ALJ REGIONAL HOLDINGS, INC.
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 endedJune 30, 2022 to the three and nine months endedJune 30, 2021 .
•
Liquidity and Capital Resources. An analysis comparing our cash flows for the
nine months ended
•
Contractual Obligations. Discussion of contractual obligations on
•
Off-Balance Sheet Arrangements. Discussion of off-balance sheet arrangements on
•
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 endedJune 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 acrossthe United States , focusing on the healthcare, utility, transportation, and toll revenue collection industries. Faneuil is headquartered inHampton, Virginia . ALJ acquired Faneuil inOctober 2013 . OnApril 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 inHagerstown, Maryland . ALJ acquired Phoenix inAugust 2015 . OnApril 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 inLas 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 inApril 2014 andFebruary 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
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Table of Contents Recent Developments
Discontinued Operations - Carpets
InFebruary 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 endedJune 30, 2021 .
Discontinued Operations - Phoenix
InFebruary 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 onApril 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 endedJune 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 InDecember 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 onApril 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 endedJune 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 theTSA 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 theTSA was disclosed as other revenue on the consolidated statements of operations during the three and nine months endedJune 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
OnApril 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, datedJune 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
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Termination of Amended PNC Revolver
In connection with the Phoenix Sale onApril 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 ofJune 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."
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Three Months Ended
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
% 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.
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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
Faneuil Revenue Faneuil revenue for the three months endedJune 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 endedJune 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
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
Faneuil Selling, General, and Administrative Expense
Faneuil selling, general, and administrative expense for the three months endedJune 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 endedJune 30 , 32
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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 endedJune 30, 2022 compared to the three months endedJune 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 endedJune 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 endedJune 30, 2021 . During the three months endedJune 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 endedJune 30, 2022 was$2.0 million . ALJ selling, general, and administrative expense was impacted by higher compensation-related expenses during the three months endedJune 30, 2022 compared to the three months endedJune 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
Faneuil Depreciation and Amortization Expense
Faneuil depreciation and amortization expense for the three months endedJune 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 endedJune 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 andPhoenix 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 endedJune 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 endedJune 30, 2022 decreased to$0.2 million compared to$2.6 million for the three months endedJune 30, 2021 .
Loss on Debt Extinguishment
We recognized a loss on debt extinguishment of$3.9 million during the three months endedJune 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 endedJune 30, 2021 , which was comprised of$1.2 million for the write off of deferred loan costs and$0.7 million of prepayment penalties. 33
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Table of Contents 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 endedJune 30, 2022 and 2021, respectively. Our effective tax rate from continuing operations for the three months endedJune 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 endedJune 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
We recorded a provision for income taxes for discontinued operations of$13.0 million , which was for the one-timePhoenix Sale , and$0.3 million , which was for Phoenix operations, for the three months endedJune 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 $ 47,963 $ 3,322 $ 44,641 1343.8 %
operations, net of income taxes
NM - Not meaningful.
As a result of the Phoenix Sale inApril 2022 , we recognized net income from discontinued operations, net of income taxes, of$48.0 million during the three months endedJune 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 endedJune 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
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Table of Contents
Nine Months Ended
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,
Nine Months Ended June 30, 2022 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
$ (42,233 ) (17.4 )% Faneuil Revenue Faneuil revenue for the nine months endedJune 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 endedJune 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
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 Faneuil Cost of Revenue
Faneuil cost of revenue for the nine months endedJune 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 endedJune 30, 2021 . The decrease in cost of revenue was a direct result of the decreased revenue. During the nine months endedJune 30, 2022 , as compared to the nine months endedJune 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 theTSA 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
Faneuil Selling, General, and Administrative Expense
Faneuil selling, general, and administrative expense for the nine months endedJune 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 endedJune 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 endedJune 30, 2022 compared to the nine months endedJune 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 endedJune 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 endedJune 30, 2021 . The decrease was mainly attributable to reduced banking expenses as a result of restructuring our debt inJune 2021 . 36
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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 Faneuil Depreciation and Amortization Expense
Faneuil depreciation and amortization expense for the nine months endedJune 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 endedJune 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 andPhoenix 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 endedJune 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 endedJune 30, 2022 decreased to$5.5 million compared to$7.7 million for the nine months endedJune 30, 2021 .
Loss on Debt Extinguishment
We recognized a loss on debt extinguishment of
We recognized a loss on debt extinguishment of
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 endedJune 30, 2022 and 2021, respectively. Our effective tax rate from continuing operations for the nine months endedJune 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 endedJune 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
We recorded a provision for income taxes from discontinued operations of$13.2 million , of which$13.0 million was for the one-timePhoenix Sale and$0.2 million was for Phoenix operations, and$0.5 million for the nine months endedJune 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 $ 56,107 $ 7,695 $ 48,412 629.1 %
operations, net of income taxes
NM - Not meaningful.
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As a result of the Phoenix Sale inApril 2022 , we recognized net income from discontinued operations, net of income taxes, of$56.1 million during the nine months endedJune 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 endedJune 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. DuringApril 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.
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