Radiant Logistics, Inc. — Form 10-Q Summary
Period: Three months ended September 30, 2012, the first quarter of fiscal 2013 (not calendar-year Q1). Comparisons are with the three months ended September 30, 2011, unless noted. The filing is unaudited. Radiant is a non-asset-based freight forwarding and logistics company pursuing organic growth and acquisitions.
Financial results
| Metric | Q1 FY2013 | Q1 FY2012 | Change |
|---|---|---|---|
| Revenue | $79.15 million | $71.83 million | +10.2% |
| Net transportation revenue | $22.24 million | $21.24 million | +4.7% |
| Net transportation margin | 28.1% | 29.6% | Down 1.5 percentage points |
| Operating income | $1.12 million | $1.12 million | Down 0.4% |
| Net income attributable to Radiant | $403,153 | $655,027 | Down 38.5% |
| Basic and diluted EPS | $0.01 | $0.02 | Down $0.01 |
| Adjusted EBITDA (non-GAAP) | $2.51 million | $1.64 million | +52.9% |
| Operating cash flow | $(1.48) million | $324,813 | Decrease of $1.80 million |
Revenue growth reflected the ISLA and ALBS acquisitions. Domestic revenue increased 3.5% and international revenue 19.8%. Cost of transportation rose faster than revenue, contributing to lower margins; management cited shipment mix and acquired operations with typically lower margins. Reported net income fell despite revenue growth, principally because of higher acquired-intangible amortization, interest expense and legal costs. Depreciation and amortization increased to $1.12 million from $390,393; interest expense was $495,331 versus $92,088.
Management also presented unaudited pro forma comparisons as if ISLA and ALBS had been acquired before the prior-year period: revenue decreased 6.8% to $79.15 million from $84.89 million; net transportation revenue declined 8.7%; adjusted EBITDA declined 22.8% to $2.51 million from $3.25 million; and net income fell to $403,000 from $1.05 million. These pro forma figures are not necessarily indicative of actual or future results.
Liquidity, debt and balance sheet
- At September 30, 2012, cash was $676,477; current assets were $59.25 million and current liabilities $45.84 million, implying working capital of approximately $13.41 million and a current ratio of about 1.29.
- Accounts receivable, net, was $53.80 million. Operating cash use reflected, among other items, increased receivables and prepaid expenses and reduced accounts payable and accrued transportation costs.
- Net cash used in investing was $200,749, mainly equipment purchases. Financing provided $2.29 million, primarily from the credit facility. Cash increased by $609,589 during the quarter.
- Notes payable and other long-term debt, including the current portion and net of debt discount, totaled $23.65 million. This included a $10.0 million Caltius subordinated note with a 13.5% accrual rate, maturing December 2016, and credit-facility borrowings. Interest on the Caltius note is paid currently at 11.75%; the company said it elected to pay the remaining interest in cash.
- The Bank of America facility has a $20.0 million commitment and matures November 30, 2013. At quarter-end, advances were $7.97 million, outstanding checks not yet presented were $5.75 million, and reported availability based on advances and collateral was $11.54 million. The company reported compliance with debt covenants.
- Contingent consideration was $6.25 million, measured using Level 3 inputs, and increased $50,000 in the quarter. Estimated undiscounted earn-out payments total $7.65 million through fiscal 2016, potentially payable in cash and equity.
Changes, outlook, risks and unusual items
- Acquisitions of ISLA and ALBS expanded the company’s cross-border and international gateway operations. Reported growth should be distinguished from the weaker pro forma comparison.
- SG&A included approximately $251,000 of non-recurring legal expenses associated with the DBA dispute and other legal matters. The prior-year quarter included $282,636 of DBA transition costs; none were reported in this quarter.
- Radiant is pursuing arbitration claims against former DBA shareholders regarding alleged undisclosed transportation charges, related-party transactions and other matters, and alleged covenant breaches. The former shareholders counterclaimed for the $1.8 million integration payment. The filing also describes related litigation, including company claims seeking damages in excess of $500,000. Outcomes and recoveries are uncertain.
- The company disclosed approximately $1.5 million owed by two customers in collection proceedings. It had expensed its portion and did not believe its exposure would be material, but noted potential loss if certain agents cannot replenish deficit bad-debt reserve accounts.
- A November 1, 2012 acquisition of a Los Angeles agent office occurred after quarter-end; management characterized it as not material.
- No numerical earnings or revenue guidance was provided. Management intends to continue organic growth and pursue acquisitions, but cautioned that results depend on agent relationships, acquisition opportunities and financing, economic and industry conditions, transportation costs, competition, regulation, seasonality, management dependence and debt covenant compliance. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification priorities
- Reconcile reported revenue growth with the pro forma revenue and adjusted EBITDA declines, and assess the sustainability of margins and earnings.
- Review operating cash conversion, receivable collectability, allowance for doubtful accounts, and the agent reserve deficits; track the two customer collections.
- Confirm debt balances, facility availability and covenant headroom, especially given the high-cost subordinated notes and the facility’s November 2013 maturity.
- Monitor the DBA arbitration and related litigation, potential integration-payment setoffs or counterclaims, and whether any legal costs or claimed recoveries change.
- Assess earn-out obligations and the assumptions behind the $6.25 million contingent-consideration valuation and estimated future payments.