Geeknet Announces Second Quarter 2014 Financial Results and Acquisition of Treehouse Brand Stores

Revenue increases 6% in the second quarter to $23.4 million

News provided by

Geeknet, Inc.

Aug 01, 2014, 07:00 ET

FAIRFAX, Va., Aug. 1, 2014 /PRNewswire/ --Geeknet, Inc. (Nasdaq: GKNT), the parent company of online retailer ThinkGeek.com, today announced financial results for the second quarter ended June 30, 2014.  The company also announced the acquisition of substantially all of the assets and certain of the liabilities of Treehouse Brand Stores, LLC effective today for $1.5 million of initial cash consideration and total cash consideration of up to $3.5 million, to be paid based on the achievement of certain performance metrics.

Total revenue for the second quarter of 2014 was $23.4 million, an increase of 6% from $22.0 million in the second quarter of 2013.  Net loss for the second quarter of 2014 was $4.1 million or $0.62 per diluted share compared to net loss of $1.5 million or $0.23 per diluted share for the same period a year ago.  Adjusted EBITDA loss for the second quarter of 2014 was $3.0 million, compared to an adjusted EBITDA loss of $0.4 million for the same period a year ago.

Second Quarter Highlights:

  • Wholesale revenue grew to $5.6MM, up 48% when compared to the second quarter of 2013
  • We delivered over 474 new products to our customers, including 74 exclusive items
  • Our conversion rate improved to 1.67% from 1.44% in 2013

"ThinkGeek grew revenue 6% in a competitive retail environment. We delivered strong growth from our GeekLabs exclusive products and our wholesale segment. Despite softer site revenues and pressure on margins this quarter, our entire team is focused on the upcoming fall and holiday seasons.  To celebrate our fifteenth anniversary, but more importantly to improve the customer experience, ThinkGeek has launched a major brand refresh campaign including the redesign of our web site," said Katy McCarthy, Chief Executive Officer.

"A critical element of our strategic plan is to build out our platform to increase the customer base.  Since 2009, Treehouse Brand Stores has worked directly with major video game publishers to engage fans with their unique and exclusive products. This acquisition enables Geeknet to establish official web stores under exclusive licenses while adding creative talent and expertise to our company," said McCarthy. "I am excited to join Geeknet and can't wait to work together to accelerate growth, while continuing to deliver even more of the unique merchandise our fans have come to expect," said Jed Seigle, President of Treehouse Brands.

Supplemental schedules of the Company's quarterly statements of operations and operational statistics are available on the Company's web site at investors.geek.net.

A conference call and audio webcast will be held at 11:00 am ET on August 1, 2014 and may be accessed by calling (877) 348-9353 or (253) 237-1159 outside the U.S., or by visiting investors.geek.net. A dial in replay will be available from 4:00 PM ET August 1, 2014 until 11:59 pm ET August 3, 2014 by calling (855) 859-2056, with conference ID 73137452.

About Geeknet, Inc.

ThinkGeek, Inc., a wholly owned subsidiary of Geeknet, Inc. (NASDAQ: GKNT), is the premier retailer for the global geek community.  Since 1999, ThinkGeek has been creating a world where everyone can express their inner geek, embrace their passions, and connect with each other.  Our obsession is creating and sharing unique and authentic product experiences that stimulate our fans' imaginations and fuel their geek core.  We believe that there is a geek in everyone and that it should be celebrated.  Want to learn more?  Check out thinkgeek.com or geek.net.

Use of Non-GAAP Financial Measures

In addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, we also report adjusted EBITDA.  The method we use to calculate adjusted EBITDA is not in accordance with GAAP, is likely to differ from the methods used by other companies for similarly titled measures and should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results.

We believe that adjusted EBITDA provides useful information to both management and investors and is an additional measurement which may be used to evaluate our operating performance. Our management and Board of Directors use adjusted EBITDA as part of their reporting and planning process and it is the primary measure we use to evaluate our operating performance.  In addition, we have historically reported adjusted EBITDA to the investment community.  We also believe that the financial analysts who regularly follow and report on us and the business sector in which we compete use adjusted EBITDA to prepare their financial performance estimates to measure our performance against other sector participants and to project our future financial results.

We define adjusted EBITDA as earnings or loss from continuing operations before interest and other expense, income taxes, stock-based compensation and depreciation and amortization.  Adjusted EBITDA excludes certain expenses that we believe are not directly related to our core operating results.  Although some of the items may recur on a regular basis, management does not consider activities associated with these items as core to its operations.  With respect to stock-based compensation, we recognize expenses associated with stock-based compensation that require management to make assumptions about our common stock, such as expected future stock price volatility, the anticipated duration of outstanding stock options and awards and the forfeiture rate.  While other forms of expenses (such as cash compensation, inventory costs and real estate costs) are reasonably correlated to our underlying business and such costs are incurred principally or wholly in the particular fiscal period being reported, stock-based compensation expense is not reasonably correlated to the particular fiscal period in question, but rather is based on expected future events that have no relationship (and in certain instances, an inverse relationship) with how well we currently operate our business.

NOTE REGARDING FORWARD-LOOKING STATEMENTS: This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations, and involve risks and uncertainties. Forward-looking statements contained herein include statements regarding our strategic plan and future growth, as well as statements regarding the impact of our acquisition of the Treehouse Brand Stores business.  Actual results may differ materially from those expressed or implied in such forward-looking statements due to various factors, including: popularity and demand for our retail products; management's strategy, plans and objectives for future operations; employee relations and our ability to attract and retain highly qualified personnel; our ability to continue to invest in developing and acquiring new products; competition, competitors and our ability to compete; liquidity and capital resources; the outcome of any litigation to which we are a party; our accounting policies; sufficiency of our cash resources and investments to meet our operating and working capital requirements; our ability to successfully integrate the acquired assets and operations of Treehouse Brand Stores; our ability to realize the anticipated growth, synergies and other benefits from our acquisition of the Treehouse Brand Stores business; and our ability to retain relationships with key employees, vendors, licensors and customers of Treehouse Brand Stores.  Investors should consult our filings with the Securities and Exchange Commission, sec.gov, including the risk factors section of our Annual Report on Form 10-K for the year ended December 31, 2013, for further information regarding these and other risks of our business. All forward-looking statements included in this press release are based upon information available to us as of the date hereof, and we do not assume any obligations to update such statements or the reasons why actual results could differ materially from those projected in such statements.

GEEKNET, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data, unaudited)


Three Months Ended
 June 30,

Six Months Ended
 June 30,

2014

2013

2014

2013

Net revenue

$

23,395

$

22,004

$

46,086

$

41,561

Cost of revenue

19,935

17,595

38,801

33,532

Gross margin

3,460

4,409

7,285

8,029

Operating expenses:










Sales and marketing

2,991

1,919

5,496

3,642

Technology and design

2,071

1,494

3,940

2,898

General and administrative

2,613

2,473

4,432

5,257

Total operating expenses

7,675

5,886

13,868

11,797

Loss from operations

(4,215)

(1,477)

(6,583)

(3,768)

Interest and other income (expense), net

66

(13)

189

(27)

Loss from continuing operations before income taxes

(4,149)

(1,490)

(6,394)

(3,795)

Income tax provision

—

—

—

3

Net loss from continuing operations

(4,149)

(1,490)

(6,394)

(3,798)

Discontinued operations:










Loss from discontinued operations, net of tax

—

(41)

—

(69)

Net loss

$

(4,149)

$

(1,531)

$

(6,394)

$

(3,867)

Loss per share from continuing operations:










Basic and diluted

$

(0.62)

$

(0.22)

$

(0.96)

$

(0.57)

Loss per share from discontinued operations:










Basic and diluted

$

—

$

(0.01)

$

—

$

(0.01)

Net loss per share:










Basic and diluted

$

(0.62)

$

(0.23)

$

(0.96)

$

(0.58)

Shares used in per share calculations:










Basic and diluted

6,694

6,638

6,676

6,612

GEEKNET, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


June 30, 2014

December 31, 2013

ASSETS

Current assets:




Cash and cash equivalents

$

45,277

$

53,084

Accounts receivable, net of allowance of $1 and $6 as of June 30, 2014 and December 31, 2013, respectively

4,074

9,719

Inventories, net

17,738

20,186

Prepaid expenses and other current assets

3,708

4,202

Total current assets

70,797

87,191

Property and equipment, net

1,952

2,465

Other long-term assets

84

50

Total assets

$

72,833

$

89,706






LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:




Accounts payable

$

3,441

$

10,250

Deferred revenue

1,842

2,828

Accrued and other liabilities

3,224

6,661

Total current liabilities

8,507

19,739

Other long-term liabilities

14

—

Total liabilities

8,521

19,739

Commitments and contingencies (Note 7)




Stockholders' equity:




Preferred stock, $0.001 par value; 1,000 shares authorized; no shares issued or outstanding

—

—

Common stock, $0.001 par value; authorized — 25,000;  issued — 6,997 and 6,901 shares, as of June 30, 2014 and December 31, 2013, respectively; outstanding — 6,714 and 6,639 shares as of June 30, 2014 and December 31, 2013, respectively

7

7

Treasury stock

(3,818)

(3,479)

Additional paid-in capital

817,904

816,826

Accumulated other comprehensive income

16

16

Accumulated deficit

(749,797)

(743,403)

Total stockholders' equity

64,312

69,967

  Total liabilities and stockholders' equity

$

72,833

$

89,706

GEEKNET, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


Six Months Ended
 June 30,

2014

2013

Cash flows from operating activities from continuing operations:




Net loss

$

(6,394)

$

(3,867)

Loss from discontinued operations, net of tax

—

69

Loss from continuing operations

(6,394)

(3,798)

Adjustments to reconcile loss from continuing operations to net cash used in operating activities:




Depreciation and amortization expense

620

630

Stock-based compensation expense

1,055

1,464

Provision for bad debts

(5)

(3)

Provision for inventory write-downs

66

427

Loss on disposal of assets, net

—

2

Changes in assets and liabilities:




  Accounts receivable

5,650

(1,897)

  Inventories

2,382

1,960

  Prepaid expenses and other assets

460

(359)

  Accounts payable

(6,809)

(5,868)

  Deferred revenue

(986)

(262)

  Accrued and other liabilities

(3,437)

(1,613)

  Other long-term liabilities

14

(15)

 Net cash used in operating activities

(7,384)

(9,332)

Cash flows from investing activities:




Purchase of property and equipment

(103)

(5)

 Net cash used in investing activities

(103)

(5)

Cash flows from financing activities:




Proceeds from issuance of common stock

19

272

Repurchase of stock

(339)

(534)

  Net cash used in financing activities

(320)

(262)

Cash flows from discontinued operations:




Net cash used in operating activities

—

(41)

Net cash used in discontinued operations

—

(41)

Net change in cash and cash equivalents

(7,807)

(9,640)

Cash and cash equivalents, beginning of year

53,084

57,294

Cash and cash equivalents, end of period

$

45,277

$

47,654

GEEKNET, INC.

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA

(In thousands, unaudited)


Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Net loss - as reported

$

(4,149)

$

(1,531)

$

(6,394)

$

(3,867)

Reconciling items:










Loss from discontinued operations - net of tax

—

41

—

69

Interest and other (income) expense, net

(66)

13

(189)

27

Income tax provision

—

—

—

3

Stock-based compensation expense included in cost of revenue

19

34

40

(120)

Stock-based compensation expense included in operating expenses

856

773

1,015

1,584

Depreciation and amortization expense

307

314

620

630

Adjusted EBITDA

$

(3,033)

$

(356)

$

(4,908)

$

(1,674)

GEEKNET, INC.

Segment Data

(In thousands, unaudited)



Website

Wholesale

Total

Three Months Ended June 30, 2014








  Net revenue

$

17,833

$

5,562

$

23,395

  Cost of revenue

16,116

3,819

19,935

  Gross margin

$

1,717

$

1,743

$

3,460

  Gross margin %

9.6

%

31.3

%

14.8

%










Three Months Ended June 30, 2013








  Net revenue

$

18,254

$

3,750

$

22,004

  Cost of revenue

15,155

2,440

17,595

  Gross margin

$

3,099

$

1,310

$

4,409

  Gross margin %

17.0

%

34.9

%

20.0

%










Six Months Ended June 30, 2014








  Net revenue

$

35,712

$

10,374

$

46,086

  Cost of revenue

31,738

7,063

38,801

  Gross margin

$

3,974

$

3,311

$

7,285

  Gross margin %

11.1

%

31.9

%

15.8

%










Six Months Ended June 30, 2013








  Net revenue

$

36,235

$

5,326

$

41,561

  Cost of revenue

29,994

3,538

33,532

  Gross margin

$

6,241

$

1,788

$

8,029

  Gross margin %

17.2

%

33.6

%

19.3

%










GKNT-F

SOURCE Geeknet, Inc.

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