JANEL CORPORATION 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 ended
As used throughout this Report, "we," "us", "our," "Janel," "the Company,"
"Registrant" and similar words refer to
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
using 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 several 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? we may be required to record
a significant charge to earnings related to the impairment of acquired assets;
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? risks associated with litigation, including contingent auto
liability and insurance coverage, and indemnification claims and other
unforeseen claims and liabilities that may arise from an acquisition? changes in
tax rates, laws or regulations and our, our acquired companies' and
subsidiaries' ability to utilize anticipated tax benefits; the impact of rising
interest rates on our investments, business and operations; conflicts of
interest with the minority shareholders of our business; the impact of the
coronavirus pandemic on worldwide economic conditions and on our businesses;
economic and other conditions in the markets in which we operate? we may not
have sufficient working capital to continue operations? we may lose customers
who are not obligated to long-term contracts to transact with us; instability in
the financial markets? changes or developments in
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OVERVIEW
Management at the Janel 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 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.
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
On
Manufacturing
The Company's Manufacturing segment is comprised of
Investment in
On
Rubicon is a vertically integrated, advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. Rubicon uses proprietary crystal growth technology to produce high-quality sapphire products to meet customers exacting specifications.
The purpose of our investment in Rubicon is for Janel to acquire a significant ownership interest in Rubicon, together with representation on Rubicon's Board, in an attempt to (i) restructure the Rubicon business to achieve profitability and (ii) assist Rubicon in utilizing its net operating loss carry-forward assets. Although we are optimistic about our investment in Rubicon, our investment involves risks and uncertainties that are beyond our control.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Condensed Consolidated Financial Statements have been prepared in accordance
with generally accepted accounting principles in
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
NON-GAAP FINANCIAL MEASURES
While we prepare our financial statements in accordance with
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
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
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Results of Operations -
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:
Three Months Ended
December 31,
(in thousands) 2022 2021
Revenue $ 57,044 $ 83,314
Forwarding expenses and cost of revenue 42,127 67,825
Gross profit 14,917 15,489
Operating expenses 13,537 12,847
Income from operations 1,380 2,642
Net income 360 1,688
Adjusted operating income $ 2,057 $ 3,362 Consolidated revenue for the three months ended
Income from operations for the three months ended
Net income for the three months ended
Adjusted operating income for the three months ended
The following table sets forth a reconciliation of operating income to adjusted
operating income:
Three Months Ended
December 31,
(in thousands) 2022 2021
Income from operations $ 1,380 $ 2,642
Amortization of intangible assets 526 509
Stock-based compensation 61 40
Cost recognized on sale of acquired inventory 90 171
Adjusted operating income $ 2,057 $ 3,362 Results of Operations - Logistics - Three Months Ended
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.
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Three Months Ended
December 31,
2022 2021
(in thousands)
Revenue $ 51,800 $ 77,556
Forwarding expense 40,267 65,610
Gross profit 11,533 11,946
Gross profit margin 22.3 % 15.4 %Selling, general and administrative expenses 9,528 9,349 Income from operations
$ 2,005 $ 2,597 Revenue
Total revenue for the three months ended
Gross Profit
Gross profit for the three months ended
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended
Income from Operations
Income from operations decreased to
Results of Operations - Life Sciences - Three Months Ended
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.
Three Months Ended
December 31,
2022 2021
(in thousands)
Revenue $ 2,838 $ 3,244
Cost of sales 638 830
Cost recognized upon sale of acquired inventory 90 171
Gross profit 2,110 2,243
Gross profit margin 74.3 % 69.1 %
Selling, general and administrative 1,510 1,250
Income from operations $ 600 $ 993
Revenue
Total revenue was
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Gross Profit
Gross profit was
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Life Sciences segment were
Income from Operations
Income from operations for the three months ended
Results of Operations - Manufacturing - Three Months Ended
The Company's Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Three Months Ended
December 31,
2022 2021
(in thousands)
Revenue $ 2,406 $ 2,514
Cost of sales 1,132 1,214
Gross profit 1,274 1,300
Gross profit margin 53.0 % 51.7 %Selling, general and administrative expenses 774 729 Income from operations
$ 500 $ 571 Revenue
Total revenue was
Gross Profit
Gross profit was
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
Income from Operations
Income from operations was
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Results of Operations - Corporate and Other - Three Months Ended
Below is a reconciliation of income from operating segments to net income available to common stockholders.
Three Months Ended
December 31,
(in thousands) 2022 2021
Total income from operations by segment
(1,138 ) (1,000 )
Amortization of intangible assets (526 ) (509 )
Stock-based compensation (61 ) (10 )
Total corporate expenses (1,725 ) (1,519 )
Interest expense (474 ) (279 )
Unrealized loss on Rubicon investment (399 ) -
Net income before taxes 507 2,363
Income taxes expense (147 ) (675 )
Net Income 360 1,688
Preferred stock dividends (72 ) (211 )
Net Income Available to Common Stockholders
Total Corporate Expenses
Total Corporate expenses, which include amortization of intangible assets,
stock-based compensation and merger and acquisition expenses, increased by
Interest Expense
Interest expense for the consolidated company increased
Income Tax Expense
On a consolidated basis, the Company recorded an income tax expense of
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
Net Income
Net income was
Income Available to Common Stockholders
Income available to holders of Common Stock was
The decrease in net income available to common stockholders reflected lower net
income, partially offset by a decrease in the dividend rate with respect to the
Series C Stock as of
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LIQUIDITY AND CAPITAL RESOURCES
General
Our ability to satisfy liquidity requirements, include meeting debt obligations and funding 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
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
Cash flows from investing activities
Net cash used in investing activities totaled
Cash flows from financing activities
Net cash used in financing activities was
Off-Balance Sheet Arrangements
As of
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