Earnings Transcript for ALJJ - Q3 Fiscal Year 2018

Executives: Brian Hartman - Chief Financial Officer Jess Ravich - Executive Chairman

Analysts:

Operator: Good day ladies and gentlemen and thank you for your patience. You've joined the ALJ Regional Holdings Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions]. I would now like to turn the call over to your host Chief Financial Officer, Brian Hartman.

Brian Hartman: 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'm the CFO for ALJ. With me on the call is Jess Ravich, our Executive Chairman. Before we begin I would like to ask that everyone listening to this investor conference call review the risk factors presented in our latest Form 10-K that was filed with the SEC on December 19, 2017 and our latest form 10-Q that was filed with the SEC on August 14, 2018. With respect to forward looking statement it is important to note that today's investor conference call and as well as our earnings release and related communications contain forward-looking statements within the meaning of Federal Securities Laws. Such statements include information egarding our expectations, goals, intentions regarding the future including but not limited to statements about our financial projections and business growth the impact of acquisitions, cost cutting measures, integration measures and other statements including the words will, expect and other similar expression. 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 these discussed in any such statement. Factors that could cause actual results to differ materially from these forward-looking statements 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 conference call. Additionally, during our presentation we may discuss or disclose non-financial information. These non-GAAP financial measures are not intended to replace the presentation of our financial results in accordance with U.S. GAAP. The presentation of non-GAAP information is instead intended to provide additional information to investors to facilitate the comparison of past and present results. Our earnings release includes a reconciliation of GAAP to non-GAAP financial measures. We will provide a financial update for the fiscal quarter and fiscal year-to-date period ended June 30, 2018. ALJ recognized consolidated revenue of 89.7 million for the three months ended June 30, 2018, an increase of 6.2 million or 7.4% compared to 83.5 million for the three months ended June 30, 2017. This was driven by the acquisitions of the CMO business by Faneuil and the printing components business by Phoenix. Together these acquisitions accounted for a 8.2 million of the total revenue increase. Excluding the impact of acquisitions, total revenue decreased 2 million or 2.4% due to the slightly lower volumes at each subsidiary. ALJ recognize a net loss of 2.9 million and a loss per share of $0.08 on a diluted basis for the three months ended June 30, 2018 compared to net income of 1 million to diluted EPS of $0.03 for the three months ended June 30, 2017. Increase restructuring expenses of 0.7 million to combined manufacturing facilities at Phoenix higher start-up costs with certain contracts and a non-cash litigation loss related to the three MKs of approximately 2.9 million at Faneuil overall increased depreciation and amortization expenses related to acquisition impacted results. ALJ recognized adjusted EBITDA a non-GAAP measure of 9.6 million for the three months ended June 30, 2018, an increase of 1.3 million, or 16.3% compared to 8.2 million for the three months ended June 30, 2017. Increase adjusted EBITDA was driven by the printing components business acquisition by Phoenix, partially offset by higher labor, material and customer service costs of carpets, and plant volume reductions and packaging at Phoenix . For the nine months ended June 30, 2018, ALJ recognized consolidated revenue of 279.7 million an increase of 39.3 million or 16.4%, compared to 240.4 million for the nine months ended June 30, 2017 due to the acquisition of the CMO business by Faneuil and the printing components business by Phoenix, which together accounted for 33 million of the total net revenue increase. Excluding the impact of acquisitions total revenue increased by 6.1 million or 2.6% due to increases in business activity at Faneuil and carpets. ALJ, recognized a net loss of 8.6 million and diluted loss per share of $0.23 for the nine months ended June 30, 2018, impacting comparability here as the provision for income taxes to reflect a onetime, non-cash deferred income tax expense of 4.1 million, as a result of the tax cuts and jobs act of 2017. Excluding such deferred tax expense, ALJ recognized a net loss of 4.5 million and diluted loss per share of $0.12 for the nine months ended June 30, 2018 compared to net income of 1.9 million and diluted EPS of $0.05 for the nine months ended June 30, 2017, a decline in earnings per share was primarily due to higher restructuring expenses of 1.8 million to combine manufacturing facilities at Phoenix, a one-time, non-cash litigation loss related to the three MKs were positive 2.9 million and higher start-up costs of certain contracts with Faneuil, and increased depreciation and amortization expenses of 2.2 million related to acquisitions. ALJ recognized adjusted EBITDA of 23.8 million for the nine months ended June 30, 2018 and increase of 0.7 million or 2.8% compared to 23.1 million for the nine months ended June 30, 2017. The increase was driven by the printing components acquisition by Phoenix, primarily offset by higher labor, material and customer service costs at carpets, and plant volume reductions in packaging at Phoenix. With regard to debt and covenants at June 30, 2018, total debt was 98.5 million and consisted of 87.4 million outstanding on our term loan facility 8.1 million of capital leases and 3 million outstanding on our credit line. All amounts are exclusive of any deferred financing costs. Cash on hand at June 30 was $5 million. At June 30, 2018, we have 16.5 million of borrowing capacity on our credit line, Net debt defined as total debtless cash with 93.5 million at June 30, 2018, a decrease of 9.9 million compared with net debt of 103.3 million at June 30, 2017. The reduction in net debt was due to improved cash earnings and working capital and lower capital expenditures. At June 30, 2018, we were in compliance with all debt covenants. Capital expenditures totaled 3.1 million for the nine months ended June 30, 2018 for 6.9 million for the comparative 2017 period, a decrease of 3.8 million. The majority of this decrease was due to lower capital expenditures, this report Faneuil's customer contracts and reduce purchases of production equipment at Phoenix color. Capital expenditures can vary significantly from year-to-year based on the capital needs of our various businesses. Cash interest paid totaled 6.9 million for the nine months ended June 30, 2018, was 6.3 million for the comparative period 2017. The increase in cash paid for interest was due to higher weighted average outstanding balance of our term loan and revolving working capital facility during 2018 compared to fiscal 2017 as a result of business acquisition and higher average interest rates during fiscal 2018. Cash taxes paid of 0.9 million for the nine months ended June 30th was 0.6 million for the comparable 2017 period. We continue to use existing net operating losses to offset federal taxable income. For full fiscal year of 2018, we are reconfirming our forecast range provided in May of $31 million to $34 million of adjusted EBITDA compared to 31 million for the full fiscal year of 2017. This concludes the financial update portion of ALJs investor conference call. We hope you can attend the Annual Shareholder Meeting being held in New York on Friday, August 17th.

Operator: Ladies and gentlemen this does concludes the program. Thank you for your participation and have a wonderful day.

End of Q&A: