Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2016 (the first quarter of fiscal 2017; unaudited). Comparisons are with the three months ended September 30, 2015, unless otherwise noted. Financial statement amounts below are in U.S. dollars; millions are shown unless stated otherwise.
Business context and financial performance
Radiant is a third-party logistics provider arranging freight forwarding, brokerage and related services, primarily in the United States and Canada. It operates a largely non-asset-based model through company offices, strategic operating partners and a carrier network.
| Metric | Quarter ended Sep. 30, 2016 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $195.1 million | $215.5 million | Down 9.5% |
| Net revenue | $49.0 million | $50.7 million | Down 3.4% |
| Operating income | $3.4 million | $1.7 million | Up $1.7 million |
| Net income | $1.9 million | $0.4 million | Up $1.5 million |
| Net income attributable to common stockholders | $1.4 million | Loss of $0.2 million | Improved |
| Diluted earnings per common share | $0.03 | $0.00 reported | Prior-year common result was a loss |
| Operating cash flow | $3.5 million | $4.6 million | Down $1.2 million |
- Net transportation revenue was $47.2 million, versus $48.7 million. The reported net transportation margin was 24.4%, compared with 22.8%; forwarding and brokerage margins improved, despite lower revenue.
- Operating margin was approximately 1.7%, versus 0.8%. Net income margin was approximately 1.0%, versus 0.2%.
- Normalized adjusted EBITDA, a non-GAAP measure, was $7.8 million, versus $8.8 million. The company’s reconciliation includes adjustments for items such as share-based compensation, acquisition and legal costs, contingent consideration, foreign exchange and transition costs.
Liquidity, debt and balance sheet
- At September 30, cash and cash equivalents were $7.8 million, current assets $129.8 million and current liabilities $108.6 million, for working capital of approximately $21.3 million and a current ratio of about 1.2.
- Total debt carrying value was approximately $32.2 million, including $11.5 million drawn on the revolving facility and a $21.2 million senior secured loan. Contractual debt principal was approximately $33.0 million before unamortized loan costs. Cash less contractual debt was approximately negative $25.2 million.
- The $65 million revolving credit facility matures August 9, 2018. Reported borrowing availability was $43.2 million, excluding availability attributable to SBA receivables. The company reported compliance with its debt covenants.
- Net cash increased by $3.0 million during the quarter to $7.8 million. Investing activities used $0.7 million, primarily for technology and equipment; financing activities provided $0.3 million.
- Series A preferred stock has a 9.75% cumulative dividend and a $20.98 million liquidation preference. The company paid $0.5 million in preferred dividends during the quarter.
Material changes versus the prior-year quarter
- Revenue fell primarily because of lower fuel prices, which generally pass through to customers, and the loss of a significant On Time Express customer; management also cited softness in brokerage markets. Net revenue declined less than gross revenue.
- Operating income improved as personnel costs fell 11.5%, SG&A fell 10.6%, and transition and lease termination costs declined from $3.2 million to $0.5 million. Lower interest expense also contributed to higher net income.
- U.S. operating income declined to $6.6 million from $8.0 million, while Canada moved to operating income of $0.9 million from an operating loss of $1.7 million. Corporate operating costs remained a significant offset.
- Operating cash flow was lower, with a $13.3 million use of cash from accounts receivable, partly offset by increased accounts payable and accrued transportation costs.
Outlook, management commentary and risks
- No specific revenue or earnings guidance was provided. Management expects to pursue organic growth and acquisitions, build operating-partner locations, and improve productivity through technology and back-office integration.
- The company expects to spend more than $3 million on technology during fiscal 2017, including a transportation management system.
- Management said existing working capital and expected operating cash flow should fund existing operations for the next 12 months, but acquisitions may require additional financing. Earn-outs may create substantial future cash needs; estimated undiscounted earn-outs totaled $7.9 million, including $3.8 million expected in the remaining portion of fiscal 2017.
- Contingent consideration increased $0.25 million in fair value during the quarter. The liability was $7.7 million at quarter-end; management estimates depend on future performance and unobservable assumptions, and certain earn-outs have no stated maximum.
- Risks include dependence on strategic operating partners and key customers, acquisition integration and financing, transportation-market conditions, partner deficits in bad-debt reserve accounts, and potential dilution or reduced credit availability. The company reported no goodwill or long-lived-asset impairment indicators.
- Two legal matters are described: a California wage-and-hour class action, whose status conference was continued to December 28, 2016, and a shipment-related Utah case with claimed damages exceeding $1 million, in which the company sought summary judgment. Management did not consider material damages likely based on its preliminary assessment; the filing does not provide a clear quantified litigation reserve.
- A related-party variable-interest entity is consolidated: the CEO’s affiliate owns 60% of Radiant Logistics Partners, LLC and receives the majority of its distributable profits. Its distributable share was $12,000 for the quarter.
- The company stated that disclosure controls and procedures were effective as of September 30, 2016, and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether lower fuel prices, the lost OTE customer and brokerage softness continue to weigh on revenue and net revenue.
- Cash conversion and receivables collection, given the quarter’s working-capital outflow and reported strategic-partner reserve deficits.
- Availability under the revolving facility, covenant headroom and funding needs for technology investment, acquisitions and earn-outs.
- Progress on transition work and technology integration, and whether operating-cost improvements are sustainable.
- Developments in the disclosed legal matters, earn-out valuations and the related-party arrangement.