BakBone ditches damp squib ColdSpark
'Amateurs with handcuffs sh*t the bed,' says analyst
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BakBone Software is closing its one-year-old ColdSpark business and returning to its backup software roots to avoid cash losses.
This follows the ousting of CEO Jim Johnson and the appointment of Steve Martin, BakBone's now triple-titled SVP, CFO and interim CEO. He's putting the financial house back in order by closing the ColdSpark operation immediately, taking a $300,000 cash expense and a non-cash charge of $12.6m for the lost goodwill. Someone made a big mistake.
Presumably Scott Brown, general manager of Bakbone's Message Management division and the co-founder of ColdSpark, will lose his job, as will everyone else in the division located in Broomfield, Colorado.
A released statement has Martin saying: "Our Board of Directors and senior management team have concluded that the best opportunity for BakBone to gain consistent profitability and generate returns to shareholders is by focusing our resources on our core storage and data protection markets."
For the board to take these steps just one year after the acquisition (which we must presume it agreed to at the time) suggests they were looking into a cash-draining chasm.
Martin said that by getting the focus back on to the NetVault backup software products and channel: "We believe that BakBone will be a more focused and financially-capable company.
"Furthermore, we expect our realigned strategy will eliminate the risk of ColdSpark's comparatively longer sales cycle, stabilise our cash utilisation and position the Company to generate enhanced returns for our shareholders."
That indicates that cash utilisation has been unstable, that ColdSpark sales have cost a lot and that profitability has been falling.
Bakbone bought ColdSpark for $16m a year ago, wanting to get into the enterprise message management market. The existing backup products and ColdSpark were to become components of an integrated data protection strategy. That's in ruins now.
Bakbone says it will effect a smooth transition for ColdSpark customers, but doesn't say to what.
Something drastic appears to have happened in Bakbone's fourth quarter to cause CEO blood-letting and the closing down of ColdSpark.
Bakbone said in its last 10K SEC filing that ColdSpark operations had brought in $662,000 for the nine months ending December 31 2009, and an operational loss of $2.9m.
When announcing that Jim Johnson had ceased to be CEO, Bakbone said: "Bookings for the fiscal fourth quarter ended March 31, 2010 are currently expected to be approximately $14.1 million, which would enable the Company to achieve full fiscal year bookings within the lower end of guidance of $56.5 million to $57.5 million."
The full 2010 results will be announced next month and shareholders will eagerly await them.
BakBone said it expects to exercise its right to limit the cash component of its June 2010 obligations to ColdSpark shareholders under the May 2009 acquisition agreement to approximately $810,000. At the time of the acquisition it said it would pay $15.938m for ColdSpark - $8.125m in cash and the rest in shares. There's going to be a lot of disappointed ColdSpark employees and shareholders.
Steve Duplessie, ESG's senior analyst, tweeted this about the Bakbone events: "Is it really a surprise that Bakbone has shit the bed? Amateurs with handcuffs is not a winning combination. Case of grass being greener." ®
COMMENTS
I agree anonymous coward and I would add...
I totally agree with your assessment and would add that I question tech_watcher's assertion about full payment down the road. No where have I read this assertion except for his posting.
I'm not too sure about the golden parachute for Johnson. A lot of his options proved to be worthless but in my opinion, shareholders should be able to sue the guy for what he did to BakBone during his tenure.
I concur that ColdSpark was a huge mistake at the beginning. Ian Bonner, who is a long time Board Member of BakBone, also was the former CEO of ColdSpark so one might want to look to him as well as Jim Johnson in asking the question, "What in the world were you thinking?".
What can Martin do? He is trying to cut his losses and get back to increased profitability. My first suggestion for him is to verify to shareholders that their accounting controls are fully effective -- something he has not done in his CFO position. The next step will be to demonstrate to shareholders that they are his number one priority vs. enriching top management. Thirdly, will be to increase market share internationally and drive that point back to the investment community. Hopefully some of the long term Board Members like Ian Bonner and Archie Nesbitt will either resign or be forced out at the next AGM.
@Bakbone still obliged to pay full value of ColdSpark acquisition
"The ColdSpark technology could certainly have been used to create an email data protection product that could be sold through Bakbone's field force. They never did. Organizational fail. Costly one for shareholders."
How can an email system be used as an email data protection product? Its like saying Microsoft Exchange could be a email data protection product. It cant. Sure you could add data protection to the email system but the you are protecting the email system not offering an email protection product. You sound about as technically savvy as the previous administration.
Secondly you have serious lack in understanding in the strenghts of BakBone's sales and what is required to sell ColdSpark. BakBone has a channel sales business targetting the SME. The majority of its license revenue would come at the lower end. ColdSpark is a very technical product requiring a direct sales force, has very long sales cycle and is an enterprise product. So EVEN if ColdSpark could be used as a data protection product, which it cant, there is no synergy at the sales level.
Everything about the acquisition is wrong. Its the wrong product, the wrong sales model, the wrong targetted customer and worse of all, the wrong price. Why did BakBone valued at around $25M with revenues of $58M buy a company for $13M with revenues of $5M (and not profitable). The whole deal stinks and those that were involved in it have questions to answer.... oh except they got their golden parachutes and probably legal protection against it.....
And yes it is very costly to the sharesholders and very sad state of affairs for the ColdSpark employees who deserved better.
@Translation needed
Yeah I'm confused as well. Plus does it refer to the antics of the previous establishment or to Martin's attempt at getting the company back on its feet.
"The existing backup products and ColdSpark were to become components of an integrated data protection strategy. That's in ruins now."
It was in ruined from the day the acquisition took place. ColdSpark is a glorified mail transport and has nothing at all to do with data protection whichever way you look at it. Only Johnson and his fellow goon Horner could ever think it was a good strategic step for the company or ColdSpark.
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