may not want to get into it, with incentives, I think, is going to create a very entrepreneurial culture where people who run their areas think of it as their own startup and work as if it's their own company.

Patrick Byrne (CEO)

Yeah. We're getting away. For a long time, we've had kind of a socialist bonusing system because we were still startup. But anyway, we are now going to a non-socialist system that's going to let some people get rich next year if they're in the right areas.

Jonathan Johnson (Chairman and President of Medici Ventures)

As the company gets richer.

Patrick Byrne (CEO)

Right. Yeah. You will be happy to pay the kinds of checks if these people can hit their goals. You as shareholders will be happy to cut these checks. Okay. Now I see three more short emails have come in with questions. One email has three questions on it. How can we think about forecasting growth and revenues for Medici? I wouldn't think about that. I wouldn't think about it in terms of forecasting growth. If this thing gets off the ground, it could be a unicorn for all I know. We already hear people talking about valuations that they would want to talk to us about investing in this business that are higher than the valuation of the market cap of Overstock itself, and they're talking about investing in a subsidiary of a subsidiary.

what that is. That's what my pop would call happy talk until you sit down and have a.

Jonathan Johnson (Chairman and President of Medici Ventures)

Until someone cuts a check, it's happy talk.

Patrick Byrne (CEO)

It's happy talk and we don't really want to get past taking the phone calls and having the first meeting until we get this stuff done because I don't think we can be doing an offering while we're having material conversations like that. But the right way to think about Medici is not we have no idea how to forecast the revenue. We're not even sure which of the many partnerships that are being thrown at us will be the first ones we pursue. There are enormous revenue opportunities, but really, it's just think of it as an asset that may have a great deal of value ready when we take investment in it or find a partner to spin it off there or with. I don't know.

Jonathan Johnson (Chairman and President of Medici Ventures)

That's correct, Patrick.

Patrick Byrne (CEO)

Since the company's core retail model is asset-light with good incremental margins, why not consider a share buyback? Hallelujah, brother. Yeah. If it were up until this point, we had two things going on. We were building a $100 million building, and we had fallen off the step sometime last summer, which has happened four or five times in our history. And we have to just patiently get back to our principles and get it going again. Now that it's here and we've generated all this cash and such, there's nothing I'd like to do more than go out right now and run a Dutch auction tender and buy in as many shares as our lawyers would let us buy in. Can't do that right now with this offering over the next five weeks.

Then, of course, when that offering gets done on December 15th, we won't be able to do it until we announce numbers and such. It's killing me not to be able to buy in shares right now. Is that an honest enough answer, Jonathan?

Jonathan Johnson (Chairman and President of Medici Ventures)

That's a very honest answer that I know is keeping you up at night, Patrick. We're looking at it, and the board has discussed it, and we share your sentiment. We have to do these things in ways that make sense and are legal.

That's a damn legal thing. Last question from this fellow is, how is the U.S. consumer doing? Are they converting as well as they have in the past? Sam? Well, on the U.S. consumer, I think the economy. I think it's amazing what happens when you inject trillions of dollars of free money into an economy. There's all this. So I think that I'm a bear as far as the U.S. economy. I don't believe the growth numbers. I don't believe the 2.9%. I don't believe the inflation that they're reporting. I don't believe anything that's coming out of Washington now. It's all being politically driven, and we are prepared for something really bad to happen if it does. Now, setting that aside, how are they converting like they used to, Sam?

Robert Hughes (CFO)

They are. Not only are they converting like they used to, they're converting better than they used to. And a lot of that's been our focus on experience, as I mentioned.

Patrick Byrne (CEO)

Yep. And we are offering some interesting credit products that are. I don't want to say too much, but the U.S. consumer is still reaching for credit. Okay. Another email with just one question. What's your plan to make tZERO a valuable business after the Chuck Yeager moment? Could be licensing revenue, could be selling or taking an investment from a much larger player. There are trillion-dollar players who talk to us and talk about how do they get involved. Jonathan, how are you going to make this tZERO so valuable?

Jonathan Johnson (Chairman and President of Medici Ventures)

Those are mutually exclusive options. I mean, we will bolt on technology to the underlying technology that helps us do this offering and begin licensing that to banks, to exchanges. There's a whole host of different types of potential clients that are showing real interest. And we're holding it at bay so that we can get our technology in place to do this offering.

Patrick Byrne (CEO)

Yeah. I think I've said this publicly before, but not on a phone call, I believe. In every country, in every capital market, there's really three groups, and it's turning into a Game of Thrones. Among these three groups, there are the bank broker-dealers, there are the exchanges, and there are the CSDs, the Central Securities Depository, which in the United States is called the DTCC. But in each capital market in Asia and Europe, what's happening is those three players all seem to have gotten the message at the same time. It was sometime around January of this year. A memo must have gone out from somebody because everybody got it once that this is an extinction event for the financial industry as it's currently conceived, and they don't want to be one of the species that goes extinct. They want to survive.

In each country or capital market, you have those three players jockeying, trying to figure out one of those players is going to get this technology and disrupt the other two, really. That's the bottom line. If any one of those three players gets the blockchain technology down, they don't need the other two. If the broker-dealers get it, they don't need the exchange or the CSDs. If the CSDs do it, they don't need the exchanges, so forth. So that's really what's going on in each part of the world. And we're sort of staying above that fray and just getting the technology when we have not just the first publicly traded blockchain security, but one that has been driven right down Constitution Avenue and the SEC has sprinkled holy water over every piece of it. Then that's, we think, a very unique piece of technology.

And then last of the last is another two questions, last email. You continue to spend money on non-revenue-producing products. So his first example is that you spent shareholders' money on fintech projects with no revenue. This is a silly question. We were the first in the world to recognize the meaning of Bitcoin wasn't Bitcoin, it was blockchain. We were the first to get that there were going to be blockchain applications that disrupted all kinds of fundamental processes in civilization. We got there first. We've been working on it for two and a half years, well, three years.

Jonathan Johnson (Chairman and President of Medici Ventures)

Look, the analogy I like to use is Bitcoin is to blockchain as email is to the internet. And so back in 1990, when you were getting an email on your CompuServe account and you thought that's what the internet was, if that's what you think the blockchain is, I think you're missing the boat. This question reminds me of Bryant Gumbel's comment on the Today Show, circa 1992. I guess I need to figure out what this email thing is. The internet turned out to be transformative. I think blockchain, particularly in the fintech area, is going to turn out to be transformative. We're a company that was there in helping the internet transform, and we've taken advantage of it and built a business.

Now we're here at the beginning of the blockchain revolution, and I think we can apply what we've learned and help make that a real business too.

Patrick Byrne (CEO)

How can you justify building a $100 million building when your industry leases, when you're losing money, and when you're falling behind your competition? We justify building a $100 million building because we think it saves us $3-$4 million a year, gets 70% plus more office space, creates all kinds of benefits for retention, recruiting, efficiencies of people working together, etc. And are we losing money? I stand by our retail business will make $40 million plus or minus this year. Looks like a couple million less now because of this hickey on the right now we just took. And are we falling behind our competition? I don't know. I mean, yeah, there's someone else out there who loses $60 million a quarter who's grown past us. I come from the we can have that any moment we want. We can have that business any moment we want.

I'd like a business where we make money and we run it like a real business.

Jonathan Johnson (Chairman and President of Medici Ventures)

We own our headquarters campus. This land is an appreciating asset. I mean, for all the reasons that you said, I completely agree with you. But add on top of this, to me, doing this campus build detail, and we looked at it two and a half and three years ago, it made sense then. It makes even more sense today.

Patrick Byrne (CEO)

Right. No matter the fact, we can get out of this, do a sale lease-back, and probably turn our $50 million of equity into about, pardon me, I think about $80 million. Not out of the question that we do that, but especially if our stock stays at a point that we can buy it at these kinds of prices. But it was great. I thought it was a bit of a far-fetched decision three years ago to do this, to build this building, or it was a little out there, but it all penciled out as being worth it. And now that we've moved in, it's just overwhelmingly clear. We are so thrilled with this building and what it's doing for us. So that has been a lot of questions, a lot of material. It's been the longest call we had in a while.

I guess it's 3:47 P.M. Why don't we see if there are any follow-up questions and we'll do maybe 10 minutes. Nope. Okay, well, thank you for listening. We feel great about the future, and yes, we had this $3.9 million write-off. Sorry about that, but our retail business is thriving. It's back on track, making money and spinning off lots of cash, and this Medici business, while it looks a mess on our income statement, is absolutely, I mean, this thing could be. We've got lightning in a bottle here. We've got cold fusion here, and we're going to be ready to demonstrate it this quarter.

Jonathan Johnson (Chairman and President of Medici Ventures)

Yes.

Patrick Byrne (CEO)

Four or five weeks. Five weeks. Thank you very much. We're having a bang-up Q4. I believe it will clearly be a record Q4 for us so far. We're just a couple of days into the Christmas season, but it's going well. Anything else?

Jonathan Johnson (Chairman and President of Medici Ventures)

We'll talk to you next quarter.

Patrick Byrne (CEO)

Talk to you in a few months.

Jonathan Johnson (Chairman and President of Medici Ventures)

Thank you.

Robert Hughes (CFO)

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.