News
a21 reports third quarter financial results
A21 Group / Superstock, has reported the 3rd
quarter financial results for the period ending September 30, 2005. According to
the press release revenues
for the third quarter of 2005 were $2,064,000 compared to $2,077,000 for the
same period in 2004. Net loss for the third quarter of 2005 was $1,343,000 or
$0.03 per share, versus a net loss of $1,046,000, or $0.03 per share, for the
same period in 2004.
However, A closer look at the company’s SEC filings
raises questions not answered in the press-release.
We refer
specifically to the figures for the nine months ended on 9/30/05 and
9/30/04. The notes to the financial statements point out that the nine
months ended on 9/30 2004 reflect only seven months of operations as the
acquisition of Superstock took place on February 29, 2004. To make
a fair comparison of the operating figures for the two periods, we adjusted
nine-month figures for 2004 (Click here for details on the adjusted
figures) and came up with the
following:
1)
Total revenue of $6,703,000 for the nine months ended 9/30/05 represented a
3.5% decrease from the nine-month adjusted figure of $6,945,000 for
the period ending 9/30/04.
2)
The company’s relative Gross Profit decreased by nearly 6% and its
Gross Profit Margin dropped from 70.5% to 68.5% from the 2004 nine-month period
to the 2005 nine-month period. Management explains this margin can vary
depending on the mix of revenue from wholly-owned vs. third party
imagery. Superstock sold a higher proportion of third party imagery in
the 2005 period.
3)
Selling, General and Administrative expenses rose as a percentage of total
revenue from 79.7% to 82.3%.
4)
The combination of the reduced Gross Profit Margin and the increased SGA
expenses, resulted in poorer earnings before interest, taxes, depreciation and
amortization, called EBITDA (generally considered a helpful gauge of a
company’s operating performance because it excludes extraneous income and
expenses related to non-core business activities.) Superstock posted an
(adjusted) EBITDA loss for the nine-month period ended on 9/30/04 of
$643,000 vs. $911,000 for the same period a year later, representing a
41.7% increase in their loss from operations.
Neither in its press release, nor in its notes to the financial statements does management acknowledge the small decrease in sales. Perhaps they consider this small a relative decrease to indicate flat sales. Clearly, the relative increase in SG&A expenses from 79.7% of revenue to 82.3% of revenue contributed to this poorer performance. Management does not explain this increase in the notes to the statements. In management’s discussion and analysis of the reported results, they address this question only to say, “This increase was primarily attributable to SG&A expenses for Superstock for the full nine months ended September 30, 2005 compared to 2004, which includes only seven months of Superstock operations.” Such an explanation does not account for the increase relative to revenue which had such a dramatic effect on Superstock’s EBITDA loss for the period. We might speculate that the increase is due to higher expenses related to marketing and hiring as Superstock works to build both revenue and the company infrastructure for the future. Without direct comments about this from the company’s management, however, we can’t know for sure.
Posted in: A21 Group, News, Photographers, Stock Art Buyers, Stock Photo Companies
