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 and six months endedMarch 31, 2023 , which have been prepared in accordance with generally accepted accounting principles inthe 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
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 acquired companies and subsidiaries' ability to utilize anticipated tax benefits; the impact of inflation and rising interest rates on our investments, business and operations; conflicts of interest with the minority shareholders of our business; 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, including in the banking sector? changes or developments inU.S. laws or policies; competition from companies with greater financial resources and from companies that operate in areas in which we plan to expand? our dependence on technically skilled employees? impacts from climate change, including the increased focus by third-parties on sustainability issues and our ability to comply therewith; the impact of increases in shipping costs, long lead times, supply shortages and supply changes; 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; the level of our insurance coverage, including related to product and other liability risks; our compliance with applicable privacy, security and data laws? risks related to the diverse platforms and geographies which host our management information and financial reporting systems; our dependence on the availability of cargo space from third parties? the impact of claims arising from transportation of freight by the carriers with which we contract, including an increase in premium costs; risks related to the classification of owner-operators in the transportation industry; recessions and other economic developments that reduce freight volumes; other events affecting the volume of international trade and international operations? risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements? the impact of seasonal trends and other factors beyond our control on our Logistics business? 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 ability of our Life Sciences business to maintain, determine the scope of and defend its and its competitors' intellectual property rights; the impact of pressures in the life sciences industry to increase the predictability of or reduce healthcare costs; any decrease in the availability, or increase in the cost or supply shortages, of raw materials used by Indco? risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco business on a single location to manufacture their products? the controlling influence exerted by our officers and directors and one of our stockholders? the unlikelihood that we will issue dividends in the foreseeable future? and risks related to ownership of our common stock, including share price volatility, the lack of a guaranteed continued public trading market for our common stock, our ability to issue shares of preferred stock with greater rights than our common stock and costs related to maintaining our status as a public company; and such other factors that may be identified from time to time in ourSecurities 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 theSEC , including our most recent Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2022 . 18
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Table of Contents OVERVIEWJanel Corporation ("Janel," the "Company," or the "Registrant") is a holding company with subsidiaries in three business segments: Logistics, Life Sciences and Manufacturing. 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 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
OnNovember 1, 2022 , the Company completed a business combination whereby it acquired all of the outstanding stock ofImmunoBioScience Corporation , which we include in our Life Sciences segment.
On
Manufacturing The Company's Manufacturing segment is comprised ofIndco, 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.
Investment in
OnAugust 19, 2022 , the Company acquired 1,108,000 shares of the common stock, par value$0.001 per share, of Rubicon Technology, Inc. ("Rubicon"), at a price per share of$20.00 , in a cash tender offer made pursuant to the Stock Purchase and Sale Agreement, datedJuly 1, 2022 , between the Company and Rubicon (the "Rubicon Purchase Agreement"). Pursuant to the terms of the Rubicon Purchase Agreement, the acquired shares represented 44.99% of Rubicon's issued and outstanding shares of common stock as ofAugust 3, 2022 , as reported in Rubicon's Quarterly Report on Form 10-Q for the quarterly period endedJune 30, 2022 , filed with theSEC onAugust 12, 2022 . Rubicon is an advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. 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. 19
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles inthe 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 theSEC onDecember 9, 2022 . 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 six months endedMarch 31, 2023 .
NON-GAAP FINANCIAL MEASURES
While we prepare our financial statements in accordance withU.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included inU.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 withU.S. GAAP and should not be considered as a substitute for total revenue, operating income or any other operating performance measures calculated in accordance withU.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 withU.S. GAAP. 20
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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 Six Months Ended
March 31, March 31,
(in thousands) 2023 2022 2023 2022
Revenue $ 45,378 $ 80,851 $ 102,422 $ 164,165
Forwarding expenses and cost of revenue 31,629 64,342 73,756 132,167
Gross profit 13,749 16,509 28,666 31,998
Operating expenses 12,845 14,362 26,382 27,209
Income from operations 904 2,147 2,284 4,789
Net income 218 1,273 578 2,961
Adjusted operating income $ 1,636 $ 3,454 $ 3,693 $ 6,816
Consolidated revenue for the three months ended March 31, 2023 was $45,378 ,
which was $35,473 or 43.9% lower than the prior year period. Consolidated
revenue for the six months ended March 31, 2023 were $102,422 , which was $61,743
or 37.6% lower than the prior year period. Revenue for both the three and six
months ended March 31, 2023 decreased primarily due to lower freight prices in
our Logistics segment as a result of lower freight demand relative to improved
global transportation capacity.
Income from operations for the three months ended March 31, 2023 was $904
compared with $2,147 in the prior year period. Income from operations for the
six months ended March 31, 2023 was $2,284 compared with $4,789 in the prior
year period. The decrease for both the three and six months ended March 31, 2023
resulted from lower profits across our business segments, especially at our
Logistics segment, which benefited from unusually high demand in the prior year
periods.
Net income for the three months ended March 31, 2023 totaled $218 or $0.18 per
diluted share, compared to net income of $1,273 or $1.23 per diluted share for
the three months ended March 31, 2022 . Net income for the six months ended March
31, 2023 totaled $578 or $0.48 per diluted share, compared to net income of
$2,961 or $2.89 per diluted share for the six months ended March 31, 2022 . The
decline in net income was largely due to lower profits in our business segments,
higher interest expense and a non-cash mark-to-market write-down of an equity
investment.
Adjusted operating income for the three months ended March 31, 2023 decreased to
$1,636 versus $3,454 in the prior year period. Adjusted operating income for the
six months ended March 31, 2023 decreased to $3,693 versus $6,816 in the prior
year period. The decrease for both the three and six months ended March 31, 2023
resulted from an overall decrease in profits at our business segments.
The following table sets forth a reconciliation of operating income to adjusted
operating income:
Three Months Ended Six Months Ended
March 31, March 31,
(in thousands) 2023 2022 2023 2022
Income from operations $ 904 $ 2,147 $ 2,284 $ 4,789
Amortization of intangible assets 543 487 1,069 996
Stock-based compensation 62 728 123 768
Cost recognized on sale of acquired inventory 127 92 217 263
Adjusted operating income $ 1,636 $ 3,454 $ 3,693 $ 6,816 Results of Operations - Logistics - Three and Six 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.
Three Months Ended Six Months Ended
March 31, March 31,
2023 2022 2023 2022
(in thousands)
Revenue $ 39,878 $ 75,073 $ 91,678 $ 152,629
Forwarding expenses 29,831 62,281 70,098 127,891
Gross profit 10,047 12,792 21,580 24,738
Gross profit margin 25.2 % 17.0 % 23.5 % 16.2 %
Selling, general & administrative 8,734 10,066 18,262 19,415
Income from operations $ 1,313 $ 2,726 $ 3,318 $ 5,323
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Table of Contents Revenue Total revenue for the three months endedMarch 31, 2023 was$39,878 as compared to$75,073 for the three months endedMarch 31, 2022 , a decrease of$35,195 , or 46.9%. Total revenue for the six months endedMarch 31, 2023 was$91,678 as compared to$152,629 for the six months endedMarch 31, 2022 , a decrease of$60,951 or 39.9%. Revenue decreased for both the three and six months endedMarch 31, 2023 primarily due to lower freight prices as a result of lower freight demand relative to improved global transportation capacity.
Gross Profit
Gross profit for the three months endedMarch 31, 2023 was$10,047 , a decrease of$2,745 , or 21.5%, as compared to$12,792 for the three months endedMarch 31, 2022 . Gross profit margin as a percentage of revenue increased to 25.2% for the three months endedMarch 31, 2023 , compared to 17.0% for the prior year period, primarily because gross profit declined at a slower rate as compared to gross revenue, which declined more significantly due to lower freight prices. Gross profit for the six months endedMarch 31, 2023 was$21,580 , a decrease of$3,158 , or 12.8%, as compared to$24,738 for the six months endedMarch 31, 2022 . Gross profit margin as a percentage of revenue increased to 23.5% compared to 16.2% for the prior year period, primarily because gross profit declined at a slower rate compared with gross revenue, which declined more significantly due to lower freight prices.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months endedMarch 31, 2023 were$8,734 , as compared to$10,066 for the three months endedMarch 31, 2022 . This decrease of$1,332 , or 13.2%, was mainly due to lower personnel expenses and bad debt expense. Selling, general and administrative expenses as a percentage of revenue were 21.9% and 13.4% for the three months endedMarch 31, 2023 and 2022, respectively. The increase in selling, general and administrative expenses as a percentage of revenue largely reflected the reduction in transportation rates. Selling, general and administrative expenses for the six months endedMarch 31, 2023 were$18,262 , as compared to$19,415 for the six months endedMarch 31, 2022 . This decrease of$1,153 , or 5.9%, was mainly due to lower personnel expenses and recovery of bad debt expense. Selling, general and administrative expenses as a percentage of revenue were 19.9% and 12.7% of revenue for the six months endedMarch 31, 2023 and 2022, respectively. The increase in selling, general and administrative expenses as a percentage of revenue largely reflected the decrease in transportation rates.
Income from Operations
Income from operations decreased to$1,313 for the three months endedMarch 31, 2023 , as compared to income from operations of$2,726 for the three months endedMarch 31, 2022 , a decrease of$1,413 , or 51.8%. Income from operations decreased as a result of lower transportation demand. Operating margin as a percentage of gross profit for the three months endedMarch 31, 2023 was 13.1% compared to 21.3% in the prior year period due to lower gross profits. Income from operations increased to$3,318 for the six months endedMarch 31, 2023 , as compared to$5,323 for the six months endedMarch 31, 2022 , a decrease of$2,005 , or 37.7%. Income from operations decreased during the six months endedMarch 31, 2023 as a result of lower transportation demand. Our operating margin as a percentage of gross profit for the six months endedMarch 31, 2023 was 15.4% compared to 21.5% in the prior year period largely due to lower gross profits.
Results of Operations - Life Sciences - Three and Six 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 Six Months Ended
March 31, March 31,
2023 2022 2023 2022
(in thousands)
Revenue $ 3,068 $ 3,275 $ 5,906 $ 6,519
Cost of sales 500 775 1,138 1,605
Cost recognized upon sales of acquired
inventory 127 92 217 263
Gross profit 2,441 2,408 4,551 4,651
Gross profit margin 79.6 % 73.5 % 77.1 % 71.3 %
Selling, general and administrative 1,570 1,283 3,080 2,533
Income from operations $ 871 $ 1,125 $ 1,471 $ 2,118
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Table of Contents Revenue Total revenue was$3,068 and$3,275 for the three months endedMarch 31, 2023 and 2022, respectively, reflecting a decrease of$207 , or 6.3%, compared to the prior year period due to lower demand for diagnostic reagents, partially offset by current year acquisitions. Organic revenue excluding acquisition revenue declined$500 , or 15.3%. Total revenue was$5,906 and$6,519 for the six months endedMarch 31, 2023 and 2022, respectively, reflecting a decrease of$613 , or 9.4%, compared to the prior year period due to lower demand for diagnostic reagents, partially offset by current year acquisitions. Organic revenue excluding acquisition revenue declined$988 , or 15.2%.
Gross Profit
Gross profit was$2,441 and$2,408 for the three months endedMarch 31, 2023 and 2022, respectively, an increase of$33 , or 1.4%. During the three months endedMarch 31, 2023 and 2022, gross profit margin was 79.6% and 73.5%, respectively, as product mix improved. Gross profit was$4,551 and$4,651 for the six months endedMarch 31, 2023 and 2022, respectively, a decrease of$100 or 2.2%. In the six months endedMarch 31, 2023 and 2022, the Life Sciences segment had a gross profit margin of 77.1% and 71.3%, respectively. Gross profit margin increased as product mix improved.
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 endedMarch 31, 2023 and 2022 was$871 and$1,125 , respectively, a decrease of$254 , or 22.6%. Income from operations for the six months endedMarch 31, 2023 and 2022 was$1,471 and$2,118 , respectively, a decrease of$647 , or 30.6%. Both the three-month and six-month periods were impacted by lower demand for diagnostic reagents and additional expenses from acquired businesses.
Results of Operations - Manufacturing - Three and Six Months Ended
The Company's Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment.
Three Months Ended Six Months Ended
March 31, March 31,
2023 2022 2023 2022
(in thousands)
Revenue $ 2,432 $ 2,503 $ 4,838 $ 5,017
Cost of sales 1,171 1,194 2,303 2,408
Gross profit 1,261 1,309 2,535 2,609
Gross profit margin 51.9 % 52.3 % 52.4 % 52.0 %
Selling, general and administrative 776 765 1,550 1,494
Income from operations $ 485 $ 544 $ 985 $ 1,115
Revenue
Total revenue was $2,432 and $2,503 for the three months ended March 31, 2023
and 2022, respectively, a decrease of $71 , or 2.8%. Total revenue was $4,838 and
$5,017 for the six months ended March 31, 2023 and 2022, respectively, a
decrease of $179 , or 3.6%. The decrease in revenue for both the three and six
months ended March 31, 2023 reflected a decrease in volume across the business
offset in part by higher product pricing.
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Table of Contents Gross Profit Gross profit was$1,261 and$1,309 for the three months endedMarch 31, 2023 and 2022, respectively, a decrease of$48 , or 3.7%. Gross profit margin for the three months endedMarch 31, 2023 and 2022 was 51.9% and 52.3%, respectively. Gross profit was$2,535 and$2,609 for the six months endedMarch 31, 2023 and 2022, respectively, a decrease of$74 , or 2.8%. Gross profit margin for the six months endedMarch 31, 2023 and 2022 was 52.4% and 52.0%, respectively. The gross profit and gross profit margin for both the three- and six-month periods remained relatively unchanged.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were$776 and$765 for the three months endedMarch 31, 2023 and 2022, respectively, an increase of$11 , or 1.4%. Selling, general and administrative expenses were$1,550 and$1,494 for the six months endedMarch 31, 2023 and 2022, respectively, an increase of$56 , or 3.7%. The increase in expenses relative to revenue for the three- and six-month periods reflected the mix of business.
Income from Operations
Income from operations was$485 for the three months endedMarch 31, 2023 compared to$544 for the three months endedMarch 31, 2022 , representing a 10.8% decrease from the prior year period due to unfavorable order timing versus the prior year period. Income from operations was$985 for the six months endedMarch 31, 2023 compared to$1,115 for the six months endedMarch 31, 2022 , representing a 11.7% decrease from the prior year period.
Results of Operations - Corporate and Other - Three and Six Months Ended
Below is a reconciliation of income from operating segments to net income available to common stockholders.
Three Months Ended Six Months Ended
March 31, March 31,
(in thousands) 2023 2022 2023 2022
Total income from operating segments $ 2,669 $ 4,395 $ 5,774 $ 8,556
Corporate expenses (1,160 ) (1,033 ) (2,298 ) (2,003 )
Amortization expense (543 ) (487 ) (1,069 ) (996 )
Stock-based compensation (62 ) (728 ) (123 ) (768 )
Total corporate expenses (1,765 ) (2,248 ) (3,490 ) (3,767 )
Interest expense (474 ) (269 ) (948 ) (548 )
Unrealized loss on marketable securities (111 ) - (510 ) -
Net income before taxes 319 1,878 826 4,241
Income tax expense (101 ) (605 ) (248 ) (1,280 )
Net income 218 1,273 578 2,961
Preferred stock dividends (70 ) (233 ) (142 ) (444 )
Non-controlling interest dividends - (61 ) - (61 )
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, decreased by$483 , or 21.5%, to$1,765 in the three months endedMarch 31, 2023 as compared to$2,248 for the three months endedMarch 31, 2022 . Total Corporate expenses decreased by$277 , or 7.4%, to$3,490 for the six months endedMarch 31, 2023 as compared to$3,767 for the six months endedMarch 31, 2022 . The decrease in both periods was due primarily to higher stock-based compensation related to restricted stock issuance with immediate vesting, higher accounting-related professional expense, and increased merger and acquisition expenses in prior year periods partially offset by current year 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$205 , or 76.2%, to$474 for the three months endedMarch 31, 2023 from$269 for the three months endedMarch 31, 2022 . Interest expense for the consolidated company increased by$400 , or 73.0%, to$948 for the six months endedMarch 31, 2023 from$548 for the six months endedMarch 31, 2022 . The increase in both periods was primarily due to higher interest rates. 24
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Table of Contents Income Tax Expense On a consolidated basis, the Company recorded an income tax expense of$101 , an effective tax rate of 31.7% for the three months endedMarch 31, 2023 , as compared to an income tax expense of$605 , an effective tax rate of 32.2% for the three months endedMarch 31, 2022 . On a consolidated basis, the Company recorded an income tax expense of$248 , an effective tax rate of 30.0% for the six months endedMarch 31, 2023 , as compared to an income tax expense of$1,280 , an effective tax rate of 30.2% for the six months endedMarch 31, 2022 . The rate was higher than the statutory rate of 21% in both periods, due to non-deductible expenses and state income taxes. The decrease in expense for both periods was primarily due to a decrease 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 endedMarch 31, 2023 and 2022, preferred stock dividends were$70 and$233 , respectively, representing a decrease of$163 , or 70.0%. For the six months endedMarch 31, 2023 and 2022, preferred stock dividends were$142 and$444 , respectively, representing a decrease of$302 , or 68.0%. The decrease in preferred stock dividends in both periods was the result of the Company retiring$6,000 of Series C Preferred Stock onMarch 31, 2022 and the change in the annual dividend rate from 9% to 5% at that time.
Net Income
Net income was
Net income was$578 , or$0.48 per diluted share, for the six months endedMarch 31, 2023 compared to net income of$2,961 , or$2.89 per diluted share, for the six months endedMarch 31, 2022 . The decline in net income in both periods was largely due to lower profits in our business segments, higher interest expenses and a non-cash mark-to-market write-down of an equity investment.
Income Available to Common Stockholders
Income available to holders of Common Stock was$148 , or$0.12 per diluted share, for the three months endedMarch 31, 2023 compared to income available to holders of Common Stock of$979 , or$0.95 per diluted share, for the three months endedMarch 31, 2022 . Income available to holders of Common Stock was$436 , or$0.36 per diluted share, for the six months endedMarch 31, 2023 compared to income available to holders of Common Stock of$2,456 , or$2.40 per diluted share, for the six months endedMarch 31, 2022 . The decrease in net income available to common stockholders for both periods reflected lower net income and a decrease in the dividend rate with respect to the Series C Preferred Stock as ofMarch 31, 2022 from 9% to 5%.
LIQUIDITY AND CAPITAL RESOURCES
General
Our ability to satisfy liquidity requirements-including 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 inthe 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 2023 fiscal year may not necessarily be indicative of future cash flow performance.
Cash flows from operating activities
Net cash provided by operating activities was$10,100 for the six months endedMarch 31, 2023 , versus$5,991 provided by operating activities for the six months endedMarch 31, 2022 . The increase in cash provided by operations for the six months endedMarch 31, 2023 compared to the prior year period was driven principally by lower net working capital at our Logistics segment, offset by a decline in net income. 25
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Cash flows from investing activities
Net cash used in investing activities totaled$5,782 for the six months endedMarch 31, 2023 , versus$382 for the six months endedMarch 31, 2022 . We used$178 for the acquisition of property and equipment,$1,693 in earnout payment to the former owners of ELFS and$3,911 for the acquisition of two business for the six months endedMarch 31, 2023 , compared to$270 for the acquisition of property and equipment for the six months endedMarch 31, 2022 .
Cash flows from financing activities
Net cash used in financing activities was$8,596 for the six months endedMarch 31, 2023 , versus net cash used in financing activities of$8,409 for the six months endedMarch 31, 2022 . Net cash used in financing activities for the six months endedMarch 31, 2023 primarily included repayment of funds from our line of credit, and repayment of funds from our term loan. Net cash provided financing activities for the six months endedMarch 31, 2022 primarily included funds from our line of credit partially offset by repayments of term loans.
Off-Balance Sheet Arrangements
As of
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