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 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 Earnings, Regulation FD, Exhibits
8-K 2021-01-23 Enter Agreement, Exhibits
8-K 2020-12-18 Earnings, Regulation FD, Exhibits
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_8.htm
EX-31.2 aljj-ex312_7.htm
EX-32.1 aljj-ex321_6.htm

ALJ Regional Earnings 2020-12-31

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_20201231.htm 10-Q aljj-10q_20201231.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 December 31, 2020

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 February 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 DECEMBER 31, 2020

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

 

31

 

 

 

 

 

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

 

 

 

 

 

Item 4

 

Controls and Procedures

 

40

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

41

 

 

 

 

 

Item 1

 

Legal Proceedings

 

41

 

 

 

 

 

Item 1A

 

Risk Factors

 

41

 

 

 

 

 

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

53

 

 

 

 

 

Item 3

 

Defaults Upon Senior Securities

 

53

 

 

 

 

 

Item 4

 

Mine Safety Disclosures

 

53

 

 

 

 

 

Item 5

 

Other Information

 

53

 

 

 

 

 

Item 6

 

Exhibits

 

54

 

 

 

 

 

 

 

Signatures

 

55

 

3


 

PART I. FINANCIAL INFORMATION

Item 1 - Financial Statements

 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

 

 

December 31,

 

 

September 30,

 

 

 

2020

 

 

2020

 

ASSETS

 

(unaudited)

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,580

 

 

$

6,050

 

Accounts receivable, net of allowance for doubtful accounts of $754 and $1,108

   at December 31, 2020 and September 30, 2020, respectively

 

 

66,522

 

 

 

59,361

 

Inventories, net

 

 

6,944

 

 

 

7,453

 

Prepaid expenses and other current assets

 

 

10,223

 

 

 

9,748

 

Total current assets

 

 

86,269

 

 

 

82,612

 

Property and equipment, net

 

 

67,688

 

 

 

68,383

 

Operating lease right-of-use assets

 

 

32,614

 

 

 

 

Intangible assets, net

 

 

34,598

 

 

 

35,887

 

Collateral deposits

 

 

487

 

 

 

424

 

Other assets

 

 

4,425

 

 

 

2,938

 

Total assets

 

$

226,081

 

 

$

190,244

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,804

 

 

$

18,170

 

Accrued expenses

 

 

26,506

 

 

 

20,312

 

Income taxes payable

 

 

19

 

 

 

9

 

Deferred revenue and customer deposits

 

 

8,516

 

 

 

8,768

 

Term loans, net of deferred loan costs - current installments

 

 

10,014

 

 

 

9,827

 

Finance lease obligations - current installments

 

 

2,132

 

 

 

2,437

 

Operating lease obligations - current installments

 

 

5,845

 

 

 

 

Current portion of workers' compensation reserve

 

 

1,008

 

 

 

1,008

 

Other current liabilities

 

 

4,564

 

 

 

60

 

Total current liabilities

 

 

75,408

 

 

 

60,591

 

Line of credit, net of deferred loan costs

 

 

13,299

 

 

 

13,753

 

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

 

 

71,891

 

 

 

73,482

 

Deferred revenue, less current portion

 

 

2,569

 

 

 

2,358

 

Workers' compensation reserve, less current portion

 

 

1,894

 

 

 

1,894

 

Finance lease obligations, less current installments

 

 

2,430

 

 

 

2,900

 

Operating lease obligations, less current installments

 

 

36,165

 

 

 

 

Deferred tax liabilities, net

 

 

960

 

 

 

987

 

Other non-current liabilities

 

 

6,479

 

 

 

17,223

 

Total liabilities

 

 

211,095

 

 

 

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 December 31, 2020 and September 30, 2020, respectively

 

 

423

 

 

 

423

 

Additional paid-in capital

 

 

288,210

 

 

 

288,193

 

Accumulated deficit

 

 

(273,647

)

 

 

(271,560

)

Total stockholders’ equity

 

 

14,986

 

 

 

17,056

 

Total liabilities and stockholders’ equity

 

$

226,081

 

 

$

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

December 31,

 

 

 

2020

 

 

2019

 

Net revenue

 

$

119,830

 

 

$

90,465

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of revenue

 

 

100,421

 

 

 

75,726

 

Selling, general, and administrative expense

 

 

18,688

 

 

 

16,610

 

(Gain) loss on disposal of assets, net

 

 

(67

)

 

 

2

 

Total operating expenses

 

 

119,042

 

 

 

92,338

 

Operating income (loss)

 

 

788

 

 

 

(1,873

)

Other (expense) income:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(2,582

)

 

 

(2,564

)

Interest from legal settlement

 

 

 

 

 

200

 

Total other expense, net

 

 

(2,582

)

 

 

(2,364

)

Loss before income taxes

 

 

(1,794

)

 

 

(4,237

)

Provision for income taxes

 

 

(293

)

 

 

(40

)

Net loss

 

$

(2,087

)

 

$

(4,277

)

Loss per share of common stock–basic and diluted

 

$

(0.05

)

 

$

(0.10

)

Weighted average shares of common stock outstanding–

   basic and diluted

 

 

42,318

 

 

 

42,173

 

See accompanying notes

5


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands) 

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(2,087

)

 

$

(4,277

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

5,157

 

 

 

5,242

 

(Reversal) provision for bad debts and obsolete inventory

 

 

(162

)

 

 

104

 

Interest expense and other bank fees accreted to term loans

 

 

560

 

 

 

6

 

Amortization of deferred loan costs

 

 

185

 

 

 

173

 

Stock-based compensation expense

 

 

48

 

 

 

112

 

Fair value of warrants issued in connection with debt modification

 

 

 

 

 

594

 

(Gain) loss on disposal of assets, net

 

 

(67

)

 

 

2

 

Deferred income taxes

 

 

(27

)

 

 

(1,047

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(6,992

)

 

 

(8,096

)

Inventories, net

 

 

502

 

 

 

(389

)

Prepaid expenses, collateral deposits, and other current assets

 

 

(488

)

 

 

(4,217

)

Income tax receivable

 

 

 

 

 

897

 

ROU assets/ROU liabilities

 

 

(178

)

 

 

 

Other assets

 

 

(1,550

)

 

 

(289

)

Accounts payable

 

 

(1,366

)

 

 

508

 

Accrued expenses

 

 

5,701

 

 

 

(365

)

Income tax payable

 

 

10

 

 

 

252

 

Deferred revenue and customer deposits

 

 

(41

)

 

 

3,300

 

Other current liabilities and other non-current liabilities

 

 

3,796

 

 

 

(262

)

Cash provided by (used for) operating activities

 

 

3,001

 

 

 

(7,752

)

Investing activities

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,613

)

 

 

(675

)

Proceeds from sales of assets

 

 

20

 

 

 

1

 

Cash used for investing activities

 

 

(2,593

)

 

 

(674

)

Financing activities

 

 

 

 

 

 

 

 

(Payments) proceeds from line of credit, net

 

 

(537

)

 

 

10,490

 

Deferred loan costs

 

 

 

 

 

(264

)

Payments on finance leases

 

 

(775

)

 

 

(560

)

Payments on term loans

 

 

(2,566

)

 

 

(3,215

)

Cash (used for) provided by financing activities

 

 

(3,878

)

 

 

6,451

 

Change in cash and cash equivalents

 

 

(3,470

)

 

 

(1,975

)

Cash and cash equivalents at beginning of the year

 

 

6,050

 

 

 

4,529

 

Cash and cash equivalents at end of the year

 

$

2,580

 

 

$

2,554

 

See accompanying notes

 

6


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands) 

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

2,072

 

 

$

2,344

 

Taxes

 

$

22

 

 

$

517

 

 

 

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Capital equipment purchased with finance leases

 

$

 

 

$

110

 

Capital equipment purchases financed with term loans

 

$

500

 

 

$

 

 

7


 

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in thousands) 

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Common stock

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

422

 

 

$

422

 

Issuance of common stock upon cashless exercise of stock options

 

 

1

 

 

 

 

Balance, end of period

 

$

423

 

 

$

422

 

Additional paid in capital

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

288,193

 

 

$

287,101

 

Stock-based compensation expense - options

 

 

17

 

 

 

84

 

      Fair value of warrants issued in connection with term loan modification

 

 

 

 

 

594

 

Balance, end of period

 

$

288,210

 

 

$

287,779

 

Accumulated deficit

 

 

 

 

 

 

 

 

Balance, beginning of period

 

$

(271,560

)

 

$

(204,407

)

Net (loss) income

 

 

(2,087

)

 

 

(4,277

)

Cumulative impact of adopting ASC 606 on October 1, 2019

 

 

 

 

 

521

 

Balance, end of period

 

$

(273,647

)

 

$

(208,163

)

Total stockholders' equity

 

$

14,986

 

 

$

80,038

 

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. As of December 31, 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.  See Note 14.

 

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.

ALJ has organized its business and corporate structure along the following business segments: Faneuil, Carpets, and Phoenix.

Basis of Presentation

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, albeit with lower sales volume at Carpets and Phoenix. As such, COVID-19 did not materially impact ALJ’s financial position, or results of operations and cash flows as of and for the three months ended December 31, 2020. The Company took immediate actions in March 2020 to enable working-from-home where possible and put in place increased safety precautions, 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, 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.

9


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

As of December 31, 2020, ALJ’s total available liquidity was $18.0 million, which included $2.6 million of cash and cash equivalents and $15.4 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 estimated 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 by the Ninth Amendment to the Financing Agreement) 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 this new standard 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 the new standard resulted in the recognition of operating lease obligations totaling $43.5 million, based upon the present value of the remaining minimum rental payments using discount rates as of the adoption date, of which $6.0 million was in operating lease obligations - current installments, and $37.5 million was in operating lease liabilities, less current installments. In addition, ALJ recorded corresponding operating lease right-of-use assets totaling $33.9 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. 

 

10


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

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.

 

Income Taxes

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies certain aspects of the accounting for income taxes as well as clarifies and amends existing guidance to improve consistent application. ASU 2019-12 will be effective for ALJ on October 1, 2022. The Company is currently evaluating the impact of ASU 2019-12 on its consolidated financial statements and related disclosures.

 

 

3. REVENUE RECOGNITION

 

Disaggregation of Revenue

Revenue by contract type was as follows for the three months ended December 31, 2020 and 2019:

 

 

 

Three Months Ended December 31,

 

(in thousands)

 

2020

 

 

2019

 

Faneuil:

 

 

 

 

 

 

 

 

Healthcare

 

$

38,843

 

 

$

25,367

 

Transportation

 

 

20,095

 

 

 

17,128

 

Utility

 

 

13,064

 

 

 

13,927

 

Government

 

 

12,529

 

 

 

1,049

 

Other

 

 

1,438

 

 

 

1,096

 

Total Faneuil

 

$

85,969

 

 

$

58,567

 

Carpets:

 

 

 

 

 

 

 

 

Builder

 

$

7,406

 

 

$

6,959

 

Commercial

 

 

343

 

 

 

1,628

 

Retail

 

 

944

 

 

 

1,187

 

Total Carpets

 

$

8,693

 

 

$

9,774

 

Phoenix:

 

 

 

 

 

 

 

 

Publisher

 

 

 

 

 

 

 

 

MSA

 

$

19,114

 

 

$

12,430

 

Non-MSA

 

 

4,193

 

 

 

6,560

 

Commercial

 

 

 

 

 

 

 

 

MSA

 

 

90

 

 

 

805

 

Non-MSA

 

 

1,771

 

 

 

2,329

 

Total Phoenix

 

$

25,168

 

 

$

22,124

 

Total consolidated revenue, net

 

$

119,830

 

 

$

90,465

 

 

Substantially all of Faneuil and Carpets 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 December 31, 2020 and September 30, 2020:

 

(in thousands)

 

December 31,

2020

 

 

September 30,

2020

 

Contract assets:

 

 

 

 

 

 

 

 

Unbilled revenue (1)

 

$

752

 

 

$

779

 

Total contract assets

 

$

752

 

 

$

779

 

Contract liabilities:

 

 

 

 

 

 

 

 

Deferred revenue

 

$

10,804

 

 

$

10,875

 

Accrued rebates and material rights (2)

 

 

4,408

 

 

 

3,097

 

Accrued contract losses (2)

 

 

15

 

 

 

14

 

Total contract liabilities

 

$

15,227

 

 

$

13,986

 

 

 

(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.

(2)

Included in accrued expenses.

 

The following table provides changes in consolidated contract assets and contract liabilities during the three months ended December 31, 2020:  

 

(in thousands)

 

Contract

Assets

 

 

Contract

Liabilities

 

Balance, September 30, 2020

 

$

779

 

 

$

13,986

 

Additions to contract assets

 

 

752

 

 

 

 

Transfer from contract assets to accounts receivable

 

 

(779

)

 

 

 

Revenue recognized

 

 

 

 

 

7,078

 

Change in loss accrual

 

 

 

 

 

1

 

Accrued rebates

 

 

 

 

 

1,339

 

Payment of rebates

 

 

 

 

 

(28

)

Cash received from customer

 

 

 

 

 

(7,149

)

Balance, December 31, 2020

 

$

752

 

 

$

15,227

 

 

 

 

Deferred Revenue and Remaining Performance Obligations

 

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from call center services, including non-refundable payments made prior to operations. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. Customers are typically invoiced for these agreements in regular installments and revenue is recognized ratably over the contractual service period. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, size and new business linearity within the quarter. Deferred revenue does not represent the total contract value of annual or multi-year non-cancellable agreements.

 

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive financing from customers. Any potential financing fees are considered de minimis.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue. Transaction price allocated to the remaining performance obligation is influenced by several factors, including the timing of renewals and average contract terms. The Company applied practical expedients to exclude amounts related to

12


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, and any estimated amounts of variable consideration that are subject to constraint in accordance with the new revenue standard.

The Company has elected to apply the optional exemption for the disclosure of remaining performance obligations for contracts that have an original expected duration of one year or less, are billed and recognized as services are delivered and/or variable consideration allocated entirely to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.  This primarily consists of call center services that are billed monthly based on the services performed each month.

Costs to Obtain a Contract

 

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The costs to obtain a contract capitalized under the new revenue standard are primarily sales commissions paid to our sales force personnel. Capitalized costs may also include portions of fringe benefits and payroll taxes associated with compensation for incremental costs to acquire customer contracts and incentive payments to partners. These costs are amortized over the term of the contract or the estimated life of the customer relationship, if renewals are expected and the renewal commission is not commensurate with the initial commission. The Company expenses sales commissions when incurred if the amortization period of the sales commission is one year or less. The accounting for incremental costs of obtaining a contract with a customer is consistent with the accounting under previous guidance.

 

During the three months ended December 31, 2020, the Company capitalized $0.1 million of costs to obtain a contract.  During the three months ended December 31, 2020, the Company amortized $0.1 million of these costs, which is included in selling, general, and administrative expense.  The net book value of costs to obtain a contract was $0.6 million as of December 31, 2020, of which $0.4 million was in prepaid expenses and other current assets, and $0.2 million was in other assets.

Costs to Fulfill a Contract

 

The Company also capitalizes costs incurred to fulfill its contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to cost of revenue as the Company satisfies its performance obligations by transferring the service to the customer. These costs are amortized on a systematic basis over the expected period of benefit.

 

During the three months ended December 31, 2020, the Company capitalized $6.0 million of costs to fulfill a contract.  The amortization of costs to fulfill contracts, which comprise set-up/transition activities, for the three months ended December 31, 2020 was approximately $4.4 million. The net book value of the costs to fulfill a contract as of December 31, 2020, was $6.7 million of which $3.6 million was in prepaid expenses and other current assets, and $3.1 million was in other assets.

 

Capitalized costs to obtain and fulfill a contract are periodically reviewed for impairment. We did not incur any impairment losses during the three months ended December 31, 2020 or 2019.

 

4. ACQUISITIONS  

RDI Acquisition

 

On July 31, 2019 (“RDI Purchase Date”), Faneuil acquired Realtime Digital Innovations, LLC (“RDI” and such acquisition, the “RDI Acquisition”), a provider of workflow automation and business intelligence services. The RDI Acquisition is expected to provide Faneuil with a sustainable competitive advantage in the business process outsourcing space by allowing it to, among others, (i) automate process workflows and business intelligence, (ii) generate labor efficiencies for existing programs, (iii) expand potential new client target entry points, (iv) improve overall customer experience, and (v) increase margin profiles through shorter sales cycles and software license sales.

13


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The aggregate cash consideration for the RDI Acquisition paid at closing was $2.5 million, with earn-outs up to $7.5 million to be paid upon the achievement of certain financial metrics over a three-year period, subject to a guaranteed payout of $2.5 million. The RDI Acquisition was not material to the Company's results of operations, financial position, or cash flows and, therefore, the pro forma impact is not presented.

The following schedule reflects the final fair value of assets acquired and liabilities assumed on the RDI Purchase Date (in thousands):

 

 

 

Purchase Price

 

Balance Sheet Caption

 

Allocation

 

Total current assets

 

$

53

 

Fixed assets

 

 

11

 

Identified intangible assets:

 

 

 

 

Technology

 

 

3,400

 

Non-compete agreements

 

 

1,300

 

Goodwill (1)

 

 

2,675

 

Total assets

 

 

7,439

 

Accrued expenses

 

 

(39

)

Fair value of deferred and contingent consideration (2)

 

 

(4,900

)

Cash paid at closing

 

$

2,500

 

 

(1)

Goodwill was fully impaired and written off in March 2020.  

(2)

At December 31, 2020, the fair value was $6.0 million of which $4.6 million was included in accrued expenses and $1.4 million was included in other non-current liabilities on the Consolidated Balance Sheet.  The maximum payment is $7.5 million.

Fair Value Adjustment of Deferred and Contingent Consideration Liabilities

 

The fair value of the deferred and contingent consideration liabilities is remeasured to fair value at each reporting period using Level 3 inputs such as cash flow forecast, discount rate, and equity risk premium.  The change in fair value, including accretion for the passage of time, is recognized in earnings until the deferred and contingent considerations are resolved. ALJ did not recognize any change in fair value during the three months ended December 31, 2020 and 2019.  

Acquisition-Related Expenses

During the three months ended December 31, 2020, the Company did not incur any acquisition-related expenses in connection with the RDI acquisition.  During the three months ended December 31, 2019, the Company incurred less than $0.1 million of acquisition-related expenses in connection with the RDI acquisition, which were expensed to selling, general, and administrative expense.

 

 

5. CONCENTRATION RISKS

Cash

The Company maintains its cash balances in accounts, which, at times, may exceed federally insured limits. The Company has not experienced any loss in such accounts and believes there is little exposure to any significant credit risk.

Major Customers and Accounts Receivable

 

ALJ did not generate net revenue from any one customer in excess of 10% of consolidated net revenue during the three months ended December 31, 2020.  During the three months ended December 31, 2019, ALJ generated 10.2% of consolidated net revenue from one customer.  Each of ALJ’s segments had customers that represent more than 10% of their respective net revenue, as described below.

  

14


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Faneuil. The percentage of Faneuil net revenue derived from its significant customers was as follows:

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Customer A

 

 

13.0

%

 

 

15.7

%

Customer B

 

**

 

 

 

11.6

 

 

 

**

Less than 10% of Faneuil net revenue.

 

Accounts receivable from significant customers during the three months ended December 31, 2020 totaled $9.7 million on December 31, 2020. As of December 31, 2020, all Faneuil accounts receivable were unsecured. The risk with respect to accounts receivable is mitigated by credit evaluations performed on customers and the short duration of payment terms extended to customers.

 

Carpets. The percentage of Carpets net revenue derived from its significant customers was as follows:

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Customer A

 

 

36.5

%

 

 

16.0

%

Customer B

 

 

33.7

 

 

 

26.8

 

Customer C

 

 

13.9

 

 

 

23.6

 

 

Accounts receivable from these customers totaled $1.6 million on December 31, 2020. As of December 31, 2020, all Carpets accounts receivable were unsecured. The risk with respect to accounts receivable is mitigated by credit evaluations performed on customers and the short duration of payment terms extended to customers.

 

Phoenix. The percentage of Phoenix net revenue derived from its significant customers was as follows:

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Customer A

 

 

23.9

%

 

 

24.9

%

Customer B

 

 

19.5

 

 

 

16.6

 

Customer C

 

 

14.7

 

 

 

12.1

 

 

Accounts receivable from these customers totaled $3.3 million on December 31, 2020. As of December 31, 2020, all Phoenix accounts receivable were unsecured. The risk with respect to accounts receivable is mitigated by credit evaluations performed on customers and the short duration of payment terms extended to most customers.

Supplier Risk

ALJ had two suppliers that represented more than 10% of consolidated inventory purchases as follows:

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Supplier A

 

 

14.6

%

 

 

11.6

%

Supplier B

 

**

 

 

 

11.0

%

 

**

Less than 10% of consolidated inventory purchases.

15


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Additionally, two of ALJ’s segments had suppliers that represented more than 10% of their respective inventory purchases, as described below.

 

Carpets. The percentage of Carpets inventory purchases from its significant suppliers was as follows:

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Supplier A

 

 

17.2

%

 

 

17.0

%

Supplier B

 

13.7

 

 

**

 

Supplier C

 

12.5

 

 

**

 

Supplier D

 

12.3

 

 

10.8

 

Supplier E

 

11.2

 

 

19.7

 

 

**

Less than 10% of Carpets inventory purchases.

If these suppliers were unable to provide materials on a timely basis, Carpets management believes alternative suppliers could provide the required materials with minimal disruption to the business.

 

Phoenix. The percentage of Phoenix inventory purchases from its significant suppliers was as follows:  

 

 

 

Three Months Ended December 31,

 

 

 

2020

 

 

2019

 

Supplier A

 

 

21.3

%

 

 

17.5

%

Supplier B

 

11.1

 

 

 

16.5

%

Supplier C

 

**

 

 

 

10.9

%

 

 

**

Less than 10% of Phoenix inventory purchases.

 

If these suppliers were unable to provide materials on a timely basis, Phoenix management believes alternative suppliers could provide the required supplies with minimal disruption to the business.

 

6. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Accounts Receivable, Net

The following table summarizes accounts receivable at the end of each reporting period:

 

 

 

December 31,

 

 

September 30,

 

(in thousands)

 

2020

 

 

2020

 

Accounts receivable

 

$

66,266

 

 

$

60,427

 

Unbilled receivables

 

 

1,010

 

 

 

42

 

Accounts receivable

 

 

67,276

 

 

 

60,469

 

Less: allowance for doubtful accounts

 

 

(754

)

 

 

(1,108

)

Accounts receivable, net

 

$

66,522

 

 

$

59,361

 

 

16


ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Inventories, Net

The following table summarizes inventories at the end of each reporting period:

 

 

December 31,

 

 

September 30,

 

(in thousands)

 

2020

 

 

2020

 

Raw materials

 

$

4,305

 

 

$

4,260

 

Semi-finished goods/work in process

 

 

1,688

 

 

 

2,341

 

Finished goods

 

 

1,329

 

 

 

1,224

 

Inventories

 

 

7,322

 

 

 

7,825

 

Less:  allowance for obsolete inventory

 

 

(378

)

 

 

(372

)

Inventories, net

 

$

6,944

 

 

$

7,453

 

 

Property and Equipment

The following table summarizes property and equipment at the end of each reporting period:

 

 

 

December 31,

 

 

September 30,

 

(in thousands)

 

2020

 

 

2020

 

Machinery and equipment

 

$

35,268

 

 

$

35,357

 

Leasehold improvements

 

 

31,831

 

 

 

31,831

 

Computer and office equipment

 

 

22,130