JANEL CORPORATION Our discussions below in this Item 7 should be read along with Janel's audited
financial statements and related notes thereto as of
INTRODUCTION
Janel is a holding company with subsidiaries in three business segments: Logistics (previously known as Global Logistics Services), Manufacturing and Life Sciences. 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 higher risk-adjusted rates of return? and attracting and retaining exceptional talent. Management at the holding company level focuses on significant capital allocation decisions and corporate governance. 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.
COVID-19
We continue to navigate operating the Company in light of the COVID-19 pandemic, which continues to have widespread implications. On the one hand, we have seen improvements in the broader economy, and our results for fiscal 2021 improved significantly compared to the prior fiscal year. That said, there remains uncertainty regarding how the ongoing nature of the COVID-19 pandemic will impact the overall economy and the Company's results in particular. While many countries have begun the process of vaccinating their residents against COVID-19, the large scale and challenging logistics of distributing the vaccines, as well as uncertainty over the efficacy of the vaccines against new variants of the virus, may hinder any economic recovery as well as our operations in the future.
Even after the COVID-19 pandemic subsides, the effects of the COVID-19 pandemic may last for a significant period of time thereafter and may continue to adversely affect our business, results of operations and financial condition. The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that we are not able to predict, including the duration and scope of the pandemic; governmental, business, and individuals' actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability. These factors may adversely impact consumer, business, and government spending as well as customers' ability to pay for our services on an ongoing basis. This uncertainty also affects management's accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions, including receivables and forward-looking guidance.
Year Ended
On
On
On
Year Ended
On
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Table of Contents Results of Operations -Janel Corporation
Our results of operations and period-over-period change are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Consolidated Financial Statements and the notes thereto appearing in Item 8.
Refer to Item 7. "Management Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended
Our condensed consolidated results of operations are as follows:
Financial Summary
Fiscal years ended September 30,
(in thousands)
2021 2020
Revenues $ 146,419 $ 82,429
Forwarding expenses and cost of revenues 113,986 58,908
Gross profit 32,433 23,521
Operating expenses 28,482 25,245
Operating income (loss) $ 3,951 $ (1,724 )
Net income (loss) $ 5,203 $ (1,725 )
Adjusted operating income $ 5,894 $ 376 Consolidated revenues for the year ended
The Company's net income for the year ended
The following table sets forth a reconciliation of operating income to adjusted
operating income:
Adjusted Operating Income
Fiscal years ended September 30,
(in thousands)
2021 2020
Income (loss) from operations $ 3,951 $ (1,724 )
Amortization of intangible assets 1,120 955
Stock-based compensation 115 269
Cost recognized on sale of acquired inventory 708 876
Adjusted operating income $ 5,894 $ 376
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Table of Contents BUSINESS PERFORMANCE
Results of Operations - Logistics
Financial Summary
Fiscal Years Ended
September 30,
(in thousands)
2021 2020
Revenue $ 125,863 $ 68,492
Forwarding expense 106,139 53,397
Gross profit $ 19,724 $ 15,095
Gross profit margin 16.0 % 22.0 %
Selling, general and administrative expenses
$ 3,068 $ 103
Fiscal 2021 compared with fiscal 2020
Revenue
Total revenue in fiscal 2021 was
Gross Profit
Gross profit in fiscal 2021 was
Selling, General and Administrative Expenses
Selling, general and administrative expenses from continuing operations in
fiscal 2021 were
Income from Operations
Operating income increased to
Results of Operations - Manufacturing
Financial Summary
Fiscal years ended September 30,
(in thousands)
2021 2020
Revenue $ 8,564 $ 7,319
Cost of revenues $ 3,983 $ 3,329
Gross profit $ 4,581 $ 3,990
Gross profit margin 53.5 % 54.5 %
Selling, general and administrative expenses $ 2,696 $ 2,505
Income from operations $ 1,885 $ 1,485
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Table of Contents Fiscal 2021 compared with fiscal 2020
Revenue
Total revenue was
Gross Profit
Gross profit was
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Manufacturing segment were
Income from Operations
Operating income for fiscal 2021 was
Results of Operations - Life Sciences
Financial Summary
in thousands
(Fiscal years ended September 30,)
2021 2020
Revenue $ 11,992 $ 6,618
Cost of revenues 3,156 1,306Cost recognized upon sale of acquired inventory 708 876 Gross profit
$ 8,128 $ 4,436 Gross profit margin 67.0 % 67.0 %
Selling, general and administrative expenses
$ 3,659 $ 566
Fiscal 2021 compared with fiscal 2020
Revenue
Total revenue was
Gross Profit
Gross profit was
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Life Sciences segment were
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Table of Contents The year-over-year increase was largely due to acquired businesses. As a percentage of gross revenue, selling, general and administrative expenses were 37.3% and 58.5% for fiscal 2021 and fiscal 2020, respectively.
Income from Operations
The Life Sciences business earned
Results of Operations - Corporate and Other
Below is a reconciliation of income from operations segments to net (loss) available to common stockholders:
Years Ended September 30,
2021 2020
(In thousands)
Total income from operating segments $ 8,612 $ 2,154
Administrative expenses (3,493 ) (2,724 )
Amortization expense (1,120 ) (955 )
Stock-based compensation (48 ) (199 )
Total Corporate expenses (4,661 ) (3,878 )
Interest expense (589 ) (521 )
Change in fair value of mandatorily redeemable
non-controlling interest (93 ) 15
Gain on Paycheck Protection Program (PPP) loan forgiveness 2,895 -
Net income (loss) before taxes 6,164 (2,230 )
Income tax (expense) benefit (961 ) 505
Net income (loss) 5,203 (1,725 )
Preferred stock dividends (766 ) (675 )
Net income (loss) Available to Common Stockholders $ 4,437 $ (2,400 ) Total Corporate Expenses
Corporate 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 the Company's Series C Stock and dividends
accrued but not paid. For the year ended
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Table of Contents
The increase of
Dividends accrued but not paid on the Company's Series C Stock were
Net income (loss) Available to Common Shareholders
Net income (loss) available to common shareholders was
LIQUIDITY AND CAPITAL RESOURCES
General
Our ability to satisfy liquidity requirements, including satisfying debt obligations and fund working capital, day-to-day operating expenses and capital expenditures, depends upon future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond Janel's control. 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 COVID-19 pandemic has negatively impacted our liquidity and cash flows. As
discussed in greater detail in note 9 to the consolidated financial statements,
on
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.
Janel's cash flow performance for the 2021 fiscal year may not necessarily be indicative of future cash flow performance.
As of
Cash flows from continuing operating activities
Net cash used in continuing operating activities for fiscal years 2021 and 2020
was
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Table of Contents Cash flows from investing activities
Net cash used in investing activities, mainly for the acquisition of
subsidiaries, was
Cash flows from financing activities
Net cash provided by financing activities was
Credit Facilities Logistics Santander Bank Facility
On
On
The Loan Agreement provides for, among other things, the following modifications
to the Santander Loan Agreement: (1)
At
At
The Company was in compliance with the covenants defined in the Santander Loan
Agreement at both
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Table of Contents Working Capital Requirements
Through
The Company believes that its current financial resources will be sufficient to finance the operations and obligations (current and long-term liabilities) of the Logistics segment for the short- and long-term. However, the actual working capital needs of the Logistics segment will depend upon numerous factors, including operating results, the costs associated with growing the Logistics segment, either organically or through acquisitions, competition and availability under the Loan Agreement, none of which can be predicted with certainty. If cash flow and available credit are not sufficient to fund working capital, the operations of the Logistics segment will be materially negatively impacted.
Manufacturing
First Merchants Bank Credit Facility
On
Interest accrues on the revolving loan at an annual rate equal to the one-month
LIBOR plus 2.75%. Interest accrues on the mortgage loan at an annual rate of
4.19%. Indco's obligations under the First Merchants Bank Facility are secured
by all of Indco's real property and other assets and are guaranteed by Janel.
Additionally, Janel's guarantee of Indco's obligations is secured by a pledge of
Janel's Indco shares. The term loan and revolving loan portions of the First
Merchants Facility will expire on
As of
As of
Indco was in compliance with the covenants defined in the First Merchants Credit
Agreement at both
Working Capital Requirements
Manufacturing's cash needs are currently met by the term loan and revolving
credit facility under the First Merchants Credit Agreement and cash on hand. As
of
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Table of Contents Life Sciences First Northern Bank of Dixon
On
As of
As of
As of
As of
The Company was in compliance with the covenants defined in the First Northern
Loan Agreement at
Working Capital Requirements
Life Sciences cash needs are currently met by the First Northern Loan Agreement
and cash on hand of
CURRENT OUTLOOK
The results of operations in the Logistics, Manufacturing and Life Sciences segments are affected by the general economic cycle, particularly as it influences global trade levels and specifically the import and export activities of our Logistics segment's various current and prospective customers. The effects of the COVID-19 pandemic may remain prevalent for a significant period of time and may continue to adversely affect our business, results of operations and financial condition even after the COVID-19 pandemic has subsided. Historically, the Company's annual results of operations have been subject to seasonal trends which have been the result of, or influenced by, numerous factors including climate, national holidays, consumer demand, economic conditions, the growth and diversification of the segment's international network and service offerings, and other similar and subtle forces.
The Company cannot accurately forecast many of these factors, nor can it estimate accurately the relative influence of any particular factor and, as a result, there can be no assurance that historical patterns, if any, will continue in future periods.
The Company's subsidiaries are implementing business strategies to grow revenue and profitability for fiscal 2022 and beyond. Our Logistics strategy calls for additional branch offices, introduction of new revenue streams for existing locations, sales force expansion, additional acquisitions, and a continued focus on implementing lean methodologies to contain operating expenses.
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Table of Contents Our Manufacturing and Life Sciences segments expect to introduce new product lines and wider distribution and promotion of their products with internet sales efforts. In addition to supporting its subsidiaries' growth plans, the Company may seek to grow Janel by entering new business segments through acquisition.
Certain elements of the Company's profitability and growth strategy, including proposals for acquisition and accelerating revenue growth, are contingent upon the availability of adequate financing on terms acceptable to the Company.
Without adequate equity and/or debt financing, the implementation of significant aspects of the Company's strategic growth plan may be deferred beyond the originally anticipated timing, and the Company's operations may be materially negatively impacted.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are described in Note 1 - Summary of Significant
Accounting Policies, included herein includes a summary of the significant
accounting policies and methods used in the preparation of our consolidated
financial statements. Our financial statements are prepared in conformity with
accounting principles generally accepted in
Business Combinations and Related Acquired Intangible Assets and
As part of acquisitions of businesses, we acquired certain identifiable intangible assets, which are valued as of the acquisition date using a discounted cash flow ("DCF") model. Key assumptions in the DCF model include (i) future revenues, (ii) earnings before interest, taxes depreciation and amortization ("EBITDA") and (iii) the weighted average cost of capital discount rate. Estimated future revenues include assumptions about our ability to renew contracts in a competitive bidding process. A decrease in revenues or gross and EBITDA margins may adversely affect the value of identifiable intangible assets. The discount rate focuses on rates of return for equity and debt and is calculated using public information from selected guideline companies. The magnitude of the discount rate reflects the perceived risk of an investment. A change in the estimated risk of the acquired company cash flows would change the discount rate, which in turn could significantly affect the valuation of acquired identifiable intangible assets.
The excess amount of the aggregated purchase consideration paid over the fair
value of the net of assets acquired and liabilities assumed is recorded as
goodwill.
No indicators of impairment were identified from the date of our annual
impairment test through
A qualitative assessment is performed for intangibles and long-lived assets to determine if there are any indicators that the carrying amount might not be recovered. A quantitative analysis may be performed in order to test the intangibles and long-lived assets for impairment. If a quantitative analysis is necessary, an income approach, specifically a relief from royalty method, is used to estimate the fair value of the intangibles and long-lived assets. Principal factors used in the relief from royalty method that require judgment are projected net sales, discount rates, royalty rates and terminal growth assumptions.
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Table of Contents
The estimated fair value of each intangible and long-lived assets is compared to
its carrying amount to determine if impairment exists. If the carrying amount of
a intangibles and long-lived assets exceeds the estimated fair value, an
impairment charge would be recorded to reduce the carrying amount of the
intangibles and long-lived assets. No indicators of impairment of our
intangibles and long-lived assets were identified from the date of our annual
impairment test through
RECENT ACCOUNTING STANDARDS
The recent accounting standards is discussed in Note 1 to the consolidated financial statements contained in this report.
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 in our industry 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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