Overstock.com, Inc. (OSTK) CEO Patrick Byrne on Q3 2018 Results - Earnings Call Transcript

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About: Overstock.com, Inc. (OSTK)
by: SA Transcripts

Overstock.com, Inc. (NASDAQ:OSTK) Q3 2018 Earnings Conference Call November 8, 2018 4:30 PM ET

Executives

Greg Iverson – Chief Financial Officer

Patrick Byrne – Founder, Chief Executive Officer and President

Saum Noursalehi – Chief Executive Officer, tZERO

Jonathan Johnson – President-Medici Ventures

Steve Hopkins – Chief Operating Officer and General Counsel of Medici Ventures

Seth Moore – Chief Strategy Officer

J.P. Knab – Senior Vice President-Marketing

Chris Donnelly – Chief of Staff to the President

Analysts

Operator

Good day, ladies and gentlemen, and welcome to the Overstock.com Q3 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] And as a reminder, this call is being recorded.

I now like to turn the conference over to Greg Iverson, Chief Financial Officer. Please go ahead.

Greg Iverson

Thank you, Operator. Good afternoon and welcome to our third quarter 2018 earnings conference call. Joining me today are Dr. Patrick Byrne, Founder, CEO and President; Saum Noursalehi, CEO of tZERO; Jonathan Johnson, President of Medici Ventures; Steve Hopkins, Chief Operating Officer and General Counsel of Medici Ventures; Seth Moore, Chief Strategy Officer; J.P. Knab, Chief Marketing Officer; and Chris Donnelly, Chief of Staff to the President.

Let me remind you that the following discussion and our responses to your questions reflects management's views as of today, November 8, 2018 and may include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in the Form 10-K for 2017, subsequent SEC filings and the press release filed today. Please review the Safe Harbor statement on slide 2 of today's presentation.

During this call, we will discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC, each posted on our Investor Relations Web site, contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures.

With that, I will turn the call over to Patrick.

Patrick Byrne

Thank you very much, Greg. We're on slide 3. We have an agenda, we'll be walking through covering tZERO were the main event as we are building our lead I think dramatically, good discussion of other Medici Ventures coming, we've had a lot of interest and people ask us to explain the – this collection of assets and why and such and then, retail where you will see that the ship has turned rather well as quickly as a $2 billion company can bid it to a different strategy and thus, okay then Q&A.

So slide 4, why don't I turn over to Saum?

Saum Noursalehi

Thank you, Patrick. So, on the agenda we have four key areas we'd like to discuss for tZERO, an update on our product roadmap, human capital, what's coming next and an update on our strategic investment.

You go to the next slide. This is the security token ecosystem we're building. It is our belief that most tasks in securities are going to be converted to digital representations as tokens through blockchain and smart contract technology. These assets can be equities, bonds, debt real estate or even art. Our primary focus is on building the security token ecosystem to support this new world. Beginning with equity, this relies or this requires building a two sided network that matches supply which you see on the left which are company's final raised capital through token offerings with demand on the right which our investors are looking to trade these assets through the ATS or exchange using our trading platform.

If we go to the next slide, to scale the number of the security tokens that we want available for our investors, we plan to integrate third-party issuance platforms in addition to our solutions. Examples of this third-party platform include Polymaths and Securitize.

And if you go to the next slide, this shows how we really scale the investor side. And so we plan to increase liquidity by licensing our technology to other trading platforms or broker dealers. Our SpeedRoute acquisition allows us to quickly ramp this up since it has relationships with over 140 broker dealers. So ultimately, we believe we win by owning this ecosystem and this network.

Patrick Byrne

Saum, do you mind if Seth and I put a comment on this?

Saum Noursalehi

Sure.

Patrick Byrne

Go ahead, Seth.

Seth Moore

Yes, I think the real key here is in any two-sided network, the key is not to own every component of the network, it's to own the core of the network. If you think in terms of like an auction's platform, the person with the most sellers and the best products being sold also gets the most bidders, which creates the most efficient auction and it becomes a virtuous cycle. We believe the same is true here. And so, we don't want to own all of the issuance world or all of the brokerage world; we want to go to investors and issuers where they are and where they want to operate, and extend those businesses simply as a means of fulfilling them adopting the network and improving that two-sided network effect.

Patrick Byrne

That is why while there are -- basically this is looked at in sort of a $100 trillion opportunity that there are now were bigger, and there are now five companies in the world really chasing, and at least one of them has a closed circuit system in mind. We're committed to interoperability. There's a standard coming out or maybe it has come out, called Milberg who has just negotiated in some down in New Zealand, where a bunch of folks got together from around the world and a bunch of us in this space. And so, we've all agreed to make it interoperable, and to Seth and Saum's point, yes, the more -- the more of that, we have such a good position in this ecosystem. We want to make it interoperable with other people's issuance platforms like my France down in New Zealand and Palymath up in Canada et cetera.

Seth Moore

Go ahead, Saum.

Saum Noursalehi

Hey looks like next slide which is slide 5.

Patrick Byrne

No, I think you are on slide eight now.

Saum Noursalehi

Sorry. Slide eight, so we saw an update on our security tokens. We completed the issuance of our token generation for the tZERO preferred token. And this went live on the public ethereum main net. This represents one of the first security tokens completed in full compliance with regulatory laws securities laws.

On the second point, in addition to that we on October 30, open sourced our broken contract code to the world. What this means is, we really released this to the community and developers can now take this code modify and contribute to it. So we think this is going to increase the exposure of our token standard and make improvements to this technology and make it more of a global effort to do so.

Three points three four and five are kind of the next steps so we plan to designate a broker dealer have a qualified accredited investors set up their brokerage account and then allow them to trade their tokens which is now targeting early Q1 launch. Of course, that's contingent on us wrapping up the tax which we feel good about and obtaining regulatory approvals.

Next slide, product roadmap, so we showed this last time this is our updated product roadmap. I just want to highlight two bars here that are circled with blue dashes. The first highlight that we completed issuances as I said ahead of schedule, over a month ahead of schedule; the second bar under the security token ATF and exchange shows the timeline for when secondary trading goes live for our token. So under the solution we settled on, we believe will reduce the regulatory risk and we'll give trading for accredited International investors 67 days later than we had planned.

So that got pushed by 67 days for red gas or international investors what will be 208 days shorter than we had planned for accredited U.S. investors or Reg D investors. I'd also point out that the U.S. made up approximately 90% of these investors so this is good news for those wanting liquidity much sooner.

In addition, the second half of 2019 we plan to expand trading of our tokens to non-accredited investors both in the U.S. and internationally. So that's the high level product roadmap.

On the next slide…

Greg Iverson

Saum, hang on a second.

Saum Noursalehi

Can you comment on that?

Greg Iverson

Yes. Hang on a second, go ahead sir.

Saum Noursalehi

So we're really excited about the progress we made with the token standard and also the open sourcing of the token that we use for our tZERO offering. We think it's going to be widely adopted. And when you open source these technologies will get a lot more scale and a lot more enhancement built into the product. And we think it's going to really revolutionize and offers a step up on the way other token standards today have operated. And so we think the open source community enhancing and advancing that technology will accelerate it far faster than we would in a proprietary network. And we think ultimately that helps build the two sided network we've been talking about within our platform.

Patrick Byrne

And I'll add to that on slide nine here, what I see when I look at this sort of previous slide 7 really is, I'm reminded of Bob Greifeld and I quoted this once before but the retired Head of Nasdaq said a year ago something like 100% of the stocks and bonds they issued on Wallstreet today could be tokenized and in five years 100% will be tokenized. What that means is, this is Patrick speaking again, is that the architecture of Wallstreet as we know it is will be deprecated if Greifeld is correct over the next five years. We have built or we are building the replacement and we're being very open so I want to be very open about our product roadmap. These are the different components, what you're seeing there is the replacement, if Greifeld is correct, and what exists today deprecates over five years -- what you see here is the product roadmap of the replacement.

Okay. So with that let's ahead, so I'm here on slide 10.

Saum Noursalehi

Slide 10, DLR is the last product I wanted to touch on. Our blockchain-based DLR technology matches securities lenders with securities borrowers. As it allows inventory providers to set offer prices for their long inventory and borrowers to bid for this inventory. This product is still in beta testing. We have a stock loan commission sharing agreement between StockCross and broker-dealers SpeedRoute. And as such, SpeedRoute revenues from stock loan have grown 5x to 6x since the beginning of the year. So, nice progress on revenue growth with this platform, we're also currently ramping up the resources to scale this business and move it out of beta for wider adoption.

Any commentary here, Seth or Patrick?

Patrick Byrne

No, that's great.

Saum Noursalehi

Okay. Next slide, Human capital; last quarter I said to accelerate the product development I wanted to double the size of our product team and I'm happy to report that we've done that. So we're moving full steam ahead. In addition we hired a CTO from the retail business Amit Goyal to lead this product effort. He's a capable technologist that I've worked with for over 10 years, really strong business leader and we're excited to have him.

We're also excited to have hired Alan Konevsky to join as Chief Legal Officer. Alan's background, he's a Harvard educated served as SVP of Strategic Initiatives for Mastercard previously was a Managing Director at Goldman Sachs and served as Special Counsel at Sullivan & Cromwell. So we think pushing the regulatory front forward with a heavy hitter like Alan going to really help us to the team. And then lastly, we're recruiting for a capital markets president to complement my skill set and really help take TVR to the next level.

Patrick Byrne

So let me echo that that we are -- I mean, I've looked at some of the people Saum is recruiting, including for President, we're just getting unbelievable MD level candidates from the finest, blue-chip names on Wall Street are applying for these positions, we are getting a really good flow of human capital or applications of very senior people. So anyway that's been a beautiful step up sums. And in terms of the product development team, there's a lot more what's in New York is for tZERO is the tip of the iceberg. There's really quite a very significant effort in Utah now about 60 developers or something backing up all the technology and everything else here in New York. So it's really turned into a very substantial real company.

Go ahead, Saum.

Saum Noursalehi

Thank you. Next slide, so what's next? After we launched this platform which comes live early next year, first, we'll quickly onboard issuers and we have a nice pipeline of issuers that we're working with and begin supporting other issuance platforms, as I mentioned earlier. We're going to attract investors and use our skills and digital marketing to bring investors to trade leveraging using our app and use our trading experience as well as license our token trading platform. We'll also launch security token trading on our national exchange through our BOX JV which we're currently aiming for mid-2019, of course subject to all the regulatory stuff. And then, lastly, we will partner with international exchanges for a global expansion and we're already in talks with a couple of players in this space, so we're feeling really good about our expansion efforts. And then, finally, we want to support other asset classes as I mentioned. We're starting with equities but this could easily expand into bonds debt, real estate and other securities.

Now I'm going to turn it over to Seth Moore. He's going to talk about the strategic investment.

Seth Moore

Yes. In our Q2 call, we announced a new partnership with GSR Capital and our ambitions to scale tZERO globally with them. We share a common strategic outlook that Asia's recent strength in the ICO market will likely evolve into perhaps the world's most attractive security token market. And in recent months they've helped us a great deal to build connections with a number of strategically important firms in Asia, that we believe will help us a great deal and filling out our issuer customer pipeline in Asia as well as our expansion into additional blockchain asset.

In our Form 10-Q and also in our last earnings call we also discussed that they had signed a repurchase agreement to buy $30 million in tZERO security tokens and would acquire a significant stake in tZERO and OSTK common stock, subject to due diligence and definitive closing docs. We've completed our legal diligence with them and are actively working with them on finalizing definitive documents and we look forward to completing that transaction as well as to the many strategic ambitions that we have in order to expand the business together with them as a partner.

Patrick Byrne

Thank you. Thank you, Seth. Let's move -- let's move onto slide 14. We're going to Medici Ventures. I'm going to -- actually I'm going to just echo that on GSR for a second. This is very real. We've gotten these e-mail questions about what's going on. I mean these folks -- what was their law firm? Can you…

Seth Moore

Yes.

Patrick Byrne

Okay.

Seth Moore

Yes. We've gone through extensive legal diligence and they've been fantastic. We recently just spent some time with them in Hong Kong met a number of really great firms that we think we may end up partnering with. And so yes they've been phenomenal and been very useful so far not just from the capital work that we're finalizing with them but also in terms of the strategic value and importance that they're giving the deal and helping us develop the business.

Patrick Byrne

Yes, they're very serious and everybody is flying back and forth across the world to get this nailed down. We have until December 15. I think it's going to be significantly sooner than that. But we're – well when Seth set gets once that when it gets – when it gets done it gets done. But it's a – it looks like a terrific partner who can sort of stop pushing us to get our piece done so they can take it to Asia. So I feel very good about their intentions. Let's move on to slide 14, it's Medici Ventures, and slide 15 the mission statement, Jonathan. Why don't you read your mission statement?

Jonathan Johnson

Sure. Medici really set up to try and change the world by advancing blockchain technology to do three things. Democratize capital to allow everyone to participate in local, national and global markets, to eliminate middleman which had unnecessary time, difficulty and cost the transaction and then the [indiscernible] commerce as people connect directly with each other through blockchain technology. Now to accomplish that mission we've set up a blueprint of where we think we should be adding to the portfolio and Patrick I'll have you go over the next slide, I'll have you discuss our blueprint Patrick.

Patrick Byrne

Okay. I've referred to this previously as our tech stack of civilization or something like that. I've been surprised to see questions come in saying we don't understand the block – these blockchain investments and it just seems like a hodgepodge. So I'm going to walk through this clearly, carefully this time. I view there as being the fundamental processes of this new age that I believe is coming to us. You've got to start with identity and self-sovereign identity, which is a concept. I'm not going to spend a bunch of time lecturing about each of these concepts, but if you want to understand Overstock you should be -- you need to understand blockchain and this is important stuff.

Self-sovereign identity is the core layer and then on top of that or next of that property and land governance because that's what generates capital. Then you have to have a blockchain central bank because you need -- if you're going to have a national money, blockchain, central banking then a blockchain capital market, block chain commerce and blockchain voting those to me -- if you staple those together you get sort of the core functions that -- a functioning society. And so that -- this was really our -- this was our mandate. Four years ago my mandate to Jonathan to helped me build in this -- in this framework.

So with that said I will turn that over to Jonathan and in the last two years go to slide 17 to see what Jonathan has built out within each category.

Jonathan Johnson

So you can see we've built out this blueprint in each category. We now have 19 companies in the portfolio from the first which we made a significant acquisition of tZERO in 2014 to our most recent grain chain which is in the supply chain section. You can see that we have at least two companies in each of the categories. There are synergies among these companies both within and across the columns listed here. And today, we have put $175 million of our shareholders capital to work in a network of blockchain companies and we think it's going to revolutionize each of these areas.

And to the next slide please. So you can see we've deployed $175 million in the blockchain. $115 million of that has been into tZERO. This slide lists our ownership percentages in and gives a brief description of each of the companies in the portfolio. I know many of our investors have asked where our ownership percentage is? Here it is on these slides.

Next slide, Medici Land Governance is one of the portfolio companies we're really excited about. I'm going to turn it over to Patrick to talk about what's going on with Medici Land Governance.

Patrick Byrne

Sure. We have the opportunities and the amount of capital that can be liberated is just enormous. This may be in terms of actual dollars. This may be bigger than anything, bigger than tZERO. I think that all capital formation starts with Land Governance and we've got to get that right and it's – what's happened is that World Bank has stepped forward to be our partner, so open to working with Hernando. We had trouble sort of turning that MOU and their paper, but in the meantime, the World Bank got very excited about what we were doing and we became great partners with them. Actually, some terrific people there and they're very entrepreneurial and they say they've never seen anyone who can move as fast as we move and we will have an internet speed. We have a deal done with Zambia and I'll probably be going over there a month to solve and we're turning over the first 50,000 titles we're working on a much bigger deal there.

Rwanda, we have now signed an MOU with the government for Rwanda. There are major, major countries and provinces of countries with 50 million, 100 million, 200 million people kind of places reaching out to us. We are -- I mean at this point there's only so much time we can spend on the road and spend in these exotic locales and setting up offices and -- but we have last I heard 60 people on the ground in Zambia going around with iPads and I mean not willy-nilly. There's a certain area I forget the correct term for this area there's nary a correct term but the word in Spanish would be Bario or the word in Portuguese would be Favela.

So informal housing up next to a city and I can't think of a good word in English for it. But we have a deal with the Zambian government where our people I mean -- their local people with the right T-shirts on and such and iPads going to people's homes in such areas and knocking on the door and looking asking them for any registration documents they have and they walk the perimeter of the land with the iPad and record the coordinates and collect all this information and the incentive of the people is when they take part in it they get government recognition of their land. And let's say it's one little shanty for want of a small home on the edge of one of these informal sectors and now they're going to be paying like $8 a year in tax but they're very entrepreneurial and they say they've never seen anyone who can move as fast as we move and we will have an internet speed. We have a deal done with Zambia and I'll probably be going over there a month to solve and we're turning over the first 50,000 titles we're working on a much bigger deal there.

Rwanda we have now signed an MOU with the government for Rwanda. There are major, major countries and provinces of countries with 50 million, 100 million, 200 million people kind of places reaching out to us. We are -- I mean at this point there's only so much time we can spend on the road and spend in these exotic locales and setting up offices and -- but we have last I heard 60 people on the ground in Zambia going around with iPads and I mean not willy-nilly. There's a certain area I forget the correct term for this area there's nary a correct term but the word in Spanish would be Bario or the word in Portuguese would be Favela.

So informal housing up next to a city and I can't think of a good word in English for it. But we have a deal with the Zambian government where our people I mean -- their local people with the right T-shirts on and such and iPads going to people's homes in such areas and knocking on the door and looking asking them for any registration documents they have and they walk the perimeter of the land with the iPad and record the coordinates and collect all this information and the incentive of the people is when they take part in it they get government recognition of their land. And let's say it's one little shanty for want of a small home on the edge of one of these informal sectors and now they're going to be paying like $8 a year in tax but they have title to have property that the government recognizes against which it might be worth $1,000, and against which they're – they can then borrow money and start a fruit stand, and things like that. That's the vision. And in

Medici Land Governance, we have a revenue model. I can tell you there's enormous sums, enormous sums sloshing around in this industry.

The technology of getting land titled, I mean, when I hear what certain NGOs and people are expecting, and the kinds of money diverse groups are reaching out in order to do this with, it's unbelievable. And we can do it now so far cheaper with the technology we have created than it's ever been done before. So we have this very disruptive model, modelling block chain and so forth, and mobile apps.

There's going to be a lot of money in it. I can't – there're questions in about what is the revenue model exactly. It doesn't matter at this point. It's what we have developed. It's so disruptive, it's so much cheaper and better than the way it's done now. There's so much money sloshing around the world in the field of getting land governments bill. There is – it's a very disruptive company we have here.

So we are pursuing, as I say, the World Bank is bringing us all over the world, we don't have enough people to keep up with all the places that they're introducing us to governments. And we have recently initiated our first U.S. titling project, we're not at liberty to announce the government or level of government, which contacted us and asked us to build this for them. But we are now doing one of these in the United States.

Next slide, slide 20, Steve Hopkins, did we get your announcement out this morning, Steve?

Steve Hopkins

Yes.

Patrick Byrne

Good. Go ahead. Talk about Bitsy, slide 20.

Steve Hopkins

I've been asked to talk about Bitsy, which is an exchange in wallet, the exchange service in wallet created with the goal of making the cryptocurrency accessible to everyone. It unlike Central exchanges, Bitsy provides you with real position of Bitcoin. The challenge with Bitcoin is, if you don't control it, there are ways that it can be frozen or somebody else can be hacked in this industry. It's a real challenge and so, we allow people the opportunity to keep possession of their own Bitcoin. With biometric security, you or your password, we don't – you don't have to risk somebody stealing your password and taking your funds and probably one of the best and most exciting parts of this is with Bitsy's unique key recovery system, it can help you recover your funds anywhere, anytime. There's no need to remember a 12 word c phrase [ph]. There's no need to panic about the fact that you don't – that you have control of these and you have maybe lost them. We have a way that we can help you with that.

Finally and most important, the Bitsy has been in a limited data where we've been testing it and further developing features. We are launching the public access to our beta beginning next Monday, November 12 and that's the announcement that Patrick was referencing at the beginning of the slide. We're very excited to have any of you get on our app, purchase some Bitcoin and help us find all the features we need to make it even better. You should expect repeated code pushes over the next few months as we update the features and get it into shape for a launch, kind of most likely at the end of January or beginning of February.

Patrick Byrne

Thank you, Steve. Unfortunately I'm in a New York hotel room and there's an alarm next to me. So [indiscernible] do about that, I will echo a couple of things Steve said. The real possession of your Bitcoin, you've heard about these different Bitcoin exchanges that they go down and people just lose their Bitcoin. That's because in other wallets that are out there, you hold your Bitcoin in the same way that currently you hold your shares at a public company which if you've been following this story for years, I don't think you really do. I think it's all held in the company under the DTCC and you don't really own anything yet contractual claims.

With the wallets that exist out there what you have is a contractual claim from a company. You don't have your real keys, your real Bitcoin. What is revolutionary about pitching, one of the things that's revolutionary is you get when you buy Bitcoin there you're getting the Bitcoin you're not – you're getting the actual keys. The biometrics and the key recovery system which is itself I think a fabulous service that we may open up to the rest of the industry, it's just what the industry needs because in this industry, well I'll get to geeky if I go into it, but it's just what this industry needs.

Moving on from slide 20 to slide 21, Jonathan?

Jonathan Johnson

So these are the newest additions to our portfolio companies since our last call, all are listed on our Web site, you can read about them, and you can click through to see what they are. I'd like to highlight two to discuss on this slide, both our supply chain companies and as we've looked at supply chain, we thought there were two ways to go at it. One is we go horizontally across an industry that would take a large 800 pound [ph] gorilla that could push things from beginning to end or else go siloed in a specific industry where someone could have enough influence within that industry to make it work. We've decided to go the second way. First, with VinX, VinX is an Israeli-based company that's using blockchain in the wine industry. It's got two problems its solving with its product. The first is proving the providence of the wine.

Many of you have seen the Netflix documentary, Sour Grapes. that people are duped all the time buying old bottles that have new wine in them. Proving the providence of what you're buying is difficult. VinX is tackling that problem with a blockchain solution. Importantly, they're also working on selling wine futures using blockchain. This really meets our vision of eliminating middlemen and democratizing capital.

Today in the wine world, vineyards or wineries are out there, they pick their grapes before they bottle it, they often sell futures to a negotiate onto then sells them to another middleman to a distributor and ultimately it gets to the end user. What VinX is doing is let end users purchase futures using blockchain technology and tokens directly from the winery. That should allow the winery to get more in its sales price, and the end user although we pay them less because you've cut out the middleman. It also provides a great feedback loop where the wineries will know who their ultimate customer is and can provide a good information there and sell directly to them. So again what chain in the supply chain area works great with Vindex. The other one I would highlight is Grain Chain. Grain Chain is an existing software business that helps grain elevators companies track and pay farmers using tokens and blockchain technology Green Chain will now look to grain elevators pay farmers in real time in cryptocurrency as the farmers deliver the grain to the silos. It will cut out a long cycle payment process that really hurts farmers as they run into payment problem. So these are two examples where we think blockchain makes a lot of sense and will work well.

Patrick, you want to say anything else before we move to the next slide?

Patrick Byrne

Just a couple of things, one, I really want to applaud Jonathan's strategic decision to say let's go narrow and deep in a couple of fields like in supply chain. These are great Vindex it works over in Israel, got to visit Israel for the first time, exactly the kind of partners we want and Grain Chain some wonderful guys from down in Texas, so very -- just exactly the kind of people that we want to do business with and these investments are models for how we want to do business coupled with people who are bringing a lot of industry expertise and can come to us and we have a lot of blockchain expertise and we can get together and make a love job. [Indiscernible] also is one worth mentioning, it's a blockchain competitor to votes which is the other blockchain voting app vote, I do want to mention votes on Tuesday -- go ahead.

Greg Iverson

That's on our next slide, Patrick.

Patrick Byrne

Oh, okay.

Greg Iverson

Go ahead.

Jonathan Johnson

Well we have hit the next slide. Well we hit the next slide. So you'll see some press coverage and some of the portfolio companies are getting. I want to talk a little bit about both. Tuesday was a big election in the United States and West Virginia which had done a pilot in its primary election rolled out votes on a broader scale in the general election, allowing people -- West Virginians that are overseas mostly military personnel and their family to use votes application to vote digitally, remotely on their smartphone. Al Gore the day before the election, West Virginians in 29 countries around the world had voted on the votes application. What we're really doing is helping those votes who have find it difficult to vote and participate in our electoral process. Historically in West Virginia less than 10% of military voters overseas vote. We expect that to have been greatly increased, Secretary of State in West Virginia will be putting out a press release later this week, but this is a great application. We're so pleased that West Virginia rolled this out on an iterative basis. A small pilot in the primary a larger state-wide pilot in the general election votes is talking to many other states. We think with all of the talk about hacking and voter participation that votes is primed to do well in municipal elections in 2019 and we hope to roll it out in a much larger way for the 2012 election.

Patrick, anything else you want to say about votes. Before I go to bed.

Patrick Byrne

Not votes go ahead before I go to bed. Not. Please go ahead.

Jonathan Johnson

So Bitt, you'll see some press releases here. Couple of things that were big during the third quarter, the pilot program announced with Curaçao en Sint Maarten where the central bank there will be issuing a digital currency using the Bitt platform. Bitt has rolled out its mMoney product in Barbados. There are now over 200 merchants and thousands of users that are using mMoney to pay and accept payments at gas stations, grocery stores, restaurants in the country of Barbados, a really big deal. And maybe most excitedly that press release on the far left is the Prime Minister of Barbados, Mia Mottley announcing a sandbox pilot within the Barbados government to create a digital version of the Barbados dollar. So people with the Bitt wallet will be able to receive payment from the government and pay to the government different fees there with the government.

Again a big deal blockchain in use in a country where 40% of the population doesn't have a bank account, the digital wallet that Bitt's providing is really life changing, democratizing capital and re-humanizing commerce right in line with our vision statement. Anything you'd like to say about Bitt, Patrick?

Patrick Byrne

Not. Please go ahead.

Jonathan Johnson

Yes. And then on IdentityMind…

Patrick Byrne

Well, actually I have…

Jonathan Johnson

Yes.

Patrick Byrne

I'll hold to the end. You go ahead and finish JJ.

Jonathan Johnson

So with IdentityMind it's really working with digital identities to be more efficient, more accurate and more in-depth presentation of data. Many of our portfolio companies use Identity as a key player in compliance doing any money laundering and know your customer projects. I think, what we'd like you to take away from this slide is four months, if not years there's been a lot of hope and hype around blockchain. What our portfolio companies are doing one-by-one is getting blockchain based applications in use. That's a big deal. That's from blockchain, I think will really be revolutionary and change the way we do things.

Patrick Byrne

Thank you, Jonathan. And I'm actually going to ask flip back to slide 17 for just a moment to echo and reinforce what you have said. We've taken $175 million of your capital, shareholders and we have deployed it into this [indiscernible] which was not chosen willy-nilly. I mean, there was an overarching plan that's described four or five years ago. And this is where we want to fill in and having -- and deploy that capital as intelligently as we could and we've developed a very good system for, I'd say kind of extruding and some of these companies using the capital and personnel of overstock retail, some of them have come out of that body, others have gone up there and found.

There is all kinds of interesting, if you think about it, there is all kinds of interesting relationships among possible, among firms within one column as well as firms across columns. For example, Identity is something that isn't needed. The Identity Mind application and net key or is technology that can end up in money and banking in capital markets, and maybe even land governments, and probably even voting, and on and on. So there's all kinds of synergies across and within these columns. And that's how we've taken a $175 million of your money, and put it to use in building a system. We don't think it's just a bunch of standalone investments. This is a [indiscernible] that makes a law that all fits together.

And slide 18, you see we have very substantial pieces of some of these companies, and some of them are really worldchanging companies like the Bitt, I didn't – I didn't want to step on what you were saying, Jonathan and I know it seems funny to some people that we get so excited that in Barbados I think the Prime Minister walked in to some place and actually used it to buy a chicken sandwich or something, you know, used our app. You can – it's the only sovereign nation in the world that where the sovereign currency is available in digital, i.e., blockchain format, so you can basically have mobile banking on your phone, but there's no underlying bank account, and there's no reason you need.

So, poor people all over the world are not going to need banks because they can now have banking on their phone, but without an underlying bank account. And what comes after that, there's all kinds of other functions besides banking that can be turned into apps on a phone, and plus blockchain. So let's move on to retail.

Jonathan Johnson

Patrick, one thing I'd like to say before I move to retail. If we go back to slide 22, I may have inadvertently referred to these as press released, this is press coverage, and this is from reputable sources if you're on one side of the aisle, you might look to the Washington Post. If you're on the other side of the aisle, you might look to the Fox News stories, and if you're in the middle you'll look to Forbes. These are reputable places that are covering this in a real way. These portfolio companies are doing the work and getting recognized for it.

Patrick Byrne

Exactly. Thank you. Jonathan and Hopkins have done it and the Medici team have – they have assembled something I literally haven't seen anywhere else in the world other than maybe one place in China and that is the blockchain firepower we have accumulated over five years in Utah that we can inject into these companies and help in these different – in this portfolio of companies is something I've only seen in Shanghai and may end in New York a consensus group that that are like the group, the Medici team we have in Utah. I think people don't understand maybe how significant a piece of our building out in Utah has become. Let's move to slide 23. Moving to Overstock Retail, and Seth, would you like to start on slide 24?

Seth Moore

Yes, absolutely. We said on our last call that we believed our marketing testing in Q1 and Q2 would allow us to replace much of our last traffic from [indiscernible] via improved paid acquisition. Additionally, we also ended the testing phase in late July and believe that we could maintain positive growth while decreasing marketing expense with more efficient paid acquisition as well as improved retention through Club O and our customer value focused initiatives. We're pleased to report that in August and September period, we generated year-over-year growth in both contribution and revenue for the first time since our Google rankings began deteriorate, and thereby significantly reduced operating losses.

This is in spite of the fact that we didn't -- did not complete our heightened spend testing until well into the quarter and that our competitors accelerated spending during the same period. We believe that will continue to improve our efficiency year-over-year in the holiday quarter and set the stage for significantly stronger 2019. We also believe that this will obviate the need for further shareholder dilution in order to fund retail operation or Medici investment. And you can see in those graphs, the radical improvements in both contribution and revenue growth really feeding out of that.

On the next slide…

Patrick Byrne

Let me actually comment on that for a second here. The slot on the right set we're probably over 10 years in phone calls, ultimately contribution is the thing to manage and see the economic health of the business is bolt-on contribution. I've been surprised at how Wallstreet has not picked up on it as maybe -- a key metric to follow in companies these contribution dollars. And you can make everything kind of apples to apples across a lot of different business models if you look at e-commerce business models, if you look at contribution, that's our hockey stick. It's not a segment we told you we were going to build it the way it happened. We did it quite quickly and we told you three months ago, we're going to do it and we did it. And as Seth said, it wasn't even – there's always the friction cost and as you make the hard curve, things working against you, but we have a long, we have a long way to go with this. I mean, we have a long, we have a lot of improvements we have figured out. Well, I'll let Seth speak to the next slide.

Seth Moore

Yes. The reality is that July looked more like Q2 than it did like the trend that you saw there. And so we know we have a lot of tailwind coming in behind us as we move forward based on these improvements. You'll see on the next slide, a comparison between our January revenues pre-testing and our September revenues post-testing in our largest acquisition channels. Despite the fact that January is seasonally stronger than September we were able to increase the scale of our acquisition activity while decreasing the number of dollars spent by very significant margins. J.P., do you want to add some color commentary on this and the improvements we've seen in…

J.P. Knab

Yes. I think Seth, yes, one of the benefits of the increased advertising spend is we were able to accelerate our learning. We engaged in some additional resources during that period both internally and with our external partners and we were able to get through a statistical significance much more rapidly during those period because of the increased spend. This allowed us to do about a year, maybe a bit more than a year with the testing and in just a couple of months. The changes range from audience targeting, campaign creative, the integrations with our new machine learning processes and deep incremental testings that we pioneered with groups like Facebook and Pinterest.

The net is we're not able -- only able to beat the typical spend as you mentioned Seth. On revenue September being lower than January but we actually saw a row of bounces if you look at Pinterest up to 187% these are larger than we've ever seen. They're larger than I've seen from any of our competitors in the industry. This was quickly an effort during that period that we're now seeing some of the results.

We do believe we pulled back a bit too much in Facebook as we made the shift. And so we'll be investing back into them further in this current quarter of Q4. And we still have a lot of work to do here but the results are especially encouraging given that our SEO traffic is still at a multi-year low and we have a large amount, we lose a large amount of [indiscernible]. So SEO actually helped these pay channel be more efficient when you lose SEO it makes these kind of bounces even harder to obtain and you lose the ability to retarget that organic traffic. So we're happy with the progress, the direction, still a lot to do to get into even stronger result, but nice progress for that short period of time.

Patrick Byrne

Thank you, JP. And I will applaud you. JP manages such a tight ship here. Just to make sure I'm going to break this down as a bear of little brain. Break it down for anyone who doesn't understand. Row adds has returned on ad spend, as we spend $1 with Google, how much revenue do we get back for it? We spend $1 with Pinterest, how much revenue do we get back for it? That's the row adds. Those have made improvements of 43%, 187%, and 82% that's the way of saying that is we've got like 82% smarter, our marketing dollar has gotten 82% smarter in September versus January on Facebook. And that came in part because of this tremendous Q2 push and spend where we got a sort of a year's worth of data improvement in a quarter. But JP manages this to a fare thee well and now that we have pivoted to this strategy and we've also – he's also managed these relations, we have these wonderful relationships with these firms where we feel we are on sort of the leading edge of development in terms of marketing technology and what we are developing symbiotically with them. J.P. or Seth, do you want to comment anything on that or not?

J.P. Knab

No.

Seth Moore

Yes.

Patrick Byrne

Seth [indiscernible] say. Okay. Well, they've been wonderful partners and…

Seth Moore

They have been wonderful partners and we look forward to continued improvements.

Patrick Byrne

J.P., Google mentions us, can you say anything about Google – about them of these partnerships or not?

J.P. Knab

No, I think your description of an amazing symbiotic relationship is good. We'd love to get in to their alphas and betas to test with them. They love it being in their alphas and betas because we bring a team that's very responsive experts in their space and can test and learn quickly. And so we found it's mutually beneficial that we work together to drive new technology, new innovations in the marketing tech space and advertising tech space.

Patrick Byrne

Thank you. Let's move to slide 26. I'm super excited about this. I've dreamed of this for years. It's finally happened. Go ahead, Seth.

Seth Moore

Yes. So as we enter the exercise to improve our profitability, we knew that in order to replace free search traffic profitably, we would need to significantly increase the amount of free traffic from retain customers on our site. And as you can see from the chart, our Club O Loyalty Program has been instrumental in doing so. In spite of the fact that Club O is already growing well at this time in 2017, we saw the CAGRs accelerate during the quarter and we expect this growth to remain strong in the holiday quarter allowing us to retain more seasonal holiday shoppers into the more profitable home buying season in the first quarter. We think this puts real spring behind us as we move forward into 2019 and becomes a growth engine for the company decreasing our reliance on acquired traffic and on organic search.

Patrick Byrne

All right. And I can say because we have – anyway this is now over a quarter of our revenue just coming out of Club O and maybe belatedly, but we're really – we have finally really found the buttons we need to push to make this grow and get people to sign up and it's working nicely.

Next two slides, I'm going to show you I think these are how often you show up in the top Google 100. Now, in Google 100 is the top 10 pages and we know that you don't go to the 10th page much, but it's kind of a way of saying what is Google viewing, what does it even seeing before it really gets into the ranking question. And I think I showed yes, at the last conference call I showed you that we were actually starting a movement back we have gotten nice movement back in that greater, in that very big bucket of just what is Google seeing in the top 100. We're starting to see some deterioration in some of our key competitors in that metric.

And that all leads to slide 28, after that – the idea is, when you're trying to get SEO built or fixed in a company, it's getting it, showing up in the top 100 and then working on getting those terms to percolate up into the top 10 and then up into the top three.

So slide 27 is the top 100, and as we saw that that movement coming back into the top 100, go to slide 28, you see just in the last week, it is starting to percolate up into the top 10. These are now for us, we are now seeing movement back up into the top 10. What you are looking at here though, I would tell – I would say I wanted to include the slides, this is -- go ahead.

Seth Moore

So the thing that really excites me about this is, we've seen these significant improvements financially in terms of acquisition, in terms of retention. And those have been the major drivers in terms of the contribution turn in Q2 – or sorry in Q3. The exciting thing about this chart is that the big jump doesn't happen until the end of the period, but it was really at the start of Q4 that we saw this recent surge and really the first signs of life in terms of recovery for SEO in the top 10 rankings. And that all came during the October period, and so this really set some nice tailwind behind us as we come into this quarter and the next quarter and gives us a great foundation to build on as we make these enhancements to our site and these improvements that Google is really rewarding us for.

Patrick Byrne

Yes. And this is icing -- also this has point, this is icing on the cake. What's really happened? I mean our operating loss in retail fell from $60 million to $30 million before -- ish before the effect of that lawsuit in California that's been going on just because of the things you've seen on the previous slides, the improvement in marketing spend tightening in marketing spend, the system getting that much smarter that quickly et cetera. This is just icing. I feel confident predicting our contribution dollars are going to grow nicely in Q4 and more in Q1 and an even higher rate in Q2. So I think the race that you see contribution grow will step up Q4, Q1 and Q2 and then settle back to something --settle back to where it settles back, can't see any farther than that in the future. But I feel confident in our marketing technology improvements and then what's going on with SCL. So let's move on slide 29, Seth?

Seth Moore

Yes, I think the really impressive thing about it is we started to look through the metrics, as you see sequentially versus the second quarter which is seasonally a relatively similar quarter big improvements in gross margin, significant improvements in contribution based on those improvements in row adds, more than $30 million in improvement in contribution that played out through to roughly $30 million in income improvement. This has taken before extraordinary legal costs related to one particular shipment case as well as some fund raising activities. And all of that translates through into much improved financials. And the key thing to remember here is, most of these changes we're talking about around ending this testing, didn't start at the start of the quarter. And so this is still reflecting sort of a third of the quarter in that lower contribution model that we were in in Q2. And so we think we have considerable more room for improvement as we move forward.

Patrick Byrne

Okay. Let's go to slide 30, strategic alternatives. And Seth, you have the standby just a moment. I'm going to mention on this before I turn over the Seth, that I have the tone of some of the questions as [indiscernible] I'll let – okay, go ahead, Seth, you address it.

Seth Moore

So, we mentioned in our last call that we were exploring strategic alternatives with potential buyers of the retail business and that we believe positive progress on the profitability of the retail business would help with that process. We're pleased with the business seeing such significant improvements now. And we're currently engaged in a structured and time lined process to move the interested buyers forward in parallel in order to maximize shareholder value and we'll comment more publicly when appropriate based on the confidentiality of the process. I think we're – what's going is there there's lots of questions trying to ask details about who is involved, what are they doing, all those sorts of things. And the nature of a confidential process is, you can't comment on those things. That said, we do have a very nice structure. We're moving interested buyers along and we feel good about the process right now.

Patrick Byrne

Yes, and the process has confirmed to me that this is the right thing to do, because it's confirmed to me what my gut was a year or two ago when I said the gods of economics really think this should be hybridized with one or two other types of businesses, brick and mortar or media business that already have the traffic. And certainly the act of these discussions has made us see the gods of money that fall out if we're part of either one of these two different types of businesses. So there's no doubt in my – I'm looking for I'm marrying my daughter off, I'm marrying my daughter off, I grown her for 19 years, there's no question in my mind that I want to marry her off. People can be confident that there's no second thoughts about that. I know that she doesn't belong with me. I know that she belongs to married off. On the other hand, we want to find the right shooter and such but as Saum has described there is a very structured process that is in place and Seth is leading the charge to it.

So with that that was a lot of information. Jonathan, why don't you take over?

Jonathan Johnson

Great. Thanks, Patrick, and I'll just note as we go to questions, two things. One, we've received a lot of questions and we appreciate the questions from our shareholders. We hope we've covered some of them in the presentation. We'll answer all of them. I would also remind our shareholders, and investors that we have an Investor Day next week in Salt Lake on the 13th. We invite you to participate in person or in phone, it will be something that you can dial in and listen to.

So with that, I'm going to go through the questions and I think I'm going to go because they came in from different people and different branches, we're going to go through them in the same order that our presentation was, well first take some – put the questions about tZERO, Medici and its our portfolio companies, and then we'll get to retail portfolio companies and then we'll get to repay and then there's some general kind of overarching overstocked questions we'll get to, but Saum, can you give us some sense of the number of companies in 2019 that might be listed on the tZERO exchange and where we think we're going with that?

Saum Noursalehi

Yes. Well we have a nice pipeline as I mentioned of issuer's or companies that want to do security token offerings and then those tokens would then move to secondary trading on the ATS. And there's really been two schools of thought here, one is who is going to quickly ramp up and get to 2,000 and 5,000 tokens trading and that's the group that's going to win. Our philosophy is to be much more selective in vetting these companies. And so while we have a healthy pipeline we're being very selective on who we want to onboard on to our system. But they come from all sorts of sectors we have parties from pharma, tech, the financial world, even film that are interested in doing token offerings with us.

Patrick Byrne

Go ahead.

Seth Moore

No, I was going to ask the next question, do you want to add anything to that Patrick?

Patrick Byrne

No.

Seth Moore

Right. We've completed the STOs where do we stand on providing services to other companies that want to do STOs and maybe setting up exchanges like tZERO in other parts of the world?

Saum Noursalehi

Right, on STOs we – so we learned a lot through our own process being one of the first to have done this. And so we're already in discussions now with some of the companies that I mentioned we're in conversations with to do their offerings, and so we're really hoping by Q1 we start to do more of these token offerings for other parties. And as far as exchanges that are offshore, we're in talks with two exchanges that are international and they're moving along nicely. Anything, Seth or Patrick, do you want to add to that?

Patrick Byrne

Yes. I think the international development is moving along nicely. We're also seeing a nice emerging pipeline of interested companies out of Asia, particularly Singapore and Hong Kong that are interested in doing token offerings. It's actually been a very interesting phenomena in the ICO world when the U.S. cracked down on ICOs, a lot of them moved into Asia, particularly into Singapore. However, we're seeing a lot of those companies start to evolve and see the value in having their offerings as a registered security and some of the safety that it actually brings to the issuer to do so. And so, as that happens, we're seeing a lot of interest in doing that kind of offering and doing their initial issuances either in the U.S. or in a partnered exchange via one of the other locations where we're looking to add in international exchange presence.

Saum Noursalehi

So we have undeniably, so this field we have noticed for two or three years now has a lot of people wandering around talking about – talking a good game and talking about all the things they're going to do. I'll point out again, we're the only guys in the world, we've done what we did in the world's first private cryptosecurity, the world's first public cryptosecurity. Now, we've issued a security token pursuant to all the laws and regs of the SEC. One could argue we're with the first or second to do that. One can argue with the second or one could argue with the first to do that. We have an ATS is SEC -- that they can actually trade such securities and we have -- we're working on the exchange.

So as exciting as this world of security tokens is, I think it's fair to say and it's quite interesting when we go to Asia and Europe how widely this is understood there is -- we're not the only game in town but we are so far ahead in terms of our actual accomplishments what we have done. We are so far ahead of all the other people who are saying they're moving into this field and we intend with some and the capital he's brought in they're both human and financial, we anticipate building that lead.

Patrick Byrne

Great. Saum, you did address this in the presentation, maybe there's not much more to say but what the current status of the digital locate receipt of DLR effort?.

Saum Noursalehi

Yes. So I said that there -- so my -- I would say my primary focus has been really ramping up and accelerating the security token world. But in addition to that we see the massive opportunity with DLRs and we're now putting product managers and shifting a lot of engineers onto that product. And we've said it's in beta testing and the stock loan revenues are now 5x to 6x what they were. But we see that really going to the next level starting early Q1…

Patrick Byrne

And these are not negligible numbers. I mean it's 5x -- it's a real number. It's not like a $100 to $500 something. I do want to mention that we had – I mean so it's growing nicely but it's really almost and I'd say [indiscernible] still are. It's not but we recently had an investor, we can't disclose who but who was talking about basically basically most people who want to be involved are super excited about the security token world, but somebody who really knows their stuff, some massive investor who really knows their stuff was contacted us in our discussions. Their attitude is basically, yes, yes, that security token stuff is nice. What is your deal our product going to become ready for prime time. And because we understand that's where the real money is on Wall Street, it's true that there were some people who really understood. So we know that there's a lot of hunger for us to take that product from its current alpha state and supersize it but some has had -- some had a resource constraint technologically and then a lot of people smeared around, but now that he has padded out all these teams. We have the resource to pursue all of these, at the same time.

Saum Noursalehi

Yes. And I think you'll really see that program move from its alpha testing in a much more widespread adoption like Saum said in early 2019.

Patrick Byrne

Hey, as we're talking about digital locating receipts may take a move away from tZERO will get back to you, but Patrick a question for you since the last earning call the stock's declined. You attribute any of the decline [indiscernible] with short sellers and if so is there a way to use the deal or platform to curtail short selling of Overstock stock?

Saum Noursalehi

No, I haven't been following that issue frankly for years. I assume we're not on the great show. But I will mention as far as these – so no, I can't – I don't know – I know that we're incredibly heavily short and somebody told me 10 million shares or something, that's their business. No, no complaints, but I'm not aware of any mischief or subtle in failures. Although, years ago we discovered there are ways people can have them and keep stock showing up on the right show list and that's by using the ETFs and you will see that ETFs in which we are used – the last time I checked a year or two ago if you look at the couple ETF baskets that we were a member of and those were the – those were the ones with the largest settlement figures on Wall Street. So may be that people are playing the game, they just shifted it into a new loophole.

However I do want to mention that by my calculations. tZERO reaches five years in 13 months and we've looked into this. I want to show people although I think the whole strategic question gets resolved a lot faster than 13 months, but just a balancing so that they understand. Please understand that if nothing else tZERO's in another 13 months becomes eligible for a tax free dividend. We can do it tax free dividend or shareholders of our ownership in tZERO and I will commit that that's what I'm going to do if we've not found some other strategic solution before then I can't imagine that we will not buy 13 months. I think that that but just to give people an outer day, I can promise you that if I'm still sitting in this seat, that 13 months from now if we have not sold the retail business we will have – we will be spending out tZERO and a tax free dividend to people. But – again I think that 13 months is a - is – it would surprise me if that promise gets called upon.

Patrick Byrne

Saum, can tZERO do another security token offering and maybe you could explain just what a security token offering is there may be some people who don't know what that term means?

Saum Noursalehi

Yes, so we can do another offering, but that's not currently the plan. We raised a $104 million in cash, $134 million if you count the payback to overstock, but no plans to do another token offering at this time. STO is a Security Token Offering. So it's a lot like an ICO that was being done, and is still being done for utility tokens where they issue tokens to raise capital. Businesses do this to raise capital. We've demonstrated that we can do this with a regulated equity offering. And we've demonstrated that it can be done properly. So, it's something we plan to provide as a service to other businesses.

Patrick Byrne

Great. Good explanation. There's some questions about GSR investment in tZERO, are there additional parties other than GSR that are interested should GSR deal not close. And would they do it at the same valuation, and if so, why not, maybe it's a question for you, Saum or for Seth.

Seth Moore

I know there's other parties interested that have expressed interest, but Seth, why don't you take this one?

Saum Noursalehi

Yes. We actually have met a number of strategic parties who are interested in investing in tZERO, and they have a lot of interesting strategic ramifications and can bring strategic value to the company. We also feel good about how things are going with tZERO like I said, we're very excited about the strategic opportunity they pose, and we're also confident in getting our deal done together.

I know there were a couple of other questions that I'm seeing coming in. One asking, if we have concerns we are working with, for those who don't know, review to make sure that foreign nations don't get control of security sensitive industries in the United States. We are working closely with GSR making sure that we structure the investment in such a way that it avoids raising serious concerns and we're confident that we can work around it, so that everybody will be comfortable as well as meeting their needs.

Seth Moore

Yes. Translation is, they're not getting enough control at any one level of either the tokens or tZERO or stock that they'd be able to – as to trigger any national security insurance.

Patrick Byrne

Great. Thank you for that answer. Saum, we've completed the SDR does that the mean the SEC investigation is over?

Saum Noursalehi

No, it's not over, it's in progress independent.

Patrick Byrne

And often no news is good news is what I would…

Saum Noursalehi

But I feel good about it. I feel good about it.

Patrick Byrne

Right. Those are questions on TV row, there's a number about Medici Ventures and the portfolio companies. Steve, let me ask you a couple about Betsy, what's the timeline for the Betsy platform to begin trading? And what did we learn in the limited beta?

Saum Noursalehi

The first answer is you can buy the Betsy as soon as you download the app on Monday. The open beta is an open beta, but it's functioning. We're not treating, just to be clear, we're really focused on being a bridge between dollars and other PI currencies and cryptocurrencies, we're not trying to be a fully functional cryptocurrency exchange you might see in Saum's slides that one of the things that tZERO is looking to do is get involved in full cryptocurrency exchange model where you're trading lots of currencies for each other. We're focused on making it easy to move dollars into Bitcoin and other cryptocurrencies and back. That's our focus.

Patrick Byrne

For the limited beta, I would say, we learned a lot of things about just code. What we've been doing is testing and wherever we've got a fail, we work through it and dive deeper until we reassure ourselves that we've got a bullet proof. That's our goal.

Saum Noursalehi

And I would say, iterative learning, agile development is what Bitsy has been practicing. I think, it's been very helpful for us, so. Patrick, some questions about Medici Land. The World Bank and various other country MRUs have been signed. What does that mean in terms of revenue? What's the timetable and what's the significance of what we're doing in Rwanda?

Patrick Byrne

I would not be expecting in the next year significant revenue out of this, but the - it's something like, I have to say, it's like it's 1993 and I feel like we're sitting here explaining this thing of being able to serve. There's a bunch of these different Web sites that there may able to search among them. It's going to be really valuable and somebody saying, yes, but what's the revenue model? Just trust me. It's going to be really valuable to be able to search on the Internet and it can be really, really valuable to not only set aside the hundreds of millions of dollars that are sloshing around the world to pay in donor funds and such to get governments to take title up – to title up to implement good land governance. The amount of capital that is released by good land governance just throws one number out you. There's a $179 trillion of known reserves of precious metals and such around the world that are not - nobody digs because there is not one of the reasons, there is not – they can't get capital because there is not good land governance and ultimately you can't raise money in a public company to go mine somewhere if you can't prove all the land governance. So there's a $175 trillion of in just that area of getting -- that would be liberated by getting good land governance globally.

There are these kinds of numbers, just ridiculous multi-tens of trillions of dollars numbers that fall out of helping countries. I mean there's one major, major country in Africa that is in contact with us talking about asking us when can we bring over that whole text -- that the whole seven layers I showed you at the outset and bring – and we can bring them to a Central Bank on a laptop a blockchain Central Bank on a laptop.

We can bring them a land governance system on the land. They're talking about multi-hundred million dollar of checks for us to come in and install these systems there. So that the truth is at this point we know there is so god awful amount of much money in it that we're not even really worrying about that right now what we are worrying about is getting these systems bill and we're doing it. And we get paid, the next project we do in Zambia we'll be paid for if we do it. And as you know we've paid enough for that it covers a large fraction of the expense or a significant fraction of all the capital we've needed to-date to build this. There is just a heck of a lot of money in this field. It's not the only reason I'm doing it. I think we can change the history by…

Saum Noursalehi

Yes, I'd footnote by saying in sort of the classic Silicon Valley startup model, your goals are first a really huge market and there are not many markets bigger than land and even in the sub-market of land title and governance et cetera those markets are absolutely enormous. But then secondly you need to look and see as your product adaptable and it does have real demand and we knew the first was true, now as we've started these projects as we're seeing the adoption with our partners in Zambia and Rwanda and now even in the U.S. we're seeing both in undeveloped markets and in highly developed markets, there is real demand and there is a big push for adoption. And so we see those two formulas is working out and when they do we know a lot of money is going to be made it would be silly for us to start trying to put projections around it now instead of just making the investments we need to grab the opportunity.

Patrick Byrne

Well, and what I can tell you is that we are in charge in front of anyone in the world and I can think of one group over from the Big Theory folks that are doing this in Georgia. They have a one pilot project in Georgia last I heard. But other than that I think we are leading the world in this as we are in the capital markets, as we are in blockchain central banking. We may -- so okay that's my answer. And Rwanda, Rwanda is a very interesting country. We all think of it like because of what happened there 20 years ago, but actually it's really a model African nation. And it's like Estonia is in Europe where they're going through digital citizenship and they're very forward leaning, while the same thing is true with Rwanda and they are extremely progressive in the good sense of that word about, they really are experimenting with leading edge stuff there. And so the benefits of that will flow out of this, we just have to document it in a few places and we'll have the world beating a path to the door, but [indiscernible] our door. But the truth is the world is thanks to the World Bank, the world is that we have more projects to discuss with governments than we have people can fly around the world to have discussions.

Saum Noursalehi

Great. Thank you. Question on votes, mid-term elections were just held Russian middling in elections was a huge news story. Why didn't we promote votes more heavily during the midterm seems timeline.

Patrick Byrne

Let me answer that question. Maybe no group is more change averse and county courts running elections. These people move slowly, we were very pleased with what foresight and vision that the secretary of state and the county clerks in West Virginia had implemented. There are many states and counties that are watching what happened in West Virginia. I think doing it institutively, learning what we learned in West Virginia, proving what we proved in West Virginia was good. I don't think we could have done it any faster promoted it any harder. I do expect to do it faster and with more promotion in the years to come as we come to new elections. Patrick you want to add anything to that?

Saum Noursalehi

No, other than it's a – well it is a obviously a super timely field and all of these – all this [indiscernible] that this country is feeling can be addressed if everybody switched to blockchain voting. Go down voter fraud question and voter suppression questions voter hacking questions and all gets resolved if you go to blockade and created transparent immutable system.

Patrick Byrne

And I would also just say the speed problems. There are several elections which are still not called including congressional district were Overstock is located. But voting done blockchain doesn't require for our alliance and provisional ballots and all these things.

Next question does Overstock have current revenue generating blockchain deals that will generate revenue and income in the next 12 months? I guess the answer is, yes. Some of those like tZERO roll up in the Overstock, some where we own smaller percentages can generate revenue, can make huge income and it still won't show up in the Overstock P&L, is that correct, Greg?

There was a nod of his head from Greg for those on the phone. But, yes, but it's only the companies that we have a larger percentage ownerships and like tZERO, which does today generate revenue; and as Saum has talked about, have plans to generate more revenue that we'll see roll up into the P&L for Overstock.

Another question, it's kind of a shotgun question for Medici, for all your Medici venture holdings what percent do you own? Why did you invest? What's the business model? What the sales margins look like? Who are the public coms? Who's running the companies? And will they do STOs? That's a lot of questions. I will say, we did disclose on one of the slides, maybe slide 17 or 18, what percentage we own. I think we've explained why we invested in the company – companies Patrick's put out a blueprint that we're building to. We have our vision. Each of the companies fits in the blueprint and helps advance the vision.

You know, what sales and margins look like in each of the companies, it's hard to say. Many of these are nascent start-ups. We're bullish on them. That's why we've invested. Public comps, many of the companies are disruptive into new areas, new areas and there are public comps. They're doing it and will always do STOs, I don't know, they may, we're not going to dictate how they raise money, but that's where we are.

Let me move forward to retail. Year ago we talked about [ph] softs, our software logistic system. We have an update on this and how it relates to creating buyers or value for maybe potential strategic buyers.

Saum Noursalehi

Sure. I'll take a first crack at that. That well Sam and Seth will take you. Go ahead.

Patrick Byrne

Okay. Well, that our systems I mean we've talked to…

Saum Noursalehi

Oh, oh sorry, I…

Patrick Byrne

…blocks of the big -- the big brick-and-mortars and we have systems that one group said we in 10 years a billion dollars we couldn't build what you've built here and they know like they talk to. We have similar suppliers and stuff and they talk about our systems versus Amazon's or versus Wayfair's and we have. So we have systems sometime in the supply chain system that sauce. We have agile nimble we built three or four years ago we spent $30 million building our supply chain system to have intelligence that we'll -- actually in some ways we use some of the techniques we use on the consumer-facing system. But people don't want this just for the backend system they want is all kinds of technology that is that optimizing our Web site and all kinds of dimensions and ways…

Saum Noursalehi

Yes, I would say there's really a couple of fronts that are key. One is we have proprietary rendering technology that lets us to load pages faster than just about anybody else. If you look at the load times, for example on our home page, on the mobile Web site on a bad 3G connection, it's like half the time to load that it is with most of our competitors. Likewise, if you look at what we would call sort of product finding technology, we have technology that is considerably better than what the retail industry at large has and particularly, better than what a lot of legacy players have built and we think it's very valuable in a strategic combination to help them improve the exposure of the rightly good assortments that they build and are proud of.

And then, finally like the questioner brought up, we do have a lot of value and our logistics technology and in particular, we made improvements in our logistics network in this quarter where we've just added some distribution capabilities, particularly out of the middle of the country that will make our network faster and more efficient bringing down shipping costs and shipping times.

Patrick Byrne

We actually brought the Continental U.S. into two-day. Now, 98% of the country is in two-day for works for furniture is a big deal.

Saum Noursalehi

Yes. So yes, there are a number of systems there that have the potential to add a lot of value in a strategic acquisition and those technologies and those capabilities have value for outside of our brand name and so, we think that offers a lot of potential strategic value.

Patrick Byrne

Great. Staying on the logistics area, do we still plan to move forward with adding distribution centers to increase two-day shipping portfolio?

Patrick Byrne

Yes. Yes. As I was just saying we did add additional distribution this quarter. And we think it's going to be very valuable and we'll improve our operating costs?

Saum Noursalehi

Great. Might be a question for JP or Patrick what did we learn from Customer Day. Do we plan to do it every year. What does it tell us about our ability to add new customers? And why do we do it in October when Amazon has Prime Day in June and Wafer does there's in April. JP you want to take?

J.P. Knab

Yes, I'll take that. We have our annual sell each October, we felt like a Customer Day would fit nicely in there. We also looked at there's a nice influence to the holiday season. So October 15 you're month out from Black Friday, a little over a month. And so set some [indiscernible] what the day will do, blue pas those stress rules it was a first attempt and we have some great roadmap items for next, but we're presently surprised by how customers reacted to it. Probably the primary learning we found is as we present different opportunities for our consumers to shop some of the best form events in the industry. They really respond to that. So we're building that not only into next customer day, but into our promotional planning for 2018.

Saum Noursalehi

Right, international sales, Patrick, you want to comment on those?

Patrick Byrne

Well we have refocused – we have focused our efforts on Canada and here we've spent all these years chasing around the world markets and we – the best thing is to get Canada right and we have gotten Canada right and it's growing very fast and not enough to be a significant part of our business this year, but enough to start being a – I mean it's a single digit percentage of our business this year. Next year we can start really at this kind of growth rate we would be adding significantly. And so but our focus has been on Canada and just getting the features and free shipping and all the things right for Canada rather than trying to work on 20 countries at once. And that's really been what's going on for the last two years and we think we have it down and it's growing quickly like multiple hundreds of percent. It will be – well, I don't want to say the number this year what it will be. But it's a significant – but it was less than a $100 million but a significant number, and then but – so next year should start really adding.

Saum Noursalehi

Great. Patrick, we do deal with LEO Motors and we ever thought about doing a deal with Tesla?

Patrick Byrne

We have thought about doing a deal with Tesla but Mr. Musk has been hard to reach this month. I was trying if anyone out there listening knows his e-mail but in the last couple of months he was -- he was hard to get a hold of. I'm not sure why. But if you have his e-mail tell him to get in touch. Because we got -- I think the LEO and I said when we did it the LEO car coin, LEOcoin you should really study it. Although I love the car myself I'm also excited about that token design because I think that token design is going to take over a lot of things, it could take over financing of public infrastructure someone reached out to me this quarter a, leading medical researcher in a specific area that wanted to discuss -- that you can apply that token design to funding specific pharmaceutical research et cetera. So anyway it's getting late. Jonathan, how many more questions do we have?

Saum Noursalehi

We've got one more. The rest of the questions really deal with things that we've addressed on the call about strategic sale and GSR, I think we've addressed them all. There is one other recently hired three new C-level executives. To talk about them, tell us does that have anything, how does that affect the company's intent to do something strategic?

Patrick Byrne

Yes, I don't think that that affects the intent of the company to do something strategic at all. If you look at the executives, we added; one is Dave Nielsen, who is new, but not new. He's actually an old-time hand that we've worked with for a decade now, and we're very excited to have him back. The other two we've made a deliberate and careful effort around re-centring the company's customer focus around both customer targeting and customer experience. And if you look at the other two hires, they were really brought in to help us emphasize that portion of the business, and to fill out where we have elevated roles that were formerly not sea-level roles with emphasis around those two fields, and the addition of those two executives helps us elevate those roles, and draw that focus into a part of the business that we think we have great opportunities in, and will fuel a lot of growth for the company in the future.

Saum Noursalehi

Well said.

Jonathan Johnson

So that's the Q&A. Again, we remind people of our Investor Day on the 13th, next week. It's great to talk to our investors, and now that we're working hard for you. Patrick, anything else?

Patrick Byrne

No. Thanks very much.

Jonathan Johnson

Okay, bye. Thank you.

Operator

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.

Question-and-Answer Session

Operator