Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2022. The unaudited results compare with the three months ended September 30, 2021, which were restated. The report was signed March 27, 2023.
Business context
Radiant is a third-party logistics provider offering transportation brokerage and forwarding, materials management and distribution, customs brokerage, and technology-related services, primarily in the United States and Canada. Its network includes more than 100 operating locations, including independent strategic operating partners and approximately 25 company-owned offices.
Financial results and liquidity
| Metric | Q1 FY2023 | Q1 FY2022, restated |
|---|---|---|
| Revenue | $331.0 million | $299.4 million |
| GAAP gross profit / margin | $74.7 million / 22.6% | $61.7 million / 20.6% |
| Adjusted gross profit / percentage | $76.5 million / 23.1% | $64.7 million / 21.6% |
| Operating income | $10.9 million | $10.5 million |
| Net income attributable to Radiant | $8.4 million | $7.6 million |
| Diluted earnings per share | $0.17 | $0.15 |
| Adjusted EBITDA | $18.5 million | $15.2 million |
| Operating cash flow | $24.7 million provided | $15.8 million used |
Revenue increased 10.6% year over year. Adjusted gross profit increased 18.2%; adjusted EBITDA increased 21.4%. Comprehensive income was $5.0 million versus $6.7 million, reflecting a larger foreign-currency translation loss in the current period.
At September 30, cash and cash equivalents were $23.7 million, current assets $253.4 million, and current liabilities $169.0 million. Notes payable totaled $44.6 million, including $37.5 million drawn on the revolving facility and $7.2 million in senior secured loans. Operating and finance lease liabilities totaled $50.4 million. The company reported covenant compliance; it also received a lender waiver extending the deadline for financial statements delayed by the restatement.
Investing activities used $0.9 million, primarily for property, technology, and equipment. Financing activities used $28.9 million, including $25.0 million of net revolving-credit repayments and $1.3 million of share repurchases. Cash, cash equivalents, and restricted cash declined $0.8 million to $24.3 million.
Changes and management commentary
- Transportation revenue rose 8.9% to $316.1 million, primarily reflecting the Navegate acquisition. Transportation adjusted gross profit increased to $68.7 million, and its margin improved to 21.7% from 20.2%; management cited lower purchased ocean rates and a greater share of higher-margin domestic business.
- Value-added services revenue increased 60.9% to $14.8 million, supported by Navegate and Canadian growth. Its adjusted gross profit margin fell to 52.2% from 65.1%, which management attributed mainly to Navegate’s lower-margin service mix.
- Personnel costs and SG&A rose 26.3% and 29.2%, respectively, reflecting expanded staffing and business volumes, Navegate, and higher technology, professional-services, facilities, bank, and travel costs. Depreciation and amortization increased 59.4%, due partly to Navegate and accelerated amortization related to trade-name rebranding.
- Radiant replaced its $150 million revolving facility with a five-year $200 million facility, including a $75 million accordion feature for potential acquisitions. The disclosed September 30 interest rate was 4.34%; covenant limits include maximum net leverage of 3.00 and minimum interest coverage of 3.00.
Outlook, risks, contingencies, and unusual items
- No specific financial guidance is provided. Management describes plans for organic growth and acquisitions, and intends to use its network, customer relationships, and technology to improve productivity and expand services.
- The company says inflation, possible recession, fuel and interest-rate increases, consumer-demand changes, capacity constraints, supply-chain disruption, COVID-19, and the war in Ukraine may affect results. It notes foreign-exchange exposure; a 1% currency-rate change was estimated to change net income by approximately $0.05 million.
- The company restated prior financial statements, principally to correct the timing of estimated in-transit revenue and related costs. For Q1 FY2022, the correction increased revenue by $13.3 million, transportation costs by $13.4 million, and net income attributable to Radiant by $0.5 million; EPS increased by $0.01. Prior-period operating, investing, and financing cash flows were not affected.
- Management concluded disclosure controls were ineffective at September 30, 2022, due to an unremediated material weakness in revenue recording and processing. Remediation was ongoing, with further corrective actions planned during fiscal 2023.
- A December 2021 ransomware incident disrupted systems and caused lost revenue and incremental costs. The company later confirmed some customer and employee data had been extracted. Operations and system recovery were reported complete, but potential privacy-related claims, regulatory inquiries, or proceedings remain a risk. No potentially material legal proceedings were reported as of September 30, 2022.
- Subsequent to quarter-end, Radiant acquired Cascade Enterprises for $3.25 million cash plus preliminary contingent consideration of $2.0 million. It also reported $54.0 million of undiscounted future lease payments for certain subsequent leases and repurchased 620,347 shares for $3.7 million through the report date.
Important facts for investors to verify
- Review the restatement disclosures and verify how the company is improving the estimates and controls for in-transit revenue and related costs.
- Track progress in remediating the material weakness and assess the reliability of future reported results.
- Assess the contribution, margins, integration, and acquisition-related costs of Navegate, and the terms and performance conditions for Cascade.
- Monitor borrowing levels, variable interest-rate exposure, covenant headroom, and the company’s ability to meet debt and lease commitments.
- Review the ransomware incident’s potential legal, regulatory, customer, and financial consequences, along with risks from contingent acquisition payments and future leases.
- Compare adjusted gross profit and adjusted EBITDA with GAAP results and review the filing’s reconciliations, since these are non-GAAP measures.