Business context and reporting period
Radiant Logistics, Inc. is a non-asset-based freight forwarder and logistics provider. This Form 10-Q covers the fiscal quarter and six months ended December 31, 2014; comparisons are with the corresponding 2013 periods. Results are unaudited.
Growth continued through acquisitions and network expansion. During the six months, Radiant acquired Trans-Net, Inc. (TNI) and Don Cameron & Associates, Inc. (DCA); it also added five operating partner locations and opened a company-owned Philadelphia location.
Financial performance and position
| Metric | Three months ended Dec. 31, 2014 | Prior year | Six months ended Dec. 31, 2014 | Prior year |
|---|---|---|---|---|
| Revenue | $105.9 million | $84.1 million | $204.2 million | $160.8 million |
| Net transportation revenue | $27.6 million | $24.3 million | $53.9 million | $47.5 million |
| Net transportation margin | 26.0% | 28.9% | 26.4% | 29.5% |
| Operating income | $1.5 million | $2.2 million | $3.9 million | $4.3 million |
| Net income | $0.9 million | $0.3 million | $2.4 million | $1.4 million |
| Net income attributable to common stockholders | $0.3 million | $0.2 million | $1.3 million | $1.3 million |
| Diluted earnings per share | $0.01 | $0.01 | $0.04 | $0.04 |
| Adjusted EBITDA (non-GAAP) | $3.8 million | $3.6 million | $7.4 million | $6.8 million |
Quarterly revenue increased 25.9%, while net transportation revenue rose 13.5%; for the six months, the increases were 26.9% and 13.4%, respectively. Management attributed growth to acquisitions, new locations, and higher revenues at existing locations. Lower-margin incremental business, higher personnel costs, and partner onboarding commission incentives pressured margins. Adjusted EBITDA margin on net transportation revenue declined to 13.6% from 15.0% for the quarter and to 13.8% from 14.2% for the six months.
For the six months, operating cash flow was $4.1 million versus $8.9 million in 2013; investing cash outflow was $4.7 million, including $3.5 million for acquisitions and $1.2 million for equipment; financing cash outflow was $0.6 million. Cash declined to $1.7 million from $2.9 million at June 30, 2014.
At December 31, current assets were $71.9 million and current liabilities $58.4 million (current ratio approximately 1.23). Total liabilities were $78.0 million. Notes payable totaled $8.9 million, including $8.3 million drawn on a $30 million Bank of America facility; reported borrowing availability was $21.4 million. Contingent consideration was $10.4 million. The company reported compliance with its credit facility covenants.
Changes, outlook, risks and unusual items
- Operating income fell despite higher revenue, reflecting margin compression and increased operating costs. Net income improved mainly because prior-year results included a $1.2 million debt-discount write-off and higher interest expense.
- Preferred dividends were $1.0 million for the six months, materially reducing income attributable to common stockholders. The preferred shares carry a 9.75% cumulative dividend rate.
- Radiant recorded $0.4 million of lease termination costs related to exiting and downsizing its New Jersey warehouse and headquarters; management anticipates approximately $0.5 million of annual cost savings.
- Management said existing working capital and expected operating cash flow should fund existing operations for the next 12 months, but strategic acquisitions will require additional financing. No quantified earnings or revenue guidance was provided.
- After quarter-end, Radiant agreed to acquire Canadian logistics provider Wheels Group for approximately CAD $95 million in cash and stock. The planned share issuance is 4.54 million to 6.90 million shares. Financing commitments included a replacement $65 million senior secured facility, a CAD $29 million term loan, and a $25 million subordinated term loan; final documentation and transaction completion were not assured. The company also arranged a CAD $40 million currency hedge.
- Risks include acquisition financing, integration, expected synergies, dilution, Canadian-dollar exposure, operating-partner relationships, and dependence on key personnel and acquisition growth. Litigation includes a California wage-and-hour class action and a competitor’s claim Radiant says is without merit. The company appealed a ruling overturning a $1.5 million jury verdict in a separate dispute; outcome is uncertain.
- Management reported no goodwill or long-lived asset impairment indicators at December 31, 2014 and stated that disclosure controls were effective. Contingent earn-outs are Level 3 estimates subject to changes in operating forecasts; maximum potential payments were described as up to $24.75 million for certain obligations, with no maximum on some payments.
Investor verification priorities
- Track whether transportation-margin pressure and rising personnel costs persist as acquired and new locations mature.
- Reconcile operating cash flow, cash balances, acquisition spending, and borrowing availability as the Wheels transaction proceeds.
- Verify final Wheels financing terms, closing conditions, purchase consideration, dilution, integration costs, and realized synergies.
- Assess preferred-dividend burden and the effect of contingent consideration and earn-out remeasurements on earnings and cash requirements.
- Monitor the status and potential financial impact of the disclosed legal proceedings and the New Jersey facility savings.