Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2017, the first quarter of fiscal 2018. The request metadata labels this “2017 Q1,” but the filing reports the quarter ended September 30, 2017. Unaudited figures below are in millions of dollars except per-share data.
Business context and results
Radiant is a third-party logistics provider operating primarily in the United States and Canada, arranging freight through a network of operating locations and approximately 10,000 transportation providers. It intends to pursue organic growth and acquisitions.
| Metric | Quarter ended Sept. 30, 2017 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $197.98 | $195.13 | +1.5% |
| Net revenue | $46.15 | $49.01 | -5.8% |
| Income from operations | $2.23 | $3.37 | -33.7% |
| Net income | $0.89 | $1.87 | -52.6% |
| Net income attributable to common stockholders | $0.32 | $1.35 | -76.6% |
| Basic and diluted EPS | $0.01 | $0.03 | Lower |
| Net cash from operating activities | $(1.18) | $3.48 | Declined |
| Normalized adjusted EBITDA, non-GAAP | $6.48 | $7.78 | -16.7% |
Net transportation margin fell to 22.1% from 24.4%; operating income equaled 4.8% of net revenue, versus 6.9% a year earlier. The filing reports net revenue as revenue less transportation costs; these measures should not be confused with conventional gross margin.
Liquidity, debt, and other financial metrics
- At September 30, cash was $5.77; current assets were $136.21 and current liabilities were $110.85, implying working capital of approximately $25.37 and a current ratio of about 1.23.
- Notes payable totaled $45.63, including a $18.79 credit-facility balance and $27.80 of senior secured loans, net of issuance costs. Debt increased from $40.42 at June 30, 2017.
- The $75.0 credit facility had $46.6 of borrowing availability after collateral and letter-of-credit considerations. The company reported compliance with its debt covenants.
- Contingent consideration for acquisitions was $9.85. Estimated undiscounted earn-outs totaled $10.82, including cash and potential equity payments; approximately $2.5 of previously earned consideration was payable in November 2017.
- Operating cash use was driven in part by a $6.59 increase in accounts receivable. Investing activities used $2.37, including $1.03 for acquisitions and $1.38 for technology and equipment. Financing activities provided $3.54, mainly from credit-facility borrowings.
- Minimum future operating lease payments were $33.77. The company expected to spend more than $3.0 on technology in fiscal 2018.
Material changes and management commentary
- Revenue increased modestly, but net revenue contracted as transportation costs rose faster than revenue. Forwarding revenue increased 3.8%, while forwarding net transportation revenue declined 7.9% and its margin fell from 29.1% to 25.9%, reflecting competitive conditions and lower-margin air charters and project work.
- Brokerage revenue declined 7.1% amid market softness; brokerage net transportation margin fell from 12.1% to 11.0% due to margin compression.
- Operating partner commissions decreased $3.66, but personnel costs rose 9.5% and SG&A rose 18.4%, primarily with the Lomas and Dedicated Logistics Technologies acquisitions. SG&A also included approximately $0.3 of Canadian materials-management and distribution start-up costs.
- Interest expense increased to $0.77 from $0.64, associated in part with acquisition-related borrowings. Foreign exchange moved from a $0.20 gain to a $0.09 loss.
- Radiant acquired Sandifer-Valley Transportation & Logistics on September 1, 2017; the filing states the acquisition was not material. Management said current working capital and anticipated operating cash flow were adequate for existing operations over the next 12 months, while acquisitions would require additional financing.
Outlook, risks, and unusual items
The filing provides no quantified revenue or earnings guidance. Management described plans to grow organically and through acquisitions, expand its operating-partner network, improve productivity, and continue technology investment. It cautioned that results depend on acquisition integration and financing, transportation-market conditions, customer demand, operating partners, and compliance with debt covenants.
- The company reported negative operating cash flow for the quarter and noted that acquisition growth could require additional capital. Debt availability and acquisition-related earn-outs may constrain financing or contribute to dilution.
- A California wage-and-hour putative class action remained unresolved. The company said it could not assess the likely outcome; it did not believe material damages were likely based on its preliminary assessment, but acknowledged potential exposure.
- Several strategic operating partners had deficits in bad-debt reserve accounts. Radiant expects replenishment from future operations but could incur losses if partners cease operating or cannot repay.
- The CEO is the sole member of an affiliate that owns 60% of consolidated Radiant Logistics Partners, LLC; that affiliate’s share of the entity’s quarter profit was $0.06. The filing describes independent-board review of the arrangement.
- Preferred shares carry a 9.75% cumulative dividend. The quarter’s preferred dividend was $0.51; a subsequent $0.51 dividend was declared October 13 and paid October 31, 2017.
- Radiant said it was evaluating upcoming accounting standards, including revenue recognition and lease accounting; adoption of the lease standard will affect balance-sheet presentation of lease commitments.
Important facts for investors to verify
- Whether net-revenue and margin pressure, particularly in forwarding and brokerage, continues in subsequent quarters.
- Whether operating cash flow improves as receivables are collected and working-capital needs change.
- Current credit-facility availability, covenant compliance, debt maturities, and capacity to finance acquisitions and earn-outs.
- Integration and performance of recent acquisitions, including their contribution to revenue, costs, and cash generation.
- Developments in the California class action and recoverability of operating-partner deficit balances.
- The assumptions underlying non-GAAP normalized adjusted EBITDA, contingent-consideration valuations, and the potential dilution from equity-settled earn-outs.