Stonepath Group Reports Third Quarter 2006 Results
SEATTLE, Nov. 14, 2006 -- Stonepath Group (AMEX:STG) , a global logistics services organization, today reported financial results for the quarter and nine-month period ended September 30, 2006.
For the third quarter of 2006, Stonepath reported revenues from continuing operations decreased 19% to $65.3 million, compared to $81.0 million in the same period a year ago. Domestic Services segment revenues declined 36% to $18.9 million for the quarter, while revenues from the International Services segment revenues decreased 10% to $46.4 million.
"Domestic Services revenues were impacted by the loss of a major national retail account during the second quarter of this year and reduced volume from an additional account in the third quarter," stated Bob Arovas, who was named Chief Executive Officer last month. "We have taken steps to better align our operating expenses with the current revenue levels, including reducing employee headcount, facility costs and other administrative expenses. I expect that we will continue to see further changes within our Domestic Services segment in the near term."
"We generated decent growth in our non-China Asian operations, though revenues from our China-based businesses declined," added Dennis Pelino, Chairman. "The freight forwarding and logistics markets are more fragmented in Asia than domestically, and therefore provide greater opportunities for us to develop new business and generate better margins. Much of our attention will be focused on our International Services segment as we attempt to bring Stonepath to profitability."
On October 19, 2006, Stonepath Group completed the sale of Stonepath Logistics International Services, Inc. ("SLIS") and Stonepath Logistics (Germany) GmbH subsidiaries to JTM Acquisition Corporation. The total consideration was $18.0 million, including closing cash payments of $12.3 million, which were used to reduce outstanding debt, plus the assumption of certain liabilities associated with SLIS. These operations are reported as discontinued operations, with combined revenues and expenses reported on a net of tax basis. Including a $1.4 million loss on the sale, Stonepath reported a loss of $1.7 million from discontinued operations for the third quarter of 2006. In the third quarter a year ago, Stonepath earned $1.9 million from these operations.
Net revenues from continuing operations were $9.9 million in the third quarter of 2006, down 36% from $15.5 million in the September 2005 quarter. In the third quarter of 2006, the Domestic Services segment generated $6.4 million of net revenue, which is total revenue less transportation and warehousing expenses, a decline of $5.0 million or 44% over the same period last year. The International Services segment recorded $3.5 million of net revenue in the third quarter of 2006, a decline of $600,000, or 14% from the third quarter of 2005.
"While the sale of the U.S.-based portion of our International Services operation makes comparing results to a year ago difficult, there were a number of non-cash items that further complicate matters," state Bob Christensen, Chief Financial Officer. "In the third quarter, we recorded a total asset impairment charge of $20.1 million, primarily to adjust for the likely non- recovery of goodwill from an acquisition made in 2001. In addition, there was a $700,000 non-cash credit relating to the accounting for derivatives contained in some of our financing agreements, and a $1.0 million cash credit relating to the settlement of a lawsuit with a previous technology service provider. In the third quarter of 2005, the results included a charge for $700,000 related to the accounting for derivatives."
Stonepath reported a net loss from continuing operations of $20.4 million, or $0.46 per basic share and diluted share, compared to a net loss of $2.9 million, or $0.06 per share in the same quarter last year. The net loss including discontinued operations was $22.1 million, or $0.50 per basic and diluted share, compared to a net loss of $1.0 million, or $0.02 per share for the same period in 2005.
Nine-Month Results
For the first nine months of 2006, Stonepath reported revenues from continuing operations of $195.7 million, down 10% from $217.4 million in the same period last year. Net revenues were $34.0 million, down 25% from $45.5 million a year ago. The net loss from continuing operations was $24.3 million, or $0.56 per diluted share, compared to a net loss from continuing operations of $12.3 million, or $0.29 per diluted share in the first nine months of 2005. Including the discontinued operations, the net loss was $25.3 million, or $0.58 per share year-to-date 2006, compared to a loss of $8.9 million, or $0.29 per diluted share in the first nine months of 2005. Last year, Stonepath recorded restructuring reserves related to continuing operations of $3.1 million, which was related to the closure of certain facilities and personnel related costs.
"Our operating results are beyond disappointing and were the driving force behind the sale of the US-based portion of our international business," Arovas said. "We utilized the proceeds to reduce our debt to a more manageable level, but further immediate reductions are required. We are looking at various strategic alternatives to further reduce debt, address our liquidity issues, and enhance operating capabilities both in the US and overseas. We are also focused on revenue generation through increased sales activities, improved incentive systems and alliances with others. However, none of these efforts can generate positive results if we are incapable of working out an improved financing arrangement with our US lender, whose recent discretionary actions, as described more fully in our Form 10-Q, may continue to result in limited further borrowing ability under our credit facility.
"When we sold SLIS, we stated that we would ramp up our shareholder communications, including instituting quarterly conference calls," Arovas continued. "At this point, we have many uncertainties that require resolution before we can adequately address the questions that our investors and interested parties may have. Thus we will delay our conference call until these uncertainties are resolved.
"We appreciate the support of our customers, vendors and employees as we proceed through this very difficult period," Arovas added. "We have, and will continue to provide our customers with the highest levels of service. This will be the hallmark of our recovery."
About Stonepath Group (AMEX:STG)
Stonepath (www.stonepath.com) is a global, third-party logistics organization providing a full range of transportation and distribution solutions to multinational and local businesses including a diverse client mix of retail leaders, automotive and technology concerns, government agencies, and defense contractors.
This Press Release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding future results, levels of activity, events, trends or plans. We have based these forward- looking statements on our current expectations and projections about such future results, levels of activity, events, trends or plans. These forward- looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, events, trends or plans to be materially different from any future results, levels of activity, events, trends or plans expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "guidance," "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue" or the negative of such terms or other similar expressions. Although it is impossible to identify all of the factors that may cause our actual results, levels of activity, events, trends or plans to differ materially from those set forth in such forward-looking statements, such factors include the inherent risks associated with: (i) our ability to sustain an annual growth rate in revenue consistent with recent results, (ii) our ability to achieve our targeted operating margins, (iii) our ability to compute our restructuring efforts within the costs we now expect, (iv) our ability to realize the planned benefits from our restructuring efforts, (v) our dependence on certain large customers, (vi) our dependence upon certain key personnel, (vii) an unexpected adverse result in any legal proceeding, (viii) competition in the freight forwarding, logistics and supply chain management industry, (ix) the impact of current and future laws affecting the Company's operations, (x) adverse changes in general economic conditions as well as economic conditions affecting the specific industries and customers we serve, and (xi) regional disruptions in transportation. Other factors that might cause or contribute to such a discrepancy between expected and actual results include, but are not limited to, those factors identified in our Securities and Exchange Commission filings (including our Annual Report on Form 10-K for 2005), other public documents and recent press releases, which can be found on our corporate web site, www.stonepath.com. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly release the result of any revision of these forward-looking statements to reflect events or circumstances after the date they are made or to reflect the occurrence of unanticipated events.
STONEPATH GROUP, INC.
Consolidated Balance Sheets
(dollars in thousands)
Assets
September 30, December 31,
2006 2005
(UNAUDITED)
Current assets:
Cash and cash equivalents $7,314 $4,601
Accounts receivable, net 40,247 69,836
Prepaid expenses and other
current assets 1,376 2,312
Assets held for sale 28,579 -
Total current assets 77,516 76,749
Goodwill 13,728 43,762
Technology, furniture and
equipment, net 2,833 6,856
Acquired intangibles, net 2,691 5,212
Other assets 2,150 2,703
Total assets $98,918 $135,282
Liabilities and Stockholders' Equity
Current liabilities:
Short-term debt $20,197 $14,039
Accounts payable 30,926 50,054
Earn-outs payable 490 3,513
Accrued payroll and related expenses 2,096 3,393
Accrued restructuring costs 232 1,485
Accrued expenses 6,163 7,516
Liabilities held for sale 16,090 -
Total current liabilities 76,194 80,000
Long-term debt 4,013 1,137
Long-term earn-outs payable - 2,255
Other long-term liabilities 223 4,210
Deferred tax liability 744 2,898
Total liabilities 81,174 90,500
Minority interest 4,057 6,478
Convertible preferred stock 1,804 1,804
Stockholders' equity:
Common stock 44 44
Additional paid-in capital 223,208 222,779
Accumulated deficit (211,716) (186,581)
Accumulated other comprehensive
income 347 258
Total stockholders' equity 11,883 36,500
Total liabilities and
stockholders' equity $98,918 $135,282
STONEPATH GROUP, INC.
Consolidated Statements of Operations
(UNAUDITED)
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2006 2005 2006 2005
Total revenue $65,251 $80,973 $195,684 $217,432
Cost of transportation 55,337 65,502 161,641 171,928
Net revenue 9,914 15,471 34,043 45,504
Personnel costs 6,343 7,810 21,273 24,586
Other selling, general
and administrative costs 4,369 6,160 15,921 20,865
Depreciation and
amortization 915 1,056 2,592 3,136
Asset impairment 20,069 - 20,069 -
Litigation settlement (1,038) - (1,038) -
Restructuring charges - - (735) 3,130
Income (loss) from operations (20,744) 445 (24,039) (6,213)
Other income (expense):
Interest expense, net (2,185) (953) (5,125) (2,086)
Change in fair value of
derivatives 661 (740) 3,967 (740)
Loan refinancing costs - (912) - (912)
Other income (expense), net 4 1 5 3
Loss from continuing
operations before income
tax expense and minority
interest (22,264) (2,159) (25,192) (9,948)
Income tax benefit (expense) 1,791 (427) 1,257 (1,526)
Loss before minority interest (20,473) (2,586) (23,935) (11,474)
Minority interest 153 (297) (118) (902)
Loss from continuing
operations (20,320) (2,883) (24,053) (12,376)
Discontinued operations:
Income (loss) from
operations, net of tax (325) 1,881 559 3,428
Loss on disposal of business
segment, net of tax (1,371) - (1,371) -
Income (loss) from
discontinued operations (1,696) 1,881 (812) 3,428
Net loss (22,016) (1,002) (24,865) (8,948)
Preferred stock dividends (90) - (270) -
Net loss attributable to
common stockholders $(22,106) $(1,002) $(25,135) $(8,948)
Basic and diluted loss per
common share:
Continuing operations $(0.46) $(0.06) $(0.56) $(0.29)
Discontinued operations (0.04) 0.04 (0.02) 0.08
Loss per common share $(0.50) $(0.02) $(0.58) $(0.21)