Radiant Logistics, Inc.
Q2 2017 Earnings Call Transcript

Published: 9 Feb 2017

[Operator:]

Greetings. 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 Second Fiscal Quarter and Six Months Ended December 31, 2016. 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 and 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 pass the call over to Radiant’s Founder and CEO, Mr. Bohn Crain. Thank you, Mr. Crain. Please go ahead.

[Bohn Crain:]

Thank you. Good afternoon, everyone and thank you for joining in on today’s call. We’re very pleased to report record results for the quarter ended December 31, 2016 and our return to a more normalized trend of margin expansion and earnings growth. We posted adjusted EBITDA of $8.9 million for the quarter ended December 31, 2016, the best quarterly performance in the Company’s history, up approximately $2.7 million and 44.1% over the comparable prior year period. We’re also encouraged by improving margin characteristics of our business, particularly given the broader market environment of excess capacity and the general margin pressures on the industry. In the aggregate, net transportation margins improved 220 basis points to 24.5%, up from 22.3% for the prior year. While our U.S. brokerage business was negatively impacted by the margin pressures associated with excess capacity. This was more than offset by the margin improvement we enjoyed and our much larger forwarding operation. We also saw meaningful improvement in Canada where net transportation margins improved 240 basis points to 18.3%, up from 15.9%. Perhaps more importantly our adjusted EBITDA margins improved 480 basis points to 17.7% also the best quarterly performance in the Company’s history. 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 our opportunity to drive further margin expansion as we continue to scale the business and leverage the benefits of our ongoing technology investments. For those EPS stands out there, we also saw meaningful improvement in our adjusted net income attributable to common stockholders, which increased 66.7% to $5 million or $0.10 per basic and fully diluted share for the second fiscal quarter compared to adjusted net income attributable to common stockholders of $3 million or $0.06 per basic and fully diluted share for the comparable prior year period. In addition we also generated approximately $9.2 million in cash from operations for the quarter and a total of $12.7 million in cash for the six months ended December 31, 2016. We also have very low leverage on the balance sheet and enjoy approximately $56 million in availability under our existing credit facility and continue our disciplined approach of working to put this low cost capital to work acquiring acquisition candidates that bring critical mass from a geographic standpoint, purchasing power and/or complementary service offerings to the current platform. In this regard, we recently announced our letter of intent to acquire Canada-based Lomas Logistics. We have largely completed our due diligence efforts and now working through the details of the definitive purchase agreement. Assuming the parties can come to terms on the definitive agreement as well as the satisfaction of certain standard and customary pre-closing conditions, this transaction is expected to close in the quarter ended March 31. In addition, we have a number of additional acquisition candidates under consideration and we look forward to providing further updates as these opportunities progress. With that, I’ll turn it over to Todd Macomber, our CFO to walk us through our detailed financial results, and then we’ll open it up for Q&A.

[Todd Macomber:]

Thanks, Bohn, and good afternoon, everyone. Today, we will be discussing our financial results including adjusted net income, adjusted EBITDA for the three and six months ended December 31, 2016, quarterly net income results. For the three months ended December 31, 2016, we reported net income attributable to common stockholders of $2,099,000 on a $198.9 million of revenues or $0.04 per basic and fully diluted share; including $385,000 of transition and lease termination cost; and $806,000 on change in contingent consideration expense. For the three months ended December 31, 2015, we reported a net loss attributable to common stockholders of $2,527,000 on $206.3 million of revenues or a loss of $0.05 per basic and fully diluted share. This represents an increase of approximately $4,626,000 over the comparable prior year period. Quarterly adjusted net income results; for the three months ended December 31, 2016, we reported adjusted net income attributable to common stockholders of $4,963,000. For the three months ended December 31, 2015, we reported adjusted net income attributable to common stock holders of $3,028,000. This represents an increase of approximately $1,935,000 or approximately 63.9%. Quarterly adjusted EBITDA results; we reported adjusted EBITDA of $8,866,000 for the three months ended December 31, 2016, compared to adjusted EBITDA of $6,152,000 for the three months ended December 31, 2015. This represents an increase of $2,714,000 or approximately 44.1%. Adding back transition costs associated with SBA’s back-office, representing an additional $363,000. Adjusted EBITDA would have been $9,229,000 for the period ending December 31, 2016, versus $6,889,000 for the period ending December 31, 2015, which included net back of transition cost in the prior year of $737,000, this represents an increase of $2,340,000 or 34%. Now moving along the six-month results are as follows

[Operator:]

Thank you. [Operator Instructions] And our first question comes from the line of Mr. Jason Seidl with Cowen and Company. Please go ahead.

[Jason Seidl:]

Thank you, operator. Hey Bohn, hey Todd, afternoon. Couple quick questions. Can you talk a little bit about the trends that you’re starting to see in fiscal 3Q as it largely continued between brokerage still under a little bit of pressure of freight forwarding offsetting that in Canada is still on its way back.

[Bohn Crain:]

Thanks, Jason. This is Bohn. So I think we’re starting to see a little – so I think the positive trends for forwarding and Canada more broadly are continuing for – it’ll be a seasonally slower quarter as we come into market, but I think kind of the fundamental trend is there. And I think the general sense is that capacity is tightening, intermodal starting to get a share back from truck and I think all of those things ultimately will kind of help some of the headwinds that the Clipper Group in Chicago has been facing on the U.S. brokerage side.

[Jason Seidl:]

Okay. That’s good color. Todd in terms of a lot of the transition costs that you guys have been reporting, are we largely through most of those now.

[Todd Macomber:]

We’re getting there. We have transition in the back office about a quarter ago, but there’s a tale that exists. As whenever we make the move from one operating system to the new one, we still at the collect the AR and pay the AP. So this will continue to dwindle and we are mostly through it.

[Jason Seidl:]

Okay, so…

[Bohn Crain:]

I would say by the end of our fiscal year June, there will be no more cost reporting in that line item.

[Jason Seidl:]

Borrowing any other large transaction that might…

[Bohn Crain:]

Correct.

[Todd Macomber:]

Right.

[Bohn Crain:]

Correct, correct.

[Jason Seidl:]

Okay, that makes sense. Bohn, canyou talka little bit more about the acquisition market, it seems like an I said it will tuck-in up in Canada if you guys just announced, congratulations on that. What else is out there that you guys are looking at and how do the multiples look out there right now.

[Bohn Crain:]

So I would – I guess let me set the table here a little bit, when we think about acquisitions, we think about the opportunity for what we would call conversions, acquiring in existing agent station participating in our network buying those guys in supporting acquisition candidates and competitor networks who are looking for liquidity, along with acquiring other agent based networks kind of historically been areas of focus for us, as well as from time to time looking at a larger transactions like Wheels transaction represented for us. As we’ve signaled on prior phone calls, our focus continues to be on that tuck in type acquisitions, not to say we won’t do some larger transaction that’s kind of if the right opportunity presented itself. But we’re generally positioning, I should say positioning, but our focus is really on the smaller tuck-in type acquisitions. We think we can value and structure those in a way that works for everyone in the mix and kind of throughout our corporate life here, a lot of entrepreneurs have joined our network with the thought that there was a built-in exit strategy and that have an opportunity to kind of frame their own exit on a time that was consistent with their own personal objectives. And so I think we’ll see some more of that continuing to happen as we move forward. So I think that’s kind of near-term what’s going on. At the same time, we think we are – we think there’s going to be further consolidation at some point amongst the kind of the remaining what I’ll call Tier 1 agent based forwarding networks. We think we’re in a unique position to support and participate in those combinations we’ve got a 10 year first-to-market advantage in executing a multi-brand strategy. We’re really investing in technology and building that infrastructure to support that opportunity. So I don’t – I can’t tell you when it’s going to happen, but we believe that opportunity will present itself on the horizon. And we’re trying to make sure, we’re in a position to be there to participate in that opportunity when it presents itself.

[Jason Seidl:]

That’s great color. I appreciate that. If I can get back a little bit to gross margin going forward. As capacity goes to tightening up, I mean, is there going to be any pressure on that gross margin in the U.S. business?

[Todd Macomber:]

I don’t – well, time will tell, but my sense would be no. And that it was the excess capacity that really created the challenges for the folks in Chicago. And I think its capacity tightens I think we will fare better. So we’re looking forward to a tightening market.

[Jason Seidl:]

And what’s their take on and you said that share started flow back intermodal, is just that fuel costs are getting a little bit higher here for the shipper?

[Todd Macomber:]

Well, I don’t know, but it’s so, certainly 12 months to go, the conversation was around lower fuel costs. I think at this – kind of more recently the dynamic has been less about fuel per se and more about the asset base kind of the underlying asset base carriers running a lot of empty miles and getting kind of extraordinarily aggressive in their own pricing. So they effectively took share away from intermodal and the larger brokerage platforms we’re in a better position to support some of the brokerage opportunities. But as capacity tightens, I think the asset guys are will start to kick back out some of the freight that they kind pulled under their trucks and things will come back to a little bit more what we would view as a more normalized environment with a little better price disciplined from the underlying asset base guys. And I believe – and you participate in a lot of the call, so you’d probably have better color on it. Then I would – but I think the broadly speaking, I think the shipper community recognizes that dynamic as well. And so I think all of that sets up hopefully and improving environment. And I think what it will show is one of the benefits of being non-asset based. We talked a little bit about on our last call, but it was actually kind of the more of the transactional construct of our freight boarding model as opposed to the longer-term contractual nature of our brokerage business. Our transactional forwarding business, which is the much larger segment of our business, far better in this environment than our contractual brokerage businesses.

[Jason Seidl:]

And I think we would be in a groove in terms of what shippers are expecting, I’m not sure, it’s going to be a super tight market in the first half of the year, but they’re definitely concerned about fourth quarter and beyond, I would say. Listen Bohn, Tood, I appreciate the time as always. I’ll turn it over to somebody else.

[Bohn Crain:]

Thank you.

[Todd Macomber:]

Thanks.

[Operator:]

Thank you. Our next question comes from the line of Mr. Mark Argento with Lake Street Capital Markets. Please proceed.

[Mark Argento:]

Yes. Hey guys, good afternoon and nice quarter here. Obviously, starting get a little – feel a little bit more strength in the market, get benefited from it. What do you guys thoughts in terms of guidance here going forward? Do you feel like you’re going to be in the position to start helping us out a little bit in terms of thinking through some guidance or what do you need to see to get little bit more comfortable get back those practices.

[Bohn Crain:]

I think we need better visibility, which we don’t enjoy right now. I’m not quite sure when it will ultimately reveal itself. We feel really positive about where we are, what we’re doing kind of where we sit in the marketplace. But candidly we don’t see a lot of reason that go out and put out a lot of guidance kind of forward-looking guidance at this point. We would be content to be kind of fairly judged on the earnings that we’re reporting. I think if there is one thing – one impression I would want to leave on the call that feels to me like we’re kind of coming back online in terms of executing those strategies that helps us drive all the growth thus far. So I really believe we’re coming back online in terms of some of the organic growth, some of the things we’re working to do around advancing on boarding a new agency stations as well as that’s kind of bringing our M&A activities back online. So I think we have enough confidence in the market to kind of aggressively move back into the M&A activities, so long as we find the right types of transactions and kind of whether or not we choose the issue guidance really isn’t a reflection of our kind of convictions or confidence in the market. It’s just – we’re not as I guess convinced, we need to do this kind of issue guidance in this market environment.

[Mark Argento:]

In other words guidance is overrated. I don’t disagree with that. It’s hard if you guys are in a – it’s a business it’s hard to predict obviously every 90 days. But I would ask because that’s obviously something you guys are doing before. Back to kind of your – as you’d mentioned kind of getting back to kind of sounds like going more on offense after kind of that 2016 being a year that you digested. Some of the larger acquisitions you did earlier in the year and then 2015. When you look at the integration that you – integration work that you did in 2016, could you just touch on – did you normalized under one platform or maybe just give us a little bit more color on some of those…

[Bohn Crain:]

Yes, absolutely. So, just as a reminder, we upgraded our accounting platform. We’re in the middle of deploying a new TM system with SAP. We’ve transitioned the SBA back office to us here in Bellevue. But I guess a couple of numbers that I would particularly draw people’s attention to and that is our kind of comparable year-over-year growth in our net revenue line item, that’s kind of in the face of a tough market, we posted 5% organic growth. If we look at our ability to get those gross margin dollars to the bottom line, we saw I think it was 480 basis point improvements in those metrics. Those are our key drivers. So in terms of kind of hitting our marks, kind of having all of our hard work starting to manifest itself in the numbers. We couldn’t be happier with our progress and we think there is a lot of additional good things to flow around these metrics enabled in part by the technology investments that we’re making.

[Mark Argento:]

Great, well. Congrats on a good quarter. Its fun to see kind of everything come together you had laid out, but I think a lot of people obviously loss side of it just given the choppiness in the end markets to get plan. So congrats and I’ll look forward to hopefully some more continued strong quarters. Thanks.

[Bohn Crain:]

All right. Thanks.

[Operator:]

There are no further questions at this time. I’ll turn the call back over to management for any final remarks.

[Bohn Crain:]

All right, thanks. 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 we’ve created, and the scalability of our non-asset based business model. Our 10 year first-to-market advantage and executing our multi-brand strategy; and consolidating agent-based forwarding networks, ongoing investment in technology; and our low leverage on our balance sheet, puts us in a unique position to support further consolidation. We believe this represents our longer-term and almost perpetual opportunity and we continue to invest in 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 are patiently persistent in the pursuit of this long-term vision, which we believe, overtime, will deliver meaningful value for our shareholders, our operating partners, and the end-customers that we serve. Thanks for listening and your support at Radiant Logistics.