Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2017; comparative periods ended December 31, 2016. Amounts below are in millions of dollars unless noted.
Business context
Radiant is a third-party logistics provider operating primarily in the United States and Canada, arranging freight forwarding, brokerage and related logistics services through a network of more than 100 operating locations and approximately 10,000 transportation providers. The company says it intends to grow organically and through acquisitions, while investing in technology and improving operational efficiency.
Financial performance
| Metric | Three months ended Dec. 31, 2017 | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2017 | Six months ended Dec. 31, 2016 |
|---|---|---|---|---|
| Revenue | $206.7 | $198.9 | $404.7 | $394.0 |
| Net revenue | $47.9 | $50.1 | $94.0 | $99.1 |
| Income from operations | $2.8 | $4.4 | $5.1 | $7.8 |
| Net income | $3.9 | $2.6 | $4.8 | $4.5 |
| Net income attributable to common stockholders | $3.3 | $2.1 | $3.6 | $3.4 |
| Basic and diluted EPS | $0.07 | $0.04 | $0.07 | $0.07 |
| Operating cash flow | Not presented separately | $0.1 | $12.7 |
- Revenue rose 3.9% in the quarter and 2.7% for the six-month period, but net revenue—management’s key measure after purchased transportation costs—fell 4.5% and 5.2%, respectively. Net revenue as a share of revenue was about 23.2% in both 2017 periods, versus 25.2% in 2016.
- Quarterly operating income declined about 36%; six-month operating income declined about 35%. Management cited lower forwarding and brokerage margins, higher personnel and SG&A costs, and acquisition-related expenses. Quarterly net transportation margin was 21.8%, compared with 24.5% a year earlier.
- Quarterly net income improved despite weaker operating income, principally because the company recorded an income tax benefit of $1.8 million, versus tax expense of $1.5 million in the prior-year quarter. The six-month tax benefit was $1.2 million, including a provisional $2.3 million deferred-tax benefit from remeasuring deferred tax liabilities following U.S. tax reform.
- Adjusted EBITDA, a non-GAAP measure defined by the company, was $7.1 million for the quarter versus $8.9 million; six-month adjusted EBITDA was $13.6 million versus $16.2 million. Normalized adjusted EBITDA was $7.1 million and $13.6 million, respectively, compared with $9.2 million and $17.0 million in the prior periods.
Financial position, liquidity and debt
- At December 31, 2017, cash was $4.5 million, current assets $135.6 million and current liabilities $106.1 million, giving working capital of approximately $29.5 million. Accounts receivable was $122.9 million, net.
- Total notes payable were $47.7 million, up from $40.4 million at June 30, 2017. This includes $21.9 million drawn on the $75 million senior credit facility and $26.7 million of senior secured loans. The secured loans bear interest at 6.65%; credit-facility borrowing rates vary with the applicable index and margin.
- Availability under the senior credit facility was approximately $50.3 million after advances and letter-of-credit reserves. The company reported compliance with its debt covenants at period end.
- Six-month operating cash flow was only $0.1 million, down from $12.7 million. Investing used $4.2 million, including $3.1 million for technology and equipment and $1.2 million for acquisitions. Financing provided $4.7 million, including net credit-facility borrowing. Cash declined $1.3 million to $4.5 million; foreign-exchange effects reduced cash by $1.9 million.
- Contingent consideration was $5.0 million at fair value. Estimated undiscounted earn-outs totaled $6.1 million, payable in cash and/or equity over future periods. The company also disclosed $34.5 million of minimum future operating lease payments.
Material changes and management commentary
- Forwarding revenue increased, but forwarding net transportation revenue fell 8.2% in the quarter and 8.0% for the six months. Management attributed margin pressure to competition and a mix shift toward lower-margin air charters and project work.
- Quarterly brokerage revenue increased 2.2%, while brokerage net transportation revenue decreased 8.7%; six-month brokerage revenue and net transportation revenue declined 2.4% and 12.1%, respectively. Management cited market softness and competitive margin pressure.
- Other value-added services increased, primarily reflecting the April 2017 Lomas acquisition. Personnel and SG&A costs also rose, principally due to acquisitions of Lomas and Dedicated Logistics Technologies (DLT). Radiant acquired Sandifer-Valley Transportation & Logistics in September 2017; the filing says its effect was not material.
- Management expects fiscal 2018 technology spending to exceed $5 million, including continued systems development. It stated that working capital and expected operating cash flow should support existing operations for the next 12 months, but that acquisitions will require additional financing. No quantified earnings or revenue guidance was provided.
Risks, contingencies and unusual items
- The company is defending a California wage-and-hour putative class action. A class-certification motion was due March 9, 2018, with a status conference and mediation scheduled for April 17 and April 26, 2018. Radiant said it could not assess the likely outcome.
- Radiant disclosed that some strategic operating partners have deficit balances in bad-debt reserve accounts; the company could face losses if partners cease operations or cannot replenish those balances.
- The CEO is affiliated with Radiant Capital Partners, which owns 60% of consolidated variable-interest entity Radiant Logistics Partners, LLC and receives a majority share of its profits and distributable cash. The filing describes the arrangement as reviewed by an independent board member.
- The Tax Cuts and Jobs Act’s accounting impact was still being finalized at quarter end. Management’s estimates, including the transition tax, could change as interpretations and guidance develop.
- Radiant reported no goodwill or long-lived-asset impairment indicators and stated that disclosure controls were effective. The filing also notes that revenue-recognition guidance could affect gross-versus-net presentation; adoption was expected beginning July 1, 2018.
Investor verification priorities
- Assess whether weaker net revenue and transportation margins persist, particularly in forwarding and brokerage.
- Examine the causes of sharply lower operating cash flow, working-capital movements and the company’s ability to convert earnings to cash.
- Track debt, credit-facility availability, acquisition funding needs and future earn-out obligations.
- Separate recurring operating performance from the tax benefit, acquisition effects and non-GAAP EBITDA adjustments.
- Follow the California class action, partner receivable exposure, related-party VIE economics and final tax-reform accounting.