Q4 2021 ALJ Regional Holdings Inc Earnings Call

Good afternoon.

Afternoon, and welcome to the a L. J Regional holdings incorporated fiscal fourth quarter 2021 earnings Conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two.

Please note this event is being recorded.

I'd now like to turn the conference over to Brian Hartman, Chief Financial Officer. Please go ahead.

Welcome and thank you for participating in today's teleconference and for being investors in ALJ Regional holdings.

My name is Brian Hartman, and I am the CFO of ALJ with me as Jess Ravage, our CEO and chairman.

Before we begin I would ask everyone listening to this investor Conference call to review the risk factors presented in our latest Form 10-K that was filed with the Securities and Exchange Commission on December 22021.

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

Such statements include information regarding our expectations goals or intentions regarding the future <unk>.

Including but not limited to statements about our financial projections business growth the impact of acquisitions cost cutting measures integration measures and other statements, including the words will expect and similar expressions.

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

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

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

During the course of this call. We will also reference historical non-GAAP financial measures management reviews, non-GAAP financial information in evaluating our historical and projected financial performance and believes that it may assist investors in assessing our ongoing operations.

The presentation of non-GAAP information is not meant to be considered in isolation or as a substitute for or superior to measures of financial performance prepared in accordance with GAAP.

For a reconciliation of historical non-GAAP to GAAP financial measures. Please see our latest Form 10-K filed with the Securities and Exchange Commission on December 22021.

Comments made during today's call, we'll refer to both GAAP and non-GAAP financial information.

First we will provide a financial update for the fiscal quarter and year to date ended September 32021, followed by additional details for Fanjuls recent transaction.

ALJ recognized consolidated revenue of $111 7 million for the three months ended September 32021.

An increase of $13 9 million or 14, 2% compared to $97 8 million for the three months ended September 32020 the.

The increase was driven by higher production in health care and transportation verticals as well as one state unemployment contract at Fanueil.

ALJ recognized net income from continuing operations of $1 1 million and diluted income per share from continuing operations of <unk> for the three months ended September 32021.

<unk> to net income from continuing operations of $1 2 million and diluted income per share from continuing operations of <unk> for the three months ended September 32020.

ALJ recognized adjusted EBITDA from continuing operations of $10 6 million for the three months ended September 32021.

An increase of $1 8 million or 19, 9% compared to $8 8 million for the three months ended September 32020.

The increase was driven by higher volumes in the transportation vertical one state unemployment contract and exiting a loss generating health care contract at Fanueil.

ALJ recognized revenue of $440 9 million for fiscal 2021, an increase of $98 million or 25, 9% compared to $350 1 million for fiscal 2020.

The increase was driven by the start of production for new contracts and increased volume for existing contracts as Daniel and higher component sales primarily related to trade sales at Phoenix.

Okay ALJ recognized net loss from continuing operations of $3 6 million and loss per share from continuing operations of eight for fiscal 2021 compared to loss from continuing operations of $64 2 million and loss per share from continuing operations of $1 52 for fiscal 2012.

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Net loss from continuing operations for fiscal 2020 reflected a $56 5 million noncash and nonrecurring impairment of goodwill, excluding such impairment of goodwill ALJ recognized a net loss from continuing operations of $7 7 million and loss per share from continuing operations of <unk>.

<unk> for fiscal 2020.

The improvement in net loss is due to higher business activity at Fanueil in Phoenix.

ALJ recognized adjusted EBITDA from continuing operations of $33 7 million for fiscal 2021, an increase of $9 6 million or 40% compared to $24 million for fiscal 2020.

The increase was driven by the start of new contracts and operational improvements at existing contracts, where fanueil and higher component sales primarily related to trade sales at Phoenix.

With regards to debt covenants at September 32021, total debt was $106 7 million, which consisted of $100 $1 million of term loans $5 5 million outstanding on our line of credit and $1 1 million of finance leases.

All amounts are exclusive of deferred financing costs cash on hand at September 32021 was $2 3 million.

At September 32021, we had $23 5 million of borrowing capacity on our line of credit and we're in compliance with all debt covenants.

Cash capital expenditures totaled $8 9 million for fiscal 2021 versus $9 5 million for fiscal 2020.

Cash interest paid totaled $9 1 million for both fiscal years 2021 and 'twenty.

Cash taxes paid totaled <unk> 1 million for fiscal 2021, which is lower than prior years <unk> 9 million.

Cash taxes paid primarily relates to state income taxes as we continue to use existing net operating loss carryforwards to offset federal taxable income.

On December 21, 2021, we signed an asset purchase agreement to sell Daniels tolling in transportation and health benefit exchange verticals.

We expect the transaction to close during the second fiscal quarter of 2022 subject to customary closing conditions regulatory approvals, including clearance under the Hart Scott Rodino Act by the Federal Trade Commission.

Consideration to be received as $140 million less in indemnification escrow of approximately 15 million fans.

Daniel is also eligible to receive additional earn out payments in an aggregate amount of up to $25 million if certain milestones are achieved.

Other fanueil verticals, including utilities, non health care benefit exchange and commercial as well is this a wholly owned subsidiary of Fanueil, which incorporate software tools and methodologies to improve and optimize the contact center agent experience will remain at Fanueil and Fanueil will continue to operate as a wholly owned.

Subsidiary of ALJ.

Under the terms of our debt agreements proceeds from this transaction must be used to repay certain debt. Upon closing, we anticipate paying off $93 $1 million of term loan debt and paying off the outstanding balance on our revolver. We are currently working with our revolver provider to maintain our existing revolver facility.

Our convertible promissory notes, which totaled 6 million will remain outstanding as this debt matures in November 2023, and is convertible only at the note holders option.

As of September 32021, we had approximately $135 1 million of net operating loss carryforwards available as of June 32022, approximately $109 1 million or 80% of these net operating loss carryforwards are set to expire.

We anticipate a material gain on sale from Fanueil transaction and that we will use a significant portion of our existing net operating loss carryforwards to offset federal taxes.

We estimate that cash state taxes will approximate $4 7 million for this transaction net proceeds after debt repayment state cash taxes paid and transaction related expenses will be used to fund working capital and ongoing business operations.

Daniels remaining verticals recognized approximately $170 million of revenue for fiscal 2021.

Which included certain unemployment contracts and other contracts that recently ended <unk>.

Excluding the impact from these contracts are pro forma normalized revenue run rate for Fanjuls remaining verticals.

Is in the range of $80 million to $90 million.

We are currently working on our fiscal 2022 re forecast and are not at a point to provide specific details we.

We will now open the call for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

Yeah.

Again, if you have a question. Please press Star then one.

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Showing no questions. This concludes our question and answer session I would like to turn the conference back over to Brian Hartman for any closing remarks.

We would like to thank everyone for attending the Investor Conference call today, and look forward to providing our next update thank you.

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

Okay.

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