Radiant Logistics, Inc.
Q4 2019 Earnings Call Transcript

Published: 12 Sep 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to your Radiant Logistics Conference Call.This afternoon, Bohn Crain, Radiant Logistics’ Founder and CEO; and Radiant’s Chief Financial Officer, Todd Macomber, will discuss financial results for the Company's Fourth Fiscal Quarter and 12 Months Ended June 30, 2019. Following their comments, we will open the call to questions. This conference is scheduled for 30 minutes.This conference call may include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The Company has based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about the Company that may cause the Company's actual results or achievements to be materially different from the results or achievements expressed or implied by such forward-looking statements. While it is impossible to identify all the factors that may cause the Company's actual results or achievements to differ materially from those set forth in our forward-looking statements, such factors include those that have in the past and may in the future be identified in the Company's SEC filings and other public announcements, which are available on the Radiant website at www.radiantdelivers.com. In addition, past results are not necessarily an indication of future performance.Now, I'd like to pas the call over to Radiant's founder and CEO, Bohn Crain. Sir, the floor is yours.

[Bohn Crain:]

Thank you. Good afternoon, everyone, and thank you for joining in on today's call. We’re very pleased to report another year of solid financial results for fiscal 2019 with record results across several key financial metrics, including record revenues of $890.5 million, up $41.8 million (sic) [$48.1 million] or 5.7%; record net revenues of $230.1 million, up $30 million or 15%; record net income attributable to common stockholders of $13.7 million, up $5.6 million or 69.1%; record adjusted net income attributable to common stockholders of $26.6 million, up $11.8 million or 79.7%; and record adjusted EBITDA of $40.8 million, up $11.6 million or 39.7%.In addition, we also set a new record in terms of our adjusted EBITDA margins, which increased 310 basis points to 17.7%, up from 14.6% over the comparable prior year period.As we've previously discussed, our incremental cost of supporting the next dollar of gross margin is very small and we are very excited about the opportunity to drive further expansion in our Adjusted EBITDA margins as we continue to scale the business and leverage the benefits of our ongoing investment in technology.In the U.S., for fiscal 2019, we reported revenues of $779.7 million, up $44.3 million or 6% and net revenues of $198.1 million, up $23.4 million or 13.4% over the comparable prior year period. U.S. transportation net revenues of $193.8 million were up $21.9 million or 12.7% from comparable prior year period, while our value added services net revenues of $4.3 million were up $1.5 million or 53.6% over the comparable prior year period. In Canada, we reported $111.3 million in revenues, up $3 million or 2.8% and net revenues of $32 million, up $6.6 million or 26% over the comparable prior year period. Canada's transportation net revenues of $19.7 million were up $2.8 million or 16.6% from the comparable prior year period, while Canada's value added services net revenues of $12.3 million were up $3.8 million or 44.7%.We are also pleased with our results for the fourth fiscal quarter ended June 30, 2019 given what was generally recognized as a softer freight environment. Although we saw a reduction in revenues during the quarter, the economic impact to the company was generally offset by improving net revenue margins, up 354 basis points, and a reduction of $1.2 million in operating partner commissions, which resulted in Adjusted EBITDA of $11 million, up $1.1 million or 11.1% over the comparable prior year period on relatively flat net revenues. In addition, we also saw improvement in our adjusted EBITDA margins, which increased 189 basis points to a record 18.8%, up from 16.9% for the comparable prior year period. In addition, we also reported net income attributable to common stockholders of $4.5 million, up $0.2 million and adjusted net income attributable to common shareholders of $7.5 million, up $1.8 million or 31.6% for the comparable prior year period.The business also continues to deliver strong cash flows, generating $6.3 million in cash from operations for the three months ended June 30, 2019, and generated $39.8 million in cash from operations for the year ended June 30, 2019.Having retired the $21 million preferred stock last December, we continue to pay down debt and as of the quarter ended June 30, we had approximately $13.8 million drawn on the Company's $75 million credit facility and total net debt of approximately $31.2 million, less than one-time our trailing twelve-month adjusted EBITDA of $40.8 million.On the technology front, we also continue to make meaningful progress on a number of our strategic technology initiatives, including one, the continued expansion of our new SAP-based transportation management system that is now deployed in over 25 operating locations across the network, including both Company-owned and strategic operating partner locations. Two, the continued onboarding of our customers through our new customer portal was provided our customers with online booking and event-based tracking through direct integration with SAP TM, the piloting of our international air and ocean freight forwarding functionality within our new SAP TM platform, and the completion of our transition of SAP production environment to Amazon's cloud computing platform, which provides us cost effective access to computing power, database stores and other functionality, as we continue to scale and grow the business.As we head into the year, we've remain committed to our longstanding strategy to deliver profitable growth through a combination of organic and acquisition growth initiatives. We have low leverage on our balance sheet, strong free cash flows, and continue our disciplined search for acquisition candidates that bring critical mass to our current platform with respect to geography, purchasing power and complementary service offerings.With that, I will turn it over to Todd Macomber, our CFO, to walk us through our detailed financial results, and then we'll open it up for some Q&A.

[Todd Macomber:]

Thanks, Bohn, and good afternoon, everyone.Today, we will be discussing our financial results, including adjusted net income and adjusted EBITDA for the 3 and 12 months ended June 30, 2019.For the three months ended June 30, 2019, we reported net income allocable to common stockholders of $4,461,000 and $204.6 million of revenues or $0.09 per basic and diluted share. For the three months ended June 30, 2018, we reported net income allocable to common stockholders of $4,330,000 on $233.8 million of revenues, or $0.09 per basic and fully diluted share. This represents an increase of approximately $131,000 over the comparable prior year period or 3%.For the three months ended June 30, 2019, we reported adjusted net income attributable to common stockholders of $7,539,000. For the three months ended June 30, 2018, we reported adjusted net income attributable to common stockholders of $5,656,000. This represents an increase of approximately $1,833,000 or approximately 32.3%.We reported adjusted EBITDA of $11,011,000 for the three months ended June 30, 2019, compared to adjusted EBITDA of $9,916,000 for the three months ended June 30, 2018. This represents an increase of approximately $1,095,000 or approximately 11%.Moving along to 12 month results. For the 12 months ended June 30, 2019, we reported net income allocable to common stakeholders of $13,731,000 on a $890.5 million of revenues, or $0.28 per basic and $0.27 per fully diluted share, which included a gain of $1,207,000 on change in contingent consideration.For the 12 months ended June 30, 2018, we reported net income allocable to common stockholders of $8,142,000 on $842.4 million of revenue, or $0.17 per basic and $0.16 per diluted share. This represents an increase of approximately $5,589,000 over the comparable prior year period, or 68.6%.For the 12 months ended June 30, 2019, we reported adjusted net income attributable to common stakeholders of $26,648,000. For 12 the months ended June 30, 2018, we reported adjusted net income attributable to common stakeholders of $14,844,000. This represents an increase of approximately $11,804,000 or approximately 79.5%.We reported adjusted EBITDA of $40,760,000 for the 12 months ended June 30, 2019, compared to adjusted EBITDA of $29,242,000 for the 12 months ended June 30, 2018. This represents an increase of approximately $11,518,000 or approximately 39.4%.With that, I will turn the call back over to our moderator to facilitate any Q&A from our callers.

[Operator:]

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Kevin Sterling of Seaport Global. Please state your question.

[Kevin Sterling:]

Good afternoon, Bohn and Todd.

[Bohn Crain:]

Hey, good afternoon.

[Kevin Sterling:]

Yes. So, Bohn, let me -- kind of big picture here, when I look at this quarter and everything and -- your model being an asset like model seems to be acting like it’s supposed to be. And, obviously, what I mean by that is, revenue is a little light, you can still drive profitable growth either through net revenue or EBITDA, by flushing down the cost. And that seems to be what’s happening. If I can dig into kind of some of the key drivers here and maybe what’s different now than say a few years ago when this may not have happened, is it your scale, is it the new back office system, is it new business wins, that is maybe profitable than in years past? Can you kind of help us understand your model today, even in a softer freight environment, is really I think performing pretty well, whereas years past, this may not have been the case?

[Bohn Crain:]

Yes, sure. I mean, you are kind of I think hitting a few of the salient points. There are number of contributing factors. And I guess, I’ll start with, as we talked about last quarter, we made a conscious decision to exit certain low-margin pieces of business that we’ve been able to replace with higher margin pieces of business. So, that’s part of the thematic.There was certainly some softness in international freight volumes attributed to some of the trade war narrative activities that happen to land more in the agent-based stores rather than the Company-owned stores, which is why part of the reason why you see the kind of the reduction in operating partner commissions going down kind of absorbing that or kind of ultimately highlighting how less sensitive our ultimate results are as a function of some of the agent-based business activities, given such a big piece of it is paid out to the agent stations in the form of commission. And then, it ultimately goes to the health of the Company stores and their ultimate financial performance and contribution as we move forward in time, as we continue to make good on our brand promise and provide exit strategies to our operating partners in a bigger, relative position of our operations effectively flow through our Company-owned stores. And I think as of the last fiscal year, we were -- about 40% of our gross margins actually flowed through our Company-owned stores as opposed to agencies.I think, all of those things help in terms of the ultimate metrics as well as the investments we’ve been making in technology and back office infrastructure that drive efficiencies that are helping us effectively, as we kind of continue to beat the drum, grow our gross margin dollars without growing our back office costs and continuing to provide scale in that way and working hard to get more of the gross margin dollars to the bottom line.And so, even in the face of what was a softer quarter, we still delivered, I believe that was the best quarter, not only kind of on a comparative quarter basis, but I think that EBITDA margin was probably the highest margin in the history of the Company for a quarter ever, on that $11 million of EBITDA.

[Kevin Sterling:]

Yes. And I think, so, you are breaking records again.

[Bohn Crain:]

Indeed. Still, still.

[Kevin Sterling:]

Yes, still. Yes. Don't stop. So, let me dig into that a little bit more, if you don't mind. And so, to think about the organic growth opportunities, you highlighted new business wins that are obviously higher margin business. Are some of these new business wins and some this incremental contribution to net revenue and EBITDA and organic growth, is it coming in maybe a little bit better than what you may have thought just a couple of quarters ago?

[Bohn Crain:]

I don't know that I would characterize it as better or worse. I would say that our industry vertical approach continues to deliver positive results for the organization. And we certainly think we’ll continue to put numbers up through those initiatives, and we continue to look for additional industry verticals to kind of broaden that. So, I guess, said more succinctly, the vertical approach is working, continues to work, and we're looking for opportunities to invest in incremental vertical industry sales resources that can broaden and strengthen that vertical approach, because we’ve had such success in that strategy.

[Kevin Sterling:]

Okay. So, as we -- as you look at your like sales pipeline, does it look pretty healthy with additional potential business wins, organic growth opportunities, how should we think about your sales pipeline?

[Bohn Crain:]

You’re walking me too far out on a limb want here in terms of talking about sales pipelines. But, I still feel comfortable with the idea -- and then, I guess to kind of come back to the way we try to frame our thinking and engage with our investors on kind of this topic is, we're focused on growing our gross margin dollars. We think, call it a 4% to 6% growth in gross margin dollars is a reasonable target. And we expect to grow our EBITDA twice that, which gets back to the leverage. So, without getting into the health of ourselves pipeline and playing that hot and cold game, we still are working hard to deliver those -- that kind of baseline, pre-acquisition growth in the base in terms of those metrics around gross margin dollars and EBITDA growth.

[Kevin Sterling:]

Okay. No, that's fair. That helps. And, Bohn, I know -- I think, you said generated operating cash flow in the quarter of $6.3 million. What was free cash flow generation?

[Bohn Crain:]

Todd, do you have our technology investment for the quarter?

[Todd Macomber:]

Technology investment, hold on. For the quarter, technology is $4.7 million versus $6.4 million. So, it’s about $1.7 million.

[Bohn Crain:]

So, take $2 million off of that cash from operations for IT investment. So, you’re plus or minus $4 million in free cash flow.

[Kevin Sterling:]

Very good. Okay. Thank you. And then, lastly, and I'll jump off and maybe hop back in queue. But, you highlighted Canada, it seems like Canada is doing better. Do you expect that trend to continue? What are you seeing in Canada?

[Bohn Crain:]

Yes. I think, that's a great kind of conversation point in that. To put it back in context -- and this is a little bit easier for me in Canadian dollars. Back when we acquire Wheels in 2015, I think, kind of the Wheels organization, including Clipper, was doing, call it, plus or minus C$10 million of Canadian dollar EBITDA at that time. And Wheels Canada now Radiant -- rebranded as Radiant Canada. And even excluding the benefit of Clipper, kind of the Radiant Canada organization is dramatically outperforming where it was at the time we acquired it. So, certainly, in the early days of that acquisition, the road was a little bumpier. But, we can -- we're quite pleased and we kind of pause for the cause and kind of acknowledge kind of looking back on our decision to do the Wheels transaction, which at the time was the largest transaction for us, and kind of look back now and say, are you glad you did that transaction or not, are you not glad you did that transaction? We're definitely happy to have done the Wheels acquisition. And I think, we're just at the beginning of a lot of good things in Canada.Harry Smit and the team up there are doing a fantastic job. We talk a lot about how bundling strategy and effectively combining what most folks would call, contract logistics type services with our core transportation service offering has really -- is giving us a differentiated value proposition in the marketplace. And they continue to do some impressive things up there.

[Operator:]

Any further questions Mr. Sterling?

[Kevin Sterling:]

That’s all I got. Thank you. Thank you for your time this evening.

[Bohn Crain:]

Thanks, Kevin.

[Operator:]

[Operator Instructions] Our next question comes from Jason Seidl of Cowen. Please state your question.

[Jason Seidl:]

Thank you, operator. Hey Bohn, hey Todd. I wanted to talk a little bit sort of about the outlook for your use of free cash along with potentially taking on some more debt. Your [technical difficulty]

[Operator:]

Hey, Mr. Seidl, I believe we lost you. [Operator Instructions]

[Bohn Crain:]

I think, I can fill in the blank for his questions, but I’ll let him restate it. So, go ahead, Jason, sorry.

[Jason Seidl:]

Hey. Can you guys hear me now?

[Bohn Crain:]

Yes, we can. Yes.

[Jason Seidl:]

Yes. No, what I was saying is, when you look at your free cash flow generation and your ability to take on debt, how do you balance how you look at acquisitions in terms of where your stock’s trading versus any large acquisition? Forget about the tuck-in ones that seem to always work out when they come up. And then, versus buying back your own stock, which can be a double-edged sword in this marketplace with your liquidity.

[Bohn Crain:]

Yes. So, I guess, I'll kind of take that from the top, which is we’ve traditionally said, we continue -- as you’ve kind of alluded to, we’re continuously in the marketplace looking at what would be the smaller tuck-in acquisitions. And certainly, the majority of the transactions we would do, look like that. From time to time, we look at larger transactions. They would have to be compelling for us to effectively pay up, to do a larger transaction. We have done it at least once before with success with the Wheels transaction. So, it’s something that we would consider. It would have to be compelling strategically for us to look at doing something like that. But, it’s definitely something we would consider.Now, I’ll try to bring that answer back into the context of your broader question, which to say more bluntly, how do we think about M&A activities when our own stock is trading at plus or minus six times or whatever it’s trading at currently on a EBITDA to enterprise value basis. And so, I think, part of the answer to that question is kind of grounded in the idea that we believe the intrinsic value of the business that we have and we continue to build is we would link to think is at least a 10 to 12 times multiple. So, we think about transactions and creating value in the context of -- that is the ultimate intrinsic value of what we're doing.If we tried to manage our long-term allocation of capital around the short-term volatility of our stock, I'm not quite sure how that would play out in terms of ever being able to get anything accomplished. And so, a couple of other data points around this conversation. We're also quite willing to buy back our own stock. If we don't find the right type of M&A opportunities, and we're accumulating cash, people should fully expect us to be in the market buying in our stock, particularly at these types of valuation multiples that we see today. And then, ultimately, part of this conversation would ultimately include a conversation around how we think about leverage. And kind of in that regard, I think, we would be comfortable leveraging up to a normalized funded debt-to-EBITDA ratio of call it plus or minus 3 times as we would think about kind of a normalized balance sheet.And then, just kind of as a reminder for some of the folks on this call, we effectively delevered our balance sheet in the summer of 2015 when we did our public secondary. And we have -- we really never relevered the business since 2015. We’ve been paying off debt and have worked hard to put ourselves in this position where we've got more financial flexibility than we've ever had in the history of the Company.So, we've got a lot of options in front of us, which we worked hard to create. We're committed to continuing to be good allocators of capital, which I think is ultimately at the heart of your question. And we're taking a comprehensive look in terms of tuck-in acquisitions, larger transactions, stock buybacks, and all in the context of our opportunity and the vagaries of the marketplace with our tweeting President.So, I’m not sure if I did complete justice to your question, but that's the brain-dump.

[Jason Seidl:]

Well, Bohn, I guess, what you're saying is, for now, obviously, with the tuck-ins as they come, you could take them because you usually get some plus or minus 5 times with and around protecting yourself. But that you do see a willingness to potentially buy something out there in the marketplace, if it's the right fit, like say, Wheels because while it may be a little bit dilutive in the near-term, in the longer-term, that will help you realize giving that higher multiples in the marketplace as you properly integrate such an acquisition. Is that said correctly?

[Bohn Crain:]

Yes. I think, the short answer is, yes. The one caveat would be -- is I think, even if we looked at a larger type transaction on adjusted EPS basis, it would still be accretive. The only reason a larger transaction wouldn’t be accretive, would be on a GAAP basis because of the amortization of customer relationship intangibles which we talked about quarter-on-quarter, year-over-year since 2006, of being, kind of a false negative relative to the underlying financial enterprise that we're building here.

[Jason Seidl:]

Okay. And, I’ll ask one more here, Bohn, just on a go away from M&A, and a little bit more towards [indiscernible]. We heard Landstar today talk about September having less than seasonal trends that are out there. Just, they're obviously 100% in the spot market. Just curious what you're seeing here in September right now, at Radiant.

[Bohn Crain:]

Landstar is a little more aggressive in their forward-looking comments than I choose to be. So, I think, -- I'll put it this way. I think, this quarter ended June for us is indicative of the run rate or earnings power of the business. We have a little bit of seasonality that kind of rolls through our business. But, all-in-all, I think, we're in the best position we've ever been in to handle whatever is coming our way. And, we're focused on growing our business.

[Jason Seidl:]

So, basically, the trends that you saw this most recent quarter are more or less intact?

[Bohn Crain:]

That's true.

[Operator:]

[Operator Instructions] Our next question comes from David Campbell of Thompson Davis. Please state your question.

[David Campbell:]

Hi Bohn, Hi Todd. Bohn, I’m a bit surprised -- I'm little bit surprised in this environment of soft trucking business that you haven't been able to find attractive acquisitions, smaller acquisitions that would fit into your agent network. And secondly, I haven’t heard you talk about converting any agents to Company-owned offices, which I think would be more likely to happen in a soft environment than a strong environment. So, I'm a little surprised with that. Can you help us out at all on why you haven’t found anything?

[Bohn Crain:]

Well, yes, a couple comments. One, just because I haven't told you that I have doesn't mean I haven’t, one. And two, our -- and probably a good kind of level set for everybody on the call, as we think about converting our agent stations to Company-owned stores, we are here to support our operating partners to effectively provide them their exit strategies when they're ready, not when we're ready, but when they're ready. So, we try to meet them where they want to be met in terms of agent station conversions. With that said, none of us are getting any younger, including kind of the demographics of our agent station owner partners. And I do believe, over time, kind of the rate of conversion will increase. And, we certainly are talking to folks across the categories that you are referencing. We’re constantly talking to tuck-in type acquisitions, both internal and external to our network. It’s just we have not chose to conclude one just yet.

[David Campbell:]

And second question is, on the freight forwarding business, especially the international freight forwarding business, I know, you had substantial success in the Philadelphia in that acquisition some years ago and the business had brought you I guess in the transatlantic market -- the Atlantic market has been stronger than the Pacific. So, I'm surprised, that your freight forwarding hasn’t done relatively better than it has. Is that -- do I understand the situation, or can you explain better?

[Bohn Crain:]

You might have us confused with somebody else relative to your reference to our acquisition of a large Philadelphia operations because -- I mean, we have done a small agent tuck-in action in Philadelphia some years ago, it was one of the SBA agency stations that we acquired before we ultimately acquired Service By Air. But, I think, on an absolute basis on a year-over-year basis, international is up quite nicely. This most immediate quarter, there were some softness in international. But, it’s hard to pinpoint whether that was -- whether that’s a slowdown, whether that was a pull forward to try to accelerate to get ahead of the tariffs. It’s a little I think premature to ultimately draw conclusions to see what’s going to happen on the international side. And at the same time, ocean continues -- historically, ocean was one of our smallest modes of transportation. And our ocean is growing. From a modality standpoint, it probably remains one of our fastest growing segments. So, while the kind of the decrease in revenues for the quarter was driven in part by international for the year, international was up meaningfully.

[David Campbell:]

Okay. Thank you very much. I’ll let someone else have it.

[Bohn Crain:]

All right. Thank you.

[Operator:]

There appear to be no further questions at this time. I will now turn the conference back over to management for closing remarks.

[Bohn Crain:]

All right. Thank you.Let me close by saying that we remain very excited with our progress and prospects here at Radiant, and we remain very bullish on the growth platform that we’ve created and the scalability of our non-asset based business model. Our now more than 12-year first-to-market advantage and executing our multi-brand strategy and consolidating agent-based freight forwarding networks, ongoing investment in technology and low leverage on our balance sheet, puts us in a unique position to support further consolidation in the marketplace. We believe this represents a longer term and almost perpetual opportunity, and we continue to invest in the technology and our people with an eye towards building out a world-class, scalable back office infrastructure to support a much larger enterprise going forward.We’re patiently persistent in the pursuit of this long-term vision, which we believe over time will deliver meaningful value for our shareholders, our operating partners, and the end customers that we serve. Thanks for listening and your support of Radiant Logistics.

[Operator:]

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time, and have a great day.