| 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 ended December 31, 2023, 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. 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 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; 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; changes or developments in U.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 evolving corporate governance and public disclosure regulation; 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 impact of catastrophic events, such as health crises, natural
disasters and armed conflict; 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 that
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; the impact of higher carrier prices; risks related to the classification of owner-operators in the transportation industry; recessions, economic developments and 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; environmental laws governing our contracted transportation providers; 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 a small number 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 our filings with the Securities and Exchange Commission
(“SEC”). 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, 2023.
OVERVIEW
Janel 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 revenues in connection with its core services. Accessorial revenues include, but are 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 May 22, 2023, the Company acquired all the rights, title and interests to a royalty agreement for certain antibody products, which we include in our Life Sciences segment.
On March 2, 2023, the Company completed a business combination whereby it acquired all of the outstanding stock of Stephen Hall, PhD Ltd., which we include in our Life Sciences segment.
On November 1, 2022, the Company completed a business combination whereby it acquired all of the outstanding stock of ImmunoBioScience Corporation, 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.
Investment in Marketable Securities - Rubicon
On August 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, dated July 1, 2022, between the Company and Rubicon (the “Rubicon Purchase Agreement”). Pursuant to the terms of the Rubicon Purchase Agreement, the acquired shares represented 45.0% of
Rubicon’s issued and outstanding shares of common stock as of August 3, 2022, as reported in Rubicon’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the SEC on August 12, 2022. On October 4, 2023, Rubicon
announced that it had authorized a cash dividend of $1.10 per share of common stock of Rubicon and set October 16, 2023 as the record date for the distribution. On October 23, 2023, the Company received $1,219 in dividends. The Company owned
approximately 46.6% of Rubicon’s issued and outstanding shares of common stock as of each of December 31, 2023 and September 30, 2023.
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.
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 8, 2023. 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 three months ended December 31, 2023.
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 revenues from acquisitions within the preceding 12 months. The organic growth presentation provides useful
period-to-period comparison of revenue results as it excludes revenues 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 revenues, 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 revenues, operating income and our other financial results presented in accordance with U.S. GAAP.
Results of Operations – Janel Corporation – Three Months Ended December 31, 2023 and 2022
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)
|
|
2023
|
|
|
2022
|
|
|
Revenues
|
|
$
|
41,035
|
|
|
$
|
57,044
|
|
|
Forwarding expenses and cost of revenues
|
|
|
26,890
|
|
|
|
42,127
|
|
|
Gross profit
|
|
|
14,145
|
|
|
|
14,917
|
|
|
Operating expenses
|
|
|
13,143
|
|
|
|
13,537
|
|
|
Income from operations
|
|
|
1,002
|
|
|
|
1,380
|
|
|
Net income
|
|
|
276
|
|
|
|
360
|
|
|
Adjusted operating income
|
|
$
|
1,694
|
|
|
$
|
2,057
|
|
Consolidated revenues for the three months ended December 31, 2023 were $41,035, which was $16,009 or 28% lower than the prior year period. Revenues over this period decreased primarily due to lower
freight prices in our Logistics segment as lower freight demand aligned more closely with global transportation capacity.
Income from operations for the three months ended December 31, 2023 was $1,002 compared with $1,380 in the prior year period. The decrease for the three months ended December 31, 2023 resulted from
lower profits primarily in our Logistics segment.
Net income for the three months ended December 31, 2023 totaled $276 or $0.23 per diluted share, compared to net income of $360 or $0.30 per diluted share for the three months ended December 31, 2022.
The decline in net income was largely due to lower profits primarily in our Logistics segment, higher interest expense and a non-cash mark-to-market write-down of our equity investment.
Adjusted operating income for the three months ended December 31, 2023 was $1,694, a decrease of $363 versus $2,057 in the prior year period. The decrease for the three months ended December 31, 2023
resulted primarily from a decline in profits in our Logistics segment partially offset by an increase in profits at our Life Sciences business.
The following table sets forth a reconciliation of operating income to adjusted operating income:
|
|
|
Three Months Ended
December 31,
|
|
|
(in thousands)
|
|
2023
|
|
|
2022
|
|
|
Income from operations
|
|
$
|
1,002
|
|
|
$
|
1,380
|
|
|
Amortization of intangible assets
|
|
|
538
|
|
|
|
526
|
|
|
Stock-based compensation
|
|
|
71
|
|
|
|
61
|
|
|
Cost recognized on sale of acquired inventory
|
|
|
83
|
|
|
|
90
|
|
|
Adjusted operating income
|
|
$
|
1,694
|
|
|
$
|
2,057
|
|
Results of Operations – Logistics – Three Months Ended December 31, 2023 and 2022
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
December 31,
|
|
| |
|
2023
|
|
|
2022
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
35,215
|
|
|
$
|
51,800
|
|
|
Forwarding expenses
|
|
|
25,214
|
|
|
|
40,267
|
|
|
Gross profit
|
|
|
10,001
|
|
|
|
11,533
|
|
|
Gross profit margin
|
|
|
28.4
|
%
|
|
|
22.3
|
%
|
|
Selling, general and administrative expenses
|
|
|
8,865
|
|
|
|
9,528
|
|
|
Income from operations
|
|
$
|
1,136
|
|
|
$
|
2,005
|
|
Revenues
Total revenues for the three months ended December 31, 2023 were $35,215 as compared to $51,800 for the three months ended December 31, 2022, a decrease of $16,585 or 32%. Revenues decreased primarily
due to a reduction in transportation rates as lower freight demand aligned more closely with global transportation capacity.
Gross Profit
Gross profit for the three months ended December 31, 2023 was $10,001, a decrease of $1,532, or 13%, as compared to $11,533 for the three months ended December 31, 2022. Gross margin as a percentage
of revenues increased to 28.4% for the three months ended December 31, 2023, compared to 22.3% for the prior year period, as forwarding expenses declined in line with transportation freight rates.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended December 31, 2023 were $8,865, as compared to $9,528 for the three months ended December 31, 2022. This decrease of $633, or 7%,
was mainly due to lower personnel expenses and a recovery of previously expensed bad debt. As a percentage of revenues, selling, general and administrative expenses were 25.2% and 18.4% of revenues for the three months ended December 31, 2023 and
2022, respectively. The increase in selling, general and administrative expenses as a percentage of revenues largely reflected the decrease in transportation rates and its impact on revenues.
Income from Operations
Income from operations decreased to $1,136 for the three months ended December 31, 2023, as compared to income from operations of $2,005 for the three months ended December 31, 2022, a decrease of
$869. Income from operations decreased as a result of lower transportation volume and prices partially offset by lower personnel expense. Operating margin as a percentage of gross profit for the three months ended December 31, 2023 was 11.4%
compared to 17.4% in the prior year period, largely due to lower gross profits.
Results of Operations – Life Sciences – Three Months Ended December 31, 2023 and 2022
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
December 31,
|
|
| |
|
2023
|
|
|
2022
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
3,481
|
|
|
$
|
2,838
|
|
|
Cost of sales
|
|
|
523
|
|
|
|
638
|
|
|
Cost recognized upon sale of acquired inventory
|
|
|
83
|
|
|
|
90
|
|
|
Gross profit
|
|
|
2,875
|
|
|
|
2,110
|
|
|
Gross profit margin
|
|
|
82.6
|
%
|
|
|
74.3
|
%
|
|
Selling, general and administrative expenses
|
|
|
1,750
|
|
|
|
1,510
|
|
|
Income from operations
|
|
$
|
1,125
|
|
|
$
|
600
|
|
Revenues
Total revenues were $3,481 and $2,838 for the three months ended December 31, 2023 and 2022, respectively, reflecting an increase of $643 or 23% compared to the prior year period, primarily due to the
timing of orders, in particular for diagnostic reagents. Organic growth for the three months ended December 31, 2023 increased $558 or 20% from the prior year period excluding acquired revenues of $85, as diagnostic reagent orders recovered from
prior-year inventory adjustments.
Gross Profit
Gross profit was $2,875 and $2,110 for the three months ended December 31, 2023 and 2022, respectively, an increase of $765 or 36.3%. During the three months ended December 31, 2023 and 2022, gross
profit margin was 82.6% and 74.3%, respectively, as cost recognized upon sale of acquired inventory declined slightly and product mix improved due to contributions from past acquisitions.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the Life Sciences segment were $1,750 and $1,510 for the three months ended December 31, 2023 and 2022, respectively. The year-over-year increase was
largely due to personnel expenses and investments to support growth.
Income from Operations
Income from operations for the three months ended December 31, 2023 and 2022 was $1,125 and $600, respectively, an increase of $525 or 87.5%, due to the timing of orders, in particular for diagnostic
reagents.
Results of Operations - Manufacturing – Three Months Ended December 31, 2023 and 2022
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
December 31,
|
|
| |
|
2023
|
|
|
2022
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
2,339
|
|
|
$
|
2,406
|
|
|
Cost of sales
|
|
|
1,070
|
|
|
|
1,132
|
|
|
Gross profit
|
|
|
1,269
|
|
|
|
1,274
|
|
|
Gross profit margin
|
|
|
54.3
|
%
|
|
|
53.0
|
%
|
|
Selling, general and administrative expenses
|
|
|
784
|
|
|
|
774
|
|
|
Income from operations
|
|
$
|
485
|
|
|
$
|
500
|
|
Revenues
Total revenues were $2,339 and $2,406 for the three months ended December 31, 2023 and 2022, respectively, a decrease of $67 or 3%. The decrease in revenues for the three months ended December 31,
2023 primarily reflected a slight decrease in volume across the business offset in part by higher product pricing.
Gross Profit
Gross profit was $1,269 and $1,274 for the three months ended December 31, 2023 and 2022, respectively, a decrease of $5. Gross profit margin for the three months ended December 31, 2023 and 2022 was
54.3% and 53.0%, respectively. The modest year-over-year increase in gross profit margin was generally due to the mix of business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $784 and $774 for the three months ended December 31, 2023 and 2022, respectively, an increase of $10 or 1%. The modest increase in expenses relative
to revenues for the three-month periods reflected the mix of business.
Income from Operations
Income from operations was $485 for the three months ended December 31, 2023 compared to $500 for the three months ended December 31, 2022, representing a 3% decrease from the prior year period as a
result of the factors set forth above.
Results of Operations – Corporate and Other – Three Months Ended December 31, 2023 and 2022
Below is a reconciliation of income from operating segments to net income available to common stockholders.
| |
|
Three Months Ended
December 31,
|
|
|
(in thousands)
|
|
2023
|
|
|
2022
|
|
|
Total income from operations by segment
|
|
$
|
2,746
|
|
|
$
|
3,105
|
|
|
Corporate expenses
|
|
|
(1,135
|
)
|
|
|
(1,138
|
)
|
|
Amortization of intangible assets
|
|
|
(538
|
)
|
|
|
(526
|
)
|
|
Stock-based compensation
|
|
|
(71
|
)
|
|
|
(61
|
)
|
|
Total corporate expenses
|
|
|
(1,744
|
)
|
|
|
(1,725
|
)
|
|
Interest expense
|
|
|
(524
|
)
|
|
|
(474
|
)
|
|
Fair value adjustments to Rubicon investment (net of dividends)
|
|
|
510
|
|
|
|
(399
|
)
|
|
Fair value adjustment of contingent earnout liabilities
|
|
|
(395
|
)
|
|
|
—
|
|
|
Gain on extinguishment
|
|
|
21
|
|
|
|
—
|
|
|
Change in fair value of mandatorily redeemable non-controlling interest
|
|
|
(146
|
)
|
|
|
—
|
|
|
Net income before taxes
|
|
|
468
|
|
|
|
507
|
|
|
Income tax expense
|
|
|
(192
|
)
|
|
|
(147
|
)
|
|
Net Income
|
|
|
276
|
|
|
|
360
|
|
|
Preferred stock dividends
|
|
|
(72
|
)
|
|
|
(72
|
)
|
|
Net Income Available to Common Stockholders
|
|
$
|
204
|
|
|
$
|
288
|
|
Total Corporate Expenses
Total Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increased by $19, or 1%, to $1,744 in the three months ended
December 31, 2023 as compared to $1,725 for the three months ended December 31, 2022. 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 $50 or 11%, to $524 for the three months ended December 31, 2023 from $474 for the three months ended December 31, 2022. The increase was
primarily due to higher interest rates partially offset by lower average debt balances.
Income Tax Expense
On a consolidated basis, the Company recorded an income tax expense of $192 for the three months ended December
31, 2023, as compared to an income tax expense of $147 for the three months ended December 31, 2022. The increase in income tax expense was primarily due to higher taxable 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 each of the three months ended December
31, 2023 and 2022, preferred stock dividends were $72.
Net Income
Net income was $276, or $0.23 per diluted share, for the three months ended December 31, 2023 compared to net income of $360, or $0.30 per diluted share, for the three months ended December 31, 2022.
The decline in net income was largely due to lower profits in our business segments, higher interest expenses, a non-cash charge resulting from a change to the ELFS earnout liability and fair value adjustment to the mandatorily redeemable
non-controlling interest, offset by 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 $204, or $0.17 per diluted share, for the three months ended December 31, 2023 compared to income available to holders of common stock of $288, or $0.24
per diluted share, for the three months ended December 31, 2022. The decrease in net income available to common stockholders reflected lower net income.
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 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 revenues and expenses. 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 $3,006 for the three months ended December 31, 2023, versus $5,780 for the three months ended December 31, 2022. The decrease in cash provided by
operations for the three months ended December 31, 2023 compared to the prior year period was driven principally by a lower net working capital benefit at our Logistics segment.
Cash flows from investing activities
Net cash used in investing activities totaled $53 for the three months ended December 31, 2023, versus $2,927 for the three months ended December 31, 2022. We used $53 for the acquisition of property and equipment for the three months ended December 31, 2023, compared to $80 for the acquisition of property and equipment and
$2,847 for the acquisition of one business for the three months ended December 31, 2022.
Cash flows from financing activities
Net cash used in financing activities was $3,835 for the three months ended December 31, 2023, versus net cash
used in financing activities of $5,289 for the three months ended December 31, 2022. Net cash used in financing activities for the three months ended December 31, 2023 included repayment of funds from our lines of credit, repayment of funds from
our term loan and repayment of subordinated promissory notes. Net cash used in financing activities for the three months ended December 31, 2022 primarily included repayment of funds from our lines of credit and repayment of term loans.
Off-Balance Sheet Arrangements
As of December 31, 2023, we had no off-balance sheet arrangements or obligations.
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CONTROLS AND PROCEDURES
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The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Principal Financial Officer, as
appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of our Chief Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2023, the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and our Principal Financial Officer have concluded that
as of December 31, 2023, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer
and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in the Company’s overall internal control over financial reporting (as such is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the
quarter ended December 31, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
| ITEM 1. |
LEGAL PROCEEDINGS
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Janel is occasionally subject to claims and lawsuits which typically arise in the normal course of business. While the outcome of these claims cannot be predicted with certainty, management does not
believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s business, results of operations, financial condition or cash flows.
For a discussion of the Company’s potential risks or uncertainties, please see “Part I—Item 1A—Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. There have
been no material changes to the risk factors disclosed in Part I—Item 1A of the Company’s 2023 Annual Report.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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There were no unregistered sales of equity securities during the three months ended December 31, 2023. In addition, there were no shares of Common Stock purchased by us during the three months ended
December 31, 2023.
