Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended March 31, 2018, Radiant’s fiscal third quarter and year-to-date period. The request metadata says “2017 Q3,” but the filing itself reports fiscal 2018 Q3. Amounts below are in millions of dollars unless stated otherwise.
Business context
Radiant is a third-party logistics provider operating primarily in the United States and Canada. It arranges freight forwarding and brokerage through a network of more than 100 locations and approximately 10,000 transportation providers. Its strategy combines organic expansion with acquisitions; the company said it was also investing in technology and seeking productivity gains.
Financial results and liquidity
| Metric | Q3 FY2018 | Q3 FY2017 | Nine months FY2018 | Nine months FY2017 |
|---|---|---|---|---|
| Revenue | $203.9 | $181.8 | $608.6 | $575.8 |
| Net revenue | $49.1 | $45.7 | $143.2 | $144.8 |
| Operating income | $1.5 | $2.0 | $6.5 | $9.8 |
| Net income | $0.7 | $0.9 | $5.5 | $5.4 |
| Net income attributable to common stockholders | $0.2 | $0.4 | $3.8 | $3.8 |
| Operating cash flow | Not separately reported | Not separately reported | $3.4 | $15.5 |
| Adjusted EBITDA (non-GAAP) | $5.7 | $6.5 | $19.3 | $22.7 |
- Q3 revenue rose 12.2%, but net revenue increased 7.5% and operating income declined 27.8%. Q3 adjusted EBITDA fell approximately 12%.
- For the nine-month period, revenue increased 5.7%, while net revenue fell 1.2% and operating income fell 33.7%. Adjusted EBITDA declined approximately 14.8%. Nine-month diluted and basic EPS were both $0.08 in each comparable period; Q3 2018 EPS was reported as a dash, versus $0.01 in Q3 2017.
- Net transportation margin was 22.8% in Q3 versus 24.5% a year earlier, and 22.2% year to date versus 24.4%. Management cited forwarding mix and competition, as well as brokerage capacity constraints and higher carrier costs.
- For the nine months, cash from operations was $3.4 million, investing cash outflow was $5.7 million, and financing cash inflow was $1.8 million. Cash declined $1.6 million to $4.2 million; the prior-year period generated $15.5 million from operations and ended with $12.9 million cash.
- At March 31, current assets were $133.9 million and current liabilities were $104.2 million. Notes payable totaled $44.9 million, compared with $40.4 million at June 30, 2017. The $75 million revolving facility had $20.6 million drawn and $48.6 million available, including the effect of letters of credit and borrowing-base limits. The company reported compliance with debt covenants.
Material changes and notable items
- Acquisitions, including Lomas and DLT, contributed to higher revenue and other value-added services, while also increasing personnel, facilities, technology, and amortization expenses. The September 2017 Sandifer-Valley acquisition was reported as immaterial to the financial statements.
- Nine-month net income included a provisional $2.3 million deferred tax benefit from remeasurement of deferred tax liabilities following U.S. tax law changes. The filing says tax accounting was not complete and the final effect could differ.
- Contingent consideration liability declined to $3.7 million from $9.9 million at June 30, 2017, including acquisition accounting adjustments and payments. Estimated undiscounted future earn-outs totaled $4.7 million, payable in cash, equity, or a combination, subject to acquisition terms and performance.
- Technology and equipment purchases were $4.6 million year to date. Management expected fiscal 2018 technology spending to exceed $6 million. An April 2018 agreement provided for financing up to 100 refrigerated trailers with acquisition cost capped at $5 million, subject to further documentation.
- The company authorized repurchases of up to 5 million common shares through December 2019; none had been made as of the filing. It paid $1.5 million of preferred dividends during the nine months and declared a further $0.5 million dividend payable April 30, 2018.
Outlook, risks and contingencies
- No quantified revenue, earnings, or margin guidance was provided. Management said working capital and anticipated operating cash flow were adequate for existing operations for the next 12 months, but acquisition growth would require additional financing.
- Management identified acquisition integration and financing, operating-partner relationships, transportation costs and capacity, competition, and dependence on key management and larger operating partners as relevant uncertainties. The company cautioned that interim results and seasonal patterns may not predict full-year performance.
- Radiant is pursuing approximately $1.4 million of deficit bad-debt reserves from a British Columbia operating partner through arbitration. The company said the outcome was uncertain; an inability to collect could cause a bad-debt charge potentially material to a quarter.
- A California wage-and-hour class action remained pending; mediation had occurred, a class-certification motion deadline was set for May 25, 2018, and management could not assess the likely outcome. The company said it did not then expect material damages based on its preliminary assessment, but could not express an opinion on the outcome.
- Operating lease commitments totaled $32.7 million. The company was evaluating the balance-sheet impact of the new lease accounting standard. It planned to adopt the new revenue standard on July 1, 2018 using the modified retrospective method and did not expect gross presentation of transportation revenue and costs to change.
Important facts for investors to verify
- Whether recent revenue growth converts into stronger net revenue, operating income, and cash generation given the reported margin compression.
- The collectability and timing of recovery of the $1.4 million operating-partner receivable, and any resulting allowance or expense.
- The final tax impact of the tax-law changes and how much reported year-to-date earnings depended on the provisional tax benefit.
- Acquisition integration performance, future earn-out obligations, and the effect of debt and cash needs on further acquisitions.
- Use of the revolving facility, covenant headroom, planned trailer financing, and the eventual effect of lease-standard adoption on reported liabilities.
- Developments in the California class action and whether the authorized share-repurchase program is used.