Company Quick10K Filing
ALJ Regional
Price1.44 EPS-0
Shares42 P/E-4
MCap61 P/FCF2
Net Debt89 EBIT5
TEV150 TEV/EBIT31
TTM 2019-09-30, in MM, except price, ratios
10-Q 2021-03-31 Filed 2021-05-12
10-Q 2020-12-31 Filed 2021-02-11
10-K 2020-09-30 Filed 2020-12-18
10-Q 2020-06-30 Filed 2020-08-12
10-Q 2020-03-31 Filed 2020-05-15
10-Q 2019-12-31 Filed 2020-02-14
10-K 2019-09-30 Filed 2019-12-23
10-Q 2019-06-30 Filed 2019-08-12
10-Q 2019-03-31 Filed 2019-05-13
10-Q 2018-12-31 Filed 2019-02-11
10-K 2018-09-30 Filed 2018-12-17
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-14
10-Q 2017-12-31 Filed 2018-02-14
10-K 2017-09-30 Filed 2017-12-19
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-12
10-Q 2016-12-31 Filed 2017-02-13
10-K 2016-09-30 Filed 2016-12-23
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-16
8-K 2021-02-11
8-K 2021-01-23
8-K 2020-12-18
8-K 2020-11-06
8-K 2020-10-07
8-K 2020-08-21
8-K 2020-08-12
8-K 2020-07-17
8-K 2020-06-21
8-K 2020-05-15
8-K 2020-05-12
8-K 2020-04-09
8-K 2020-03-26
8-K 2020-02-14
8-K 2020-02-13
8-K 2019-12-23
8-K 2019-12-17
8-K 2019-10-24
8-K 2019-10-03
8-K 2019-08-21
8-K 2019-08-20
8-K 2019-08-12
8-K 2019-07-29
8-K 2019-05-13
8-K 2019-02-11
8-K 2018-12-17
8-K 2018-11-28
8-K 2018-08-17
8-K 2018-08-14
8-K 2018-08-02
8-K 2018-05-15
8-K 2018-05-14
8-K 2018-03-12
8-K 2018-02-14

ALJJ 10Q Quarterly Report

Part I. Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosure
Item 5. Other Information
Item 6 - Exhibits
EX-31.1 aljj-ex311_6.htm
EX-31.2 aljj-ex312_8.htm
EX-32.1 aljj-ex321_7.htm

ALJ Regional Earnings 2021-03-31

Balance SheetIncome StatementCash Flow
2552041531025102015201620182020
Assets, Equity
10078563412-102015201620182020
Rev, G Profit, Net Income
20136-1-8-152015201620182020
Ops, Inv, Fin

10-Q 1 aljj-10q_20210331.htm 10-Q aljj-10q_20210331.htm

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           

Commission File Number: 001-37689

 

ALJ REGIONAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-4082185

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification Number)

244 Madison Avenue, PMB #358

New York, NY 10016

(Address of principal executive offices, Zip code)

(888) 486-7775

(Registrant’s telephone number, including area code)

 

 

Title of class of registered securities

Common Stock, par value $0.01 per share

Ticker Symbol

ALJJ

Name of exchange on which registered

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller Reporting Company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes        No   

The number of shares of common stock, $0.01 par value per share, outstanding as of May 1, 2021 was 42,321,048.

 

 


 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements included in this Form 10-Q regarding future financial performance, results and conditions and other statements that are not historical facts, including, among others, the statements regarding competition, the Company’s intention to retain earnings for use in the Company’s business operations, the Company’s ability to continue to fund its operations and service its indebtedness, the adequacy of the Company’s accrual for tax liabilities, management’s projection of continued taxable income, and the Company’s ability to offset future income against net operating loss carryovers, constitute forward-looking statements. The words “can,” “could,” “may,” “will,” “would,” “plan,” “future,” “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” and similar expressions are also intended to identify forward-looking statements. These forward-looking statements are based on current expectations and are subject to risks and uncertainties. Actual results or events could differ materially from those set forth or implied by such forward-looking statements and related assumptions due to certain important factors, including, without limitation, the risks set forth under the caption “Risk Factors” below, which are incorporated herein by reference. Some, but not all, of the forward-looking statements contained in this Form 10-Q include, among other things, statements about the following:

 

any statements regarding our expectations for future performance;

 

our ability to integrate business acquisitions;

 

our ability to compete effectively;

 

statements regarding future revenue and the potential concentration of such revenue coming from a limited number of customers;

 

our ability to meet customer needs;

 

our expectations that interest expense will increase;

 

our expectations that we will continue to have non-cash compensation expenses;

 

our expectation that we will be in compliance with the required covenants pursuant to our loan agreements;

 

regulatory compliance costs;

 

our ability to manage cost cutting activities;

 

the potential adverse impact of the novel coronavirus disease (“COVID-19”) pandemic on our business, operations and the markets and communities in which we and our customers, vendors and employees operate;

 

our ability to improve margins and profitability on contracts we enter into; and

 

the other matters described in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

The Company is also subject to general business risks, including results of tax audits, adverse state, federal or foreign legislation and regulation, changes in general economic conditions, the Company’s ability to retain and attract key employees, acts of war or global terrorism and unexpected natural disasters. Any forward-looking statements included in this Form 10-Q are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statements.

 

2


 

 

ALJ REGIONAL HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED MARCH 31, 2021

INDEX

 

 

 

 

 

Page

 

 

 

 

 

 

 

PART I – FINANCIAL INFORMATION

 

4

 

 

 

 

 

Item 1

 

Financial Statements

 

4

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

Condensed Consolidated Statements of Operations (unaudited)

 

5

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

 

6

 

 

Condensed Consolidated Statements of Equity (unaudited)

 

8

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

9

 

 

 

 

 

Item 2

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

33

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

47

 

 

 

 

 

Item 4

 

Controls and Procedures

 

47

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

48

 

 

 

 

 

Item 1

 

Legal Proceedings

 

48

 

 

 

 

 

Item 1A

 

Risk Factors

 

48

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

59

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

59

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

59

 

 

 

 

 

Item 5

 

Other Information

 

59

 

 

 

 

 

Item 6

 

Exhibits

 

60

 

 

 

 

 

 

 

Signatures

 

61

 

3


 

 

PART I. FINANCIAL INFORMATION

Item 1 - Financial Statements

 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

 

 

March 31,

 

 

September 30,

 

 

 

2021

 

 

2020

 

ASSETS

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,566

 

 

$

6,050

 

Accounts receivable, net of allowance for doubtful accounts of $654 and $1,033

   at March 31, 2021 and September 30, 2020, respectively

 

 

54,764

 

 

 

56,487

 

Inventories, net

 

 

6,140

 

 

 

6,232

 

Prepaid expenses and other current assets

 

 

7,408

 

 

 

9,015

 

Current assets of discontinued operations

 

 

 

 

 

4,828

 

Total current assets

 

 

72,878

 

 

 

82,612

 

Property and equipment, net

 

 

66,374

 

 

 

67,785

 

Operating lease right-of-use assets

 

 

31,731

 

 

 

 

Intangible assets, net

 

 

32,995

 

 

 

35,552

 

Collateral deposits

 

 

487

 

 

 

424

 

Other assets

 

 

3,888

 

 

 

2,887

 

Long-term assets of discontinued operations

 

 

 

 

 

984

 

Total assets

 

$

208,353

 

 

$

190,244

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

13,298

 

 

$

16,224

 

Accrued expenses

 

 

20,339

 

 

 

19,140

 

Income taxes payable

 

 

14

 

 

 

9

 

Deferred revenue and customer deposits

 

 

4,304

 

 

 

8,583

 

Term loans, net of deferred loan costs - current installments

 

 

11,162

 

 

 

9,827

 

Finance lease obligations - current installments

 

 

1,931

 

 

 

2,437

 

Operating lease obligations - current installments

 

 

5,025

 

 

 

 

Current portion of workers' compensation reserve

 

 

710

 

 

 

960

 

Other current liabilities

 

 

4,239

 

 

 

60

 

Current liabilities of discontinued operations

 

 

 

 

 

3,351

 

Total current liabilities

 

 

61,022

 

 

 

60,591

 

Line of credit, net of deferred loan costs

 

 

11,597

 

 

 

13,753

 

Term loans, less current portion, net of deferred loan costs

 

 

70,161

 

 

 

73,482

 

Deferred revenue, less current portion

 

 

3,813

 

 

 

2,358

 

Workers' compensation reserve, less current portion

 

 

1,887

 

 

 

1,842

 

Finance lease obligations, less current installments

 

 

1,981

 

 

 

2,900

 

Operating lease obligations, less current installments

 

 

35,633

 

 

 

 

Deferred tax liabilities, net

 

 

1,008

 

 

 

987

 

Other non-current liabilities

 

 

6,365

 

 

 

16,669

 

Long-term liabilities of discontinued operations

 

 

 

 

 

606

 

Total liabilities

 

 

193,467

 

 

 

173,188

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; authorized – 100,000 shares; 42,321 and 42,298

   issued and outstanding at March 31, 2021 and September 30, 2020, respectively

 

 

423

 

 

 

423

 

Additional paid-in capital

 

 

288,225

 

 

 

288,193

 

Accumulated deficit

 

 

(273,762

)

 

 

(271,560

)

Total stockholders’ equity

 

 

14,886

 

 

 

17,056

 

Total liabilities and stockholders’ equity

 

$

208,353

 

 

$

190,244

 

See accompanying notes

4


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)

 

 

 

Three Months Ended

March 31,

 

 

Six Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net revenue

 

$

114,588

 

 

$

85,478

 

 

$

225,725

 

 

$

166,169

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue

 

 

93,484

 

 

 

70,300

 

 

 

186,643

 

 

 

138,235

 

Selling, general, and administrative expense

 

 

17,800

 

 

 

16,296

 

 

 

34,854

 

 

 

30,701

 

Impairment of goodwill

 

 

 

 

 

56,492

 

 

 

 

 

 

56,492

 

Loss (gain) on disposal of assets, net

 

 

64

 

 

 

 

 

 

(2

)

 

 

2

 

Total operating expenses

 

 

111,348

 

 

 

143,088

 

 

 

221,495

 

 

 

225,430

 

Operating income (loss)

 

 

3,240

 

 

 

(57,610

)

 

 

4,230

 

 

 

(59,261

)

Other (expense) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,451

)

 

 

(2,844

)

 

 

(5,033

)

 

 

(5,408

)

Interest from legal settlement

 

 

 

 

 

 

 

 

 

 

 

200

 

Total other expense, net

 

 

(2,451

)

 

 

(2,844

)

 

 

(5,033

)

 

 

(5,208

)

Income (loss) from continuing operations before income taxes

 

 

789

 

 

 

(60,454

)

 

 

(803

)

 

 

(64,469

)

(Provision for) benefit from income taxes

 

 

(44

)

 

 

1,297

 

 

 

(336

)

 

 

1,257

 

Net income (loss) from continuing operations

 

 

745

 

 

 

(59,157

)

 

 

(1,139

)

 

 

(63,212

)

Net loss from discontinued operations, net of income taxes

 

 

(860

)

 

 

(2,641

)

 

 

(1,063

)

 

 

(2,863

)

Net loss

 

$

(115

)

 

$

(61,798

)

 

$

(2,202

)

 

$

(66,075

)

Income (loss) per share of common stock–basic and diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continuing operations

 

$

0.02

 

 

$

(1.40

)

 

$

(0.03

)

 

$

(1.50

)

Discontinued operations

 

$

(0.02

)

 

$

(0.06

)

 

$

(0.03

)

 

$

(0.07

)

Net loss per share (1)

 

$

 

 

$

(1.47

)

 

$

(0.05

)

 

$

(1.57

)

Weighted average shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

42,321

 

 

 

42,173

 

 

 

42,319

 

 

 

42,173

 

Diluted

 

 

54,458

 

 

 

42,173

 

 

 

42,319

 

 

 

42,173

 

__________________________________________________

(1) Amounts may not add due to rounding.

 

See accompanying notes

5


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands) 

 

 

 

Six Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(2,202

)

 

$

(66,075

)

Adjustments to reconcile net loss to cash provided by (used for) operating activities:

 

 

 

 

 

 

 

 

Impairment of goodwill

 

 

 

 

 

56,492

 

Depreciation and amortization expense

 

 

9,968

 

 

 

9,876

 

(Reversal) provision for bad debts and obsolete inventory

 

 

(218

)

 

 

469

 

Interest expense and other bank fees accreted to term loans

 

 

1,121

 

 

 

53

 

Amortization of deferred loan costs

 

 

364

 

 

 

603

 

Stock-based compensation expense

 

 

85

 

 

 

223

 

Fair value of warrants issued in connection with debt modification

 

 

 

 

 

716

 

(Gain) loss on disposal of assets, net

 

 

(2

)

 

 

2

 

Loss on sale of Carpets

 

 

761

 

 

 

 

Deferred income taxes

 

 

21

 

 

 

(1,448

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

1,926

 

 

 

(9,133

)

Inventories, net

 

 

107

 

 

 

(849

)

Prepaid expenses, collateral deposits, and other current assets

 

 

1,594

 

 

 

(6,712

)

Income tax receivable

 

 

 

 

 

897

 

ROU assets/ROU liabilities

 

 

(298

)

 

 

 

Other assets

 

 

(1,064

)

 

 

(444

)

Accounts payable

 

 

(2,926

)

 

 

3,810

 

Accrued expenses

 

 

335

 

 

 

1,909

 

Income tax payable

 

 

5

 

 

 

(363

)

Deferred revenue and customer deposits

 

 

(2,824

)

 

 

4,529

 

Other current liabilities and other non-current liabilities

 

 

3,706

 

 

 

(114

)

Discontinued operations, net

 

 

663

 

 

 

2,544

 

Cash provided by (used for) operating activities

 

 

11,122

 

 

 

(3,015

)

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(4,163

)

 

 

(2,867

)

Proceeds from sale of Carpets, net of transaction costs

 

 

438

 

 

 

 

Proceeds from sales of assets

 

 

28

 

 

 

1

 

Discontinued operations, net

 

 

(7

)

 

 

(16

)

Cash used for investing activities

 

 

(3,704

)

 

 

(2,882

)

Financing activities

 

 

 

 

 

 

 

 

(Payments) proceeds from line of credit, net

 

 

(2,320

)

 

 

9,713

 

Deferred loan costs

 

 

 

 

 

(542

)

Payments on finance leases

 

 

(1,425

)

 

 

(1,169

)

Payments on term loans

 

 

(5,157

)

 

 

(3,535

)

Cash (used for) provided by financing activities

 

 

(8,902

)

 

 

4,467

 

Change in cash and cash equivalents

 

 

(1,484

)

 

 

(1,430

)

Cash and cash equivalents at beginning of the year

 

 

6,050

 

 

 

4,529

 

Cash and cash equivalents at end of the year

 

$

4,566

 

 

$

3,099

 

See accompanying notes

 

6


 

 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands) 

 

 

 

Six Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

4,153

 

 

$

4,724

 

Taxes

 

$

35

 

 

$

680

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Capital equipment purchased with finance leases to be billed to customers

 

$

 

 

$

1,763

 

Capital equipment purchased with finance leases

 

$

 

 

$

1,582

 

Capital equipment purchases financed with term loans

 

$

1,850

 

 

$

 

 

See accompanying notes

 

7


 

 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in thousands) 

 

 

 

Three Months Ended

March 31,

 

 

Six Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

423

 

 

$

422

 

 

$

423

 

 

$

422

 

Issuance of common stock upon cashless exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

Balance, end of period

 

$

423

 

 

$

422

 

 

$

423

 

 

$

422

 

Additional paid in capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

288,210

 

 

$

287,779

 

 

$

288,193

 

 

$

287,101

 

Issuance of common stock upon cashless exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense - options

 

 

15

 

 

 

84

 

 

 

32

 

 

 

168

 

Fair value of warrants issued in connection with term loan modification

 

 

 

 

 

122

 

 

 

 

 

 

716

 

Balance, end of period

 

$

288,225

 

 

$

287,985

 

 

$

288,225

 

 

$

287,985

 

Accumulated deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(273,647

)

 

$

(208,163

)

 

$

(271,560

)

 

$

(204,407

)

Net loss

 

 

(115

)

 

 

(61,798

)

 

 

(2,202

)

 

 

(66,075

)

Cumulative impact of adopting ASC 606 on October 1, 2019

 

 

 

 

 

 

 

 

 

 

 

521

 

Balance, end of period

 

$

(273,762

)

 

$

(269,961

)

 

$

(273,762

)

 

$

(269,961

)

Total stockholders' equity

 

$

14,886

 

 

$

18,446

 

 

$

14,886

 

 

$

18,446

 

See accompanying notes

 

 

8


 

 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

ALJ Regional Holdings, Inc. (including subsidiaries, referred to collectively herein as “ALJ” or “Company”) is a holding company. During the three and six months ended March 31, 2021 and 2020, ALJ consisted of the following wholly owned subsidiaries:  

 

Faneuil, Inc. (including its subsidiaries, “Faneuil”). Faneuil is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and commercial clients across the United States, focusing on the healthcare, utility, consumer goods, toll and transportation industries. Faneuil is headquartered in Hampton, Virginia. ALJ acquired Faneuil in October 2013.

 

Floors-N-More, LLC, d/b/a, Carpets N’ More (“Carpets”). 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, cabinets, window coverings and garage/closet organizers, with one retail location, as well as a stone and solid surface fabrication facility. ALJ acquired Carpets in April 2014.  ALJ sold Carpets in February 2021. See Basis of Presentation below.

 

Phoenix Color Corp. (including its subsidiaries, “Phoenix”). 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. Phoenix is headquartered in Hagerstown, Maryland. ALJ acquired Phoenix in August 2015.

As a result of selling one of its segments during the three months ended March 31, 2021, discussed below, ALJ has organized its business and corporate structure into two business segments: Faneuil and Phoenix.

Basis of Presentation

 

In January 2021, ALJ entered into a Purchase and Sale Agreement (“PSA”), by and among the Company, Superior Interior Finishes, LLC, a Nevada limited liability company (“Purchaser” or “Superior”) and Carpets, pursuant to which the Company agreed to sell 100% of the membership interests of Carpets to the Purchaser for an aggregate purchase price of $0.5 million (the “Purchase Price”) in cash (the “Transaction”). At the time of the PSA, Superior was 100% owned by Steve Chesin, the Chief Executive Officer of Carpets. The Company entered into the PSA because its Carpets business segment had been deemed a non-core holding and had underperformed over the past several years.  The Transaction, which was approved by a committee of the Board comprised solely of certain independent directors of the Company, closed in February 2021.  As such, the results of operations, assets, liabilities, and cash flows of Carpets were classified as discontinued operations in ALJ’s financial statements for all periods presented. See Note 4 for additional information about the divestiture of Carpets.  

The interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The Condensed Consolidated Financial Statements and footnotes thereto are unaudited. In the opinion of the Company’s management, the Condensed Consolidated Financial Statements reflect all adjustments, which are of a normal recurring nature, that are necessary for a fair presentation of the Company’s interim financial results. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the assets, liabilities, revenue and expenses that are reported in the Condensed Consolidated Financial Statements and footnotes thereto. Actual results may differ from those estimates. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2020, filed with the SEC on December 18, 2020.

 

Impact of Coronavirus Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread throughout the U.S. COVID-19 is having an unprecedented impact on the U.S. economy as federal, state, and local governments react to this public health crisis.

 

Currently, all of ALJ’s subsidiaries have been deemed “Essential Services” and have continued to operate with limited disruption. To date, COVID-19 has not materially impacted ALJ’s financial position, results of operations or cash flows. The Company took immediate actions in March 2020 to enable working-from-home where possible and put in place increased safety precautions,

9


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

including social distancing, at other locations where essential services on site are required. The duration of these measures is unknown, may be extended and additional measures may be imposed.

Management expects that ALJ could continue to be impacted in the near term by lower sales volumes in several parts of ALJ’s business, resulting in lower revenue and profit. While the impact of COVID-19 on the Company’s future financial position, results of operations and cash flows cannot be estimated with certainty, such impact could be significant if the global pandemic continues to adversely impact the U.S. economy for an extended period of time. The extent to which COVID-19 impacts ALJ’s operations will depend on future developments, which are highly uncertain. These include among others, the duration of the outbreak, vaccination rate, emergence of new variants, if portions of the Company’s business segments are recharacterized as non-essential for which closure of some or all of the Company’s operations could be required, information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain the pandemic or treat its impact. As events are rapidly developing, additional impacts may arise that are not known at this time.

As of March 31, 2021, ALJ’s total available liquidity was $21.7 million, which included $4.6 million of cash and cash equivalents and $17.1 million of unused borrowing capacity under the Company’s revolving credit facility. While the impact that COVID-19 may have on the Company’s financial position, results of operations, and cash flows in the future cannot be estimated with certainty, based on current estimates regarding the magnitude and duration of the global pandemic, ALJ does not anticipate an impact on the Company’s ability to meet its obligations when due for at least the next 12 months.  However, the ultimate magnitude and duration of the global pandemic is highly uncertain and, as such, will require ALJ to continually assess the situation for the foreseeable future.  Accordingly, the Company’s estimates regarding the magnitude and duration of the global pandemic may change in the future and such changes could be material.

As a result of the decline in ALJ’s actual and forecasted results of operations, including the potential effects of COVID-19, ALJ (i) sought an easement of certain financial covenants, under the Financing Agreement (as defined below), in order to maintain compliance therewith, and (ii) the elimination of certain quarterly principal payment obligations. Accordingly, the Company executed the Ninth Amendment to the Financing Agreement on May 12, 2020.  See Note 8 “Ninth Amendment to the Financing Agreement” for additional information regarding the terms and conditions required by the Ninth Amendment to the Financing Agreement.  

While the Company currently anticipates it will be able to maintain compliance with the terms and conditions of the Financing Agreement (as amended to date) for at least the next 12 months, the ultimate magnitude and duration of the global pandemic is highly uncertain and, as such, will require ALJ to continually assess its current estimates of compliance for the foreseeable future. Accordingly, the Company’s anticipated compliance with its financial covenants may adversely change if the magnitude and duration of the global pandemic has a materially adverse effect on the Company in the future.

 

 

 

 

2. RECENT ACCOUNTING STANDARDS   

 

Accounting Standards Adopted

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU 2016-02, Leases and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (referred to collectively as “ASC 842”)). ASC 842 requires lessees to recognize a right-of-use (“ROU”) asset and corresponding lease liability for all leases with terms of more than 12 months and provides enhanced disclosure of lease activity. Recognition, measurement, and presentation of expenses depend on classification as either a finance or operating lease.   

 

ALJ adopted ASC 842 as of October 1, 2020, the effective and initial application date, using the modified retrospective approach. Comparative periods presented in the consolidated financial statements prior to October 1, 2020 continue to be presented under Accounting Standards Codification (“ASC”) 840. ALJ elected the package of practical expedients, which allowed the Company to not reassess, as of the adoption date, whether arrangements contain leases, the classification of existing leases, and the capitalization of initial direct costs of the existing leases. The Company also made a policy election to exclude leases with an initial term of 12 months or less from the Consolidated Balance Sheet.  The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

 

The Company’s October 1, 2020 adoption of ASC 842 resulted in the recognition of operating lease obligations totaling $42.6 million, based upon the present value of the remaining minimum rental payments using discount rates as of the adoption date, of which

10


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

$5.2 million was in operating lease obligations - current installments, and $37.4 million was in operating lease liabilities, less current installments. In addition, ALJ recorded corresponding operating lease right-of-use assets totaling $33.4 million. The new standard did not have a material impact on the Consolidated Statements of Operations or the Consolidated Statements of Cash Flows. See Note 10 for further discussion of the Company’s leasing arrangements and required ASC 842 disclosures

 

Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which simplifies certain aspects of the accounting for income taxes as well as clarifies and amends existing guidance to improve consistent application. ALJ early adopted ASU 2019-12 as of January 1, 2021. The impact of ASU 2019-12 on ALJ’s consolidated financial statements and related disclosures was not material.

Accounting Standards Not Yet Adopted

 

Internal-Use Software

 

In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to provide guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU 2018-15 aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends ASC 350, Intangibles–Goodwill and Other, to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in such a CCA. ASU 2018-15 will be effective for ALJ on October 1, 2021. ALJ does not anticipate the adoption of ASU 2018-15 to significantly impact its consolidated financial statements and related disclosures.

 

 

3. REVENUE RECOGNITION

 

Disaggregation of Revenue

Revenue by contract type was as follows for the three and six months ended March 31, 2021 and 2020:

 

 

 

Three Months Ended

March 31,

 

 

Six Months Ended

March 31,

 

(in thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Faneuil:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare

 

$

37,859

 

 

$

23,988

 

 

$

76,702

 

 

$

49,355

 

Transportation

 

 

21,615

 

 

 

18,368

 

 

 

41,710

 

 

 

35,496

 

Utility

 

 

13,756

 

 

 

13,490

 

 

 

26,820

 

 

 

27,417

 

Government

 

 

10,021

 

 

 

581

 

 

 

22,550

 

 

 

1,630

 

Other

 

 

1,173

 

 

 

2,398

 

 

 

2,611

 

 

 

3,494

 

Total Faneuil

 

$

84,424

 

 

$

58,825

 

 

$

170,393

 

 

$

117,392

 

Phoenix:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Publisher

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MSA

 

$

23,853

 

 

$

19,569

 

 

$

42,967

 

 

$

31,999

 

Non-MSA

 

 

3,677

 

 

 

4,222

 

 

 

7,870

 

 

 

10,782

 

Commercial

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MSA

 

 

3

 

 

 

380

 

 

 

93

 

 

 

1,185

 

Non-MSA

 

 

2,631

 

 

 

2,482

 

 

 

4,402

 

 

 

4,811

 

Total Phoenix

 

$

30,164

 

 

$

26,653

 

 

$

55,332

 

 

$

48,777

 

Total consolidated revenue, net

 

$

114,588

 

 

$

85,478

 

 

$

225,725

 

 

$

166,169

 

 

Substantially all of Faneuil revenue is recognized over time and substantially all of Phoenix revenue is recognized at a point in time.

11


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Contract Assets and Liabilities

 

The following table provides information about consolidated contract assets and contract liabilities at March 31, 2021 and September 30, 2020:

 

(in thousands)

 

March 31,

2021

 

 

September 30,

2020

 

Contract assets:

 

 

 

 

 

 

 

 

Unbilled revenue (1)

 

$

681

 

 

$

527

 

Total contract assets

 

$

681

 

 

$

527

 

Contract liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

$

8,056

 

 

$

10,875

 

Accrued rebates and material rights (2)

 

 

2,715

 

 

 

3,097

 

Total contract liabilities

 

$

10,771

 

 

$

13,972

 

 

 

(1)

Included in prepaid expenses and other current assets. Unbilled revenue represents rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Unbilled revenue is transferred to accounts receivable when the rights become unconditional.