Radiant Logistics, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended June 30, 2018, compared with fiscal 2017. Although the request metadata says “2017 Q4,” this filing reports FY2018 results, not a standalone quarter.
Business context
Radiant is a non-asset-based third-party logistics provider serving primarily U.S. and Canadian customers. It arranges freight forwarding, truckload, less-than-truckload, intermodal, customs brokerage, and warehousing services through more than 100 independent strategic operating partner locations and about 20 company-owned offices. Its carrier network includes approximately 10,000 transportation companies.
Financial performance
| Metric | FY2018 | FY2017 | Change |
|---|---|---|---|
| Transportation revenue | $842.4 million | $777.6 million | Up 8.3% |
| Net revenue (revenue less purchased transportation) | $202.4 million | $194.6 million | Up 4.0% |
| Income from operations | $13.2 million | $10.5 million | Up 25.7% |
| Net income attributable to Radiant | $10.2 million | $4.9 million | Up 109.5% |
| Net income allocable to common stockholders | $8.1 million | $2.8 million | Up 189.0% |
| Diluted earnings per share | $0.16 | $0.06 | Up |
| Adjusted EBITDA | $29.2 million | $29.6 million | Down 1.2% |
| Operating cash flow | $4.8 million | $14.9 million | Down 67.9% |
Net transportation margin fell to 22.7% from 24.2%. Forwarding net transportation margin declined to 26.5% from 28.5%, while brokerage margin declined to 11.8% from 12.6%. Operating income was 6.5% of net revenue, versus 5.4% in FY2017; net income attributable to Radiant was 5.0% of net revenue, versus 2.5%. Adjusted EBITDA margin declined to 14.4% from 15.2%.
Forwarding revenue rose 9.1% to $613.3 million, principally from partner activity, project revenue, and Lomas. Brokerage revenue rose 3.5% to $214.5 million, but capacity constraints drove cost increases and margin compression. Other value-added services increased to $14.6 million from $8.3 million, largely due to Lomas.
Cash flow, balance sheet, and debt
- Operating cash flow was $4.8 million, down from $14.9 million. Receivables increased by $21.8 million, a significant use of cash; management cited net income, noncash charges, and working-capital movements as the main cash flow factors.
- Investing cash outflow was $6.8 million, including $5.7 million for technology and equipment and $1.2 million for acquisitions. Financing cash inflow was $1.4 million. Cash at year-end was $7.0 million.
- Total assets were $305.4 million; total liabilities were $171.8 million; and equity was $133.6 million. Current assets of $153.3 million exceeded current liabilities of $116.2 million by $37.0 million.
- Notes payable totaled $46.9 million, including $21.5 million drawn under the $75 million revolving facility, $24.0 million of senior secured loans, and $2.3 million of other debt. Revolver availability was approximately $51.6 million. The company reported compliance with its debt covenants at June 30, 2018.
- The revolving facility bears variable interest. Canadian term loans carry a 6.65% fixed rate. Preferred stock dividends were $2.0 million; the 9.75% Series A preferred shares had a $21.0 million liquidation preference.
Material changes and unusual items
- Net income benefited from a $2.4 million provisional tax benefit associated with the Tax Cuts and Jobs Act; total income tax expense was only $0.1 million, compared with $3.7 million in FY2017. The company said its accounting for the tax law was not yet complete.
- Contingent consideration produced a $1.2 million gain in FY2018, compared with a $3.4 million loss in FY2017. These noncash amounts reflected revised estimates of acquisition earn-outs.
- Personnel costs rose 12.8% to $58.6 million and SG&A rose 18.7% to $28.4 million, primarily reflecting acquisitions and related facilities, technology, and communications costs. SG&A included $0.6 million of bad-debt expense tied to a former operating partner and $0.4 million in Canadian MM&D start-up costs.
- FY2018 included $0.2 million of transition and lease termination costs, down from $2.3 million in FY2017. Intangible amortization increased to $9.9 million from $8.5 million.
- Acquisitions of Lomas and Dedicated Logistics Technologies were completed in FY2017; Sandifer-Valley was acquired in September 2017. The company stated that it made no material acquisitions in the last two fiscal years.
Outlook, risks, and contingencies
Management expects to pursue organic growth and acquisitions, improve productivity, and integrate operating and financial systems onto a common SAP-based platform. It expects technology spending to exceed $5 million in FY2019, compared with approximately $3 million in FY2018. Management believes working capital and anticipated operating cash flow are adequate for existing operations over the next 12 months, but says current working capital is insufficient to fund both operations and continued acquisitions. No quantified revenue or earnings guidance is provided.
- Key risks include freight-volume cyclicality and seasonality, tight carrier capacity and rising transportation costs, partner retention, acquisition integration, technology migration and cybersecurity, foreign exchange exposure, and competition. Approximately 59% of FY2018 consolidated net revenue was derived through strategic operating partners; international transportation represented 36% of net revenue.
- The company had approximately $1.4 million due from a former British Columbia operating partner, including about $0.8 million from that partner noted in risk disclosures. A civil judgment was obtained; collection proceedings were ongoing, and the balance was recorded net of an approximately $0.6 million allowance.
- A California wage-and-hour class action remains unresolved. The company denies liability and could not estimate the likely outcome; any uninsured damages could be material to an individual quarter.
- Undiscounted operating lease commitments were $28.6 million. The company expected adoption of the new lease standard to affect its balance sheet. It also expected FY2019 adoption adjustments to reduce retained earnings by approximately $0.4 million for revenue recognition and approximately $1.7 million for intra-entity tax transfers.
- Auditors gave unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded controls were effective as of June 30, 2018.
Important facts for investors to verify
- Whether operating cash flow recovers as receivables grow, and the quality and collection timing of receivables, especially amounts owed by operating partners.
- Whether transportation margin pressure from capacity constraints and forwarding mix persists, and whether growth in net revenue translates into improved adjusted EBITDA.
- Progress, cost, and operational effects of the SAP migration and planned FY2019 technology investment.
- Debt covenant headroom, variable-rate exposure, acquisition funding capacity, and future earn-out payments.
- Final tax effects of the Tax Cuts and Jobs Act, adoption adjustments for new accounting standards, and developments in the California litigation and former-partner collection case.