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gnulaw (50.52)

Geeknet (LNUX) Q4 Ending December 31st 2009 Guidance, Cash Burn, Q2 Actuals ending Jan 31, 2009, and What Really Needs to Happen [Now].

Recs

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November 08, 2009 – Comments (10) | RELATED TICKERS: BBY , GKNT , IBM

Q3 CC Transcript

[6:39]  Patty Morris (CFO): "...our media business is not delivering revenue at the level we believe it can..."

[6:44] "...As such we reevaluated the operating structure of our media business in order to better deliver on our objectives...resulting in a change to our "GoToMarket" (new buzz word) approach. Accordingly, we effected a staff reduction of eighteen people primarily across engineering and sales to better manage expenses until media revenue begins to grow...these changes are not reflected in the third quarter results (ending September 30th 2009) and will be accounted for on our next quarterly call...annual savings as a result of the changes will be approximately $2.2 million which will be somewhat offset by select hires in the next few quarters..."

[7:45] "...guidance for the fourth quarter..."

[8:16] "...reinstating guidance..."

[8:22] "...I'll remind you that the fourth quarter is the seasonal quarter for our eCommerce business and generally our strongest revenue quarter...we expect overall revenue to be between $25.7 to $28.2 million for the fourth quarter (ending December 31). We expect media revenue to be between $3.7 and $4.2 million. We expect eCommerce revenue to be between $22 million and $24 million which would be a record for ThinkGeek and would represent growth of  approximately 17% year over year. Additionally we expect to report adjusted EBITDA of approximately breakeven ($0.00) in Q4 (ending December 31)..." [emphasis added]

end.

In Perspective

So, looking at q2 2009 ending January 31 2009** these were SourceForge's [actual] numbers during approximately the same period one year ago (key holiday sales)...

* Total revenue for the second quarter of fiscal 2009 (ending January 31) grew 9% to $23.9 million, as compared to $21.9 million for the second quarter of fiscal 2008.

*  On a GAAP basis, net income for the second quarter of fiscal 2009 (ending January 31) was $0.5 million, or $0.01 per share, compared to a GAAP net income of $2.2 million, or $0.03 per share, for the same period a year ago (2008).

* Media revenue was $4.4 million for the second quarter of fiscal 2009 (ending January 31), a 4% increase over second quarter of fiscal 2008 revenue of $4.2 million.

* E-commerce revenue was $19.4 million for the second quarter of fiscal 2009, a 10% increase over second quarter fiscal 2008 revenue of $17.7 million. 

* Total cash and investments balance at the end of the second fiscal quarter of 2009 (January 31) was $49.5 million.

* Total cash and investments balance, including restricted cash, at the end of the third quarter of 2009 (September 30th) was $35.6 million

In other word, Geeknet is projecting EBITDA of $0.00 for Q4 ending December 31, 2009 compared to EBITDA of approximately $674,000*** for Q2 2009 ending January 31st and has burned through approximately $14 million in cash.

Conclusion:

1. This is why Merriman Curhan downgraded the stock.

2. Immediately replace non-performing Senior management and replace them with real talent with substantial experience in creating shareholder value in high technology and internet retailing (Best Buy, Amazon...).

3. Merchandise proprietary ThinkGeek line through Walmart, Costco, et al.

4. Acquire complementary companies to ThinkGeek e.g. jinx.com, in addition to key Web 2.0 properties if they make sense.

5. The right management team seems to be in place on the SourceForge.net side due to the Ohloh acquisition and that was/is a non-trivial accomplishment. Arguably [the] most challenging. This should be a significant revenue generator esp. negotiating substantial open-source data mining contracts e.g.  the one they mentioned with Sun (JAVA) in the last conference call and vis-vis these two trends.

6. As soon as 2. and 3. above are efficiently and effectively implemented and announced Geeknet will be in a superior position to perform a secondary offering and under a new symbol e.g. (NASDAQ:G33K) to pursue 4. above and finally maximize Geeknet insider and non-insider shareholder value...

 

**Note: SourceForge/Geeknet changed their Fiscal year from q4 ending July 30 to December 31.

 

*** Net Income was $94,000 for 3 months ending January 31 2009 (before interest and other income, and provision for income taxes). Depreciation and amortization was 1,160,000 for six months ending January 31, 2009 (I divided that in two for 3 months ending). That would be $580,000. This would have to be added back to the 94,000 in Net income or EBITDA of appx. $674,000. Source: SEC FORM 10-Q ending 2009 filed March 12, 2009.

10 Comments – Post Your Own

#1) On November 09, 2009 at 7:33 PM, gnulaw (50.52) wrote:

ThinkGeek Gross Margins

 

3 mo ended Sep 30, 2009 (000)

eCommerce revenue......7,104

cost of revenue............. 6,053

Gross margin................1,051

Gross margin (%).........14.79

 

3 mo ended Sep 30, 2008 (000)

eCommerce revenue.......6,417

Cost of revenue..............5,104

Gross margin.................1,313

Gross margin (%)..........20.46

 

9 mo ended Sep 30, 2009 

Gross Margin (%)..........15.73

 

9 mo ended Sep 30, 2008

Gross Margin (%)..........19.58

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#2) On November 09, 2009 at 7:39 PM, gnulaw (50.52) wrote:

Source: Above Gross Margin Numbers, Nov 4 2009 Geeknet

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#3) On November 09, 2009 at 8:24 PM, gnulaw (50.52) wrote:

Liquidity and Capital Resources 

 "...Our principal sources of cash as of September 30, 2009 are our existing cash, cash equivalents and investments of $34.6 million, which excludes restricted cash of $1.0 million.  Cash and cash equivalents decreased by $15.4 million at September 30, 2009 when compared to December 31, 2008.  This total decrease was primarily due to cash used to fund net operating losses and working capital requirements during the nine months ended September 30, 2009..."

Stock Repurchase Program

In October 2008, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $10 million of our common stock over a 12-month period.  Repurchased shares are cancelled and retired.  There was no stock repurchase activity during the three months ended September 30, 2009.  As of September 30, 2009 we have repurchased and retired 8.2 million shares of common stock at a weighted-average price of $0.76 per share for an aggregate purchase price of $6.2 million under this program.

The market in which SourceForge.net participates is becoming more competitive, and if we do not compete effectively, our Online Media business could be harmed.

Our SourceForge.net platform hosts Open Source software projects, and we derive revenue through advertising campaigns.  Because the cost to develop and host websites has declined over time, an increasing number of companies, organizations and individuals have begun hosting Open Source code and offering Open Source software development-related services. In addition, Google Inc. (“Google”) offers Open Source code hosting capabilities that may be viewed as competitive to SourceForge.net’s offering.  Because Google enjoys substantial competitive advantages in the online space generally, including powerful brand identity, established marketing relationships, larger visitor base, and greater financial, technical, and other resources, we may be unable to compete effectively with Google’s offering... 

We may be subject to product liability claims if people or property are harmed by the products we sell on our E-commerce web site, which could be costly to defend and subject us to significant damage claims.

Some of the products we offer for sale on our E-commerce web site, such as consumer electronics, toys, computers and peripherals, toiletries, beverages, food items and clothing, may expose us to product liability claims relating to personal injury, death or property damage caused by such products, and may require us to take actions such as product recalls.  Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our vendor agreements with our suppliers do not indemnify us from product liability, and even if some agreements provide for indemnification, it may be prohibitively costly to avail ourselves of the benefits of the protection.


If we do not maintain sufficient E-commerce inventory levels, or if we are unable to deliver our E-commerce products to our customers in sufficient quantities, our E-commerce business operating results will be adversely affected. 

We must be able to deliver our merchandise in sufficient quantities to meet the demands of our customers and deliver this merchandise to customers in a timely manner. We must be able to maintain sufficient inventory levels, particularly during the peak holiday selling seasons. If we fail to achieve these goals, we may be unable to meet customer demand, and our financial results will be adversely affected.

Our ThinkGeek E-commerce web site is dependent upon a single third party fulfillment and warehouse provider.  The satisfaction of our E-commerce customers is highly dependent upon fulfillment of orders in a professional and timely manner, so any decrease in the quality of service offered by our fulfillment and warehouse provider will adversely affect our reputation and the growth of our E-commerce business.


Our ThinkGeek E-commerce web site’s ability to receive inbound inventory and ship completed orders efficiently to our customers is substantially dependent on a third-party contract fulfillment and warehouse provider.  We currently utilize the services of Dotcom Distribution, Inc. (“Dotcom Distribution”), located in Edison, New Jersey.  If Dotcom Distribution fails to meet our future distribution and fulfillment needs, our relationship with and reputation among our E-commerce customers will suffer and this will adversely affect our E-commerce growth.  Additionally, if Dotcom Distribution cannot meet our distribution and fulfillment needs, particularly during the peak holiday selling seasons, or our contract with Dotcom Distribution terminates, we may fail to secure a suitable replacement or second-source distribution and fulfillment provider on comparable terms, which would adversely affect our E-commerce financial results...

We face possible delisting from the Nasdaq Global Market, which could result in a limited public market for our common stock and make obtaining future equity financing more difficult for us.


The Nasdaq  requires companies to maintain a minimum closing bid price of $1.00 and a specified minimum market value.  Although our common stock has recently traded above $1.00, we have also recently experienced periods where our stock traded below the $1.00 minimum closing bid price.  If we are unable to satisfy Nasdaq's requirements for continued listing on the Nasdaq Global Market, our securities may be delisted from the Nasdaq Global Market. There can be no assurances that we will satisfy the standards to regain compliance. The delisting of our common stock from the Nasdaq Global Market may have a material adverse effect on us by, among other things, reducing:


 •the liquidity of our common stock; the market price of our common stock; the number of institutional and other investors that will consider investing in our common stock;


 •the number of market makers in our common stock;


 •the availability of information concerning the trading prices and volume of our common stock;


 •the availability of information concerning the trading prices and volume of our common stock;


 •the number of broker-dealers willing to execute trades in shares of our common stock; and


 •our ability to obtain equity financing for the continuation of our operations. If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business could be impaired.

We have a history of losses and may incur net losses in the foreseeable future. Failure to attain consistent profitability may materially and adversely affect the market price of our common stock and our ability to raise capital and continue operations.

We generated a net loss of $15.5 million during the nine months ended September 30, 2009, and we have an accumulated deficit of $751.8 million as of September 30, 2009.  Additionally, we expect to incur net losses during the remainder of the year ending December 31, 2009.  Failure to attain profitability on a sustained basis may materially and adversely affect the market price of our common stock and our ability to raise capital and continue operations beyond the next 12 months.

If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business could be impaired.  

Our future success depends upon the continued service of our key management, technical, sales, and other critical personnel.  Our officers and other key personnel are employees-at-will, and we cannot assure that we will be able to retain them.  Key personnel have left our company in the past and there likely will be additional departures of key personnel from time to time in the future.  The loss of any key employee could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of company initiatives, and the results of our operations.  Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel.  Competition for qualified personnel in our industry and the San Francisco Bay Area, as well as other geographic markets, in which we recruit, is intense.  In the Internet and high technology industries, qualified candidates often consider equity awards in compensation arrangements and fluctuations in our stock price may make it difficult to recruit, retain, and motivate employees.  In addition, the integration of replacement personnel could be time consuming, may cause additional disruptions to our operations, and may be unsuccessful.  

Our stock price has been volatile historically and may continue to be volatile.

The trading price of our common stock has been and may continue to be subject to wide fluctuations. During the second quarter ended September 30, 2009, the closing sale prices of our common stock on the NASDAQ Global Market ranged from $1.07 to $1.46 per share and the closing sale price on September 30, 2009, the last trading day of the quarter, was $1.26 per share. Our stock price may fluctuate in response to a number of events and factors, such as quarterly variations in operating results, announcements of technological innovations or new products and media properties by us or our competitors, changes in financial estimates and recommendations by securities analysts, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.


In addition, the stock market in general, and the market prices for Internet-related companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Additionally, volatility or a lack of positive performance in our stock price may adversely affect our ability to retain key employees, all of whom have been granted stock options.

Sales of our common stock a significant stockholder may cause the price of our common stock to decrease.

Several of our stockholders own significant portions of our common stock. If these stockholders were to sell substantial amounts of their holdings of our common stock, then the market price of our common stock could be negatively impacted. The effect of such sales, or of significant portions of our stock being offered or made available for sale, could result in strong downward pressure on our stock price.  Investors should be aware that they could experience significant short-term volatility in our stock if such stockholders decide to sell a substantial amount of their holdings of our common stock at once or within a short period of time. 

 

Source: SEC FORM 10-Q, Filed 11/9/2009

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#4) On November 09, 2009 at 8:51 PM, gnulaw (50.52) wrote:

Geeknet Shareholder News

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#5) On November 10, 2009 at 5:08 PM, gnulaw (50.52) wrote:

We have a history of losses and may incur net losses in the foreseeable future. Failure to attain consistent profitability may materially and adversely affect the market price of our common stock and our ability to raise capital and continue operations.

We generated a net loss of $15.5 million during the nine months ended September 30, 2009, and we have an accumulated deficit of $751.8 million as of September 30, 2009.  Additionally, we expect to incur net losses during the remainder of the year ending December 31, 2009...

If we lose key personnel or fail to integrate replacement personnel successfully, our ability to manage our business could be impaired.  

Our future success depends upon the continued service of our key management, technical, sales, and other critical personnel.  Our officers and other key personnel are employees-at-will, and we cannot assure that we will be able to retain them.  Key personnel have left our company in the past* and there likely will be additional departures of key personnel from time to time in the future.  

ibid. 

* Jonathan "Tesla Motors" Sobel http://www.topix.com/com/sourceforge/2009/10/what-did-jonathan-sobel-know-and-when-did-he-know-it

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#6) On November 15, 2009 at 6:59 AM, gnulaw (50.52) wrote:

Note: The above information was reported November 9th pursuant to Geeknet's SEC Form 10-Q filed November 9th, contemporaneous with WIlliam Sams et al share acquisitions of LNUX taking them to over 25% ownership of Geeknet (LNUX) common.

Q: Why is Geeknet management warning of imminent losses and key people leaving per said 10-Q?

Q: Why is SAMS et al increasing their ownership pursuant to this information? 

 

Source: Geeknet SEC Form 10-Q filed November 9, 2009 http://secfilings.com/searchresults.aspx?formtypeid=&industryid=&ticker=LNUX

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#7) On November 20, 2009 at 9:26 AM, gnulaw (50.52) wrote:

Geeknet had [only one] analyst on this conference call, Robert CoolbrithThinkEquity... Robert looks solid and clearly knows his stuff in Geeknet's industry. The good news is that Robert is still following LNUX. The bad news is that LNUX is losing analysts following them and appears to be down to one. Kauffman continues to avoid industry investor conferences and analyst meetings which is actionable in re: alleged gross negligence and [another] reason to fire him for cause. Note: As noted previously Kauffman took down the Analyst page from their investor website.

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#8) On November 20, 2009 at 9:56 AM, gnulaw (50.52) wrote:

Note: In Geeknet's own words* they have announced a net loss of  $15.5M through September 30th, 2009. Analyst estimates show they will lose another $675,000** in q4 given their estimates of a -$.27 loss (or $16,175,000) for fiscal 2009 ending December 31, 2009. This dovetails with my own estimates above i.e. based on EBITDA of $0.00 being projected by Management, this would suggest a loss of appx. $674,000 based on my own loose estmate.

Source: SEC FORM 10-Q, Filed 11/9/2009 

** Of significance, Geeknet management is forecasting a loss in their biggest revenue quarter and historically the one generating their greatest and positive earnings.  

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#9) On November 20, 2009 at 10:05 AM, gnulaw (50.52) wrote:

The implications of the above is if management is forecasting a loss for q4 ending December 31, 2009 that cannot be good for their historically poorer performing months, January - September...Another area for any current shareholder or one sitting on the fence is to monitor Jacob Internet Fund. As of September 30th they were still LNUX shareholders...

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#10) On November 20, 2009 at 10:41 AM, gnulaw (50.52) wrote:

See Jay Run, Run Jay Run?

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