Xoom (XOOM) management released an 8-K this afternoon for preliminary earnings for 4Q2014. These things are usually not good as they're typically signs that management is jumping in front of some kind of bus. Here's what you need to know:
Preliminary 4Q2014 8-K filing from 1/3/2015
Link to 8-K: https://www.sec.gov/Archives/edgar/data/1315657/000110465915000360/a15-1144_18k.htm
The main reason for getting this preliminary announcement out was to cover two unusual items: The company has been the victim of criminal fraud; and CFO Matt Hibbard has resigned, effective immediately. There’s no way to tell at this time whether Hibbard has anything to do with the fraud, though it’s worth noting that per the release “Mr. Hibbard’s resignation is not the result of any disagreement or dispute with the Company.”
Per the 8-K: “The incident involved employee impersonation and fraudulent requests targeting the Company’s finance department, resulting in the transfer of $30.8 million in corporate cash to overseas accounts. As a result, the Company expects to record a one-time charge of $30.8 million in its fourth quarter of 2014. The Company believes that no customer data was involved nor was any customer’s money involved in this matter and the Company’s systems were not impacted. While this matter will result in some additional near-term expenses, the Company does not expect this incident to otherwise have a material impact on its business.”
It’s also interesting to note that former CFO Ryno Blignaut who just resigned from the CFO position will resume the CFO duties. It’s unclear how long he will stay, but the assumption as of now is that he will fill the role until a suitable replacement is found.
The bottom line
First let’s look at the good news: Revenue coming in above the high range of guidance, robust growth in active customers and a return to growth for new customers are all signs that the business is doing the right things. This is most certainly in line with what management said on the 3Q call in regard to the drop in new customers being a result of pulling back on air time during the World Cup. The bad news of course is the criminal fraud. Given the fact that we view Xoom’s risk management model as a competitive advantage, this leaves a mark that is hard to ignore.
It’s worth noting that in the grand scheme of things, $31 million is not a debilitating number at all for this company when compared to its overall quarterly GSV (gross sending volume). We’ll get a better idea of what this quarter’s GSV is in February, but in the same quarter last year it was $1.4 billion which means the loss is 2.2% of the total GSV of last year’s number and given the growth we see in this year’s actives and new customers, it’s safe to say that percentage will come down. I’m not trying to make light of the situation at all; I’m simply trying to put this all in context. It’s a mistake for sure, but perhaps it’s also something that they will learn from as well; I hope they do. For now, in looking at the bigger picture I don’t see any reason to feel troubled holding these shares; I’ll certainly be keeping mine. I’m sure we’ll learn more next month when earnings are released.
-JMo
Preliminary 4Q2014 8-K filing from 1/3/2015
Link to 8-K: https://www.sec.gov/Archives/edgar/data/1315657/000110465915000360/a15-1144_18k.htm
- Revenue will be in the range of $43.1 million to $43.6 million, an increase of 34 to 36% from the fourth quarter of 2013. The Company’s prior outlook for the fourth quarter of 2014 was $41.0 million to $43.0 million.
- Active customers for the quarter increased by 21% to 1.28 million from the fourth quarter of 2013.
- New customers for the quarter increased by 5% to 118,000 from the fourth quarter of 2013.
- Earnings will be formally announced on February 10th.
The main reason for getting this preliminary announcement out was to cover two unusual items: The company has been the victim of criminal fraud; and CFO Matt Hibbard has resigned, effective immediately. There’s no way to tell at this time whether Hibbard has anything to do with the fraud, though it’s worth noting that per the release “Mr. Hibbard’s resignation is not the result of any disagreement or dispute with the Company.”
Per the 8-K: “The incident involved employee impersonation and fraudulent requests targeting the Company’s finance department, resulting in the transfer of $30.8 million in corporate cash to overseas accounts. As a result, the Company expects to record a one-time charge of $30.8 million in its fourth quarter of 2014. The Company believes that no customer data was involved nor was any customer’s money involved in this matter and the Company’s systems were not impacted. While this matter will result in some additional near-term expenses, the Company does not expect this incident to otherwise have a material impact on its business.”
It’s also interesting to note that former CFO Ryno Blignaut who just resigned from the CFO position will resume the CFO duties. It’s unclear how long he will stay, but the assumption as of now is that he will fill the role until a suitable replacement is found.
The bottom line
First let’s look at the good news: Revenue coming in above the high range of guidance, robust growth in active customers and a return to growth for new customers are all signs that the business is doing the right things. This is most certainly in line with what management said on the 3Q call in regard to the drop in new customers being a result of pulling back on air time during the World Cup. The bad news of course is the criminal fraud. Given the fact that we view Xoom’s risk management model as a competitive advantage, this leaves a mark that is hard to ignore.
It’s worth noting that in the grand scheme of things, $31 million is not a debilitating number at all for this company when compared to its overall quarterly GSV (gross sending volume). We’ll get a better idea of what this quarter’s GSV is in February, but in the same quarter last year it was $1.4 billion which means the loss is 2.2% of the total GSV of last year’s number and given the growth we see in this year’s actives and new customers, it’s safe to say that percentage will come down. I’m not trying to make light of the situation at all; I’m simply trying to put this all in context. It’s a mistake for sure, but perhaps it’s also something that they will learn from as well; I hope they do. For now, in looking at the bigger picture I don’t see any reason to feel troubled holding these shares; I’ll certainly be keeping mine. I’m sure we’ll learn more next month when earnings are released.
-JMo
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