Business context and reporting period
Radiant Logistics, Inc. is a third-party logistics provider operating in the United States and Canada, arranging multimodal freight transportation and providing warehouse, distribution, and customs services. This Form 10-Q covers the quarter and nine months ended March 31, 2019 (the company’s fiscal third quarter), compared with the corresponding 2018 periods. The filing is dated May 9, 2019. Amounts below are in millions of U.S. dollars unless stated otherwise.
Financial performance and condition
| Metric | Three months ended March 31, 2019 | Three months ended March 31, 2018 | Nine months ended March 31, 2019 | Nine months ended March 31, 2018 |
|---|---|---|---|---|
| Revenue | $206.0 | $203.9 | $685.9 | $608.6 |
| Net revenue (revenue less transportation and other service costs) | $52.7 | $48.6 | $171.6 | $141.6 |
| Operating income | $4.8 | $1.5 | $18.5 | $6.5 |
| Net income | $3.2 | $0.7 | $12.8 | $5.5 |
| Net income attributable to common stockholders | $2.9 | $0.2 | $9.3 | $3.8 |
| Diluted earnings per share | $0.06 | $0.00 | $0.18 | $0.08 |
| Adjusted EBITDA (non-GAAP) | $8.4 | $5.7 | $29.7 | $19.3 |
- Margins: Net transportation margin was 24.6% in the quarter versus 23.1% a year earlier; value-added services margin was 49.2% versus 47.1%. Operating income was 2.3% of reported revenue in the quarter, versus 0.7%. Nine-month adjusted EBITDA was 17.3% of net revenue, versus 13.7%.
- Cash flow: Operating activities provided $33.5 million in the nine months, versus $3.4 million. Investing used $4.7 million; financing used $30.7 million. Cash decreased $1.5 million to $5.5 million.
- Balance sheet and liquidity: At March 31, 2019, cash was $5.5 million, current assets $126.8 million, current liabilities $102.6 million, and total assets $271.5 million. Notes payable were $40.2 million, down from $46.9 million at June 30, 2018; cash less notes payable implies net debt of about $34.7 million. The $75 million revolving credit facility had $44.6 million available to borrow, subject to borrowing-base limits. The company reported compliance with debt covenants.
- Other: The company reported $26.0 million of future minimum operating lease payments. Goodwill was $65.4 million; management reported no impairment indicators for goodwill or long-lived assets.
Material changes versus the prior comparable period
- Quarterly revenue increased 1.0%, while net revenue increased 8.5%; nine-month revenue and net revenue rose 12.7% and 21.2%, respectively. Management attributed growth principally to operating-partner transportation business and higher value-added services.
- Quarterly operating income more than tripled, while nine-month operating income rose from $6.5 million to $18.5 million. Improved net revenue and transportation mix contributed; lower estimated acquisition earn-outs also produced a $0.6 million quarterly gain, compared with a $0.04 million expense in the prior-year quarter.
- Common-stockholder earnings comparisons are affected by the preferred stock: the company redeemed all Series A preferred shares in December 2018 for $21.0 million, funded with cash and credit-facility borrowing. The nine-month result includes $1.0 million of preferred dividends and $1.7 million of redemption issuance costs; there were no preferred shares outstanding at March 31, 2019.
- Comparisons are affected by ASC 606 adoption on July 1, 2018. Prior-year results were not restated. For the 2019 quarter, ASC 606 reduced reported revenue by $3.2 million and operating income by $0.1 million relative to the former ASC 605 presentation; nine-month reductions were $6.9 million and $0.3 million. Accordingly, reported revenue growth is not fully comparable across periods.
Outlook, commentary, risks, and unusual items
- No quantified revenue, earnings, or cash-flow guidance is provided. Management describes continued organic growth, expansion of operating-partner locations, technology investment, and pursuit of complementary acquisitions as priorities. It expects fiscal 2019 technology spending to exceed $5 million.
- Management believes working capital and expected operating cash flow are adequate for existing operations over the next 12 months, but says acquisitions may require additional capital. Acquisition capacity depends on credit availability, covenant conditions, financing access, and potentially issuing stock; earn-out payments may also require cash or equity.
- Key stated uncertainties include economic, political, trade and competitive conditions; transportation costs; customer and operating-partner relationships; integration and acquisition execution; dependence on certain management and larger operating partners; and compliance with debt covenants. Results can be seasonal and fluctuate with customer demand and shipment timing.
- Contingent consideration was $0.4 million at March 31, down from $2.6 million at June 30, 2018, principally reflecting lower estimated earn-outs. Future payments depend on acquired businesses’ performance; estimates use unobservable inputs and can change materially.
- A California wage-and-hour class action motion to dismiss was granted in March 2019; the company expected an order and judgment in its favor, subject to a possible appeal. Separately, it is pursuing collection of an approximately $1.4 million judgment against a former Canadian operating partner; the receivable carries an approximately $0.7 million allowance. Management cautions that adverse litigation outcomes could affect financial position, results, or liquidity.
- The CEO owns the entity holding a 60% interest in consolidated Radiant Logistics Partners, LLC; its distributable share of profits was $0.9 million for the nine-month period. The filing describes the related-party arrangement and independent-board review.
- The company plans to adopt the new lease standard on July 1, 2019 and was evaluating its impact. It also was assessing other issued accounting standards whose effects were not yet determined.
Important facts for investors to verify
- Use the correct reporting period: this is fiscal Q3 2019, ended March 31, 2019, not calendar 2018 Q3.
- Assess growth and margins on a comparable basis, including the ASC 606 adjustments and the company’s net-revenue measure.
- Review the quality and sustainability of operating cash flow, given material contributions from changes in receivables, contract assets, payables, and accrued expenses.
- Confirm revolver availability, borrowing-base capacity, debt service, covenant headroom, and the cash impact of the preferred redemption and future earn-outs.
- Monitor collection of the former operating-partner receivable, the status of the class action and any appeal, and the related-party logistics entity’s economics and distributions.
- Evaluate management-defined adjusted EBITDA alongside GAAP results and its disclosed adjustments.