Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2015; comparisons are to the corresponding 2014 periods. This is the quarter ended December 31, 2015, not a calendar-year second quarter. Radiant is a third-party logistics provider operating primarily in the U.S. and Canada. Results reflect several acquisitions, notably Wheels Group, acquired in April 2015.
Financial performance
| Metric | Three months ended Dec. 31, 2015 | Three months ended Dec. 31, 2014 | Six months ended Dec. 31, 2015 | Six months ended Dec. 31, 2014 |
|---|---|---|---|---|
| Revenue | $207.0 million | $105.9 million | $425.6 million | $204.2 million |
| Net revenue | $47.6 million | $27.6 million | $98.3 million | $53.9 million |
| Operating income (loss) | $(2.6) million | $1.5 million | $(0.9) million | $3.9 million |
| Net income (loss) | $(2.0) million | $0.9 million | $(1.6) million | $2.4 million |
| Net income (loss) attributable to common stockholders | $(2.5) million | $0.3 million | $(2.7) million | $1.3 million |
| Basic and diluted loss per share | $(0.05) | $0.01 income per share | $(0.06) | $0.04 income per share |
| Net cash from operating activities | Not presented quarterly | $15.7 million | $4.1 million |
- Revenue rose about 95% for the quarter and 108% for the six-month period, driven chiefly by acquired businesses. Net revenue increased about 72% and 82%, respectively.
- Reported net transportation margin declined to 22.0% from 25.9% for the quarter, and to 22.4% from 26.2% for six months. Management attributed the lower margins mainly to Wheels’ brokerage business, which has lower margins than forwarding.
- Adjusted EBITDA, a non-GAAP measure, was $6.2 million for the quarter versus $3.7 million, and $14.3 million for six months versus $7.3 million. Management’s “normalized adjusted EBITDA” was $6.9 million and $15.7 million, respectively, after further adjustments. These measures exclude specified expenses and should be considered alongside GAAP results.
- Cash and cash equivalents were $20.1 million at December 31, 2015, up from $7.3 million at June 30. Operating cash flow was $15.7 million; investing used $3.7 million and financing provided $1.1 million. Operating cash flow benefited from working-capital movements, including collections of receivables.
- Total debt was $49.4 million, down from $86.4 million at June 30; current and long-term notes payable totaled $49.4 million. The company reported $103.1 million of current liabilities and $140.4 million of current assets. A $38.4 million net common-stock offering was used to repay credit-facility borrowings.
Material changes and unusual items
- Wheels, SBA, DCA, Highways and other acquisitions substantially expanded revenue and operating costs. The prior-year reported comparison does not include the acquired businesses for equivalent periods, so it is not a like-for-like measure of organic growth.
- Radiant recorded a $3.7 million impairment of On Time Express customer-related intangible assets after a loss of customers. It also incurred $4.3 million of transition and lease-termination costs for the six-month period, including costs related to SBA and the Wheels Toronto operation.
- Depreciation and amortization increased to $6.2 million for six months from $2.4 million, while six-month interest expense increased to $2.7 million from $0.2 million, largely reflecting acquisition-related debt and acquired intangibles.
- The company completed a $38.4 million net public offering of 6.1 million common shares. Common shares outstanding increased to 48.7 million at December 31 from 42.6 million at June 30. Preferred dividends were $1.0 million for the six-month period.
- Contingent consideration was $6.8 million at December 31, measured using Level 3 estimates; future earn-out payments are contingent on acquired businesses’ performance. The filing estimates $7.4 million of undiscounted earn-outs through fiscal 2020, while noting that some obligations have no maximum.
Liquidity, outlook and risks
- The $65 million Bank of America revolving facility matures in August 2018 and is secured by company assets and receivables. The filing reports availability excluding SBA receivables as $46.9 million in the debt note and approximately $49.7 million in MD&A; the filing does not explain the difference. Radiant stated it was compliant with its debt covenants at December 31.
- Other significant borrowings include a senior secured Canadian loan bearing 6.65% and a $25 million subordinated loan that initially bore 12% interest and thereafter bears a high spread over LIBOR. The subordinated debt has prepayment restrictions and covenant requirements.
- Management said existing working capital and anticipated operating cash flow should fund existing operations for the next 12 months, but future acquisitions may require additional capital. Acquisition capacity is subject to lender conditions, available borrowing capacity and possible equity issuance or dilution.
- Management’s stated strategy is to pursue organic growth and acquisitions, integrate acquired operations, build operating-partner density and improve productivity. The filing provides no quantitative revenue or earnings guidance.
- Risks highlighted include retaining independent agents and larger operating partners, integrating acquisitions and realizing synergies, financing acquisitions and earn-outs, economic and competitive conditions, transportation costs, and dependence on management. Results may also be seasonal.
- Three described legal matters remain unresolved: the appeal in the Pollara dispute, a California wage-and-hour class action, and a claim concerning delayed shipment of armored vehicles. Management could not predict the outcomes; it stated it did not expect material damages in the class action based on its preliminary assessment and identified insurance and liability defenses in the shipment matter.
- A January 2016 board authorization allows repurchases of up to 5 million common shares through December 31, 2016, but does not require purchases; none had been made as of the filing. A preferred dividend declared in January was paid February 1, 2016.
- Management reported disclosure controls were effective. However, Wheels and SBA, representing approximately 33% and 15% of six-month revenue, respectively, were excluded from management’s evaluation of internal control over financial reporting following their acquisitions.
Investor verification priorities
- Assess whether acquired-business revenue growth can be sustained and whether lower brokerage margins, integration costs and corporate expenses improve.
- Review the assumptions behind the $3.7 million OTE intangible impairment and monitor customer retention and further impairment indicators.
- Reconcile the two reported credit-facility availability figures and evaluate debt service, interest costs, covenant headroom and the subordinated loan’s terms.
- Track actual cash conversion, working-capital needs, acquisition earn-outs and the potential impact of future equity issuance or share repurchases.
- Follow the status and potential exposure of the disclosed legal matters, and the integration and financial-control processes for acquired operations.