Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended March 31, 2015; comparative periods ended March 31, 2014. Although the request labels this “2014 Q3,” the filing covers the quarter ended March 31, 2015. Financial statements are unaudited.
Business context and reporting period
Radiant is a non-asset-based third-party logistics provider offering freight forwarding, truck and rail brokerage, and related supply-chain services through company offices and independent operating partners. Its reported results include acquisitions completed during the period, including Trans-Net and Don Cameron & Associates. Wheels Group was acquired on April 2, 2015, after quarter-end, and is not included in the period’s operating results.
Financial performance and position
| Metric | Three months ended March 31, 2015 | Three months ended March 31, 2014 | Nine months ended March 31, 2015 | Nine months ended March 31, 2014 |
|---|---|---|---|---|
| Revenue | $102.3 million | $86.0 million | $306.4 million | $246.9 million |
| Net revenue (revenue less transportation cost) | $27.1 million | $23.9 million | $81.0 million | $71.5 million |
| Net revenue margin | 26.5% | 27.8% | 26.4% | 28.9% |
| Operating income | $1.5 million | $2.8 million | $5.4 million | $7.2 million |
| Net income attributable to Radiant | $1.3 million | $1.6 million | $3.7 million | $3.0 million |
| Net income attributable to common stockholders | $0.8 million | $1.1 million | $2.2 million | $2.4 million |
| Diluted EPS | $0.02 | $0.03 | $0.06 | $0.07 |
- Quarterly trend: Revenue rose 18.9% and net revenue increased 13.3%, but net revenue margin fell 1.3 percentage points. Operating income declined 46.5%, and common-stockholder income declined 27.4%. Management cited higher personnel and SG&A costs, margin pressure at On Time and lower-margin incremental business, partly offset by growth from new locations and acquisitions.
- Nine-month trend: Revenue increased 24.1% and net revenue increased 13.4%, while net revenue margin decreased 2.5 percentage points. Operating income declined 24.2%. Net income attributable to Radiant increased 23.0%, principally reflecting lower interest expense and the absence of the prior-year debt-discount write-off; after preferred dividends, common-stockholder income decreased 10.8%.
- Adjusted EBITDA, a non-GAAP measure: $3.3 million for the quarter, down 4.6%, and $10.8 million for nine months, up 5.0%. As a percentage of net revenue, it declined to 12.3% from 14.6% quarterly and to 13.3% from 14.3% year to date. The filing’s adjustments include share-based compensation, acquisition and legal costs, changes in contingent consideration, and lease termination costs.
- Cash flow: Nine-month operating cash flow was $6.4 million, versus $8.5 million a year earlier. Investing used $5.5 million, including $3.5 million for acquisitions and $2.0 million for equipment. Financing used $1.6 million. Cash decreased $0.7 million from June 30, 2014, to $2.2 million at March 31, 2015.
- Liquidity and balance sheet at March 31: Current assets were $71.3 million and current liabilities $57.4 million (current ratio approximately 1.24). Total assets were $120.9 million and total liabilities $76.5 million. Notes payable totaled $9.3 million, including $8.75 million under the then-existing credit facility; the company reported $21.0 million available to borrow under that facility and compliance with its covenants at quarter-end.
- Preferred capital: The company had 839,200 Series A preferred shares outstanding, with a stated 9.75% cumulative dividend and $21.0 million liquidation preference. Nine-month preferred dividends paid were $1.53 million.
Material changes and significant subsequent event
- Growth reflected acquisitions, added operating-partner locations, a Philadelphia company-owned location, and higher revenue at existing locations. Cost of transportation grew faster than revenue, contributing to margin compression.
- Personnel costs increased 35.8% for the nine-month period, and SG&A increased 19.1%; acquired operations, new locations, corporate staffing, legal expense, and bad-debt expense were cited as factors.
- The company recorded $0.4 million of lease termination costs for exiting and downsizing its New Jersey warehouse; it estimated annual savings of approximately $0.5 million from the change.
- Wheels acquisition, after quarter-end: On April 2, 2015, Radiant acquired Wheels for approximately $81 million cash and 6.9 million common shares, with additional transaction costs. The filing describes the transaction as funded through a replacement $65 million revolving facility, a CAD$29 million senior secured term loan, and a $25 million subordinated secured loan. These post-period borrowings materially changed the company’s financing and leverage profile; the filing text does not provide a consolidated post-acquisition debt balance.
- The subordinated loan carries 12% interest for its first six months, then a variable rate generally tied to LIBOR plus 9.50%–10.25%; the Canadian term loan bears 6.65%. The new facilities impose financial covenants and collateral requirements. The Canadian term lender also requires commercially reasonable efforts to raise CAD$20 million of additional equity by April 2, 2016, subject to the stated qualifications.
Outlook, risks, contingencies, and unusual items
- Management gave no quantified earnings or revenue guidance. Before considering the post-quarter Wheels transaction, it stated that working capital and anticipated operating cash flow were adequate for existing operations over the next 12 months, but not sufficient to finance both operations and continued acquisitions.
- Management’s strategy remains organic growth and acquisitions. It identified acquisition integration, operating-partner relationships, competition, economic and political conditions, transportation costs, and dependence on key management and larger operating partners as risks. Wheels adds integration, synergy, customer and employee retention, Canadian-dollar exposure, and substantially higher indebtedness and covenant risks.
- Contingent consideration was recorded at $9.76 million at March 31, 2015. The company recognized a $1.15 million nine-month reduction in its fair value, principally reflecting lower estimated earn-outs for certain acquired businesses, partly offset by a higher estimate for PCA. Estimates depend on projected results and unobservable inputs; future changes could affect earnings.
- Disclosed litigation included an appeal related to a dismissed case following a $1.5 million jury verdict in Radiant’s favor, an early-stage California wage-and-hour class action, and a pending competitor lawsuit that Radiant considers without merit. The company could not predict the outcome of the class action; management said other claims it could assess were not expected to materially affect financial condition, results, or liquidity.
- Management reported effective disclosure controls as of March 31, 2015, with no material change in internal control over financial reporting during the quarter. It reported no goodwill or long-lived-asset impairment indicators at period-end.
Most important facts for investors to verify
- How much of revenue and net-revenue growth was organic versus acquisition-related, and whether net revenue margins stabilize after the reported compression.
- Whether increased personnel and SG&A costs, including acquisition-related expenses, are controlled and whether stated New Jersey facility savings are realized.
- The fully funded post-Wheels debt balance, cash interest burden, covenant headroom, and compliance under the new credit arrangements; quarter-end debt figures precede the acquisition financing.
- Wheels’ post-acquisition operating performance, customer and provider retention, integration costs, and realization of expected synergies; the filing provides no quantified synergy forecast.
- The sensitivity of contingent consideration and acquisition-related earnings adjustments to actual operating results, and the status and potential exposure of disclosed legal matters.