Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2016. Unaudited results; dollar amounts below are in millions unless otherwise noted. Radiant is a third-party logistics provider operating primarily in the U.S. and Canada.
Key financial results
| Metric | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2016 |
|---|---|---|
| Revenue | $198.9; down 3.6% year over year | $394.0; down 6.6% |
| Net revenue | $50.1; up 5.3% | $99.1; up 0.8% |
| Operating income (loss) | $4.4, versus a $2.6 loss | $7.8, versus a $0.9 loss |
| Net income (loss) attributable to Radiant | $2.6, versus a $2.0 loss | $4.5, versus a $1.7 loss |
| Net income (loss) attributable to common stockholders | $2.1, or $0.04 per share | $3.4, or $0.07 per share |
| Operating cash flow | Not presented for the quarter | $12.7, versus $15.7 |
Net transportation margin improved to 24.5% from 22.3% for the quarter and to 24.4% from 22.6% for the six-month period. Management attributed improved margins mainly to product mix and lower purchased-transportation costs. Brokerage softness and lower forwarding prices weighed on gross revenue.
Liquidity, debt and capital
- At December 31, 2016, cash was $8.3, current assets $124.7 and current liabilities $105.9; the current ratio was approximately 1.18x.
- Total notes payable were $28.5, down from $31.3 at June 30, 2016. The $65.0 revolving credit facility had $55.9 available, after advances and letter-of-credit commitments. The company reported compliance with facility and term-loan covenants.
- Six-month investing cash outflow was $2.2, primarily technology and equipment purchases. Financing cash outflow was $7.0, including $3.4 of contingent-consideration payments, $1.2 of note repayments and $1.0 of preferred dividends. Cash increased $3.5 to $8.3.
- Radiant expected to spend more than $3.0 on technology in fiscal 2017, including a transportation management system. Management said working capital and expected operating cash flow were adequate for existing operations over the next 12 months, but acquisitions would require additional financing.
Changes, outlook and risks
- Revenue declined, but net revenue rose as transportation costs fell. Forwarding revenue was down 1.0% in the quarter and 4.4% year to date; brokerage revenue fell 10.2% and 12.1%, respectively. Management cited excess transportation capacity affecting forwarding pricing and softness in brokerage markets.
- Profitability improved versus the prior year, which included a $3.7 impairment charge for acquired intangibles. Lower personnel, SG&A, transition costs and interest expense also helped; the current period included a $1.1 six-month increase in contingent-consideration expense.
- No numerical revenue or earnings guidance was provided. Management’s stated strategy was to pursue organic growth and acquisitions, improve operating efficiency and use technology to integrate its network. Forward-looking statements depend on partner relationships, acquisition integration and financing, economic and competitive conditions, and transportation costs.
- Acquisition earn-outs remain a cash and potential dilution risk. Estimated undiscounted future earn-outs totaled $4.8; contingent consideration’s fair value was $4.7, based on Level 3 assumptions. Future results may also be affected by acquired-intangible amortization and changes in earn-out estimates.
- Other risks include deficit bad-debt reserve balances owed by certain operating partners, which could be lost if partners cannot replenish them; a California wage-and-hour class action with outcome undetermined; and customary claims. A separate shipment-related lawsuit was settled for approximately $0.1, covered by insurance, and dismissed with prejudice.
- The company consolidates Radiant Logistics Partners, LLC, a variable-interest entity that is 60% owned by an affiliate of the CEO; the affiliate’s share of profits is reported as non-controlling interest. The filing reports disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether improving net transportation margins can persist despite lower revenue and continued softness in brokerage markets.
- Cash conversion and working-capital movements, particularly the six-month decline in operating cash flow and increase in receivables.
- Available borrowing capacity, covenant headroom and funding needs for planned technology investment, debt service and earn-outs.
- Actual earn-out payments and sensitivity of contingent-consideration estimates to acquired-business performance.
- Progress and costs of technology implementation, operating integrations and the unresolved California class action.