Radiant Logistics, Inc. — FY2014 Form 10-K
Business context and reporting period. Radiant is a non-asset-based freight forwarder and logistics provider using company-owned locations, operating partners and third-party carriers. This annual report covers the fiscal year ended June 30, 2014, compared with FY2013; it does not provide standalone fourth-quarter results.
Key financial metrics
| Metric | FY2014 | FY2013 |
|---|---|---|
| Transportation revenue | $349.1 million | $310.8 million |
| Net transportation revenue (revenue less transportation costs) | $99.2 million | $88.4 million |
| Net transportation margin | 28.4% | 28.5% |
| Income from operations | $10.5 million | $7.4 million |
| Net income attributable to Radiant | $5.1 million | $3.7 million |
| Net income attributable to common stockholders | $4.0 million | $3.7 million |
| Diluted earnings per common share | $0.11 | $0.10 |
| Operating cash flow | $6.9 million | $2.9 million |
Adjusted EBITDA, a non-GAAP measure, was $14.8 million, up 34.1%; adjusted EBITDA margin on net transportation revenue was 14.9%, versus 12.4%. The company’s definition excludes several items, including share-based compensation, contingent-consideration changes and certain acquisition and legal costs.
At June 30, 2014, cash was $2.9 million, current assets were $74.8 million and current liabilities were $58.7 million. Notes payable and other long-term debt totaled $7.2 million. The $30 million secured revolving facility had $22.47 million available at June 30; the company reported approximately $25.7 million available at August 31, 2014. Contingent consideration liabilities were $11.2 million. Total liabilities were $79.1 million.
Cash used in investing was $9.0 million, primarily for acquisitions; financing provided $3.9 million, including $19.3 million net proceeds from a preferred-stock offering and repayments of debt. The company issued 839,200 shares of 9.75% cumulative perpetual preferred stock, with a $20.98 million liquidation preference, and paid $1.1 million in preferred dividends accrued for FY2014.
Material changes versus FY2013
- Transportation revenue rose 12.3%, while net transportation revenue increased 12.2%. Domestic revenue grew to $211.9 million from $167.4 million, chiefly reflecting On Time, the Philadelphia location and higher revenue across existing locations. International revenue fell to $137.2 million from $143.4 million, amid slower Mexico cross-border shipping and less project work.
- Operating income increased 41.8%; net income attributable to Radiant rose 39.9%. Common-stockholder net income grew 10.1%, after $1.1 million of preferred dividends in FY2014.
- Personnel costs increased 25.2% and selling, general and administrative expenses rose 27.1%, partly due to acquisitions, added locations and higher legal and travel costs. Operating partner commissions declined as a share of net transportation revenue, partly reflecting the addition of company-owned locations.
- On Time was acquired in October 2013 for consideration valued at approximately $17.7 million at acquisition-date fair value, including $7.0 million of contingent consideration. Its dedicated line-haul network is intended to support capacity and margins. Radiant also acquired select customer relationships from PCA in March 2014.
- Operating cash flow improved, but accounts receivable increased by $12.2 million. The company repaid $10 million of Caltius senior subordinated notes and reported a $1.2 million non-cash write-off of related debt discount.
Outlook, risks and unusual items
Management plans to pursue organic growth and acquisitions, integrate acquired operations, expand truck brokerage and customs brokerage capabilities, and use On Time’s line-haul network to improve capacity management and margins. It stated that working capital and expected operating cash flow were adequate for existing operations over the next 12 months, but that acquisitions would require additional financing. No specific revenue or earnings guidance is provided in the supplied filing text.
- Approximately 66% of FY2014 consolidated revenue came through operating partners, down from 75%; partner departures or non-renewals could affect revenue and customer service. Third-party carrier capacity, pricing and service are also outside Radiant’s direct control.
- Acquisition execution and financing are material risks. Future earn-outs may require cash or equity; estimated undiscounted earn-outs totaled $11.7 million, including $9.5 million in cash and $2.2 million in equity. The On Time acquisition also carried customer-concentration and integration risks.
- Debt is secured by receivables and other assets, bears variable interest and is subject to covenants. A fixed-charge coverage ratio requirement applies if availability falls below $5 million or an event of default occurs. Preferred dividends are cumulative but subject to board declaration, legal limits and credit-facility restrictions.
- Other risks include seasonal and economic freight-volume fluctuations, intense competition, regulatory compliance, IT disruption, customer credit and claims exposure, and dependence on key personnel. International transportation revenue was 39% of total in FY2014, compared with 46% in FY2013.
- Contingent-consideration remeasurement reduced operating expenses by $2.0 million in FY2014. The company reported a $1.5 million jury verdict in its favor in a DBA-related dispute, but the judge set it aside and dismissed the case; Radiant appealed. A California wage-and-hour class action and a competitor’s lawsuit related to the PCA transaction were also pending. Management could not assess the class action’s final outcome and believed the competitor’s case lacked merit.
Important facts for investors to verify
- Whether organic growth and On Time integration translate into sustainable net transportation margin and operating cash flow, apart from acquisition effects and non-GAAP adjustments.
- Receivables quality and collection trends, including the reported $879,000 in operating-partner bad-debt reserve deficits and the increased accounts receivable balance.
- Current borrowing-base availability, covenant headroom, variable-rate exposure and the funding required for earn-outs and future acquisitions.
- On Time customer retention and concentration, earn-out performance, and the expected operational and margin benefits from its line-haul network.
- Preferred-stock dividend obligations and their priority over common-stockholder returns, as well as potential dilution from options, acquisition shares and earn-outs.
- Developments in the DBA appeal, the California class action and the Service By Air litigation; the filing does not provide a clear estimate of potential exposure for these matters.