Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended March 31, 2020; compared with the periods ended March 31, 2019. Dollar figures below are in millions unless stated otherwise. The filing was signed May 11, 2020.
Business context
Radiant is a third-party logistics provider arranging domestic and international freight transportation, brokerage, forwarding, warehousing, distribution, and customs services, primarily in the United States and Canada. It operates through a network of more than 100 locations, including approximately 20 company-owned offices, and relies on third-party carriers and independent operating partners.
Key financial results
| Metric | Three months ended March 31, 2020 | Year-over-year change | Nine months ended March 31, 2020 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $177.2 | Down 14.0% | $579.7 | Down 15.5% |
| Net revenue (revenue less transportation and other service costs) | $47.8 | Down 9.4% | $159.3 | Down 7.2% |
| Operating income | $0.7 | Down from $4.8 | $9.7 | Down from $18.5 |
| Net income | $0.1 | Down from $3.2 | $6.1 | Down from $12.8 |
| Net income attributable to Radiant | $0.05 | Down from $2.9 | $5.9 | Down from $11.9 |
| Net income per diluted share attributable to common stockholders | $0.00 as presented | Down from $0.06 | $0.11 | Down from $0.18 |
Third-quarter net transportation revenue was $43.1 million, with a 25.4% margin versus 24.6% a year earlier. Nine-month net transportation revenue was $144.8 million, with a 26.1% margin versus 24.1%. Value-added services net revenue was $4.7 million for the quarter and $14.5 million for the nine months; respective margins rose to 64.9% from 49.2% and to 59.7% from 49.0%. These are service-line net margins, not consolidated operating margins.
- Cash flow: Operating activities used $1.3 million in the nine months, versus $33.5 million provided in the prior-year period. Investing used $13.8 million, including $9.2 million for acquisitions and $4.7 million for property, technology, and equipment. Financing provided $24.1 million, including $32.2 million of net revolving-credit borrowings. Cash increased $11.3 million to $16.7 million.
- Liquidity and debt: Current assets were $142.2 million and current liabilities $95.7 million at March 31, 2020. Notes payable totaled $62.2 million net of issuance costs, including $46.0 million drawn on the new $150 million revolving facility; finance lease liabilities totaled $3.4 million. The revolver matures in March 2025, includes a $50 million accordion, and was reported covenant-compliant at quarter-end. The company also has senior secured Canadian term loans bearing 6.65% interest.
- Balance sheet: Total assets were $304.4 million and total equity $132.5 million. Goodwill was $72.1 million; operating lease liabilities totaled $13.3 million.
Material changes and notable items
- Revenue fell amid market softness, lower non-recurring disaster-relief work, and the exit of certain lower-margin business. Management cited only a slight COVID-19 impact on the reported quarter, but warned the more substantial effects were expected in subsequent periods.
- Operating income and net income declined sharply. Higher SG&A and depreciation and amortization, including technology investment, weighed on results; management also cited reduced net revenue. Improved transportation and value-added service-line margins partly offset lower volumes.
- On February 7, 2020, Radiant acquired two Adcom agency locations, Friedway and CIC2, for $9.2 million cash, 45,086 shares valued at $0.25 million, and contingent consideration initially valued at $3.15 million. The acquisition added $6.7 million of goodwill; purchase-price allocations remained preliminary.
- On March 13, 2020, Radiant replaced its $75 million credit facility with a $150 million revolver. It entered into interest-rate swaps covering $20 million and, after quarter-end, an additional $10 million of notional principal.
- Radiant repurchased 541,049 shares for $2.5 million during the nine months, then suspended buybacks in response to COVID-19. It also paused acquisition activity and deferred discretionary spending.
- Goodwill was not impaired at March 31, 2020, but the U.S. reporting unit’s estimated fair value exceeded its carrying value by only 5%. Management said failure to achieve its fiscal 2021 plan or changes in revenue and operating-profit assumptions could result in a potentially material non-cash impairment.
Outlook, risks, and contingencies
The filing provides no numerical earnings or revenue guidance. Management expected pandemic-related contraction from stay-at-home measures, manufacturing closures, and the global slowdown to outweigh benefits from serving essential businesses, and warned future revenue, earnings, and operating cash flow could be significantly reduced if conditions persisted. The company implemented workforce reductions, including salary and hours cuts, furloughs and terminations; temporary executive and board compensation reductions; and discretionary expense controls.
Management cautioned that weaker results could reduce revolver availability as leverage and fixed-charge coverage ratios deteriorate. A downturn in customer demand, customer payment capacity, or operating-partner financial health could further affect liquidity. The company reported compliance with credit covenants at quarter-end, but future compliance and access to financing remain risks.
Subsequent to quarter-end, Radiant received a $5.9 million Paycheck Protection Program loan on May 4, 2020. Forgiveness is uncertain; the filing notes the loan may be reviewed and could require repayment, potentially with additional penalties, if eligibility or certification requirements are not met. The company also disclosed an ongoing IRS examination of its 2017 tax year; the potential impact could not be estimated. The previously disclosed California class action was dismissed and is closed; other ordinary-course claims remain possible.
Important facts for investors to verify
- How COVID-19 affected post-quarter revenue, margins, operating cash flow, receivables, and customer and operating-partner credit quality.
- Liquidity headroom and ongoing compliance with the revolver’s leverage and fixed-charge coverage covenants as EBITDA changes.
- The final purchase-price allocation and earn-out obligations for Friedway and CIC2, and whether their performance meets expectations.
- Whether the U.S. reporting unit’s narrow goodwill valuation cushion changes, particularly against fiscal 2021 revenue and operating-profit assumptions.
- The outcome of the PPP loan eligibility and forgiveness review, and the result of the IRS examination.