ALJ Regional Holdings, Inc. Announces Earnings For The Third Quarter Ended June 30, 2020
ALJ Regional Holdings, Inc. (NASDAQ: ALJJ) reported a net revenue of $95.4 million for Q3 2020, a 13.2% increase from Q3 2019. The increase was driven by new contracts at its subsidiary Faneuil, although Phoenix and Carpets experienced lower sales. ALJ recorded a net loss of $2.7 million with a loss per share of $0.06, an improvement from a $7.2 million loss in the same quarter last year. Adjusted EBITDA rose 38.5% to $7.2 million. For Q4 2020, ALJ forecasts net revenue between $100 million to $107 million.
- Net revenue increased by 13.2% year-over-year to $95.4 million.
- Adjusted EBITDA rose by 38.5% to $7.2 million.
- Improved net loss of $2.7 million compared to $7.2 million in Q3 2019.
- Faneuil's revenue significantly increased by 37.4% over the prior year.
- Net loss of $68.7 million for the nine months ended June 30, 2020.
- The impairment of goodwill amounted to $59.0 million.
- Faneuil's adjusted EBITDA decreased by 11.7% for the nine months ended June 30, 2020.
- Carpets' revenue dropped 27.3% due to lower volumes.
NEW YORK, Aug. 12, 2020 /PRNewswire/ -- ALJ Regional Holdings, Inc. (NASDAQ: ALJJ) ("ALJ") announced results today for its third quarter ended June 30, 2020.
ALJ is a holding company, whose wholly owned subsidiaries are Faneuil, Inc. ("Faneuil"), Floors-N-More, LLC, d/b/a Carpets N' More ("Carpets"), and Phoenix Color Corp. ("Phoenix"). Faneuil is a leading provider of call center services, back office operations, staffing services, and toll collection services to commercial and governmental clients across the United States. Carpets is one of the largest floor covering retailers in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail, and home builder markets including all types of flooring, countertops, and cabinets. Phoenix is a leading manufacturer of book components, educational materials, and related products producing value-added components, heavily illustrated books, and specialty commercial products using a broad spectrum of materials and decorative technologies.
Investment Highlights – Three and Nine Months Ended June 30, 2020
Consolidated Results for ALJ
- ALJ recognized net revenue of
$95.4 million for the three months ended June 30, 2020, an increase of$11.1 million , or13.2% , compared to$84.2 million for the three months ended June 30, 2019. The increase was driven by implementation activities and start of production for new contracts at Faneuil, offset by lower component sales primarily related to education at Phoenix and lower volumes at Carpets. ALJ recognized consolidated net revenue of$96.0 million for the three months ended March 31, 2020. - ALJ recognized a net loss of
$2.7 million and loss per share of$0.06 (diluted) for the three months ended June 30, 2020, compared to a net loss of$7.2 million and loss per share of$0.19 (diluted) for the three months ended June 30, 2019. Most of the improvement was due to a$3.4 million decrease in the provision for income taxes and increased margin from Faneuil implementation activities, offset by lower volumes at Phoenix and Carpets. ALJ recognized a net loss of$61.8 million and loss per share of$1.47 (diluted) for the three months ended March 31, 2020, which included a$59.0 million non-cash, non-recurring impairment of goodwill (as described below). - ALJ recognized adjusted EBITDA of
$7.2 million for the three months ended June 30, 2020, an increase of$2.0 million , or38.5% , compared to a$5.2 million for the three months ended June 30, 2019. The increase was a result of implementation activities and start of production for new contracts at Faneuil, offset by lower components sales primarily related to education at Phoenix, and lower volumes from builders and fewer upgrades to higher margin products by builder customers at Carpets. ALJ recognized adjusted EBITDA of$4.7 million for the three months ended March 31, 2020. - ALJ recognized net revenue of
$281.8 million for the nine months ended June 30, 2020, an increase of$15.8 million , or6.0% , compared to$266.0 million for the nine months ended June 30, 2019. The increase was driven by implementation activities and the start of production for new contracts at Faneuil, offset by lower component sales related to education at Phoenix and lower volumes at Carpets. - ALJ recognized a net loss of
$68.7 million and loss per share of$1.63 (diluted) for the nine months ended June 30, 2020, compared to a net loss of$6.1 million and loss per share of$0.16 (diluted) for the nine months ended June 30, 2019. Net loss for the nine months ended June 30, 2020 reflects a$59.0 million non-cash and non-recurring impairment of goodwill. Excluding such impairment of goodwill, ALJ recognized a net loss of$9.7 million and loss per share of$0.23 (diluted) for the nine months ended June 30, 2020. Most of the decrease was due to lower margin from Faneuil revenue as a result of inefficiencies related to the start of new contracts and operational challenges related to the expansion of certain ongoing contracts, and lower volumes at both Phoenix and Carpets, offset by a$5.2 million swing to a$1.0 million benefit from income taxes from a$4.2 million provision for income taxes. - ALJ recognized adjusted EBITDA of
$15.2 million for the nine months ended June 30, 2020, a decrease of$7.3 million , or32.4% , compared to$22.5 million for the nine months ended June 30, 2019. The decrease was a result of operational inefficiencies from the startup of new contracts, increased medical claims, increased reserves for workers' compensation claims, and higher rent expense for new call centers, offset by implementation activities at Faneuil, lower component sales primarily related to education at Phoenix and lower volumes from builders and fewer upgrades to higher margin products by builder customers at Carpets. - ALJ estimates net revenue for the three months ending September 30, 2020 to be in the range of
$100.0 million to$107.0 million , compared to$89.0 million for the three months ended September 30, 2019.
Jess Ravich, Chief Executive Officer of ALJ, said, "Our quarterly results continue to improve at Faneuil, which benefited from the recent addition of state unemployment contracts and the finalization of certain contract implementations which had a positive effect on the quarter. We continue our focus on transforming Faneuil's operations by shedding unprofitable contracts and increasing prices on existing contracts in order to generate EBITDA margins that are consistently in the high single digits. Results from Phoenix continued to be below prior year, but we are encouraged by the pickup in business activity at our production facilities as of mid-June. Due in large part to our improving financial performance, we ended the quarter with over
Three Months Ended | ||||||||||||
Amounts in thousands, except per share amounts | 2020 | 2019 | $ Change | |||||||||
(unaudited) | (unaudited) | |||||||||||
Net revenue | $ | 95,354 | $ | 84,225 | $ | 11,129 | ||||||
Costs and expenses: | ||||||||||||
Cost of revenue | 75,084 | 68,857 | 6,227 | |||||||||
Selling, general, and administrative expense | 20,408 | 16,210 | 4,198 | |||||||||
(Gain) loss on disposal of assets and other gain, net | (297) | 2 | (299) | |||||||||
Total operating expenses | 95,195 | 85,069 | 10,126 | |||||||||
Operating income (loss) | 159 | (844) | 1,003 | |||||||||
Other (expense) income: | ||||||||||||
Interest expense, net | (2,568) | (2,701) | 133 | |||||||||
Total other expense, net | (2,568) | (2,701) | 133 | |||||||||
Loss before income taxes | (2,409) | (3,545) | 1,136 | |||||||||
Provision for income taxes | (250) | (3,662) | 3,412 | |||||||||
Net loss | $ | (2,659) | $ | (7,207) | $ | 4,548 | ||||||
Loss per share of common stock–basic and diluted | $ | (0.06) | $ | (0.19) | ||||||||
Weighted average shares of common stock outstanding– basic and diluted | 42,173 | 38,026 | ||||||||||
Nine Months Ended | ||||||||||||
Amounts in thousands, except per share amounts | 2020 | 2019 | $ Change | |||||||||
(unaudited) | (unaudited) | |||||||||||
Net revenue | $ | 281,845 | $ | 266,005 | $ | 15,840 | ||||||
Costs and expenses: | ||||||||||||
Cost of revenue | 229,573 | 212,160 | 17,413 | |||||||||
Selling, general, and administrative expense | 55,485 | 47,946 | 7,539 | |||||||||
Impairment of goodwill | 59,047 | — | 59,047 | |||||||||
Gain on disposal of assets and other gain, net | (295) | (221) | (74) | |||||||||
Total operating expenses | 343,810 | 259,885 | 83,925 | |||||||||
Operating (loss) income | (61,965) | 6,120 | (68,085) | |||||||||
Other (expense) income: | ||||||||||||
Interest expense, net | (7,976) | (8,041) | 65 | |||||||||
Interest from legal settlement | 200 | — | 200 | |||||||||
Total other expense, net | (7,776) | (8,041) | 265 | |||||||||
Loss before income taxes | (69,741) | (1,921) | (67,820) | |||||||||
Benefit from (provision for) income taxes | 1,007 | (4,152) | 5,159 | |||||||||
Net loss | $ | (68,734) | $ | (6,073) | $ | (62,661) | ||||||
Loss per share of common stock–basic and diluted | $ | (1.63) | $ | (0.16) | ||||||||
Weighted average shares of common stock outstanding– basic and diluted | 42,173 | 38,034 | ||||||||||
Results for Faneuil
Anna Van Buren, CEO of Faneuil, stated, "Third quarter revenue improved by
Faneuil recognized net revenue of
Faneuil segment adjusted EBITDA was
Faneuil recognized net revenue of
Faneuil segment adjusted EBITDA was
Faneuil estimates its net revenue for the three months ending September 30, 2020 to be in the range of
Faneuil's contract backlog expected to be realized within the next twelve months as of June 30, 2020 was
Results for Carpets
Steve Chesin, CEO of Carpets stated, "Our results continue to be impacted by lower volumes, unfavorable customer mix, and lower than anticipated upgrades from customers due to increased pricing for housing in the Southern Nevada market versus prior year. Revenues compared to the prior quarter ended March 31, 2020 declined by
Carpets recognized net revenue of
Carpets recognized segment adjusted EBITDA of less than
Carpets recognized net revenue of
Carpets segment adjusted EBITDA for the nine months ended June 30, 2020 was less than
Carpets estimates its net revenue for the three months ending September 30, 2020 to be in the range of
Carpets total backlog, which is expected to be fully realized within the next 12 months, as of June 30, 2020 was
Results for Phoenix
Marc Reisch, CEO of Phoenix, stated, "The
Phoenix recognized net revenue of
Phoenix recognized segment adjusted EBITDA of
Phoenix recognized net revenue of
Phoenix recognized segment adjusted EBITDA of
Phoenix estimates its net revenue for the three months ending September 30, 2020 to be in the range of
Phoenix's contract backlog expected to be realized within the next twelve months as of June 30, 2020 was
Non-GAAP Financial Measures
In our earnings releases, prepared remarks, conference calls, presentations, and webcasts, we may present certain adjusted financial measures that are not calculated according to generally accepted accounting principles in the United States ("GAAP"). These non-GAAP financial measures are designed to complement the GAAP financial information presented in this release because management believes they present information regarding ALJ that is useful to investors. The non-GAAP financial measures presented should not be considered in isolation from, or as a substitute for, the comparable GAAP financial measure.
We present adjusted EBITDA because we believe it is frequently used by analysts, investors, and other interested parties in the evaluation of our company. ALJ defines segment adjusted EBITDA as segment net income (loss) before depreciation and amortization expense, interest expense, litigation loss, recovery of litigation loss, restructuring and cost reduction initiatives, loan amendment expenses, fair value of warrants issued in connection with loan amendments, stock-based compensation, acquisition-related expenses, (loss) gain on disposal of assets and other gain, net, provision for income taxes, and other non-recurring items. Adjusted EBITDA measures are not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparison. Below are reconciliations of our net loss, the most directly comparable GAAP measure, to consolidated adjusted EBITDA:
Three Months Ended June 30, | ||||||||||||
Amounts in thousands | 2020 | 2019 | $ Change | |||||||||
(unaudited) | (unaudited) | |||||||||||
Net loss | $ | (2,659) | $ | (7,207) | $ | 4,548 | ||||||
Depreciation and amortization expense | 4,937 | 5,598 | (661) | |||||||||
Interest expense | 2,568 | 2,701 | (133) | |||||||||
Restructuring and cost reduction initiatives | 1,005 | 139 | 866 | |||||||||
Change in fair value of contingent and deferred consideration | 900 | — | 900 | |||||||||
Bank fees accreted to term loan | 300 | — | 300 | |||||||||
Provision for income taxes | 250 | 3,662 | (3,412) | |||||||||
Acquisition-related expense | — | 85 | (85) | |||||||||
Stock-based compensation | 89 | 185 | (96) | |||||||||
Loan amendment expense | 61 | — | 61 | |||||||||
(Gain) loss on disposal of assets and other gain, net | (297) | 2 | (299) | |||||||||
Consolidated Adjusted EBITDA | $ | 7,154 | $ | 5,165 | $ | 1,989 | ||||||
Nine Months Ended June 30, | ||||||||||||
Amounts in thousands | 2020 | 2019 | $ Change | |||||||||
(unaudited) | (unaudited) | |||||||||||
Net loss | $ | (68,734) | $ | (6,073) | $ | (62,661) | ||||||
Impairment of goodwill | 59,047 | — | 59,047 | |||||||||
Depreciation and amortization expense | 15,097 | 14,881 | 216 | |||||||||
Interest expense | 7,976 | 8,041 | (65) | |||||||||
Restructuring and cost reduction initiatives | 1,795 | 742 | 1,053 | |||||||||
Change in fair value of contingent and deferred consideration | 900 | — | 900 | |||||||||
Fair value of warrants issued in connection with loan amendments | 716 | — | 716 | |||||||||
Loan amendment expense | 475 | 337 | 138 | |||||||||
Stock-based compensation | 312 | 556 | (244) | |||||||||
Bank fees accreted to term loan | 300 | — | 300 | |||||||||
Acquisition-related expense | 99 | 97 | 2 | |||||||||
Gain on disposal of assets and other gain, net | (295) | (221) | (74) | |||||||||
Interest from legal settlement | (200) | — | (200) | |||||||||
(Benefit from) provision for income taxes | (1,007) | 4,152 | (5,159) | |||||||||
Recovery of litigation loss | (1,256) | — | (1,256) | |||||||||
Consolidated Adjusted EBITDA | $ | 15,225 | $ | 22,512 | $ | (7,287) | ||||||
Supplemental Consolidated Financial Information - Segment Net Revenue, Segment Adjusted EBITDA, and Debt
Three Months Ended | ||||||||||||||||
Amounts in thousands | 2020 | 2019 | $ Change | % Change | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Segment Net Revenue | ||||||||||||||||
Faneuil | $ | 61,523 | $ | 44,773 | $ | 16,750 | 37.4 | % | ||||||||
Carpets | 9,277 | 12,763 | (3,486) | (27.3) | % | |||||||||||
Phoenix | 24,554 | 26,689 | (2,135) | (8.0) | % | |||||||||||
Total Segment Net Revenue | $ | 95,354 | $ | 84,225 | $ | 11,129 | 13.2 | % | ||||||||
Three Months Ended | ||||||||||||||||
Amounts in thousands | 2020 | 2019 | $ Change | % Change | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Segment Adjusted EBITDA | ||||||||||||||||
Faneuil | $ | 4,263 | $ | 518 | $ | 3,745 | 723.0 | % | ||||||||
Carpets | 36 | 478 | (442) | (92.5) | % | |||||||||||
Phoenix | 3,761 | 4,881 | (1,120) | (22.9) | % | |||||||||||
Corporate | (906) | (712) | (194) | (27.2) | % | |||||||||||
Total Segment Adjusted EBITDA | $ | 7,154 | $ | 5,165 | $ | 1,989 | 38.5 | % | ||||||||
Nine Months Ended June 30, | ||||||||||||||||
Amounts in thousands | 2020 | 2019 | $ Change | % Change | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Segment Net Revenue | ||||||||||||||||
Faneuil | $ | 178,915 | $ | 146,565 | $ | 32,350 | 22.1 | % | ||||||||
Carpets | 29,599 | 37,213 | (7,614) | (20.5) | % | |||||||||||
Phoenix Color | 73,331 | 82,227 | (8,896) | (10.8) | % | |||||||||||
Total Segment Net Revenue | $ | 281,845 | $ | 266,005 | $ | 15,840 | 6.0 | % | ||||||||
Nine Months Ended June 30, | ||||||||||||||||
Amounts in thousands | 2020 | 2019 | $ Change | % Change | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Segment Adjusted EBITDA | ||||||||||||||||
Faneuil | $ | 7,288 | $ | 8,257 | $ | (969) | (11.7) | % | ||||||||
Carpets | 13 | 910 | (897) | (98.6) | % | |||||||||||
Phoenix Color | 10,779 | 15,437 | (4,658) | (30.2) | % | |||||||||||
Corporate | (2,855) | (2,092) | (763) | (36.5) | % | |||||||||||
Total Segment Adjusted EBITDA | $ | 15,225 | $ | 22,512 | $ | (7,287) | (32.4) | % | ||||||||
As of June 30, 2020 and September 30, 2019, consolidated total debt and consolidated net debt were comprised of the following (exclusive of deferred financing costs):
June 30, | September 30, | |||||||
Amounts in thousands | 2020 | 2019 | ||||||
(unaudited) | ||||||||
Term loan payable | $ | 80,179 | $ | 81,082 | ||||
Line of credit | 15,791 | 9,823 | ||||||
Equipment financing agreements | 4,093 | 3,101 | ||||||
Capital leases | 6,111 | 5,158 | ||||||
Total debt | 106,174 | 99,164 | ||||||
Cash | 7,393 | 4,529 | ||||||
Net debt | $ | 98,781 | $ | 94,635 | ||||
As of June 30, 2020, ALJ was in compliance with all debt covenants.
Financial Covenants Compliance | |||||
June 30, 2020 | |||||
(actual) | (required) | ||||
Leverage Ratio | 4.68 | < 7.45 | |||
Fixed Charges Ratio | 0.98 | > 0.63 | |||
Investor Conference Call Details
ALJ will host an investor conference call on August 20, 2020 at 4:30 PM Eastern Standard Time. Participants should dial in 10 minutes prior to the start time by using the following dial-in information and Conference ID/Passcode:
Participant Toll-Free Dial-In Number: | (877) 870 4263 |
Participant International Dial-In Number: | (412) 317 0790 |
Conference ID/Passcode: | ALJ Regional Holdings, Inc. |
Participants can also access ALJ's investor conference call using the following webcast URL: https://www.webcaster4.com/Webcast/Page/2172/35696. A playback of the investor conference call will be available within 24 hours using the same webcast URL.
About ALJ Regional Holdings, Inc.
ALJ Regional Holdings, Inc. is the parent company of (i) Faneuil, Inc., a leading provider of call center services, back office operations, staffing services, and toll collection services to commercial and governmental clients across the United States, (ii) Floors-N-More, LLC, d/b/a Carpets N' More, one of the largest floor covering retailers in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail, and home builder markets including all types of flooring, countertops, and cabinets, and (iii) Phoenix Color Corp., a leading manufacturer of book components, educational materials, and related products producing value-added components, heavily illustrated books, and specialty commercial products using a broad spectrum of materials and decorative technologies.
Forward-Looking Statements
ALJ's third quarter ended June 30, 2020 earnings release and related communications contain forward-looking statements within the meaning of federal securities laws. Such statements include information regarding our expectations, impact of COVID-19, goals or intentions regarding the future, including but not limited to statements about our financial projections and business growth, our plans to reduce capital expenditures and deleverage our balance sheet, our ability to achieve target adjusted EBITDA margins on customer contracts, the impact of new customer contracts for Faneuil, the impact of new Faneuil contracts on Faneuil's financial results and other statements including the words "will," "anticipate," and "expect" and similar expressions. You should not place undue reliance on these statements, as they involve certain risks and uncertainties, and actual results or performance may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission and available through EDGAR on the SEC's website at www.sec.gov. All forward-looking statements in this release are made as of the date hereof and we assume no obligation to update any forward-looking statement.
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SOURCE ALJ Regional Holdings, Inc.
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