Geeknet Announces Second Quarter 2014 Financial Results and Acquisition of Treehouse Brand Stores Revenue increases 6% in the second quarter to $23.4 million

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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