Business context and reporting period
Radiant Logistics is a non-asset-based freight forwarding and logistics provider, using independent agents and company-owned operations. Its growth strategy combines organic expansion with acquisitions. The supplied filing is a Form 10-Q for the quarter ended March 31, 2013 (fiscal 2013 Q3), not 2012 Q3; it reports both the three- and nine-month periods ended March 31, 2013.
Financial highlights
| Metric | Three months ended March 31, 2013 | Three months ended March 31, 2012 | Nine months ended March 31, 2013 | Nine months ended March 31, 2012 |
|---|---|---|---|---|
| Revenue | $72.8 million | $70.7 million | $230.1 million | $215.2 million |
| Net transportation revenue | $21.6 million | $20.3 million | $65.4 million | $61.8 million |
| Net transportation margin | 29.7% | 28.7% | 28.4% | 28.7% |
| Income from operations | $2.54 million | $0.30 million | $3.39 million | $2.52 million |
| Net income attributable to Radiant | $0.88 million | $(0.07) million | $1.31 million | $1.00 million |
| Adjusted EBITDA, non-GAAP | $2.91 million | $1.61 million | $7.45 million | $5.19 million |
Quarterly revenue rose 2.9%, while net transportation revenue increased 6.3% and margin improved by 1.0 percentage point. Nine-month revenue rose 6.9% and net transportation revenue 5.8%, but margin slipped 0.3 point. Quarterly basic and diluted earnings per share were $0.03 and $0.02; nine-month basic and diluted EPS were both $0.04.
For the nine months, operating cash flow was $3.56 million, versus $2.67 million a year earlier. Investing activities used $2.47 million, including $0.60 million for acquisitions, $0.29 million for equipment, and $1.58 million of payments to former acquired-business shareholders. Financing activities provided $0.16 million. Cash at March 31 was $1.31 million.
At March 31, current assets were $51.51 million and current liabilities $42.69 million, implying working capital of approximately $8.82 million. Total assets were $79.43 million and total liabilities $65.95 million. Reported notes payable and other long-term debt, including current portion, were $17.45 million; this includes $10.0 million face value of Caltius notes, carried net of discounts and issuance costs. The Bank of America facility had $7.38 million drawn and $12.34 million available, after considering collateral and letters of credit.
Changes and notable items
- Quarterly domestic revenue decreased 7.6%, while international revenue increased 18.5%. For the nine months, domestic revenue decreased 1.1% and international revenue increased 17.9%. Management attributed growth in part to acquisitions, including ALBS, Marvir, and IFS; ISLA contributed for a longer period in the nine-month comparison.
- Operating income improved substantially in the quarter, supported by increased net transportation revenue, lower SG&A, and a $0.675 million gain from remeasuring contingent consideration. SG&A benefited from bad-debt recoveries, lower legal expenses, and Los Angeles facility consolidation.
- Nine-month results included $1.54 million of transition and lease termination costs, primarily related to relocating and consolidating Los Angeles operations. A $0.95 million contingent-consideration gain also benefited operating results. A DBA arbitration award produced a $0.368 million net litigation-settlement gain in the income statement.
- Acquisitions of Marvir and IFS were completed in November and December 2012. Their preliminary combined purchase-price allocation included $0.97 million of goodwill and $0.82 million of intangible assets; additional contingent payments may be due based on performance.
- On a pro forma basis treating the acquired businesses as owned from July 1, 2011, nine-month revenue decreased 5.1%, net transportation revenue decreased 5.0%, and adjusted EBITDA decreased 13.9% year over year. This differs from reported growth and provides useful context on underlying combined performance.
Outlook, risks and contingencies
No specific revenue or earnings guidance is provided. Management stated that cash and existing resources should be sufficient for working capital, capital purchases, commitments, and other liquidity needs over the next 12 months, and reiterated its intent to pursue organic growth and acquisitions. Management cautioned that results are subject to seasonality and depend on shipment demand, economic conditions, transportation costs, and product mix.
The $20.0 million credit facility matures November 30, 2014; the $10.0 million Caltius subordinated notes bear 13.5% accrued interest (11.75% payable currently) and mature December 1, 2016. The company reported compliance with debt covenants at March 31, 2013. Management warned that covenant violations could constrain liquidity and operations. Other stated risks include retaining independent agents, acquisition availability and financing, competition, dependence on management and larger agencies, and transportation-industry regulation.
A federal dispute involving former DBA shareholders and related parties remained pending: cross-motions for summary judgment had been filed, no ruling had issued, and trial was scheduled for June 18, 2013. The company seeks damages exceeding $500,000 in related counterclaims. Management stated that ordinary-course claims are not expected to have a material adverse effect. The company also disclosed approximately $0.9 million owed by two customers in collection proceedings; its portion had been expensed, and management did not expect the exposure to be material.
Key facts for investors to verify
- Confirm the period: this filing covers fiscal Q3 2013, ended March 31, 2013, rather than 2012 Q3.
- Assess reported growth against the pro forma declines in revenue and adjusted EBITDA, and distinguish acquisition effects from underlying trends.
- Review the sustainability of improved quarterly margins and operating profit, including the effects of contingent-consideration gains and bad-debt recoveries.
- Monitor cash conversion, receivables and payables, acquisition-related earn-outs, and the timing of debt maturities; the filing estimates $6.14 million of future earn-out payments, principally in fiscal 2015–2016.
- Track the DBA litigation and customer collections, as well as covenant compliance and available borrowing capacity.