DISCONTINUED OPERATIONS

12 Months Ended

Dec. 31, 2022

Discontinued Operations and Disposal Groups [Abstract]

4. DISCONTINUED OPERATIONS

On January 25, 2021, we entered into an agreement with Medici Ventures, Pelion, and Pelion, Inc. (the "Medici Closing"), pursuant to which Medici Ventures converted to a Delaware limited partnership (the "Partnership") and Pelion became the sole general partner of the Partnership, and we became the limited partner of the Partnership. The term of the Partnership is eight years. A tZERO debt conversion was completed during the quarter ended March 31, 2021, following which Medici Ventures and Overstock held approximately 42% and 41%, respectively, of tZERO's outstanding common stock. On April 23, 2021, we entered into the Limited Partnership Agreement with Pelion, pursuant to which Pelion became the sole general partner, holding a 1% equity interest in the Partnership, and Overstock became a limited partner, holding a 99% equity interest in the Partnership. Our retained equity interest in these entities are classified as equity method securities as we are deemed to have significant influence, but not control, over these entities through holding more than a 20% interest in the entity.

At the Medici Closing, our retained equity interest in the Partnership and our direct minority interest in tZERO had a fair value of $288.8 million, inclusive of $3.4 million of capital calls funded at the Medici Closing. The fair value of these equity securities at the Medici Closing was estimated by taking the mid-point from a valuation range using a weighting of multiple valuation techniques on the underlying components of the equity securities to calculate a fair value for the whole, including discounted cash flow models and market transactional data, both of which incorporate significant unobservable inputs (Level 3). Approximately $149.9 million of the total $288.8 million Level 3 equity securities have been valued using unadjusted inputs that have not been internally developed by management, including third-party transactions and quotations. The significant unobservable inputs used in the $288.8 million fair value measurement of these Level 3 equity securities at the Medici Closing are summarized as follows:


Valuation technique	Unobservable inputs	Range (1)	Weighted average (2)
Market approach	Enterprise value to revenue multiple	0.88x	0.88x
Discounted cash flows - exit multiple	Discount rate	9.0% - 35.0%	32.4%
	Enterprise value to revenue multiple	0.75x - 5.00x	4.40x
	Projected terminal year	2023 - 2027	2025
	Annual revenue growth rate	1.3% - 124.0%	109.4%
	Annual EBITDA % of revenues	5.2% - 41.2%	36.3%
Discounted cash flows - perpetual growth	Discount rate	30.0%	30.0%
	Projected terminal year	2028	2028
	Perpetual revenue growth rate	3.0%	3.0%
	Annual revenue growth rate	25.7%	25.7%
	Annual EBITDA % of revenues	14.9%	14.9%

__________________________________________

(1) — The range for the Annual revenue growth rate and Annual EBITDA % of revenues are based on the weighted average metrics for the annual periods of the separate cash flow models for the respective component.

(2) — Unobservable inputs were weighted by the relative fair value based on the fair value of the underlying components subjected to the identified valuation technique. For projected terminal year, the amount represents the median of the inputs and is not a weighted average.

We recognized a $243.5 million gain upon deconsolidation of these entities which primarily relates to the remeasurement of our retained equity method interest in the Partnership and our direct minority interest in tZERO at fair value, which was included in our consolidated statements of operations as part of Income (loss) from discontinued operations, net of income taxes. We completed the entire funding of our $44.6 million capital commitment consistent with our proportional ownership interest, which was completed and funded in the second quarter of 2021.

Results of discontinued operations through the transaction date were as follows (in thousands):


	Year ended December 31,
		2022		2021		2020
Net revenue		$	—	$	17,394	$	55,868
Cost of goods sold		—		13,716		47,691
Gross profit		—		3,678		8,177
Operating expenses
Technology		—		7,133		20,750
Selling, general, and administrative		—		13,509		31,916
Total operating expenses		—		20,642		52,666
Operating loss from discontinued operations		—		(16,964)		(44,489)
Interest income, net		—		192		600
Other income (loss), net		—		4,081		(5,441)
Gain on deconsolidation		—		243,541		—
Income (loss) from discontinued operations before income taxes		—		230,850		(49,330)
Provision (benefit) for income taxes		—		13,604		(374)
Income (loss) from discontinued operations, net of income taxes		$	—	$	217,246	$	(48,956)
Less: Net loss attributable to noncontrolling interests from discontinued operations		—		(335)		(9,830)
Net income (loss) from discontinued operations attributable to stockholders of Overstock.com, Inc.		$	—	$	217,581	$	(39,126)