ALJ Regional Holdings Inc (ALJJ) 2021 Q4 法說會逐字稿

Good afternoon, and welcome to the ALJ Regional Holdings, Inc. Fiscal Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Brian Hartman, Chief Financial Officer. Please go ahead.

Welcome and thank you for participating in today's teleconference and for being investors in ALJ Regional Holdings. My name is Brian Hartman, and I'm the CFO of ALJ. With me is Jess Ravich, our CEO and Chairman.

Before we begin, I would ask everyone listening to this investor conference call to review the risk factors presented in our latest Form 10-K that was filed with the Securities and Exchange Commission on December 20, 2021.

With respect to forward-looking statements, it is important to note that today's investor conference call as well as our earnings release and related communications contain forward-looking statements within the meaning of federal security laws. Such statements include information regarding our expectations, goals or intentions regarding the future, including, but not limited to, statements about our financial projections, business growth, the impact of acquisitions, cost-cutting measures, integration measures 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 and 10-Q filed with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statements made during this investor call.

During the course of this call, we will also reference historical non-GAAP financial measures. Management reviews non-GAAP financial information in evaluating our historical and projected financial performance and believes that it may assist investors in assessing our ongoing operations. The presentation of non-GAAP information is not meant to be considered in isolation or as a substitute for or superior to measures of financial performance prepared in accordance with GAAP. For a reconciliation of historical non-GAAP to GAAP financial measures, please see our latest Form 10-K filed with the Securities and Exchange Commission on December 20, 2021. Comments made during today's call will refer to both GAAP and non-GAAP financial information.

First, we will provide a financial update for the fiscal quarter and year-to-date ended September 30, 2021, followed by additional details for Faneuil's recent transaction.

ALJ recognized consolidated revenue of $111.7 million for the 3 months ended September 30, 2021, an increase of $13.9 million or 14.2% compared to $97.8 million for the 3 months ended September 30, 2020. The increase was driven by higher production in health care and transportation verticals as well as 1 state unemployment contract at Faneuil.

ALJ recognized net income from continuing operations of $1.1 million and diluted income per share from continuing operations of $0.03 for the 3 months ended September 30, 2021, compared to net income from continuing operations of $1.2 million and diluted income per share from continuing operations of $0.03 for the 3 months ended September 30, 2020.

ALJ recognized adjusted EBITDA from continuing operations of $10.6 million for the 3 months ended September 30, 2021, an increase of $1.8 million or 19.9% compared to $8.8 million for the 3 months ended September 30, 2020. The increase was driven by higher volumes in the transportation vertical, 1 state unemployment contract and exiting a loss-generating health care contract at Faneuil.

ALJ recognized revenue of $440.9 million for fiscal 2021, an increase of $90.8 million or 25.9% compared to $350.1 million for fiscal 2020. The increase was driven by the start of production for new contracts and increased volume for existing contracts at Faneuil and higher component sales primarily related to trade sales at Phoenix.

ALJ recognized net loss from continuing operations of $3.6 million and loss per share from continuing operations of $0.08 for fiscal 2021 compared to a loss from continuing operations of $64.2 million and loss per share from continuing operations of $1.52 for fiscal 2020.

Net loss from continuing operations for fiscal 2020 reflected a $56.5 million noncash and nonrecurring impairment of goodwill. Excluding such impairment of goodwill, ALJ recognized a net loss from continuing operations of $7.7 million and loss per share from continuing operations of $0.18 for fiscal 2020. The improvement in net loss is due to higher business activity at Faneuil and Phoenix.

ALJ recognized adjusted EBITDA from continuing operations of $33.7 million for fiscal 2021, an increase of $9.6 million or 40% compared to $24 million for fiscal 2020. The increase was driven by the start of new contracts and operational improvements at existing contracts for Faneuil and higher component sales primarily related to trade sales at Phoenix.

With regards to debt and covenants, at September 30, 2021, total debt was $106.7 million, which consisted of $100.1 million of term loans, $5.5 million outstanding on our line of credit and $1.1 million of finance leases. All amounts are exclusive of deferred financing costs.

Cash on hand at September 30, 2021, was $2.3 million. At September 30, 2021, we had $23.5 million of borrowing capacity on our line of credit, and we're in compliance with all debt covenants.

Cash capital expenditures totaled $8.9 million for fiscal 2021 versus $9.5 million for fiscal 2020. Cash interest paid totaled $9.1 million for both fiscal years 2021 and '20.

Cash taxes paid totaled $0.1 million for fiscal 2021, which is lower than prior year's $0.9 million. Cash taxes paid primarily relates to state income taxes as we continue to use existing net operating loss carryforwards to offset federal taxable income.

On December 21, 2021, we signed an asset purchase agreement to sell Faneuil's tolling and transportation and health benefit exchange verticals. We expect the transaction to close during the second fiscal quarter of 2022, subject to customary closing conditions, regulatory approvals, including clearance under the Hart-Scott-Rodino Act by the Federal Trade Commission. Consideration to be received is $140 million, less an indemnification escrow of approximately $15 million. Faneuil is also eligible to receive additional earn-out payments in an aggregate amount of up to $25 million if certain milestones are achieved.

Other Faneuil verticals, including its utilities, nonhealthcare benefit exchange and commercial as well as Vistio, a wholly owned subsidiary of Faneuil, which incorporates software tools and methodologies to improve and optimize the contact center agent experience, will remain at Faneuil, and Faneuil will continue to operate as a wholly owned subsidiary of ALJ.

Under the terms of our debt agreements, proceeds from this transaction must be used to repay certain debt. Upon closing, we anticipate paying off $93.1 million of term loan debt and paying off the outstanding balance on our revolver. We are currently working with our revolver provider to maintain our existing revolver facility.

Our convertible promissory notes, which total $6 million, will remain outstanding as this debt matures in November 2023 and is convertible only at the noteholder's option. As of September 30, 2021, we had approximately $135.1 million of net operating loss carryforwards available. As of June 30, 2022, approximately $109.1 million or 80% of these net operating loss carryforwards are set to expire.

We anticipate a material gain on sale from Faneuil's transaction and that we will use a significant portion of our existing net operating loss carryforwards to offset federal taxes. We estimate that cash state taxes will approximate $4 million to $7 million for this transaction. Net proceeds after debt repayments, state cash taxes paid and transaction-related expenses will be used to fund working capital and ongoing business operations.

Faneuil's remaining verticals recognize approximately $170 million of revenue for fiscal 2021, which included certain unemployment contracts and other contracts that recently ended. Excluding the impact from these contracts, a pro forma normalized revenue run rate for Faneuil's remaining verticals is in the range of $80 million to $90 million. We are currently working on our fiscal 2022 reforecast and are not at a point to provide specific details.

We will now open the call for questions.

(Operator Instructions) Showing no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Brian Hartman for any closing remarks.

We would like to thank everyone for attending the investor conference call today and look forward to providing our next update. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.