JANEL CORP 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes thereto as of and for the three and six months ended March 31, 2024, which have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Amounts presented in this section are in thousands, except share and per share data. As used throughout this Report, “we,” “us”, “our,” “Janel,” “the Company,” “Registrant” and similar words refer to Janel Corporation and its subsidiaries. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (the “Report”) contains certain statements that are, or may deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and that reflect management’s current expectations with respect to our operations, performance, financial condition, and other developments. These forward – looking statements may generally be identified using the words “may,” “will,” “intends,” “plans,” projects,” “believes,” “should,” “expects,” “predicts,” “anticipates,” “estimates,” and similar expressions or the negative of these terms or other comparable terminology. These statements are necessarily estimates reflecting management’s best judgment based upon current information and involve several risks, uncertainties and assumptions. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including, but not limited to, those set forth elsewhere in this Report, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. While it is impossible to identify all such factors, such factors include, but are not limited to, our strategy of expanding our business through acquisitions of other businesses; we may be required to record a significant charge to earnings related to the impairment of acquired assets; we may fail to realize the expected benefits or strategic objectives of any acquisition, or that we spend resources exploring acquisitions that are not consummated; risks associated with litigation, including contingent auto liability and insurance coverage, and indemnification claims and other unforeseen claims and liabilities that may arise from an acquisition; changes in tax rates, laws or regulations and our acquired companies and subsidiaries’ ability to utilize anticipated tax benefits; the impact of inflation and rising interest rates on our investments, business and operations; conflicts of interest with the minority shareholders of our business; economic and other conditions in the markets in which we operate; we may not have sufficient working capital to continue operations; we may lose customers who are not obligated to long-term contracts to transact with us; instability in the financial markets; changes or developments in U.S. laws or policies; competition from companies with greater financial resources and from companies that operate in areas in which we plan to expand; our dependence on technically skilled employees; impacts from climate change, including the increased focus by third-parties on sustainability issues and our ability to comply therewith; the impact of increases in shipping costs, long lead times, supply shortages and supply changes; competition from parties who sell their businesses to us and from professionals who cease working for us; terrorist attacks and other acts of violence or war; security breaches or cybersecurity attacks; the level of our insurance coverage, including related to product and other liability risks; our compliance with applicable privacy, security and data laws; risks related to the diverse platforms and geographies which host our management information and financial reporting systems; our dependence on the availability of cargo space from third parties; the impact of claims arising from transportation of freight by the carriers with which we contract, including an increase in premium costs; risks related to the classification of owner-operators in the transportation industry; recessions and other economic developments that reduce freight volumes; other events affecting the volume of international trade and international operations; risks arising from our ability to comply with governmental permit and licensing requirements or statutory and regulatory requirements; the impact of seasonal trends and other factors beyond our control on our Logistics business; changes in governmental regulations applicable to our Life Sciences business; the ability of our Life Sciences business to continually produce products that meet high-quality standards such as purity, reproducibility and/or absence of cross-reactivity; the ability of our Life Sciences business to maintain, determine the scope of and defend its and its competitors’ intellectual property rights; the impact of pressures in the life sciences industry to increase the predictability of or reduce healthcare costs; any decrease in the availability, or increase in the cost or supply shortages, of raw materials used by Indco; risks arising from the environmental, health and safety regulations applicable to Indco; the reliance of our Indco business on a single location to manufacture their products; the controlling influence exerted by our officers and directors and one of our stockholders; the unlikelihood that we will issue dividends in the foreseeable future; and risks related to ownership of our common stock, including share price volatility, the lack of a guaranteed continued public trading market for our common stock, our ability to issue shares of preferred stock with greater rights than our common stock and costs related to maintaining our status as a public company; and such other factors that may be identified from time to time in our Securities and Exchange Commission (“SEC”) filings. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected. You should not place undue reliance on any of our forward-looking statements which speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a more detailed discussion of these factors, see our periodic reports filed with the SEC, including our most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2023. 17 Table of Contents OVERVIEW Janel Corporation (“Janel,” the “Company,” or the “Registrant”) is a holding company with subsidiaries in three business segments: Logistics, Life Sciences and Manufacturing. The Company strives to create shareholder value primarily through three strategic priorities: supporting its businesses’ efforts to make investments and to build long-term profits; allocating Janel’s capital at high risk-adjusted rates of return; and attracting and retaining exceptional talent. Management at the Janel holding company focuses on significant capital allocation decisions, corporate governance and supporting Janel’s subsidiaries where appropriate. Janel expects to grow through its subsidiaries’ organic growth and by completing acquisitions. We plan to either acquire businesses within our existing segments or expand our portfolio into new strategic segments. Our acquisition strategy focuses on reasonably priced companies with strong and capable management teams, attractive existing business economics and stable and predictable earnings power. Logistics The Company’s Logistics segment is comprised of several wholly-owned subsidiaries. The Logistics segment is a non-asset based, full-service provider of cargo transportation logistics management services, including freight forwarding via air, ocean and land-based carriers; customs brokerage services; warehousing and distribution services; trucking and other value-added logistics services. In addition to these revenue streams, the Company earns accessorial revenues in connection with its core services. Accessorial revenues include, but are not limited to, fuel service charges, wait time fees, hazardous cargo fees, labor charges, handling, cartage, bonding and additional labor charges. Life Sciences The Company’s Life Sciences segment is comprised of several wholly-owned subsidiaries. The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences segment also produces products for other life science companies on an original equipment manufacturer (OEM) basis. On February 1, 2024, the Company completed a business combination whereby it acquired all of the outstanding stock of ViraQuest Inc., which we include in our Life Sciences segment. On May 22, 2023, the Company acquired all the rights, title and interests to a royalty agreement for certain antibody products, which we include in our Life Sciences segment. On March 2, 2023, the Company completed a business combination whereby it acquired all of the outstanding stock of Stephen Hall, PhD Ltd., which we include in our Life Sciences segment. On November 1, 2022, the Company completed a business combination whereby it acquired all of the outstanding stock of ImmunoBioScience Corporation, which we include in our Life Sciences segment. Manufacturing The Company’s Manufacturing segment is comprised of Indco, Inc. (“Indco”). Indco is a majority-owned subsidiary of the Company that manufactures and distributes mixing equipment and apparatus for specific applications within various industries. Indco’s customer base is comprised of small- to mid-sized businesses as well as other larger customers for which Indco fulfills repetitive production orders. Investment in Marketable Securities - Rubicon On August 19, 2022, the Company acquired 1,108,000 shares of the common stock, par value $0.001 per share, of Rubicon Technology, Inc. (“Rubicon”), at a price per share of $20.00, in a cash tender offer made pursuant to the Stock Purchase and Sale Agreement, dated July 1, 2022, between the Company and Rubicon (the “Rubicon Purchase Agreement”). Pursuant to the terms of the Rubicon Purchase Agreement, the acquired shares represent 45.0% of Rubicon’s issued and outstanding shares of common stock as of August 3, 2022, as reported in Rubicon’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2022, filed with the SEC on August 12, 2022. The Company owned approximately 46.6% of Rubicon’s issued and outstanding shares of common stock as of March 31, 2024 and September 30, 2023. Rubicon is an advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. The purpose of our investment in Rubicon is for Janel to acquire a significant ownership interest in Rubicon, together with representation on Rubicon’s board, in an attempt to (i) restructure the Rubicon business to achieve profitability and (ii) assist Rubicon in utilizing its net operating loss carry-forward assets. Although we are optimistic about our investment in Rubicon, our investment involves risks and uncertainties that are beyond our control. 18 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States. These generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses during the reporting period. Our senior management has reviewed the critical accounting policies and estimates with the Audit Committee of our board of directors. For a description of the Company’s critical accounting policies and estimates, refer to “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K filed with the SEC on December 8, 2023. Critical accounting policies are those that are most important to the portrayal of our financial condition, results of operations and cash flows and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. If actual results were to differ significantly from estimates made, the reported results could be materially affected. There were no significant changes to our critical accounting policies during the six months ended March 31, 2024. NON-GAAP FINANCIAL MEASURES While we prepare our financial statements in accordance with U.S. GAAP, we also utilize and present certain financial measures, in particular adjusted operating income, which is not based on or included in U.S. GAAP (we refer to these as “non-GAAP financial measures”). Organic Growth Our non-GAAP financial measure of organic growth represents revenue growth excluding revenues from acquisitions within the preceding 12 months. The organic growth presentation provides useful period-to-period comparison of revenue results as it excludes revenues from acquisitions that would not be included in the comparable prior period. Adjusted Operating Income As a result of our acquisition strategy, our net income includes material non-cash charges relating to the amortization of customer-related intangible assets in the ordinary course of business as well as other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets such as customer relationships. Because these charges are not indicative of our operations, we believe that adjusted operating income is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business that is more representative of the actual results of our operations. Adjusted operating income (which excludes the non-cash impact of amortization of intangible assets, stock-based compensation and cost recognized on the sale of acquired inventory valuation) is used by management as a supplemental performance measure to assess our business’s ability to generate cash and economic returns. Adjusted operating income is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes. We believe that organic growth and adjusted operating income provide useful information in understanding and evaluating our operating results in the same manner as management. However, organic growth and adjusted operating income are not financial measures calculated in accordance with U.S. GAAP and should not be considered as a substitute for total revenues, operating income or any other operating performance measures calculated in accordance with U.S. GAAP. Using these non-GAAP financial measures to analyze our business has material limitations because the calculations are based on the subjective determination of management regarding the nature and classification of events and circumstances that users of the financial statements may find significant. In addition, although other companies may report measures titled organic growth, adjusted operating income or similar measures, such non-GAAP financial measures may be calculated differently from how we calculate our non-GAAP financial measures, which reduces their overall usefulness as comparative measures. Because of these limitations, you should consider organic growth and adjusted operating income alongside other financial performance measures, including total revenues, operating income and our other financial results presented in accordance with U.S. GAAP. 19 Table of Contents Results of Operations – Janel Corporation - Three and Six Months Ended March 31, 2024 and 2023 Our results of operations and period-over-period changes are discussed in the following section. The tables and discussion should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the notes thereto. Our consolidated results of operations are as follows: Three Months Ended March 31, Six Months Ended March 31, (in thousands) 2024 2023 2024 2023 Revenues $ 42,122 $ 45,378 $ 83,157 $ 102,422 Forwarding expenses and cost of revenues 28,299 31,629 55,189 73,756 Gross profit 13,823 13,749 27,968 28,666 Operating expenses 13,243 12,845 26,386 26,382 Income from operations 580 904 1,582 2,284 Net income 219 218 495 578 Adjusted operating income $ 1,282 $ 1,636 $ 2,976 $ 3,693 Consolidated revenues for the three months ended March 31, 2024 were $42,122, which was $3,256 or 7.1% lower than the prior year period. Consolidated revenues for the six months ended March 31, 2024 were $83,157, which was $19,265 or 18.8% lower than the prior year period. Revenues for both the three and six months ended March 31, 2024 decreased primarily due to lower freight prices in our Logistics segment as a result of lower freight demand aligned more closely with global transportation capacity. Income from operations for the three months ended March 31, 2024 was $580 compared with $904 in the prior year period. Income from operations for the six months ended March 31, 2024 was $1,582 compared with $2,284 in the prior year period. The decrease for both the three and six months ended March 31, 2024 resulted from lower profits primarily in our Logistics segment. Net income for the three months ended March 31, 2024 totaled $219 or $0.18 per diluted share, compared to net income of $218 or $0.18 per diluted share for the three months ended March 31, 2023. Net income for the six months ended March 31, 2024 totaled $495 or $0.41 per diluted share, compared to net income of $578 or $0.48 per diluted share for the six months ended March 31, 2023. The decline in net income for the six months ended March 31, 2024 was largely due to lower profits (primarily in our Logistics segment) and higher interest expense. Adjusted operating income for the three months ended March 31, 2024 decreased to $1,282 versus $1,636 in the prior year period. Adjusted operating income for the six months ended March 31, 2024 decreased to $2,976 versus $3,693 in the prior year period. The decrease for both the three and six months ended March 31, 2024 resulted primarily from a decline in profits in our Logistics segment partially offset by an increase in profits at our other businesses. The following table sets forth a reconciliation of operating income to adjusted operating income: Three Months Ended March 31, Six Months Ended March 31, (in thousands) 2024 2023 2024 2023 Income from operations $ 580 $ 904 $ 1,582 $ 2,284 Amortization of intangible assets 542 543 1,080 1,069 Stock-based compensation 72 62 143 123 Cost recognized on sale of acquired inventory 88 127 171 217 Adjusted operating income $ 1,282 $ 1,636 $ 2,976 $ 3,693 Results of Operations – Logistics – Three and Six Months Ended March 31, 2024 and 2023 Our Logistics business helps its clients move and manage freight efficiently to reduce inventories and to increase supply chain speed and reliability. Key services include arrangement of freight forwarding by air, ocean and ground, customs entry filing, warehousing, cargo insurance procurement, logistics planning, product repackaging and online shipment tracking. Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 (in thousands) Revenues $ 36,099 $ 39,878 $ 71,314 $ 91,678 Forwarding expenses 26,293 29,831 51,507 70,098 Gross profit 9,806 10,047 19,807 21,580 Gross profit margin 27.2 % 25.2 % 27.8 % 23.5 % Selling, general and administrative expenses 8,877 8,734 17,742 18,262 Income from operations $ 929 $ 1,313 $ 2,065 $ 3,318 20 Table of Contents Revenues Total revenues for the three months ended March 31, 2024 was $36,099 as compared to $39,878 for the three months ended March 31, 2023, a decrease of $3,779, or 9.5%. Total revenues for the six months ended March 31, 2024 was $71,314 as compared to $91,678 for the six months ended March 31, 2023, a decrease of $20,364 or 22.2%. Revenues decreased for both the three and six months ended March 31, 2024 primarily due to a reduction in transportation rates as lower freight demand aligned more closely with global transportation capacity. Gross Profit Gross profit for the three months ended March 31, 2024 was $9,806, a decrease of $241, or 2.4%, as compared to $10,047 for the three months ended March 31, 2023. Gross profit margin as a percentage of revenues increased to 27.2% for the three months ended March 31, 2024, compared to 25.2% for the prior year period. While revenues were down primarily due to a reduction in transportation rates, our gross profit margin was not negatively impacted given our pricing model. Gross profit for the six months ended March 31, 2024 was $19,807, a decrease of $1,773, or 8.2%, as compared to $21,580 for the six months ended March 31, 2023. Gross profit margin as a percentage of revenue increased to 27.8% compared to 23.5% for the prior year period. While revenues were down primarily due to a reduction in transportation rates, our gross profit margin was not negatively impacted given our pricing model. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended March 31, 2024 were $8,877, as compared to $8,734 for the three months ended March 31, 2023. This increase of $143, or 1.6%, was mainly due to higher insurance expenses and bad debt expense. Selling, general and administrative expenses as a percentage of revenue were 24.6% and 21.9% for the three months ended March 31, 2024 and 2023, respectively. The increase in selling, general and administrative expenses as a percentage of revenue largely reflected the reduction in transportation rates. Selling, general and administrative expenses for the six months ended March 31, 2024 were $17,742, as compared to $18,262 for the six months ended March 31, 2023. This decrease of $520, or 2.8%, was mainly due to lower professional service fees during the period. Selling, general and administrative expenses as a percentage of revenue were 24.9% and 19.9% of revenue for the six months ended March 31, 2024 and 2023, respectively. The increase in selling, general and administrative expenses as a percentage of revenues largely reflected the decrease in transportation rates. Income from Operations Income from operations decreased to $929 for the three months ended March 31, 2024, as compared to income from operations of $1,313 for the three months ended March 31, 2023, a decrease of $384, or 29.2%. Income from operations decreased as a result of lower transportation demand. Operating margin as a percentage of gross profit for the three months ended March 31, 2024 was 9.5% compared to 13.1% in the prior year period due to lower income from operations. Income from operations decreased to $2,065 for the six months ended March 31, 2024, as compared to $3,318 for the six months ended March 31, 2023, a decrease of $1,253, or 37.8%. Income from operations decreased during the six months ended March 31, 2024 as a result of lower transportation demand. Our operating margin as a percentage of gross profit for the six months ended March 31, 2024 was 10.4% compared to 15.4% in the prior year period largely due to lower income from operations. Results of Operations – Life Sciences – Three and Six Months Ended March 31, 2024 and 2023 The Company’s Life Sciences segment manufactures and distributes high-quality monoclonal and polyclonal antibodies, diagnostic reagents and other immunoreagents for biomedical research and provides antibody manufacturing for academic and industry research scientists. Our Life Sciences business also produces products for other life science companies on an OEM basis. Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 (in thousands) Revenues $ 3,524 $ 3,068 $ 7,005 $ 5,906 Cost of sales 762 500 1,285 1,138 Cost recognized upon sale of acquired inventory 88 127 171 217 Gross profit 2,674 2,441 5,549 4,551 Gross profit margin 75.9 % 79.6 % 79.2 % 77.1 % Selling, general and administrative expenses 1,745 1,570 3,495 3,080 Income from operations $ 929 $ 871 $ 2,054 $ 1,471 21 Table of Contents Revenues Total revenues were $3,524 and $3,068 for the three months ended March 31, 2024 and 2023, respectively, reflecting an increase of $456, or 14.9%, compared to the prior year period due to increased OEM sales. Organic revenues excluding acquisition revenue increased $328, or 10.7%. Total revenues were $7,005 and $5,906 for the six months ended March 31, 2024 and 2023, respectively, reflecting an increase of $1,099, or 18.6%, compared to the prior year period due to increased OEM sales. Organic revenues excluding acquisition revenue increased $884, or 15.0%. Gross Profit Gross profit was $2,674 and $2,441 for the three months ended March 31, 2024 and 2023, respectively, an increase of $233, or 9.5%. During the three months ended March 31, 2024 and 2023, gross profit margin was 75.9% and 79.6%, respectively, as cost of sales increased. Gross profit was $5,549 and $4,551 for the six months ended March 31, 2024 and 2023, respectively, an increase of $998 or 21.9%. In the six months ended March 31, 2024 and 2023, gross profit margin was 79.2% and 77.1%, respectively. Gross profit margin increased as product mix improvements yielded higher margins. Selling, General and Administrative Expenses Selling, general and administrative expenses for the Life Sciences segment were $1,745 and $1,570 for the three months ended March 31, 2024 and 2023, respectively. Selling, general and administrative expenses were $3,495 and $3,080 for the six months ended March 31, 2024 and 2023, respectively. The year-over-year increases for both periods were largely due to additional expenses from acquired businesses. Income from Operations Income from operations for the three months ended March 31, 2024 and 2023 was $929 and $871, respectively, an increase of $58, or 6.7%. Income from operations for the six months ended March 31, 2024 and 2023 was $2,054 and $1,471, respectively, an increase of $583, or 39.6%. Both the three-month and six-month periods were impacted by greater OEM demand and product mix improvements. Results of Operations - Manufacturing – Three and Six Months Ended March 31, 2024 and 2023 The Company’s Manufacturing segment reflects its majority-owned Indco subsidiary, which manufactures and distributes industrial mixing equipment. Three Months Ended March 31, Six Months Ended March 31, 2024 2023 2024 2023 (in thousands) Revenues $ 2,499 $ 2,432 $ 4,838 $ 4,838 Cost of sales 1,156 1,171 2,226 2,303 Gross profit 1,343 1,261 2,612 2,535 Gross profit margin 53.7 % 51.9 % 54.0 % 52.4 % Selling, general and administrative expenses 787 776 1,571 1,550 Income from operations $ 556 $ 485 $ 1,041 $ 985 22 Table of Contents Revenues Total revenues were $2,499 and $2,432 for the three months ended March 31, 2024 and 2023, respectively, an increase of $67, or 2.8%. Total revenues were $4,838 for each of the six months ended March 31, 2024 and 2023. The increase in revenues for the three months ended March 31, 2024 reflected a slight increase in volume across the business. Gross Profit Gross profit was $1,343 and $1,261 for the three months ended March 31, 2024 and 2023, respectively, an increase of $82, or 6.5%. Gross profit margin for the three months ended March 31, 2024 and 2023 was 53.7% and 51.9%, respectively. Gross profit was $2,612 and $2,535 for the six months ended March 31, 2024 and 2023, respectively, an increase of $77, or 3.0%. Gross profit margin for the six months ended March 31, 2024 and 2023 was 54.0% and 52.4%, respectively. The modest year-over-year increase in gross profit margin in both periods was generally due to the mix of business. Selling, General and Administrative Expenses Selling, general and administrative expenses were consistent for the three and six months ended March 31, 2024 when compared to March 31, 2023. Selling, general and administrative expenses for the three months ended March 31, 2024 and 2023 were $787 and $776, respectively. Selling, general and administrative expenses for the six months ended March 31, 2024 and 2023 were $1,571 and $1,550, respectively. Income from Operations Income from operations was $556 for the three months ended March 31, 2024 compared to $485 for the three months ended March 31, 2023, representing a 14.6% increase from the prior year period due to increases in sales of certain product lines versus the prior year period. Income from operations was $1,041 for the six months ended March 31, 2024 compared to $985 for the six months ended March 31, 2023, representing a 5.7% increase from the prior year period as a result of a decrease in cost of sales. Results of Operations – Corporate and Other – Three and Six Months Ended March 31, 2024 and 2023 Below is a reconciliation of income from operating segments to net income available to common stockholders. Three Months Ended March 31, Six Months Ended March 31, (in thousands) 2024 2023 2024 2023 Total income from operations by segment $ 2,414 $ 2,669 $ 5,160 $ 5,774 Corporate expenses (1,220 ) (1,160 ) (2,355 ) (2,298 ) Amortization of intangible assets (542 ) (543 ) (1,080 ) (1,069 ) Stock-based compensation (72 ) (62 ) (143 ) (123 ) Total corporate expenses (1,834 ) (1,765 ) (3,578 ) (3,490 ) Interest expense (550 ) (474 ) (1,074 ) (948 ) Fair value adjustments to Rubicon investment (net of dividends) 66 (111 ) 576 (510 ) Fair value adjustments of contingent earnout liabilities — — (395 ) — Gain on extinguishment — — 21 — Change in fair value of mandatorily redeemable non-controlling interest — — (146 ) — Net income before taxes 96 319 564 826 Income tax benefit (expense) 123 (101 ) (69 ) (248 ) Net Income 219 218 495 578 Preferred stock dividends (85 ) (70 ) (157 ) (142 ) Net Income Available to Common Stockholders $ 134 $ 148 $ 338 $ 436 Total Corporate Expenses Total Corporate expenses, which include amortization of intangible assets, stock-based compensation and merger and acquisition expenses, increased by $69, or 3.9%, to $1,834 in the three months ended March 31, 2024 as compared to $1,765 for the three months ended March 31, 2023. Total Corporate expenses increased by $88, or 2.5%, to $3,578 for the six months ended March 31, 2024 as compared to $3,490 for the six months ended March 31, 2023. The increase in both periods was due primarily to higher stock-based compensation related to more issuances of stock options, higher legal-related professional expense, an increase in executive severance costs, and increased merger and acquisition expenses. We incur merger and acquisition deal-related expenses and intangible amortization at the Corporate level rather than at the segment level. 23 Table of Contents Interest Expense Interest expense for the consolidated company increased $76, or 16.0%, to $550 for the three months ended March 31, 2024 from $474 for the three months ended March 31, 2023. Interest expense for the consolidated company increased by $126, or 13.3%, to $1,074 for the six months ended March 31, 2024 from $948 for the six months ended March 31, 2023. The increase in both periods was primarily due to higher interest rates partially offset by lower average debt balances. Income Tax Expense On a consolidated basis, the Company recorded an income tax benefit of $123 for the three months ended March 31, 2024, as compared to an income tax expense of $101 for the three months ended March 31, 2023. On a consolidated basis, the Company recorded an income tax expense of $69 for the six months ended March 31, 2024, as compared to an income tax expense of $248 for the six months ended March 31, 2023. Preferred Stock Dividends Preferred stock dividends include any dividends accrued but not paid on the Company’s Series C Cumulative Preferred Stock (the “Series C Preferred Stock”). For the three months ended March 31, 2024 and 2023, preferred stock dividends were $85 and $70, respectively, representing an increase of $15, or 21.4%. For the six months ended March 31, 2024 and 2023, preferred stock dividends were $157 and $142, respectively, representing an increase of $15, or 10.6%. The increase in preferred stock dividends in both periods was the result of the increase in the dividend rate of the Series C Stock by 1% on January 1, 2024. Such rate is set to increase on each January 1 thereafter for four years to a maximum rate of 9%. The dividend rate of the Series C Stock as of each of March 31, 2024 and September 30, 2023 was 6% and 5%, respectively. Net Income Net income was $219, or $0.18 per diluted share, for the three months ended March 31, 2024 compared to net income of $218 or $0.18 per diluted share, for the three months ended March 31, 2023. The flat net income for the three months ended March 31, 2024 compared to March 31, 2023 was largely due to an income tax benefit and an increase in the fair value of our Rubicon investment, offset by lower income from operations and increases in interest expense. Net income was $495, or $0.41 per diluted share, for the six months ended March 31, 2024 compared to net income of $578, or $0.48 per diluted share, for the six months ended March 31, 2023. The decline in net income for the six months ended March 31, 2024 was largely due to lower profits in our Logistics segment and higher interest expenses. Income Available to Common Stockholders Income available to holders of Common Stock was $134, or $0.11 per diluted share, for the three months ended March 31, 2024 compared to income available to holders of Common Stock of $148, or $0.12 per diluted share, for the three months ended March 31, 2023. Income available to holders of Common Stock was $338, or $0.28 per diluted share, for the six months ended March 31, 2024 compared to income available to holders of Common Stock of $436, or $0.36 per diluted share, for the six months ended March 31, 2023. The decrease in net income available to common stockholders for the three months ended March 31, 2024 was the result of an increase in the dividend rate with respect to the Series C Preferred Stock from 5% to 6%. The decrease in net income available to common stockholders for the six months ended March 31, 2024 was the result of lower net income and an increase in the dividend rate with respect to the Series C Preferred Stock from 5% to 6%. LIQUIDITY AND CAPITAL RESOURCES General Our ability to satisfy liquidity requirements—including meeting debt obligations and funding working capital, day-to-day operating expenses, and capital expenditures—depends upon future performance, which is subject to general economic conditions, competition and other factors, some of which are beyond our control. Our Logistics segment depends on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors. As a customs broker, our Logistics segment makes significant cash advances for a select group of our credit-worthy customers. These cash advances are for customer obligations such as the payment of duties and taxes to customs authorities primarily in the United States. Increases in duty rates could result in increases in the amounts we advance on behalf of our customers. Cash advances are a “pass through” and are not recorded as a component of revenues and expenses. The billings of such advances to customers are accounted for as a direct increase in accounts receivable from the customer and a corresponding increase in accounts payable to governmental customs authorities. These “pass through” billings can influence our traditional credit collection metrics. 24 Table of Contents For customers that meet certain criteria, we have agreed to extend payment terms beyond our customary terms. Management believes that it has established effective credit control procedures and has historically experienced relatively insignificant collection problems. Our subsidiaries depend on commercial credit facilities to fund day-to-day operations as there is a difference between the timing of collection cycles and the timing of payments to vendors. Generally, we do not make significant capital expenditures. Our cash flow performance for the 2024 fiscal year may not necessarily be indicative of future cash flow performance. Cash flows from operating activities Net cash provided by operating activities was $4,294 for the six months ended March 31, 2024, versus $10,100 provided by operating activities for the six months ended March 31, 2023. The decrease in cash provided by operations for the six months ended March 31, 2024 compared to the prior year period was driven principally by a lower net working capital benefit at our Logistics segment. Cash flows from investing activities Net cash used in investing activities totaled $1,638 for the six months ended March 31, 2024, versus $5,782 for the six months ended March 31, 2023. We used $327 for the acquisition of property and equipment, $571 for the acquisition of one business, and $740 in earnout payments to the former owners of ELFS and IBS for the six months ended March 31, 2024, compared to $178 for the acquisition of property and equipment, $1,693 in earnout payment to the former owners of ELFS and $3,911 for the acquisition of two businesses for the six months ended March 31, 2023. Cash flows from financing activities Net cash used in financing activities was $3,086 for the six months ended March 31, 2024, versus net cash used in financing activities of $8,596 for the six months ended March 31, 2023. Net cash used in financing activities for the six months ended March 31, 2024 included repayment of funds from our lines of credit, repayment of funds from our term loan and repayment of subordinated promissory notes. Net cash provided financing activities for the six months ended March 31, 2023 primarily included repayment of funds from our lines of credit and repayment of term loans. Off-Balance Sheet Arrangements As of March 31, 2024, we had no off-balance sheet arrangements or obligations.