Third Quarter Results

For its fiscal 2009 third quarter, Janel reported total Company revenue of $15,524,769, down 22% year-over-year from $19,962,837. By segment, the latest quarter consisted of transportation logistics revenue of $15,515,608 and computer software revenue of $9,161. Janel's revenue was primarily affected by a significant reduction during the period in freight rates charged by air and ocean carriers, which the Company marks up and then passes through to its customers. To a lesser extent, Janel customers also continued to reflect a reduction in their own commercial shipping activities as a result of the ongoing recession in the U.S. economy during the April-to-June period.

Reflecting the lower rates charged by air and ocean freight carriers, the Company's forwarding expenses in the fiscal 2009 third quarter fell by $3,999,051, or 23%, to $13,614,681 from $17,613,732 in the fiscal 2008 quarter. Also affecting revenue and forwarding expenses, customers continued to reduce their expenses by switching from the use of higher-cost airfreight to the lower-cost alternative of ocean freight. Nonetheless, third quarter forwarding expense as a percentage of transportation logistics revenue improved by 77 basis points from 88.52% to 87.75% year-over-year, increasing the Company's net revenue and operating margins in the latest period.

In response to the recession-related business slowdown it has experienced in recent quarters, in February 2009 the Company implemented an expense austerity program, which has been ongoing since. Primarily as a result of this stringent cost-cutting effort, selling, general and administrative (SG&A) expenses for the fiscal 2009 third quarter fell by $477,449, or 20%, from the prior-year period. The net effect of the declines in forwarding expenses and SG&A was positive on Janel's margin, helping the Company reduce its operating loss by more than half, to $(81,857) in the fiscal 2009 third quarter from $(192,647) in 2008. Likewise, the Company's 2009 third quarter net loss improved to $(105,847), or $(0.006) per fully diluted share, as compared to its year-earlier reported net loss of $(153,829), or $(0.009).

Nine-Month Results

For the nine months ended June 30, 2009, the Company reported total revenue of $53,942,670, down $(4,369,474) as compared to the prior-year period's total revenue of $58,312,144. Mainly reflecting the third quarter results, the principal reason for the decrease in fiscal 2009 nine-month revenue was the reduced air and ocean carrier freight rates from April to June, then passed through by Janel to its customers. The revenue shortfall as well as and the continuing effect of intangible asset amortization and interest expense were the principal factors behind Janel's nine-month reported net losses of $(506,072), or $(0.028) per fully diluted share, in 2009 and $(294,600), or $(0.018), in 2008.

Review and Outlook

James N. Jannello, the Company's executive vice president and chief executive officer, stated, "Janel's results, and in particular our lower revenue, in this year's fiscal third quarter were due to an almost perfect storm of recession-based industry factors. First, less business activity during the recession has reduced the overall demand for freight transportation, which has, in turn, accelerated the downward pressure on air and ocean carrier rates. In some cases freight rates have fallen by more than 35% from year-ago levels. And because our logistics billings are based directly on our mark-up of the rates we pay carriers, the lower freight rates are immediately reflected in our gross and net revenue. Second, our customers, like shippers across most industries, have reacted to their own business economic pressures by seeking, where feasible, to cut their operating expenses. For less time-sensitive shipments, this has meant switching from higher-cost air to lower-cost ocean transportation alternatives, again reducing Janel revenue. And, third, while the recession-related drop-off has mostly stabilized, our customers are, in aggregate, still shipping less product than they were last year. Thus, all of these factors -- reduced freight rates, the mix switch to more ocean freight, and decreased shipment volumes -- have resulted in the lower year-over-year (and lower 2009 third versus second quarter) revenue we have reported."

"However, during the third quarter, there were also several positive factors which helped mitigate the effect on earnings from the lower revenue stream. While we have passed-through the savings in carrier rates to our customers, we have also successfully maintained most of our dollar margins. Thus, our profitability on each forwarding dollar we received from our customers improved 77 basis points year-over-year, and when applied against our $15.5 million revenue base, this increased the Company's third quarter operating earnings by $120,000. In addition, as a result of the $1.8 million impairment charge taken by the Company in last year's fourth quarter, the quarterly charges for the amortization of intangible assets throughout 2009 have been reduced, falling by more than $72,000 in the fiscal 2009 third quarter. This, too, has increased our year-over-year profitability."

Jannello continued, "Lastly as to cost savings, as we have discussed in our previous earnings releases, during the past year the Company has moved vigorously to reduce its ongoing operating expenses related to both SG&A and to its 2007 acquisition of Order Logistics, Inc. (OLI). As part of our stringent austerity program, we have reduced headcount by 11 individuals versus 2008 levels, and, since February, we have also trimmed the workweek for many staff positions to four days. We believe these and the other across-the-board cost-cutting actions we have taken allowed us to significantly reduce the SG&A we have incurred this year. After reporting back-to-back SG&A reductions totaling $60,000 in this year's first and second quarters, we slashed an additional $477,000, or 20%, in savings versus the prior year from the 2009 fiscal third quarter alone. Our goal is to continue to reduce SG&A spending for the next one to two quarters by an average of at least $100,000 per month from last year's levels. Each overhead dollar thus saved, of course, drops straight to the Company's pretax earnings."

"Even with the more-than-22% decline in gross revenue, our increased margins and cost cuts allowed the Company to report a third quarter 2009 operating loss that was $111,000 better than a year earlier. Similarly, at the bottom line, the net loss to shareholders improved by $48,000, or 30%, from the 2008 results. Yet, notwithstanding these year-to-year improvements, our quarterly and nine-month numbers continued to be negatively affected to a significant extent by OLI results. As we have discussed as well in our prior earnings reports and filings, OLI has remained a significant, although declining reason for the losses we have sustained throughout this year, as we continue to not only take all feasible steps to contain the problem, but also to decide definitively on the business's viability going forward. However, until this situation is finally resolved, we continue to believe that the EBITDA calculations offer the best measures of both Janel's immediate financial results as well as the long-term strength of our ongoing logistics business. The table we have additionally provided adds back interest, taxes, depreciation and amortization as well as the OLI-related operating losses to both periods. From this non-GAAP perspective, the Company's 2009 third quarter and nine-month adjusted EBITDA would have been $213,168 and $301,757, respectively."

"As we look ahead, we see signs of a developing economic recovery taking us out of the current recession, and we expect this turnaround to take a firmer hold as we look toward the remaining quarter of this fiscal year and into 2010. We are confident that this slow, but steady rise in general business activity in the U.S. and worldwide will translate positively into an increasing volume of shipments transacted on behalf of our customers, into a strengthening of the lower freight carrier rates that have temporarily stalled our revenue growth, and into higher operating margins, which we will bring to our bottom line. While we are awaiting this accompanying resurgence in the transportation logistics business, we are also moving rapidly ahead with the activities of Janel's Environmental Projects Division (EPD) begun earlier this year.