Radiant Logistics, Inc. — Form 10-Q Summary
Business context and reporting period. This filing reports Radiant’s unaudited first fiscal quarter, the three months ended September 30, 2013, compared with the three months ended September 30, 2012. Radiant is a non-asset-based freight forwarding and logistics provider using company-owned and independent-agent offices and third-party carriers. The filing describes its strategy as combining organic growth with acquisitions.
Financial performance and liquidity
| Metric | Quarter ended Sep. 30, 2013 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $76.70 million | $79.15 million | Down 3.1% |
| Net transportation revenue | $23.22 million | $22.24 million | Up 4.4% |
| Net transportation margin | 30.3% | 28.1% | Up 2.2 percentage points |
| Operating income | $2.19 million | $1.12 million | Up 95.0% |
| Net income attributable to Radiant | $1.09 million; $0.03 per share | $0.40 million; $0.01 per share | Up 171.0% |
| Adjusted EBITDA, non-GAAP | $3.10 million; 13.3% of net transportation revenue | $2.51 million; 11.3% | Up 23.5% |
| Cash from operating activities | $1.66 million | Cash used: $0.002 million | Improved |
Gross revenue declined as cross-border shipping into and out of Mexico slowed, and charter services and project work decreased. Net transportation revenue and margin improved; management attributed the higher margin in part to shipment mix, including lower volumes of relatively low-margin charter and project work. Operating costs included $13.63 million in agent commissions, $4.10 million in personnel costs, and $2.66 million in selling, general and administrative expenses. Income tax expense was $0.65 million, compared with $0.34 million a year earlier; interest expense was $0.52 million.
At September 30, cash was $8.79 million, versus $1.02 million at June 30, 2013. Current assets were $61.87 million and current liabilities $42.80 million. Cash increased mainly through financing: net financing cash flow was $6.16 million, including $8.16 million of net credit-facility proceeds and $2.00 million of principal repayment on the Caltius notes. Investing activities used $0.04 million.
Reported notes payable and other debt totaled approximately $24.51 million, including $17.05 million drawn on the credit facility, $8.00 million principal on Caltius notes, and $0.77 million payable to former DBA shareholders. The $30 million Bank of America facility had approximately $8.85 million available at quarter-end, subject to borrowing-base limits and outstanding letters of credit. The Caltius notes accrue interest at 13.5% and mature December 1, 2016; the company said it elected to pay the interest otherwise added to principal in cash. Radiant reported compliance with its credit-facility and Caltius covenants at September 30.
Material changes and unusual items
- Revenue fell, but transportation costs fell faster, supporting higher net transportation revenue and margins. U.S. revenue rose to $44.51 million from $42.62 million; revenue from other countries declined to $32.20 million from $36.53 million.
- Personnel costs increased 9.1%, partly due to acquired Marvir and IFS operations and higher staffing. SG&A decreased 8.4%, with savings from combining Los Angeles locations and lower legal expenses and uninsured claims, partly offset by higher bad-debt, due-diligence, sales-commission, and travel costs.
- Contingent consideration was reduced by $195,000, recorded as an operating benefit, because some acquired businesses were considered less likely to meet earn-out targets. The remaining fair value was $3.83 million; maximum potential earn-outs were stated as up to $11.8 million through February 2016.
- On October 1, 2013, after quarter-end, Radiant acquired On Time Express. The stated aggregate base purchase price is up to $20 million, including $7 million cash at closing, $0.5 million in shares, $0.5 million held back, $2 million in notes, and up to $10 million in Tier-1 earn-outs; an additional Tier-2 earn-out may be earned. Purchase-price allocation was still in process. Management expects On Time’s dedicated line-haul network to support capacity and margin opportunities, but the acquisition’s results are not included in this quarter.
Outlook, risks, and contingencies
Radiant gave no specific quantitative earnings or revenue guidance. Management said existing cash was expected to meet working-capital, capital-expenditure, commitment, and other liquidity needs for the next 12 months. The company is pursuing truck brokerage capabilities and intends to continue seeking acquisitions, while focusing organically on agent and customer relationships, infrastructure, and selected geographic expansion.
Key risks include dependence on independent agents and third-party carriers; freight-volume cyclicality, seasonality, competition, and customer credit; acquisition integration and earn-out obligations; variable-rate and substantial indebtedness, borrowing-base limits, and covenant compliance; and transportation-industry regulatory requirements. Radiant disclosed collection proceedings against two customers owing approximately $1.1 million; its portion had been expensed, and management did not expect material exposure, while noting recovery was uncertain. A related DBA dispute remained in litigation, with trial scheduled for April 2014; the company noted possible near-term earnings effects from customer retention challenges and legal costs. Management stated other ordinary-course legal matters were not expected to materially affect financial position, results, or liquidity.
Radiant also consolidates Radiant Logistics Partners, LLC, a variable-interest entity that is 60% owned by an entity affiliated with the CEO; that affiliate’s share of the quarter’s profits was $16,642. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether higher margins and operating income can persist despite lower gross revenue and weaker cross-border, charter, and project activity.
- On Time’s customer concentration, retention, profitability, integration progress, and actual cash and contingent consideration payable.
- Revolver availability, borrowing-base eligibility, covenant headroom, and the cost and repayment schedule of the Caltius debt.
- Collection outcomes for the two customer balances and developments in the DBA litigation and acquisition earn-outs.
- The related-party economics and governance of Radiant Logistics Partners, LLC.