A21 reports 2nd Quarter 2006 results
A21 Group, owner of Superstock and ArtSelect, reported an increase in net revenue of 94% from 2Q05 to 2Q06, rising from $2.3MM to $4.5MM. Of that 94% growth, 84% came from the acquisitions of ArtSelect and Ingram Publishing earlier this year, and 9% came from organic growth. We can extrapolate that ArtSelect and Ingram contributed $1.975MM of revenue, while real organic growth at Superstock was $209K. Over the same period, growth in expenses outpaced revenue growth, however, resulting in greater losses. The Cost of Revenue jumped 137% and Selling, General and Administrative expenses nearly doubled, causing the company’s gross loss to increase from $0.7MM in 2Q 05 to $1.7MM in 2Q 06 and its negative Earnings Before Interest, Taxes, Depreciation and Amortization to increase from a loss of $343K to a loss of $990K.
The press-release regarding these figures offered no explanation for the relative rise in Cost of Revenue from 31% to 38% of Gross Revenue, nor how the company plans to reign in S,G&A expenses, which, though they remained relatively flat as a percentage of Gross Revenue, still come in quite high at approximately 84%. As of this writing, management could not be reached for comment. The company’s net loss more than doubled from $985K in 2Q 05 to $2.3MM in 2Q 06. The release shows the net loss per share attributed to common stockholders (basic and diluted) as having increased from $0.02 to $0.03 from the 2005 period to that of 2006. Over the same time, however, the number of such shares outstanding, increased from about 40MM to 77.7MM shares.
Editor's note (August 24, 2006): A21’s CFO, Thomas Costanza, has provided us with the following additional information concerning the company’s 2Q 06 performance:
From A21’s 10Q filed with the SEC on August 21st: COST OF REVENUES. Cost of revenues was $1.7 million for the three months ended June 30, 2006 compared to $716,000 the same prior year period. Approximately 70% of the increase was attributable to the ArtSelect acquisition, approximately 10% of the increase was attributable to the Ingram acquisition, with the balance of the increase attributed to SuperStock.
As a percentage of revenues, cost of sales was 38% and 31% for the three months ended June 30, 2006 and 2005, respectively. The increase in cost of sales percentage reflects the weighted impact of higher variable cost for ArtSelect’s raw materials including prints, mats, frames, molding, and packaging material as well as shipping and handling costs. Cost of sales as a percentage of revenues may also vary in any period depending on SuperStock’s relative mix of stock photography distributed that is either licensed from third parties or owned by us.
Costanza adds: “You have to consider that ArtSelect is a different business model than the traditional "stock agency" model. ArtSelect's cost of sales includes the "hard" costs of delivering the framed product to customers. While it is true that this pulls down the weighted avg. margin for a21, we still believe the contribution of ArtSelect's stand-alone margin to be still very good and the related accretive gross profits significant to a21.”
A21 2nd Quarter Results (click on chart to enlarge)
Click here to view the original press release.
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