Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2014, the first quarter of fiscal 2015 (not calendar 2014 Q1). Comparative results are for the three months ended September 30, 2013. Amounts below are U.S. dollars.
Business context and financial performance
Radiant is a non-asset-based freight forwarding, truck brokerage and logistics services company. It grows through operating-partner relationships, company-owned locations and acquisitions. The company acquired Trans-Net, Inc. (TNI) on September 1, 2014; TNI provides project logistics services in Russian oil, gas, mining and infrastructure markets.
| Metric | Quarter ended Sep. 30, 2014 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $98.23 million | $76.70 million | +28.1% |
| Cost of transportation | $71.91 million | $53.48 million | +34.5% |
| Net transportation revenue | $26.32 million | $23.22 million | +13.4% |
| Net transportation margin | 26.8% | 30.3% | Down 3.5 percentage points |
| Operating income | $2.41 million | $2.19 million | +9.7%; 9.1% of net transportation revenue versus 9.5% |
| Net income | $1.54 million | $1.11 million | +39.0% |
| Net income attributable to common stockholders | $1.01 million | $1.09 million | Down 7.6%, reflecting $0.51 million of preferred dividends in 2014 |
| Basic and diluted EPS | $0.03 | $0.03 | Unchanged |
| Adjusted EBITDA | $3.66 million | $3.11 million | +17.7%; non-GAAP measure, as reported in the actual-period reconciliation |
Revenue growth reflected acquisitions, the Philadelphia company-owned location, higher domestic business and improved cross-border shipments to and from Mexico. Management attributed lower net transportation margins mainly to lower-margin revenue from On Time and PCA. Personnel costs increased 46.1%, and depreciation and amortization increased 54.1%, partly due to acquired and newly opened company-owned locations. Lower interest expense, following repayment of senior subordinated notes, and a reduction in estimated acquisition earn-outs supported pretax and net income growth. The $550,000 earn-out fair-value reduction was a benefit and was based on revised expectations that certain acquired businesses would miss targets.
Cash flow, liquidity and capital structure
- Operating cash flow was $1.62 million, compared with $1.66 million a year earlier. Investing used $1.04 million, including $750,000 for TNI and $294,000 for equipment. Financing used $367,000, including preferred dividends and contingent-consideration payments.
- Cash was $3.09 million at September 30, 2014, versus $2.88 million at June 30, 2014. The prior-year quarter ended with $8.79 million of cash; the filing attributes much of that earlier-period cash movement to financing activity.
- Current assets were $72.40 million and current liabilities $55.94 million at quarter-end. Accounts receivable, net, was $63.56 million.
- Borrowings under the $30 million Bank of America credit facility were $7.45 million, up from $7.24 million at June 30. The facility matures August 9, 2018; reported availability was $21.12 million after collateral and letter-of-credit considerations. The company reported compliance with its covenants.
- Contingent consideration was $12.37 million at fair value, including $1.56 million current. Estimated undiscounted future earn-outs totaled $13.09 million, payable in cash and potentially equity; actual amounts depend on acquired-business performance.
- The company had 839,200 Series A preferred shares outstanding, with a $20.98 million liquidation preference and a 9.75% cumulative dividend rate. It paid $511,409 of preferred dividends during the quarter.
Outlook, risks and unusual items
- Management stated that working capital and anticipated operating cash flow were adequate for existing operations over the next 12 months. It cautioned that acquisitions may require additional financing and that acquisition capacity depends on access to debt, cash or acceptable equity consideration. No specific financial guidance was provided.
- Management’s strategy remains a combination of organic growth and acquisitions, while leveraging back-office infrastructure and building density in selected trade lanes. Results are subject to seasonality and fluctuations in customer demand, transportation costs and economic conditions.
- Key disclosed risks include maintaining operating-partner relationships, finding and financing acquisitions, competition, dependence on management and larger operating partners, and domestic and international economic, political and regulatory factors. The company also reported operating-partner bad-debt reserve deficits that could expose it to losses if partners cannot replenish them.
- Contingent consideration is a Level 3 fair-value estimate based on projected results; changes in assumptions can materially affect recorded gains or expenses and future payments. Acquisition accounting for TNI remained preliminary, and the filing says the acquisition’s effect was not material but does not provide a clear total purchase price.
- Litigation includes a California wage-and-hour putative class action in its early stages, and a competitor’s suit alleging interference with an expired agreement, which Radiant said it believes is without merit. Radiant also appealed the dismissal of a case in which a jury had awarded it $1.5 million; the appeal was expected to be heard by summer 2015. Management could not predict the class action’s outcome.
- The filing states that management found disclosure controls effective as of September 30, 2014, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth converts into stronger net transportation revenue and margins, given the decline in margin to 26.8%.
- The contribution and integration costs of acquired businesses and new company-owned locations, including the preliminary TNI purchase accounting.
- Cash generation, credit-facility availability and financing needs if acquisition activity continues.
- The assumptions, potential payments and earnings impact associated with the $12.37 million contingent-consideration liability and future earn-outs.
- Preferred dividend obligations and their effect on earnings attributable to common shareholders; also monitor developments in the disclosed litigation.