Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2018, the first quarter of fiscal 2019. The statements are unaudited. Unless otherwise stated, amounts are in U.S. dollars.
Business context and reporting period
Radiant is a third-party logistics provider arranging multimodal freight transportation and providing related warehousing, distribution and customs services, primarily in the United States and Canada. It operates through more than 100 locations, including about 20 company-owned offices, and a carrier network of approximately 10,000 providers.
Financial results and liquidity
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Revenue | $218.9 million | $198.0 million |
| Net revenue (revenue less transportation and other service costs) | $54.9 million | $45.6 million |
| Operating income | $4.8 million | $2.2 million |
| Net income | $3.3 million | $0.9 million |
| Net income attributable to Radiant | $3.1 million | $0.8 million |
| Net income allocable to common stockholders; diluted EPS | $2.6 million; $0.05 | $0.3 million; $0.01 |
| Operating cash flow | $5.8 million | $(1.2) million |
| Adjusted EBITDA (non-GAAP) | $8.8 million | $6.5 million |
Revenue rose 10.6% year over year; net revenue increased 20.3%. Operating income was about 8.8% of net revenue, versus 4.9% in the prior-year quarter. Adjusted EBITDA was 16.1% of net revenue, compared with 14.2%. The company defines adjusted EBITDA using adjustments beyond standard EBITDA; it is not a GAAP measure.
Transportation revenue was $211.1 million, up 9.5%, and net transportation margin rose to 24.4% from 22.5%, which management attributed primarily to product mix. Value-added services revenue increased 45.3% to $7.7 million, primarily reflecting customer growth in Canada; its net revenue margin increased to 44.5% from 41.8%.
Cash and cash equivalents were $8.0 million at September 30. Current assets were $145.2 million and current liabilities $107.3 million. Total notes payable, net of issuance costs, were $45.4 million, including $19.6 million drawn on the senior credit facility. The $75 million facility had $53.4 million available, subject to borrowing-base limits and other terms. The company reported compliance with its debt covenants.
Investing activities used $0.9 million and financing activities used $3.5 million. The company repaid $2.0 million net under its credit facility and paid $0.5 million in preferred dividends. It reported $26.3 million of minimum future operating lease payments. It also financed approximately $3.1 million of refrigerated trailers under a capital lease arrangement.
Material changes and comparability
- Radiant adopted ASC 606 on July 1, 2018 using the modified retrospective method. Adoption reduced opening retained earnings by $0.3 million and changed the presentation and timing of certain transportation revenue and related costs.
- Prior-year results were not restated. For the 2018 quarter, the filing estimates that ASC 606 increased reported revenue by $3.2 million, operating income by $0.1 million and net income by $0.1 million versus ASC 605. Accordingly, reported year-over-year growth is not fully like-for-like.
- Radiant also adopted ASU 2016-16, recording a $1.7 million reduction to opening retained earnings for tax effects of an intra-entity transfer made in a prior year.
- Management cited increased business from certain operating partners, improved transportation mix and Canadian value-added services growth. Operating partner commissions increased 26.1%; SG&A increased 13.0%, reflecting facilities and technology costs and higher bad-debt expense.
- Operating cash flow improved from a use of $1.2 million to a source of $5.8 million. Cash from receivables and contract assets was partly offset by reductions in accounts payable and accrued expenses.
Outlook, risks and unusual items
- No specific revenue or earnings guidance is provided. Management expects to pursue organic growth and acquisitions, and says current working capital and expected operating cash flow should fund existing operations for the next 12 months. Acquisitions may require additional financing.
- The company expects to spend more than $5.0 million on technology in fiscal 2019, including a planned transportation management system implementation.
- Management identifies risks including operating-partner relationships, acquisition execution and integration, financing availability, transportation costs, economic and competitive conditions, seasonality, and compliance with debt covenants.
- Estimated undiscounted acquisition earn-out payments total $3.1 million through fiscal 2022. Contingent consideration fair value was $2.5 million; potential earn-out exposure could be significant and depends on acquired businesses’ future results.
- A California wage-and-hour class action remains unresolved. Radiant denies the allegations and cannot estimate the likely outcome; an adverse quarterly impact could be material relative to that quarter’s earnings.
- Radiant obtained a judgment of approximately $1.4 million against a former Canadian operating partner and is pursuing collection; the receivable is reported net of an approximately $0.7 million allowance.
- The 9.75% cumulative Series A preferred stock generated $0.5 million of quarterly dividends. A further $0.5 million preferred dividend was declared in October and paid October 31, 2018. The filing reports no common-stock repurchases under the authorized program through filing.
- Radiant consolidates Radiant Logistics Partners, LLC, which is 60% owned by an entity of the CEO; that entity’s distributable share of the quarter’s profits was $0.2 million. The filing says an independent-board-member committee reviewed the arrangement and considered it no less favorable to Radiant than third-party terms.
Important facts for investors to verify
- Assess year-over-year performance on a consistent basis, especially the effects of ASC 606 and the non-restated comparison period.
- Review the quality and sustainability of net revenue, margin improvement, adjusted EBITDA and operating cash flow, including working-capital movements and bad-debt exposure.
- Monitor borrowing-base availability, covenant headroom, debt maturities, capital-lease obligations and financing needs for acquisitions and earn-outs.
- Track collection of the former operating partner judgment and developments in the California class action.
- Review the timing and returns of planned technology spending, acquisition activity, contingent payments and the related-party economics of Radiant Logistics Partners.