Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended December 31, 2018 (the second quarter of fiscal 2019). Financial statements are unaudited. Unless stated otherwise, amounts below are U.S. dollars in millions.
Business context
Radiant is a third-party logistics provider arranging multimodal freight transportation and providing warehouse, distribution, customs brokerage, and related services, primarily in the United States and Canada. It operates through a network of more than 100 locations, including about 20 company-owned offices, and a carrier network of approximately 10,000 transportation companies. Revenue is presented gross because Radiant reports as principal for its transportation services.
Key financial results
| Metric | Three months ended Dec. 31, 2018 | Year-over-year change | Six months ended Dec. 31, 2018 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $260.9 | +26.2% | $479.8 | +18.6% |
| Net revenue (revenue less transportation and other service costs) | $64.0 | +$16.6 | $118.8 | +$25.9 |
| Operating income | $8.9 | +$6.0 | $13.7 | +$8.6 |
| Net income | $6.3 | +$2.4 | $9.6 | +$4.8 |
| Net income allocable to common stockholders | $3.8 | +$0.4 | $6.3 | +$2.7 |
| Diluted EPS | $0.07 | $0.00 | $0.12 | +$0.05 |
| Adjusted EBITDA (non-GAAP) | $12.5 | +$5.4 | $21.3 | +$7.7 |
Revenue growth was driven mainly by higher operating-partner activity. Net transportation revenue margins rose to 23.6% from 22.1% for the quarter and to 23.9% from 22.3% for the six-month period, which management attributed primarily to product mix. Value-added services also grew; its net revenue margin increased to 52.9% from 48.9% for the quarter and to 48.9% from 45.7% for the six months. Reported common-stockholder income includes $1.7 million of preferred-stock redemption costs in the current periods.
Cash flow, liquidity and debt
- For the six months, operating cash flow was $16.4 million, versus $0.1 million in the prior-year period. Investing cash outflow was $2.3 million, and financing cash outflow was $10.1 million.
- Cash and cash equivalents were $11.9 million at December 31, 2018, up from $7.0 million at June 30, 2018. Current assets were $154.8 million and current liabilities $115.1 million.
- Total notes payable were $59.7 million, compared with $46.9 million at June 30, 2018; cash less notes payable was approximately $47.8 million. The $75 million senior credit facility had $35.9 million available at period-end. Radiant reported compliance with its debt covenants.
- Operating lease commitments totaled $27.6 million. Radiant was evaluating the impact of adopting the new lease standard, effective July 1, 2019.
Material changes and unusual items
- Radiant redeemed all 839,200 Series A preferred shares on December 21, 2018 for $21.0 million, funded with cash and senior-facility borrowings. The shares carried a 9.75% dividend rate. The redemption ends those preferred dividends but increases debt service; $1.7 million of redemption-related costs reduced income allocable to common stockholders.
- ASC 606 revenue recognition was adopted July 1, 2018 using the modified retrospective method. Prior-year comparative results were not restated, so reported growth is not fully comparable. For the six months, the company stated that ASC 606 increased reported revenue by $3.7 million and operating income by $0.2 million relative to the former method. Adoption also created $24.3 million of contract assets at December 31, 2018 and reduced opening retained earnings by $0.3 million.
- Contingent-consideration remeasurement produced a $0.6 million gain for the six months, principally reflecting lower estimated future earn-outs. The contingent-consideration liability was $1.2 million at December 31, 2018.
- The company recorded a $2.9 million income tax expense for the six months, compared with a $1.2 million tax benefit a year earlier. The prior-year benefit primarily reflected remeasurement of deferred tax liabilities following U.S. tax-law changes.
Outlook, management commentary and risks
No specific revenue or earnings guidance was provided. Management said working capital and anticipated operating cash flow should support existing operations for the next 12 months, while noting that acquisitions would require additional financing. The company expects to spend more than $5 million on technology during fiscal 2019, including implementation of a transportation management system. Its stated strategy remains organic growth and acquisitions, with continued investment in operating-partner locations, technology, and productivity.
Risks highlighted in the filing include dependence on strategic operating partners and management, acquisition integration and financing, transportation-cost and economic conditions, and debt-covenant and borrowing-base restrictions. Certain operating partners had deficit bad-debt reserve accounts; collection shortfalls could expose Radiant to losses. The company also disclosed a California wage-and-hour class action for which outcome and potential loss were not estimable, and approximately $1.4 million due from a former Canadian operating partner, net of an approximately $0.7 million allowance. A Canadian tax examination was ongoing; potential exposure was unknown. Radiant reported disclosure controls were effective as of December 31, 2018.
Important facts for investors to verify
- How much of reported revenue, net-revenue, and margin growth reflects underlying volume and mix versus ASC 606 timing and presentation changes.
- Whether operating cash flow and working-capital needs remain favorable as contract assets, receivables, and accrued expenses change.
- Debt levels, borrowing-base availability, covenant headroom, interest costs, and the net effect of preferred-share redemption on cash distributions and debt service.
- Actual technology spending and progress on the planned transportation management system, as well as acquisition funding capacity and potential earn-out obligations.
- Developments in the disclosed litigation, tax examination, and operating-partner receivable and reserve exposures.