ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes thereto as of
and for the three months and nine months ended June 30, 2022, 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.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (the “Report”) contains certain statements that are, or may deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934 and 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 and other strategic transactions, such as the proposed Rubicon Transaction; the risk that we may fail to realize the expected benefits or strategic objectives of any acquisition or strategic transaction, or that
we spend resources exploring acquisitions or strategic transactions that are not consummated; the impact of the coronavirus on worldwide economic conditions and on our businesses; risks associated with litigation, including contingent auto
liability and insurance coverage; indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; economic and other conditions in the markets in which we operate (including rising inflation and interest
rates); the risk that we may not have sufficient working capital to continue operations; instability in the financial markets; our dependence on key employees; impacts from climate change, including the increased focus by third-parties on
sustainability issues and our ability to comply therewith; 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; our compliance with applicable privacy, security and data laws; competition faced by our 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 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 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, increase in the cost or supply shortages, 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, and such other
factors that may be identified from time to time in our Securities and Exchange Commission (“SEC”) filings. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary
materially from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. For a more detailed discussion of these factors, see our periodic reports filed with the SEC, including our most recent Annual Report on Form 10-K for the fiscal year ended
September 30, 2021.
OVERVIEW
Janel Corporation (“Janel,” the “Company” or the “Registrant”) is a holding company with subsidiaries in three business segments: Logistics (previously known as Global Logistics Services), Life
Sciences and Manufacturing. In the fourth quarter of 2021, our former Global Logistics Services segment was renamed “Logistics”; this change related to the name only and had no impact on the Company’s previously reported historical financial
position, results of operations, cash flow or segment level results. 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’s capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent.
Management at the holding company 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.
Logistics
The Company’s Logistics segment is comprised of several wholly-owned subsidiaries. The Company’s Logistics segment 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, trucking, and other value-added logistics services. In addition to these revenue
streams, the Company earns accessorial revenue in connection with its core services. Accessorial revenue includes, but is not limited to, fuel service charges, wait time fees, hazardous cargo fees, labor charges, handling, cartage, bonding and
additional labor charges.
On September 21, 2021, the Company completed a business combination whereby it acquired all of the membership interests of Expedited Logistics and Freight Services, LLC. (“ELFS”) and related
subsidiaries which we include in our Logistics segment.
On December 31, 2020, the Company completed a business combination whereby it acquired substantially all of the assets and certain liabilities of W.R. Zanes & Co. of LA., Inc., (“W.R.
Zanes”) which we include in our Logistics segment.
Life Sciences
The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries.
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 segment also produces products for other life science companies on an original equipment manufacturer (OEM) basis.
On December 4, 2020, the Company completed a business combination whereby it acquired all of the membership interests of ImmunoChemistry Technologies, LLC. (“ICT”) which we include in our Life
Sciences segment.
Manufacturing
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States. These generally accepted accounting
principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period.
Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our Board of Directors. For a description of the Company’s critical accounting
policies and estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K filed with the SEC on December 27, 2021.
Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the
need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. There were no significant changes to our
critical accounting policies during the nine months ended June 30, 2022.
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”).
Organic Growth
Our non-GAAP financial measure of organic growth represents revenue growth excluding revenue from acquisitions within the preceding 12 months.
The organic growth presentation provides useful period-to-period comparison of revenue results as it excludes revenue from acquisitions that would not be included in the comparable prior
period.
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 cost recognized on the sale 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 organic growth and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, organic
growth 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 may report measures titled organic growth, 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 organic growth 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.
Results of Operations – Janel Corporation
Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Condensed
Consolidated Financial Statements and the notes thereto.
Our consolidated results of operations are as follows:
(in thousands)
|
|
Three Months Ended
June 30,
2022
|
|
|
Three Months Ended
June 30,
2021
|
|
|
Nine Months Ended
June 30,
2022
|
|
|
Nine Months Ended
June 30,
2021
|
|
Revenue
|
|
$
|
78,984
|
|
|
$
|
34,826
|
|
|
$
|
243,149
|
|
|
$
|
91,446
|
|
Forwarding expenses and cost of revenues
|
|
|
61,819
|
|
|
|
26,058
|
|
|
|
193,986
|
|
|
|
68,680
|
|
Gross profit
|
|
|
17,165
|
|
|
|
8,768
|
|
|
|
49,163
|
|
|
|
22,766
|
|
Operating expenses
|
|
|
13,994
|
|
|
|
7,446
|
|
|
|
41,203
|
|
|
|
20,114
|
|
Income from operations
|
|
|
3,171
|
|
|
|
1,322
|
|
|
|
7,960
|
|
|
|
2,652
|
|
Net income
|
|
|
2,158
|
|
|
|
870
|
|
|
|
5,119
|
|
|
|
1,721
|
|
Adjusted operating income
|
|
$
|
3,822
|
|
|
$
|
1,868
|
|
|
$
|
10,638
|
|
|
$
|
4,301
|
|
Consolidated revenues for the three months ended June 30, 2022 were $78,984, which was $44,158 or 127% higher than the prior year
period. Revenues over this period increased due to a recovery from the impact of the COVID-19 pandemic experienced in the prior year period as well as an increase in revenue of $27,759 from an
acquisition. Consolidated revenues for the nine months ended June 30, 2022 were $243,149, which was $151,703 or 166% higher than the prior year period. Revenues over this period increased across all
three segments due to a recovery from the impact of the COVID-19 pandemic experienced in the prior year period as well as an increase in revenue of $78,367 from acquisitions.
Income from operations for the three months ended June 30, 2022 was $3,171 compared with $1,322 in the prior year period. Income from
operations for the nine months ended June 30, 2022 was $7,960 compared with $2,652 in the prior year period. The increase for both the three and nine months ended June 30, 2022 resulted from a
recovery from the impact of the COVID-19 pandemic experienced in the prior year period as well as an increase in income from operations of $1,723 and $3,977, respectively from acquisitions, partially
offset by stock-based compensation and higher spending in the Corporate segment.
Net income for the three months ended June 30, 2022 totaled $2,158 or $1.93 per diluted share, compared to net income of $870 or $0.88
per diluted share for the three months ended June 30, 2021. Net income for the nine months ended June 30, 2022 totaled $5,119 or $4.85 per diluted share, compared to net income of $1,721 or $1.75 per
diluted share for the nine months ended June 30, 2021.
Adjusted operating income for the three months ended June 30, 2022 increased to $3,822 versus $1,868 in the prior year period. Adjusted operating income for the nine months ended
June 30, 2022 increased to $10,638 versus $4,301 in the prior year period. The increase for both the three and nine months ended June 30, 2022 resulted from a recovery in profits from the impact of
the COVID-19 pandemic for our segments and the contribution of income from acquisitions.
The following table sets forth a reconciliation of operating income to adjusted operating income:
(in thousands)
|
|
Three Months
Ended June 30,
2022
|
|
|
Three Months
Ended June 30,
2021
|
|
|
Nine Months
Ended June 30,
2022
|
|
|
Nine Months
Ended June 30,
2021
|
|
Income from operations
|
|
$
|
3,171
|
|
|
$
|
1,322
|
|
|
$
|
7,960
|
|
|
$
|
2,652
|
|
Amortization of intangible assets
|
|
|
489
|
|
|
|
288
|
|
|
|
1,485
|
|
|
|
832
|
|
Stock-based compensation
|
|
|
32
|
|
|
|
31
|
|
|
|
800
|
|
|
|
85
|
|
Cost recognized on sale of acquired inventory
|
|
|
130
|
|
|
|
227
|
|
|
|
393
|
|
|
|
732
|
|
Adjusted operating income
|
|
$
|
3,822
|
|
|
$
|
1,868
|
|
|
$
|
10,638
|
|
|
$
|
4,301
|
|
Results of Operations – Logistics – Three and Nine Months Ended June 30, 2022 and 2021
Our Logistics business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include arrangement of
freight forwarding by air, ocean and ground, customs entry filing, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking.
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
(in thousands)
|
|
|
|
Revenue
|
|
$
|
73,684
|
|
|
$
|
29,369
|
|
|
$
|
226,313
|
|
|
$
|
76,002
|
|
Forwarding expenses
|
|
|
59,889
|
|
|
|
24,173
|
|
|
|
187,780
|
|
|
|
62,818
|
|
Gross Profit
|
|
|
13,795
|
|
|
|
5,196
|
|
|
|
38,533
|
|
|
|
13,184
|
|
Gross profit margin
|
|
|
18.7
|
%
|
|
|
17.7
|
%
|
|
|
17.0
|
%
|
|
|
17.3
|
%
|
Selling, general & administrative
|
|
|
10,387
|
|
|
|
4,523
|
|
|
|
29,802
|
|
|
|
11,640
|
|
Income from operations
|
|
$
|
3,408
|
|
|
$
|
673
|
|
|
$
|
8,731
|
|
|
$
|
1,544
|
|
Revenue
Total revenue for the three months ended June 30, 2022 was $73,684 as compared to $29,369 for the three months ended June 30, 2021, an
increase of $44,315 or 151%. Of the increase in revenue, an acquisition accounted for $27,759 of additional revenue compared to the prior year period and $16,556 represented organic growth and
increased revenues resulting from the rise in transportation rates as a result of capacity issues globally.
Total revenue for the nine months ended June 30, 2022 was $226,313 as compared to $76,002 for the nine months ended June 30, 2021, an increase of $150,311 or 198%. Of the increase in revenue, two acquisitions accounted for $77,112 of additional revenue compared to the prior year period and $73,199 represented organic growth and increased revenues resulting from the rise
in transportation rates as a result of capacity issues globally.
Gross Profit
Gross profit for the three months ended June 30, 2022 was $13,795, an increase of $8,599, or 165%, as compared to $5,196 for the three
months ended June 30, 2021. An acquisition accounted for $7,182 of additional gross profit compared to the prior year period. A recovery in business accounted for the balance of the gross profit
increase compared with the depressed levels in the prior fiscal year and drove organic gross profit growth of 27%. Gross margin as a percentage of revenue increased to 18.7% for the three months ended June 30, 2022, compared to 17.7% for the prior year period, due to higher gross profit margins at an acquired business partially offset by lower gross profit margins due to the increase in
transportation rates.
Gross profit for the nine months ended June 30, 2022 was $38,533, an increase of $25,349, or 192%, as compared to $13,184 for the nine months ended June 30, 2021. This
increase was mainly the result of increased revenue from two acquisitions and organic growth in our base business due to a global economic recovery from the impact of the COVID-19 pandemic. Gross profit as a percentage of revenue decreased to 17.0% compared to 17.3% for the prior
year period due to the increase in transportation rates versus the prior year period partially offset by higher gross profit margins at an acquired business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2022 were $10,387, as compared to $4,523 for the three
months ended June 30, 2021. This increase of $5,864, or 130%, was mainly due to additional expenses from an acquired business. As a percentage of revenue, selling, general and administrative expenses
were 14.1% and 15.4% of revenue for the three months ended June 30, 2022 and 2021, respectively. The decline in selling, general and administrative expenses as a percentage of revenue largely reflected the rise in transportation rates
as a result of capacity issues globally and favorable operating leverage due to strong organic growth.
Selling, general and administrative expenses for the nine months ended June 30, 2022 were $29,802, as compared to $11,640 for the nine months ended June 30, 2021. This
increase of $18,162, or 156%, was mainly due to additional expenses from acquired businesses. As a percentage of revenue, selling, general and administrative expenses were 13.2% and 15.3% of revenue for the nine months ended June 30, 2022 and 2021, respectively. The decline in selling, general and administrative expenses as a percentage of revenue largely reflected the rise in transportation rates as a
result of capacity issues globally and favorable operating leverage due to strong organic growth.
Income from Operations
Income from operations increased to $3,408 for the three months ended June 30, 2022, as compared to income from operations of $673 for the three months ended June 30,
2021, an increase of $2,735. Income from operations increased as a result of the contribution of revenue from an acquisition and favorable operating leverage from revenue growth. Operating margin as a
percentage of gross profit for the three months ended June 30, 2022 was 24.7% compared to 13.0% in the prior year period largely due to operating leverage from significantly higher gross profit as
business recovered compared with the depressed levels in the prior year period.
Income from operations increased to $8,731 for the nine months ended June 30, 2022, as compared to $1,544 for the nine months ended June 30, 2021, an increase of $7,187,
or 465%. Income from operations increased during the nine months ended June 30, 2022 as a result of acquisitions and favorable leverage from revenue growth relative to the prior year period. Our operating
margin as a percentage of gross profit for the nine months ended June 30, 2022 was 22.7% compared to 11.7% in the prior year period largely due to operating leverage from significantly higher gross
profit as business recovered compared with the depressed levels in the prior year period.
Results of Operations – Life Sciences – Three and Nine Months Ended June 30, 2022 and 2021
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 OEM basis.
Life Sciences – Selected Financial Information:
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,738
|
|
|
$
|
3,384
|
|
|
$
|
9,257
|
|
|
$
|
8,973
|
|
Cost of sales
|
|
|
518
|
|
|
|
714
|
|
|
|
2,123
|
|
|
|
2,145
|
|
Cost recognized upon sales of acquired inventory
|
|
|
130
|
|
|
|
227
|
|
|
|
393
|
|
|
|
732
|
|
Gross profit
|
|
|
2,090
|
|
|
|
2,443
|
|
|
|
6,741
|
|
|
|
6,096
|
|
Gross profit margin
|
|
|
76.3
|
%
|
|
|
72.2
|
%
|
|
|
72.8
|
%
|
|
|
67.9
|
%
|
Selling, general and administrative
|
|
|
1,225
|
|
|
|
1,084
|
|
|
|
3,758
|
|
|
|
3,273
|
|
Income from Operations
|
|
$
|
865
|
|
|
$
|
1,359
|
|
|
$
|
2,983
|
|
|
$
|
2,823
|
|
Revenue
Total revenue was $2,738 and $3,384 for the three months ended June 30, 2022 and 2021, respectively, reflecting a decrease of $646
or 19.1% compared to the prior year period due to the timing of orders, in particular for diagnostic reagents.
Total revenue was $9,257 and $8,973 for the nine months ended June 30, 2022 and 2021, respectively, remained relatively unchanged with an increase of $284 or 3.2%.
Gross Profit
Gross profit was $2,090 and $2,443 for the three months ended June 30, 2022 and 2021, respectively, a decrease of $353 or
14.5%. During the three months ended June 30, 2022 and 2021, gross profit margin was 76.3% and 72.2%, respectively, as cost recognized upon sale of acquired inventory
declined and product mix improved.
Gross profit was $6,741 and $6,096 for the nine months ended June 30, 2022 and 2021, respectively, an increase of $645 or 10.6%. In the
nine months ended June 30, 2022 and 2021, the Life Sciences segment had a gross profit margin of 72.8% and 67.9%, respectively. Gross profit margin for both periods increased in line with revenue with consistent contributions from an acquisition and as cost recognized upon the sale of acquired inventory decreased.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Life Sciences segment were $1,225 and $1,084 for the three months ended June 30,
2022 and 2021, respectively. Selling, general and administrative expenses were $3,758 and $3,273 for the nine months ended June 30, 2022 and 2021, respectively. The year-over-year increases for both
periods was largely due to an acquired business.
Income from Operations
Income from operations for the three months ended June 30, 2022 and 2021 was $865 and $1,359, respectively, a decrease of $494
or 36.4%, due to the timing of orders, in particular to diagnostic reagents. Income from operations for the nine months ended June 30, 2022 and 2021 was $2,983 and
$2,823, respectively, an increase of $160 or 5.7%, largely due to positive operating leverage from the increase in revenue as a result of the recovery from the impact of the COVID-19 pandemic
experienced in the prior fiscal year and lower cost recognized on acquired inventory and, to a lesser extent, a contribution from an acquisition.
Results of Operations - Manufacturing – Three and Nine Months Ended June 30, 2022 and 2021
The Company’s Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Manufacturing – Selected Financial Information:
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,562
|
|
|
$
|
2,073
|
|
|
$
|
7,579
|
|
|
$
|
6,471
|
|
Cost of sales
|
|
|
1,282
|
|
|
|
944
|
|
|
|
3,690
|
|
|
|
2,985
|
|
Gross profit
|
|
|
1,280
|
|
|
|
1,129
|
|
|
|
3,889
|
|
|
|
3,486
|
|
Gross profit margin
|
|
|
50.0
|
%
|
|
|
54.5
|
%
|
|
|
51.3
|
%
|
|
|
53.9
|
%
|
Selling, general and administrative
|
|
|
676
|
|
|
|
682
|
|
|
|
2,170
|
|
|
|
2,007
|
|
Income from Operations
|
|
$
|
604
|
|
|
$
|
447
|
|
|
$
|
1,719
|
|
|
$
|
1,479
|
|
Revenue
Total revenue was $2,562 and $2,073 for the three months ended June 30, 2022 and 2021, respectively, an increase of $489. Total revenue was $7,579 and $6,471 for the nine months ended June 30, 2022 and 2021,
respectively, an increase of $1,108, or 17.1%. The increase in revenue for the nine months ended June 30, 2022 reflected a broad increase across the business and higher product pricing relative to the
COVID-19-related slowdown reflected in the prior year period.
Gross Profit
Gross profit was $1,280 and $1,129 for the three months ended June 30, 2022 and 2021, respectively, an increase of $151, or 13.8%. Gross profit margin for the three months ended
June 30, 2022 and 2021 was 50.0% and 54.5%, respectively. Gross profit was $3,889 and $3,486 for the nine months ended June 30, 2022 and 2021, respectively,
an increase of $403, or 11.6%. Gross profit margin for the nine months ended June 30, 2022 and 2021 was 51.3% and 53.9%, respectively. The year-over-year
decrease in gross profit margin for both periods was generally due to the mix of business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $676 and $682 for the three months ended June 30, 2022 and 2021, respectively, a decrease
of $6 or 1.0%. Selling, general and administrative expenses were $2,170 and $2,007 for the nine months ended June 30, 2022 and 2021, respectively, an increase of
$163 or 8.1%. The increase in expenses relative to revenue for the three- and nine-month periods reflected the mix of business.
Income from Operations
Income from operations was $604 for the three months ended June 30, 2022 compared to $447 for the three months ended June 30, 2021, representing a 35.1% increase from the
prior year period due to favorable order timing versus the prior year period. Income from operations was $1,719 for the nine months ended June 30, 2022 compared to
$1,479 for the nine months ended June 30, 2021, representing an 16.3% increase from the prior year period. The increase was due to favorable operating leverage as revenue recovered from the impact of
the COVID-19 pandemic.
Results of Operations – Corporate and Other – Three and Nine Months Ended June 30, 2022 and 2021
Below is a reconciliation of income from operating segments to net income available to common stockholders.
|
|
Three Months Ended
June 30,
|
|
|
Nine Months Ended
June 30,
|
|
(in thousands)
|
|
2022
|
|
|
2021
|
|
|
2022
|
|
|
2021
|
|
Total income from operating segments
|
|
$
|
4,877
|
|
|
$
|
2,479
|
|
|
$
|
13,433
|
|
|
$
|
5,846
|
|
Corporate expenses
|
|
|
(1,185
|
)
|
|
|
(838
|
)
|
|
|
(3,188
|
)
|
|
|
(2,277
|
)
|
Amortization expense
|
|
|
(489
|
)
|
|
|
(288
|
)
|
|
|
(1,485
|
)
|
|
|
(832
|
)
|
Stock-based compensation
|
|
|
(32
|
)
|
|
|
(31
|
)
|
|
|
(800
|
)
|
|
|
(85
|
)
|
Total Corporate expenses
|
|
|
(1,706
|
)
|
|
|
(1,157
|
)
|
|
|
(5,473
|
)
|
|
|
(3,194
|
)
|
Interest expense
|
|
|
(299
|
)
|
|
|
(141
|
)
|
|
|
(847
|
)
|
|
|
(418
|
)
|
Gain on Paycheck Protection Program loan forgiveness
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135
|
|
Net income before taxes
|
|
|
2,872
|
|
|
|
1,181
|
|
|
|
7,113
|
|
|
|
2,369
|
|
Income tax expense
|
|
|
(714
|
)
|
|
|
(311
|
)
|
|
|
(1,994
|
)
|
|
|
(648
|
)
|
Net income
|
|
|
2,158
|
|
|
|
870
|
|
|
|
5,119
|
|
|
|
1,721
|
|
Preferred stock dividends
|
|
|
(71
|
)
|
|
|
(197
|
)
|
|
|
(515
|
)
|
|
|
(566
|
)
|
Non-controlling interest dividends
|
|
|
-
|
|
|
|
-
|
|
|
|
(61
|
)
|
|
|
-
|
|
Net Income Available to Common Stockholders
|
|
$
|
2,087
|
|
|
$
|
673
|
|
|
$
|
4,543
|
|
|
$
|
1,155
|
|
Total Corporate Expenses
Total Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increased by $549 or 47.5%, to $1,706 in the three months ended June 30, 2022 as compared to $1,157 for the three months ended June 30, 2021. Total Corporate expenses increased by $2,279 or 71.4%, to $5,473 for the nine months ended June 30,
2022 as compared to $3,194 for the nine months ended June 30, 2021. The increase in both periods was due primarily to stock-based
compensation related to restricted stock issuance with immediate vesting, higher accounting related professional expense, increased merger and acquisition expenses and increases in amortization of intangible expenses. We incur merger and
acquisition deal-related expenses and intangible amortization at the Corporate level rather than at the segment level.
Interest Expense
Interest expense for the consolidated company increased $158 or 112.1%, to $299 for the three months ended June 30, 2022 from $141 for
the three months ended June 30, 2021. Interest expense for the consolidated company increased by $429 or 102.6%, to $847 for the nine
months ended June 30, 2022 from $418 for the nine months ended June 30, 2021. The increase in both periods
was primarily due to higher average debt balances to support our acquisition efforts and higher interest rates.
Income Tax Expense
On a consolidated basis, the Company recorded an income tax expense of $714 for the three months ended June 30, 2022, as compared to an
income tax expense of $311 for the three months ended June 30, 2021. On a consolidated basis, the Company recorded an income tax expense of
$1,994 for the nine months ended June 30, 2022, as compared to an income tax expense of $648 for the nine months ended June 30, 2021. The increase in expense for both periods was primarily due to an increase in pretax income.
Preferred Stock Dividends
Preferred stock dividends include any dividends accrued but not paid on the Company’s Series C Cumulative Preferred Stock (the “Series C Preferred Stock”). For the three months
ended June 30, 2022 and 2021, preferred stock dividends were $71 and $197, respectively, representing a decrease of $126, or 64.0%. For the nine months ended June 30, 2022 and 2021, preferred stock
dividends were $515 and $566, respectively, representing a decrease of $51, or 9.0%. The decrease in preferred stock dividends in both periods was the
result of the Company retiring $6,000 of Series C Preferred Stock on March 31, 2022 and the annual dividend rate change from 9% to 5%.
Net Income
Net income was $2,158, or $1.93 per diluted share, for the three months ended June 30, 2022 compared to net income of $870 or $0.88 per
diluted share, for the three months ended June 30, 2021.
Net income was $5,119, or $4.85 per diluted share, for the nine months ended June 30, 2022 compared to net income of $1,721, or $1.75
per diluted share, for the nine months ended June 30, 2021. The increase for both periods was primarily due to higher revenues and gross
profit, partially offset by higher selling, general and administrative expenses across our operating segments and at Corporate.
Income Available to Common Stockholders
Income available to holders of Common Stock was $2,087, or $1.87 per diluted share, for the three months ended June 30, 2022 compared
to income available to holders of Common Stock of $673, or $0.68 per diluted share, for the three months ended June 30, 2021.
Income available to holders of Common Stock was $4,543, or $4.31 per diluted share, for the nine months ended June 30, 2022 compared to
income available to holders of Common Stock of $1,115, or $1.17 per diluted share, for the nine months ended June 30, 2021. The increase in
net income for both periods was primarily due to higher revenues, partially offset by higher selling, general and administrative expenses across our businesses and Corporate in both periods and an increase in the dividend rate with respect to
the Series C Stock as of January 1, 2021 to 8%.
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 our control. Our Logistics segment depends 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.
As a customs broker, our Logistics segment makes 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 United States. 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.
Our 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, we do not make significant capital expenditures.
Our cash flow performance for the 2022 fiscal year may not necessarily be indicative of future cash flow performance.
Cash flows from operating activities
Net cash provided by operating activities was $8,678 for the nine months ended June 30, 2022, versus $139 provided by operating
activities for the nine months ended June 30, 2021. The increase in cash provided by operations for the nine months ended June 30, 2022 compared to the prior year period was driven principally by higher profits and lower net working capital at
our Logistics segment.
Cash flows from investing activities
Net cash used in investing activities totaled $589 for the nine months ended June 30, 2022, versus $3,001 for the nine months ended
June 30, 2021. We used $477 for the acquisition of property and equipment for the nine months ended June 30, 2022 compared to $2,874 for the acquisition of two businesses and $127 for the acquisition
of property and equipment for the nine months ended June 30, 2021.
Cash flows from financing activities
Net cash used in financing activities was $10,487 for the nine months ended June 30, 2022, versus net cash provided by financing
activities of $2,439 for the nine months ended June 30, 2021. Net cash used in financing activities for the nine months ended June 30, 2022 primarily included repayment of funds from our line of credit, repurchase of Series C Stock and
dividends paid to holders of Series C Stock, repayment of funds from our term loan and notes payable related party, partially offset by proceeds from stock option exercises. Net cash provided financing activities for the nine months ended June
30, 2021 primarily included funds from our line of credit partially offset by repayments of term loans.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no off-balance sheet arrangements or obligations.