10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-37689

ALJ REGIONAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-4082185
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

244 Madison Avenue, PMB #358

New York, NY 10016

(Address of principal executive offices, Zip code)

(888) 486-7775

(Registrant’s telephone number, including area code)

Title of class of registered securities Common Stock, par value $0.01 per share Ticker Symbol ALJJ Name of exchange on which registered NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller Reporting Company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock, $0.01 par value per share, outstanding as of August 1, 2022, was 38,660,330.

FORWARD-LOOKING STATEMENTS

The statements included in this Form 10-Q regarding future financial performance, results and conditions and other statements that are not historical facts, including, among others, the statements regarding competition, the Company’s intention to retain earnings for use in the Company’s business operations, the Company’s ability to continue to fund its operations and service its indebtedness, the adequacy of the Company’s accrual for tax liabilities, management’s projection of continued taxable income, and the Company’s ability to offset future income against net operating loss carryovers, constitute forward-looking statements. The words “can,” “could,” “may,” “will,” “would,” “plan,” “future,” “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” and similar expressions are also intended to identify forward-looking statements. These forward-looking statements are based on current expectations and are subject to risks and uncertainties. Actual results or events could differ materially from those set forth or implied by such forward-looking statements and related assumptions due to certain important factors, including, without limitation, the risks set forth under the caption “Risk Factors” below, which are incorporated herein by reference. Some, but not all, of the forward-looking statements contained in this Form 10-Q include, among other things, statements about the following:

•any statements regarding our expectations for future performance;

•our ability to identify, consummate, and integrate business acquisitions;

•our ability to compete effectively;

•statements regarding future revenue and the potential concentration of such revenue coming from a limited number of customers;

•our ability to meet customer needs;

•regulatory compliance costs;

•the potential adverse impact of the novel coronavirus disease (“COVID-19”) pandemic on our business, operations and the markets and communities in which we and our customers, vendors and employees operate;

•our ability to manage ongoing supply chain disruptions and constraints due primarily to the restriction of employee movements, key material and labor shortages, and transportation constraints;

•our ability to improve margins and profitability on contracts we enter into; and

•the other matters described in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

The Company is also subject to general business risks, including results of tax audits, adverse state, federal or foreign legislation and regulation, changes in general economic conditions, the Company’s ability to retain and attract key employees, acts of war or global terrorism and unexpected natural disasters. Any forward-looking statements included in this Form 10-Q are made as of the date hereof, based on information available to the Company as of the date hereof, and the Company assumes no obligation to update any forward-looking statements.

ALJ REGIONAL HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE THREE MONTHS ENDED JUNE 30, 2022

INDEX

		Page
	PART I – FINANCIAL INFORMATION	4
Item 1	Financial Statements	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Condensed Consolidated Statements of Equity (unaudited)	8
	Notes to Condensed Consolidated Financial Statements (unaudited)	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4	Controls and Procedures	40
	PART II – OTHER INFORMATION	41
Item 1	Legal Proceedings	41
Item 1A	Risk Factors	41
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3	Defaults Upon Senior Securities	51
Item 4	Mine Safety Disclosures	51
Item 5	Other Information	51
Item 6	Exhibits	52
	Signatures	53

3

PART I. FINANCIAL INFORMATION

Item 1 - Financial Statements

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

	June 30, 2022			September 30, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	27,944		$	2,276
Short-term investments		99,679			—
Accounts receivable, net of allowance for doubtful accounts of $1,300 and $– on    June 30, 2022 and September 30, 2021		37,679			57,660
Prepaid expenses and other current assets		4,861			8,852
Current assets of discontinued operations		—			20,608
Total current assets		170,163			89,396
Property and equipment, net		10,756			22,864
Operating lease right-of-use assets		17,647			29,048
Intangible assets, net		9,980			11,906
Collateral deposits		4,123			487
Other assets		5,636			792
Long-term assets of discontinued operations		—			60,160
Total assets	$	218,305		$	214,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,990		$	11,255
Accrued expenses		17,437			20,815
Income taxes payable		3,846			38
Deferred revenue and customer deposits		—			4,053
Term loans, net of deferred loan costs - current installments		—			2,692
Finance lease obligations - current installments		528			765
Operating lease obligations - current installments		3,200			4,722
Current portion of workers' compensation reserve		900			710
Other current liabilities		3,679			3,686
Current liabilities of discontinued operations		—			10,192
Total current liabilities		35,580			58,928
Line of credit, net of deferred loan costs		—			5,490
Term loans, less current portion, net of deferred loan costs		6,026			93,484
Deferred revenue, less current portion		—			369
Workers' compensation reserve, less current portion		1,902			1,749
Finance lease obligations, less current installments		—			332
Operating lease obligations, less current installments		20,167			32,767
Deferred tax liabilities, net		17			852
Other non-current liabilities		440			6,265
Long-term liabilities of discontinued operations		—			1,841
Total liabilities		64,132			202,077
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.01 par value; authorized – 100,000 shares; 42,409 and 42,406    issued and outstanding on June 30, 2022 and September 30, 2021, respectively		424			424
Additional paid-in capital		288,430			288,355
Accumulated deficit		(134,681	)		(276,203	)
Total stockholders’ equity		154,173			12,576
Total liabilities and stockholders’ equity	$	218,305		$	214,653

See accompanying notes

4

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Revenue:
Revenue	$	25,110		$	72,754		$	168,403		$	243,147
Other revenue		32,511			—			32,511			—
Total revenue and other revenue		57,621			72,754			200,914			243,147
Costs, expenses, and other:
Cost of revenue		52,352			59,209			178,071			203,247
Selling, general, and administrative expense		7,443			15,764			38,042			43,487
Lease impairment		—			—			2,158			—
Gain on sale of assets and other		(118,014	)		—			(117,988	)		—
Total operating costs, expenses, and other, net		(58,219	)		74,973			100,283			246,734
Operating income (loss)		115,840			(2,219	)		100,631			(3,587	)
Other (expense) income, net:
Interest income		127			—			127			—
Interest expense		(151	)		(2,623	)		(5,449	)		(7,656	)
Loss on debt extinguishment		(3,884	)		(1,914	)		(3,884	)		(1,914	)
Total other expense, net		(3,908	)		(4,537	)		(9,206	)		(9,570	)
Income (loss) from continuing operations before income taxes		111,932			(6,756	)		91,425			(13,157	)
Provision for income taxes		(6,065	)		(70	)		(6,010	)		(244	)
Net income (loss) from continuing operations		105,867			(6,826	)		85,415			(13,401	)
Net income from discontinued operations,    net of income taxes		47,963			3,322			56,107			7,695
Net income (loss)	$	153,830		$	(3,504	)	$	141,522		$	(5,706	)
Income (loss) per share of common stock–basic:
Continuing operations	$	2.50		$	(0.16	)	$	2.01		$	(0.32	)
Discontinued operations	$	1.13		$	0.08		$	1.32		$	0.18
Net income (loss) per share (1)	$	3.63		$	(0.08	)	$	3.34		$	(0.13	)
Income (loss) per share of common stock–diluted:
Continuing operations	$	1.93		$	(0.16	)	$	1.56		$	(0.32	)
Discontinued operations	$	0.87		$	0.06		$	1.03		$	0.14
Net income (loss) per share (1)	$	2.81		$	(0.08	)	$	2.59		$	(0.13	)
Weighted average shares of common stock outstanding:
Basic		42,409			42,321			42,408			42,320
Diluted		54,818			54,503			54,735			54,416

(1) Amounts may not add due to rounding.

See accompanying notes

5

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine Months Ended June 30,
	2022			2021
Operating activities:
Net income (loss)	$	141,522		$	(5,706	)
Adjustments to reconcile net income (loss) to cash (used for) provided by operating activities:
Depreciation and amortization expense		8,630			9,455
Loss on debt extinguishment		3,884			1,914
Lease impairment		2,158			—
Amortization of discount of short-term investments		(83	)		—
Interest expense and other bank fees accreted to term loans		—			1,691
Change in fair value of contingent consideration		300			1,100
Amortization of deferred loan costs		627			527
Stock-based compensation expense		154			126
Provision (reversal) for bad debts		1,300			(17	)
Gain on sale of assets and other, excluding cash transaction costs paid		(124,301	)		—
(Gain) loss on sale of subsidiaries, excluding cash transaction costs paid		(66,221	)		761
Deferred income taxes		(835	)		38
Changes in operating assets and liabilities:
Accounts receivable, net		18,681			1,298
Prepaid expenses, collateral deposits, and other current assets		3,991			(392	)
ROU assets/ROU liabilities		(1,160	)		(494	)
Other assets		(3,480	)		960
Accounts payable		(5,227	)		(3,157	)
Accrued expenses		(4,393	)		2,797
Income tax payable		3,808			5
Deferred revenue		(4,422	)		(4,820	)
Other current liabilities and other non-current liabilities		(5,489	)		2,914
Discontinued operations, net		1,331			11,662
Cash (used for) provided by operating activities		(29,225	)		20,662
Investing activities:
Capital expenditures		(820	)		(3,001	)
Proceeds from the sale of subsidiaries		135,928			438
Proceeds from the sale of assets		127,442			—
Purchase of investments		(104,596	)		—
Discontinued operations, net		(2,303	)		(3,329	)
Cash provided by (used for) investing activities		155,651			(5,892	)
Financing activities:
Proceeds from term loans		—			95,000
Payments on term loans		(94,050	)		(76,398	)
Payments on line of credit, net		(5,490	)		(14,417	)
Deferred loan costs		(283	)		(4,164	)
Payments on finance leases		(607	)		(2,350	)
Payment of debt extinguishment penalties and other		(328	)		(743	)
Discontinued operations, net		—			(9,333	)
Cash used for financing activities		(100,758	)		(12,405	)
Change in cash and cash equivalents		25,668			2,365
Cash and cash equivalents at beginning of the year		2,276			6,050
Cash and cash equivalents at end of the year	$	27,944		$	8,415

See accompanying notes

6

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Nine Months Ended June 30,
	2022		2021
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	4,933	$	6,878
Taxes	$	16,251	$	89
Non-cash investing and financing activities:
Capital equipment purchases financed with term loans	$	—	$	4,000

See accompanying notes

7

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

(in thousands)

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Common stock:
Balance, beginning of period	$	424		$	423		$	424		$	423
Issuance of common stock upon cashless exercise of stock options		—			—			—			—
Balance, end of period	$	424		$	423		$	424		$	423
Additional paid in capital:
Balance, beginning of period	$	288,415		$	288,225		$	288,355		$	288,193
Stock-based compensation expense - options		15			15			75			47
Balance, end of period	$	288,430		$	288,240		$	288,430		$	288,240
Accumulated deficit:
Balance, beginning of period	$	(288,511	)	$	(273,762	)	$	(276,203	)	$	(271,560	)
Net income (loss)		153,830			(3,504	)		141,522			(5,706	)
Balance, end of period	$	(134,681	)	$	(277,266	)	$	(134,681	)	$	(277,266	)
Total stockholders' equity	$	154,173		$	11,397		$	154,173		$	11,397

See accompanying notes

8

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

ALJ Regional Holdings, Inc. (including subsidiaries, referred to collectively herein as “ALJ” or “Company”) is a holding company. During the three and nine months ended June 30, 2022, ALJ consisted of the following wholly-owned subsidiaries:

•Faneuil, Inc. (including its subsidiaries, “Faneuil”). Faneuil is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and regulated commercial clients across the United States, focusing on the healthcare, utility, transportation, and toll revenue collection industries. Faneuil is headquartered in Hampton, Virginia. ALJ acquired Faneuil in October 2013. On April 1, 2022, ALJ completed the sale of Faneuil’s tolling and transportation and health benefit exchange vertical. See Basis of Presentation below.

•Phoenix Color Corp. (including its subsidiaries, “Phoenix”). Phoenix is a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and commercial specialty products using a broad spectrum of materials and decorative technologies. Phoenix is headquartered in Hagerstown, Maryland. ALJ acquired Phoenix in August 2015. On April 13, 2022, ALJ completed its sale of Phoenix. See Basis of Presentation below.

ALJ owned a third segment, Floors-N-More, LLC, d/b/a, Carpets N’ More (“Carpets”). Carpets was a floor covering retailer in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail and home builder markets including all types of flooring, countertops, cabinets, window coverings and garage/closet organizers. ALJ acquired and disposed of Carpets in April 2014 and February 2021, respectively. See Basis of Presentation below.

As a result of the Phoenix Sale, ALJ had one operating segment for all periods presented.

Basis of Presentation

Overall

The accompanying condensed consolidated financial statements include the accounts of ALJ and its subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. All intercompany transactions and balances have been eliminated in consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with ALJ’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on December 20, 2021.

Discontinued Operations – Carpets

In February 2021, ALJ completed the sale of Carpets (the “Carpets Sale”). The Company determined that the Carpets Sale qualified as discontinued operations as defined by Accounting Standards Codification (“ASC”) 205-20-45, Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters (“ASC 205”) because the Carpets Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Carpets results of operations and cash flows were classified as discontinued operations for the nine months ended June 30, 2021. See Note 4 for additional financial information about Carpets’ discontinued operations.

Discontinued Operations – Phoenix

In February 2022, ALJ entered into a stock purchase agreement (the “Stock Purchase Agreement”) to sell all of the outstanding shares of common stock of Phoenix (the “Phoenix Sale”) for cash consideration, including post-closing working capital adjustments, totaling approximately $135.9 million. The Phoenix Sale closed on April 13, 2022. The Company recorded a gain on sale of discontinued operations, net of related income taxes, of $46.8 million during the three months ended June 30, 2022.

The Company determined that the Phoenix Sale qualified as discontinued operations as defined by ASC 205 because the Phoenix Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Phoenix assets, liabilities, results of operations, and cash flows were classified as discontinued operations for all periods presented. See Note 4 for additional financial information about Phoenix’s discontinued operations.

9

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Asset Sale - Faneuil

In December 2021, ALJ entered into an agreement to sell certain net assets of Faneuil’s tolling and transportation vertical and health benefit exchange vertical (the “Faneuil Asset Sale”). The Faneuil Asset Sale closed on April 1, 2022, for cash consideration of $142.3 million less an indemnification escrow amount of approximately $15.0 million. Faneuil is also eligible to receive additional earn-out payments based upon the performance of certain customer agreements in an aggregate amount of up to $25.0 million. The Company recorded a gain on sale of assets, net of related income taxes, of $112.0 million during the three and nine months ended June 30, 2022. See Note 4 for additional financial information about Faneuil's gain on sale of assets.

In connection with the Faneuil Asset Sale, Faneuil entered into a Transition Services Agreement ("TSA"), which is designed to ensure and facilitate an orderly transfer of the tolling and transportation vertical and health benefit exchange vertical. The services provided under the TSA will terminate at various times between 30 days and 365 days from the closing date of the Faneuil Asset Sale and can be renewed, in whole or in part, in 30-day increments, for a maximum of 180 days. Revenue earned from the TSA was disclosed as other revenue on the consolidated statements of operations during the three and nine months ended June 30, 2022. TSA-related expenses were recorded in their natural expense classification.

The Company determined that the Faneuil Asset Sale did not qualify as discontinued operations as defined by ASC 205 because the Faneuil Asset Sale does not represent a strategic shift with a major effect on the Company's operations and financial results. As such, Faneuil assets, liabilities, results of operations, and cash flows were included with continuing operations for all periods presented.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Although actual results could differ materially from those estimates, such estimates are based on the best information available to management and management’s best judgments at the time. Significant estimates and assumptions by management are used for, but are not limited to, determining the fair value of assets and liabilities, including intangible assets acquired and allocation of acquisition purchase prices, estimated useful lives of certain assets, recoverability of long-lived and intangible assets, the recoverability of goodwill, the realizability of deferred tax assets, stock-based compensation, the likelihood of material loss as a result of loss contingencies, customer lives used for revenue recognition, the allowance for doubtful accounts and inventory reserves, and calculation of insurance reserves. The inputs into certain of these estimates and assumptions include the consideration of the economic impact of the COVID-19 pandemic. Actual results may differ materially from estimates. As the impact of the COVID-19 pandemic continues to develop, many of these estimates could require increased judgment and carry a higher degree of variability and volatility, and may change materially in future periods.

2. RECENT ACCOUNTING STANDARDS

Recent Accounting Pronouncements Adopted

Internal-Use Software

In August 2018, the Financial Accounting Standards Boards (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to provide guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU 2018-15 aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends ASC 350, Intangibles–Goodwill and Other, to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in such a CCA. ALJ adopted ASU 2018-15 on October 1, 2021. The impact of ASU 2018-15 on ALJ’s consolidated financial statements and related disclosures was not material.

Debt with Conversion and Other Options

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ALJ adopted ASU 2020-06 on October 1, 2021 using the full retrospective basis. The impact of ASU 2020-06 on ALJ’s consolidated financial statements and related disclosures was not material.

Accounting Standards Not Yet Adopted

Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), which addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 will be effective for ALJ on October 1, 2022. ALJ does not anticipate the adoption of ASU 2021-04 to significantly impact its consolidated financial statements and related disclosures.

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 will be effective for ALJ on October 1, 2023. The adoption impact of the new standard will depend on the magnitude of future acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.

3. REVENUE RECOGNITION

Disaggregation of Revenue

As a result of the Phoenix Sale described in Note 1, all revenue reported was attributable to Faneuil for all periods presented.

Revenue by contract type was as follows for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Faneuil:
Utility	$	14,295	$	13,709	$	40,854	$	40,529
Healthcare		9,147		31,318		70,141		108,020
Other		1,327		965		2,791		3,576
Government		341		4,148		2,633		26,698
Transportation		—		22,614		51,984		64,324
Total revenue		25,110		72,754		168,403		243,147
Other revenue		32,511		—		32,511		—
Total revenue and other revenue	$	57,621	$	72,754	$	200,914	$	243,147

Substantially all of Faneuil revenue is recognized over time.

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Other Revenue

As discussed in Note 1, other revenue was attributable to Faneuil's TSA. The TSA has a single performance obligation, as the promises to provide the identified services are not distinct within the context of the TSA. The single performance obligation constitutes a series of distinct services as the customer benefits as services are provided. Service revenue is recognized over time using the input method. The input method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the direct cost incurred.

Contract Assets and Liabilities

The following table provides information about consolidated contract assets and contract liabilities at the end of each reporting period:

	June 30,		September 30,
(in thousands)	2022		2021
Contract assets:
Unbilled revenue (1)	$	—	$	69
Total contract assets	$	—	$	69
Contract liabilities:
Deferred revenue	$	—	$	4,422
Total contract liabilities	$	—	$	4,422

(1) Included in prepaid expenses and other current assets on the consolidated balance sheets. Unbilled revenue represents rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Unbilled revenue is transferred to accounts receivable when the rights become unconditional.

The following table provides changes in consolidated contract assets and contract liabilities from September 30, 2021 to June 30, 2022:

(in thousands)	Contract Assets			Contract Liabilities
Balance, September 30, 2021	$	69		$	4,422
Additions to contract assets		26			—
Revenue recognized		—			(8,403	)
Cash received from customer and other		(95	)		3,981
Balance, June 30, 2022	$	—		$	—

Deferred Revenue and Remaining Performance Obligations

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from call center services, including non-refundable payments made prior to operations. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. Customers are typically invoiced for these agreements in regular installments and revenue is recognized ratably over the contractual service period. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, size and new business linearity within the quarter. Deferred revenue does not represent the total contract value of annual or multi-year non-cancellable agreements.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive financing from customers. Any potential financing fees are considered de minimis.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue. Transaction price allocated to the remaining performance obligation is influenced by several factors, including the timing of renewals and average contract terms. The Company applied practical expedients to exclude amounts related to

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, and any estimated amounts of variable consideration that are subject to constraint.

The Company has elected to apply the optional exemption for the disclosure of remaining performance obligations for contracts that have an original expected duration of one year or less, are billed and recognized as services are delivered and/or variable consideration allocated entirely to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation. This primarily consists of call center services that are billed monthly based on the services performed each month.

Costs to Obtain a Contract

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The costs to obtain a contract capitalized are primarily sales commissions paid to our sales force personnel. Capitalized costs may also include portions of fringe benefits and payroll taxes associated with compensation for incremental costs to acquire customer contracts and incentive payments to partners. These costs are amortized over the term of the contract or the estimated life of the customer relationship if renewals are expected and the renewal commission is not commensurate with the initial commission. The Company expenses sales commissions when incurred if the amortization period of the sales commission is one year or less. The accounting for incremental costs of obtaining a contract with a customer is consistent with the accounting under previous guidance.

The following table provides changes in costs to obtain a contract for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Balance, beginning of period	$	143		$	412		$	239		$	593
Additions		285			—			363			99
Amortization, included in selling, general, and administrative expense		(113	)		(111	)		(287	)		(391	)
Balance, end of period	$	315		$	301		$	315		$	301
Reported as of end of period
Current - prepaid expenses and other current assets		283			213
Noncurrent - other assets		32			88
Total	$	315		$	301

Costs to Fulfill a Contract

The Company also capitalizes costs incurred to fulfill its contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to cost of revenue as the Company satisfies its performance obligations by transferring the service to the customer. These costs are amortized on a systematic basis over the expected period of benefit.

The following table provides changes in costs to fulfill a contract for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Balance, beginning of period	$	678		$	4,363		$	2,884		$	5,118
Additions		—			55			2,756			6,047
Amortization, included in selling, general, and administrative expense		(127	)		(877	)		(5,089	)		(7,624	)
Balance, end of period	$	551		$	3,541		$	551		$	3,541
Reported as of end of period
Current - prepaid expenses and other current assets		252			2,946
Noncurrent - other assets		299			595
Total	$	551		$	3,541

Capitalized costs to obtain and fulfill a contract are periodically reviewed for impairment. ALJ did not incur any impairment losses during the three and nine months ended June 30, 2022 or 2021.

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. DIVESTITURES AND DISCONTINUED OPERATIONS

Carpets Sale

As previously discussed in Note 1, ALJ sold Carpets during February 2021. As a result, ALJ recognized a loss on sale of $0.8 million

during the nine months ended June 30, 2021 calculated as follows:

(in thousands)	Amount
Cash proceeds	$	500
Net assets sold		(1,199	)
Transaction costs		(62	)
Impact of income taxes		—
Total loss on sale	$	(761	)

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	4,615
Intangible assets, net		318
Other long-term assets		740
Current liabilities		(4,099	)
Long-term liabilities		(375	)
Net assets sold	$	1,199

The following table presents information regarding certain components of loss from discontinued operations, net of income taxes, attributable to Carpets, for the nine months ended June 30, 2021:

	Nine Months Ended
(in thousands)	June 30, 2021
Revenue	$	13,799
Operating loss		(302	)
Loss on sale		(761	)
Loss before income taxes		(1,063	)
Income tax expense		—
Loss from discontinued operations, net of income taxes		(1,063	)

The following table presents significant components of cash flows of discontinued operations, attributable to Carpets, for the nine months ended June 30, 2021:

	Nine Months Ended
(in thousands)	June 30, 2021
Operating activities
Depreciation and amortization expense	$	199
Provision for bad debts and obsolete inventory		27
Changes in operating assets and liabilities:
Accounts receivable, net		399
Inventories, net		(12	)
Prepaid expenses, collateral deposits, and other current assets		24
Other assets and liabilities, net		26
Investing activities
Capital expenditures		(7	)

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Faneuil Asset Sale

As previously discussed in Note 1, ALJ sold certain net assets of Faneuil on April 1, 2022. As a result, the Company recorded a gain on sale of assets, net of related income taxes, of $112.0 million during the three and nine months ended June 30, 2022 calculated as follows:

(in thousands)	Amount
Cash proceeds	$	127,442
Net assets sold		(3,114	)
Transaction costs		(6,314	)
Gain on sale of assets before income taxes	$	118,014
Impact of income taxes (1)		(5,992	)
Total gain on sale, net of income taxes	$	112,022

(1) Included in the provision for income taxes on the consolidated statement of operations.

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	215
Property and equipment, net		6,198
Operating lease right-of-use assets		7,572
Current liabilities		(1,376	)
Long-term liabilities		(9,495	)
Net assets sold	$	3,114

Phoenix Sale

As previously discussed in Note 1, ALJ sold Phoenix on April 13, 2022. As a result, ALJ recognized a gain on sale, net of income taxes, of $46.8 million during the three months ended June 30, 2022, calculated as follows:

(in thousands)	Amount
Cash proceeds	$	135,928
Net assets sold		(69,707	)
Transaction costs		(6,441	)
Impact of income taxes		(12,950	)
Total gain on sale	$	46,830

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	22,270
Property and equipment, net		40,329
Other long-term assets		18,171
Current liabilities		(10,705	)
Long-term liabilities		(358	)
Net assets sold	$	69,707

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the carrying amount of major classes of assets and liabilities, attributable to Phoenix, classified as held for sale included in discontinued operations on September 30, 2021:

	September 30,
(in thousands)	2021
Assets:
Accounts receivable	$	10,912
Inventories, net		7,654
Prepaid expenses and other current assets		2,042
Property and equipment, net		41,066
Operating lease right-of-use assets		—
Intangible assets, net		18,705
Other long-term assets		389
Total assets of discontinued operations	$	80,768
Liabilities:
Accounts payable	$	3,986
Accrued expenses		5,396
Other current liabilities		810
Total long-term liabilities		1,841
Total liabilities of discontinued operations	$	12,033

The following table presents certain components of results of operations reported as discontinued operations, attributable to Phoenix, for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Revenue	$	4,275	$	30,706	$	65,040	$	86,038
Operating income		1,133		3,793		9,277		9,391
Gain on sale, net of income taxes		46,830		—		46,830		—
Net income from discontinued operations, net of income taxes		47,963		3,322		56,107		8,758

The following table presents certain components of cash flows reported as discontinued operations, attributable to Phoenix, for the nine months ended June 30, 2022 and 2021:

	Nine Months Ended June 30,
(in thousands)	2022			2021
Operating activities
Depreciation and amortization expense	$	4,092		$	5,457
Provision for bad debts and obsolete inventory and other		(11	)		(72	)
Changes in operating assets and liabilities:
Accounts receivable, net		(549	)		2,629
Inventories, net		(487	)		(353	)
Prepaid expenses, collateral deposits, and other current assets		1,026			1,033
Other assets and liabilities, net		(2,740	)		2,305
Investing activities
Capital expenditures		(2,309	)		(3,631	)
Proceeds from sales of assets		6			309
Financing activities
Payments on finance leases		—			(7,538	)
Payments on term loans		—			(1,637	)
Payment of debt extinguishment penalties and other		—			(158	)

5. CONCENTRATION RISKS

Cash

The Company maintains its cash balances in accounts, which, at times, may exceed federally insured limits. The Company has not experienced any loss in such accounts and believes there is little exposure to any significant credit risk.

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Major Customers and Accounts Receivable

As a result of the Phoenix Sale described in Note 1, all revenue reported was attributable to Faneuil for all periods presented. The percentages of ALJ consolidated revenue derived from its significant customers were as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Customer A		56.4	%	**				16.2	%	**
Customer B		10.1		**			**			**
Customer C	**			**			**				11.8	%
Customer D	**				11.7	%		12.8		**

** Less than 10% of consolidated revenue.

Accounts receivable from significant customers during either the three or nine months ended June 30, 2022, totaled $27.4 million on June 30, 2022. As of June 30, 2022, all Faneuil accounts receivable were unsecured. The risk with respect to accounts receivable is mitigated by credit evaluations performed on customers and the short duration of payment terms extended to customers.

6. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Short-Term Investments

The following table summarizes the Company’s short-term and non-current investments recorded in the consolidated balance sheets on June 30, 2022. The Company did not have any short-term or non-current investments on September 30, 2021.

	June 30, 2022
(in thousands)	Short-Term		Non-Current		Total
Held-to-Maturity:
Treasury bills (1)	$	99,679	$	—	$	99,679
Other investments (2)		—		5,000		5,000
Total investments	$	99,679	$	5,000	$	104,679

(1) The carrying value of the investments approximates fair value due to the short-term nature of the instruments.

(2) Included in other assets on the consolidated balance sheets. As the investment was purchased on June 28, 2022, the carrying value of the investments approximates fair value due to short time from the purchase date to June 30, 2022.

Accounts Receivable, Net

The following table summarizes accounts receivable at the end of each reporting period:

	June 30,			September 30,
(in thousands)	2022			2021
Accounts receivable	$	38,979		$	57,455
Unbilled receivables		—			205
Accounts receivable		38,979			57,660
Less: allowance for doubtful accounts		(1,300	)		—
Accounts receivable, net	$	37,679		$	57,660

17

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Property and Equipment

The following table summarizes property and equipment at the end of each reporting period:

	June 30,			September 30,
(in thousands)	2022			2021
Leasehold improvements	$	16,461		$	30,849
Computer and office equipment		12,414			22,387
Software		9,902			16,532
Furniture and fixtures		3,086			7,600
Machinery and equipment		631			1,190
Vehicles		154			155
Property and equipment		42,648			78,713
Less: accumulated depreciation and amortization		(31,892	)		(55,849	)
Property and equipment, net	$	10,756		$	22,864

Property and equipment depreciation and amortization expense, including amounts related to finance leased assets, was $1.8 million

and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $6.7 million and $7.1 million for the nine

months ended June 30, 2022 and 2021, respectively.

Intangible Assets

The following tables summarize identified intangible assets at the end of each reporting period:

				June 30, 2022
(in thousands)	Weighted Average Original Life (Years)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization			Net
Customer relationships	12.0		4.1	$	16,550	$	(10,948	)	$	5,602
Trade names	15.0		6.3		1,500		(870	)		630
Supply agreements	7.0		1.9		2,910		(2,113	)		797
Technology	8.0		5.1		3,400		(1,240	)		2,160
Non-compete agreements	6.6		3.4		1,550		(759	)		791
Totals				$	25,910	$	(15,930	)	$	9,980

				September 30, 2021
(in thousands)	Weighted Average Original Life (Years)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization			Net
Customer relationships	12.0		4.8	$	16,550	$	(9,908	)	$	6,642
Trade names	15.0		7.0		1,500		(795	)		705
Supply agreements	7.0		2.7		2,910		(1,802	)		1,108
Technology	8.0		5.8		3,400		(921	)		2,479
Non-compete agreements	6.6		4.1		1,550		(578	)		972
Totals				$	25,910	$	(14,004	)	$	11,906

18

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Intangible asset amortization expense was $0.6 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $1.9 million and $2.3 million for the nine months ended June 30, 2022 and 2021, respectively.

The following table presents expected future amortization expense as of June 30, 2022:

(in thousands)	Estimated Future Amortization
Fiscal 2022 (remaining)	$	642
Fiscal 2023		2,567
Fiscal 2024		2,429
Fiscal 2025		2,116
Fiscal 2026		1,447
Thereafter		779
Total	$	9,980

Accrued Expenses

The following table summarizes accrued expenses at the end of each reporting period:

	June 30,		September 30,
(in thousands)	2022		2021
Accrued compensation and related taxes	$	9,878	$	12,320
Acquisition contingent consideration		2,500		2,500
Legal		2,000		2,000
Medical and benefit-related payables		1,321		1,172
Other		1,212		1,216
Accrued board of director fees		526		131
Bank overdraft		—		1,366
Interest payable		—		110
Total accrued expenses	$	17,437	$	20,815

Workers’ Compensation Reserve

The Company is self-insured for certain workers’ compensation claims as discussed below. The current portion of workers’ compensation reserve is disclosed with accrued expenses. The non-current portion of workers’ compensation reserve is disclosed with other non-current liabilities.

Faneuil. Faneuil is self-insured for workers’ compensation claims up to $500,000 per incident. Reserves have been provided for workers’ compensation based upon insurance coverages, third-party actuarial analysis, and management’s judgment.

19

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. INCOME(LOSS) PER SHARE

The following table summarizes basic and diluted income (loss) per share of common stock for each period presented:

	Three Months Ended June 30,					Nine Months Ended June 30,
(in thousands, except per share amounts)	2022		2021			2022		2021
Net income (loss) from continuing operations	$	105,867	$	(6,826	)	$	85,415	$	(13,401	)
Net income from discontinued operations,    net of income taxes		47,963		3,322			56,107		7,695
Net income (loss)	$	153,830	$	(3,504	)	$	141,522	$	(5,706	)
Income (loss) per share of common stock–basic:
Continuing operations	$	2.50	$	(0.16	)	$	2.01	$	(0.32	)
Discontinued operations	$	1.13	$	0.08		$	1.32	$	0.18
Net income (loss) per share (1)	$	3.63	$	(0.08	)	$	3.34	$	(0.13	)
Income (loss) per share of common stock–diluted:
Continuing operations	$	1.93	$	(0.16	)	$	1.56	$	(0.32	)
Discontinued operations	$	0.87	$	0.06		$	1.03	$	0.14
Net income (loss) per share (1)	$	2.81	$	(0.08	)	$	2.59	$	(0.13	)
Weighted average shares of common stock outstanding:
Basic		42,409		42,321			42,408		42,320
Convertible debt		11,158		11,158			11,158		11,158
Warrants		1,207		1,006			1,135		923
Employee stock option grants		44		18			34		15
Diluted		54,818		54,503			54,735		54,416
Anti-dilutive shares excluded from diluted net income (loss)    per share calculation:
Employee stock option grants		1,250		1,310			1,250		1,310
Warrants		-		1,297			-		1,297
Total		1,250		2,607			1,250		2,607

(1) Amounts may not add due to rounding.

8. DEBT

ALJ’s components of debt and the respective interest rate at the end of each reporting period were as follows:

	June 30, 2022				September 30, 2021
(in thousands)	Interest Rate		Balance		Interest Rate			Balance
Line of credit:
PNC Revolver			$	—		5.25	%	$	5,490
PNC Revolver LIBOR				—		4.00			—
Line of credit, net of deferred loan costs			$	—				$	5,490
Current portion of term loans:
Current portion of Blue Torch Term Loan			$	—		8.50		$	3,800
Less: deferred loan costs				—					(1,108	)
Current portion of term loans, net of deferred loan costs			$	—				$	2,692
Term loans, less current portion:
Blue Torch Term Loan, less current portion			$	—		8.50		$	90,250
Convertible Promissory Notes		8.25		6,026		8.25			6,026
Less: deferred loan costs				—					(2,792	)
Term loans, less current portion, net of deferred loan costs			$	6,026				$	93,484
Total line of credit and term loans			$	6,026				$	101,666

20

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Debt Transactions Executed During the Three Months Ended June 30, 2021

New Term Loan

In June 2021, ALJ replaced its existing term loans by entering into a new term loan (“Blue Torch Term Loan”) with Blue Torch Business Finance, LLC ("Blue Torch") for an aggregate principal amount of $95.0 million. The Blue Torch Term Loan had an original maturity date of June 29, 2025, required annual principal payments of $3.8 million paid quarterly, included a prepayment penalty in certain instances, and was secured by substantially all the Company's assets.

Amendment and Restatement of Existing Line of Credit Revolver

In connection with the Blue Torch Term Loan, ALJ amended and restated in its entirety its existing line of credit financing agreement (as amended and restated, the “Amended PNC Revolver”). The Amended PNC Revolver provided for a total of $32.5 million, which included (i) revolving borrowings, and (ii) the issuance of letters of credit. The letters of credit had a sublimit of $15.0 million. The Amended PNC Revolver had an original maturity date of June 29, 2025, and was secured by substantially of the Company's assets.

Debt Transactions Executed During the Three Months Ended June 30, 2022

Termination of Blue Torch Term Loan

On April 1, 2022, in connection with the Faneuil Asset Sale (see Note 1), the Company paid off the Blue Torch Tern Loan. ALJ’s payment to Blue Torch was $92.2 million, which satisfied all of the Company’s debt obligations under the Blue Torch Term Loan (“Blue Torch Payoff”). The Company was not required to pay any prepayment premiums as a result of the repayment of indebtedness under the Blue Torch Term Loan, which provided that the mandatory prepayment made in connection with the proceeds from the Faneuil Asset Sale were exempt from such pre-payment premiums. In connection with the repayment of outstanding indebtedness by the Company, the lenders automatically and permanently released all security interests, mortgages, liens and encumbrances under the Blue Torch Term Loan.

Termination of Amended PNC Revolver

In connection with the Phoenix Sale on April 13, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under the Amended PNC Revolver. The Company was required to pay a pre-payment premium of $0.3 million as a result of the repayment of indebtedness under the Amended PNC Revolver. In connection with the repayment of outstanding indebtedness by the Company, the lenders automatically and permanently released all security interests, mortgages, liens and encumbrances under the Amended PNC Revolver.

Loss on Debt Extinguishment

The following table summarizes elements of ALJ's loss on debt extinguishment for each period presented:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021		2022		2021
(in thousands)
Deferred loan costs written off	$	3,556	$	1,171	$	3,556	$	1,171
Prepayment penalties		328		743		328		743
Total loss on debt extinguishment	$	3,884	$	1,914	$	3,884	$	1,914

Convertible Promissory Notes

In June 2021, ALJ issued convertible promissory notes in an aggregate principal amount of $6.0 million (the “Convertible Promissory Notes”) to two investors, including ALJ’s Chief Executive Officer and Chairman of the Board, Jess Ravich.

The Convertible Promissory Notes accrue interest at the rate of 8.25% per year, compounded monthly with interest payable in cash quarterly in arrears on the last day of each calendar quarter on the outstanding principal balance until such principal amount is paid in full or until conversion. The principal and accrued interest owed under the Convertible Promissory Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at any time prior to November 28, 2023, at a conversion price equal to the quotient of all amounts due under each Convertible Promissory Note divided by the conversion rate of $0.54 per common share.

21

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Convertible Promissory Notes (i) were subordinate to the Blue Torch Term Loan and the Amended PNC Revolver prior to the Blue Torch Payoff and the termination of the Amended PNC Revolver, (ii) are unsecured, and (iii) mature on November 28, 2023, subject to extension under certain circumstances.

Financial Covenant Compliance

As a result of the Blue Torch Payoff and Amended PNC Revolver termination, ALJ is no longer subject to financial covenant requirements.

Estimated Future Minimum Principal Payments

Estimated future minimum principal payments, subsequent to the Blue Torch Payoff and termination of the Amended PNC Revolver, are as follows (in thousands):

Year Ending June 30,	Convertible Promissory Notes
2023	$	—
2024		6,026
Total	$	6,026

9. COMMITMENTS AND CONTINGENCIES

Employment Agreements

ALJ maintains employment agreements with certain key executive officers that provide for a base salary and an annual bonus, with annual bonus amounts to be determined by the Board of Directors, or committee thereof, or the Chief Executive Officer. The agreements also provide for involuntary termination payments, which include base salary, performance bonus, medical premiums, stock options, non-competition provisions, and other terms and conditions of employment. On June 30, 2022, contingent termination payments related to base salary and medical premiums totaled $2.1 million.

Surety Bonds

Historically, as part of Faneuil’s normal course of operations, certain customers required surety bonds guaranteeing the performance of a contract. During the three months ended June 30, 2022, all the surety bonds were cancelled as the underlying contract was either sold as part of the Faneuil Asset Sale or ended. As such, there were no surety bonds outstanding on June 30, 2022.

Letters of Credit

The Company had letters of credit totaling $3.5 million outstanding on June 30, 2022, which were collateralized with cash deposits totaling $3.6 million, or 103% of the total letters of credit.

Litigation, Claims, and Assessments

Marshall v. Faneuil

On July 31, 2017, plaintiff Donna Marshall (“Marshall”) filed a proposed class action lawsuit in the Superior Court of the State of California for the County of Sacramento against Faneuil and ALJ. Marshall, a previously terminated Faneuil employee, alleges various California state law employment-related claims against Faneuil. Faneuil has answered the complaint and removed the matter to the United States District Court for the Eastern District of California; however, Marshall filed a motion to remand the case back to state court, which has been granted. In connection with the above, an amended complaint was filed by certain plaintiffs to add a claim for penalties under the California Private Attorneys General Act (the “PAGA Claim”). Faneuil demurred to the PAGA Claim and it was eventually dismissed by the trial court.

A mediation was held on March 11, 2021, following which the parties negotiated a settlement agreement that has been provisionally approved by the court.

Harris v. Faneuil

Lois Harris, an employee of Faneuil in Georgia, filed a collective action complaint on April 18, 2021 in the United States District Court for the Northern District of Georgia. Harris alleges, on behalf of herself and other current and former non-exempt Call Center Agent employees who received nondiscretionary bonuses for periods in which they worked overtime hours, that Faneuil violated the Fair Labor Standards Act by failing to include nondiscretionary bonuses in the regular rate of pay when calculating the overtime rate

22

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

for Harris and other similarly-situated persons. Faneuil has engaged counsel to defend it in this action. The parties are negotiating a settlement.

Jesse James Pagan et. al. v. Faneuil

On April 26, 2022, a putative class action complaint was filed against Faneuil in the United States District Court for the Eastern District of Virginia. The complaint asserts claims against Faneuil for negligence, breach of an implied contract, and unjust enrichment in connection with an alleged data breach. The proposed class includes certain former employees of Faneuil who contend their personal identifiable information was compromised in the data breach. The complaint seeks damages in excess of $5.0 million on behalf of the putative class. Faneuil has engaged counsel to defend it in this action. The parties are negotiating a settlement.

Other Litigation

The Company has been named in, and from time to time may become named in, various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. The Company concluded as of June 30, 2022, that the ultimate resolution of these matters (including the matters described above) will not have a material adverse effect on the Company’s business, consolidated financial position, results of operations or cash flows.

10. LEASES

General

ALJ has operating leases for facilities, equipment, and vehicles, and finance leases for equipment. Over 95% of operating leases are for facilities. Many of the Company’s facilities leases contain renewal options and rent escalation clauses. The Company subleases excess facility space. Sublease payments received were immaterial for all periods presented.

The Company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and right-of-use asset in the Company’s Consolidated Balance Sheet. Right-of-use assets and lease liabilities for both operating and finance leases are recognized based on present value of lease payments over the lease term at commencement date.

In instances where the lease does not provide an implicit rate, the Company estimates an incremental borrowing rate (“IBR”) based on the information available at commencement date to determine the present value of lease payments. ALJ does not have a published credit rating because it has no publicly traded debt. However, the Company does have several privately held debt instruments that were taken into consideration. The Company generates its IBR, using a synthetic credit rating model that estimates the likelihood (probability) of a borrower receiving a given credit rating based on relevant credit factors or predictor variables. It is based on a regression analysis using selected financial ratios of publicly traded industry comparable companies and the companies’ credit ratings. The estimated IBR is then adjusted for (i) the length of the lease term, and (ii) the effect of designating specific collateral with a value equal to the unpaid lease payments. Finally, ALJ applies the estimated IBR on a lease-by-lease basis as each lease has different start and end dates and has different assumptions regarding purchase or renewal options.

For facilities leases, ALJ accounts for non-lease components such as maintenance, taxes, and insurance, separately. For equipment leases, ALJ accounts for lease and non-lease components as a single lease component. The difference between the operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for deferred rent and tenant improvement allowances.

Lease Impairment

The Company tests right-of-use (“ROU”) assets when impairment indicators are present. During March 2022, the Company entered into an agreement to sublease excess office space, which triggered impairment testing for the underlying ROU asset. The Company performed a discounted cash flow analysis on the ROU asset and determined that the net carrying value exceeded the estimated discounted future cash flows. As a result, ALJ recorded a $2.2 million lease impairment, which was reflected on the statement of operations for the nine months ended June 30, 2022.

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

ROU Assets and ROU Liabilities

The following table presents the location of the ROU assets and liabilities in the Consolidated Balance Sheet and ALJ’s weighted-average lease term and discount rate:

(dollars in thousands)	June 30, 2022			September 30, 2021
Finance Leases:
Property and equipment, at cost	$	1,575		$	1,575
Less accumulated amortization		(1,277	)		(977	)
Property and equipment, net	$	298		$	598
Finance lease obligations, current portion	$	528		$	765
Finance lease obligations, less current portion		—			332
Total finance lease liabilities	$	528		$	1,097
Operating Leases:
Operating lease right-of-use assets	$	17,647		$	29,048
Operating lease obligations - current installments	$	3,200		$	4,722
Operating lease obligations, less current installments		20,167			32,767
Total operating lease obligations	$	23,367		$	37,489
Weighted average remaining lease term (years):
Finance		0.7			1.4
Operating		6.6			6.8
Weighted average discount rate:
Finance		6.0	%		6.0	%
Operating		10.6	%		10.6	%

Components of Lease Costs, Net

The following table presents the components of lease cost and the location of such cost in ALJ’s Consolidated Statements of Operations:

		Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	Statement of Operations Location	2022		2021		2022		2021
Finance Leases:
Amortization of finance lease assets	Selling, general, and administrative expense	$	39	$	189	$	300	$	696
Interest on finance lease liabilities	Interest expense		10		52		38		104
Total finance lease cost			49		241		338		800
Operating Leases:
Operating lease cost	Selling, general, and administrative expense		841		1,724		4,018		5,207
Operating lease cost	Cost of revenue		—		319		510		957
Variable lease cost	Selling, general, and administrative expense		127		220		507		719
Short-term lease cost	Selling, general, and administrative expense		—		10		—		28
Total operating lease cost			968		2,273		5,035		6,911
Lease impairment	Lease impairment		—		—		2,158		—
Total lease cost, net		$	1,017	$	2,514	$	7,531	$	7,711

24

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Supplemental Cash Flow Information

The following table presents supplemental cash flow information related to leases:

(In thousands)	Nine Months Ended June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for finance leases	$	38	$	104
Operating cash flows used for operating leases - continuing operations		3,187		3,750
Financing cash flows used for finance leases		607		2,350
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,379		576

Lease Maturities

Maturities of lease liabilities on June 30, 2022 were as follows (in thousands):

Year Ending June 30,	Finance Leases			Operating Leases			Sublease
2023	$	540		$	5,292		$	(771	)
2024		—			5,133			(771	)
2025		—			5,102			(771	)
2026		—			5,091			(771	)
2027		—			4,161			(257	)
Thereafter		—			6,502			—
Total lease payments		540			31,281			(3,341	)
Less: imputed interest		(12	)		(7,914	)		682
Total present value of lease payments	$	528		$	23,367		$	(2,659	)
Reported as of June 30, 2022
Current	$	528		$	3,200
Non-current		—			20,167
Total	$	528		$	23,367

11. EQUITY

Common Stock

ALJ issued less than 0.1 million shares of common stock upon the cashless exercise of stock options during both the nine months ended June 30, 2022 and 2021.

Preferred Stock

In August 2018, ALJ shareholders approved the amendment and restatement of ALJ’s Restated Certificate of Incorporation to eliminate the preferred stock and authorize the issuance of 5.0 million shares of blank check preferred stock. ALJ had no preferred stock outstanding on June 30, 2022 or September 30, 2021.

Equity Incentive Plans

In July 2016, ALJ shareholders approved ALJ’s Omnibus Equity Incentive Plan (“2016 Plan”), which allows ALJ and its subsidiaries to grant securities of ALJ to officers, employees, directors, or consultants. ALJ believes that equity-based compensation is fundamental to attracting, motivating, and retaining highly qualified dedicated employees who have the skills and experience required to achieve business goals. Further, ALJ believes the 2016 Plan aligns the compensation of directors, officers, and employees with shareholder interest.

The 2016 Plan is administered by ALJ’s Compensation, Nominating and Corporate Governance Committee (“Committee”) of the Board. The maximum aggregate number of common stock shares that may be granted under the 2016 Plan is 2.0 million. The 2016 Plan generally provides for the grant of qualified or nonqualified stock options, restricted stock and restricted stock units, unrestricted stock, stock appreciation rights, performance awards and other awards. The Committee has full discretion to set the vesting criteria.

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ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The exercise price of a stock option may not be less than 100% of the fair market value of ALJ’s common stock on the date of grant. The 2016 Plan prohibits the repricing of outstanding stock options without prior shareholder approval. The term of stock options granted under the 2016 Plan may not exceed ten years. Awards are subject to accelerated vesting upon a change in control in the event the acquiring company does not assume the awards. The Board may amend, alter, or discontinue the 2016 Plan, but shall obtain shareholder approval of any amendment as required by applicable law or stock exchange listing requirements. As of June 30, 2022, there were 1.4 million options available for future grant under the 2016 Plan.

Stock-Based Compensation.

The following table sets forth the total stock-based compensation expense included in selling, general, and administrative expense on the Statements of Operations:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Stock options	$	15	$	15	$	75	$	47
Common stock awards		26		26		79		79
Total stock-based compensation expense	$	41	$	41	$	154	$	126

On June 30, 2022, ALJ had $0.1 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately 2.2 years.

Stock Option Awards.

ALJ issued 200,000 options during the nine months ended June 30, 2022. The fair value of the options was $0.1 million using the following assumptions: expected option life of 6.2 years, volatility of 56.46%, dividend yield of 0.00%, and annual risk-free interest rate of 1.18%.

ALJ had no option grants during the nine months ended June 30, 2021.

Common Stock Awards. Members of ALJ’s Board of Directors receive a director compensation package that includes an annual common stock award. In connection with such awards, ALJ recorded stock-based compensation expense of less than $0.1 million for both the three months ended June 30, 2022 and 2021, and $0.1 million for both the nine months ended June 30, 2022 and 2021.

Common Stock Options and Warrants Outstanding on June 30, 2022

On June 30, 2022, ALJ had 1.4 million stock options with a weighted average exercise price of $3.50 outstanding and warrants exercisable to purchase 1.6 million shares of common stock with a weighted average exercise price of $0.56 outstanding.

The “intrinsic value” of options is the excess of the value of ALJ stock over the exercise price of such options. The total intrinsic value of options outstanding (of which all are vested or expected to vest) and the total intrinsic value of options exercisable was $0.1 million on June 30, 2022.

12. INCOME TAX

ALJ recorded a provision for income taxes from continuing operations of $6.0 million and $0.2 million for the nine months ended June 30, 2022 and 2021, respectively. ALJ’s effective tax rate from continuing operations for the nine months ended June 30, 2022 was (0.1%), which was due primarily to changes to the valuation allowance recorded against net deferred tax assets. ALJ’s effective tax rate for the nine months ended June 30, 2021was (0.7%), which was also due primarily to changes to the valuation allowance recorded against net deferred tax assets.

ALJ recorded a discrete tax provision in continuing operations of $6.0 million for the nine months ended June 30, 2022 related to the Faneuil Asset Sale. ALJ recorded no discrete tax provision in continuing operations for the nine months ended June 30, 2021.

ALJ recorded a provision for income taxes from discontinued operations of $13.2 million, of which $13.0 million was for the one-time Phoenix Sale and $0.2 million was for Phoenix operations, and $0.5 million for the nine months ended June 30, 2022 and 2021, respectively. The increase in the provision for income taxes from discontinued operations is due to the Phoenix Sale.

26

ALJ REGIONAL HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. RANSOMWARE INCIDENT

On August 18, 2021, Faneuil detected a ransomware attack (“Security Event”) that accessed and encrypted certain files on certain servers utilized by Faneuil in the provision of its call center services.

Promptly upon detection of the Security Event, Faneuil launched an investigation, engaged legal counsel and other incident response professionals, and notified law enforcement. Faneuil immediately implemented a series of containment and remediation measures to address this situation and reinforce the security of its information technology systems. Faneuil worked with industry-leading cybersecurity professionals to immediately respond to the threat, defend its information technology systems, and conduct remediation.

Although Faneuil quickly and actively managed the Security Event, such event caused disruption to parts of Faneuil’s business, including certain aspects of its provision of call center services. Faneuil carries insurance, including cyber insurance, commensurate with the size and the nature of its operations. Although Faneuil actively communicated with customers and worked to minimize disruption, Faneuil cannot guarantee that customer relationships were not harmed as a result of the Security Event.

Faneuil incurred less than $0.1 million and $0.2 million of Security Event related expenses, recorded in selling, general, and administrative expense during the three and nine months ended June 30, 2022, respectively. As of June 30, 2022, Faneuil’s insurance recovery receivable was approximately $0.8 million, included with other current assets on the Consolidated Balance Sheet, for amounts that are considered probable for recovery. The insurance proceeds are expected to be received before September 30, 2022.

Should Faneuil expect to receive additional insurance recoveries, above the $0.8 million insurance recovery receivable on June 30, 2022, they will be recorded when considered probable for recovery.

14. REPORTABLE SEGMENTS AND GEOGRAPHIC INFORMATION

Reportable Segments

As a result of the Phoenix Sale discussed in Note 1, ALJ had one operating segment for all periods presented.

Geographic Information

Substantially all of the Company’s assets were located in the United States. Substantially all of the Company’s revenue was earned in the United States.

15. SUBSEQUENT EVENT

Stock Repurchase and Retirement

On July 11, 2022, the Board of Directors of ALJ unanimously authorized the repurchase and retirement of 3.7 million shares of common stock for $2.00 per share for an aggregate consideration of $7.5 million (the "Repurchase Transactions"). The shareholders from whom the shares were repurchased included a 5% shareholder of the Company as well as two charitable associations associated with Jess Ravich, ALJ’s Chief Executive Officer. The Repurchase Transactions and the subsequent retirement of repurchased shares were all completed on or before July 19, 2022.

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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided in addition to the accompanying condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. MD&A is organized as follows:

•Overview. Discussion of our business and overall analysis of financial and other highlights affecting us to provide context for the remainder of MD&A.

•Results of Operations. An analysis comparing our financial results for the three and nine months ended June 30, 2022 to the three and nine months ended June 30, 2021.

•Liquidity and Capital Resources. An analysis comparing our cash flows for the nine months ended June 30, 2022 to the nine months ended June 30, 2021, and discussion of our financial condition and liquidity.

•Contractual Obligations. Discussion of contractual obligations on June 30, 2022.

•Off-Balance Sheet Arrangements. Discussion of off-balance sheet arrangements on June 30, 2022.

•Critical Accounting Policies and Estimates. Discussion of the significant estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in “Part I, Item 1 – Financial Statements." See Recent Accounting Standards for discussion of recent accounting standards that could have an impact on our future results of operations. The following discussion contains a number of forward-looking statements that involve risks and uncertainties. Words such as "anticipates," "expects," "intends," "goals," "plans," "believes," "seeks," "estimates," "continues," "may," "will," "should," and variations of such words and similar expressions are intended to identify such forward-looking statements. Such statements are based on our current expectations and could be affected by the risk and uncertainties described in “Part II, Item 1A - Risk Factors.” Our actual results may differ materially.

Overview

ALJ Regional Holdings, Inc. (including subsidiaries, referred to collectively herein as “ALJ” or “Company”) is a holding company. During the three and nine months ended June 30, 2022, ALJ consisted of the following wholly-owned subsidiaries:

•Faneuil, Inc. (including its subsidiaries, “Faneuil”). Faneuil is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and regulated commercial clients across the United States, focusing on the healthcare, utility, transportation, and toll revenue collection industries. Faneuil is headquartered in Hampton, Virginia. ALJ acquired Faneuil in October 2013. On April 1, 2022, ALJ completed the sale of Faneuil’s tolling and transportation and health benefit exchange vertical. See "Recent Developments - Asset Sale - Faneuil" below.

•Phoenix Color Corp. (including its subsidiaries, “Phoenix”). Phoenix is a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and commercial specialty products using a broad spectrum of materials and decorative technologies. Phoenix is headquartered in Hagerstown, Maryland. ALJ acquired Phoenix in August 2015. On April 13, 2022, ALJ completed its sale of Phoenix. See "Recent Developments - Discontinued Operations – Phoenix" below.

ALJ owned a third segment, Floors-N-More, LLC, d/b/a, Carpets N’ More (“Carpets”). Carpets was a floor covering retailer in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail and home builder markets including all types of flooring, countertops, cabinets, window coverings and garage/closet organizers. ALJ acquired and disposed of Carpets in April 2014 and February 2021, respectively. See "Recent Developments - Discontinued Operations – Carpets" below.

With several members of our senior management and Board of Directors coming from long careers in the professional services industry, ALJ is focused on acquiring and operating exceptional businesses.

As a result of the Phoenix Sale, we had only one operating segment for all periods presented. Looking forward, we continue to see our business evolve as we execute our strategy of buying attractively valued assets and selling existing assets when advantageous. In analyzing the financial impact of any potential acquisition, we focus on earnings, operating margin, cash flow and return on invested capital targets. We hire successful and experienced management teams to run each of our operating companies and incentivize them to drive higher profits. We are focused on increasing our revenue by investing in sales and marketing, expanding into new products and markets, and evaluating and executing on tuck-in acquisitions, while continually examining our cost structures to drive higher profits.

28

Recent Developments

Discontinued Operations – Carpets

In February 2021, ALJ completed the sale of Carpets (the “Carpets Sale”). The Company determined that the Carpets Sale qualified as discontinued operations as defined by Accounting Standards Codification (“ASC”) 205-20-45, Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters (“ASC 205”) because the Carpets Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Carpets results of operations and cash flows were classified as discontinued operations for the nine months ended June 30, 2021.

Discontinued Operations – Phoenix

In February 2022, ALJ entered into a stock purchase agreement (the “Stock Purchase Agreement”) to sell all of the outstanding shares of common stock of Phoenix (the “Phoenix Sale”) for cash consideration, including post-closing working capital adjustments, totaling approximately $135.9 million. The Phoenix Sale closed on April 13, 2022. The Company recorded a gain on sale of discontinued operations, net of related income taxes, of $46.8 million during the three months ended June 30, 2022.

The Company determined that the Phoenix Sale qualified as discontinued operations as defined by ASC 205 because the Phoenix Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Phoenix assets, liabilities, results of operations, and cash flows were classified as discontinued operations for all periods presented.

Asset Sale - Faneuil

In December 2021, ALJ entered into an agreement to sell certain net assets of Faneuil’s tolling and transportation vertical and health benefit exchange vertical (the “Faneuil Asset Sale”). The Faneuil Asset Sale closed on April 1, 2022, for cash consideration of $142.3 million less an indemnification escrow amount of approximately $15.0 million. Faneuil is also eligible to receive additional earn-out payments based upon the performance of certain customer agreements in an aggregate amount of up to $25.0 million. The Company recorded a gain on sale of assets, net of related income taxes, of $112.0 million during the three and nine months ended June 30, 2022. See Note 4 for additional financial information about Faneuil's gain on sale of assets.

In connection with the Faneuil Asset Sale, Faneuil entered into a Transition Services Agreement ("TSA"), which is designed to ensure and facilitate an orderly transfer of the tolling and transportation vertical and health benefit exchange vertical. The services provided under the TSA will terminate at various times between 30 days and 365 days from the closing date of the Faneuil Asset Sale and can be renewed, in whole or in part, in 30-day increments, for a maximum of 180 days. Revenue earned from the TSA was disclosed as other revenue on the consolidated statements of operations during the three and nine months ended June 30, 2022. TSA-related expenses were recorded in their natural expense classification.

The Company determined that the Faneuil Asset Sale did not qualify as discontinued operations as defined by ASC 205 because the Faneuil Asset Sale does not represent a strategic shift with a major effect on the Company's operations and financial results. As such, Faneuil assets, liabilities, results of operations, and cash flows were included with continuing operations for all periods presented.

See “Part I, Item 1. Financial Statements – Note 4. Divestitures and Discontinued Operations."

Termination of Debt

Termination of Blue Torch Term Loan

On April 1, 2022, in connection with the Faneuil Asset Sale, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under that certain Financing Agreement, dated June 29, 2021, with Blue Torch as agent (the “Blue Torch Term Loan”). ALJ’s payment to Blue Torch was approximately $92.2 million, which satisfied all of the Company’s debt obligations under the Blue Torch Term Loan (“Blue Torch Payoff”). The Company was not required to pay any prepayment premiums as a result of the repayment of indebtedness under the Blue Torch Term Loan, which provided that the mandatory prepayment made in connection with the proceeds from the Faneuil Asset Sale were exempt from such pre-payment premiums. In connection with the repayment of outstanding indebtedness by the Company, the lenders automatically and permanently released all security interests, mortgages, liens and encumbrances under the Blue Torch Term Loan.

29

Termination of Amended PNC Revolver

In connection with the Phoenix Sale on April 13, 2022, the Company repaid in full all outstanding indebtedness (including a pre-payment premium of $0.3 million) and terminated all commitments and obligations under that Amended and Restated Financing Agreement, dated as of June 29, 2021, with PNC as agent (as amended, the “Amended PNC Revolver”). In connection with the repayment of outstanding indebtedness by the Company under the Amended PNC Revolver, the lenders automatically and permanently released all security interests, mortgages, liens and encumbrances thereunder.

See “Part I, Item 1. Financial Statements – Note 8. Debt."

30

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

The following table sets forth certain Condensed Consolidated Statements of Operations data in dollars and as a percentage of revenue for each period as follows:

	Three Months Ended June 30, 2022						Three Months Ended June 30, 2021
				% of						% of
(in thousands, except per share amounts)	Dollars			Revenue			Dollars			Revenue
Revenue:
Faneuil revenue	$	25,110			43.6	%	$	72,754			100.0	%
Faneuil other revenue		32,511			56.4			—			—
Consolidated revenue and other revenue		57,621			100.0			72,754			100.0
Cost of revenue:
Faneuil		52,352			90.9			59,209			81.4
Consolidated cost of revenue		52,352			90.9			59,209			81.4
Selling, general, and administrative expense:
Faneuil		7,671			13.3			10,897			15.0
ALJ		(2,720	)		—			1,751			—
Consolidated selling, general, and administrative expense		4,951			8.6			12,648			17.4
Depreciation and amortization expense:
Faneuil		2,492			4.3			3,116			4.3
Consolidated depreciation and amortization expense		2,492			4.3			3,116			4.3
Gain on sale of assets and other		(118,014	)		(204.8	)		—			—
Total consolidated operating costs, expenses, and other, net		(58,219	)		(101.0	)		74,973			103.1
Consolidated operating income (loss)		115,840			201.0			(2,219	)		(3.1	)
Interest income		127			0.2			—			—
Interest expense		(151	)		(0.3	)		(2,623	)		(3.6	)
Loss on debt extinguishment		(3,884	)		(6.7	)		(1,914	)		(2.6	)
Provision for income taxes		(6,065	)		(105.3	)		(70	)		(1.0	)
Net income (loss) from continuing operations		105,867			183.7			(6,826	)		(9.4	)
Net income from discontinued operations, net of income taxes		47,963			83.2			3,322			4.6
Net income (loss)	$	153,830			267.0		$	(3,504	)		(4.8	)
Income (loss) per share of common stock–basic:
Continuing operations	$	2.50					$	(0.16	)
Discontinued operations	$	1.13					$	0.08
Net income (loss) per share (1)	$	3.63					$	(0.08	)
Income (loss) per share of common stock–diluted:
Continuing operations	$	1.93					$	(0.16	)
Discontinued operations	$	0.87					$	0.06
Net income (loss) per share (1)	$	2.81					$	(0.08	)
Weighted average shares of common stock outstanding:
Basic		42,409						42,321
Diluted		54,818						54,503

(1) Amounts may not add due to rounding.

31

Revenue

	Three Months Ended June 30,
(in thousands)	2022		2021		$ Change			% Change
Faneuil revenue	$	25,110	$	72,754	$	(47,644	)		(65.5	)%
Faneuil other revenue (TSA)		32,511		—		32,511			—
Consolidated revenue and other revenue	$	57,621	$	72,754	$	(15,133	)		(20.8	)%

Faneuil Revenue

Faneuil revenue for the three months ended June 30, 2022 was $25.1 million, a decrease of $47.6 million, or 65.5%, compared to revenue of $72.8 million for the three months ended June 30, 2021. The decrease was mainly attributable to $37.6 million for contracts that were part of the Faneuil Asset Sale, a $16.5 million reduction driven by the completion of customer contracts, somewhat offset by a $3.1 million increase from new customer contracts and a $3.4 million net increase from existing customer call volumes.

Faneuil other revenue (TSA) included revenue earned during the TSA as Faneuil serviced the contracts that were sold as part of the Faneuil Asset Sale.

The following table, which has been adjusted for the Faneuil Asset Sale, reflects the amount of Faneuil’s backlog, which represents multi-year contract deliverables, by the year Faneuil expects to recognize such revenue:

	As of June 30,
(in millions)	2022		2021
Within one year	$	77.6	$	89.5
Between one year and two years		23.3		35.5
Between two years and three years		13.1		6.9
Between three years and four years		3.2		2.6
Thereafter		3.9		5.8
Total Faneuil backlog	$	121.0	$	140.3

For further discussion of Faneuil backlog, see “Part II, Item 1A. Risk Factors - Risks Related to our Business Generally and our Common Stock - We may not receive the full amounts estimated under the contracts in our backlog, which could reduce our revenue in future periods below the levels anticipated. This makes backlog an uncertain indicator of future operating results.”

Cost of Revenue

	Three Months Ended June 30,
(in thousands)	2022			2021			$ Change			% Change
Faneuil	$	52,352		$	59,209		$	(6,857	)		(11.6	)%
As a percentage of segment revenue		90.9	%		81.4	%
Consolidated cost of revenue	$	52,352		$	59,209		$	(6,857	)		(11.6	)%

Faneuil Cost of Revenue

Faneuil cost of revenue for the three months ended June 30, 2022 was $52.4 million, a decrease of $6.9 million, or 11.6%, compared to cost of revenue of $59.2 million for the three months ended June 30, 2021. The decrease in cost of revenue was a direct result of the decreased revenue. During the three months ended June 30, 2022, as compared to the three months ended June 30, 2021, cost of revenue as a percentage of segment revenue increased to 90.9% from 81.4%, respectively, as the revenue earned in connection with the TSA was primarily for direct and indirect costs with a contractual margin.

Selling, General, and Administrative Expense

	Three Months Ended June 30,
(in thousands)	2022			2021		$ Change			% Change
Faneuil	$	7,671		$	10,897	$	(3,226	)		(29.6	)%
ALJ		(2,720	)		1,751		(4,471	)		(255.3	)
Consolidated selling, general, and administrative expense	$	4,951		$	12,648	$	(7,697	)		(60.9	)%

Faneuil Selling, General, and Administrative Expense

Faneuil selling, general, and administrative expense for the three months ended June 30, 2022 was $7.7 million, a decrease of $3.2 million, or 29.6%, compared to selling, general, and administrative expense of $10.9 million for the three months ended June 30,

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2021. The decrease was primarily attributable to lower performance-based bonuses for selling, general, and administrative personnel, reduced legal fees as a result of settling legal claims, and lower rent expense as a result of subleasing excess real estate. The decrease was slightly offset by higher bad debt expense driven by terminated contracts and higher medical insurance claims under Faneuil’s self-insurance medical plan. During the three months ended June 30, 2022 compared to the three months ended June 30, 2021, Faneuil selling, general, and administrative expense as a percentage of segment revenue was 13.3% and 15.0%, respectively. Certain selling, general, and administrative expenses do not fluctuate directly with revenue. As such, we expect Faneuil selling, general, and administrative expense as a percentage of segment revenue to fluctuate.

ALJ Selling, General, and Administrative Expense

ALJ selling, general, and administrative expense for the three months ended June 30, 2022 was ($2.7) million, a decrease of $4.5 million, or 255.3%, compared to selling, general, and administrative expense of $1.8 million for the three months ended June 30, 2021. During the three months ended June 30, 2022, ALJ reclassified $4.7 million of expenses related to the Phoenix Sale and the Faneuil Asset Sale to discontinued operations and gain on sale of assets. Excluding such reclassification, ALJ selling, general, and administrative expense for the three months ended June 30, 2022 was $2.0 million. ALJ selling, general, and administrative expense was impacted by higher compensation-related expenses during the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Depreciation and Amortization Expense

	Three Months Ended June 30,
(in thousands)	2022		2021		$ Change			% Change
Faneuil	$	2,492	$	3,116	$	(624	)		(20.0	)%
Consolidated depreciation and amortization expense	$	2,492	$	3,116	$	(624	)		(20.0	)%

Faneuil Depreciation and Amortization Expense

Faneuil depreciation and amortization expense for the three months ended June 30, 2022 was $2.5 million, a decrease of $0.6 million, or 20%, compared to depreciation and amortization expense of $3.1 million for the three months ended June 30, 2021. The decrease was attributable to the Faneuil Asset Sale. Because certain Faneuil contracts require capital investments, Faneuil depreciation and amortization expense is impacted by the timing of new contracts and the completion of existing contracts.

Gain on Sale of Assets and Other

In connection with the Faneuil Asset Sale, we recognized a $118.0 million gain on sale of assets. The related income tax, $6.0 million, was recorded in our provision for income taxes. See "Provision for Income Taxes" below.

Interest Income

Subsequent to the Faneuil Asset Sale and Phoenix Sale, we invested the majority our excess cash in short-term treasury bills and money market funds. As a result, we recorded interest income of $0.1 million for the three months ended June 30, 2022.

Interest Expense

As a result of the Blue Torch Payoff and the Amended PNC Revolver termination, our interest expense for the three months ended June 30, 2022 decreased to $0.2 million compared to $2.6 million for the three months ended June 30, 2021.

Loss on Debt Extinguishment

We recognized a loss on debt extinguishment of $3.9 million during the three months ended June 30, 2022, which was comprised of $3.6 million for the write off of deferred loan costs and $0.3 million of prepayment penalties.

We recognized a loss on debt extinguishment of $1.9 million during the three months ended June 30, 2021, which was comprised of $1.2 million for the write off of deferred loan costs and $0.7 million of prepayment penalties.

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Provision for Income Taxes

We recorded a provision for income taxes from continuing operations of $6.1 million and $0.1 million for the three months ended June 30, 2022 and 2021, respectively. Our effective tax rate from continuing operations for the three months ended June 30, 2022 was (0.1)%, as a result of changes to the valuation allowance recorded against net deferred tax assets. Our effective tax rate from continuing operations for the three months ended June 30, 2021 was (0.7%), which was also due to changes to the valuation allowance recorded against net deferred tax assets.

We recorded a discrete tax provision in continuing operations of $6.0 million for the three months ended June 30, 2022 related to the Faneuil Asset Sale.

We recorded a provision for income taxes for discontinued operations of $13.0 million, which was for the one-time Phoenix Sale, and $0.3 million, which was for Phoenix operations, for the three months ended June 30, 2022 and 2021, respectively.

Net Income from Discontinued Operations, Net of Income Taxes

	Three Months Ended June 30,
(in thousands)	2022		2021		$ Change			% Change
Phoenix – discontinued operations, net of income taxes	$	1,133	$	3,322	$	(2,189	)		(65.9	)%
Phoenix – gain on sale, net of income taxes		46,830		—		46,830		NM
Net income from discontinued operations, net of income taxes	$	47,963	$	3,322	$	44,641			1343.8	%

NM – Not meaningful.

As a result of the Phoenix Sale in April 2022, we recognized net income from discontinued operations, net of income taxes, of $48.0 million during the three months ended June 30, 2022, of which $46.8 million was attributable to the one-time gain on the sale of Phoenix, and $1.1 million was attributable to the operations of Phoenix. During the three months ended June 30, 2021, we recognized net income from discontinued operations, net of income taxes, of $3.3 million, which was fully attributable to the operations of Phoenix.

As a result of the sale of Carpets in February 2021, Carpets had no discontinued operations during the three months ended June 30, 2022.

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Nine Months Ended June 30, 2022 Compared to Nine Months Ended June 30, 2021

The following table sets forth certain Condensed Consolidated Statements of Operations data in dollars and as a percentage of revenue for each period as follows:

	Nine Months Ended June 30, 2022						Nine Months Ended June 30, 2021
				% of						% of
(in thousands, except per share amounts)	Dollars			Revenue			Dollars			Revenue
Revenue:
Faneuil revenue	$	168,403			83.8	%	$	243,147			100.0	%
Faneuil other revenue		32,511			16.2			—			—
Consolidated revenue and other revenue		200,914			100.0			243,147			100.0
Cost of revenue:
Faneuil		178,071			88.6			203,247			83.6
Consolidated cost of revenue		178,071			88.6			203,247			83.6
Selling, general, and administrative expense:
Faneuil		24,545			12.2			28,799			11.8
ALJ		4,866			—			5,232			—
Consolidated selling, general, and administrative expense		29,411			14.6			34,031			14.0
Depreciation and amortization expense:
Faneuil		8,631			4.3			9,456			3.9
Consolidated depreciation and amortization expense		8,631			4.3			9,456			3.9
Lease impairment		2,158			1.1			—			—
Gain on sale of assets and other		(117,988	)		(58.7	)		—			—
Total consolidated operating costs, expenses, and other, net		100,283			49.9			246,734			101.5
Consolidated operating loss		100,631			50.1			(3,587	)		(1.5	)
Interest income		127			0.1			—			—
Interest expense		(5,449	)		(2.7	)		(7,656	)		(3.1	)
Loss on debt extinguishment		(3,884	)		(1.9	)		(1,914	)		(0.8	)
Provision for income taxes		(6,010	)		(29.9	)		(244	)		(1.0	)
Net income (loss) from continuing operations		85,415			42.5			(13,401	)		(5.5	)
Net income from discontinued operations, net of income taxes		56,107			27.9			7,695			3.2
Net income (loss)	$	141,522			70.4		$	(5,706	)		(2.3	)
(Loss) income per share of common stock–basic:
Continuing operations	$	2.01					$	(0.32	)
Discontinued operations	$	1.32					$	0.18
Net loss per share (1)	$	3.34					$	(0.13	)
(Loss) income per share of common stock–diluted:	$	—					$	—
Continuing operations	$	1.56					$	(0.32	)
Discontinued operations	$	1.03					$	0.14
Net loss per share (1)	$	2.59					$	(0.13	)
Weighted average shares of common stock outstanding:
Basic		42,408						42,320
Diluted		54,735						54,416

(1) Amounts may not add due to rounding.

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Revenue

	Nine Months Ended June 30,
(in thousands)	2022		2021		$ Change			% Change
Faneuil revenue	$	168,403	$	243,147	$	(74,744	)		(30.7	)%
Faneuil other revenue (TSA)		32,511		—		32,511			—
Consolidated revenue and other revenue	$	200,914	$	243,147	$	(42,233	)		(17.4	)%

Faneuil Revenue

Faneuil revenue for the nine months ended June 30, 2022 was $168.4 million, a decrease of $74.7 million, or 30.7%, compared to revenue of $243.1 million for the nine months ended June 30, 2021. The decrease was mainly attributable to $34.1 million for contracts that were part of the Faneuil Asset Sale, a $56.8 million reduction driven by the completion of customer contracts, somewhat offset by a $12.4 million net increase from existing customer call volumes and a $3.7 million increase from new customer contracts.

Faneuil other revenue (TSA) included revenue earned during the TSA as Faneuil serviced the contracts that were sold as part of the Faneuil Asset Sale.

Cost of Revenue

	Nine Months Ended June 30,
(in thousands)	2022			2021			$ Change			% Change
Faneuil	$	178,071		$	203,247		$	(25,176	)		(12.4	)%
As a percentage of segment revenue		88.6	%		83.6	%
Consolidated cost of revenue	$	178,071		$	203,247		$	(25,176	)		(12.4	)%

Faneuil Cost of Revenue

Faneuil cost of revenue for the nine months ended June 30, 2022 was $178.1 million, a decrease of $25.2 million, or 12.4%, compared to cost of revenue of $203.2 million for the nine months ended June 30, 2021. The decrease in cost of revenue was a direct result of the decreased revenue. During the nine months ended June 30, 2022, as compared to the nine months ended June 30, 2021, cost of revenue as a percentage of segment revenue increased to 88.6% from 83.6%, respectively, as the revenue earned in connection with the TSA was primarily for direct and indirect costs with a contractual margin.

Selling, General, and Administrative Expense

	Nine Months Ended June 30,
(in thousands)	2022		2021		$ Change			% Change
Faneuil	$	24,545	$	28,799	$	(4,254	)		(14.8	)%
ALJ		4,866		5,232		(366	)		(7.0	)
Consolidated selling, general, and administrative expense	$	29,411	$	34,031	$	(4,620	)		(13.6	)%

Faneuil Selling, General, and Administrative Expense

Faneuil selling, general, and administrative expense for the nine months ended June 30, 2022 was $24.5 million, a decrease of $4.3 million, or 14.8%, compared to selling, general, and administrative expense of $28.8 million for the nine months ended June 30, 2021. The decrease was primarily attributable to lower performance-based bonuses for selling, general, and administrative personnel, reduced legal fees as a result of settling legal claims, and lower rent expense as a result of subleasing excess real estate. The decrease was slightly offset by higher bad debt expense driven by terminated contracts and higher medical insurance claims under Faneuil’s self-insurance medical plan. During the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021, Faneuil selling, general, and administrative expense as a percentage of segment revenue increased to 12.2% from 11.8% mostly due to the decrease in revenue. Certain selling, general, and administrative expenses do not fluctuate directly with revenue. As such, we expect Faneuil selling, general, and administrative expense as a percentage of segment revenue to fluctuate.

ALJ Selling, General, and Administrative Expense

ALJ selling, general, and administrative expense for the nine months ended June 30, 2022 was $4.9 million, an decrease of $0.4 million, or 7.0%, compared to selling, general, and administrative expense of $5.2 million for the nine months ended June 30, 2021. The decrease was mainly attributable to reduced banking expenses as a result of restructuring our debt in June 2021.

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Depreciation and Amortization Expense

	Nine Months Ended June 30,
(in thousands)	2022		2021		$ Change			% Change
Faneuil	$	8,631	$	9,456	$	(825	)		(8.7	)%
Consolidated depreciation and amortization expense	$	8,631	$	9,456	$	(825	)		(8.7	)%

Faneuil Depreciation and Amortization Expense

Faneuil depreciation and amortization expense for the nine months ended June 30, 2022 was $8.6 million, a decrease of $0.8 million, or 8.7%, compared to depreciation and amortization expense of $9.5 million for the nine months ended June 30, 2021. The decrease was attributable to the Faneuil Asset Sale. Because certain Faneuil contracts require capital investments, Faneuil depreciation and amortization expense is impacted by the timing of new contracts and the completion of existing contracts.

Gain on Sale of Assets and Other

In connection with the Faneuil Asset Sale, we recognized a $118.0 million gain on sale of assets. The related income tax, $6.0 million, was recorded in our provision for income taxes. See "Provision for Income Taxes" below.

Interest Income

Subsequent to the Faneuil Asset Sale and Phoenix Sale, we invested the majority our excess cash in short-term treasury bills and money market funds. As a result, we recorded interest income of $0.1 million for the nine months ended June 30, 2022.

Interest Expense

As a result of the Blue Torch Payoff and the Amended PNC Revolver termination, our interest expense for the nine months ended June 30, 2022 decreased to $5.5 million compared to $7.7 million for the nine months ended June 30, 2021.

Loss on Debt Extinguishment

We recognized a loss on debt extinguishment of $3.9 million during the nine months ended June 30, 2022, which was comprised of $3.6 million for the write off of deferred loan costs and $0.3 million of prepayment penalties.

We recognized a loss on debt extinguishment of $1.9 million during the nine months ended June 30, 2021, which was comprised of $1.2 million for the write off of deferred loan costs and $0.7 million of prepayment penalties.

Provision for Income Taxes

We recorded a provision for income taxes from continuing operations of $6.0 million and $0.2 million for the nine months ended June 30, 2022 and 2021, respectively. Our effective tax rate from continuing operations for the nine months ended June 30, 2022 was (0.1)%, as a result of changes to the valuation allowance recorded against net deferred tax assets. Our effective tax rate from continuing operations for the nine months ended June 30, 2021 was (0.7%), which was also due to changes to the valuation allowance recorded against net deferred tax assets.

We recorded a discrete tax provision in continuing operations of $6.0 million for the nine months ended June 30, 2022 related to the Faneuil Asset Sale.

We recorded a provision for income taxes from discontinued operations of $13.2 million, of which $13.0 million was for the one-time Phoenix Sale and $0.2 million was for Phoenix operations, and $0.5 million for the nine months ended June 30, 2022 and 2021, respectively. The increase in the provision for income taxes from discontinued operations is due to the Phoenix Sale.

Net Income from Discontinued Operations, Net of Income Taxes

	Nine Months Ended June 30,
(in thousands)	2022		2021			$ Change		% Change
Phoenix – discontinued operations, net of income taxes	$	9,277	$	8,758		$	519		5.9	%
Phoenix – gain on sale, net of income taxes		46,830		—			46,830	NM
Carpets – discontinued operations, net of income taxes		—		(302	)		302	NM
Carpets – loss on sale, net of income taxes		—		(761	)		761	NM
Net income from discontinued operations, net of income taxes	$	56,107	$	7,695		$	48,412		629.1	%

NM – Not meaningful.

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As a result of the Phoenix Sale in April 2022, we recognized net income from discontinued operations, net of income taxes, of $56.1 million during the nine months ended June 30, 2022, of which $46.8 million was attributable to the one-time gain on the sale of Phoenix, and $9.3 million was attributable to the operations of Phoenix. During the nine months ended June 30, 2021, we recognized net income from discontinued operations, net of income taxes, of $7.7 million, of which ($0.8) million was attributable to the one-time loss on the sale of Carpets, and $8.8 million and ($0.3) million were attributable to the operations of Phoenix and Carpets, respectively.

Seasonality

Faneuil

Subsequent to the Faneuil Asset Sale, seasonality has a minimal impact on Faneuil’s results of operations.

Liquidity and Capital Resources

Historically, our principal sources of liquidity have been cash provided by operations and borrowings under various debt arrangements. During April 2022, the following transactions had, and will continue to have, a significant impact on our liquidity and capital resources:

•Faneuil Asset Sale

•Phoenix Sale

•Blue Torch Payoff

•Termination of Amended PNC Revolver

See Recent Developments in the MD&A introduction above for a further discussion of these transactions.

Summary of Cash Flows

In summary, our cash flows for each period were as follows:

	Nine Months Ended June 30,
(in thousands)	2022			2021
Cash (used for) provided by operating activities	$	(29,225	)	$	20,662
Cash provided by (used for) investing activities		155,651			(5,892	)
Cash used for financing activities		(100,758	)		(12,405	)
Change in cash and cash equivalents	$	25,668		$	2,365

For the nine months ended June 30, 2022, we recognized net income of $141.5 million, used cash for operating activities of $29.2 million, generated cash from investing activities of $155.7 million, and used cash for financing activities of $100.8 million.

For the nine months ended June 30, 2021, we recognized net loss of $5.7 million, generated cash from operating activities of $20.7 million, used cash for investing activities of $5.9 million, and used cash for financing activities of $12.4 million.

Operating Activities

Cash used for operating activities of $29.2 million during the nine months ended June 30, 2022 was the result of our $141.5 million net income, $174.3 million negative adjustment for gains and non-cash expenses, and $3.6 million of net cash provided by changes in operating assets and liabilities. The most significant components of our negative adjustment for gains and non-cash expenses were ($190.5) million in gains from the Faneuil Asset Sale and the Phoenix Sale, depreciation and amortization expense of $8.6 million, loss on debt extinguishment of $3.9 million, and lease impairment of $2.2 million, which was driven by subleasing excess real estate. The most significant components of changes in operating assets and liabilities were accounts receivable of $18.7 million, which provided cash, partially offset by other current liabilities and other non-current liabilities of $5.5 million and accounts payable of $5.2 million, which used cash.

Cash provided by operating activities of $20.7 million during the nine months ended June 30, 2021 was the result of our $5.7 million net loss, $15.6 million addback of net non-cash expenses, and $10.8 million of net cash provided by changes in operating assets and liabilities. The most significant components of net non-cash expenses were depreciation and amortization expense of $9.5 million, loss on debt extinguishment of $1.9 million, interest expense and other bank fees accreted to term loans of $1.7 million, and change in fair value of contingent consideration of $1.1 million. The most significant components of changes in operating assets and liabilities were other current liabilities and other non-current liabilities of $2.9 million, and accounts receivable of $1.3 million, which provided cash,

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partially offset by deferred revenue and customer deposits of $4.8 million, which used cash. The CARES Act allowed us to defer payment for $7.3 million of payroll-related taxes on June 30, 2021. Our discontinued operations provided $11.7 million of cash in the normal course of operations.

Cash used for operating activities for the nine months ended June 30, 2022, compared to cash provided by operating activities for the nine months ended June 30, 2021, was impacted by the Faneuil Asset Sale and Phoenix Sale.

Investing Activities

For the nine months ended June 30, 2022, our investing activities provided $155.7 million of cash, of which $135.9 million was from the Phoenix Sale and $127.4 million was from the Faneuil Asset Sale, offset by the purchase of investments of $104.6 million, which used cash.

For the nine months ended June 30, 2021, our investing activities used $5.9 million of cash, of which $2.8 million was used to purchase equipment and software for Faneuil’s new and existing customers, and $0.2 million was used to purchase capital equipment in the normal course of operations, offset by $0.4 million cash proceeds from the sale of Carpets. Additionally, our discontinued operations used $3.3 million of cash to purchase equipment in the normal course of operations.

Cash provided by investing activities for the nine months ended June 30, 2022, compared to cash used by investing activities for the nine months ended June 30, 2021, was impacted by the Faneuil Asset Sale and Phoenix Sale.

Financing Activities

For the nine months ended June 30, 2022, our financing activities used $100.8 million of cash. The most significant components of our financing activities were the Blue Torch Payoff, which used cash of $94.1 million, and the Amended PNC Revolver termination, which used $5.5 million.

For the nine months ended June 30, 2021, our financing activities provided $6.3 million of cash. In June 2021, we replaced our prior existing term loan with the Blue Torch Term Loan and amended our prior revolving credit facility with the Amended PNC Revolver. In connection with the transaction, we paid deferred loan costs of $4.2 million.

Cash used by investing activities for the nine months ended June 30, 2022, compared to cash used by investing activities for the nine months ended June 30, 2021, was impacted by the Faneuil Asset Sale and Phoenix Sale, which required us to complete the Blue Torch Payoff and terminate the Amended PNC Revolver.

Contractual Obligations

The Faneuil Asset Sale and the Phoenix Sale, which resulted in the Blue Torch Loan Payoff and Amended PNC Revolver termination, had a material impact to our contractual obligations. The following table summarizes contractual obligations on June 30, 2022, and the effect such obligations are expected to have on our liquidity and cash flows in future periods:

	Payments due by Period
			Less Than		One – Three		Four – Five		More than Five
(in thousands)	Total		One Year		Years		Years		Years
Operating lease obligations (1)	$	23,367	$	3,200	$	7,942	$	7,179	$	5,045
Other liabilities (2)		3,242		900		2,342		—		—
Convertible Promissory Notes (3)		6,026		—		6,026		—		—
Finance lease obligations (1)		528		528		—		—		—
Total contractual cash obligations (4)	$	33,163	$	4,628	$	16,310	$	7,179	$	5,045

(1) Refer to “Part I, Item 1. Financial Statements – Note 10. Leases.”

(2) Amounts represent future cash payments to satisfy our short- and long-term workers’ compensation reserve and other long-term liabilities recorded on our consolidated balance sheets. It excludes deferred revenue and non-cash items.

(3) Refer to “Part I, Item 1. Financial Statements – Note 8. Debt.”

(4) Total excludes contractual obligations already recorded on our consolidated balance sheets as current liabilities, except for the workers’ compensation reserve.

Off-Balance Sheet Arrangements

During the three months ended June 30, 2022, we had two types of off-balance sheet arrangements.

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Surety Bonds. Historically, as part of Faneuil’s normal course of operations, certain customers required surety bonds guaranteeing the performance of a contract. During the three months ended June 30, 2022, all the surety bonds were cancelled as the underlying contract was either sold as part of the Faneuil Asset Sale or ended. As such, there were no surety bonds outstanding on June 30, 2022.

Letters of Credit. The Company had letters of credit totaling $3.5 million outstanding on June 30, 2022, which were collateralized with cash deposits totaling $3.6 million, or 103% of the total letters of credit.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles, or GAAP, requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We regularly evaluate our estimates and assumptions related to the fair value of assets and liabilities, including intangible assets acquired and allocation of purchase price, useful lives, carrying value and recoverability of long-lived and intangible assets, and revenue recognition. Certain accounting policies are considered "critical accounting policies" because they are particularly dependent on estimates made by us about matters that are inherently uncertain and could have a material impact on our consolidated financial statements. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue, costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

For a complete summary of our critical accounting policies, please refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on December 20, 2021 (“Fiscal 2021 Form 10-K”).

For a complete summary of our significant accounting policies, please refer to “Part IV. Exhibits, Financial Statement Schedules –Note 2. Summary of Significant Accounting Policies,” included in our Fiscal 2021 Form 10-K. There have been no changes to our accounting policies during the three months ended June 30, 2022.

Item 3. Qualitative and Quantitative Disclosures about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. There has been no change in the company’s internal control over financial reporting that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting decisions regarding required disclosure.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company has been named in, and from time to time may become named in, various lawsuits or threatened actions that are incidental to our ordinary business. For additional information regarding such matters, see “Part I, Item 1. Financial Statements – Note 9. Commitments and Contingencies - Litigation, Claims, and Assessments.”

Item 1A. Risk Factors

The following risk factors and other information included in this Form 10-Q should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, financial condition and operating results could be significantly harmed.

Risks Related to Faneuil

Faneuil is subject to uncertainties regarding healthcare reform that could materially and adversely affect that aspect of our business.

Since its adoption into law in 2010, the Affordable Care Act has been challenged before the U.S. Supreme Court, and several bills have been and continue to be introduced in Congress to delay, defund, or repeal implementation of or amend significant provisions of the Affordable Care Act. In addition, there continues to be ongoing litigation over the interpretation and implementation of certain provisions of the law. New tax reform legislation enacted on December 22, 2017 (“Tax Reform Law”) includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate,” which could lead to fewer enrollments in healthcare exchanges. Further significant changes to, or repeal of, the Affordable Care Act could materially and adversely affect that aspect of Faneuil’s business.

Economic downturns, reductions in government funding and other program-related and contract-related risks could have a negative effect on Faneuil’s business.

Demand for the services offered by Faneuil has been, and is expected to continue to be, subject to significant fluctuations due to a variety of factors beyond its control, including economic conditions, particularly since contracts for major programs are performed over extended periods of time. During economic downturns, the ability of both private and governmental entities to make expenditures may decline significantly. We cannot be certain that economic or political conditions will be generally favorable or that there will not be significant fluctuations adversely affecting Faneuil as a whole, or key industry segments targeted by Faneuil. In addition, Faneuil’s operations are, in part, dependent upon state government funding. Significant changes in the level of state government funding, changes in personnel at government authorities, the failure of applicable government authorities to take necessary actions, opposition by third parties to particular programs, any delay in the state government budget process or a state government shutdown could have an unfavorable effect on Faneuil’s business, financial position, results of operations and cash flows.

Faneuil’s profitability is dependent in part on Faneuil’s ability to estimate correctly, obtain adequate pricing, and control its cost structure related to fixed “price per call” contracts.

A significant portion of Faneuil’s revenues are derived from commercial and government contracts awarded through competitive bidding processes. Many of these contracts are extremely complex and require the investment of significant resources in order to prepare accurate bids and pricing based on both current and future conditions, such as the cost of labor, that could impact profitability of such contracts. Our success depends on Faneuil’s ability to (i) accurately estimate the resources and costs that will be required to implement and service any contracts we are awarded, sometimes in advance of the final determination of such contracts’ full scope and design, and (ii) negotiate adequate pricing for call center services that provide a reasonable return to our shareholders based on such estimates. Additionally, in order to attract and retain certain contracts, we are sometimes required to make significant capital and other investments to enable us to perform our services under those contracts, such as facility leases, information technology equipment purchases, labor resources, and costs incurred to develop and implement software. If Faneuil is unable to accurately estimate its costs to provide call center services, obtain adequate pricing, or control costs for fixed “price per call” contracts, it could materially adversely affect our results of operations and financial condition.

Faneuil’s dependence on a small number of customers could adversely affect its business or results of operations.

Faneuil derives a substantial portion of its revenue from a relatively small number of customers. For additional information regarding Faneuil customer concentrations, see “Part I, Item 1. Financial Statements – Note 5. Concentration Risks.” We expect the largest customers of Faneuil to continue to account for a substantial portion of its total revenue for the foreseeable future. Faneuil has long-standing relationships with many of its significant customers. However, because Faneuil customers generally contract for specific projects or programs with a finite duration, Faneuil may lose these customers if funding for their respective programs is discontinued,

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or if their projects end and the contracts are not renewed or replaced. The loss or reduction of, or failure to renew or replace, any significant contracts with any of these customers could materially reduce Faneuil revenue and cash flows. Additionally, many Faneuil customers are government entities, which can unilaterally terminate or modify the existing contracts with Faneuil without cause and penalty to such government entities in many situations. If Faneuil does not replace them with other customers or other programs, the loss of business from any one of such customers could have a material adverse effect on its business or results of operations.

The recovery of capital investments in Faneuil contracts is subject to risk.

In order to attract and retain large outsourcing contracts, Faneuil may be required to make significant capital investments to perform its services under the contract, such as purchases of information technology equipment and costs incurred to develop and implement software. The net book value of such assets, including intangible assets, could be impaired, and Faneuil earnings and cash flow could be materially adversely affected in the event of the early termination of all or a part of such a contract, reduction in volumes and services thereunder for reasons including, but not limited to, a client’s merger or acquisition, divestiture of assets or businesses, business failure or deterioration, or a client’s exercise of contract termination rights.

Faneuil’s dependence on subcontractors and equipment manufacturers could adversely affect it.

In some cases, Faneuil relies on and partners with third-party subcontractors as well as third-party equipment manufacturers to provide services under its contracts. To the extent that Faneuil cannot engage subcontractors or acquire equipment or materials, its performance, according to the terms of the customer contract, may be impaired. If the amount Faneuil is required to pay for subcontracted services or equipment exceeds the amount Faneuil has estimated in bidding for fixed prices or fixed unit price contracts, it could experience reduced profit or losses in the performance of these contracts with its customers. Also, if a subcontractor or a manufacturer is unable to deliver its services, equipment, or materials according to the negotiated terms for any reason, including the deterioration of its financial condition, Faneuil may be required to purchase the services, equipment or materials from another source at a higher price. This may reduce the expected profit or result in a loss of a customer contract for which the services, equipment or materials were needed.

Partnerships entered into by Faneuil as a subcontractor with third parties who are primary contractors could adversely affect its ability to secure new projects and derive a profit from its existing projects.

In some cases, Faneuil partners as a subcontractor with third parties who are the primary contractors. In these cases, Faneuil is largely dependent on the judgments of the primary contractors in bidding for new projects and negotiating the primary contracts, including establishing the scope of services and service levels to be provided. Furthermore, even if projects are secured, if a primary contractor is unable to deliver its services according to the negotiated terms of the primary contract for any reason, including the deterioration of its financial condition, the customer may terminate or modify the primary contract, which may reduce Faneuil profit or cause losses in the performance of the contract. In certain instances, the subcontract agreement includes a “Pay When Paid” provision, which allows the primary contractor to hold back payments to a subcontractor until they are paid by the customer, which has negatively impacted Faneuil cashflow.

If Faneuil or a primary contractor guarantees to a customer the timely implementation or performance standards of a program, Faneuil could incur additional costs to meet its guaranteed obligations or liquidated damages if it fails to perform as agreed.

In certain instances, Faneuil or its primary contractor guarantees a customer that it will implement a program by a scheduled date. At times, they also provide that the program will achieve or adhere to certain performance standards or key performance indicators. Although Faneuil generally provides input to its primary contractors regarding the scope of services and service levels to be provided, it is possible that a primary contractor may make commitments without Faneuil’s input or approval. If Faneuil or the primary contractor subsequently fails to implement the program as scheduled, or if the program subsequently fails to meet the guaranteed performance standards, Faneuil may be held responsible for costs to the client resulting from any delay in implementation, or the costs incurred by the program to achieve the performance standards. In most cases where Faneuil or the primary contractor fails to meet contractually defined performance standards, Faneuil may be subject to agreed-upon liquidated damages. To the extent that these events occur, the total costs for such program may exceed original estimates, and cause reduced profits, or in some cases a loss for that program.

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Data security and integrity are critically important to our business, and cybersecurity incidents, including cyberattacks, cyber-fraud, breaches of security, unauthorized access to or disclosure of confidential information, business disruption, or the perception that confidential information is not secure, could result in a material loss of business, regulatory enforcement, substantial legal liability and/or significant harm to our reputation.

Our business involves the use, storage, and transmission of information about our clients, their customers, and our employees. While we take reasonable measures to protect the security of and unauthorized access to our systems and the privacy of personal and proprietary information that we access and store, our security controls over our systems may not be adequate to prevent the improper access to or disclosure of this information. Such unauthorized access or disclosure could subject Faneuil to significant liability under relevant law or our contracts and could harm our reputation, resulting in impacts on our results of operations, loss of future revenue and business opportunities. These risks may further increase as our business model includes a high percentage of work from home delivery in addition to our delivery through customer experience centers.

We operate in an environment of significant risk of cybersecurity incidents resulting from unintentional events or deliberate attacks by third parties or insiders, which may involve exploiting highly obscure security vulnerabilities or sophisticated attack methods. These cyberattacks can take many forms, but they typically have one or more of the following objectives, among others:

•obtain unauthorized access to confidential consumer information;

•manipulate or destroy data; or

•disrupt, sabotage or degrade service on our systems.

In recent years, there have been an increasing number of high-profile security breaches at companies and government agencies, and security experts have warned about the growing risks of hackers, cybercriminals and state actors launching a broad range of attacks targeting information technology systems. Information security breaches, computer viruses, interruption or loss of business data, DDoS (distributed denial of service) attacks, ransomware and other cyberattacks on any of these systems could disrupt our normal operations of customer engagement centers and remote service delivery, our cloud platform offerings, and our enterprise services, impeding our ability to provide critical services to our clients. For example, on August 18, 2021, we detected a ransomware attack (the “Security Event”) that accessed and encrypted certain files on certain servers utilized by us in the provision of our call center services. Although we quickly and actively managed the Security Event, such event caused disruption to parts of our business, including certain aspects of our provision of call center services. Although we actively communicated with customers and worked to minimize disruption, we cannot guarantee that customer relationships were not harmed as a result of the Security Event.

We are experiencing an increase in frequency of cyber-fraud attempts, such as so-called “social engineering” attacks and phishing scams, which typically seek unauthorized money transfers or information disclosure. We actively train our employees to recognize these attacks and have implemented proactive risk mitigation measures to identify and to attempt to prevent these attacks. There are no assurances, however, that these attacks, which are growing in sophistication, may not deceive our employees, resulting in a material loss.

While we have taken reasonable measures to protect our systems and processes from unauthorized intrusions and cyber-fraud, we cannot be certain that advances in cyber-criminal capabilities, discovery of new system vulnerabilities, and attempts to exploit such vulnerabilities will not compromise or breach the technology protecting our systems and the information that we manage and control, which could result in damage to our systems, our business, our reputation, and our profitability.

We cannot assure you that our systems, databases and services will not be compromised or disrupted in the future, whether as a result of deliberate attacks by malicious actors, breaches due to employee error or malfeasance, or other disruptions during the process of upgrading or replacing computer software or hardware, power outages, computer viruses, telecommunication or utility failures or natural disasters or other catastrophic events. We work to monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact.

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The preventive actions we take to address cybersecurity risk, including protection of our systems and networks, may be insufficient to repel or mitigate the effects of cyberattacks in the future as it may not always be possible to anticipate, detect or recognize threats to our systems, or to implement effective preventive measures against all cybersecurity risks. This is because, among other things:

•the techniques used in cyberattacks change frequently and may not be recognized until after the attacks have succeeded;

•cyberattacks can originate from a wide variety of sources, including sophisticated threat actors involved in organized crime, sponsored by nation-states, or linked to terrorist or hacktivist organizations; and

•third parties may seek to gain access to our systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users.

Unauthorized disclosure, loss or corruption of our data or inability of our clients and their customers to access our systems could disrupt our operations, subject us to substantial regulatory and legal proceedings and potential liability, result in a material loss of business and/or significantly harm our reputation.

We may not be able to immediately address the consequences of a cybersecurity incident because a successful breach of our computer systems, software, networks or other technology assets could occur and persist for an extended period of time before being detected due to, among other things:

•the breadth and complexity of our operations;

•the large number of clients, counterparties and third-party service providers with which we do business;

•the proliferation and increasing sophistication of cyberattacks;

•the possibility that a malicious third party compromises the software, hardware or services that we procure from a service provider unbeknownst to both the provider and to the Company; and

•the possibility that a third party, after establishing a foothold on an internal network without being detected, might obtain access to other networks and systems.

The extent of a particular cybersecurity incident and the steps that we may need to take to investigate it may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the incident is known. While such an investigation is ongoing, we may not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, any or all of which could further increase the costs and consequences of a cybersecurity incident.

Due to concerns about data security and integrity, a growing number of legislative and regulatory bodies have adopted consumer notification and other requirements in the event that consumer information is accessed by unauthorized persons and additional regulations regarding the use, access, accuracy and security of such data are possible. In the United States, we are subject to federal and state laws that provide for disparate notification regimes. In the event of unauthorized access, our failure to comply with the complexities of these various regulations could subject us to regulatory scrutiny and additional liability.

If our cloud platforms and third-party software and systems experience disruptions due to technology failures or cyberattacks and if we fail to correct such impacts promptly, our business will be materially impacted.

Our cloud platforms and third-party software and systems that we use to serve our clients are complex and may, from time to time have service interruptions, contain design defects, configuration or coding errors, and other vulnerabilities that may be difficult to detect or correct, and which may be outside of our control. We may not have sufficient redundant operations to cover a loss or failure of our systems in a timely manner. Any significant interruption could severely harm our business and reputation and result in a loss of revenue and clients. Although our commercial agreements limit our exposure from such occurrences, they may not always effectively protect us against claims in all jurisdictions and against third-party claims. If our clients’ business is damaged, our reputation could suffer, we could be subject to contract termination and payments for damages, adversely affecting our business, our reputation, our results of operations and financial condition.

If we fail to maintain and improve our systems, demand for our services could be adversely affected.

In our markets, there are continuous improvements in computer hardware, network operating systems and technologies. These improvements, as well as changes in client preferences or regulatory requirements, may require changes in the technology used to gather and process our data and deliver our services. Our future success will depend, in part, upon our ability to:

•internally develop and implement new and competitive technologies;

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•use leading third-party technologies effectively;

•respond to changing client needs and regulatory requirements; and

•transition client and their customer data and data sources successfully to new interfaces or other technologies.

We cannot provide assurance that we will successfully implement new technologies, cause our cloud platforms and third-party software and systems providers to implement compatible technologies or adapt our technology to evolving customer, regulatory and competitive requirements. If we fail to respond or fail to cause our cloud platforms and third-party software and systems providers to respond, to changes in technology, regulatory requirements or client preferences, the demand for our services, the delivery of our services or our market reputation could be adversely affected. Additionally, our failure to implement important updates could affect our ability to successfully meet the timeline for us to generate cost savings resulting from our investments in improved technology. Failure to achieve any of these objectives would impede our ability to deliver strong financial results.

Faneuil’s business is subject to many regulatory requirements, and current or future regulation could significantly increase Faneuil’s cost of doing business.

Faneuil’s business is subject to many laws and regulatory requirements in the United States, covering such matters as data privacy, consumer protection, healthcare requirements, labor relations, taxation, internal and disclosure control obligations, governmental affairs and immigration. For example, Faneuil is subject to state and federal laws and regulations regarding the protection of consumer information commonly referred to as “non-public personal information.” For instance, the collection of patient data through Faneuil’s contact center services is subject to HIPAA, which protects the privacy of patients’ data. These laws, regulations, and agreements require Faneuil to develop and implement policies to protect non-public personal information and to disclose these policies to consumers before a customer relationship is established and periodically after that. These laws, regulations, and agreements limit the ability to use or disclose non-public personal information for purposes other than the ones originally intended. Many of these regulations, including those related to data privacy, are frequently changing and sometimes conflict with existing ones among the various jurisdictions in which Faneuil provides services. Violations of these laws and regulations could result in liability for damages, fines, criminal prosecution, unfavorable publicity, and restrictions placed on Faneuil operations. Faneuil’s failure to adhere to or successfully implement processes in response to changing regulatory requirements in this area could result in legal liability or impairment to Faneuil’s reputation in the marketplace, which could have a material adverse effect on Faneuil’s business, results of operations and financial condition. In addition, because a substantial portion of Faneuil operating costs consists of labor costs, changes in governmental regulations relating to wages, healthcare and healthcare reform and other benefits or employment taxes could have a material adverse effect on Faneuil’s business, results of operations, or financial condition.

Matters relating to employment and labor laws and prevailing wage standards may adversely affect our business.

The industries in which Faneuil competes is labor intensive and governed by various federal and state labor laws with respect to its relationship with its employees. Faneuil’s ability to meet its labor needs on a cost-effective basis is subject to numerous external factors, including the availability of qualified personnel in the workforce in the local markets in which it operates, unemployment levels within those markets, prevailing wage rates, health and other insurance costs and changes in employment and labor laws. Such laws related to employee hours, wages, job classification and benefits could significantly increase Faneuil’s operating costs. Faneuil is also subject to employee claims against it based on such laws and other actions or inactions of its employees. Some or all of these claims may give rise to litigation, including class action litigation under the Fair Labor Standards Act and state wage and hour lawsuits. Such class action lawsuits are typically brought by specialized plaintiff law firms who often seek large settlements based entirely on the number of potential plaintiffs in a class, whether or not there is any basis for the claims that they make on behalf of their clients, most of whom do not believe themselves to be aggrieved nor seek recourse until solicited. Due to the inherent uncertainties of litigation, Faneuil may not be able to accurately determine the impact on it of any future adverse outcome of such proceedings. The ultimate resolution of these matters could have a material adverse impact on Faneuil’s financial condition, results of operations, and liquidity. In addition, regardless of the outcome, these proceedings could result in substantial cost to Faneuil and may require Faneuil to devote substantial resources to defend itself.

Additionally, in the event prevailing wage rates increase in the local markets in which Faneuil operates, Faneuil may be required to concurrently increase the wages paid to its employees to maintain the quality of its workforce and customer service. To the extent such increases are not covered by our customers, Faneuil’s profit margins may decrease as a result. If Faneuil is unable to hire and retain employees capable of meeting its business needs and expectations, its business and brand image may be impaired. Any failure to meet Faneuil’s staffing needs or any material increase in turnover rates of its employees may adversely affect its business, results of operations and financial condition.

Further, Faneuil relies on the ability to attract and retain labor on a cost-effective basis. The availability of labor in the local markets in which Faneuil operates has declined in recent years and competition for such labor has increased, especially under the economic crises experienced throughout the COVID-19 pandemic. Faneuil’s ability to attract and retain a sufficient workforce on a cost-effective basis depends on several factors discussed above, including the ability to protect staff during the COVID-19 pandemic. Faneuil may not be

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able to attract and retain a sufficient workforce on a cost-effective basis in the future. In the event of increased costs of attracting and retaining a workforce, Faneuil’s profit margins may decline as a result.

The industries in which Faneuil operates are highly competitive, which could decrease demand for Faneuil’s products or force Faneuil to lower its prices, which could have a material adverse effect on Faneuil’s business and our financial results.

Faneuil primarily competes based on quality, performance, innovation, technology, price, applications expertise, system and service flexibility, and established customer service capabilities, as its services relate to customer contact centers, and employee staffing. Faneuil may not be able to compete effectively on all these fronts or with all of its competitors.

Competitive pressures or the inability by Faneuil to adapt effectively and quickly to a changing competitive landscape could affect prices, margins or demand for products and services. If Faneuil is unable to respond timely and appropriately to these competitive pressures, from existing or new competitors, its business, market share and financial performance could be adversely affected.

We may not receive the full amounts estimated under the contracts in our backlog, which could reduce our revenue in future periods below the levels anticipated. This makes backlog an uncertain indicator of future operating results.

On June 30, 2022, Faneuil had a significant backlog. Our backlog is typically subject to large variations from quarter to quarter and comparisons of backlog from period to period are not necessarily indicative of future revenue. The contracts comprising our backlog may not result in actual revenue in any particular period or at all, and the actual revenue from such contracts may differ from our backlog estimates. In certain instances, customers may have the right to cancel, reduce or defer amounts that we have in our backlog, which could negatively affect our future revenue. The failure to realize all amounts in our backlog could adversely affect our revenue and gross margins. As a result, Faneuil’s backlog as of any particular date may not be an accurate indicator of our future revenue or earnings.

Risks Related to the Company Generally

A widespread health crisis, such as the COVID-19 pandemic, may adversely affect our business, results of operations and financial condition.

A widespread health crisis, including the COVID-19 pandemic, and related governmental responses may adversely affect our business, results of operations and financial condition. These effects could include disruptions to our workforce due to illness or “shelter-in-place” restrictions, temporary closures of our facilities, the interruption of our supply chains and distribution channels, and similar effects on our customers or suppliers that may impact their ability to perform under their contracts with us or cause them to curtail their business with us. In addition, we have taken and will continue to take temporary precautionary measures intended to help minimize the risk of COVID-19 to our employees, including requiring certain employees to work remotely and suspending non-essential travel and in-person meetings, which could negatively affect our business. Further, COVID-19 has and is expected to continue to adversely affect the economies and financial markets of many countries and most areas of the United States, which may affect demand for our products and services and our ability to obtain additional financing for our business. Further impacts specific to Faneuil’s businesses may include:

•Prolonged interruption of Faneuil’s physical customer contact centers due to illness or stay-at-home regulations and costs related to transitioning to work from home arrangements; and

•Similar impacts that negatively affect Faneuil’s significant customers.

Any of these events could materially and adversely affect our business and our financial results. To the extent that the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section, such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in our credit agreement.

The extent to which COVID-19 will impact our business and our financial results will depend on future developments, which are highly uncertain and cannot be predicted with certainty. Such developments may include the ongoing spread of the virus, the vaccination rates against the virus, the emergence of new variants of the virus, the severity of the disease, the duration of the outbreak and the type and duration of actions that may be taken by various governmental authorities in response to the outbreak and the impact on the economy. As a result, at the time of this filing, it is not possible to predict the overall impact of COVID-19 on our business, liquidity, and financial results.

We previously received a notice of failure to satisfy a continued listing rule from the Nasdaq.

On April 9, 2020, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we did not meet the minimum

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bid price of $1.00 per share required for continued listing on The Nasdaq Global Market pursuant to Nasdaq Listing Rule 5450(a)(1). Pursuant to the initial Nasdaq notice and Rule 5810(c)(3)(A) of the Nasdaq Listing Rules, we originally had 180 calendar days from the date of the notice, or until October 6, 2020, to regain compliance with the minimum bid price requirement in Rule 5550(a)(2) by achieving a closing bid price for our common stock of at least $1.00 per share over a minimum of 10 consecutive business days. However, on April 17, 2020, we received a second letter from the Nasdaq indicating that, given the extraordinary market conditions, effective as of April 16, 2020, the Nasdaq has determined to toll the compliance periods for the minimum bid price requirement through June 30, 2020, such that we had until December 21, 2020, to regain compliance. On November 5, 2020, we received a notice from NASDAQ that we had regained compliance with Listing Rule 5450(a)(1). Despite Nasdaq now considering this matter closed, there can be no assurance that we will be able to remain in compliance with the minimum bid price requirement or with other Nasdaq listing requirements in the future. If we are unable to remain in compliance with the minimum bid price requirement or with any of the other continued listing requirements, the Nasdaq may take steps to delist our common stock, which could have adverse results, including, but not limited to, a decrease in the liquidity and market price of our common stock, loss of confidence by our employees and investors, loss of business opportunities, and limitations in potential financing options.

We have in the past, and may in the future, incur indebtedness that could adversely affect our financial flexibility and expose us to risks that could materially adversely affect our liquidity and financial condition.

As of April 13, 2022, after giving effect to the application of the net proceeds of the Phoenix Sale and the termination of the Amended PNC Revolver, we have no outstanding indebtedness other than certain convertible promissory notes outstanding. We may incur additional indebtedness in the future, which could have significant effects on our business, including:

•limiting our ability to borrow additional amounts to fund capital expenditures, acquisitions, debt service requirements, execution of our growth strategy and other purposes;

•limiting our ability to make investments, including acquisitions, loans and advances, and to sell, transfer or otherwise dispose of assets;

•requiring us to dedicate a substantial portion of our cash flow from operations to pay principal and interest on our borrowings, which would reduce availability of our cash flow to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other general corporate purposes;

•increasing our vulnerability to adverse changes in general economic, industry and competitive conditions, in government regulation and in our business by limiting our ability to plan for and react to changing conditions;

•placing us at a competitive disadvantage compared with our competitors that have less debt; and

•exposing us to risks inherent in interest rate fluctuations if our future borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.

In addition, we may not be able to generate sufficient cash flow from our operations to repay our future indebtedness when it becomes due and to meet our other cash needs. If we are not able to pay our borrowings under future indebtedness as they become due, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance our future debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may negatively affect our business, financial condition and results of operations. In addition, we may be subject to prepayment penalties depending on when we repay our future indebtedness, which amounts could be material.

If we are unable to retain key members of our management team or attract, integrate and retain additional executives and other skilled personnel we need to support our operations and growth, we may be unable to achieve our goals and our business will suffer.

Our future success depends upon our ability to continue to attract, train, integrate and retain highly skilled employees, particularly those on our management team, including Jess Ravich, our Chief Executive Officer and Brian Hartman, our Chief Financial Officer, whose services are essential to the execution of our corporate strategy and ensuring the continued operations and integrity of financial reporting within our company. Our executive officers and other key employees are generally employed on an at-will basis, which means that such personnel could terminate their relationship with us at any time. The loss of any member of our senior management

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team could significantly delay or prevent us from achieving our business and/or development objectives and could materially harm our business.

Some of our officers may have outside business interests, which could impair our ability to implement our business strategies and lead to potential conflicts of interest.

Some of our officers, in the course of their other business activities, may become aware of investments, business or other information which may be appropriate for presentation to us as well as to other entities to which they owe a fiduciary duty. They may also in the future become affiliated with entities that are engaged in business or other activities similar to those we intend to conduct. As a result, they may have conflicts of interest in determining to which entity particular opportunities or information should be presented. If, as a result of such conflict, we are deprived of investments, business or information, the execution of our business plan and our ability to effectively compete in the marketplace may be adversely affected.

We may not be able to consummate additional acquisitions and dispositions on acceptable terms or at all. Furthermore, we may not be able to integrate acquisitions successfully and achieve anticipated synergies, or the acquisitions and dispositions we pursue could disrupt our business and harm our financial condition and operating results.

As part of our business strategy, we intend to continue to pursue acquisitions and dispositions. Acquisitions and dispositions could involve a number of risks and present financial, managerial and operational challenges, including:

•adverse developments with respect to our results of operations as a result of an acquisition which may require us to incur charges and/or substantial debt or liabilities;

•disruption of our ongoing business and diversion of resources and management attention from existing businesses and strategic matters;

•difficulty with assimilation and integration of operations, technologies, products, personnel or financial or other systems;

•increased expenses, including compensation expenses resulting from newly hired employees and/or workforce integration and restructuring;

•disruption of relationships with current and new personnel, customers, and suppliers;

•integration challenges related to implementing or improving internal controls, procedures and/or policies at a business that prior to the acquisition lacked the same level of controls, procedures and/or policies;

•assumption of certain known and unknown liabilities of the acquired business;

•regulatory challenges or resulting delays; and

•potential disputes (including with respect to indemnification claims) with the buyers of disposed businesses or with the sellers of acquired businesses, technologies, services, or products.

We may not be able to consummate acquisitions or dispositions on favorable terms or at all. Our ability to consummate acquisitions will be limited by our ability to identify appropriate acquisition candidates, to negotiate acceptable terms for purchase and our access to financial resources, including available cash and borrowing capacity. In addition, we could experience financial or other setbacks if we are unable to realize, or are delayed in realizing, the anticipated benefits resulting from an acquisition, if we incur greater than expected costs in achieving the anticipated benefits or if any business that we acquire or invest in encounters problems or liabilities which we were not aware of or were more extensive than believed.

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

Our executive officers and directors and their affiliated entities together beneficially owned approximately 51.5% of our outstanding common stock on August 1, 2022. Jess Ravich, our current Chief Executive Officer, beneficially owned approximately 47.1% of our common stock on August 1, 2022. As a result, these stockholders, if they act together or in a block, could have significant influence over most matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions, even if other stockholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

We do not currently plan to pay dividends to holders of our common stock.

We do not currently anticipate paying dividends to the holders of our common stock. Accordingly, holders of our common stock must rely on price appreciation as the sole method to realize a gain on their investment. There can be no assurances that the price of our common stock will ever appreciate in value.

48

Certain provisions in our Restated Certificate of Incorporation contain transfer restrictions that may have the effect of delaying or preventing beneficial takeover bids by third parties.

Our Restated Certificate of Incorporation imposes certain restrictions on transfer of stock designed to preserve the value of certain tax assets primarily associated with our NOLs and built-in losses under Section 382. These restrictions prohibit certain transfers that would result in a person or a group of persons acquiring 5% of more of ALJ’s outstanding stock, unless otherwise approved by our Board of Directors or a committee thereof. While such transfer restrictions are intended to protect our NOLs and built-in losses under Section 382, they may also have the effect of delaying or preventing beneficial takeover bids by third parties.

Changes in U.S. tax laws could have a material adverse effect on our business, cash flow, results of operations or financial conditions

On December 22, 2017, then President Trump signed into law the final version of the Tax Reform Law. The Tax Reform Law significantly reforms the Internal Revenue Code of 1986, as amended, with many of its provisions effective for tax years beginning on or after January 1, 2018. The Tax Reform Law, among other things, contains significant changes to corporate taxation, including a permanent reduction of the corporate income tax rate, a partial limitation on the deductibility of business interest expense, a limitation of the deduction for NOL carryforwards, an indefinite NOL carryforward, and the elimination of the two-year NOL carryback, temporary, immediate expensing for certain new investments and the modification or repeal of many business deductions and credits. We continue to examine the impact this tax reform legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Tax Reform Law is uncertain and our business and financial condition could be adversely affected. The impact of this reform on our stockholders is uncertain. Stockholders should consult with their tax advisors regarding the effect of the Tax Reform Law and other potential changes to the U.S. Federal tax laws on them.

The market price of our common stock is volatile.

The market price of our common stock could fluctuate substantially in the future in response to a number of factors, including the following:

•our quarterly operating results or the operating results of other companies in our industry;

•changes in general conditions in the economy, the financial markets or our industry;

•relatively low trading volumes;

•announcements by our competitors of significant acquisitions; and

•the occurrence of various risks described in these Risk Factors.

Also, the stock market has experienced extreme price and volume fluctuations recently. This volatility has had a significant impact on the market prices of securities issued by many companies for reasons unrelated to their operating performance. These broad market fluctuations may materially adversely affect our stock price, regardless of our operating results.

We are subject to claims arising in the ordinary course of our business that could be time-consuming, result in costly litigation and settlements or judgments, require significant amounts of management attention and result in the diversion of significant operational resources, which could adversely affect our business, financial condition, and results of operations.

We and Faneuil are currently involved in, and from time to time may become involved in, legal proceedings or be subject to claims arising in the ordinary course of our business. Litigation is inherently unpredictable, time-consuming and distracting to our management team, and the expenses of conducting litigation are not inconsequential. Such distraction and expense may adversely affect the execution of our business plan and our ability to compete effectively in the marketplace. Further, if we do not prevail in litigation in which we may be involved, our results could be adversely affected, in some cases, materially. For additional information, see “Part I, Item 1. Financial Statements – Note 9. Commitments and Contingencies - Litigation, Claims, and Assessments.”

Any business disruptions due to political instability, armed hostilities, acts of terrorism, natural disasters or other unforeseen events could adversely affect our financial performance.

If terrorist activities, armed conflicts (including Russia’s invasion of Ukraine), political instability, or natural disasters, including climate change related events, such events may negatively affect our operations, cause general economic conditions to deteriorate or cause demand for our services to decline. A prolonged economic slowdown or recession could reduce the demand for our services, and consequently, negatively affect our future sales and profits. Any disruption of operations due to unforeseen events at any of our principal facilities could adversely affect our business, results of operations, cash flows, and financial condition.

49

Account data breaches involving stored data, or the misuse of such data could adversely affect our reputation, performance, and financial condition.

We and Faneuil provide services that involve the storage of non-public information. Cyber-attacks designed to gain access to sensitive information are constantly evolving, and high-profile electronic security breaches leading to unauthorized releases of sensitive information have occurred recently at several major U.S. companies, including several large retailers, despite widespread recognition of the cyber-attack threat and improved data protection methods. Any breach of the systems on which sensitive data and account information are stored or archived and any misuse by our employees, by employees of data archiving services or by other unauthorized users of such data could lead to damage to our reputation, claims against us and other potential increases in costs. If we are unsuccessful in defending any lawsuit involving such data security breaches or misuse, we may be forced to pay damages, which could materially and adversely affect our profitability and financial condition. Also, damage to our reputation stemming from such breaches could adversely affect our prospects. As the regulatory environment relating to companies’ obligations to protect such sensitive data becomes stricter, a material failure on our part to comply with applicable regulations could subject us to fines or other regulatory sanctions.

Your share ownership may be diluted by the issuance of additional shares of our common or preferred stock in the future.

Your share ownership may be diluted by the issuance of additional shares of our common or preferred stock or securities convertible into common or preferred stock in the future. On June 30, 2022, a total of 1,350,000 shares of our common stock are issuable pursuant to outstanding options issued by us at a weighted-average exercise price of $3.50, and 1,610,538 shares of our common stock are issuable pursuant to outstanding warrants at a weighted-average exercise price of $0.56. On June 30, 2022, ALJ had debt that was convertible into 11,158,357 shares of common stock at the discretion of the debt holder. It is probable that options or warrants to purchase our common stock, or debt that is convertible into common stock, will be exercised during their respective terms if the fair market value of our common stock exceeds the exercise price of the particular option or warrant. If the stock options or warrants are exercised, your share ownership will be diluted. Additionally, options to purchase up to 1,435,000 shares of ALJ common stock are available for grant under our existing equity compensation plans on June 30, 2022.

In addition, our Board of Directors may determine from time to time that we need to raise additional capital by issuing additional shares of our common stock or other securities. We are not restricted from issuing additional common stock or preferred stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common or preferred stock. The issuance of any additional shares of common stock or preferred stock or securities convertible into, exchangeable for or that represent the right to receive common or preferred stock, or the exercise of such securities could be substantially dilutive to shareholders of our common stock. New investors also may have rights, preferences, and privileges that are senior to, and that adversely affect, our then current shareholders. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series. The market price of our common stock could decline as a result of sales of shares of our common stock made after this offering or the perception that such sales could occur. We cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our common stock and diluting their stock holdings.

We are a “smaller reporting company” and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “smaller reporting companies.”

We qualify as a “smaller reporting company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a “smaller reporting company,” and have either: (i) a public float of less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float or (B) a public float of less than $700 million. As a “smaller reporting company,” we are subject to reduced disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Until such time as we cease to be a “smaller reporting company,” such reduced disclosure in our SEC filings may make it harder for investors to analyze our operating results and financial prospects.

Climate change related events may have a long-term impact on our business.

While we seek to mitigate our business risks associated with climate change, we recognize that there are inherent climate related risks regardless of where we conduct our businesses. Access to clean water and reliable energy in the communities where we conduct our business is a priority. Any of our locations may be vulnerable to the adverse effects of climate change. Climate related events have the potential to disrupt our business, including the business of our customers, and may cause us to experience higher attrition, losses and additional costs to resume operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

50

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

51

Item 6 – Exhibits

Exhibit  Number	Description of Exhibit	Method of Filing
3.1	Restated Bylaws of ALJ Regional Holdings, Inc., dated as of May 11, 2009	Incorporated by reference to Exhibit 3.4 to Form 10-12B as filed on February 2, 2016
3.2	Restated Certificate of Incorporation of ALJ Regional Holdings, Inc. as filed with the Secretary of State of the State of Delaware on August 17, 2018	Incorporated by reference to Exhibit 3.5 to Form 10-K as filed on December 17, 2018
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")	Filed herewith
31.2	Certification of Chief Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14(a) of the Exchange Act	Filed herewith
32.1	Certification of the Chief Executive Officer and the Chief Financial Officer and Principal Accounting Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document	Filed herewith
101.SCH	Inline XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS)	Filed herewith

52

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ALJ Regional Holdings, Inc.

Date: August 11, 2022

/s/ Jess Ravich

Jess Ravich

Chief Executive Officer

(Principal Executive Officer)

Date: August 11, 2022

/s/ Brian Hartman

Brian Hartman

Chief Financial Officer

(Principal Financial Officer)

53

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Jess Ravich, hereby certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of ALJ Regional Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 11, 2022

/s/Jess Ravich

Jess Ravich

Chief Executive Officer

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Brian Hartman, hereby certify that:

1. I have reviewed the Quarterly Report on Form 10-Q of ALJ Regional Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 11, 2022

/s/Brian Hartman

Brian Hartman

Chief Financial Officer

(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of ALJ Regional Holdings, Inc. (the “Company”) for the period ended June 30, 2022 (the “Report”), the undersigned hereby certify in their capacities as Chief Executive Officer and Chief Financial Officer of the Company, respectively, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 11, 2022	By:	/s/Jess Ravich
		Jess Ravich
		Chief Executive Officer
		(Principal Executive Officer)
Dated: August 11, 2022	By:	/s/Brian Hartman
		Brian Hartman
		Chief Financial Officer
		(Principal Financial Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	9 Months Ended
	Jun. 30, 2022	Aug. 01, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Trading Symbol	ALJJ
Entity Registrant Name	ALJ REGIONAL HOLDINGS, INC
Entity Central Index Key	0001438731
Current Fiscal Year End Date	--09-30
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Shell Company	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE
Entity Interactive Data Current	Yes
Entity Small Business	true
Entity Emerging Growth Company	false
Entity File Number	001-37689
Entity Tax Identification Number	13-4082185
Entity Address, Address Line One	244 Madison Avenue
Entity Address, Address Line Two	PMB #358
Entity Address, City or Town	New York
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10016
City Area Code	888
Local Phone Number	486-7775
Document Quarterly Report	true
Document Transition Report	false
Entity Common Stock, Shares Outstanding		38,660,330

XML

Condensed Consolidated Balance Sheets - USD ($)	Jun. 30, 2022	Sep. 30, 2021
Current assets:
Cash and cash equivalents	$ 27,944,000	$ 2,276,000
Short-term investments	99,679,000	0
Accounts receivable, net of allowance for doubtful accounts of $1,300 and $- on March 31, 2022 and September 30, 2021	37,679,000	57,660,000
Prepaid expenses and other current assets	4,861,000	8,852,000
Current assets of discontinued operations		20,608,000
Total current assets	170,163,000	89,396,000
Property and equipment, net	10,756,000	22,864,000
Operating lease right-of-use assets	17,647,000	29,048,000
Intangible assets, net	9,980,000	11,906,000
Collateral deposits	4,123,000	487,000
Other assets	5,636,000	792,000
Long-term assets of discontinued operations		60,160,000
Total assets	218,305,000	214,653,000
Current liabilities:
Accounts payable	5,990,000	11,255,000
Accrued expenses	17,437,000	20,815,000
Income taxes payable	3,846,000	38,000
Deferred revenue and customer deposits		4,053,000
Term loans, net of deferred loan costs - current installments		2,692,000
Finance lease obligations - current installments	528,000	765,000
Operating lease obligations - current installments	3,200,000	4,722,000
Current portion of workers' compensation reserve	900,000	710,000
Other current liabilities	3,679,000	3,686,000
Current liabilities of discontinued operations		10,192,000
Total current liabilities	35,580,000	58,928,000
Line of credit, net of deferred loan costs		5,490,000
Term loans, less current portion, net of deferred loan costs	6,026,000	93,484,000
Deferred revenue, less current portion		369,000
Workers' compensation reserve, less current portion	1,902,000	1,749,000
Finance lease obligations, less current installments		332,000
Operating lease obligations, less current installments	20,167,000	32,767,000
Deferred tax liabilities, net	17,000	852,000
Other non-current liabilities	440,000	6,265,000
Long-term liabilities of discontinued operations		1,841,000
Total liabilities	64,132,000	202,077,000
Commitments and contingencies (Note 9)
Stockholders’ equity:
Common stock, $0.01 par value; authorized – 100,000 shares; 42,409 and 42,406 issued and outstanding on March 31, 2022 and September 30, 2021, respectively	424,000	424,000
Additional paid-in capital	288,430,000	288,355,000
Accumulated deficit	(134,681,000)	(276,203,000)
Total stockholders’ equity	154,173,000	12,576,000
Total liabilities and stockholders’ equity	$ 218,305,000	$ 214,653,000

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2022	Sep. 30, 2021
Statement of Financial Position [Abstract]
Accounts receivable, allowance for doubtful accounts	$ 1,300
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	42,409,000	42,406,000
Common stock, shares outstanding	42,409,000	42,406,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Revenues [Abstract]
Revenue		$ 25,110	$ 72,754	$ 168,403	$ 243,147
Other revenue		32,511		32,511
Total revenue and other revenue		57,621	72,754	200,914	243,147
Costs, expenses, and other:
Cost of revenue		52,352	59,209	178,071	203,247
Selling, general, and administrative expense		7,443	15,764	38,042	43,487
Lease impairment				2,158
Gain on sale of assets and other		(118,014)		(117,988)
Total operating costs, expenses, and other, net		(58,219)	74,973	100,283	246,734
Operating income (loss)		115,840	(2,219)	100,631	(3,587)
Other (expense) income, net:
Interest income		127		127
Interest expense		(151)	(2,623)	(5,449)	(7,656)
Loss on debt extinguishment		(3,884)	(1,914)	(3,884)	(1,914)
Total other expense, net		(3,908)	(4,537)	(9,206)	(9,570)
Income (loss) from continuing operations before income taxes		111,932	(6,756)	91,425	(13,157)
Provision for income taxes		(6,065)	(70)	(6,010)	(244)
Net income (loss) from continuing operations		105,867	(6,826)	85,415	(13,401)
Net income from discontinued operations, net of income taxes		47,963	3,322	56,107	7,695
Net income (loss)		$ 153,830	$ (3,504)	$ 141,522	$ (5,706)
Income (loss) per share of common stock-basic:
Continuing operations		$ 2.50	$ (0.16)	$ 2.01	$ (0.32)
Discontinued operations		1.13	0.08	1.32	0.18
Net income (loss) per share	[1]	3.63	(0.08)	3.34	(0.13)
Income (loss) per share of common stock-diluted:
Continuing operations		1.93	(0.16)	1.56	(0.32)
Discontinued operations		0.87	0.06	1.03	0.14
Net income (loss) per share	[2]	$ 2.81	$ (0.08)	$ 2.59	$ (0.13)
Weighted average shares of common stock outstanding:
Basic		42,409,000	42,321,000	42,408,000	42,320,000
Diluted		54,818,000	54,503,000	54,735,000	54,416,000

[1] Amounts may not add due to rounding.

[2] Amounts may not add due to rounding.

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Operating activities
Net income (loss)	$ 141,522	$ (5,706)
Adjustments to reconcile net income (loss) to cash (used for) provided by operating activities:
Depreciation and amortization expense	8,630	9,455
Loss on debt extinguishment	3,884	1,914
Lease impairment	2,158
Amortization of discount of short-term investments	(83)
Interest expense and other bank fees accreted to term loans		1,691
Change in fair value of contingent consideration	300	1,100
Amortization of deferred loan costs	627	527
Stock-based compensation expense	154	126
Provision (reversal) for bad debts	1,300	(17)
Gain on sale of assets and other, excluding cash transaction costs paid	(124,301)
(Gain) loss on sale of subsidiaries, excluding cash transaction costs paid	(66,221)	761
Deferred income taxes	(835)	38
Changes in operating assets and liabilities:
Accounts receivable, net	18,681	1,298
Prepaid expenses, collateral deposits, and other current assets	3,991	(392)
ROU assets/ROU liabilities	(1,160)	(494)
Other assets	(3,480)	960
Accounts payable	(5,227)	(3,157)
Accrued expenses	(4,393)	2,797
Income tax payable	3,808	5
Deferred revenue	(4,422)	(4,820)
Other current liabilities and other non-current liabilities	(5,489)	2,914
Discontinued operations, net	1,331	11,662
Cash (used for) provided by operating activities	(29,225)	20,662
Investing activities
Capital expenditures	(820)	(3,001)
Proceeds from the sale of subsidiaries	135,928	438
Proceeds from the sale of assets	127,442
Purchase of investments	(104,596)
Discontinued operations, net	(2,303)	(3,329)
Cash provided by (used for) investing activities	155,651	(5,892)
Financing activities
Proceeds from term loans		95,000
Payments on term loans	(94,050)	(76,398)
Payments on line of credit, net	(5,490)	(14,417)
Deferred loan costs	(283)	(4,164)
Payments on finance leases	(607)	(2,350)
Payment of debt extinguishment penalties and other	(328)	(743)
Discontinued operations, net		(9,333)
Cash used for financing activities	(100,758)	(12,405)
Change in cash and cash equivalents	25,668	2,365
Cash and cash equivalents at beginning of the year	2,276	6,050
Cash and cash equivalents at end of the year	27,944	8,415
Cash paid during the period for:
Interest	4,933	6,878
Taxes	$ 16,251	89
Non-cash investing and financing activities:
Capital equipment purchases financed with term loans		$ 4,000

XML

Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]
Beginning balance at Sep. 30, 2020		$ 423	$ 288,193	$ (271,560)
Stock-based compensation expense - options			47
Net income (loss)	$ (5,706)			(5,706)
Ending balance at Jun. 30, 2021	11,397	423	288,240	(277,266)
Beginning balance at Mar. 31, 2021		423	288,225	(273,762)
Stock-based compensation expense - options			15
Net income (loss)	(3,504)			(3,504)
Ending balance at Jun. 30, 2021	11,397	423	288,240	(277,266)
Beginning balance at Sep. 30, 2021	12,576	424	288,355	(276,203)
Stock-based compensation expense - options			75
Net income (loss)	141,522			141,522
Ending balance at Jun. 30, 2022	154,173	424	288,430	(134,681)
Beginning balance at Mar. 31, 2022		424	288,415	(288,511)
Stock-based compensation expense - options			15
Net income (loss)	153,830			153,830
Ending balance at Jun. 30, 2022	$ 154,173	$ 424	$ 288,430	$ (134,681)

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Organization and Basis of Presentation

9 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization

ALJ Regional Holdings, Inc. (including subsidiaries, referred to collectively herein as “ALJ” or “Company”) is a holding company. During the three and nine months ended June 30, 2022, ALJ consisted of the following wholly-owned subsidiaries:

•Faneuil, Inc. (including its subsidiaries, “Faneuil”). Faneuil is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and regulated commercial clients across the United States, focusing on the healthcare, utility, transportation, and toll revenue collection industries. Faneuil is headquartered in Hampton, Virginia. ALJ acquired Faneuil in October 2013. On April 1, 2022, ALJ completed the sale of Faneuil’s tolling and transportation and health benefit exchange vertical. See Basis of Presentation below.

•Phoenix Color Corp. (including its subsidiaries, “Phoenix”). Phoenix is a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and commercial specialty products using a broad spectrum of materials and decorative technologies. Phoenix is headquartered in Hagerstown, Maryland. ALJ acquired Phoenix in August 2015. On April 13, 2022, ALJ completed its sale of Phoenix. See Basis of Presentation below.

ALJ owned a third segment, Floors-N-More, LLC, d/b/a, Carpets N’ More (“Carpets”). Carpets was a floor covering retailer in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail and home builder markets including all types of flooring, countertops, cabinets, window coverings and garage/closet organizers. ALJ acquired and disposed of Carpets in April 2014 and February 2021, respectively. See Basis of Presentation below.

As a result of the Phoenix Sale, ALJ had one operating segment for all periods presented.

Basis of Presentation

Overall

The accompanying condensed consolidated financial statements include the accounts of ALJ and its subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. All intercompany transactions and balances have been eliminated in consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with ALJ’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on December 20, 2021.

Discontinued Operations – Carpets

In February 2021, ALJ completed the sale of Carpets (the “Carpets Sale”). The Company determined that the Carpets Sale qualified as discontinued operations as defined by Accounting Standards Codification (“ASC”) 205-20-45, Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters (“ASC 205”) because the Carpets Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Carpets results of operations and cash flows were classified as discontinued operations for the nine months ended June 30, 2021. See Note 4 for additional financial information about Carpets’ discontinued operations.

Discontinued Operations – Phoenix

In February 2022, ALJ entered into a stock purchase agreement (the “Stock Purchase Agreement”) to sell all of the outstanding shares of common stock of Phoenix (the “Phoenix Sale”) for cash consideration, including post-closing working capital adjustments, totaling approximately $135.9 million. The Phoenix Sale closed on April 13, 2022. The Company recorded a gain on sale of discontinued operations, net of related income taxes, of $46.8 million during the three months ended June 30, 2022.

The Company determined that the Phoenix Sale qualified as discontinued operations as defined by ASC 205 because the Phoenix Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Phoenix assets, liabilities, results of operations, and cash flows were classified as discontinued operations for all periods presented. See Note 4 for additional financial information about Phoenix’s discontinued operations.

Asset Sale - Faneuil

In December 2021, ALJ entered into an agreement to sell certain net assets of Faneuil’s tolling and transportation vertical and health benefit exchange vertical (the “Faneuil Asset Sale”). The Faneuil Asset Sale closed on April 1, 2022, for cash consideration of $142.3 million less an indemnification escrow amount of approximately $15.0 million. Faneuil is also eligible to receive additional earn-out payments based upon the performance of certain customer agreements in an aggregate amount of up to $25.0 million. The Company recorded a gain on sale of assets, net of related income taxes, of $112.0 million during the three and nine months ended June 30, 2022. See Note 4 for additional financial information about Faneuil's gain on sale of assets.

In connection with the Faneuil Asset Sale, Faneuil entered into a Transition Services Agreement ("TSA"), which is designed to ensure and facilitate an orderly transfer of the tolling and transportation vertical and health benefit exchange vertical. The services provided under the TSA will terminate at various times between 30 days and 365 days from the closing date of the Faneuil Asset Sale and can be renewed, in whole or in part, in 30-day increments, for a maximum of 180 days. Revenue earned from the TSA was disclosed as other revenue on the consolidated statements of operations during the three and nine months ended June 30, 2022. TSA-related expenses were recorded in their natural expense classification.

The Company determined that the Faneuil Asset Sale did not qualify as discontinued operations as defined by ASC 205 because the Faneuil Asset Sale does not represent a strategic shift with a major effect on the Company's operations and financial results. As such, Faneuil assets, liabilities, results of operations, and cash flows were included with continuing operations for all periods presented.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Although actual results could differ materially from those estimates, such estimates are based on the best information available to management and management’s best judgments at the time. Significant estimates and assumptions by management are used for, but are not limited to, determining the fair value of assets and liabilities, including intangible assets acquired and allocation of acquisition purchase prices, estimated useful lives of certain assets, recoverability of long-lived and intangible assets, the recoverability of goodwill, the realizability of deferred tax assets, stock-based compensation, the likelihood of material loss as a result of loss contingencies, customer lives used for revenue recognition, the allowance for doubtful accounts and inventory reserves, and calculation of insurance reserves. The inputs into certain of these estimates and assumptions include the consideration of the economic impact of the COVID-19 pandemic. Actual results may differ materially from estimates. As the impact of the COVID-19 pandemic continues to develop, many of these estimates could require increased judgment and carry a higher degree of variability and volatility, and may change materially in future periods.

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Recent Accounting Standards

9 Months Ended

Jun. 30, 2022

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Standards

2. RECENT ACCOUNTING STANDARDS

Recent Accounting Pronouncements Adopted

Internal-Use Software

In August 2018, the Financial Accounting Standards Boards (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to provide guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU 2018-15 aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends ASC 350, Intangibles–Goodwill and Other, to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in such a CCA. ALJ adopted ASU 2018-15 on October 1, 2021. The impact of ASU 2018-15 on ALJ’s consolidated financial statements and related disclosures was not material.

Debt with Conversion and Other Options

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible

instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ALJ adopted ASU 2020-06 on October 1, 2021 using the full retrospective basis. The impact of ASU 2020-06 on ALJ’s consolidated financial statements and related disclosures was not material.

Accounting Standards Not Yet Adopted

Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), which addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 will be effective for ALJ on October 1, 2022. ALJ does not anticipate the adoption of ASU 2021-04 to significantly impact its consolidated financial statements and related disclosures.

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 will be effective for ALJ on October 1, 2023. The adoption impact of the new standard will depend on the magnitude of future acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.

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Revenue recognition

9 Months Ended

Jun. 30, 2022

Revenue Recognition [Abstract]

Revenue Recognition

3. REVENUE RECOGNITION

Disaggregation of Revenue

As a result of the Phoenix Sale described in Note 1, all revenue reported was attributable to Faneuil for all periods presented.

Revenue by contract type was as follows for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Faneuil:
Utility	$	14,295	$	13,709	$	40,854	$	40,529
Healthcare		9,147		31,318		70,141		108,020
Other		1,327		965		2,791		3,576
Government		341		4,148		2,633		26,698
Transportation		—		22,614		51,984		64,324
Total revenue		25,110		72,754		168,403		243,147
Other revenue		32,511		—		32,511		—
Total revenue and other revenue	$	57,621	$	72,754	$	200,914	$	243,147

Substantially all of Faneuil revenue is recognized over time.

Other Revenue

As discussed in Note 1, other revenue was attributable to Faneuil's TSA. The TSA has a single performance obligation, as the promises to provide the identified services are not distinct within the context of the TSA. The single performance obligation constitutes a series of distinct services as the customer benefits as services are provided. Service revenue is recognized over time using the input method. The input method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the direct cost incurred.

Contract Assets and Liabilities

The following table provides information about consolidated contract assets and contract liabilities at the end of each reporting period:

	June 30,		September 30,
(in thousands)	2022		2021
Contract assets:
Unbilled revenue (1)	$	—	$	69
Total contract assets	$	—	$	69
Contract liabilities:
Deferred revenue	$	—	$	4,422
Total contract liabilities	$	—	$	4,422

(1) Included in prepaid expenses and other current assets on the consolidated balance sheets. Unbilled revenue represents rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Unbilled revenue is transferred to accounts receivable when the rights become unconditional.

The following table provides changes in consolidated contract assets and contract liabilities from September 30, 2021 to June 30, 2022:

(in thousands)	Contract Assets			Contract Liabilities
Balance, September 30, 2021	$	69		$	4,422
Additions to contract assets		26			—
Revenue recognized		—			(8,403	)
Cash received from customer and other		(95	)		3,981
Balance, June 30, 2022	$	—		$	—

Deferred Revenue and Remaining Performance Obligations

Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from call center services, including non-refundable payments made prior to operations. Deferred revenue is recognized as revenue when transfer of control to customers has occurred. Customers are typically invoiced for these agreements in regular installments and revenue is recognized ratably over the contractual service period. The deferred revenue balance is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing, size and new business linearity within the quarter. Deferred revenue does not represent the total contract value of annual or multi-year non-cancellable agreements.

Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 30 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that contracts generally do not include a significant financing component. The primary purpose of invoicing terms is to provide customers with simplified and predictable ways of purchasing products and services, not to receive financing from customers. Any potential financing fees are considered de minimis.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized, which includes deferred revenue. Transaction price allocated to the remaining performance obligation is influenced by several factors, including the timing of renewals and average contract terms. The Company applied practical expedients to exclude amounts related to

performance obligations that are billed and recognized as they are delivered, optional purchases that do not represent material rights, and any estimated amounts of variable consideration that are subject to constraint.

The Company has elected to apply the optional exemption for the disclosure of remaining performance obligations for contracts that have an original expected duration of one year or less, are billed and recognized as services are delivered and/or variable consideration allocated entirely to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation. This primarily consists of call center services that are billed monthly based on the services performed each month.

Costs to Obtain a Contract

The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The costs to obtain a contract capitalized are primarily sales commissions paid to our sales force personnel. Capitalized costs may also include portions of fringe benefits and payroll taxes associated with compensation for incremental costs to acquire customer contracts and incentive payments to partners. These costs are amortized over the term of the contract or the estimated life of the customer relationship if renewals are expected and the renewal commission is not commensurate with the initial commission. The Company expenses sales commissions when incurred if the amortization period of the sales commission is one year or less. The accounting for incremental costs of obtaining a contract with a customer is consistent with the accounting under previous guidance.

The following table provides changes in costs to obtain a contract for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Balance, beginning of period	$	143		$	412		$	239		$	593
Additions		285			—			363			99
Amortization, included in selling, general, and administrative expense		(113	)		(111	)		(287	)		(391	)
Balance, end of period	$	315		$	301		$	315		$	301
Reported as of end of period
Current - prepaid expenses and other current assets		283			213
Noncurrent - other assets		32			88
Total	$	315		$	301

Costs to Fulfill a Contract

The Company also capitalizes costs incurred to fulfill its contracts that (i) relate directly to the contract, (ii) are expected to generate resources that will be used to satisfy the Company’s performance obligation under the contract, and (iii) are expected to be recovered through revenue generated under the contract. Contract fulfillment costs are expensed to cost of revenue as the Company satisfies its performance obligations by transferring the service to the customer. These costs are amortized on a systematic basis over the expected period of benefit.

The following table provides changes in costs to fulfill a contract for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Balance, beginning of period	$	678		$	4,363		$	2,884		$	5,118
Additions		—			55			2,756			6,047
Amortization, included in selling, general, and administrative expense		(127	)		(877	)		(5,089	)		(7,624	)
Balance, end of period	$	551		$	3,541		$	551		$	3,541
Reported as of end of period
Current - prepaid expenses and other current assets		252			2,946
Noncurrent - other assets		299			595
Total	$	551		$	3,541

Capitalized costs to obtain and fulfill a contract are periodically reviewed for impairment. ALJ did not incur any impairment losses during the three and nine months ended June 30, 2022 or 2021.

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Divestitures and Discontinued Operations

9 Months Ended

Jun. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

Divestitures and Discontinued Operations

4. DIVESTITURES AND DISCONTINUED OPERATIONS

Carpets Sale

As previously discussed in Note 1, ALJ sold Carpets during February 2021. As a result, ALJ recognized a loss on sale of $0.8 million

during the nine months ended June 30, 2021 calculated as follows:

(in thousands)	Amount
Cash proceeds	$	500
Net assets sold		(1,199	)
Transaction costs		(62	)
Impact of income taxes		—
Total loss on sale	$	(761	)

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	4,615
Intangible assets, net		318
Other long-term assets		740
Current liabilities		(4,099	)
Long-term liabilities		(375	)
Net assets sold	$	1,199

The following table presents information regarding certain components of loss from discontinued operations, net of income taxes, attributable to Carpets, for the nine months ended June 30, 2021:

	Nine Months Ended
(in thousands)	June 30, 2021
Revenue	$	13,799
Operating loss		(302	)
Loss on sale		(761	)
Loss before income taxes		(1,063	)
Income tax expense		—
Loss from discontinued operations, net of income taxes		(1,063	)

The following table presents significant components of cash flows of discontinued operations, attributable to Carpets, for the nine months ended June 30, 2021:

	Nine Months Ended
(in thousands)	June 30, 2021
Operating activities
Depreciation and amortization expense	$	199
Provision for bad debts and obsolete inventory		27
Changes in operating assets and liabilities:
Accounts receivable, net		399
Inventories, net		(12	)
Prepaid expenses, collateral deposits, and other current assets		24
Other assets and liabilities, net		26
Investing activities
Capital expenditures		(7	)

Faneuil Asset Sale

As previously discussed in Note 1, ALJ sold certain net assets of Faneuil on April 1, 2022. As a result, the Company recorded a gain on sale of assets, net of related income taxes, of $112.0 million during the three and nine months ended June 30, 2022 calculated as follows:

(in thousands)	Amount
Cash proceeds	$	127,442
Net assets sold		(3,114	)
Transaction costs		(6,314	)
Gain on sale of assets before income taxes	$	118,014
Impact of income taxes (1)		(5,992	)
Total gain on sale, net of income taxes	$	112,022

(1) Included in the provision for income taxes on the consolidated statement of operations.

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	215
Property and equipment, net		6,198
Operating lease right-of-use assets		7,572
Current liabilities		(1,376	)
Long-term liabilities		(9,495	)
Net assets sold	$	3,114

Phoenix Sale

As previously discussed in Note 1, ALJ sold Phoenix on April 13, 2022. As a result, ALJ recognized a gain on sale, net of income taxes, of $46.8 million during the three months ended June 30, 2022, calculated as follows:

(in thousands)	Amount
Cash proceeds	$	135,928
Net assets sold		(69,707	)
Transaction costs		(6,441	)
Impact of income taxes		(12,950	)
Total gain on sale	$	46,830

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	22,270
Property and equipment, net		40,329
Other long-term assets		18,171
Current liabilities		(10,705	)
Long-term liabilities		(358	)
Net assets sold	$	69,707

The following table presents the carrying amount of major classes of assets and liabilities, attributable to Phoenix, classified as held for sale included in discontinued operations on September 30, 2021:

	September 30,
(in thousands)	2021
Assets:
Accounts receivable	$	10,912
Inventories, net		7,654
Prepaid expenses and other current assets		2,042
Property and equipment, net		41,066
Operating lease right-of-use assets		—
Intangible assets, net		18,705
Other long-term assets		389
Total assets of discontinued operations	$	80,768
Liabilities:
Accounts payable	$	3,986
Accrued expenses		5,396
Other current liabilities		810
Total long-term liabilities		1,841
Total liabilities of discontinued operations	$	12,033

The following table presents certain components of results of operations reported as discontinued operations, attributable to Phoenix, for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Revenue	$	4,275	$	30,706	$	65,040	$	86,038
Operating income		1,133		3,793		9,277		9,391
Gain on sale, net of income taxes		46,830		—		46,830		—
Net income from discontinued operations, net of income taxes		47,963		3,322		56,107		8,758

The following table presents certain components of cash flows reported as discontinued operations, attributable to Phoenix, for the nine months ended June 30, 2022 and 2021:

	Nine Months Ended June 30,
(in thousands)	2022			2021
Operating activities
Depreciation and amortization expense	$	4,092		$	5,457
Provision for bad debts and obsolete inventory and other		(11	)		(72	)
Changes in operating assets and liabilities:
Accounts receivable, net		(549	)		2,629
Inventories, net		(487	)		(353	)
Prepaid expenses, collateral deposits, and other current assets		1,026			1,033
Other assets and liabilities, net		(2,740	)		2,305
Investing activities
Capital expenditures		(2,309	)		(3,631	)
Proceeds from sales of assets		6			309
Financing activities
Payments on finance leases		—			(7,538	)
Payments on term loans		—			(1,637	)
Payment of debt extinguishment penalties and other		—			(158	)

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Concentration Risks

9 Months Ended

Jun. 30, 2022

Risks and Uncertainties [Abstract]

Concentration Risks

5. CONCENTRATION RISKS

Cash

The Company maintains its cash balances in accounts, which, at times, may exceed federally insured limits. The Company has not experienced any loss in such accounts and believes there is little exposure to any significant credit risk.

Major Customers and Accounts Receivable

As a result of the Phoenix Sale described in Note 1, all revenue reported was attributable to Faneuil for all periods presented. The percentages of ALJ consolidated revenue derived from its significant customers were as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Customer A		56.4	%	**				16.2	%	**
Customer B		10.1		**			**			**
Customer C	**			**			**				11.8	%
Customer D	**				11.7	%		12.8		**

** Less than 10% of consolidated revenue.

Accounts receivable from significant customers during either the three or nine months ended June 30, 2022, totaled $27.4 million on June 30, 2022. As of June 30, 2022, all Faneuil accounts receivable were unsecured. The risk with respect to accounts receivable is mitigated by credit evaluations performed on customers and the short duration of payment terms extended to customers.

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Composition of Certain Financial Statement Captions

9 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Composition of Certain Financial Statement Captions

6. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

Short-Term Investments

The following table summarizes the Company’s short-term and non-current investments recorded in the consolidated balance sheets on June 30, 2022. The Company did not have any short-term or non-current investments on September 30, 2021.

	June 30, 2022
(in thousands)	Short-Term		Non-Current		Total
Held-to-Maturity:
Treasury bills (1)	$	99,679	$	—	$	99,679
Other investments (2)		—		5,000		5,000
Total investments	$	99,679	$	5,000	$	104,679

(1) The carrying value of the investments approximates fair value due to the short-term nature of the instruments.

(2) Included in other assets on the consolidated balance sheets. As the investment was purchased on June 28, 2022, the carrying value of the investments approximates fair value due to short time from the purchase date to June 30, 2022.

Accounts Receivable, Net

The following table summarizes accounts receivable at the end of each reporting period:

	June 30,			September 30,
(in thousands)	2022			2021
Accounts receivable	$	38,979		$	57,455
Unbilled receivables		—			205
Accounts receivable		38,979			57,660
Less: allowance for doubtful accounts		(1,300	)		—
Accounts receivable, net	$	37,679		$	57,660

Property and Equipment

The following table summarizes property and equipment at the end of each reporting period:

	June 30,			September 30,
(in thousands)	2022			2021
Leasehold improvements	$	16,461		$	30,849
Computer and office equipment		12,414			22,387
Software		9,902			16,532
Furniture and fixtures		3,086			7,600
Machinery and equipment		631			1,190
Vehicles		154			155
Property and equipment		42,648			78,713
Less: accumulated depreciation and amortization		(31,892	)		(55,849	)
Property and equipment, net	$	10,756		$	22,864

Property and equipment depreciation and amortization expense, including amounts related to finance leased assets, was $1.8 million

and $2.3 million for the three months ended June 30, 2022 and 2021, respectively, and $6.7 million and $7.1 million for the nine

months ended June 30, 2022 and 2021, respectively.

Intangible Assets

The following tables summarize identified intangible assets at the end of each reporting period:

				June 30, 2022
(in thousands)	Weighted Average Original Life (Years)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization			Net
Customer relationships	12.0		4.1	$	16,550	$	(10,948	)	$	5,602
Trade names	15.0		6.3		1,500		(870	)		630
Supply agreements	7.0		1.9		2,910		(2,113	)		797
Technology	8.0		5.1		3,400		(1,240	)		2,160
Non-compete agreements	6.6		3.4		1,550		(759	)		791
Totals				$	25,910	$	(15,930	)	$	9,980

				September 30, 2021
(in thousands)	Weighted Average Original Life (Years)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization			Net
Customer relationships	12.0		4.8	$	16,550	$	(9,908	)	$	6,642
Trade names	15.0		7.0		1,500		(795	)		705
Supply agreements	7.0		2.7		2,910		(1,802	)		1,108
Technology	8.0		5.8		3,400		(921	)		2,479
Non-compete agreements	6.6		4.1		1,550		(578	)		972
Totals				$	25,910	$	(14,004	)	$	11,906

Intangible asset amortization expense was $0.6 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $1.9 million and $2.3 million for the nine months ended June 30, 2022 and 2021, respectively.

The following table presents expected future amortization expense as of June 30, 2022:

(in thousands)	Estimated Future Amortization
Fiscal 2022 (remaining)	$	642
Fiscal 2023		2,567
Fiscal 2024		2,429
Fiscal 2025		2,116
Fiscal 2026		1,447
Thereafter		779
Total	$	9,980

Accrued Expenses

The following table summarizes accrued expenses at the end of each reporting period:

	June 30,		September 30,
(in thousands)	2022		2021
Accrued compensation and related taxes	$	9,878	$	12,320
Acquisition contingent consideration		2,500		2,500
Legal		2,000		2,000
Medical and benefit-related payables		1,321		1,172
Other		1,212		1,216
Accrued board of director fees		526		131
Bank overdraft		—		1,366
Interest payable		—		110
Total accrued expenses	$	17,437	$	20,815

Workers’ Compensation Reserve

The Company is self-insured for certain workers’ compensation claims as discussed below. The current portion of workers’ compensation reserve is disclosed with accrued expenses. The non-current portion of workers’ compensation reserve is disclosed with other non-current liabilities.

Faneuil. Faneuil is self-insured for workers’ compensation claims up to $500,000 per incident. Reserves have been provided for workers’ compensation based upon insurance coverages, third-party actuarial analysis, and management’s judgment.

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Income (Loss) Per Share

9 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

Income (Loss) Per Share

7. INCOME(LOSS) PER SHARE

The following table summarizes basic and diluted income (loss) per share of common stock for each period presented:

	Three Months Ended June 30,					Nine Months Ended June 30,
(in thousands, except per share amounts)	2022		2021			2022		2021
Net income (loss) from continuing operations	$	105,867	$	(6,826	)	$	85,415	$	(13,401	)
Net income from discontinued operations,    net of income taxes		47,963		3,322			56,107		7,695
Net income (loss)	$	153,830	$	(3,504	)	$	141,522	$	(5,706	)
Income (loss) per share of common stock–basic:
Continuing operations	$	2.50	$	(0.16	)	$	2.01	$	(0.32	)
Discontinued operations	$	1.13	$	0.08		$	1.32	$	0.18
Net income (loss) per share (1)	$	3.63	$	(0.08	)	$	3.34	$	(0.13	)
Income (loss) per share of common stock–diluted:
Continuing operations	$	1.93	$	(0.16	)	$	1.56	$	(0.32	)
Discontinued operations	$	0.87	$	0.06		$	1.03	$	0.14
Net income (loss) per share (1)	$	2.81	$	(0.08	)	$	2.59	$	(0.13	)
Weighted average shares of common stock outstanding:
Basic		42,409		42,321			42,408		42,320
Convertible debt		11,158		11,158			11,158		11,158
Warrants		1,207		1,006			1,135		923
Employee stock option grants		44		18			34		15
Diluted		54,818		54,503			54,735		54,416
Anti-dilutive shares excluded from diluted net income (loss)    per share calculation:
Employee stock option grants		1,250		1,310			1,250		1,310
Warrants		-		1,297			-		1,297
Total		1,250		2,607			1,250		2,607

(1) Amounts may not add due to rounding.

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Debt

9 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Debt

8. DEBT

ALJ’s components of debt and the respective interest rate at the end of each reporting period were as follows:

	June 30, 2022				September 30, 2021
(in thousands)	Interest Rate		Balance		Interest Rate			Balance
Line of credit:
PNC Revolver			$	—		5.25	%	$	5,490
PNC Revolver LIBOR				—		4.00			—
Line of credit, net of deferred loan costs			$	—				$	5,490
Current portion of term loans:
Current portion of Blue Torch Term Loan			$	—		8.50		$	3,800
Less: deferred loan costs				—					(1,108	)
Current portion of term loans, net of deferred loan costs			$	—				$	2,692
Term loans, less current portion:
Blue Torch Term Loan, less current portion			$	—		8.50		$	90,250
Convertible Promissory Notes		8.25		6,026		8.25			6,026
Less: deferred loan costs				—					(2,792	)
Term loans, less current portion, net of deferred loan costs			$	6,026				$	93,484
Total line of credit and term loans			$	6,026				$	101,666

Debt Transactions Executed During the Three Months Ended June 30, 2021

New Term Loan

In June 2021, ALJ replaced its existing term loans by entering into a new term loan (“Blue Torch Term Loan”) with Blue Torch Business Finance, LLC ("Blue Torch") for an aggregate principal amount of $95.0 million. The Blue Torch Term Loan had an original maturity date of June 29, 2025, required annual principal payments of $3.8 million paid quarterly, included a prepayment penalty in certain instances, and was secured by substantially all the Company's assets.

Amendment and Restatement of Existing Line of Credit Revolver

In connection with the Blue Torch Term Loan, ALJ amended and restated in its entirety its existing line of credit financing agreement (as amended and restated, the “Amended PNC Revolver”). The Amended PNC Revolver provided for a total of $32.5 million, which included (i) revolving borrowings, and (ii) the issuance of letters of credit. The letters of credit had a sublimit of $15.0 million. The Amended PNC Revolver had an original maturity date of June 29, 2025, and was secured by substantially of the Company's assets.

Debt Transactions Executed During the Three Months Ended June 30, 2022

Termination of Blue Torch Term Loan

On April 1, 2022, in connection with the Faneuil Asset Sale (see Note 1), the Company paid off the Blue Torch Tern Loan. ALJ’s payment to Blue Torch was $92.2 million, which satisfied all of the Company’s debt obligations under the Blue Torch Term Loan (“Blue Torch Payoff”). The Company was not required to pay any prepayment premiums as a result of the repayment of indebtedness under the Blue Torch Term Loan, which provided that the mandatory prepayment made in connection with the proceeds from the Faneuil Asset Sale were exempt from such pre-payment premiums. In connection with the repayment of outstanding indebtedness by the Company, the lenders automatically and permanently released all security interests, mortgages, liens and encumbrances under the Blue Torch Term Loan.

Termination of Amended PNC Revolver

In connection with the Phoenix Sale on April 13, 2022, the Company repaid in full all outstanding indebtedness and terminated all commitments and obligations under the Amended PNC Revolver. The Company was required to pay a pre-payment premium of $0.3 million as a result of the repayment of indebtedness under the Amended PNC Revolver. In connection with the repayment of outstanding indebtedness by the Company, the lenders automatically and permanently released all security interests, mortgages, liens and encumbrances under the Amended PNC Revolver.

Loss on Debt Extinguishment

The following table summarizes elements of ALJ's loss on debt extinguishment for each period presented:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021		2022		2021
(in thousands)
Deferred loan costs written off	$	3,556	$	1,171	$	3,556	$	1,171
Prepayment penalties		328		743		328		743
Total loss on debt extinguishment	$	3,884	$	1,914	$	3,884	$	1,914

Convertible Promissory Notes

In June 2021, ALJ issued convertible promissory notes in an aggregate principal amount of $6.0 million (the “Convertible Promissory Notes”) to two investors, including ALJ’s Chief Executive Officer and Chairman of the Board, Jess Ravich.

The Convertible Promissory Notes accrue interest at the rate of 8.25% per year, compounded monthly with interest payable in cash quarterly in arrears on the last day of each calendar quarter on the outstanding principal balance until such principal amount is paid in full or until conversion. The principal and accrued interest owed under the Convertible Promissory Notes are convertible, at the option of the holders, into shares of the Company’s common stock, at any time prior to November 28, 2023, at a conversion price equal to the quotient of all amounts due under each Convertible Promissory Note divided by the conversion rate of $0.54 per common share.

The Convertible Promissory Notes (i) were subordinate to the Blue Torch Term Loan and the Amended PNC Revolver prior to the Blue Torch Payoff and the termination of the Amended PNC Revolver, (ii) are unsecured, and (iii) mature on November 28, 2023, subject to extension under certain circumstances.

Financial Covenant Compliance

As a result of the Blue Torch Payoff and Amended PNC Revolver termination, ALJ is no longer subject to financial covenant requirements.

Estimated Future Minimum Principal Payments

Estimated future minimum principal payments, subsequent to the Blue Torch Payoff and termination of the Amended PNC Revolver, are as follows (in thousands):

Year Ending June 30,	Convertible Promissory Notes
2023	$	—
2024		6,026
Total	$	6,026

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Commitments and Contingencies

9 Months Ended

Jun. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

9. COMMITMENTS AND CONTINGENCIES

Employment Agreements

ALJ maintains employment agreements with certain key executive officers that provide for a base salary and an annual bonus, with annual bonus amounts to be determined by the Board of Directors, or committee thereof, or the Chief Executive Officer. The agreements also provide for involuntary termination payments, which include base salary, performance bonus, medical premiums, stock options, non-competition provisions, and other terms and conditions of employment. On June 30, 2022, contingent termination payments related to base salary and medical premiums totaled $2.1 million.

Surety Bonds

Historically, as part of Faneuil’s normal course of operations, certain customers required surety bonds guaranteeing the performance of a contract. During the three months ended June 30, 2022, all the surety bonds were cancelled as the underlying contract was either sold as part of the Faneuil Asset Sale or ended. As such, there were no surety bonds outstanding on June 30, 2022.

Letters of Credit

The Company had letters of credit totaling $3.5 million outstanding on June 30, 2022, which were collateralized with cash deposits totaling $3.6 million, or 103% of the total letters of credit.

Litigation, Claims, and Assessments

Marshall v. Faneuil

On July 31, 2017, plaintiff Donna Marshall (“Marshall”) filed a proposed class action lawsuit in the Superior Court of the State of California for the County of Sacramento against Faneuil and ALJ. Marshall, a previously terminated Faneuil employee, alleges various California state law employment-related claims against Faneuil. Faneuil has answered the complaint and removed the matter to the United States District Court for the Eastern District of California; however, Marshall filed a motion to remand the case back to state court, which has been granted. In connection with the above, an amended complaint was filed by certain plaintiffs to add a claim for penalties under the California Private Attorneys General Act (the “PAGA Claim”). Faneuil demurred to the PAGA Claim and it was eventually dismissed by the trial court.

A mediation was held on March 11, 2021, following which the parties negotiated a settlement agreement that has been provisionally approved by the court.

Harris v. Faneuil

Lois Harris, an employee of Faneuil in Georgia, filed a collective action complaint on April 18, 2021 in the United States District Court for the Northern District of Georgia. Harris alleges, on behalf of herself and other current and former non-exempt Call Center Agent employees who received nondiscretionary bonuses for periods in which they worked overtime hours, that Faneuil violated the Fair Labor Standards Act by failing to include nondiscretionary bonuses in the regular rate of pay when calculating the overtime rate

for Harris and other similarly-situated persons. Faneuil has engaged counsel to defend it in this action. The parties are negotiating a settlement.

Jesse James Pagan et. al. v. Faneuil

On April 26, 2022, a putative class action complaint was filed against Faneuil in the United States District Court for the Eastern District of Virginia. The complaint asserts claims against Faneuil for negligence, breach of an implied contract, and unjust enrichment in connection with an alleged data breach. The proposed class includes certain former employees of Faneuil who contend their personal identifiable information was compromised in the data breach. The complaint seeks damages in excess of $5.0 million on behalf of the putative class. Faneuil has engaged counsel to defend it in this action. The parties are negotiating a settlement.

Other Litigation

The Company has been named in, and from time to time may become named in, various other lawsuits or threatened actions that are incidental to its ordinary business. Litigation is inherently unpredictable. Any claims against the Company, whether meritorious or not, could be time-consuming, cause the Company to incur costs and expenses, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits and actions cannot be predicted with certainty. The Company concluded as of June 30, 2022, that the ultimate resolution of these matters (including the matters described above) will not have a material adverse effect on the Company’s business, consolidated financial position, results of operations or cash flows.

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Leases

9 Months Ended

Jun. 30, 2022

Leases [Abstract]

Leases

10. LEASES

General

ALJ has operating leases for facilities, equipment, and vehicles, and finance leases for equipment. Over 95% of operating leases are for facilities. Many of the Company’s facilities leases contain renewal options and rent escalation clauses. The Company subleases excess facility space. Sublease payments received were immaterial for all periods presented.

The Company determines if an arrangement is a lease at inception and recognizes a finance or operating lease liability and right-of-use asset in the Company’s Consolidated Balance Sheet. Right-of-use assets and lease liabilities for both operating and finance leases are recognized based on present value of lease payments over the lease term at commencement date.

In instances where the lease does not provide an implicit rate, the Company estimates an incremental borrowing rate (“IBR”) based on the information available at commencement date to determine the present value of lease payments. ALJ does not have a published credit rating because it has no publicly traded debt. However, the Company does have several privately held debt instruments that were taken into consideration. The Company generates its IBR, using a synthetic credit rating model that estimates the likelihood (probability) of a borrower receiving a given credit rating based on relevant credit factors or predictor variables. It is based on a regression analysis using selected financial ratios of publicly traded industry comparable companies and the companies’ credit ratings. The estimated IBR is then adjusted for (i) the length of the lease term, and (ii) the effect of designating specific collateral with a value equal to the unpaid lease payments. Finally, ALJ applies the estimated IBR on a lease-by-lease basis as each lease has different start and end dates and has different assumptions regarding purchase or renewal options.

For facilities leases, ALJ accounts for non-lease components such as maintenance, taxes, and insurance, separately. For equipment leases, ALJ accounts for lease and non-lease components as a single lease component. The difference between the operating lease right-of-use assets and operating lease liabilities primarily relates to adjustments for deferred rent and tenant improvement allowances.

Lease Impairment

The Company tests right-of-use (“ROU”) assets when impairment indicators are present. During March 2022, the Company entered into an agreement to sublease excess office space, which triggered impairment testing for the underlying ROU asset. The Company performed a discounted cash flow analysis on the ROU asset and determined that the net carrying value exceeded the estimated discounted future cash flows. As a result, ALJ recorded a $2.2 million lease impairment, which was reflected on the statement of operations for the nine months ended June 30, 2022.

ROU Assets and ROU Liabilities

The following table presents the location of the ROU assets and liabilities in the Consolidated Balance Sheet and ALJ’s weighted-average lease term and discount rate:

(dollars in thousands)	June 30, 2022			September 30, 2021
Finance Leases:
Property and equipment, at cost	$	1,575		$	1,575
Less accumulated amortization		(1,277	)		(977	)
Property and equipment, net	$	298		$	598
Finance lease obligations, current portion	$	528		$	765
Finance lease obligations, less current portion		—			332
Total finance lease liabilities	$	528		$	1,097
Operating Leases:
Operating lease right-of-use assets	$	17,647		$	29,048
Operating lease obligations - current installments	$	3,200		$	4,722
Operating lease obligations, less current installments		20,167			32,767
Total operating lease obligations	$	23,367		$	37,489
Weighted average remaining lease term (years):
Finance		0.7			1.4
Operating		6.6			6.8
Weighted average discount rate:
Finance		6.0	%		6.0	%
Operating		10.6	%		10.6	%

Components of Lease Costs, Net

The following table presents the components of lease cost and the location of such cost in ALJ’s Consolidated Statements of Operations:

		Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	Statement of Operations Location	2022		2021		2022		2021
Finance Leases:
Amortization of finance lease assets	Selling, general, and administrative expense	$	39	$	189	$	300	$	696
Interest on finance lease liabilities	Interest expense		10		52		38		104
Total finance lease cost			49		241		338		800
Operating Leases:
Operating lease cost	Selling, general, and administrative expense		841		1,724		4,018		5,207
Operating lease cost	Cost of revenue		—		319		510		957
Variable lease cost	Selling, general, and administrative expense		127		220		507		719
Short-term lease cost	Selling, general, and administrative expense		—		10		—		28
Total operating lease cost			968		2,273		5,035		6,911
Lease impairment	Lease impairment		—		—		2,158		—
Total lease cost, net		$	1,017	$	2,514	$	7,531	$	7,711

Supplemental Cash Flow Information

The following table presents supplemental cash flow information related to leases:

(In thousands)	Nine Months Ended June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for finance leases	$	38	$	104
Operating cash flows used for operating leases - continuing operations		3,187		3,750
Financing cash flows used for finance leases		607		2,350
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,379		576

Lease Maturities

Maturities of lease liabilities on June 30, 2022 were as follows (in thousands):

Year Ending June 30,	Finance Leases			Operating Leases			Sublease
2023	$	540		$	5,292		$	(771	)
2024		—			5,133			(771	)
2025		—			5,102			(771	)
2026		—			5,091			(771	)
2027		—			4,161			(257	)
Thereafter		—			6,502			—
Total lease payments		540			31,281			(3,341	)
Less: imputed interest		(12	)		(7,914	)		682
Total present value of lease payments	$	528		$	23,367		$	(2,659	)
Reported as of June 30, 2022
Current	$	528		$	3,200
Non-current		—			20,167
Total	$	528		$	23,367

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Equity

9 Months Ended

Jun. 30, 2022

Equity [Abstract]

Equity

11. EQUITY

Common Stock

ALJ issued less than 0.1 million shares of common stock upon the cashless exercise of stock options during both the nine months ended June 30, 2022 and 2021.

Preferred Stock

In August 2018, ALJ shareholders approved the amendment and restatement of ALJ’s Restated Certificate of Incorporation to eliminate the preferred stock and authorize the issuance of 5.0 million shares of blank check preferred stock. ALJ had no preferred stock outstanding on June 30, 2022 or September 30, 2021.

Equity Incentive Plans

In July 2016, ALJ shareholders approved ALJ’s Omnibus Equity Incentive Plan (“2016 Plan”), which allows ALJ and its subsidiaries to grant securities of ALJ to officers, employees, directors, or consultants. ALJ believes that equity-based compensation is fundamental to attracting, motivating, and retaining highly qualified dedicated employees who have the skills and experience required to achieve business goals. Further, ALJ believes the 2016 Plan aligns the compensation of directors, officers, and employees with shareholder interest.

The 2016 Plan is administered by ALJ’s Compensation, Nominating and Corporate Governance Committee (“Committee”) of the Board. The maximum aggregate number of common stock shares that may be granted under the 2016 Plan is 2.0 million. The 2016 Plan generally provides for the grant of qualified or nonqualified stock options, restricted stock and restricted stock units, unrestricted stock, stock appreciation rights, performance awards and other awards. The Committee has full discretion to set the vesting criteria.

The exercise price of a stock option may not be less than 100% of the fair market value of ALJ’s common stock on the date of grant. The 2016 Plan prohibits the repricing of outstanding stock options without prior shareholder approval. The term of stock options granted under the 2016 Plan may not exceed ten years. Awards are subject to accelerated vesting upon a change in control in the event the acquiring company does not assume the awards. The Board may amend, alter, or discontinue the 2016 Plan, but shall obtain shareholder approval of any amendment as required by applicable law or stock exchange listing requirements. As of June 30, 2022, there were 1.4 million options available for future grant under the 2016 Plan.

Stock-Based Compensation.

The following table sets forth the total stock-based compensation expense included in selling, general, and administrative expense on the Statements of Operations:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Stock options	$	15	$	15	$	75	$	47
Common stock awards		26		26		79		79
Total stock-based compensation expense	$	41	$	41	$	154	$	126

On June 30, 2022, ALJ had $0.1 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately 2.2 years.

Stock Option Awards.

ALJ issued 200,000 options during the nine months ended June 30, 2022. The fair value of the options was $0.1 million using the following assumptions: expected option life of 6.2 years, volatility of 56.46%, dividend yield of 0.00%, and annual risk-free interest rate of 1.18%.

ALJ had no option grants during the nine months ended June 30, 2021.

Common Stock Awards. Members of ALJ’s Board of Directors receive a director compensation package that includes an annual common stock award. In connection with such awards, ALJ recorded stock-based compensation expense of less than $0.1 million for both the three months ended June 30, 2022 and 2021, and $0.1 million for both the nine months ended June 30, 2022 and 2021.

Common Stock Options and Warrants Outstanding on June 30, 2022

On June 30, 2022, ALJ had 1.4 million stock options with a weighted average exercise price of $3.50 outstanding and warrants exercisable to purchase 1.6 million shares of common stock with a weighted average exercise price of $0.56 outstanding.

The “intrinsic value” of options is the excess of the value of ALJ stock over the exercise price of such options. The total intrinsic value of options outstanding (of which all are vested or expected to vest) and the total intrinsic value of options exercisable was $0.1 million on June 30, 2022.

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Income Tax

9 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Tax

12. INCOME TAX

ALJ recorded a provision for income taxes from continuing operations of $6.0 million and $0.2 million for the nine months ended June 30, 2022 and 2021, respectively. ALJ’s effective tax rate from continuing operations for the nine months ended June 30, 2022 was (0.1%), which was due primarily to changes to the valuation allowance recorded against net deferred tax assets. ALJ’s effective tax rate for the nine months ended June 30, 2021was (0.7%), which was also due primarily to changes to the valuation allowance recorded against net deferred tax assets.

ALJ recorded a discrete tax provision in continuing operations of $6.0 million for the nine months ended June 30, 2022 related to the Faneuil Asset Sale. ALJ recorded no discrete tax provision in continuing operations for the nine months ended June 30, 2021.

ALJ recorded a provision for income taxes from discontinued operations of $13.2 million, of which $13.0 million was for the one-time Phoenix Sale and $0.2 million was for Phoenix operations, and $0.5 million for the nine months ended June 30, 2022 and 2021, respectively. The increase in the provision for income taxes from discontinued operations is due to the Phoenix Sale.

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Ransomware Incident

9 Months Ended

Jun. 30, 2022

Disclosure Text Block [Abstract]

Ransomware Incident

13. RANSOMWARE INCIDENT

On August 18, 2021, Faneuil detected a ransomware attack (“Security Event”) that accessed and encrypted certain files on certain servers utilized by Faneuil in the provision of its call center services.

Promptly upon detection of the Security Event, Faneuil launched an investigation, engaged legal counsel and other incident response professionals, and notified law enforcement. Faneuil immediately implemented a series of containment and remediation measures to address this situation and reinforce the security of its information technology systems. Faneuil worked with industry-leading cybersecurity professionals to immediately respond to the threat, defend its information technology systems, and conduct remediation.

Although Faneuil quickly and actively managed the Security Event, such event caused disruption to parts of Faneuil’s business, including certain aspects of its provision of call center services. Faneuil carries insurance, including cyber insurance, commensurate with the size and the nature of its operations. Although Faneuil actively communicated with customers and worked to minimize disruption, Faneuil cannot guarantee that customer relationships were not harmed as a result of the Security Event.

Faneuil incurred less than $0.1 million and $0.2 million of Security Event related expenses, recorded in selling, general, and administrative expense during the three and nine months ended June 30, 2022, respectively. As of June 30, 2022, Faneuil’s insurance recovery receivable was approximately $0.8 million, included with other current assets on the Consolidated Balance Sheet, for amounts that are considered probable for recovery. The insurance proceeds are expected to be received before September 30, 2022.

Should Faneuil expect to receive additional insurance recoveries, above the $0.8 million insurance recovery receivable on June 30, 2022, they will be recorded when considered probable for recovery.

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Reportable Segments and Geographic Information

9 Months Ended

Jun. 30, 2022

Segment Reporting [Abstract]

Reportable Segments and Geographic Information

14. REPORTABLE SEGMENTS AND GEOGRAPHIC INFORMATION

Reportable Segments

As a result of the Phoenix Sale discussed in Note 1, ALJ had one operating segment for all periods presented.

Geographic Information

Substantially all of the Company’s assets were located in the United States. Substantially all of the Company’s revenue was earned in the United States.

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Subsequent Event

9 Months Ended

Jun. 30, 2022

Subsequent Events [Abstract]

Subsequent Event

5. SUBSEQUENT EVENT

Stock Repurchase and Retirement

On July 11, 2022, the Board of Directors of ALJ unanimously authorized the repurchase and retirement of 3.7 million shares of common stock for $2.00 per share for an aggregate consideration of $7.5 million (the "Repurchase Transactions"). The shareholders from whom the shares were repurchased included a 5% shareholder of the Company as well as two charitable associations associated with Jess Ravich, ALJ’s Chief Executive Officer. The Repurchase Transactions and the subsequent retirement of repurchased shares were all completed on or before July 19, 2022.

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Organization and Basis of Presentation (Policies)

9 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

Organization

ALJ Regional Holdings, Inc. (including subsidiaries, referred to collectively herein as “ALJ” or “Company”) is a holding company. During the three and nine months ended June 30, 2022, ALJ consisted of the following wholly-owned subsidiaries:

•Faneuil, Inc. (including its subsidiaries, “Faneuil”). Faneuil is a leading provider of call center services, back-office operations, staffing services, and toll collection services to government and regulated commercial clients across the United States, focusing on the healthcare, utility, transportation, and toll revenue collection industries. Faneuil is headquartered in Hampton, Virginia. ALJ acquired Faneuil in October 2013. On April 1, 2022, ALJ completed the sale of Faneuil’s tolling and transportation and health benefit exchange vertical. See Basis of Presentation below.

•Phoenix Color Corp. (including its subsidiaries, “Phoenix”). Phoenix is a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and commercial specialty products using a broad spectrum of materials and decorative technologies. Phoenix is headquartered in Hagerstown, Maryland. ALJ acquired Phoenix in August 2015. On April 13, 2022, ALJ completed its sale of Phoenix. See Basis of Presentation below.

ALJ owned a third segment, Floors-N-More, LLC, d/b/a, Carpets N’ More (“Carpets”). Carpets was a floor covering retailer in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail and home builder markets including all types of flooring, countertops, cabinets, window coverings and garage/closet organizers. ALJ acquired and disposed of Carpets in April 2014 and February 2021, respectively. See Basis of Presentation below.

As a result of the Phoenix Sale, ALJ had one operating segment for all periods presented.

Basis of Presentation

Basis of Presentation

Overall

The accompanying condensed consolidated financial statements include the accounts of ALJ and its subsidiaries and have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information. All intercompany transactions and balances have been eliminated in consolidation. The financial information included herein is unaudited, and reflects all adjustments which are, in the opinion of management, of a normal recurring nature and necessary for a fair statement of the results for the periods presented. Interim financial results are not necessarily indicative of financial results for a full year. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with ALJ’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021, filed with the SEC on December 20, 2021.

Discontinued Operations – Carpets

In February 2021, ALJ completed the sale of Carpets (the “Carpets Sale”). The Company determined that the Carpets Sale qualified as discontinued operations as defined by Accounting Standards Codification (“ASC”) 205-20-45, Presentation of Financial Statements — Discontinued Operations — Other Presentation Matters (“ASC 205”) because the Carpets Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Carpets results of operations and cash flows were classified as discontinued operations for the nine months ended June 30, 2021. See Note 4 for additional financial information about Carpets’ discontinued operations.

Discontinued Operations – Phoenix

In February 2022, ALJ entered into a stock purchase agreement (the “Stock Purchase Agreement”) to sell all of the outstanding shares of common stock of Phoenix (the “Phoenix Sale”) for cash consideration, including post-closing working capital adjustments, totaling approximately $135.9 million. The Phoenix Sale closed on April 13, 2022. The Company recorded a gain on sale of discontinued operations, net of related income taxes, of $46.8 million during the three months ended June 30, 2022.

The Company determined that the Phoenix Sale qualified as discontinued operations as defined by ASC 205 because the Phoenix Sale represented a strategic shift with a major effect on the Company's operations and financial results. Pursuant to ASC 205, Phoenix assets, liabilities, results of operations, and cash flows were classified as discontinued operations for all periods presented. See Note 4 for additional financial information about Phoenix’s discontinued operations.

Asset Sale - Faneuil

In December 2021, ALJ entered into an agreement to sell certain net assets of Faneuil’s tolling and transportation vertical and health benefit exchange vertical (the “Faneuil Asset Sale”). The Faneuil Asset Sale closed on April 1, 2022, for cash consideration of $142.3 million less an indemnification escrow amount of approximately $15.0 million. Faneuil is also eligible to receive additional earn-out payments based upon the performance of certain customer agreements in an aggregate amount of up to $25.0 million. The Company recorded a gain on sale of assets, net of related income taxes, of $112.0 million during the three and nine months ended June 30, 2022. See Note 4 for additional financial information about Faneuil's gain on sale of assets.

In connection with the Faneuil Asset Sale, Faneuil entered into a Transition Services Agreement ("TSA"), which is designed to ensure and facilitate an orderly transfer of the tolling and transportation vertical and health benefit exchange vertical. The services provided under the TSA will terminate at various times between 30 days and 365 days from the closing date of the Faneuil Asset Sale and can be renewed, in whole or in part, in 30-day increments, for a maximum of 180 days. Revenue earned from the TSA was disclosed as other revenue on the consolidated statements of operations during the three and nine months ended June 30, 2022. TSA-related expenses were recorded in their natural expense classification.

The Company determined that the Faneuil Asset Sale did not qualify as discontinued operations as defined by ASC 205 because the Faneuil Asset Sale does not represent a strategic shift with a major effect on the Company's operations and financial results. As such, Faneuil assets, liabilities, results of operations, and cash flows were included with continuing operations for all periods presented.

Use of Estimates

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Although actual results could differ materially from those estimates, such estimates are based on the best information available to management and management’s best judgments at the time. Significant estimates and assumptions by management are used for, but are not limited to, determining the fair value of assets and liabilities, including intangible assets acquired and allocation of acquisition purchase prices, estimated useful lives of certain assets, recoverability of long-lived and intangible assets, the recoverability of goodwill, the realizability of deferred tax assets, stock-based compensation, the likelihood of material loss as a result of loss contingencies, customer lives used for revenue recognition, the allowance for doubtful accounts and inventory reserves, and calculation of insurance reserves. The inputs into certain of these estimates and assumptions include the consideration of the economic impact of the COVID-19 pandemic. Actual results may differ materially from estimates. As the impact of the COVID-19 pandemic continues to develop, many of these estimates could require increased judgment and carry a higher degree of variability and volatility, and may change materially in future periods.

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Recent Accounting Standards (Policies)

9 Months Ended

Jun. 30, 2022

Accounting Changes and Error Corrections [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements Adopted

Internal-Use Software

In August 2018, the Financial Accounting Standards Boards (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, to provide guidance on implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU 2018-15 aligns the accounting for such costs with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends ASC 350, Intangibles–Goodwill and Other, to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in such a CCA. ALJ adopted ASU 2018-15 on October 1, 2021. The impact of ASU 2018-15 on ALJ’s consolidated financial statements and related disclosures was not material.

Debt with Conversion and Other Options

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible

instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ALJ adopted ASU 2020-06 on October 1, 2021 using the full retrospective basis. The impact of ASU 2020-06 on ALJ’s consolidated financial statements and related disclosures was not material.

Accounting Standards Not Yet Adopted

Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), which addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. ASU 2021-04 will be effective for ALJ on October 1, 2022. ALJ does not anticipate the adoption of ASU 2021-04 to significantly impact its consolidated financial statements and related disclosures.

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The new guidance requires contract assets and contract liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, as if it had originated the contracts. This approach differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 will be effective for ALJ on October 1, 2023. The adoption impact of the new standard will depend on the magnitude of future acquisitions. The standard will not impact acquired contract assets or liabilities from business combinations occurring prior to the adoption date.

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Revenue recognition (Tables)

9 Months Ended

Jun. 30, 2022

Revenue Recognition [Abstract]

Disaggregation of Revenue

Revenue by contract type was as follows for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Faneuil:
Utility	$	14,295	$	13,709	$	40,854	$	40,529
Healthcare		9,147		31,318		70,141		108,020
Other		1,327		965		2,791		3,576
Government		341		4,148		2,633		26,698
Transportation		—		22,614		51,984		64,324
Total revenue		25,110		72,754		168,403		243,147
Other revenue		32,511		—		32,511		—
Total revenue and other revenue	$	57,621	$	72,754	$	200,914	$	243,147

Contract with Customer Asset and Liabilities

The following table provides information about consolidated contract assets and contract liabilities at the end of each reporting period:

	June 30,		September 30,
(in thousands)	2022		2021
Contract assets:
Unbilled revenue (1)	$	—	$	69
Total contract assets	$	—	$	69
Contract liabilities:
Deferred revenue	$	—	$	4,422
Total contract liabilities	$	—	$	4,422

(1) Included in prepaid expenses and other current assets on the consolidated balance sheets. Unbilled revenue represents rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Unbilled revenue is transferred to accounts receivable when the rights become unconditional.

The following table provides changes in consolidated contract assets and contract liabilities from September 30, 2021 to June 30, 2022:

(in thousands)	Contract Assets			Contract Liabilities
Balance, September 30, 2021	$	69		$	4,422
Additions to contract assets		26			—
Revenue recognized		—			(8,403	)
Cash received from customer and other		(95	)		3,981
Balance, June 30, 2022	$	—		$	—

Summary of Changes in Costs to Obtain and Fulfill a Contract

The following table provides changes in costs to obtain a contract for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Balance, beginning of period	$	143		$	412		$	239		$	593
Additions		285			—			363			99
Amortization, included in selling, general, and administrative expense		(113	)		(111	)		(287	)		(391	)
Balance, end of period	$	315		$	301		$	315		$	301
Reported as of end of period
Current - prepaid expenses and other current assets		283			213
Noncurrent - other assets		32			88
Total	$	315		$	301

The following table provides changes in costs to fulfill a contract for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Balance, beginning of period	$	678		$	4,363		$	2,884		$	5,118
Additions		—			55			2,756			6,047
Amortization, included in selling, general, and administrative expense		(127	)		(877	)		(5,089	)		(7,624	)
Balance, end of period	$	551		$	3,541		$	551		$	3,541
Reported as of end of period
Current - prepaid expenses and other current assets		252			2,946
Noncurrent - other assets		299			595
Total	$	551		$	3,541

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Divestitures and Discontinued Operations (Tables)

9 Months Ended

Jun. 30, 2022

Carpets Sale [Member]

Summary of Discontinued Operations

As previously discussed in Note 1, ALJ sold Carpets during February 2021. As a result, ALJ recognized a loss on sale of $0.8 million

during the nine months ended June 30, 2021 calculated as follows:

(in thousands)	Amount
Cash proceeds	$	500
Net assets sold		(1,199	)
Transaction costs		(62	)
Impact of income taxes		—
Total loss on sale	$	(761	)

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	4,615
Intangible assets, net		318
Other long-term assets		740
Current liabilities		(4,099	)
Long-term liabilities		(375	)
Net assets sold	$	1,199

The following table presents information regarding certain components of loss from discontinued operations, net of income taxes, attributable to Carpets, for the nine months ended June 30, 2021:

	Nine Months Ended
(in thousands)	June 30, 2021
Revenue	$	13,799
Operating loss		(302	)
Loss on sale		(761	)
Loss before income taxes		(1,063	)
Income tax expense		—
Loss from discontinued operations, net of income taxes		(1,063	)

The following table presents significant components of cash flows of discontinued operations, attributable to Carpets, for the nine months ended June 30, 2021:

	Nine Months Ended
(in thousands)	June 30, 2021
Operating activities
Depreciation and amortization expense	$	199
Provision for bad debts and obsolete inventory		27
Changes in operating assets and liabilities:
Accounts receivable, net		399
Inventories, net		(12	)
Prepaid expenses, collateral deposits, and other current assets		24
Other assets and liabilities, net		26
Investing activities
Capital expenditures		(7	)

Faneuil Asset Sale [Member]

Summary of Discontinued Operations

As previously discussed in Note 1, ALJ sold certain net assets of Faneuil on April 1, 2022. As a result, the Company recorded a gain on sale of assets, net of related income taxes, of $112.0 million during the three and nine months ended June 30, 2022 calculated as follows:

(in thousands)	Amount
Cash proceeds	$	127,442
Net assets sold		(3,114	)
Transaction costs		(6,314	)
Gain on sale of assets before income taxes	$	118,014
Impact of income taxes (1)		(5,992	)
Total gain on sale, net of income taxes	$	112,022

(1) Included in the provision for income taxes on the consolidated statement of operations.

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	215
Property and equipment, net		6,198
Operating lease right-of-use assets		7,572
Current liabilities		(1,376	)
Long-term liabilities		(9,495	)
Net assets sold	$	3,114

Phoenix Sale [Member]

Summary of Discontinued Operations

As previously discussed in Note 1, ALJ sold Phoenix on April 13, 2022. As a result, ALJ recognized a gain on sale, net of income taxes, of $46.8 million during the three months ended June 30, 2022, calculated as follows:

(in thousands)	Amount
Cash proceeds	$	135,928
Net assets sold		(69,707	)
Transaction costs		(6,441	)
Impact of income taxes		(12,950	)
Total gain on sale	$	46,830

The carrying values of the net assets sold, at the time of closing, were as follows:

(in thousands)	Amount
Current assets	$	22,270
Property and equipment, net		40,329
Other long-term assets		18,171
Current liabilities		(10,705	)
Long-term liabilities		(358	)
Net assets sold	$	69,707

The following table presents the carrying amount of major classes of assets and liabilities, attributable to Phoenix, classified as held for sale included in discontinued operations on September 30, 2021:

	September 30,
(in thousands)	2021
Assets:
Accounts receivable	$	10,912
Inventories, net		7,654
Prepaid expenses and other current assets		2,042
Property and equipment, net		41,066
Operating lease right-of-use assets		—
Intangible assets, net		18,705
Other long-term assets		389
Total assets of discontinued operations	$	80,768
Liabilities:
Accounts payable	$	3,986
Accrued expenses		5,396
Other current liabilities		810
Total long-term liabilities		1,841
Total liabilities of discontinued operations	$	12,033

The following table presents certain components of results of operations reported as discontinued operations, attributable to Phoenix, for the three and nine months ended June 30, 2022 and 2021:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Revenue	$	4,275	$	30,706	$	65,040	$	86,038
Operating income		1,133		3,793		9,277		9,391
Gain on sale, net of income taxes		46,830		—		46,830		—
Net income from discontinued operations, net of income taxes		47,963		3,322		56,107		8,758

The following table presents certain components of cash flows reported as discontinued operations, attributable to Phoenix, for the nine months ended June 30, 2022 and 2021:

	Nine Months Ended June 30,
(in thousands)	2022			2021
Operating activities
Depreciation and amortization expense	$	4,092		$	5,457
Provision for bad debts and obsolete inventory and other		(11	)		(72	)
Changes in operating assets and liabilities:
Accounts receivable, net		(549	)		2,629
Inventories, net		(487	)		(353	)
Prepaid expenses, collateral deposits, and other current assets		1,026			1,033
Other assets and liabilities, net		(2,740	)		2,305
Investing activities
Capital expenditures		(2,309	)		(3,631	)
Proceeds from sales of assets		6			309
Financing activities
Payments on finance leases		—			(7,538	)
Payments on term loans		—			(1,637	)
Payment of debt extinguishment penalties and other		—			(158	)

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Concentration Risks (Tables)

9 Months Ended

Jun. 30, 2022

Revenue, Segment Benchmark | Faneuil [Member]

Schedule of Concentration Percentage of Different Customers

As a result of the Phoenix Sale described in Note 1, all revenue reported was attributable to Faneuil for all periods presented. The percentages of ALJ consolidated revenue derived from its significant customers were as follows:

	Three Months Ended June 30,						Nine Months Ended June 30,
	2022			2021			2022			2021
Customer A		56.4	%	**				16.2	%	**
Customer B		10.1		**			**			**
Customer C	**			**			**				11.8	%
Customer D	**				11.7	%		12.8		**

** Less than 10% of consolidated revenue.

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Composition of Certain Financial Statement Captions (Tables)

9 Months Ended

Jun. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Short-term or Non-current Investments

The following table summarizes the Company’s short-term and non-current investments recorded in the consolidated balance sheets on June 30, 2022. The Company did not have any short-term or non-current investments on September 30, 2021.

	June 30, 2022
(in thousands)	Short-Term		Non-Current		Total
Held-to-Maturity:
Treasury bills (1)	$	99,679	$	—	$	99,679
Other investments (2)		—		5,000		5,000
Total investments	$	99,679	$	5,000	$	104,679

(1) The carrying value of the investments approximates fair value due to the short-term nature of the instruments.

(2) Included in other assets on the consolidated balance sheets. As the investment was purchased on June 28, 2022, the carrying value of the investments approximates fair value due to short time from the purchase date to June 30, 2022.

Summary of Accounts Receivable

The following table summarizes accounts receivable at the end of each reporting period:

	June 30,			September 30,
(in thousands)	2022			2021
Accounts receivable	$	38,979		$	57,455
Unbilled receivables		—			205
Accounts receivable		38,979			57,660
Less: allowance for doubtful accounts		(1,300	)		—
Accounts receivable, net	$	37,679		$	57,660

Summary of Property and Equipment

The following table summarizes property and equipment at the end of each reporting period:

	June 30,			September 30,
(in thousands)	2022			2021
Leasehold improvements	$	16,461		$	30,849
Computer and office equipment		12,414			22,387
Software		9,902			16,532
Furniture and fixtures		3,086			7,600
Machinery and equipment		631			1,190
Vehicles		154			155
Property and equipment		42,648			78,713
Less: accumulated depreciation and amortization		(31,892	)		(55,849	)
Property and equipment, net	$	10,756		$	22,864

Summary of Intangible Assets

The following tables summarize identified intangible assets at the end of each reporting period:

				June 30, 2022
(in thousands)	Weighted Average Original Life (Years)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization			Net
Customer relationships	12.0		4.1	$	16,550	$	(10,948	)	$	5,602
Trade names	15.0		6.3		1,500		(870	)		630
Supply agreements	7.0		1.9		2,910		(2,113	)		797
Technology	8.0		5.1		3,400		(1,240	)		2,160
Non-compete agreements	6.6		3.4		1,550		(759	)		791
Totals				$	25,910	$	(15,930	)	$	9,980

				September 30, 2021
(in thousands)	Weighted Average Original Life (Years)	Weighted Average Remaining Life (Years)		Gross		Accumulated Amortization			Net
Customer relationships	12.0		4.8	$	16,550	$	(9,908	)	$	6,642
Trade names	15.0		7.0		1,500		(795	)		705
Supply agreements	7.0		2.7		2,910		(1,802	)		1,108
Technology	8.0		5.8		3,400		(921	)		2,479
Non-compete agreements	6.6		4.1		1,550		(578	)		972
Totals				$	25,910	$	(14,004	)	$	11,906

Summary of Expected Future Amortization Expense

The following table presents expected future amortization expense as of June 30, 2022:

(in thousands)	Estimated Future Amortization
Fiscal 2022 (remaining)	$	642
Fiscal 2023		2,567
Fiscal 2024		2,429
Fiscal 2025		2,116
Fiscal 2026		1,447
Thereafter		779
Total	$	9,980

Summary of Accrued Expenses

The following table summarizes accrued expenses at the end of each reporting period:

	June 30,		September 30,
(in thousands)	2022		2021
Accrued compensation and related taxes	$	9,878	$	12,320
Acquisition contingent consideration		2,500		2,500
Legal		2,000		2,000
Medical and benefit-related payables		1,321		1,172
Other		1,212		1,216
Accrued board of director fees		526		131
Bank overdraft		—		1,366
Interest payable		—		110
Total accrued expenses	$	17,437	$	20,815

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Income (Loss) Per Share (Tables)

9 Months Ended

Jun. 30, 2022

Earnings Per Share [Abstract]

Summary of Basic and Diluted Income (Loss) Per Share of Common Stock

The following table summarizes basic and diluted income (loss) per share of common stock for each period presented:

	Three Months Ended June 30,					Nine Months Ended June 30,
(in thousands, except per share amounts)	2022		2021			2022		2021
Net income (loss) from continuing operations	$	105,867	$	(6,826	)	$	85,415	$	(13,401	)
Net income from discontinued operations,    net of income taxes		47,963		3,322			56,107		7,695
Net income (loss)	$	153,830	$	(3,504	)	$	141,522	$	(5,706	)
Income (loss) per share of common stock–basic:
Continuing operations	$	2.50	$	(0.16	)	$	2.01	$	(0.32	)
Discontinued operations	$	1.13	$	0.08		$	1.32	$	0.18
Net income (loss) per share (1)	$	3.63	$	(0.08	)	$	3.34	$	(0.13	)
Income (loss) per share of common stock–diluted:
Continuing operations	$	1.93	$	(0.16	)	$	1.56	$	(0.32	)
Discontinued operations	$	0.87	$	0.06		$	1.03	$	0.14
Net income (loss) per share (1)	$	2.81	$	(0.08	)	$	2.59	$	(0.13	)
Weighted average shares of common stock outstanding:
Basic		42,409		42,321			42,408		42,320
Convertible debt		11,158		11,158			11,158		11,158
Warrants		1,207		1,006			1,135		923
Employee stock option grants		44		18			34		15
Diluted		54,818		54,503			54,735		54,416
Anti-dilutive shares excluded from diluted net income (loss)    per share calculation:
Employee stock option grants		1,250		1,310			1,250		1,310
Warrants		-		1,297			-		1,297
Total		1,250		2,607			1,250		2,607

(1) Amounts may not add due to rounding.

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Debt (Tables)

9 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Summary of Loss on Debt Extinguishment

The following table summarizes elements of ALJ's loss on debt extinguishment for each period presented:

	Three Months Ended June 30,				Nine Months Ended June 30,
	2022		2021		2022		2021
(in thousands)
Deferred loan costs written off	$	3,556	$	1,171	$	3,556	$	1,171
Prepayment penalties		328		743		328		743
Total loss on debt extinguishment	$	3,884	$	1,914	$	3,884	$	1,914

Schedule of Estimated Future Minimum Payments under Debt

Estimated future minimum principal payments, subsequent to the Blue Torch Payoff and termination of the Amended PNC Revolver, are as follows (in thousands):

Year Ending June 30,	Convertible Promissory Notes
2023	$	—
2024		6,026
Total	$	6,026

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Leases (Tables)

9 Months Ended

Jun. 30, 2022

Leases [Abstract]

Summary of Location of ROU Assets and Liabilities in Consolidated Balance Sheet and Weighted Average Lease Term and Discount Rate

The following table presents the location of the ROU assets and liabilities in the Consolidated Balance Sheet and ALJ’s weighted-average lease term and discount rate:

(dollars in thousands)	June 30, 2022			September 30, 2021
Finance Leases:
Property and equipment, at cost	$	1,575		$	1,575
Less accumulated amortization		(1,277	)		(977	)
Property and equipment, net	$	298		$	598
Finance lease obligations, current portion	$	528		$	765
Finance lease obligations, less current portion		—			332
Total finance lease liabilities	$	528		$	1,097
Operating Leases:
Operating lease right-of-use assets	$	17,647		$	29,048
Operating lease obligations - current installments	$	3,200		$	4,722
Operating lease obligations, less current installments		20,167			32,767
Total operating lease obligations	$	23,367		$	37,489
Weighted average remaining lease term (years):
Finance		0.7			1.4
Operating		6.6			6.8
Weighted average discount rate:
Finance		6.0	%		6.0	%
Operating		10.6	%		10.6	%

Summary of Components of Lease Cost

The following table presents the components of lease cost and the location of such cost in ALJ’s Consolidated Statements of Operations:

		Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	Statement of Operations Location	2022		2021		2022		2021
Finance Leases:
Amortization of finance lease assets	Selling, general, and administrative expense	$	39	$	189	$	300	$	696
Interest on finance lease liabilities	Interest expense		10		52		38		104
Total finance lease cost			49		241		338		800
Operating Leases:
Operating lease cost	Selling, general, and administrative expense		841		1,724		4,018		5,207
Operating lease cost	Cost of revenue		—		319		510		957
Variable lease cost	Selling, general, and administrative expense		127		220		507		719
Short-term lease cost	Selling, general, and administrative expense		—		10		—		28
Total operating lease cost			968		2,273		5,035		6,911
Lease impairment	Lease impairment		—		—		2,158		—
Total lease cost, net		$	1,017	$	2,514	$	7,531	$	7,711

Supplemental Cash Flow Information Related to Leases

The following table presents supplemental cash flow information related to leases:

(In thousands)	Nine Months Ended June 30,
	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for finance leases	$	38	$	104
Operating cash flows used for operating leases - continuing operations		3,187		3,750
Financing cash flows used for finance leases		607		2,350
Right-of-use assets obtained in exchange for lease obligations:
Operating leases		1,379		576

Schedule of Maturity of Lease Liabilities

Maturities of lease liabilities on June 30, 2022 were as follows (in thousands):

Year Ending June 30,	Finance Leases			Operating Leases			Sublease
2023	$	540		$	5,292		$	(771	)
2024		—			5,133			(771	)
2025		—			5,102			(771	)
2026		—			5,091			(771	)
2027		—			4,161			(257	)
Thereafter		—			6,502			—
Total lease payments		540			31,281			(3,341	)
Less: imputed interest		(12	)		(7,914	)		682
Total present value of lease payments	$	528		$	23,367		$	(2,659	)
Reported as of June 30, 2022
Current	$	528		$	3,200
Non-current		—			20,167
Total	$	528		$	23,367

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Equity (Tables)

9 Months Ended

Jun. 30, 2022

Equity [Abstract]

Summary of Total Stock-Based Compensation Expense Included in Selling General and Administrative Expense on Statements of Operations

The following table sets forth the total stock-based compensation expense included in selling, general, and administrative expense on the Statements of Operations:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in thousands)	2022		2021		2022		2021
Stock options	$	15	$	15	$	75	$	47
Common stock awards		26		26		79		79
Total stock-based compensation expense	$	41	$	41	$	154	$	126

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Organization and Basis of Presentation - Additional Information (Details)	1 Months Ended		3 Months Ended	9 Months Ended
	Feb. 28, 2022 USD ($)	Dec. 31, 2021 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2022 USD ($) Segment	Jun. 30, 2021 USD ($)
Line Of Credit Facility [Line Items]
Number of reportable segments | Segment				1
Proceeds from the sale of subsidiaries				$ 135,928,000	$ 438,000
Gain on sale of assets, before income taxes			$ 118,014,000	117,988,000
Asset Sale [Member] | Faneuil [Member]
Line Of Credit Facility [Line Items]
Proceeds from the sale of subsidiaries		$ 142,300,000
Gain on sale of assets, before income taxes			112,000,000.0	$ 112,000,000.0
Indemnification escrow amount		15,000,000.0
Additional earn-out payments, maximum		$ 25,000,000.0
Phoenix [Member]
Line Of Credit Facility [Line Items]
Gain on sale of assets, before income taxes			46,800,000
Stock Purchase Agreement [Member] | Phoenix [Member]
Line Of Credit Facility [Line Items]
Proceeds from the sale of subsidiaries	$ 135,900,000
Gain on sale of assets, before income taxes			$ 46,800,000

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Revenue Recognition - Disaggregation of revenue (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Disaggregation Of Revenue [Line Items]
Total revenue	$ 25,110	$ 72,754	$ 168,403	$ 243,147
Total revenue and other revenue	57,621	72,754	200,914	243,147
Other Revenue [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	32,511		32,511
Faneuil [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	25,110	72,754	168,403	243,147
Faneuil [Member] | Utility [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	14,295	13,709	40,854	40,529
Faneuil [Member] | Health Care [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	9,147	31,318	70,141	108,020
Faneuil [Member] | Other [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	1,327	965	2,791	3,576
Faneuil [Member] | Government [Member]
Disaggregation Of Revenue [Line Items]
Total revenue	$ 341	4,148	2,633	26,698
Faneuil [Member] | Transportion [Member]
Disaggregation Of Revenue [Line Items]
Total revenue		$ 22,614	$ 51,984	$ 64,324

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Revenue Recognition - Summary of Contract Assets and Contract Liabilities (Details) $ in Thousands	Sep. 30, 2021 USD ($)
Contract assets:
Unbilled revenue	$ 69	[1]
Total contract assets	69
Contract liabilities:
Deferred revenue	4,422
Total contract liabilities	$ 4,422

[1] Included in prepaid expenses and other current assets on the consolidated balance sheets. Unbilled revenue represents rights to consideration for services provided when the right is conditioned on something other than passage of time (for example, meeting a milestone for the right to bill under the cost-to-cost measure of progress). Unbilled revenue is transferred to accounts receivable when the rights become unconditional.

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Revenue Recognition - Summary of Change in Contract Assets and Contract Liabilities (Details) $ in Thousands	9 Months Ended
	Jun. 30, 2022 USD ($)
Revenue Recognition and Deferred Revenue [Abstract]
Beginning balance	$ 69
Additions to contract assets	26
Cash received from customer and other, Contract Assets	(95)
Ending balance	0
Beginning balance	4,422
Revenue recognized	(8,403)
Cash received from customer and other, Contract Liabilities	3,981
Ending balance	$ 0

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Revenue Recognition - Summary of Changes in Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Capitalized Contract Cost [Line Items]
Balance, beginning of period	$ 143	$ 412	$ 239	$ 593
Additions	285		363	99
Amortization, included in selling, general, and administrative expense	(113)	(111)	(287)	(391)
Balance, end of period	315	301	315	301
Balance, beginning of period	678	4,363	2,884	5,118
Additions		55	2,756	6,047
Amortization, included in selling, general, and administrative expense	(127)	(877)	(5,089)	(7,624)
Balance, end of period	551	3,541	551	3,541
Current - Prepaid Expenses and Other Current Assets [Member]
Capitalized Contract Cost [Line Items]
Current - prepaid expenses and other current assets	283	213	283	213
Current - prepaid expenses and other current assets	252	2,946	252	2,946
Noncurrent - Other Assets [Member]
Capitalized Contract Cost [Line Items]
Noncurrent - other assets	32	88	32	88
Noncurrent - other assets	$ 299	$ 595	$ 299	$ 595

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Revenue Recognition - Additional Information (Details) - USD ($) $ in Millions	Jun. 30, 2022	Jun. 30, 2021
Revenue Recognition and Deferred Revenue [Abstract]
Impairment Loss	$ 0	$ 0

XML

Divestitures and Discontinued Operations - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
(Gain) loss on sale of subsidiaries		$ (66,221)	$ 761
Gain on disposal of assets, net	$ 118,014	117,988
Phoenix [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Gain on disposal of assets, net	46,800
Asset Sale [Member] | Faneuil [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Gain on disposal of assets, net	$ 112,000	$ 112,000
Furniture and Fixtures [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
(Gain) loss on sale of subsidiaries			$ 800

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Divestitures and Discontinued Operations - Summary of Recognized Loss on Sale of Subsidiaries (Detail) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Jun. 30, 2022	Jun. 30, 2022	Jun. 30, 2021	Apr. 13, 2022	Apr. 01, 2022	Feb. 28, 2021
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Cash proceeds		$ 135,928	$ 438
Total gain (loss) on sale, net of income taxes		66,221	(761)
Carpets Sale [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Cash proceeds			500
Net assets sold			(1,199)			$ (1,199)
Transaction costs			(62)
Total gain (loss) on sale, net of income taxes			$ (761)
Faneuil Asset Sale [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Cash proceeds		127,442
Net assets sold	$ (3,114)	(3,114)			$ (3,114)
Transaction costs		(6,314)
Gain on sale of assets before income taxes		118,014
Impact of income taxes		(5,992)
Total gain (loss) on sale, net of income taxes		112,022
Phoenix Sale [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Cash proceeds	135,928
Net assets sold	(69,707)	$ (69,707)		$ (69,707)
Transaction costs	(6,441)
Impact of income taxes	(12,950)
Total gain (loss) on sale, net of income taxes	$ 46,830

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Divestitures and Discontinued Operations - Summary of Carrying Values of Net Assets Sold (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Apr. 13, 2022	Apr. 01, 2022	Sep. 30, 2021	Jun. 30, 2021	Feb. 28, 2021
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Current assets				$ 20,608
Current liabilities				(10,192)
Long-term liabilities				(1,841)
Carpets Sale [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Current assets						$ 4,615
Intangible assets, net						318
Other long-term assets						740
Current liabilities						(4,099)
Long-term liabilities						(375)
Net assets sold					$ 1,199	$ 1,199
Faneuil Asset Sale [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Current assets			$ 215
Property and equipment, net			6,198
Other long-term assets			7,572
Current liabilities			(1,376)
Long-term liabilities			(9,495)
Net assets sold	$ 3,114		$ 3,114
Phoenix Sale [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Current assets		$ 22,270
Property and equipment, net		40,329
Other long-term assets		18,171		389
Current liabilities		(10,705)
Long-term liabilities		(358)		$ (1,841)
Net assets sold	$ 69,707	$ 69,707

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Divestitures and Discontinued Operations - Summary of Components of Loss from Discontinued Operations, Net of Income Taxes (Detail) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Loss on sale	$ 66,221	$ (761)
Carpets Sale [Member]
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Net revenue		13,799
Operating loss		(302)
Loss on sale		(761)
Loss before income taxes		(1,063)
Loss from discontinued operations, net of income taxes		$ (1,063)

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Divestitures and Discontinued Operations - Summary of Components of Cash Flows of Discontinued Operations (Detail) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Operating activities
Depreciation and amortization expense	$ 4,092	$ 5,457
Provision for bad debts and obsolete inventory and other	(11)	(72)
Changes in operating assets and liabilities:
Accounts receivable, net	(549)	2,629
Inventories, net	(487)	(353)
Prepaid expenses, collateral deposits, and other current assets	1,026	1,033
Other assets and liabilities, net	(2,740)	2,305
Capital expenditures	(2,309)	(3,631)
Proceeds from sales of assets	6	309
Payments on finance leases	$ (607)	(2,350)
Payments on term loans		1,637
Payment of debt extinguishment penalties and other		(158)
Carpets Sale [Member]
Operating activities
Depreciation and amortization expense		199
Provision for bad debts and obsolete inventory		27
Changes in operating assets and liabilities:
Accounts receivable, net		399
Inventories, net		(12)
Prepaid expenses, collateral deposits, and other current assets		24
Other assets and liabilities, net		26
Capital expenditures		(7)
Phoenix Sale [Member]
Changes in operating assets and liabilities:
Payments on finance leases		$ (7,538)

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Divestitures and Discontinued Operations - Summary of Carrying Amount of Major Classes of Assets and Liabilities (Detail) - USD ($) $ in Thousands	Apr. 13, 2022	Apr. 01, 2022	Sep. 30, 2021
Liabilities:
Total long-term liabilities			$ 1,841
Faneuil Asset Sale [Member]
Assets:
Other long-term assets		$ 7,572
Liabilities:
Total long-term liabilities		$ 9,495
Phoenix Sale [Member]
Assets:
Accounts receivable			10,912
Inventories, net			7,654
Prepaid expenses and other current assets			2,042
Property and equipment, net			41,066
Intangible assets, net			18,705
Other long-term assets	$ 18,171		389
Assets held for sale			80,768
Liabilities:
Accounts payable			3,986
Accrued expenses			5,396
Other current liabilities			810
Total long-term liabilities	$ 358		1,841
Liabilities related to assets held for sale			$ 12,033

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Divestitures and Discontinued Operations - Summary of Operations Reported as Discontinued Operations (Detail) - Phoenix Sale [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Income Statement Balance Sheet And Additional Disclosures By Disposal Groups Including Discontinued Operations [Line Items]
Net revenue	$ 4,275	$ 30,706	$ 65,040	$ 86,038
Gain on sale, net of income taxes	46,830		46,830
Operating income	1,133	3,793	9,277	9,391
Net income from discontinued operations, net of income taxes	$ 47,963	$ 3,322	$ 56,107	$ 8,758

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Concentration Risks - Major Customers and Accounts Receivable - Schedule of Concentration Percentage of Different Customers (Detail) - Revenue, Segment Benchmark - Customer Concentration Risk [Member] - Faneuil [Member]	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Customer A [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	56.40%		16.20%
Customer B [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	10.10%
Customer C [Member]
Concentration Risk [Line Items]
Concentration risk, percentage				11.80%
Customer D [Member]
Concentration Risk [Line Items]
Concentration risk, percentage		11.70%	12.80%

XML

Concentration Risks - Major Customers and Accounts Receivable - Schedule of Concentration Percentage of Different Customers (Parenthetical) (Detail)	9 Months Ended
	Jun. 30, 2022
Maximum [Member] | Revenue, Segment Benchmark | Customer Concentration Risk [Member] | Faneuil [Member]
Concentration Risk [Line Items]
Concentration risk, percentage	10.00%

XML

Concentration Risks - Additional Information (Detail) $ in Millions	Jun. 30, 2022 USD ($)
Faneuil [Member]
Concentration Risk [Line Items]
Accounts receivable	$ 27.4

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Composition of Certain Financial Statement Captions - Summary of Short-term and Non-current Investments (Details) - USD ($)		Jun. 30, 2022	Sep. 30, 2021
Short-Term		$ 99,679,000	$ 0
Non-Current		5,000,000	$ 0
Total		104,679,000
Treasury Bills [Member]
Short-Term	[1]	99,679,000
Total	[1]	99,679,000
Other Investments [Member]
Non-Current	[2]	5,000,000
Total	[2]	$ 5,000,000

[1] The carrying value of the investments approximates fair value due to the short-term nature of the instruments

[2] Included in other assets on the consolidated balance sheets. As the investment was purchased on June 28, 2022, the carrying value of the investments approximates fair value due to short time from the purchase date to June 30, 2022.

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Composition of Certain Financial Statement Captions - Summary of Accounts Receivable (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Sep. 30, 2021
Accounts Receivable, after Allowance for Credit Loss, Current [Abstract]
Accounts receivable	$ 38,979	$ 57,455
Unbilled receivables		205
Accounts receivable	38,979	57,660
Less: allowance for doubtful accounts	(1,300)
Accounts receivable, net	$ 37,679	$ 57,660

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Composition of Certain Financial Statement Captions - Summary of Property and Equipment (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Sep. 30, 2021
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 42,648	$ 78,713
Less: accumulated depreciation and amortization	(31,892)	(55,849)
Property and equipment, net	10,756	22,864
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	16,461	30,849
Computer and Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	12,414	22,387
Software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	9,902	16,532
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	3,086	7,600
Machinery and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	631	1,190
Vehicles [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 154	$ 155

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Composition of Certain Financial Statement Captions - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Sep. 30, 2021
Condensed Financial Statements, Captions [Line Items]
Depreciation and amortization expense including capital leased assets	$ 1,800,000	$ 2,300,000	$ 6,700,000	$ 7,100,000
Short-term investments	99,679,000		99,679,000		$ 0
Non-current investments	5,000,000		5,000,000		$ 0
Faneuil [Member] | Workers Compensation Claim [Member] | Maximum [Member]
Condensed Financial Statements, Captions [Line Items]
Self-insured amount	500,000		500,000
Intangible Assets (Member)
Condensed Financial Statements, Captions [Line Items]
Intangible asset amortization expense	$ 600,000	$ 800,000	$ 1,900,000	$ 2,300,000

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Composition of Certain Financial Statement Captions - Summary of Intangible Assets (Detail) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Jun. 30, 2022	Sep. 30, 2021
Finite-Lived Intangible Assets [Line Items]
Gross	$ 25,910	$ 25,910
Accumulated Amortization	(15,930)	(14,004)
Net	$ 9,980	$ 11,906
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Original Life (Years)	12 years	12 years
Weighted Average Remaining Life (Years)	4 years 1 month 6 days	4 years 9 months 18 days
Gross	$ 16,550	$ 16,550
Accumulated Amortization	(10,948)	(9,908)
Net	$ 5,602	$ 6,642
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Original Life (Years)	15 years	15 years
Weighted Average Remaining Life (Years)	6 years 3 months 18 days	7 years
Gross	$ 1,500	$ 1,500
Accumulated Amortization	(870)	(795)
Net	$ 630	$ 705
Supply Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Original Life (Years)	7 years	7 years
Weighted Average Remaining Life (Years)	1 year 10 months 24 days	2 years 8 months 12 days
Gross	$ 2,910	$ 2,910
Accumulated Amortization	(2,113)	(1,802)
Net	$ 797	$ 1,108
Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Original Life (Years)	8 years	8 years
Weighted Average Remaining Life (Years)	5 years 1 month 6 days	5 years 9 months 18 days
Gross	$ 3,400	$ 3,400
Accumulated Amortization	(1,240)	(921)
Net	$ 2,160	$ 2,479
Non-compete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Weighted Average Original Life (Years)	6 years 7 months 6 days	6 years 7 months 6 days
Weighted Average Remaining Life (Years)	3 years 4 months 24 days	4 years 1 month 6 days
Gross	$ 1,550	$ 1,550
Accumulated Amortization	(759)	(578)
Net	$ 791	$ 972

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Composition of Certain Financial Statement Captions - Summary of Expected Future Amortization Expense (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Sep. 30, 2021
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Fiscal 2022 (remaining)	$ 642
Fiscal 2023	2,567
Fiscal 2024	2,429
Fiscal 2025	2,116
Fiscal 2026	1,447
Thereafter	779
Net	$ 9,980	$ 11,906

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Composition of Certain Financial Statement Captions - Summary of Accrued Expenses (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Sep. 30, 2021
Accrued Liabilities, Current [Abstract]
Accrued compensation and related taxes	$ 9,878	$ 12,320
Acquisition contingent consideration	2,500	2,500
Legal	2,000	2,000
Medical and benefit-related payables	1,321	1,172
Other	1,212	1,216
Accrued board of director fees	526	131
Bank overdraft		1,366
Interest payable		110
Total accrued expenses	$ 17,437	$ 20,815

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Loss Per Share - Summary of Basic and Diluted Income (Loss) Earnings Per Share of Common Stock (Detail) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
		Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Earnings Per Share Diluted [Line Items]
Net income (loss) from continuing operations		$ 105,867	$ (6,826)	$ 85,415	$ (13,401)
Net income from discontinued operations, net of income taxes		47,963	3,322	56,107	7,695
Net income (loss)		$ 153,830	$ (3,504)	$ 141,522	$ (5,706)
Income (loss) per share of common stock-basic:
Continuing operations		$ 2.50	$ (0.16)	$ 2.01	$ (0.32)
Discontinued operations		1.13	0.08	1.32	0.18
Net income (loss) per share	[1]	3.63	(0.08)	3.34	(0.13)
Income (loss) per share of common stock-diluted:
Continuing operations		1.93	(0.16)	1.56	(0.32)
Discontinued operations		0.87	0.06	1.03	0.14
Net income (loss) per share	[2]	$ 2.81	$ (0.08)	$ 2.59	$ (0.13)
Weighted average shares of common stock outstanding:
Basic		42,409,000	42,321,000	42,408,000	42,320,000
Convertible debt		11,158,000	11,158,000	11,158,000	11,158,000
Warrants		1,207,000	1,006,000	1,135,000	923,000
Diluted		54,818,000	54,503,000	54,735,000	54,416,000
Anti-dilutive shares excluded from diluted net income (loss) per share calculation:
Anti-dilutive shares excluded from diluted net income (loss) per share		1,250,000	2,607,000	1,250,000	2,607,000
Employee Stock Option [Member]
Weighted average shares of common stock outstanding:
Employee stock option grants		44,000	18,000	34,000	15,000
Anti-dilutive shares excluded from diluted net income (loss) per share calculation:
Anti-dilutive shares excluded from diluted net income (loss) per share		1,250,000	1,310,000	1,250,000	1,310,000
Warrant [Member]
Anti-dilutive shares excluded from diluted net income (loss) per share calculation:
Anti-dilutive shares excluded from diluted net income (loss) per share			1,297,000		1,297,000

[1] Amounts may not add due to rounding.

[2] Amounts may not add due to rounding.

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Debt - Summary of Line of Credit, Term Loan and Equipment Financing (Detail) $ in Thousands	Jun. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)
Line of credit:
Line of credit, net of deferred loan costs		$ 5,490
Line of credit, net of deferred loan costs		5,490
Current portion of term loans:
Less: deferred loan costs		(1,108)
Current portion of term loans, net of deferred loan costs		2,692
Less: deferred loan costs		1,108
Term loans, net of deferred loan costs - current installments		2,692
Term loans, less current portion:
Less: deferred loan costs		(2,792)
Term loans, less current portion, net of deferred loan costs	6,026	93,484
Total line of credit and term loans	6,026	101,666
Less: deferred loan costs		2,792
Term loans, less current portion, net of deferred loan costs	6,026	93,484
PNC Revolver [Member]
Line of credit:
Line of credit		$ 5,490
Line of credit interest rate		5.25%
PNC Revolver LIBOR [Member]
Line of credit:
Line of credit interest rate		4.00%
Blue Torch Term Loan [Member]
Current portion of term loans:
Current portion of term loan		$ 3,800
Line of credit interest rate		8.50%
Term loans, less current portion:
Term Loan, less current portion		$ 90,250
Line of credit interest rate		8.50
Convertible Notes Payable
Term loans, less current portion:
Convertible Promissory Notes	$ 6,026	$ 6,026
Line of credit interest rate	8.25	8.25

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Debt - Additional Information (Detail) - USD ($)			3 Months Ended		9 Months Ended
	Apr. 13, 2022	Apr. 01, 2022	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Debt Instrument [Line Items]
Pre-payment off premium related to repayment of outstanding indebtedness			$ 328,000	$ 743,000	$ 328,000	$ 743,000
Loss on debt extinguishment			3,884,000	1,914,000	3,884,000	1,914,000
Convertible Notes Payable
Debt Instrument [Line Items]
Debt instrument face amount				6,000,000.0		6,000,000.0
Blue Torch Term Loan [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Debt instrument face amount				95,000,000.0		95,000,000.0
Debt instrument, annual principle payment				$ 3,800,000		$ 3,800,000
Debt instrument maturity date						Jun. 29, 2025
Blue Torch Term Loan [Member] | Term Loan [Member] | Faneuil Asset Sale [Member]
Debt Instrument [Line Items]
Payment of outstanding indebtedness and commitments		$ 92,200,000
Amended PNC Revolver [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Debt instrument face amount			$ 32,500,000		$ 32,500,000
Debt instrument maturity date					Jun. 29, 2025
PNC Revolver [Member] | Line of Credit [Member] | Phoenix Sale [Member]
Debt Instrument [Line Items]
Pre-payment off premium related to repayment of outstanding indebtedness	$ 300,000
Blue Torch Term Loan and Amended PNC Revolver [Member]
Debt Instrument [Line Items]
Debt instrument accrued interest rate			8.25%		8.25%
Debt instrument maturity date					Nov. 28, 2023
Blue Torch Term Loan and Amended PNC Revolver [Member] | Common Stock [Member]
Debt Instrument [Line Items]
Debt instrument conversion rate			$ 0.54		$ 0.54
Maximum [Member] | Amended PNC Revolver [Member] | Letter of Credit [Member]
Debt Instrument [Line Items]
Letters of credit, sublimit amount			$ 15.0		$ 15.0

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Debt - Summary of Loss on Debt Extinguishment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Gain (Loss) on Extinguishment of Debt [Abstract]
Deferred loan costs written off	$ 3,556	$ 1,171	$ 3,556	$ 1,171
Prepayment penalties	328	743	328	743
Total loss on debt extinguishment	$ 3,884	$ 1,914	$ 3,884	$ 1,914

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Debt - Schedule of Estimated Future Minimum Principal Payments (Detail) - Convertible Notes Payable $ in Thousands	Jun. 30, 2022 USD ($)
Debt Instrument [Line Items]
2024	$ 6,026
Total estimated future minimum payments	$ 6,026

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Commitments and Contingencies - Additional Information (Detail) - USD ($) $ in Millions	Apr. 26, 2022	Jun. 30, 2022
Loss Contingencies [Line Items]
Percentage of letters of credit outstanding collateralized with cash deposits		103.00%
Jesse James Pagan et. al. v. Faneuil [Member]
Loss Contingencies [Line Items]
Complaint filing date	April 26, 2022
Minimum [Member] | Jesse James Pagan et. al. v. Faneuil [Member]
Loss Contingencies [Line Items]
Complaint seeks damages, value	$ 5.0
Letters of Credit [Member]
Loss Contingencies [Line Items]
Line of credit amount outstanding		$ 3.5
Line of credit outstanding collateralized with cash deposits		3.6
Employment Agreements [Member]
Loss Contingencies [Line Items]
Total contingent termination payments related to base salary		$ 2.1

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Leases - Additional Information (Detail) $ in Thousands	9 Months Ended
	Jun. 30, 2022 USD ($)
Leases [Abstract]
Percentage of operating leases for facilities	95.00%
Lease impairment	$ 2,158

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Leases - Summary of Location of ROU Assets and Liabilities in Consolidated Balance Sheet and Weighted Average Lease Term and Discount Rate (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Sep. 30, 2021
Finance Leases:
Property and equipment, at cost	$ 1,575	$ 1,575
Less accumulated amortization	(1,277)	(977)
Property and equipment, net	298	598
Finance lease obligations - current installments	528	765
Finance lease obligations, less current installments		332
Total finance lease liabilities	528	1,097
Operating Leases:
Operating lease right-of-use assets	17,647	29,048
Operating lease obligations - current installments	3,200	4,722
Operating lease obligations, less current installments	20,167	32,767
Total operating lease obligations	$ 23,367	$ 37,489
Weighted average remaining lease term (years):
Weighted average remaining lease term of finance leases	8 months 12 days	1 year 4 months 24 days
Weighted average remaining lease term of operating leases	6 years 7 months 6 days	6 years 9 months 18 days
Weighted average discount rate:
Weighted average discount rate of finance leases	6.00%	6.00%
Weighted average discount rate of operating leases	10.60%	10.60%

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Leases - Summary of Components of Lease Cost (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Finance Leases:
Total finance lease cost	$ 49	$ 241	$ 338	$ 800
Operating Leases:
Operating lease cost	968	2,273	5,035	6,911
Lease impairment			2,158
Total lease cost, net	1,017	2,514	7,531	7,711
Selling, General and Administrative Expense [Member]
Finance Leases:
Amortization of finance lease assets	39	189	300	696
Operating Leases:
Operating lease cost	841	1,724	4,018	5,207
Short-term lease cost		10		28
Cost of Revenue [Member]
Operating Leases:
Operating lease cost		319	510	957
Interest Expense [Member]
Finance Leases:
Interest on finance lease liabilities	10	52	38	104
Net Loss from Discontinued Operations [Member]
Operating Leases:
Variable lease cost	$ 127	$ 220	507	$ 719
Lease Impairment [Member]
Operating Leases:
Lease impairment			$ 2,158

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Leases - Summary of Supplemental Cash Flow Information Related to Leases (Detail) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for finance leases	$ 38	$ 104
Financing cash flows used for finance leases	607	2,350
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	1,379	576
Continuing Operations [Member]
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows used for operating leases	$ 3,187	$ 3,750

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Schedule of Maturity of Lease Liabilities (Detail) - USD ($) $ in Thousands	Jun. 30, 2022	Sep. 30, 2021
Finance Leases:
2023	$ 540
Total lease payments	540
Less: imputed interest	(12)
Total present value of lease payments	528	$ 1,097
Current	528	765
Non-current		332
Total finance lease liabilities	528	1,097
Operating Leases:
2023	5,292
2024	5,133
2025	5,102
2026	5,091
2027	4,161
Thereafter	6,502
Total lease payments	31,281
Less: imputed interest	(7,914)
Total present value of lease payments	23,367	37,489
Current	3,200	4,722
Non-current	20,167	32,767
Total operating lease obligations	23,367	$ 37,489
Sublease Cash Receipts:
2023	771
2024	771
2025	771
2026	771
2027	257
Total lease payments	3,341
Less: imputed interest	682
Total present value of lease payments	$ 2,659

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Equity - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands		3 Months Ended		9 Months Ended
	Jul. 11, 2016	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021	Sep. 30, 2021
Class Of Stock [Line Items]
Common stock, shares issued		42,409,000		42,409,000		42,406,000
Equity incentive plan, description				In July 2016, ALJ shareholders approved ALJ’s Omnibus Equity Incentive Plan (“2016 Plan”), which allows ALJ and its subsidiaries to grant securities of ALJ to officers, employees, directors, or consultants. ALJ believes that equity-based compensation is fundamental to attracting, motivating, and retaining highly qualified dedicated employees who have the skills and experience required to achieve business goals.
Total unrecognized compensation cost related to unvested stock options		$ 100		$ 100
Weighted-average recognition period of unrecognized compensation cost related to unvested stock options				2 years 2 months 12 days
Stock option awards, granted				200,000	0
Stock option fair value				$ 100
Expected life of the options				6 years 2 months 12 days
Expected volatility				56.46%
Expected dividend yield				0.00%
Annual risk free interest rate				1.18%
Stock-based compensation expense		$ 41	$ 41	$ 154	$ 126
Stock options, outstanding		1,400,000		1,400,000
Number of vested warrants issued, price per share		$ 3.50		$ 3.50
Warrants exercisable to purchase outstanding		1,600,000		1,600,000
Weighted average exercise price, stock warrants		$ 0.56		$ 0.56
Total intrinsic value for exercisable options		$ 100		$ 100
Common Stock Awards [Member]
Class Of Stock [Line Items]
Stock-based compensation expense		26	26	79	79
Maximum [Member] | Common Stock Awards [Member]
Class Of Stock [Line Items]
Stock-based compensation expense		$ 100	$ 100	$ 100	$ 100
2016 Omnibus Equity Incentive Plan [Member]
Class Of Stock [Line Items]
Options available for future grant under the Plan		1,400,000		1,400,000
2016 Omnibus Equity Incentive Plan [Member] | Maximum [Member]
Class Of Stock [Line Items]
Maximum number of shares that may be granted	2,000,000.0
2016 Omnibus Equity Incentive Plan [Member] | Minimum [Member]
Class Of Stock [Line Items]
Stock option exercise price percentage of fair market value of common stock on grant date	100.00%
Share-based compensation option term	10 years
Common Stock [Member]
Class Of Stock [Line Items]
Common stock, shares issued		100,000	100,000	100,000	100,000
Blank Check Preferred Stock [Member]
Class Of Stock [Line Items]
Preferred stock, shares authorized		5,000,000.0		5,000,000.0		5,000,000.0
Preferred stock, shares outstanding		0		0		0

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Equity - Summary of Total Stock-Based Compensation Expense Included in Selling General and Administrative Expenses on Statements of Operations (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 41	$ 41	$ 154	$ 126
Employee Stock Option [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Total stock-based compensation expense	15	15	75	47
Common Stock Awards [Member]
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items]
Total stock-based compensation expense	$ 26	$ 26	$ 79	$ 79

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Income Tax - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Income Tax Examination [Line Items]
Provision for (benefit from) income taxes	$ 6,065,000	$ 70,000	$ 6,010,000	$ 244,000
Effective income tax rate			(0.10%)	(0.70%)
Discrete tax provision				$ 0
Provision for income taxes			$ 13,200,000	$ 500,000
Phoenix [Member]
Income Tax Examination [Line Items]
Provision for income taxes from sales			13,000,000.0
Provision for income taxes from operations			200,000
Faneuil Asset Sale [Member]
Income Tax Examination [Line Items]
Discrete tax provision			$ 6,000,000.0

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Ransomware Incident - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Financing Receivable Modifications [Line Items]
Expenses	$ (58,219)	$ 74,973	$ 100,283	$ 246,734
Selling, general, and administrative expense	7,443	$ 15,764	38,042	$ 43,487
Faneuil [Member]
Financing Receivable Modifications [Line Items]
Selling, general, and administrative expense	100		200
Insurance recovery receivable	$ 800		$ 800

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Reportable Segments and Geographic Information - Additional Information (Detail)	9 Months Ended
	Jun. 30, 2022 Segment
Segment Reporting [Abstract]
Number of reportable segments	1

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Subsequent Event - Additional Information (Details) - Subsequent Event [Member] - Stock Repurchase and Retirement [Member] $ / shares in Units, shares in Millions, $ in Millions	Jul. 11, 2022 USD ($) $ / shares shares
Subsequent Event [Line Items]
Authorized number of repurchase and retirement of shares | shares	3.7
Authorized amount of repurchase and retirement of shares | $	$ 7.5
Share repurchased shareholders percentage	5.00%
Per share amount of repurchase and retirement of shares | $ / shares	$ 2.00