Radiant Logistics Inc (RLGT) 2009 Q2 法說會逐字稿

Good afternoon. Bohn Crain, Radiant Logistics, Chairman and CEO will conduct financial results for the Company's second fiscal quarter ended December 31, 2008. Following his comments we will open the call to questions. This conference is scheduled for 30 minutes.

Before we begin, I'm going to review forward-looking statements. This conference call may include forward-looking statements within the means of Section 27-A of the Security Act of 1933 as amended and Section 21-E of the Security Exchange Act of 1934 as amended. 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 to -- 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 fourth in our forward-looking statements, such factors include those that have in the past or may in the future be identified in the Company's SEC filing and other public announcements including those identified in the Company's recent annual report on Form 10-K which is available on the Radiant website at www.Radiant-logistics.com. In addition, past results are not necessarily indications of future performances.

Now I'd like to pass the call over to Radiant's Chairman and CEO, Bohn Crain.

Thank you. Good afternoon, everyone, and thank you for joining in on today's call before heading into the long weekend. I'm happy to report to you that notwithstanding the challenging economic environment we have, we were able to deliver the best operating results in the Company's history. With the benefit of our recent acquisition of Adcom, we saw revenues increase 84% to $42.5 million in revenue and our adjusted EBITDA increased 159% to approximately $1.4 million for the quarter. For 2009 we continue to execute our three prong strategy. One, providing continuous improvement to our existing network participants in terms of technology, buy rates and enhanced service offerings; Two, building upon the success of our organic growth initiative by onboarding additional agent stations; And three, opportunistically pursuing acquisition opportunities.

Our organic expansion efforts continue to deliver positive results and in January of this year, we welcomed our most recent new partner with operations in Omaha, Nebraska. We also believe that 2009 could provide a unique opportunity for further organic growth as we expect a number of asset based LTL carriers and potentially a few of the smaller agent based forwarding networks to fail. The business that these groups have serviced will need to find a home and this will create opportunity for the stronger networks to gain incremental business.

With respect to our acquisition of Adcom and with a lot of hard work and long hours by our people, the integration is progressing about as well as we could have expected. All Adcom stations have been successfully migrated over to our operating platform and are now being supported from here in Bellevue. Over the next several months, we will wind down Adcom's Minneapolis headquarter location and we expect to have fully exited that location by the end of June. Cost synergies from the back office integration are expected to be in the range of 1 million to $1.5 million per year.

We have also successfully exited the legal proceeding in connection with our automotive transaction as the plaintiff has agreed to look solely to Mass Financial on their letter of credit in consideration for us withdrawing as an intervenor in that case. I will now shift my comments to our financial results and then we will open it up for Q&A.

Today we will be discussing our financial results for our second fiscal quarter for the three and six months ended December 31, 2008. As we discuss our financial results, in addition to a discussion of reported net income, we also provide financial metrics in terms of EBITDA. EBITDA and more particularly, adjusted EBITDA which excludes the impact of stock based compensation and certain non-recurring items is an important metric for us for a couple of reasons.

First, we believe EBITDA is a useful measure with respect to understanding our earnings trends without the impact of certain non-cash charges associated with purchase accounting which will be particularly relevant this quarter and the amortization of the acquired customer relationship intangible asset,. And two, adjusted EBITDA is used by our creditors in assessing debt covenant compliance. For the three months ended December 31, 2008, Radiant reported a net loss of 10.216 million, on $42.5 million in revenue or a loss of $0.29 per basic and fully diluted share. This included a non-cash charge of $11.4 million for impairment of goodwill which I'll discuss here shortly. For the three months ended December 31, '07, the Company reported net income of $1.324 million, on $23.1 million of revenues or $0.04 per basic and fully diluted share, including net non-recurring income of $1.266 million, resulting from a reduction in estimate of liabilities assumed in the Company's acquisition of Airgroup.

For the six-month period, Radiant reported a net loss of $9.966 million, on $74.9 million of revenue or $0.29 per basic and fully diluted share, again including the non-cash charge of $11.4 million for impairment of goodwill. For the six months ended December 31, 2007, the Company reported net income of $1.413 million, on $48.7 million of revenue or $0.04 per basic and fully diluted share.

Although we delivered the best operating results in the Company's history, the capital markets and our stock price have just not been cooperating. Notwithstanding our growth in top and bottom line results, our stock price has continued to trend with the overall deterioration of the market. This decline in our stock price resulted in a market capitalization that was significantly below our book value at the end of our second fiscal quarter. As a consequence, and in accordance with Statement of Financial Standards Number 142, we performed an analysis to determine any potential impairment of goodwill and that resulted in the non-cash charge that you see in our financials.

Now, 142 is an interesting accounting pronouncement and if you've followed us since our start in 2006, you will know that we have significantly grown our business since our initial acquisition of Airgroup. From an accounting perspective, through this growth, we have also grown the value we attribute to customer relationship tangibles as we have added additional stations. Through our impairment testing and review, we concluded that our discounted cash flow analysis more than supports the valuation of our identifiable assets and was well in excess of their carrying values.

Now I just want to repeat that one more time. Our discounted cash flow analysis more than supported the carrying value on our books. The problem was in interpreting and applying 142, there was no value left to be allocated to goodwill and 142 does not allow us to recognize and write up the value of the intangibles that we've created through all of the growth in our business. As a result, we were required to record the non-cash goodwill impairment charge. We do not expect this non-cash charge to have any impact on the Company's cash flows or compliance with the financial covenants in our credit agreement.

On an EBITDA basis, we reported adjusted EBITDA excluding the non-recurring items of $1.382 million, for the three months ended December 31, 2008. This compared to adjusted EBITDA of $534,000 for the comparable prior year period. We also reported adjusted EBITDA excluding the non-recurring items of $2.176 million, for the six months ended December 31, 2008, compared to adjusted EBITDA of $961,000 for the comparable prior year period. A reconciliation of our adjusted EBITDA to the most directly comparable GAAP measure appears at the end of our release. With that I'll turn the call back over to our moderator to facilitate any Q&A from our callers.

Thank you. (Operator Instructions) Our first question is coming from Luis Martins from Taglich Brothers. Please pose your question.

Good afternoon. Congratulations on the solid operating results. Can you provide some color on the revenue mix and the margin mix between Radiant and Adcom and how the mix shaped up in terms of the revenue and the margins, and also, I guess in an environment where the economy was tail spinning and logistics was melting down and the quarter ending in December, you were very successful. Can you just elaborate on perhaps what you're doing right and how you're capturing opportunities in the market?

Thanks, Luis. I'll take the second part first. I think that it's really a combination of things that allowed us to performance as well as we did through the fourth quarter. I think it starts with our underlying business model, the non-asset based nature of what we do allows almost by nature for our groups to be nimble and opportunistic in the business that they pursue and it's operating primarily as an agent based network the entrepreneurs in the field are really empowered to drive the business and that's been very helpful to this downsizing.

In our business specifically, if we think about domestic and international and the relative mix and we'll break some of this down in more detail when we come back to the Airgroup/Adcom conversation but in rough numbers we're $160 million revenue run rate $100 million domestic, $60 million international. And on the international side, we do not have any significant, but you can make that as international import business, the preponderance of our international business is export in nature, so a lot of the compression that you've seen and slowdown in what you read about is on the international side in terms of steam ships having to lay up ships and all that type of stuff. We just didn't have a lot of exposure in that particular segment of the supply chain.

And at the same time, I think as companies have faced stress and challenges, we've -- it's going to be somewhat survival of the fittest and I think that we are in a relatively strong position. I think people within our industry group recognize that and we've had some good success as people are considering their strategic alternatives find us to be a pretty darn good alternative and are choosing to join our ranks. And not only at the what you think of as the agent station level but even down to the kind of the individual sales rep who might have a book of business and is looking where they are currently affiliated and may choose to join one of our local stations as they are trying to make sure that they are part of an organization that has the financial strength and the diversity to endure this economy that we're all working through.

Back on revenue mix, again just to kind of come back to this $160 million revenue number and its component parts, pre-acquisition Airgroup or what I'll call the base business was $100 million book of business that was approximately $70 million domestic, $30 million internationally, and Adcom was a $60 million book of business broken fairly evenly $30 million domestic, $30 million international. So we're now looking at that on its other dimension we're $100 million domestic and $60 million international now, and as we've talked about before, the margins on the international side of the business tend to be fairly dramatically lower than the domestic margins so you'll see profits and metrics and everything going up but you will almost by definition see some compression in the gross margin as we think about mix and taking on a bigger piece of international business in our book of business.

Now having said that, ultimately the driver in our net profitability is our ability to manage cost as a function of the net revenues, so how are agent commissions, personnel and other G&A costs behaving as a function of our net revenues. And I guess to that point, we believe starting in July and moving forward we're going to have another $1 million plus dollars of cost take outs as we eliminate the back office operations of Minneapolis.

So in a steady state, if you will, we think we are at a run rate of $4 million plus these cost synergies and then I think fairly you have to say minus whatever is going to happen in the economy overall in '09 we consider ourselves very fortunate but we're by no means bullet proof as to the economy. We continue to watch it very closely. We spend a lot of time analyzing the credit quality of our end customers and feel like we have a pretty good handle on the business, how it's performing and we would like to think that even in the most darkest scenarios, any compression that we might experience over the course of '09 we would hope that these cost synergies from Minneapolis will more than offset that.

So in terms of the gross margin compression sequentially and year-over-year, that's up I guess predominantly due to more of international revenue coming in through the Adcom acquisition and in terms of getting Adcom's gross profit line in line with your historical gross profit line, where are you in that regard?

Well, I guess a couple of comments. A, we're seeing it in two places. A, it's absolutely the case that with the addition of Adcom we're getting a slug of incremental international business from that but just as kind of an underlying trend, I think we also saw some pretty substantial growth in Airgroups book of international business, so as an overall trend, I think that you're going to continue to see some growth in that which would lead to kind of the compression that we're alluding to. The, net-net, the way to expand the margin is to expand the proportionate share of domestic business that we enjoy, and we can't always be, we don't always have that absolute control.

I would offer to you that the Omaha station that joined us recently, their business is significantly domestic, so that will kind of lea a little more in that direction. I alluded to it in some of my prepared comments but we really find this to be a unique point in time with folks out there looking for a potential new home or in a number of interesting conversations with stations that could further add to our domestic capabilities with potential new stations coming our way to continue to broaden out the network over the next six months.

And in terms of looking into the third quarter, fiscal third quarter, what -- has there been any shift in the trends that you saw in fiscal Q2 or has there been some new economic trends, business trends in the past month and a half or so into Q3?

Yes, well I think as you know, there is kind of a general seasonality baked into our business to begin with. We're coming off Q4 which is one of the strongest quarters into Q1 which is just in the ordinary course is a weak quarter relatively, so we will definitely be down versus the prior quarter and as we are still fairly early into the quarter, I can tell you for the month of January year-over-year, we definitely have seen a downward dip in terms of the overall business, so we were trending very solidly through the end of the year but I think that we are seeing slowing now, how deep and how long that will be, kind of remains to be seen and is kind of anyones guess but all indications from my standpoint is I think through the cost synergies for Minneapolis and new stations that we may have the opportunity to have join our program, I think we will effectively grow faster than any compression that we might experience.

All right, good luck and I'll let somebody else ask some questions.

Thank you. (Operator Instructions) Mr. Crain, we appear to have no further questions.

Thank you. Well, let me close by saying that we remain very excited with our progress and prospects here at Radiant. We've made tremendous progress in executing our strategy, leveraging the Airgroup platform, to bring value to the agent forwarding community and we remain very excited about the opportunity for continued organic growth available through expansion of our network and we believe that we remain uniquely positioned to bring value to our network participants, leveraging our status as a public Company, providing a robust platform in terms of people, process and technology, which is translating into better purchasing power with our vendors and more sophisticated e-Business solutions for our customers. And offering a unique opportunity in terms of succession planning and liquidity for our station owners. We believe the economy will remain difficult through 2009 but believe we are relatively well positioned to opportunistically grow the network even in this down market. Thanks for listening in and have a great holiday.

Thank you. This does conclude today's teleconference. You may now disconnect your lines. Thank you for your participation.