aljj-ex991

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March 31, 2019

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ALJ REGIONAL HOLDINGS, INC. ANNOUNCES EARNINGS FOR THE SECOND QUARTER ENDED MARCH 31, 2019

NEW YORK, NY, May 13, 2019 – ALJ Regional Holdings, Inc. (NASDAQ: ALJJ) (“ALJ”) announced results today for its second quarter ended March 31, 2019.

ALJ is a holding company, whose primary assets are its subsidiaries Faneuil, Inc. (“Faneuil”), Floors-N-More, LLC, d/b/a Carpets N' More (“Carpets”), and Phoenix Color Corp. (“Phoenix”). Faneuil is a leading provider of call center services, back office operations, staffing services, and toll collection services to commercial and governmental clients across the United States. Carpets is one of the largest floor covering retailers in Las Vegas, Nevada, and a provider of multiple products for the commercial, retail and home builder markets including all types of flooring, countertops, and cabinets. Phoenix is a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and specialty commercial products using a broad spectrum of materials and decorative technologies.

Jess Ravich, Executive Chairman of ALJ, said, “Second quarter adjusted EBITDA was above prior year mainly due to increased volume at Phoenix for Components. ALJ continues to invest in and support its core business segments, Phoenix and Faneuil, for long-term growth. In this regard, Faneuil is in the final stages of completing its three call center buildout program. Faneuil expects new customer contract ramp ups to occur during the last six months of calendar 2019. Total backlog for Faneuil as of March 31, 2019 was $403.4 million compared to $254.4 million at March 31, 2018, which is indicative of Faneuil’s large new contracts. Adjusted EBITDA margin improved to 9.5% for the six months ended March 31, 2019 compared 7.5% for the six months ended March 31, 2018. Adjusted EBITDA margin improved to 10.0% for the trailing 12 months ended March 31, 2019 compared 8.4% for the trailing 12 months ended March 31, 2018.”

	Three Months Ended March 31,
Amounts in thousands, except per share amounts	2019			2018			$ Change			% Change
	(unaudited)			(unaudited)
Net revenue	$	87,996		$	95,105		$	(7,109	)		(7.5	%)
Costs and expenses:
Cost of revenue		67,739			74,239			(6,500	)		(8.8	%)
Selling, general and administrative expense		17,007			18,822			(1,815	)		(9.6	%)
Disposal of assets and other gain		—			(25	)		25		NM
Total operating expenses		84,746			93,036			(8,290	)		(8.9	%)
Operating income		3,250			2,069			1,181			57.1	%
Other expense:
Interest expense, net		(2,625	)		(2,793	)		(168	)		(6.0	%)
Total other expense		(2,625	)		(2,793	)		(168	)		(6.0	%)
Income (loss) before income taxes		625			(724	)		1,349		NM
(Provision) benefit for income taxes		(202	)		384			(586	)	NM
Net income (loss)	$	423		$	(340	)	$	763		NM
Basic earnings (loss) per share of common stock	$	0.01		$	(0.01	)	$	0.02
Diluted earnings (loss) per share of common stock	$	0.01		$	(0.01	)	$	0.02
Weighted average shares of common stock outstanding:
Basic		38,026			37,911
Diluted		38,076			37,911

NM - Not Meaningful

	Six Months Ended March 31,
Amounts in thousands, except per share amounts	2019			2018			$ Change			% Change
	(unaudited)			(unaudited)
Net revenue	$	181,780		$	190,059		$	(8,279	)		(4.4	%)
Costs and expenses:
Cost of revenue		140,566			149,149			(8,583	)		(5.8	%)
Selling, general and administrative expense		34,473			38,360			(3,887	)		(10.1	%)
Disposal of assets and other gain		(223	)		(232	)		9		NM
Total operating expenses		174,816			187,277			(12,461	)		(6.7	%)
Operating income		6,964			2,782			4,182			150.3	%
Other expense:
Interest expense, net		(5,340	)		(5,453	)		(113	)		(2.1	%)
Total other expense		(5,340	)		(5,453	)		(113	)		(2.1	%)
Income (loss) before income taxes		1,624			(2,671	)		4,295		NM
Provision for income taxes		(490	)		(2,987	)		2,497		NM
Net income (loss)	$	1,134		$	(5,658	)	$	6,792		NM
Basic earnings (loss) per share of common stock	$	0.03		$	(0.15	)	$	0.18
Diluted earnings (loss) per share of common stock	$	0.03		$	(0.15	)	$	0.18
Weighted average shares of common stock outstanding:
Basic		38,037			37,742
Diluted		38,087			37,742

NM - Not Meaningful

Anna Van Buren, CEO of Faneuil, stated, “During the second quarter Faneuil announced the award of a contract with the Metro Express Lanes to provide customer service and operations for its ExpressLanes program, an eight-year contract with six additional option years at an estimated $169.0 million value. In addition, contracts were signed for three new healthcare clients and two travel and entertainment clients. Our utilities division also experienced success with the extension of a large utility client and the award of a new contract for utility services in Florida. Our focus during the second quarter has been investments in talent and infrastructure for implementation of these contracts.”

Faneuil recognized net revenue of $46.6 million for the three months ended March 31, 2019 compared to $48.0 million for the three months ended March 31, 2018. Net revenue decreased $1.4 million, or 2.8%. Faneuil recognized net revenue of $55.2 million for the three months ended December 31, 2018. Historically, Faneuil’s December quarter has been the largest revenue quarter of the year.

Faneuil segment adjusted EBITDA was $2.8 million for the three months ended March 31, 2019 compared to $2.9 million for the three months ended March 31, 2018. Faneuil segment adjusted EBITDA was $4.9 million for the three months ended December 31, 2018.

Faneuil recognized net revenue of $101.8 million for the six months ended March 31, 2019 compared to $99.4 million for the six months ended March 31, 2018. Net revenue increased $2.4 million, or 2.4%, due to new customer contract awards.

Faneuil segment adjusted EBITDA was $7.7 million for the six months ended March 31, 2019 compared to $6.6 million for the six months ended March 31, 2018. Segment adjusted EBITDA increased $1.1 million due to new customer contract awards and lower legal expenses.

Faneuil estimates its net revenue for the three months ending June 30, 2019 to be in the range of $46.3 million to $51.4 million, compared to $43.9 million for the three months ended June 30, 2018.

Faneuil’s contract backlog expected to be realized within the next twelve months as of March 31, 2019 was $167.6 million compared to $98.4 million as of March 31, 2018 and $158.1 million as of December 31, 2018. Faneuil’s total contract backlog as of March 31, 2019 was $403.4 million as compared to $254.4 million as of March 31, 2018 and $301.4 million as of December 31, 2018.

Steve Chesin, CEO of Carpets stated, “We continue to show improved results versus prior year with a focus on lowering overall operating costs while providing superior quality and service in the marketplace. Our decision to exit or reduce certain non-profitable business lines has had the desired effect of increasing our bottom line.”

Carpets recognized net revenue of $12.1 million for the three months ended March 31, 2019 compared to $18.7 million for the three months ended March 31, 2018. Net revenue decreased $6.6 million, or 35.3%, which was primarily attributable to lower sales volumes from cabinets, flooring, and countertops. Carpets recognized net revenue of $12.4 million for the three months ended December 31, 2018.

Carpets recognized segment adjusted EBITDA of $0.3 million for the three months ended March 31, 2019 compared to segment adjusted EBITDA loss of ($0.2) million for the three months ended March 31, 2018. Segment adjusted EBITDA increased by $0.5 million due to process improvements and cost reductions. Carpets recognized segment adjusted EBITDA of $0.2 million for the three months ended December 31, 2018.

Carpets recognized net revenue of $24.5 million for the six months ended March 31, 2019 compared to $35.3 million for the three months ended March 31, 2018. Net revenue decreased $10.9 million, or 30.8%, which was primarily attributable to lower sales volumes from cabinets, flooring, and countertops.

Carpets recognized segment adjusted EBITDA of $0.4 million for the six months ended March 31, 2019 compared to segment adjusted EBITDA loss of ($1.0) million for the six months ended March 31, 2018. Segment adjusted EBITDA increased by $1.4 million due to process improvements and cost reductions.

Carpets estimates its net revenue for the three months ending June 30, 2019 to be in the range of $11.0 million to $12.2 million, compared to $18.0 million for the three months ended June 30, 2018.

Carpets’ total backlog as of March 31, 2019 was $11.4 million, all of which is expected to be fully realized within the next 12 months, compared to $16.8 million as of March 31, 2018 and $11.6 million as of December 31, 2018.

Marc Reisch, CEO of Phoenix, stated, "The three percent increase in our second quarter revenues was due to strong components and book sales versus prior year, offset in part by planned lower packaging sales. Segment adjusted EBITDA of $6.3 million was up 16.0% versus prior year driven by the increase in components and book sales, and the continuing benefit of significantly lower selling, general and administrative expenses.”

Phoenix recognized net revenue of $29.3 million for the three months ended March 31, 2019 compared to $28.5 million for the three months ended March 31, 2018. Net revenue increased $0.9 million, or 3.0%. Phoenix recognized net revenue of $26.2 million for the three months ended December 31, 2018.

Phoenix segment adjusted EBITDA was $6.3 million for the three months ended March 31, 2019 compared to $5.5 million for the three months ended March 31, 2018. Phoenix recognized segment adjusted EBITDA of $4.2 million for the three months ended December 31, 2018.

Phoenix recognized net revenue of $55.5 million for the six months ended March 31, 2019 compared to $55.3 million for the three months ended March 31, 2018. Net revenue increased $0.2 million, or 0.4%.

Phoenix segment adjusted EBITDA was $10.6 million for the six months ended March 31, 2019 compared to $9.6 million for the six months ended March 31, 2018. Segment adjusted EBITDA increased $0.9 million due improved operational efficiencies and costs reductions.

Phoenix estimates its net revenue for the three months ending June 30, 2019 to be in the range of $23.7 million to $26.3 million as compared to $27.8 million for the three months ended June 30, 2018.

Phoenix contract backlog expected to be realized within the next twelve months as of March 31, 2019 was $69.5 million compared to $70.2 million as of March 31, 2018 and $70.8 million as of December 31, 2018. Phoenix’s total contract backlog as of March 31, 2019 was $146.9 million as compared to $175.7 million as of March 31, 2018 and $165.6 million as of December 31, 2018.

In our earnings releases, prepared remarks, conference calls, presentations, and webcasts, we may present certain adjusted financial measures that are not calculated according to generally accepted accounting principles in the United States (“GAAP”). These non-GAAP financial measures are designed to complement the GAAP financial information presented in this release because management believes they present information regarding ALJ that is useful to investors. The non-GAAP financial measures presented should not be considered in isolation from, or as a substitute for, the comparable GAAP financial measure.

We present adjusted EBITDA because we believe it is frequently used by analysts, investors and other interested parties in the evaluation of our company. ALJ defines adjusted EBITDA as net income (loss) before depreciation and amortization, interest expense, litigation loss, restructuring expenses, lease payments in anticipation of facility shutdown, loan amendment fees, stock-based compensation, acquisition-related expenses, disposal of fixed assets and other gain, provision for income taxes, and other non-recurring items. Adjusted EBITDA measures are not calculated in the same manner by all companies and, accordingly, may not be an appropriate measure for comparison. Below are reconciliations of our net income (loss), the most directly comparable GAAP measure, to consolidated adjusted EBITDA:

	Three Months Ended March 31,
Amounts in thousands	2019		2018			$ Change			% Change
	(unaudited)		(unaudited)
Net income (loss)	$	423	$	(340	)	$	763			224.4	%
Depreciation and amortization		4,837		4,850			(13	)		(0.3	%)
Interest expense		2,625		2,793			(168	)		(6.0	%)
Lease payments in anticipation of facility shutdown		188		—			188			—
Stock-based compensation		186		270			(84	)		(31.1	%)
Restructuring expenses		144		430			(286	)		(66.5	%)
Loan amendment fees		136		—			136			—
Disposal of assets and other gain		—		(25	)		25		NM
Provision (benefit) for income taxes		202		(384	)		586		NM
Consolidated Adjusted EBITDA	$	8,741	$	7,594		$	1,147			15.1	%

NM - Not Meaningful

	Six Months Ended March 31,
Amounts in thousands	2019			2018			$ Change			% Change
	(unaudited)			(unaudited)
Net income (loss)	$	1,134		$	(5,658	)	$	6,792			120.0	%
Depreciation and amortization		9,283			9,683			(400	)		(4.1	%)
Interest expense		5,340			5,453			(113	)		(2.1	%)
Lease payments in anticipation of facility shutdown		374			—			374			—
Stock-based compensation		371			563			(192	)		(34.1	%)
Loan amendment fees		337			—			337			—
Restructuring expenses		229			1,263			(1,034	)		(81.9	%)
Acquisition-related expenses		12			123			(111	)		(90.2	%)
Disposal of assets and other gain		(223	)		(232	)		9		NM
Provision for income taxes		490			2,987			(2,497	)		(83.6	%)
Consolidated Adjusted EBITDA	$	17,347		$	14,182			3,165			22.3	%

NM - Not Meaningful

Supplemental Consolidated Financial Information - Segment Net Revenue, Segment Adjusted EBITDA, and Debt

	Three Months Ended March 31,
Amounts in thousands	2019			2018			$ Change			% Change
	(unaudited)			(unaudited)
Segment Net Revenue
Faneuil	$	46,590		$	47,953		$	(1,363	)		(2.8	%)
Carpets		12,088			18,691			(6,603	)		(35.3	%)
Phoenix Color		29,318			28,461			857			3.0	%
Total Segment Net Revenue	$	87,996		$	95,105		$	(7,109	)		(7.5	%)


	Three Months Ended March 31,
Amounts in thousands	2019			2018			$ Change			% Change
	(unaudited)			(unaudited)
Segment Adjusted EBITDA
Faneuil	$	2,793		$	2,915		$	(122	)		(4.2	%)
Carpets		272			(240	)		512			213.3	%
Phoenix Color		6,335			5,459			876			16.0	%
Corporate		(659	)		(540	)		(119	)		(22.0	%)
Total Segment Adjusted EBITDA	$	8,741		$	7,594		$	1,147			15.1	%

	Six Months Ended March 31,
Amounts in thousands	2019			2018			$ Change			% Change
	(unaudited)			(unaudited)
Segment Net Revenue
Faneuil	$	101,792		$	99,427		$	2,365			2.4	%
Carpets		24,450			35,341			(10,891	)		(30.8	%)
Phoenix Color		55,538			55,291			247			0.4	%
Total Segment Net Revenue	$	181,780		$	190,059		$	(8,279	)		(4.4	%)


	Six Months Ended March 31,
Amounts in thousands	2019			2018			$ Change			% Change
	(unaudited)			(unaudited)
Segment Adjusted EBITDA
Faneuil	$	7,739		$	6,625		$	1,114			16.8	%
Carpets		432			(966	)		1,398			144.7	%
Phoenix Color		10,556			9,619			937			9.7	%
Corporate		(1,380	)		(1,096	)		(284	)		(25.9	%)
Total Segment Adjusted EBITDA	$	17,347		$	14,182		$	3,165			22.3	%

As of March 31, 2019, and September 30, 2018, consolidated debt and consolidated net debt were comprised of the following (exclusive of deferred financing costs):

	March 31,		September 30,
Amounts in thousands	2019		2018
	(unaudited)
Term loan payable	$	85,182	$	84,974
Line of credit		10,500		8,739
Equipment financing agreement		3,744		—
Capital leases		5,753		7,336
Total debt		105,179		101,049

Cash		7,541		2,000
Net debt	$	97,638	$	99,049

Most of the increased borrowings under our line of credit in the recent quarter was in connection with the building out of three additional call centers for Faneuil.

ALJ Regional Holdings, Inc. is the parent company of (i) Faneuil, Inc., a leading provider of outsourcing and co-sourced services to both commercial and government entities in the healthcare, utility, retail, toll and transportation industries, (ii) Floors-N-More, LLC, d/b/a Carpets N' More, one of the largest floor covering retailers in Las Vegas and a provider of multiple finishing products for commercial, retail and home builder markets including all types of flooring, countertops, and cabinets, and (iii) Phoenix Color Corp., a leading manufacturer of book components, educational materials and related products producing value-added components, heavily illustrated books and specialty commercial products using a broad spectrum of materials and decorative technologies.

ALJ’s second quarter ended March 31, 2019 earnings release and related communications contain forward-looking statements within the meaning of federal securities laws. Such statements include information regarding our expectations, goals or intentions regarding the future, including but not limited to statements about our financial projections and business growth, expected new customer contract awards and additional volume from existing customers for Faneuil, the impact of planned investments in technology and resources for Faneuil, process improvements and cost reductions implemented by Carpets, the planned volume reductions in packaging by Phoenix, any implication that any of the Company’s subsidiaries’ backlog is indicative of future operating results, and other statements including the words "will" and "expect" and similar expressions. You should not place undue reliance on these statements, as they involve certain risks and uncertainties, and actual results or performance may differ materially from those discussed in any such statement. Factors that could cause actual results to differ materially are discussed in our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission and available through EDGAR on the SEC’s website at www.sec.gov. All forward-looking statements in this release are made as of the date hereof and we assume no obligation to update any forward-looking statement.