Radiant Logistics, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended June 30, 2017, with comparative results for FY2016 and FY2015. The request metadata says “2016 Q4,” but this filing covers FY2017; its fourth-quarter figures are for the quarter ended June 30, 2017.
Business context and reporting period
Radiant is a non-asset-based third-party logistics provider offering freight forwarding, truckload and less-than-truckload brokerage, intermodal, and related logistics services, principally in the United States and Canada. It operates through more than 100 locations, including 20 company-owned offices, a network of strategic operating partners, and approximately 10,000 third-party carriers. Revenue is reported gross, while management emphasizes net revenue (revenue less purchased transportation costs) as a key performance measure.
FY2017 included the acquisitions of Lomas Logistics and Dedicated Logistics Technologies (DLT). Radiant also acquired Sandifer-Valley Transportation after year-end, on September 1, 2017.
Financial performance and liquidity
| Metric | FY2017 | FY2016 | Change / context |
|---|---|---|---|
| Revenue | $777.6 million | $782.6 million | Down 0.6% |
| Net revenue | $194.6 million | $186.7 million | Up 4.3% |
| Income (loss) from operations | $10.5 million | $(0.3) million | Returned to operating profit |
| Net income (loss) attributable to Radiant | $4.9 million | $(3.5) million | Improved by $8.4 million |
| Net income (loss) attributable to common stockholders | $2.8 million | $(5.6) million | After $2.0 million preferred dividends in each year |
| Basic and diluted EPS | $0.06 | $(0.11) | Per common share |
| Operating cash flow | $14.9 million | $21.4 million | Down $6.6 million |
| Investing cash flow | $(16.3) million | $(4.4) million | FY2017 included $11.5 million for acquisitions and $4.9 million for technology and equipment |
| Financing cash flow | $2.5 million | $(19.6) million | FY2017 included new borrowing and debt repayments |
Net transportation revenue was $186.4 million, versus $178.4 million, and net transportation margin rose to 24.2% from 23.0%. Forwarding revenue increased 2.7% to $562.0 million; brokerage revenue fell 8.8% to $207.3 million, which management attributed mainly to softness in brokerage markets. Net revenue was about 25.0% of gross revenue in FY2017; operating income was about 5.4% of net revenue.
Management’s non-GAAP normalized adjusted EBITDA was $31.1 million, up from $26.8 million; the measure includes specified adjustments and should not be equated with GAAP operating cash flow or net income. Net interest expense declined to $2.5 million from $4.9 million. Income tax expense was $3.7 million, compared with a $1.9 million tax benefit in FY2016.
At June 30, 2017, cash was $5.8 million, current assets $129.7 million, and current liabilities $110.0 million. Notes payable totaled $40.4 million, including $3.4 million current; total liabilities were $166.1 million. The $75 million revolving facility had $51.8 million of availability after advances and letter-of-credit reserves. The company reported compliance with its debt covenants. Total assets were $289.5 million and stockholders’ equity $123.5 million.
For the quarter ended June 30, 2017, revenue was $201.8 million, net revenue $49.8 million, and operating income $0.7 million. Net loss attributable to Radiant was $0.5 million; after preferred dividends, common stockholders’ loss was $1.0 million, or $(0.02) per share.
Material changes versus the prior comparable period
- Gross revenue edged lower, while net revenue increased, reflecting improved transportation margins and a shift in the composition of revenue.
- Forwarding net transportation margin increased from 27.7% to 28.5%; brokerage margin rose from 11.9% to 12.6%. Management cited lower purchased transportation costs for both.
- Brokerage revenue declined amid market softness, while forwarding revenue grew, primarily through certain strategic operating partners.
- FY2016’s $3.7 million acquired-intangible impairment did not recur. Transition and lease termination costs also declined, from $5.9 million to $2.3 million.
- Change in contingent consideration expense increased to $3.4 million from $1.0 million, mainly reflecting higher estimated future earn-outs.
- Cash from operations decreased, in part as receivables increased and used cash; investing outflows rose because of acquisitions and technology spending.
- Radiant acquired Lomas and DLT in FY2017. Acquisition consideration for the two transactions was reported at $17.3 million, including $11.5 million cash, $0.5 million stock, holdbacks, and contingent consideration.
Outlook, risks, contingencies, and unusual items
- Outlook: No specific revenue or earnings guidance is provided. Management expects to pursue organic growth and acquisitions, and stated that working capital and anticipated operating cash flow should fund existing operations for the next 12 months. It said further acquisitions will require additional financing or potentially stock consideration. The company planned to spend more than $3 million on technology in FY2018.
- Debt and acquisition constraints: Borrowings are secured by company and subsidiary assets; significant portions bear variable rates. Credit agreements impose financial tests, availability requirements, and restrictions on acquisitions and dividends. The filing reports $108.6 million of contractual obligations, including debt, contingent consideration, leases, and preferred dividends.
- Preferred stock: 839,200 Series A preferred shares carry a cumulative 9.75% annual dividend based on a $25 liquidation preference. Common dividends are not anticipated in the foreseeable future. Preferred dividends are subject to cash availability and debt restrictions.
- Integration and operating risks: The business depends substantially on strategic operating partners, third-party carrier capacity, successful acquisitions, and integration of disparate information systems. Management was migrating legacy systems toward a common SAP-based platform. Cybersecurity, execution, customer retention, and cost control are identified risks.
- Working-capital/credit exposure: Accounts receivable rose to $116.3 million from $101.0 million. A number of operating partners had bad-debt reserve deficits totaling approximately $3.2 million; Radiant could incur losses if they cannot replenish or repay them.
- Contingent consideration: Recorded contingent consideration was $9.9 million at year-end; the filing also describes known maximum undiscounted obligations of up to $13.1 million, with no maximum for certain earn-outs. Estimates depend on acquired-business performance and Level 3 assumptions.
- Legal matter: A California wage-and-hour putative class action remains unresolved; the company says it cannot assess the likely outcome and notes potential uninsured damages. A separate Utah shipment lawsuit was settled for approximately $0.1 million, covered by insurance, and dismissed with prejudice.
- Other risks: International operations represented 35% of net revenue; the company historically did not hedge currency exposure. Management estimated a 1% exchange-rate change would alter net income by approximately $20,000. Seasonality typically makes the first and fourth fiscal quarters weaker.
- Controls and audit: Management and the independent auditor concluded internal control over financial reporting was effective as of June 30, 2017; the auditor issued an unqualified opinion on the financial statements and controls.
Most important facts for investors to verify
- Whether revenue softness in brokerage persists and whether net revenue and transportation margins remain improved.
- Whether acquired businesses, including Lomas and DLT, are integrated successfully and deliver expected earnings, synergies, and cash generation.
- Operating cash flow conversion, receivables collection, and recoverability of the $3.2 million in partner reserve deficits.
- Debt covenant headroom, revolving-facility availability, variable-rate exposure, and the funding needs of future acquisitions and earn-outs.
- Actual cash requirements for preferred dividends, contingent consideration, leases, and planned technology investment.
- Progress and costs of the SAP migration, and any subsequent developments in the California class action or other contingencies.