Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2015, the first quarter of fiscal 2016. The filing compares results with the three months ended September 30, 2014. Financial statements are unaudited.
Business context
Radiant is a non-asset-based third-party logistics provider offering freight forwarding, brokerage, intermodal and other logistics services, primarily in the U.S. and Canada. The quarter included the effects of the acquisitions of Wheels, SBA, DCA and Highways; Wheels substantially expanded brokerage and Canadian operations.
Key financial results
| Metric | Q1 FY2016 | Prior comparable period |
|---|---|---|
| Revenue | $218.7 million | $98.2 million |
| Net revenue (revenue less transportation costs) | $50.7 million | $26.3 million |
| Income from operations | $1.65 million | $2.41 million |
| Net income | $354,000 | $1.54 million |
| Net income (loss) attributable to common stockholders | $(172,000) | $1.01 million |
| Operating cash flow | $4.64 million | $1.62 million |
| Cash and cash equivalents at period-end | $10.23 million | $3.09 million at September 30, 2014 |
Net transportation margin was 23.2% for the quarter. On a pro forma basis, including Wheels and SBA as if acquired at the start of both periods, net transportation revenue increased 9.9% to $50.7 million from $46.2 million, and the margin rose to 23.2% from 21.4%. Pro forma adjusted EBITDA was $8.18 million versus $5.55 million; normalized adjusted EBITDA was $8.82 million versus $5.55 million. These are non-GAAP measures.
Net cash used in investing was $1.61 million, mainly equipment purchases and payments to former acquired-business shareholders. Financing cash flow was $140,000, reflecting $38.43 million of net offering proceeds largely offset by $37.75 million of credit-facility repayments and preferred dividends.
Liquidity, debt and capital
- At September 30, current assets were $147.5 million and current liabilities were $110.7 million; working capital was approximately $36.9 million.
- Total notes payable and other long-term debt were $47.2 million: $21.7 million senior secured term debt, $25.0 million subordinated debt and $0.5 million other notes. The revolving credit facility had no balance reported at quarter-end.
- Borrowing availability under the $65 million revolving facility was approximately $49.7 million, net of letters of credit, excluding availability attributable to SBA receivables. The company reported compliance with debt covenants.
- On July 16, Radiant issued 6.13 million common shares at $6.75 per share, receiving $38.43 million net of underwriting and offering costs; proceeds reduced revolving-credit borrowings. Common shares outstanding increased to 48.73 million at September 30.
- Outstanding Series A preferred stock had a $20.98 million liquidation preference and a 9.75% cumulative dividend. The quarter’s preferred dividends were $511,000.
Material changes and unusual items
- Reported revenue more than doubled, primarily because acquired businesses were included; the prior-year quarter did not include the Wheels Canadian segment or its brokerage operations. Reported growth therefore is not directly comparable to organic growth.
- Net transportation margin was lower than the prior-year reported margin of 26.6%, principally because Wheels added lower-margin brokerage business.
- Operating expenses included $3.16 million of transition and lease-termination costs associated with consolidating the Wheels Toronto location, exiting SBA’s former JFK office and winding down SBA back-office operations. Depreciation and amortization increased to $3.10 million, including acquisition-related intangible amortization.
- Interest expense increased to $1.42 million from $91,000, reflecting debt used for the Wheels acquisition. These items, along with acquisition-related costs, contributed to lower reported net income despite higher revenue.
- The quarter included a $412,000 gain from a reduction in the fair value of contingent consideration. The statements report this gain; some MD&A wording in the filing is inconsistent about whether the amount changed.
- On November 2, 2015, Radiant acquired Copper Logistics’ operations and assets; purchase price and pro forma results were not disclosed because the transaction was deemed immaterial to the financial statements.
Outlook, risks and contingencies
Radiant provided no numerical revenue or earnings guidance. Management described plans for organic growth and further acquisitions, emphasizing customer relationships, expansion of operating-partner locations, truck brokerage and intermodal services, and integration and productivity improvements. Management stated that working capital and anticipated operating cash flow should support existing operations for the next 12 months, but that acquisitions will require additional financing.
- Acquisition integration, operating-partner retention, customer demand, transportation costs and economic conditions could affect results. Acquisition strategy also depends on available financing and may be constrained by credit-agreement requirements.
- Estimated contingent earn-out payments totaled $7.52 million, including cash and equity components. The company noted that some earn-outs have no contractual maximum; changes in assumptions or acquired-business results could alter fair value and future payments.
- Several legal matters remained unresolved, including appeals in the DBA-related dispute, a California wage-and-hour class action and a claim related to delayed delivery of armored vehicles. Management could not predict outcomes; the filing describes potential exposures and, for the shipping claim, insurance subject to policy terms.
- Management reported effective disclosure controls and procedures. It excluded Wheels and SBA from its internal-control-over-financial-reporting assessment; those businesses represented approximately 33% and 15% of quarterly consolidated revenue, respectively.
Important facts for investors to verify
- Separate acquisition-driven reported growth from comparable or organic performance; review the pro forma figures and their assumptions.
- Track whether acquisition integration and margin performance offset added amortization, interest, transition costs and other expenses.
- Confirm available borrowing capacity, covenant compliance and financing needs as earn-outs and future acquisition plans develop.
- Review the share-count impact of equity issuance and any earn-outs paid in stock, as well as cumulative preferred-dividend obligations.
- Monitor the outcomes and potential financial effects of the disclosed legal proceedings and the contingent-consideration estimates.