The nature of Janel's operations requires it to deal with currencies other than the U.S. Dollar. As a result, the Company is exposed to the inherent risks of international currency markets and
governmental interference. A number of countries where Janel maintains offices or agent relationships have currency control regulations. The Company attempts to compensate for these exposures by accelerating international currency settlements among
those agents.
The Company's assets that are exposed to concentrations of credit risk consist primarily of cash and receivables from customers. The Company places its cash with financial institutions that have high
credit ratings. The receivables from clients are spread over many customers. The Company maintains an allowance for uncollectible accounts receivable based on expected collectability and performs ongoing credit evaluations of its customers' financial
condition.
Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not
believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
In December 2017, Janel Group received a Notice of Copyright Infringement letter from counsel for Warren Communications News, Inc. (“Warren”), the publisher of the International Trade Today (“ITT”)
newsletter. The letter alleges that Janel Group infringed upon Warren’s registered copyrights in its ITT newsletter. The Company believes it has meritorious defenses to the allegations. The Company is not presently able to reasonably estimate
potential losses, if any, related to the allegations.
On August 30, 2019, Indco and First Merchants entered into Amendment No. 1 to Credit Agreement modifying the terms of Indco’s credit facilities with First Merchants and extending the maturity date of the credit facilities. Under the revised terms,
the credit facilities will consist of a $5,500 Term Loan and $1,000 (limited to the borrowing base and reserves) Revolving Loan. Interest will accrue on the Term Loan at an annual rate equal to the one-month LIBOR plus either 2.75% (if Indco’s total
funded debt to EBITDA ratio is less than 2:1), or 3.5% (if Indco’s total funded debt to EBITDA ratio is greater than or equal to 2:1). Interest will accrue on the Revolving Loan at an annual rate equal to the one-month LIBOR plus 2.75%. Indco’s
obligations under the First Merchants credit facilities are secured by all of Indco’s assets and are guaranteed by Janel, and Janel’s guarantee of Indco’s obligations is secured by a pledge of Janel’s Indco shares. The First Merchants credit
facilities will expire on August 30, 2024 (subject to earlier termination as provided in the Credit Agreement) unless renewed.
Through Aves, the Company acquired the membership interests of IgG, LLC (“IgG”) on July 1, 2019 in a transaction pursuant to which IgG became a direct wholly-owned subsidiary of Aves and an indirect wholly-owned subsidiary of the Company.
Through Aves, the Company completed a business combination whereby we acquired all of the equity interests of PhosphoSolutions, LLC and all of the stock of PhosphoSolutions, Inc, (collectively “Phospho”) on September 6, 2019. The acquisition of
Phospho was funded with cash provided by normal operations.
The aggregate purchase price for the IgG and Phospho acquisitions was $4,243, net of $13 of cash received.
Effective November 18, 2019, Antibodies modified and refinanced its existing credit facilities with First Northern Bank. The existing Senior Secured Term loan was increased to $2,235, the initial interest rate decreased to 4.18%, and the maturity
date was extended to November 14, 2029, with all other terms, covenants and conditions substantially unchanged. The existing Revolving Credit Facility was expanded to $500, the interest rate decreased to 6.0%, and the maturity date was extended to
October 1, 2020, with all other terms, covenants and conditions substantially unchanged. Additionally, Antibodies entered into a new Business Loan Agreement (“Solar Loan”) provided for a $125 term loan in connection with a potential expansion of
solar generation capacity on the Antibodies property. The initial interest rate on the facility is 4.43%, subject to adjustment in five years.
The terms, covenants and conditions for the Solar Loan are substantially similar to that of the Senior Secured Term Loan and Revolving Credit Facility.
The following discussion and analysis should be read in conjunction with our unaudited interim consolidated financial statements and related notes thereto as of and for the three and
nine months ended June 30, 2019, which have been prepared in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). Amounts presented in this section are in thousands, except share and per share data.
As used throughout this Report, "we," “us”, "our," "Janel," "the Company," "Registrant" and similar words refer to Janel Corporation and its Subsidiaries.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Report”) contains certain forward-looking statements that reflect management's current expectations with respect to our operations, performance, financial condition, and other
developments. These forward-looking statements may generally be identified by the use of the words "may," "will," "intends," "plans," projects," "believes," "should," "expects," "predicts," "anticipates," "estimates," and similar expressions or the
negative of these terms or other comparable terminology. These statements are necessarily estimates reflecting management's best judgment based upon current information and involve a number of risks, uncertainties and assumptions. We caution
readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including, but not limited to, those set forth elsewhere in this Report, could affect
our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, our
strategy of expanding our business through acquisitions of other businesses; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition, or that we spend resources exploring acquisitions that are not
consummated; litigation, indemnification claims and other unforeseen claims and liabilities that may arise from an acquisitions; economic and other conditions in the markets in which we operate; the risk that we may not have sufficient working
capital to continue operations; instability in the financial markets; the material weaknesses identified in our internal control over financial reporting; our dependence on key employees; competition from parties who sell their businesses to us and
from professionals who cease working for us; terrorist attacks and other acts of violence or war; security breaches or cybersecurity attacks; competition faced by our global logistics services freight carriers with greater financial resources and
from companies that operate in areas in which we plan to expand; our dependence on the availability of cargo space from third parties; recessions and other economic developments that reduce freight volumes; other events affecting the volume of
international trade and international operations; risks arising from our global logistics services business’ ability to manage staffing needs; competition faced in the freight forwarding, freight brokerage, logistics and supply chain management
industry; industry consolidation and our ability to gain sufficient market presence with respect to our global logistics services business; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and
regulatory requirements; seasonal trends; competition faced by our manufacturing (Indco) business from competitors with greater financial resources; Indco’s dependence on individual purchase orders to generate revenue; any decrease in the
availability, or increase in the cost, of raw materials used by Indco; Indco’s ability to obtain and retain skilled technical personnel; risks associated with product liability claims due to alleged defects in Indco’s products; risks arising from the
environmental, health and safety regulations applicable to Indco; the reliance of our Indco and life sciences businesses on a single location to manufacture their products; the ability of our life sciences business to compete effectively; the ability
of our life sciences business to introduce new products in a timely manner; product or other liabilities associated with the manufacture and sale of new products and services; changes in governmental regulations applicable to our life sciences
business; the ability of our life sciences business to continually produce products that meet high quality standards such as purity, reproducibility and/or absence of cross-reactivity; the controlling influence exerted by our officers and directors
and one of our stockholders; our inability to issue dividends in the foreseeable future; and risks related to ownership of our common stock, including volatility and the lack of a guaranteed continued public trading market for our common stock. For a
more detailed discussion of these factors, see our periodic reports filed with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2018.
OVERVIEW
Janel is a holding company with subsidiaries in three business segments: Global Logistics Services, Manufacturing and Life Sciences. The company strives to create shareholder value primarily through
three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent.
A management group at the holding company level (the “corporate group”) focuses on significant capital allocation decisions, corporate governance and supporting Janel’s subsidiaries
where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments. Our acquisition
strategy focuses on reasonably-priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power.
Global Logistics Services
The Company's Global Logistics Services segment is comprised of several wholly-owned subsidiaries (collectively "Janel Group"). Janel Group is a non-asset based, full-service provider of cargo
transportation logistics management services, including freight forwarding via air-, ocean- and land-based carriers, customs brokerage services, warehousing and distribution services, and other value-added logistics services.
On November 20, 2018, we completed a business combination whereby we acquired the membership interest of Honor Worldwide Logistics, LLC (“Honor”), a global logistics services provider with two U.S. locations.
On October 17, 2018, we completed a business combination whereby we acquired substantially, all of the assets and certain liabilities of Sea Cargo, Inc. (“Sea Cargo”), a global logistics services provider with one U.S.
location.
The Company's Manufacturing segment is comprised of Indco, Inc. ("Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications
within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders.
The Company’s Life Sciences segment is comprised of Aves Labs, Inc. ("Aves") and Antibodies Incorporated ("Antibodies"), which are wholly-owned subsidiaries of the Company. The Company’s Life Sciences segment manufactures
and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also
produces products for other life science companies on an original equipment manufacturer (OEM) basis.
On March 5, 2018, the Company acquired all of the outstanding common stock of Aves.
On June 22, 2018, the Company acquired all the outstanding common stock of Antibodies.
Through Aves, the Company acquired the membership interests of IgG, LLC (“IgG”) on July 1, 2019 and the equity interests of PhosphoSolutions, Inc. (“Phospho”) on September 6, 2019. Both IgG and Phospho acquisitions were
completed primarily to expand our product offering in Life Sciences.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting estimates are those that we believe are both significant and require us to make difficult, subjective, or complex judgments, often because we need to estimate the effect of inherently uncertain matters.
These estimates are based on historical experience and various other factors that we believe to be appropriate under the circumstance. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that
require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended September 30, 2018 in the Critical Accounting Policies and
Estimates section of Management's Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 30, 2018.
The Company’s consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates and assumptions about
future events that affect the amounts reported in the financial statements and accompanying notes. Since future events and their effects cannot be determined with absolute certainty, the determination of estimates requires the exercise of judgment.
Actual results could differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to revenue
recognition, the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources, primarily allowance for doubtful accounts, accruals for transportation and other direct costs, accruals for cargo
insurance, and deferred income taxes. Management bases its estimates on historical experience and on various assumptions which are believed to be reasonable under the circumstances. We reevaluate these significant factors as facts and circumstances
change. Note 1 of the notes to consolidated financial statements included herein includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. The following is a brief
discussion of certain accounting policies and estimates.
Management believes that the nature of the Company’s business is such that there are a few complex challenges in accounting for operations. Revenue recognition is considered the critical accounting policy due to the
complexity of arranging and managing global logistics and supply-chain management transactions.
Income taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with Accounting Standards Codification Topic 740, “Income Taxes.” Under this method, income tax expense is
recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the results of operations in the period that includes the enactment date.
On December 22, 2017, the United States enacted tax reform legislation through the Tax Cuts and Jobs Act (the “Tax Reform Act”), which significantly changed the existing U.S. tax laws, including by
reducing the corporate tax rate from 34% to 21%, moving from a worldwide tax system to a territorial system as well as other changes. As a result of the enactment of the Tax Reform Act, the Company made a reasonable estimate and recorded an
additional one-time income tax benefit of $49 during the first quarter of fiscal 2018, related to the estimated re-measurement of certain deferred tax assets, primarily net operating losses and deferred tax liabilities attributable to intangible
assets. The Company continues to evaluate the impact the legislation will have on the consolidated financial statements.
Estimates
While judgments and estimates are a necessary component of any system of accounting, the Company’s use of estimates is limited primarily to the following areas that in the aggregate are not a major
component of the Company’s consolidated statements of operations:
Management believes that the methods utilized in these areas are consistent in application. Management further believes that there are limited, if any, alternative accounting principles or methods which
could be applied to the Company’s transactions. While the use of estimates means that actual future results may be different from those contemplated by the estimates, the Company believes that alternative principles and methods used for making such
estimates would not produce materially different results than those reported.
Critical Accounting Policies and Estimates Applicable to the Global Logistics Services Segment
Revenue Recognition
Revenues are derived from customs brokerage services and from freight forwarding services.
Customs brokerage services include activities required for the clearance of shipments through government customs regimes, such as preparing required documentation, calculating and providing for payment
of duties and other charges on behalf of customers, arranging required inspections and arranging final delivery.
Freight forwarding may require multiple services, including long-distance shipment via air, ocean or ground assets, destination handling (“break bulk”), warehousing, distribution and other logistics
management activities. As an asset-light business, Janel Group owns none of the assets by which it fulfills its customers’ logistics needs. Rather, it purchases the services its customers need from asset owners, such as airlines and steamship lines,
and resells them. By consolidating shipments from multiple customers, Janel Group can negotiate terms of service with asset owners that are more favorable than those the customers could negotiate themselves.
Revenue is recognized upon transfer of control of promised services to customers. With respect to its Global Logistics Services segment, the Company has determined that in general
each shipment transaction or service order constitutes a separate contract with the customer. When the Company provides multiple services to a customer, different contracts may be present for different services.
The Company typically satisfies its performance obligations as services are rendered at a point in time. A typical shipment would include services rendered at origin, such as pick-up and delivery to port, freight
services from origin to destination port and destination services, such as customs clearance and final delivery. The Company measures the performance of its obligations as services are completed at a point in time during the life of a shipment,
including services at origin, freight and destination. The Company fulfills nearly all of its performance obligations within a one to-two-month period.
The Company evaluates whether amounts billed to customers should be reported as gross or net revenue. Generally, revenue is recorded on a gross basis when the Company is primarily responsible for fulfilling the promise
to provide the services, when it has discretion in setting the prices for the services to the customers, and the Company has the ability to direct the use of the services provided by the third party. Revenue is recognized on a net basis when we do
not have latitude in carrier selection or establish rates with the carrier.
Critical Accounting Policies and Estimates Applicable to the Manufacturing and Life Sciences Segments
Revenue Recognition
Revenues from Indco are derived from the engineering, manufacture and delivery of specialty mixing equipment. Revenues from Aves are derived from the sale of high-quality antibodies and other
immunoreagents for biomedical research and antibody manufacturing. Revenues from Antibodies are derived from the sale of high-quality monoclonal and polyclonal antibodies, diagnostic reagents and diagnostic kits and other immunoreagents for
biomedical research and antibody manufacturing. Payments are received by either credit card or invoice by Indco, Aves and Antibodies. A significant portion of Indco sales come from print- and web-based catalogs and specification features.
Such online sales are generally credit card purchases. Revenues from Indco, Aves and Antibodies are recognized at a point in time when the performance obligation for goods or services is satisfied and
products are shipped with control transferring to the customer generally upon the transfer of title and risk of loss transfers to the carrier(s) used.
NON-GAAP FINANCIAL MEASURES
While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included
in U.S. GAAP (we refer to these as "non-GAAP financial measures").
Net Revenue
Net revenue is a non-GAAP measure calculated as total revenue less forwarding expenses attributable to the Company's Global Logistics Services segment. Our total revenue represents the
total dollar value of services and goods we sell to our customers. Forwarding expenses attributable to the Company’s Global Logistics Services segment refer to purchased transportation and related services including contracted air, ocean, rail,
motor carrier and other costs. Total revenue can be influenced greatly by changes in transportation rates or other items, such as fuel prices, which we do not control. Management believes that providing net revenue is useful to investors as net
revenue is the primary indicator of our ability to source, add value and sell services and products that are provided by third parties, and we consider net revenue to be our primary performance measurement. The difference between the rate billed to
our customers (the sell rate) and the rate we pay to the carrier (the buy rate) is termed “net revenue”, “yield” or “margin.” As presented, net revenue matches gross margin.
Adjusted Operating Income
As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course of business as well
as other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer relationships. Because these charges are
not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business that is more
representative of the actual results of our operations.
Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and amortization of acquired inventory valuation) is used by management as a
supplemental performance measure to assess our business’s ability to generate cash and economic returns.
Adjusted operating income is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes.
We believe that net revenue and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, net revenue and
adjusted operating income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for total revenue, operating income or any other operating performance measures calculated in accordance with
U.S. GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances
that users of the financial statements may find significant.
In addition, although other companies in our industry may report measures titled net revenue, adjusted operating income or similar measures, such non-GAAP financial measures may be calculated
differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider net revenue and adjusted operating income alongside other financial
performance measures, including total revenue, operating income and our other financial results presented in accordance with U.S. GAAP.
The following table sets forth a reconciliation of operating income to adjusted operating income:
Results of Operations – Janel Corporation – Three Months Ended June 30, 2019 and 2018
The following table sets forth our corporate group expenses:
Expenses
Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, decreased by $321 to $943, or 25.4% in the three months ended June 30,
2019 as compared to $1,264 for the three months ended June 30, 2018. The decrease was due primarily to higher accounting related professional expenses in the prior year and lower stock-based compensation
expense and lower merger related expenses for the quarter.
Amortization of Intangible Assets
For the three months ended June 30, 2019 and 2018, corporate amortization expenses were $230 and $200, respectively, an increase of $30, or 15.0%. The increase was primarily related to the acquisitions
of Aves, Antibodies, Honor and Sea Cargo.
Interest Expense
Interest expense for the consolidated Company increased $76, or 71.1%, to $183 for the three months ended June 30, 2019 from $107 for the three months ended June 30, 2018.
The increase was due primarily to our new senior secured term loan facility and subordinated promissory notes in connection with the Antibodies and Honor acquisitions, partially off-set by a lower debt level at the manufacturing segment.
Income Taxes
On a consolidated basis, the Company recorded an income tax expense of $103 for the three months ended June 30, 2019, as compared to an income tax benefit of $74 for the three months ended June 30, 2018. The increase was primarily due to increase in pretax income. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to
continue to use, through ongoing profitability.
Preferred Stock Dividends
Preferred stock dividends include the Company's Series A Convertible Preferred Stock (the “Series A Stock”) and dividends accrued but not paid on the Company's Series C Cumulative Preferred Stock (the
"Series C Stock"). For the three months ended June 30, 2019 and 2018, preferred stock dividends were $150 and $111, respectively. The increase of $39, or 35.1%, was the result of a higher number of shares of Series C Stock outstanding to support
acquisitions and the increase in dividend rate as of January 1, 2019 to 6%. All outstanding shares of Series A Stock were repurchased by the Company on September 24, 2018 and retired on September 27, 2018. See note 8 to the consolidated financial
statements for additional information.
Net Income (Loss)
Net loss was ($30), or ($0.04) per diluted share, for the three months ended June 30, 2019 compared to a loss of ($17), or ($0.03) per diluted share, for the three months ended June 30, 2018. The increase was primarily due higher income tax expense.
Income (Loss) Available to Common Stockholders
Loss available to holders of common shares ("Common Stockholders") was ($180), or ($0.22) per diluted share, for the three months ended June 30, 2019 compared to a loss of ($128), or ($0.22) per diluted
share, for the three months ended June 30, 2018. The decrease primarily was due to the amendment on October 17, 2017 to the annual dividend rate, as discussed in note 8 to the consolidated financial statements,
which was treated as a gain on extinguishment for accounting purposes. The fair value prior to and after modification was $8,224 and $6,912, respectively, for a change of $1,312. In accordance with ASC 260 Earnings Per Share, this incremental benefit
was treated as an adjustment to earnings per share for Common Stockholders.
Results of Operations – Segment Financial Results – Three and Nine Months Ended June 30, 2019 and 2018
The following table sets forth our segment financial results:
Results of Operations - Global Logistics Services – Three Months Ended June 30, 2019 and 2018
Our Global Logistics Services business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry
filing, arrangement of freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
Global Logistics Services – Selected Financial Information:
Revenue
Total revenue for the three months ended June 30, 2019 was $16,708, as compared to $15,238 for the three months ended June 30, 2018, an increase of $1,470 or 9.7%. The increase in revenue was largely
due to the inclusion of the acquisitions of Honor and Sea Cargo as compared to the prior year period, offset by lower transportation prices and an approximate high single-digit organic decline for the quarter in our base of business as customers
moved freight prior to new proposed governmental trade policies.
Forwarding Expenses
Forwarding expenses for the three months ended June 30, 2019 increased by $1,390, or 12.1%, to $12,872 as compared to $11,482 for the three months ended June 30, 2018.
Forwarding expenses as a percentage of revenue were 77.0% and 75.4% for the three months ended June 30, 2019 and June 30, 2018, respectively. Similar to the revenue increase, the increase in forwarding expenses
primarily was due to acquisitions and higher purchased transportation expenses.
Net Revenue
Net revenue for the three months ended June 30, 2019 was $3,836, an increase of $80, or 2.1%, as compared to $3,756 for the three months ended June 30, 2018. This increase was mainly the result of additional net revenue from the acquisitions discussed above, which were not included in the prior year, offset by an approximate high single digit organic decline for the quarter
in our base of business as customers moved freight prior to new proposed governmental trade policies. Net revenue as a percentage of gross revenue declined to 23.0% versus 24.7% the prior year due to the mix of business and lower freight
rates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2019 were $3,600, as compared to $2,985 for the three months ended June 30, 2018.
This increase of $615, or 20.6%, was largely attributed to the additional expenses from businesses acquired versus the prior year period. As a percentage of revenue, selling, general and administrative expenses were 21.6% and 19.6% of revenue for the
three months ended June 30, 2019 and 2018, respectively.
Income from Operations
Income from operations before income taxes decreased to $236 for the three months ended June 30, 2019, as compared to $771 for the three months ended June 30, 2018,
a decrease of $535, or 69.4%. Income from operations declined as a result of the shift in volume due to tariff-driven volume shifts more than offset acquisition contributions. Our operating margin as a percentage of net revenue for the three months
ended June 30, 2019 was 6.2%, versus 20.5% in the prior year period.
Results of Operations - Manufacturing – Three Months Ended June 30, 2019 and 2018
The Company's Manufacturing segment includes its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Manufacturing – Selected Financial Information:
Revenue
Total revenue was $2,419 and $2,148 for the three months ended June 30, 2019 and 2018, respectively, an increase of 12.6%. The revenue growth reflected strong growth across the business.
Cost of Sales
Cost of sales was $1,066 and $826 for the three months ended June 30, 2019 and 2018, respectively, an increase of $240, or 29.1%, due to increased sales and mix of business.
Gross Profit and Margin
Gross profit was $1,353 and $1,322 for the three months ended June 30, 2019 and 2018, respectively. Gross profit margin for the three months ended June 30, 2019 declined to 55.9%, compared to 61.5% for
the three months ended June 30, 2018, due to product mix shifting to some lower margin products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $492 and $865 for the three months ended June 30, 2019 and 2018, respectively, a decrease of $373 or 43.1%. Selling, general and administrative expenses
at Indco decreased as a percentage of revenue due to strong revenue growth and expense control and unusual items experienced during the prior year period related to subsidiary level stock-based compensation expenses and items related to a special
dividend that did not recur.
Income from Operations
Income from operations of $861 for the three months ended June 30, 2019 increased 88.4% compared to $457 for the three months ended June 30, 2018. Operating profit increased due to strong business
growth, lower subsidiary level stock-based compensation expense and items related to a special dividend in the prior year that did not recur.
Results of Operations – Life Sciences – Three Months Ended June 30, 2019 and 2018
The Company's Life Sciences segment comprises two life science businesses we acquired through the acquisitions of Aves and Antibodies, both of which manufacture high-quality antibodies and other immunoreagents for
biomedical research.
Life Sciences – Selected Financial Information:
The Life Sciences segment began to be reported as a segment beginning with the three-month period ended December 31, 2018. Aves was acquired on March 5, 2018, and Antibodies was acquired on June 22, 2018.
Revenue
Total revenue was $1,184 and $283 for the three months ended June 30, 2019 and 2018, respectively, an increase $901 or 318.4%.
Cost of Sales
Cost of sales was $287 and $114 for the three months ended June 30, 2019 and 2018
, respectively, an increase of $173 or 151.6%
Gross Profit and Margin
Gross profit was $897 and $169 for the three months ended June 30, 2019 and 2018, respectively, an increase of $728 or 430.8%. Gross profit and margins increased due to
acquisitions. In the three months ended June 30, 2019 and 2018, the Life Sciences segment had gross profit margins of 75.8% and 59.7%, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $795 and $117 for the three months ended June 30, 2019 and 2018, respectively.
Income from Operations
Income from operations for the three months ended June 30, 2019 and 2018 was $102 and $50, or 39.8% and 18.4%, respectively, of segment revenue.
Results of Operations – Janel Corporation – Nine Months Ended June 30, 2019 and 2018
The following table sets forth our corporate group expenses:
Expenses
Corporate expenses increased to $1,602 versus $1,431 in the prior year period due to an increase in professional expenses related to our audit. Total corporate expenses decreased by $313 to $2,742, or
10.3%, in the nine months ended June 30, 2019 as compared to $3,055 for the nine months ended June 30, 2018 primarily due to lower stock-based compensation and merger and acquisition expenses.
Amortization of Intangible Assets
For the nine months ended June 30, 2019 and 2018, corporate amortization expenses were $674 and $594, respectively, an increase of $80, or 13.5%. The increase was primarily related to the acquisitions
of Aves, Antibodies, Honor and Sea Cargo.
Interest Expense
Interest expense for the consolidated Company increased by $202, or 59.4%, to $543 for the nine months ended June 30, 2019 from $341 for the nine months ended June 30, 2018.
The increase was due primarily to our new senior secured term loan facility and subordinated promissory notes in connection with the Antibodies and Honor acquisitions, partially off-set by a lower debt level at the manufacturing segment.
Income Taxes
On a consolidated basis, the Company recorded an income tax expense of $356 for the nine months ended June 30, 2019, as compared to an income tax benefit of $114 for the nine months ended June 30, 2018.
The increase was primarily due to increased pretax income, partially off-set by a related one-time income tax benefit of $49 due to the new tax rate change during the nine-month period ended June 30,
2018. In 2016, a deferred tax asset was established to reflect a net operating loss carryforward, which the Company has begun using, and is expected to continue to use, through ongoing profitability.
Preferred Stock Dividends
Preferred stock dividends include the Company's Series A Stock and dividends accrued but not paid on the Company's Series C Stock. For the nine months ended June 30, 2019 and 2018, preferred stock
dividends were $420 and $308, respectively. The increase of $112, or 36.4%, was the result of a higher number of shares of Series C Stock outstanding to support acquisitions and increase in dividend rate as of January 1, 2019 to 6%. All outstanding
shares of Series A Stock were repurchased by the Company on September 24, 2018 and retired on September 27, 2018. See note 8 to the consolidated financial statements for additional information.
Net Income (Loss)
Net income was $689, or $0.73 per diluted share, for the nine months ended June 30, 2019 compared to a loss of ($54), or ($0.09) per diluted share, for the nine months ended June 30, 2018. The increase was primarily due to the increase in operating profits from each of our segments and the inclusion of our new Life Sciences segment, off-set by higher income tax expense.
Income Available to Common Stockholders
Income available to Common Stockholders was $269, or $0.28 per diluted share, for the nine months ended June 30, 2019 compared to $950, or $1.67 per diluted share, for the nine months ended June 30, 2018. The decrease primarily was due to the amendment on October 17, 2017 to the annual dividend rate, as discussed in note 8 to the consolidated financial statements, which was treated as a gain on extinguishment
for accounting purposes. The fair value prior to and after modification was $8,224 and $6,912, respectively, for a change of $1,312. In accordance with ASC 260 Earnings Per Share, this incremental benefit was treated as an adjustment to earnings per
share for Common Stockholders.
Results of Operations - Global Logistics Services – Nine Months Ended June 30, 2019 and 2018
Our Global Logistics Services business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include customs entry
filing, arrangement of freight forwarding by air, ocean and ground, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
Global Logistics Services – Selected Financial Information:
Revenue
Total revenue for the nine months ended June 30, 2019 was $52,378, as compared to $41,787 for the nine months ended June 30, 2018, an increase of $10,591 or
25.4%. The increase in revenue was largely due to the inclusion of the acquisitions of Honor and Sea Cargo as compared to the prior year period and higher transportation prices. The business also experienced strong organic growth early in the fiscal
year as customers moved freight prior to new proposed governmental trade policies.
Forwarding Expenses
Forwarding expenses for the nine months ended June 30, 2019 increased by $9,135, or 29.4%, to $40,247 as compared to $31,112 for the nine months ended June 30, 2018.
Forwarding expenses as a percentage of revenue were 76.8% and 74.5% for the nine months ended June 30, 2019 and June 30, 2018, respectively. Similar to the revenue increase, the increase in forwarding expenses
primarily was due to acquisitions, higher purchased transportation expenses and an increase in our base of business.
Net Revenue
Net revenue for the nine months ended June 30, 2019 was $12,131, an increase of $1,456 or 13.6%, as compared to $10,675 for the nine months ended June 30, 2018. This increase was mainly the result of additional net revenue from the acquisitions discussed above, which were not included in the prior year, and low single-digit organic growth in our base business. Net revenue
as a percentage of gross revenue declined to 23.2% versus 25.5% the prior year due to the mix of business and higher freight rates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended June 30, 2019 were $10,220, as compared to $8,769 for the nine months ended June 30, 2018.
This increase of $1,451, or 16.5%, was largely attributed to the additional expenses from businesses acquired versus the prior year period. As a percentage of revenue, selling, general and administrative expenses were 19.5% and 21.0% of revenue for
the nine months ended June 30, 2019 and 2018, respectively.
Income from Operations
Income from operations before income taxes increased to $1,911 for the nine months ended June 30, 2019, as compared to $1,906 for the nine months ended June 30, 2018,
an increase of $5, or 0.3%. Income from operations grew slower than net revenue as acquisition benefits were more than offset by an increased investment in growth initiatives. Our operating margin as a percentage of net revenue for the nine months
ended June 30, 2019 was 15.8%, versus 21.0% in the prior year period.
Results of Operations - Manufacturing – Nine Months Ended June 30, 2019 and 2018
The Company's Manufacturing segment includes its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Manufacturing – Selected Financial Information:
Revenue
Total revenue was $6,952 and $6,167 for the nine months ended June 30, 2019 and 2018, respectively, an increase of 12.7%. The revenue growth reflected strong growth across the business.
Cost of Sales
Cost of sales for the nine months ended June 30, 2019 and 2018 was $3,076 and $2,374, respectively, an increase of $702 or 29.6% due to increased sales and mix of business.
Gross Profit and Margin
Gross profit was $3,876 and $3,793 for the nine months ended June 30, 2019 and 2018, respectively. Gross profit margin for the nine months ended June 30, 2019 decreased to 55.8% compared to 61.5% for
the nine months ended June 30, 2018 due to product mix shifting to some lower margin products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,167 and $2,533 for the nine months ended June 30, 2019 and 2018, respectively, a decrease of $366 or 14.5%. Selling, general and administrative
expenses at Indco decreased as a percentage of revenue due to strong revenue growth and expense control and unusual items experienced during the prior year period related to
subsidiary level stock-based compensation
expense and items related to a special dividend that did not recur.
Income from Operations
Income from operations of $1,709 for the nine months ended June 30, 2019 increased 35.6% compared to $1,260 for the nine months ended June 30, 2018. Operating profit increased due to strong business
growth, lower subsidiary level stock-based compensation expense and items related to a special dividend in the prior year that did not recur.
Results of Operations – Life Sciences – Nine Months Ended June 30, 2019 and 2018
The Company's Life Sciences segment comprises two life science businesses that we acquired through the acquisitions of Aves and Antibodies, both of which manufacture high-quality antibodies and other immunoreagents for
biomedical research.
Life Sciences – Selected Financial Information:
The Life Sciences segment began to be reported as a segment beginning with the three-month period ended December 31, 2018. Aves was acquired on March 5, 2018, and Antibodies was
acquired on June 22, 2018.
Revenue
Total revenue was $4,277 and $364 for the nine months ended June 30, 2019 and 2018
, respectively.
Cost of Sales
Cost of sales was $1,341 and $154 for the nine months ended June 30, 2019 and 2018, respectively.
Gross Profit and Margin
Gross profit was $2,936 and $210 for the nine months ended June 30, 2019 and 2018, respectively. In the
nine months ended June 30, 2019, the Life Sciences segment had gross profit margins of 68.7% versus 57.7% the prior year. Gross profit and margins increased due to acquisitions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2,226 and $148 for the nine months ended June 30, 2019 and 2018, respectively.
Income from Operations
Income from operations for the nine months ended June 30, 2019 and 2018 was $710 and $62, respectively, or 16.6% and 17.0% of segment revenue.
LIQUIDITY AND CAPITAL RESOURCES
General
Our ability to satisfy liquidity requirements, including satisfying debt obligations and fund working capital, day-to-day operating expenses and capital expenditures, depends upon future performance,
which is subject to general economic conditions, competition and other factors, some of which are beyond Janel's control. Subsidiaries depend on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of
collection cycles and the timing of payments to vendors. Generally, Janel does not make significant capital expenditures.
As a customs broker, we make significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer obligations such as the payment of duties and taxes to customs authorities
primarily in the U.S. Increases in duty rates could result in increases in the amounts we advance on behalf of our customers. Cash advances are a “pass through” and are not recorded as a component of revenue and expense. The billings of such advances
to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. These “pass through” billings can influence our traditional credit
collection metrics. For customers that meet certain criteria, we have agreed to extend payment terms beyond our customary terms. Management believes that it has established effective credit control procedures, and has historically experienced
relatively insignificant collection problems.
As of June 30, 2019, the Company's cash and working capital deficiency (current assets minus current liabilities) were $1,362 and $7,460, respectively, as compared to $585 and $6,587 as of September 30,
2018. The increase is considered nominal, representing relatively stable collections from customers and payments of vendors.
Janel's cash flow performance for the three months ended June 30, 2019 is not necessarily indicative of future cash flow performance.
Cash flows from operating activities
Net cash provided by operating activities for the nine months ended June 30, 2019 and 2018 was $3,219 and $1,118, respectively. The increase in cash provided by operations for the nine months ended June
30, 2019 was driven principally by higher net income and improved working capital.
Cash flows from investing activities
Net cash used in investing activities totaled $2,238 for the nine months ended June 30, 2019, versus $6,907 for the prior year period. During the nine months ended June 30, 2019, the Company used $1,935
for two acquisitions, net of cash acquired. The Company also used $303 for the acquisition of property and equipment for the nine months ended June 30, 2019 versus $97 for the nine months ended June 30, 2018.
Cash flows from financing activities
Net cash used in financing activities was $204 for the nine months ended June 30, 2019, versus $5,319 provided by financing activities for the nine months ended June 30, 2018. Net cash used in financing
activities for the nine months ended June 30, 2019 primarily included funds used to repay debt. Net cash provided by financing activities for the nine months ended June 30, 2018 period primarily funded our acquisition efforts.
Off-Balance Sheet Arrangements
As of June 30, 2019, we had no off-balance sheet arrangements or obligations.