Radiant Logistics, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended June 30, 2019, compared with fiscal 2018. Although the request metadata refers to 2018 Q4, this filing reports a full fiscal year, not a standalone quarter.
Business context
Radiant is a non-asset-based third-party logistics provider serving primarily U.S. and Canadian customers. It arranges air, ocean, truckload, less-than-truckload and intermodal freight, as well as customs brokerage and warehouse/distribution services. Its network includes over 100 independent strategic operating partner locations, approximately 20 company-owned offices and about 10,000 transportation providers.
Financial performance
| Metric | FY2019 | FY2018 | Change |
|---|---|---|---|
| Revenue | $890.5 million | $842.4 million | +5.7% |
| Net revenue (revenue less transportation and other service costs) | $230.1 million | $200.1 million | +15.0% |
| Operating income | $24.7 million | $13.2 million | +87.5% |
| Net income | $17.4 million | $10.4 million | +66.6% |
| Net income attributable to Radiant | $16.3 million | $10.2 million | +60.4% |
| Net income attributable to common stockholders | $13.7 million | $8.1 million | +68.6% |
| Diluted EPS | $0.27 | $0.16 | Up $0.11 |
| Adjusted EBITDA | $40.8 million | $29.2 million | +39.4% |
| Cash from operating activities | $39.8 million | $4.8 million | +$35.1 million |
Transportation net revenue increased to $213.5 million from $188.8 million; transportation net margin rose to 24.9% from 23.1%, primarily reflecting product mix. Value-added services net revenue grew to $16.6 million from $11.4 million, with its net margin rising to 50.4% from 45.9%. Operating income was 10.7% of net revenue, versus 6.6% in FY2018. Adjusted EBITDA is a company-defined non-GAAP measure.
Liquidity, cash flow and debt
- At June 30, 2019, cash was $5.4 million; current assets were $124.9 million and current liabilities $98.4 million, implying working capital of about $26.5 million and a current ratio of approximately 1.27.
- Operating cash flow was $39.8 million, compared with $4.8 million in FY2018. Management attributed the increase mainly to higher customer collections and lower payments to suppliers. Investing activities used $6.2 million, primarily for technology and equipment; financing activities used $35.1 million, including the preferred-stock redemption.
- Notes payable totaled $36.6 million, down from $46.9 million. The revolving facility had $13.8 million drawn and approximately $51.3 million available at year-end. The $75 million facility matures in June 2022; borrowing rates are variable. The company reported compliance with its debt covenants.
- The company redeemed all preferred shares in December 2018 for approximately $21.0 million, funded with cash and the senior credit facility. The redemption eliminated future preferred dividends but increased reliance on debt service.
Material changes and unusual items
- Operating results improved, with higher net revenue and margins. U.S. net revenue rose to $198.1 million from $174.7 million; Canadian net revenue rose to $32.0 million from $25.4 million.
- ASC 606 was adopted July 1, 2018 using the modified retrospective method. FY2018 was not restated. For FY2019, reported revenue under ASC 606 was $6.9 million higher than it would have been under the prior guidance, while net income was about $0.2 million higher; adoption reduced opening retained earnings by $0.3 million.
- FY2019 included $4.8 million of income tax expense, compared with $0.1 million in FY2018, which benefited from a tax-law-related deferred tax benefit. The preferred-stock redemption also generated $1.7 million of issuance costs charged against earnings available to common stockholders.
- FY2019 cash flow benefited from working-capital movements, including collections and the accounting presentation of contract assets under ASC 606. Consider this when assessing whether the cash-flow improvement is repeatable.
Outlook, risks and contingencies
- No quantitative earnings or revenue guidance is provided. Management expects to pursue organic growth, build out its operating-partner network, seek complementary acquisitions and improve productivity through technology and back-office integration. It expected to spend more than $3.5 million on technology in FY2020, including transportation-management-system implementation.
- Management stated that working capital and anticipated operating cash flow were adequate for existing operations over the next 12 months, but additional capital may be needed to support acquisitions. Acquisition capacity is subject to lender consent, availability and covenant conditions.
- Key risks include economic or freight-volume weakness, carrier capacity and pricing, intense competition, dependence on independent operating partners and third-party carriers, seasonal variability, acquisition integration and technology-system migration, cybersecurity, foreign-exchange exposure, and variable-rate debt.
- About 56% of FY2019 revenue was generated through strategic operating partners, down from 59%; international transportation revenue represented 38%, up from 36%. No single customer or partner represented more than 10% of consolidated revenue.
- Approximately $2.4 million was owed by operating partners at year-end, including $1.4 million from a former British Columbia partner. The company had obtained a judgment and was pursuing collection; the filing reports an allowance of approximately $0.7 million against the relevant receivable.
- A California wage-and-hour class action was dismissed and judgment entered for the company, but the plaintiff appealed. The company said it could not assess the likely outcome. The filing also notes ordinary-course claims and litigation risks.
- Adoption of the new lease standard on July 1, 2019 was expected to recognize a $16.6 million operating-lease right-of-use asset and lease liabilities; management expected no impact on the income statement.
Important facts for investors to verify
- Whether operating cash flow and margin gains persist after the FY2019 working-capital benefit and product-mix changes.
- ASC 606’s effect on comparability, especially because FY2018 was not restated and FY2019 reported revenue differs from the prior-guidance presentation.
- Available borrowing capacity, covenant headroom, variable-rate exposure and the effect of the preferred-stock redemption on future debt service.
- Collection progress on the former British Columbia partner receivable and the status of the California appeal.
- Execution, cost and timing of the planned technology migration and the company’s ability to integrate future acquisitions without weakening cash flow or controls.