Q3 2020 ALJ Regional Holdings Inc Earnings Call

After today's presentation, there will be an opportunity to ask questions to ask the question you might press Star then one on your Touchtone phone to withdraw your question. Please.

Hi, Dan to please note. This event is being recorded I would now like turn the conference over to Brian Hartman, Chief Financial Officer. Please go ahead welcome and thank you for participating in today's teleconference for being investors Hail Jay Regional Holdings. My name is Brian Hoffman and I'm, the CFO avail, Jay with me.

Yes, yes, rabbit, our CEO and chairman.

Well, we began I would like to ask everyone listening to this investor Conference call to review the risk factors presented in our latest form 10, Qs that was filed with Securities Exchange Commission or actually see on August 12 2020.

And our form 10-K that was filed with the FCC on December 20, Threerd 2019.

With respect to forward looking statements. It's important to note today's Investor conference call as well as our earnings release are leading communications contain forward looking statements within the meaning of federal security laws.

Such statements include information regarding our expectations goals intentions regarding the future.

But not limited to statements about our financial projections business growth the impact of acquisition cost cutting measures integration measures and other statements, including the words will unexpected similar expressions.

You should not place undue reliance on these statements as they involve certain risks and uncertainties actual results or performance may differ materially from those discussed any such statements.

Factors that could cause actual results to differ materially are discussed in our forms 10-Q, and 10-K filed with the Securities and Exchange Commission.

We assume no obligation to update any forward looking statements made during this investor conference call.

We will provide a financial update for the fiscal quarter and year to date ended June Thirtyth 2020, and will provide high level guidance for the fiscal full year 2020.

Jay recognize consolidated revenue of 95.4 million for the three months ended June Thirtyth 2020.

Increase of 11.1 billion with 13.2% compared to 84.2 filling in for the three months ended June Thirtyth 2019, the increase was driven by implementation activities and the started a new contracts. It fanueil offset by lower component sales, primarily related to education, Phoenix and low.

Our volumes a carpets.

Hi, O.J. recognize a net loss of 2.7 million loss per share six cents.

Three months ended June Thirtyth 2020 <unk>.

Compared to a net loss of 7.2 million and loss per share up 19 cents, but the three months ended June Thirtyth 2019.

3.4 million of the improvement in net loss was due a decrease in the provision for taxes as well as an increase in margins for implementation activities Kinda started a new contracts its Daniel.

Oh Gee recognized adjusted EBITDA of 7.2 million for the three months ended June Thirtyth 2020, an increase of $2 million worth 38.5 per cent compared to 5.2 million for the three months ended June Thirtyth 2019.

The increase was the result of implementation activities and the start of new contracts. It faneuil offset by lower component sales primarily related to education at Phoenix and lower volumes at carpets.

For the fiscal year to date ended June Thirtyth 2020, LG recognize consolidated revenue of 281.8 million, an increase of 15.8 million or 6% compared to 266 million for the comparable prior year period.

The increase was driven by implementation activities and the started a new contracts it fanueil offset by lower component sales related to education at Phoenix and lower volumes a carpets.

Oh, Gee, recognizing that lost 68.7 million and loss per share of a dollarssixty three for the fiscal year to date ended June Thirtyth 2020 <unk>.

Compared to a net loss was 6.1 million and loss per share of 16 cents for the comparable prior to year period.

Net loss for the fiscal year to date ended June Thirtyth 2020 reflected a 59 million noncash nonrecurring impairment of goodwill.

Excluding such impairment of goodwill able Jay recognize a net loss of 9.7 million and loss per share of 23 cents for the fiscal year to date ended June Thirtyth 2020.

Most of the decrease was due to inefficiencies related to the started a new contracts and operational challenges related to the expansion of certain ongoing contracts. It fanueil.

And lower volumes, both Phoenix, and carpets offset somewhat by 5.2 million change and the income taxes, primarily related to deferred taxes.

In the current year A.O.J. had a 1 million benefit from income taxes versus a 4.2 million provision for income taxes.

Priory comparable period.

Oh Gee recognized adjusted EBITDA of 15.2 million for the fiscal year to date ended June Thirtyth 2020, a decrease of 7.3 million or 32.4% compared to 22.5 million for the comparable prior year period.

The decrease was the result of operational inefficiencies from the start up of new contracts increased medical and workers compensation claims and higher rent expense for new call centers. It fanueil lower component sales primarily related to education at Phoenix and lower volumes a carpets.

With regard to debt covenants at June Thirtyth 2020, <unk> total debt was 106.2 million and consisted of 80.2 million of term loans 15.8 million outstanding on our line of credit 6.1 million of capital leases.

4.1 million related to equipment financing arrangements all amounts are exclusive of any deferred financing costs cash on hand at June Thirtyth 2000 27.4 million.

At June Thirtyth 2020, we at 14.8 million a borrowing capacity in our line of credit and weren't compliance of all debt covenants.

Cash capital expenditures totaled 5.2 million for the fiscal year to date ended June Thirtyth 2020.

Cash interest paid totaled 7 million for the fiscal year to date ended June Thirtyth 2020 for 7.4 million for the comparable prior year period. The decrease in cash paid for interests me lead due to lower average interest rates on our term loan debt.

Cash taxes paid totaled 800000 for the fiscal year to date ended June Thirtyth, 2020, which is consistent with prior year.

We continue to use existing net operating losses to offset the federal taxable income.

But the full fiscal year 2020, we are forecasting a range of 20.5 million to 22 million of adjusted EBITDA compared to 27.7 million for fiscal 2019.

But the full fiscal year 2020, we are forecasting cash capital expenditures to be in the range of seven to 8 million cash interest to be in the range of nine to 10 million cash taxes to me in the range of one to one and a half million and cash restructuring costs related to efficiency initiatives in the range of 2 million.

Currently working on our fiscal 2021 budget and are not at a point to provide specific details, but we believe that our fiscal 2021, EBITDA will be higher than fiscal 2020.

We'll now open the call for questions.

[laughter].

Well now begin the question answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using speakerphone. Please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then Q.

Our first question today will come from Jay Leonard with Oppenheimer.

Hi, guys I'm just wanted to be the first didn't really have that many questions, but it's always good to be the first.

Let's say.

The new Mexico, the J TEP.

Arrangement how's that working out.

Hey, Jay its just.

Hey, joining me on the call it Brian Yeah. The call today are also Ana and Mark from Daniel in Phoenix.

Yeah, Hey, I'm sort of act as a quarterback in direct the calls unless you want to do you have for me, but and if you're around if you're able to discuss the data program and how it's going.

Yes, so hard day, they Ajay kept program.

Great. So there's lots of new Mexico.

On a we had a bit of Oh about and the starting in mid March because of co. Good on that incentive as you probably know we moved everybody home in new Mexico. So.

Or just.

Yep Yep.

I you faded out there.

I'm sorry.

Yeah.

At home and then it went dead [laughter].

[laughter] Oh, sorry, yes, so we moved people home and so we didn't add a lot of.

New employees to a new Mexico during the but you know the heart of the the Pandemics you know April and May.

HM we certainly intends to continue to.

Add more staff and new Mexico and continue to benefit from that so.

So that's a ramp it so that in other words, that's ramping up now.

Yeah.

Okay that was that mostly people working from home or you know at a location.

It's a mix.

Okay.

Well that's good I mean, it's we're in the growth market I guess with the.

Unemployment.

Tracks that we have.

But a lot already on that one contract Jay or either explicitly I'm personally want the workers to be in their state to help with the unemployment in their state is logical that is so you know well. We you know for a lot of reasons, New Mexico is a good market for us to fill up we don't always.

The flexibility to yeah, as we grow to put to put a representatives in new Mexico.

So with the existing God do we do we still have any problem contracts that we still have to address or that we finally get rid of those and for the second part of the question are we expecting anything better out of some of the contracts, we already had signed or they becoming more profitable with what's going on it.

In the marketplace.

Two part, yes, yes, yes, so we're always going to have contracts that you'll go in and out of hitting our projected margins to being above it or below it depending upon how they're they're being operated at the time and other events outside our control the biggest contract.

That we had one.

Finalized in March.

And so that's over the other ones we are both working operationally as well as with the the client to make changes to how either the requirements of the contract car or in pricing and you'll feel comfortable that there are either all profitable we're moving to profitability.

As we head into physical 21.

Gotcha.

All right or any other contracts working substantially better than you expected.

Well I mean the.

Very then silver lining of.

Of the crisis is that unemployment is way up and the need for yeah. Our services is in high demand and the other states that we have contracts for so they continue to add to.

Additional representatives are asked for us to add additional representatives. So they are outperforming what we thought they would be.

Yeah.

That's good.

Okay. Its not really much to ask about I have a daughter, who goes to school I'm not going to school. So I know the deal with the books [laughter]. So that's [laughter] on the educational side, but on the other side.

You know the at marks on the call. He can talk to you about it you know regular book components side has been very strong education, It's anyone's guess, what that's going to come back to normality.

Hi, Mark could you talk a little bit about the other side. So I wasn't aware that that's much stronger than.

It's kind of got caught up in the whole education asked but yeah I mean, the <unk> <unk>. The experience. We had was when you know cobot really hit on the disrupted the publishers businesses.

I think softened up quite a bit in April and May I started picking up as we came into June got very strong as we exited June.

In July and August have been incredibly busy.

It's it's combination of obviously more people being home and have an interest in reading, but just some huge titles coming up or how to political arena out of the race concerned arena. It's just been a very very strong trade market. Our children's book business also has been very strong and said look it's been a real different year for us a trade.

As it has worked its way through successfully up on the call the challenges and school challenges will continue.

Into 2021 and until both at the high school level elementary level oncologist things start to shake out.

And Mark Let me correct me, if I'm wrong, but just to level set a J education is about 15% is that ballpark right marker correctly.

It's probably in that ZIP code now.

I'd like to see it back close to 20%, but it's certainly not the more significant part of a business that has been in the past.

Why it's been important for us to be growing our share on the other side of the business.

Hi from your competition standpoint did they fair through this as well as you guys said because I know you run the tight ship has there been fallout from the competition, which may be an indirect benefit for you.

Oh, I I'm not sure it'll be indirect benefit from us in the one of the large players in the market.

Exiting the business. So that's in transition I'm. So we'll see how that ultimately shakes out but the bulk market in general has done well, if you're not producing books and you're in printing, it's been incredibly difficult here, but the bookmark. It has held up very very well.

Okay, that's cool.

I'll, let somebody else that question, if I think it's something else.

Oh, that's what.

We are going to have a call in late December after your numbers come out I take it down.

Yes.

Okay.

Hi, Thanks, They say good work guys get people working at home stay safe.

I guess you'd like to ask a question. Please press star and then why not at this time.

Seeing no further questions. We'll conclude the question answer session I'd like to turn the conference back over to Brian Heartening for any closing remarks.

Thank you.

Are we like to thank everyone for attending the Investor Conference call. Today, we'll also be presenting to the LD Micro conference on Thursday September Threerd, we pushing out all the details including the presentation on our web site. So we look forward to listening in on that.

Again, thank you for attending today's call I look forward to providing our next update here.

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