Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months of fiscal 2020, ended December 31, 2019. Financial statements are unaudited. Unless otherwise indicated, amounts are in U.S. dollars and millions.
Business context
Radiant is a third-party logistics provider arranging freight transportation and related services, principally in the United States and Canada. It operates through more than 100 locations, including approximately 20 company-owned offices, and a carrier network of approximately 10,000 transportation providers. The company reports U.S. and Canadian operating segments.
Financial performance
| Metric | Three months ended Dec. 31, 2019 | Prior year | Six months ended Dec. 31, 2019 | Prior year |
|---|---|---|---|---|
| Revenue | $201.9 | $260.9 | $402.5 | $479.8 |
| Net revenue (revenue less transportation and other service costs) | $56.0 | $64.0 | $111.5 | $118.8 |
| Operating income | $4.2 | $8.9 | $9.0 | $13.7 |
| Net income | $2.7 | $6.3 | $6.0 | $9.6 |
| Net income attributable to common stockholders | $2.6 | $3.8 | $5.8 | $6.3 |
| Diluted EPS | $0.05 | $0.07 | $0.11 | $0.12 |
| Adjusted EBITDA (non-GAAP) | $9.4 | $12.5 | $19.1 | $21.3 |
Gross revenue fell 22.6% for the quarter and 16.1% for the six-month period; net revenue fell 12.5% and 6.2%, respectively. Gross revenue includes pass-through transportation costs, so net revenue is a key operating measure. Quarterly transportation net margin improved to 26.3% from 23.6%; six-month margin rose to 26.4% from 23.9%. Value-added services net revenue increased for the six-month period to $9.8 million from $7.9 million, with margin rising to 57.6% from 48.9%.
Cash flow and liquidity: Six-month operating cash flow was $6.3 million, down from $16.4 million; investing cash outflow was $2.7 million, including $2.8 million of property, technology and equipment purchases. Financing cash outflow was $0.7 million. Cash increased to $8.6 million from $5.4 million at June 30, 2019. Current assets were $134.8 million and current liabilities $104.7 million.
Debt and leases: Notes payable totaled $35.6 million, net of issuance costs, compared with $33.7 million at June 30. The $75 million senior credit facility had approximately $50.7 million available at quarter-end; the company reported compliance with its debt covenants. Operating lease liabilities were $14.7 million and finance lease liabilities $3.5 million. Adoption of the new lease standard on July 1, 2019 added right-of-use assets and lease liabilities to the balance sheet, with no impact on income or cash-flow statements.
Material changes and management commentary
- Management attributed lower transportation revenue primarily to market softness, less non-recurring disaster-relief work than in the prior-year period, and decisions to exit lower-margin business. Improved transportation margins reflected product mix and those exits.
- Quarterly value-added services revenue was slightly lower, which management linked to slower contract-logistics and customs-brokerage activity; the six-month comparison showed growth in these services.
- Operating cash flow declined mainly because of lower net income and changes in operating assets and liabilities. Personnel costs declined, while depreciation and amortization rose with investment in technology, including a transportation management system.
- The quarter included $0.3 million of transition, lease-termination and other costs, primarily non-recurring severance. The change in fair value of contingent consideration was a $0.05 million expense for the six months, versus a $0.57 million benefit in the prior-year period.
Outlook, risks and unusual items
- The filing gives no quantified revenue or earnings guidance. Management described continued focus on organic growth, acquisitions, operating-partner network expansion and productivity. It expected to spend more than $3.5 million on technology during fiscal 2020.
- Management said existing working capital and anticipated operating cash flow were adequate for current operations over the next 12 months, but acquisition growth may require additional financing. Acquisition capacity is subject to lender conditions; earn-out payments could also require cash, credit capacity or equity.
- Key stated uncertainties include market and transportation-cost conditions, seasonality, reliance on strategic operating partners, acquisition sourcing and integration, and compliance with debt covenants. Management cautioned that actual results may differ from forward-looking statements.
- A California wage-and-hour class action was dismissed with judgment for the company, but the plaintiff appealed; the company could not assess the likely outcome. The filing notes ordinary-course claims whose outcomes or potential losses may be difficult to estimate.
- After quarter-end, the board renewed the share-repurchase program through December 31, 2021. Also after quarter-end, on February 7, 2020, Radiant acquired two Adcom agency locations for $9.15 million cash plus contingent earn-outs; the earn-out fair value had not yet been determined.
- The CEO owns the entity holding a 60% interest in consolidated Radiant Logistics Partners, LLC; that entity receives a majority share of its profits and distributable cash. The filing describes the related-party structure and the independent director’s review of its terms.
Important facts for investors to verify
- Whether weaker freight-market conditions and lower disaster-relief volumes persist, and whether margin gains from exiting lower-margin business can be sustained.
- Operating cash generation and working-capital movements, particularly accounts receivable and contract assets, alongside continued technology spending.
- Debt-facility availability, covenant headroom and financing needs if Radiant pursues further acquisitions or pays earn-outs.
- Integration and performance of the February 2020 acquisitions, including the eventual contingent-consideration valuation.
- Developments in the appealed California litigation and the economics and governance of the CEO-related RLP arrangement.
- Comparability of prior-year common-stockholder earnings: the prior-year periods included preferred dividends and preferred-stock redemption costs, unlike 2019.