ALJJ ALJ Regional Holdings Inc

NEW YORK, Aug. 14, 2017 /PRNewswire/ -- ALJ Regional Holdings, Inc. (NASDAQ: ALJJ) ("ALJ") announced results today for its third quarter ended June 30, 2017. 

ALJ is a holding company, whose primary assets are its subsidiaries Faneuil, Inc. (including the customer management outsourcing business recently acquired from Vertex Business Services LLC, "Faneuil"), Floors-N-More, LLC, dba Carpets N' More ("Carpets"), and Phoenix Color Corp. (including the recently acquired Color Optics packaging division, "Phoenix").  Faneuil is a leading provider of call center services, back office operations, staffing services, and toll collection services to government and regulated commercial 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, cabinets, window coverings and garage/closet organizers, with four retail locations, as well as a stone and solid surface fabrication facility. 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.

Our financial statements reflect the operations of Faneuil, Carpets and Phoenix throughout all periods presented, Color Optics from July 18, 2016, and our recently acquired customer management outsourcing business ("CMO Business") from May 26, 2017.

Investment Highlights – Three and Nine Months Ended June 30, 2017

Consolidated Results for ALJ

• ALJ recognized consolidated revenue of $83.5 million for the three months ended June 30, 2017, an increase of $18.6 million, or 28.7%, compared to $64.9 million for the three months ended June 30, 2016 due to an increase in business activity in the Faneuil and Carpets segments as well as the acquisitions of Color Optics by Phoenix and the CMO Business by Faneuil, which together accounted for $9.8 million of the total revenue increase. Excluding the impact of acquisitions, total revenue increased $8.8 million, or 13.6%. ALJ recognized consolidated revenue of $79.3 million for the three months ended March 31, 2017.
• ALJ recognized net income of $1.0 million and earnings per share (EPS) of $0.03 (diluted) for the three months ended June 30, 2017, compared to net income of $1.4 million and EPS of $0.04 (diluted) for the three months ended June 30, 2016. Increased revenue was offset by higher cost of sales due to start-up costs of certain contracts, higher selling, general and administrative costs due to increased depreciation & amortization expenses related to acquisitions, and higher tax provision due to the impact of deferred taxes. ALJ recognized net income of $0.4 million and EPS of $0.01 (diluted) for the three months ended March 31, 2017.
• ALJ recognized adjusted EBITDA of $8.2 million for the three months ended June 30, 2017, an increase of $0.4 million, or 5.5%, compared to $7.8 million for the three months ended June 30, 2016. Increased adjusted EBITDA was primarily due to Faneuil's new contract awards and the acquisition of the CMO Business. ALJ recognized adjusted EBITDA of $7.7 million for the three months ended March 31, 2017.
• ALJ recognized consolidated revenue of $240.4 million for the nine months ended June 30, 2017, an increase of $44.5 million, or 22.7%, compared to $195.9 million for the nine months ended June 30, 2016 due to an increase in business activity in each of our segments as well as the acquisitions of Color Optics by Phoenix and the CMO Business by Faneuil, which together accounted for $17.9 million of the total revenue increase. Excluding the impact of acquisitions, total revenue increased $26.6 million, or 13.6%.
• ALJ recognized net income of $1.9 million and earnings per share (EPS) of $0.05 (diluted) for the nine months ended June 30, 2017 compared to net income of $2.2 million and EPS of $0.06 (diluted) for the nine months ended June 30, 2016. Increased revenue was offset by higher cost of sales due to start-up costs of certain contracts, higher selling, general and administrative costs due to increased depreciation & amortization related to acquisitions, and higher tax provision due to the impact of deferred taxes.
• ALJ recognized consolidated adjusted EBITDA of $23.1 million for the nine months ended June 30, 2017, an increase of $2.5 million, or 12.4%, compared to $20.6 million for the nine months ended June 30, 2016, due primarily to Faneuil contract renewals and new contract awards.
• ALJ estimates revenue for the three months ending September 30, 2017 to be in the range of $81.2 million to $90.0 million, as compared to $72.4 million for the three months ended September 30, 2016.

Jess Ravich, Executive Chairman of ALJ, said, "We continue to execute on our core strategic initiatives, along with disciplined organic and acquisition growth to generate added value for our stakeholders."

Results for Faneuil

Anna Van Buren, CEO of Faneuil, stated, "Successful implementation of new projects contributed to our continued strong performance in the 3rd quarter. The highlight of this period was the completion of Faneuil's first acquisition, the CMO Business from Vertex, which strengthens our position in the utilities sector."

Faneuil recognized revenue of $39.5 million for the three months ended June 30, 2017 compared to $32.1 million for the three months ended June 30, 2016.  Revenue increased $7.4 million, or 23.1%.  Excluding the impact of the CMO Business, revenue increased $3.8 million, or 11.7%, due to new customer awards.  Faneuil recognized revenue of $36.7 million for the three months ended March 31, 2017. 

Faneuil recognized adjusted EBITDA of $3.6 million for the three months ended June 30, 2017 compared to $2.9 million for the three months ended June 30, 2016.  Adjusted EBITDA increased by $0.7 million, or 25.1%, due to new customer awards.  Faneuil recognized adjusted EBITDA of $2.9 million for the three months ended March 31, 2017.

Faneuil recognized revenue of $114.2 million for the nine months ended June 30, 2017 compared to $99.8 million for the nine months ended June 30, 2016.  Revenue increased $14.4 million, or 14.5%.  Excluding the impact of acquisitions, revenue increased $10.8 million or 10.8% due to improved contract renewals and new contract awards.

Faneuil recognized adjusted EBITDA of $10.3 million for the nine months ended June 30, 2017 compared to $8.0 million for the nine months ended June 30, 2016.  Adjusted EBITDA increased by $2.3 million, or 28.9%, due to higher levels of business activity for contract renewals and awards and the acquisition of the CMO Business.

Faneuil estimates its revenue for the three months ending September 30, 2017 to be in the range of $39.9 million to $44.2 million, compared to $32.0 million for the three months ending September 30, 2016. 

Faneuil's contract backlog expected to be realized within the next twelve months as of June 30, 2017 was $100.0 million as compared to $66.2 million as of June 30, 2016 and $92.3 million as of March 31, 2017.  Faneuil's total contract backlog as of June 30, 2017 was $258.9 million as compared to $226.3 million as of June 30, 2016 and $241.2 million as of March 31, 2017.

Results for Carpets

"We continued to experience significant increases over our 2016 revenue during the third quarter, primarily due to volume increases from our national home builders," said Steve Chesin, CEO of Carpets.  "Our costs have remained higher than we want, but we wanted to make sure our customers remained satisfied during this large increase in volume.  We have achieved that goal and we are now implementing cost cutting measures that will take effect over the next two quarters."

Carpets recognized revenue of $18.5 million for the three months ended June 30, 2017 compared to $12.6 million for the three months ended June 30, 2016.  Revenue increased $5.9 million, or 46.9%, due to higher volumes from national home builders.  Carpets recognized revenue of $17.9 million for the three months ended March 31, 2017.

Carpets recognized adjusted EBITDA of $0.4 million for the three months ended June 30, 2017 compared to approximately $0.6 million for the three months ended June 30, 2016. Adjusted EBITDA decreased by $0.2 million impacted by higher overall costs to absorb additional volume.  Carpets recognized adjusted EBITDA of approximately $0.3 million for the three months ended March 31, 2017.

Carpets recognized revenue of $51.9 million for the nine months ended June 30, 2017 compared to $35.7 million for the nine months ended June 30, 2016.  Revenue increased by $16.2 million, or 45.6%, due to additional contracts awarded from national home builders.

Carpets recognized adjusted EBITDA of $0.7 million for the nine months ended June 30, 2017 compared to $0.5 million for the nine months ended June 30, 2016.  Adjusted EBITDA increased by $0.2 million impacted by higher overall costs to absorb additional volume.

Carpets estimates its revenue for the three months ending September 30, 2017 to be in the range of $17.1 million to $19.0 million, compared to $15.0 million for the three months ending September 30, 2016.

Carpet's contract backlog expected to be realized within the next twelve months as of June 30, 2017 was $25.8 million as compared to $22.4 million as of June 30, 2016 and $29.8 million as of March 31, 2017.  Carpet's total contract backlog as of June 30, 2017 was $62.9 million compared to $46.0 million as of June 30, 2016 and $71.5 million as of March 31, 2017.

Results for Phoenix

Marc Reisch, CEO of Phoenix, stated "The increase in third quarter net revenue for Phoenix Color was driven by solid packaging and commercial sales for the Color Optics business, acquired in July, 2016, that were offset, in part, by significantly lower education market component sales. Adjusted EBITDA of $4.6 million was approximately $0.4 million lower than 2016 due to lower earnings from education market component sales and startup costs related to the transition of packaging and commercial print manufacturing. We expect these transition expenses to continue, at similar levels, over the next two quarters."

Phoenix recognized revenue of $25.5 million for the three months ended June 30, 2017 compared to $20.2 million for the three months ended June 30, 2016. Revenue increased $5.3 million, or 26.3%.  Excluding the impact of acquisitions, revenue decreased $0.9 million, or 4.2%, due to lower volumes for educational components.  Phoenix recognized revenue of $24.7 million for the three months ended March 31, 2017.

Phoenix recognized adjusted EBITDA of $4.6 million for the three months ended June 30, 2017 compared to $5.0 million for the three months ended June 30, 2016. Adjusted EBITDA decreased by $0.4 million, or 8.7%, mainly due to start-up costs associated with the acquisition of Color Optics.  Phoenix recognized adjusted EBITDA of $4.9 million for the three months ended March 31, 2017.

Phoenix recognized revenue of $74.2 million for the nine months ended June 30, 2017 compared to $60.5 million for the nine months ended June 30, 2016.  Revenue increased by $13.7 million, or 22.8%. Excluding the impact of the acquisition, revenue decreased by $0.5 million due to lower volumes for educational components.

Phoenix recognized adjusted EBITDA of $13.8 million for the nine months ended June 30, 2017 compared to $14.0 million for the nine months ended June 30, 2016. Adjusted EBITDA decreased by $0.2 million mainly due to start-up costs associated with the acquisition of Color Optics.

Phoenix estimates its revenue for the three months ending September 30, 2017 to be in the range of $24.2 million to $26.8 million as compared to $25.5 million for the three months ended September 30, 2016.

Phoenix's contract backlog expected to be realized within the next twelve months as of June 30, 2017 was $58.1 million as compared to $41.7 million as of June 30, 2016 and $59.7 million as of March 31, 2017.  Phoenix's total contract backlog as of June 30, 2017 was $161.5 million as compared to $117.9 million as of June 30, 2016 and $151.6 million as of March 31, 2017.

Non-GAAP Financial Measures

In this release, we 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 define adjusted EBITDA as net income before interest income and expense, income taxes, non-cash stock based compensation, depreciation and amortization. We present adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties in the evaluation of our company.  Adjusted EBITDA measures are not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparison.  A reconciliation of our adjusted EBITDA to operating income, the most directly comparable GAAP measure, can be obtained by subtracting depreciation and amortization, non-cash stock based compensation, restructuring expenses, acquisition related expenses, non-recurring fees associated with ALJ's up-listing to the NASDAQ, and other non-recurring expenses from ALJ adjusted EBITDA.  A reconciliation of Faneuil's, Carpets' and Phoenix's adjusted EBITDA to operating income, the most directly comparable GAAP measure, can be obtained by subtracting depreciation and amortization and non-cash stock based compensation from consolidated operating income.  Following is a reconciliation of consolidated operating income to consolidated adjusted EBITDA:

As of June 30, 2017 and September 30, 2016, consolidated debt and consolidated net debt was comprised of the following (exclusive of deferred financing costs):

As of June 30, 2017 the Company was in compliance with all debt covenants.

About ALJ Regional Holdings, Inc.

ALJ Regional Holdings, Inc.  is the parent company of Faneuil, Inc., a leading provider of outsourcing and co-sourced services to both commercial and government entities in the healthcare, utility, toll and transportation industries, Floors-N-More, LLC, dba Carpets N' More, one of the largest floor covering retailers in Las Vegas and a provider of multiple finishing products for commercial, retail and home builder markets including all types of flooring, countertops, cabinets, window coverings and garage/closet organizers, with 4 retail locations and 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.

This press release contains forward-looking statements. Such statements include information regarding our expectations, goals or intentions regarding the future, including but not limited to statements about our financial projections and business growth, the impact of the CMO Business on Faneuil's operations, cost-cutting measures implemented by Carpets, the integration of Color Optics by Phoenix and other statements including the words "will" 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 Form 10-K 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.