Radiant Logistics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2017; the filing is for fiscal 2017’s third quarter, despite the request metadata identifying “2016 Q3.” Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and financial performance
Radiant is a third-party logistics provider, primarily in the U.S. and Canada, arranging multimodal freight transportation through company-owned offices, strategic operating partners and a network of approximately 10,000 carriers. Management views net transportation revenue—revenue less transportation costs—as a key measure of performance.
| Metric | Three months ended Mar. 31, 2017 | Three months ended Mar. 31, 2016 | Nine months ended Mar. 31, 2017 | Nine months ended Mar. 31, 2016 |
|---|---|---|---|---|
| Revenue | $181.8 | $178.3 | $575.8 | $600.1 |
| Net revenue | $45.7 | $41.8 | $144.8 | $140.1 |
| Operating income (loss) | $2.0 | $(0.5) | $9.8 | $(1.4) |
| Net income (loss) attributable to Radiant | $0.9 | $(1.7) | $5.4 | $(3.4) |
| Net income (loss) attributable to common stockholders | $0.4 | $(2.2) | $3.8 | $(4.9) |
| Diluted EPS | $0.01 | $(0.05) | $0.08 | $(0.10) |
| Net cash provided by operating activities | — | $15.5 | $19.2 |
- Quarterly revenue increased 1.9% and net revenue increased 9.4%; nine-month revenue fell 4.1%, while net revenue rose 3.4%.
- Net revenue as a share of revenue was approximately 25.1% for the quarter and 25.2% for the nine months, versus 23.4% and 23.3%, respectively, in the comparable periods.
- Quarterly forwarding revenue rose 6.9%, while brokerage revenue fell 8.6%. For the nine months, forwarding revenue declined 1.1% and brokerage revenue declined 10.9%. Management attributed brokerage weakness to market softness; improved transportation margins reflected lower purchased-transportation costs and, for forwarding, product mix.
- Management-reported normalized adjusted EBITDA, a non-GAAP measure, was $6.9 million for the quarter versus $5.2 million, and $23.9 million for nine months versus $20.9 million. Reconciliations and exclusions are provided in the filing.
Financial position, liquidity and debt
- At March 31, 2017, cash was $12.9 million, current assets $118.4 million and current liabilities $94.2 million; the current ratio was approximately 1.26. At June 30, 2016, cash was $4.8 million and the current ratio was approximately 1.17.
- Total notes payable were $32.7 million, including current debt, versus $31.3 million at June 30, 2016. The $65 million revolving credit facility matures August 9, 2018. The company reported $46.6 million available for borrowing after eligible collateral and letter-of-credit commitments and was in compliance with facility covenants.
- A separate senior secured Canadian term loan carried a 6.65% interest rate and matures in 2024. The company reported compliance with its covenants.
- Nine-month operating cash flow was $15.5 million; investing cash outflow was $3.6 million, primarily technology and equipment purchases; financing cash outflow was $3.7 million. Cash increased $8.2 million from the start of the fiscal year.
Material changes, outlook and risks
- Profitability improved from losses in the comparable 2016 periods, aided by higher net revenue, lower personnel and SG&A costs, and reduced interest expense after retirement of debt used to acquire Wheels. The nine-month comparison also benefited from no repeat of the prior-year $3.7 million intangible-asset impairment and lower transition and lease-termination costs.
- Contingent-consideration expense increased: $0.7 million for the quarter and $1.8 million for nine months. The recorded liability was $5.4 million at March 31; estimated undiscounted future earn-outs totaled $5.6 million. Management’s estimates of future earn-out payments rose, and amounts may change with acquired-business results and assumptions.
- No specific earnings or revenue guidance is provided. Management said current working capital and anticipated operating cash flow should fund existing operations for the next 12 months, but acquisitions will require additional financing. It expects to spend more than $3 million on technology in fiscal 2017.
- On April 1, 2017, the company acquired Lomas Logistics for approximately $7 million, financed through its existing credit facility. The filing says the acquisition was not material enough to present pro forma results.
- Risks include acquisition funding needs and earn-outs, dependence on strategic operating partners and key management, transportation-market conditions, and integration of acquired businesses. Some partners have deficit bad-debt reserve accounts; the company expects replenishment from future operations but could incur losses if partners cannot replenish them.
- The Barahona California wage-and-hour class action remained unresolved; mediation was ordered by August 31, 2017, and a class-certification motion deadline was set for November 30, 2017. Management could not assess the likely outcome. A separate Utah shipping case was settled for approximately $0.1 million, covered by insurance, and dismissed with prejudice.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the correct period: this filing covers the quarter ended March 31, 2017, not 2016 Q3.
- Track whether brokerage-market softness persists and whether stronger net revenue and transportation margins continue.
- Assess cash generation, debt balances, borrowing availability and the August 2018 revolving-facility maturity, including financing for acquisitions and earn-outs.
- Review contingent-consideration remeasurement, future earn-out payments and the results and funding impact of the Lomas acquisition.
- Monitor the Barahona litigation, partner receivable deficits, and the expected technology investment and integration costs.