Radiant Logistics Inc (RLGT) 2009 Q3 法說會逐字稿

This afternoon, Bohn Crain, Radiant Logistics' Chairman and CEO, will discuss financial results for the Company's third fiscal quarter ended March 31, 2009 and recently announced stock buyback program. Following his comments we will open the call to questions. This conference is scheduled for 30 minutes.

Before we begin the call I'm going to review forward-looking statements. This conference call may include forward-looking statements within the meaning of Section 27-A of the Securities Act of 1933 as amended and Section 21E of the Securities 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 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, 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 an indication of future performance.

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. I'm happy to report to you that notwithstanding the challenging economic environment in which we find ourselves, we were able to continue our trend of profitable growth. With the benefit of our recent acquisition of Adcom, for the quarter ended March 31, we saw revenues increase 15% to $29.7 million, and our adjusted EBITDA increase 53% to approximately $758,000.

For 2009, we continued to execute our three-pronged strategy: Providing continuous improvement to our existing network participants in terms of technology, buy rates and enhanced service offerings; building upon our success of our organic growth initiative by onboarding additional agent stations; and opportunistically pursuing acquisition opportunities. Our organic expansion efforts continue to deliver positive results, and in February of this year, we welcomed our most recent new partner with operations in San Antonio, Texas. We are also in conversations with a number of additional candidates which looked promising in the relatively near term.

With respect to our acquisition of Adcom, our integration plan remains on track. All Adcom stations have been successfully migrated over to our operating platform and are now being supported from here in Bellevue, Washington. In connection with the transaction, Adcom's Minneapolis-based staff were provided a retention incentive that required us to pay everyone through the end of May. We are now only a couple of weeks away from these final payment obligations with approximately two-thirds of the staff already gone and the final group set to exit at the end of this month. Assuming all goes as planned, we expect to have fully vacated the facility 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.

I will now shift my comments to our financial results and then we will open it up for Q & A. Today, we'll be discussing our financial results for our third fiscal quarter for the three and nine months ended March 31, 2009. 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 earning trends without the impact of certain non-cash charges associated with purchase accounting and the amortization of the acquired customer relationship asset. And two, adjusted EBITDA is used by our creditors in assessing debt covenant compliance.

For the three months ended March 31, '09, Radiant reported net income of $293,000 on $29.7 million of revenues, or a net income of $0.01 per basic and fully diluted share. This included a non-cash benefit of $190,000 resulting from a reduction in a previously reported impairment of goodwill. For the three months ended March 31, '08, the Company reported net income of $87,000 on $25.8 million in revenues. For the nine months ended March 31, '09, Radiant reported a net loss of $9,672,000 on $104.6 million in revenues, or $0.28 per basic and fully diluted share which included a non-cash charge of $11.2 million for impairment of goodwill. For the nine months ended March 31, '08, the Company reported net income of $1.499 million on $74.4 million in revenues, or $0.04 per basic and fully diluted share which included net non-recurring income of $1,266,000 resulting from a reduction in estimate of liabilities assumed in the Company's acquisition of Airgroup.

As we discussed on our last call, although we continue to post solid results in the face of this tough economic environment, the capital markets and our stock price have just not been cooperating. Notwithstanding our growth in top and bottom line results through the end of calendar '08, our stock price 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 as of December 31, '08. As a consequence, and in accordance with FASB 142, we performed an analysis to determine any potential impairment of goodwill and other intangible assets that resulted in the non-cash charge.

If you've been following us since our start in 2006, you'll know 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 would attribute to customer relationship intangibles as we've added additional stations. Through our impairment testing and review, we concluded that our discounted cash flow analysis supports our valuation of our identifiable assets well in excess of their carrying value. A good portion of the DCF value is the result of the numerous new stations we have added. When factoring this with our assessment of the value of other assets and liabilities, resulted in no residual value remaining to be allocated to goodwill. However, FAS 142 does not allow us to recognize the value and contribution of these new stations as we consider impairment to goodwill. 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 agreements.

Let me now highlight our reported EBITDA numbers. For the three months ended March 31, '09, we reported adjusted EBITDA excluding non-recurring items of $758,000 compared to adjusted EBITDA of $495,000 for the comparable prior year period. For the nine months ended March 31, '09, we also reported adjusted EBITDA excluding non-recurring items of $2,934,000 compared to adjusted EBITDA of $1,416,000 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 Earnings Release.

Earlier today we also announced a stock buyback program. As we have discussed, we do not believe our current share price accurately reflects Radiant's recent success and long term growth prospects. And as a result, we believe represents an excellent investment opportunity for both the Company and our shareholders. Under the terms of the program, we are authorized to repurchase up to 5 million shares of our stock through December 31, 2010. The share repurchase will be funded using our existing cash balances, future free cash flow, and our revolving credit facility. The share repurchases may occur from time to time through open market purchases at prevailing market prices or through privately negotiated transactions as permitted by securities law and other legal requirements.

The program allows us to repurchase our shares at our discretion. Market conditions, price, corporate and regulatory requirements, alternative investment opportunities, and other economic conditions will influence the timing of the buyback and the number of shares repurchased. The program does not obligate us to repurchase any specific number of shares, and subject to compliance with applicable securities laws maybe suspended or terminated at any time without prior notice. Shares repurchased will be held as treasury shares.

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 comes from the line of Luis Martins with Taglich Brothers, Inc. Your line is now open, you may proceed.

Good afternoon and congratulations on being profitable for the quarter. Just wanted to get some insights into the trends that you're seeing with your top line. Notwithstanding the overall revenue gain, if I looked at the discussion in the 10-Q where you break out revenues including and excluding Adcom, it looks like excluding Adcom, the Radiant base business was down 10% year-over-year. And if I back out those numbers, roughly just north of $23 million top line, and the Adcom portion, backing out the overall revenue is about $6.4 million, and minus 10% in the environment where that we are in, it's not anything to be ashamed of. It's a nice comparison but sequentially, coming off of 11% growth in Q2, I'm not sure what your thoughts are in terms of the business deteriorating.

Thanks, Luis. Your comments are squarely on the mark. Our business is by no means immune to this challenging economic environment and across our network, everybody is working their tails off to combat this environment. Setting aside the benefits of the transaction, the base business has probably been down on average somewhere, I would say, between 18% and 20% just on a standalone basis how the base business has performed in this environment, and where your comments were headed. We really didn't see this begin to manifest itself into our numbers until the January-February time frame. Said differently, we were still moving along very nicely in our fiscal second quarter ended 12/31 where we reported some pretty good numbers for ourselves but we were definitely feeling it.

I think that there's two things going on. If you'll remember, there's an inherent seasonality in our business with the quarter ended March historically being the slowest quarter within our business. Compounded by the economic environment, it's certainly tough out there. All along, we have recognized and expected to see some compression. And our strategy has been to work aggressively to try to replace some of that revenue, some of our organic growth strategies, and those come in two flavors, really helping our existing stations win new incremental business as well as onboarding new agent stations which we also view as organic in the sense that we haven't acquired them into the platform. We are seeing an uptick in revenues and volumes in what we're currently experiencing. It's definitely more of the seasonal aspect.

I think on a base business year-over-year if we look we'll still be down but at the bottom line, I think you'll continue to see reported improvements on our part, in large part to the benefit of the cost rationalization that we're able to enjoy as a result of the Adcom transaction that was part of our rationale for doing the transaction in the first place. We've been marking the days on our calendar waiting for June 1st when we're no longer have the burden of carrying the payroll dollars of Adcom's historic back office operations there in Minneapolis. We effectively have moved all of the work here to Bellevue through the retention program, have continued to carry those costs, but that program is over here in another two weeks.

In terms of Adcom, the revenue line associated with Adcom, correct me if I'm wrong, it looked like in the second quarter there was about, meaning the quarter prior to this one that you just reported, the revenue run rate was $16 million or so per quarter, particularly in the second quarter. And if I back out the numbers, I get a revenue line of $6 million for the third fiscal quarter, and that drop is steeper than what happened in your base business. And considering that you retained their people, what went wrong in the third quarter?

Well, I'm not sure that I follow your math absolutely. I don't think that anything went wrong, as you stated it, other than just the general economic environment and compression. Probably the broadest way to say it is we effectively, we clearly haven't lost any stations and we really, to my knowledge, have lost no material customers that would hit the radar screen. So we have all the stations. We have all of the customers. The end customers' business has compressed a little bit and we're making up for that in terms of cost take outs in the back office.

Okay so in terms of big picture, on the transportation and logistics sectors, industries, a lot of companies started feeling some downspin in late last year which would have been associated with your first and second quarter of your fiscal year. And however you didn't feel it towards the third quarter of your fiscal year. So in terms of regaining some momentum, are you positioned to start feeling the benefits along with other companies when the economy picks up, or do you think perhaps it will take a quarter or two longer to feel some momentum?

No, I think that we'll move pretty quickly with the market. One of the benefits of our model is the fact that we're non-asset based so we're almost by definition more nimble than many of the traditional asset based carriers that are out there. As I alluded to in some of my prepared remarks, we have a number of interesting candidates that were in various stages of conversation with that will help boost the business incrementally on an organic basis, as well as, again, we enjoy all of the customers that we historically have and as the economy begins to pick up -- and I don't pretend to have a crystal ball about when that's going to occur -- but we're very well positioned in that we have all of our stations and we have all of our customers and we have better buy rates and a more lean back office organization to support them from. So I think we are very well positioned to get a pop in terms of the financial performance as we find our way into recovery.

And in terms of the retention payments that you spoke about, can you quantify those in the third quarter? And obviously, you are profitable and perhaps you would have been more profitable if it weren't for these retention payments. And so you have Q4 to go, as you mentioned but starting in Q1, obviously you'll see the full effects, but in Q3, do you have a rough number of how your financials were impacted?

Yes, I don't have the precise number but to dimensionalize it for you a little bit, just on a labor dollar basis, we spend approximately $100,000 a month in payroll dollars in Minneapolis. So with two-thirds of the workforce already exited, they were characterized as severance payment in the prior quarter. But to your point, we won't see, we are really only going to get one month's worth of benefit, if you will, for the month of June for our Q4 period, and it will be the quarter ended September which will be our Q1 for the following year where we should see in orders of magnitude probably $80,000 to $90,000 a month in cost synergies.

And in your Qs you disclosed a dispute that had risen between the former shareholder of Adcom and yourselves. When do you see that getting resolved and does that in any way impact the business in terms of your customer dealings and the morale, particularly with retaining the employees of Adcom through May?

There's a couple questions embedded in there. First, we fully reserved for the potential worst case scenario in terms of what we booked up in terms of the purchase accounting, we are working to find common ground around basically the calculations of working capital as of closing date and what should or should not be included as part of the purchase price and the transaction that was negotiated for. We are in the very early stages of arbitration there. I suspect it will take a fair amount of time to work through all of the details of those calculations.

I wouldn't want to venture a guess but a resolution is by no means imminent but it's fully provided for and it should have no impact on the business. And particularly given the nature of these agent based businesses, the independent stations really don't have any skin in the game, if you will, as it relates to the working capital, the resolution of the working capital issue, so it's obviously unfortunate from my standpoint but it really is a non-event from the go forward status of the Company and our opportunities.

All right congratulations on being profitable and not too bad of a day for your stock, was up 50%, and good luck on the rest of '09.

Thanks, Luis.

Thank you. Our next question comes from the line of Doug Danhart with Danhart Investments. Your line is now open, you may proceed.

Hi, Bohn. Good quarter. Just a quick question for you. You briefly mentioned you're starting to see a little uptick in business. Could you give us a little bit of an idea of what areas that you're seeing uptick coming in?

Sure. We are having, most specifically, the opportunity that we are getting some traction in deals with our support of the Department of Defense. Just as background, probably a year-and-a-half or two years ago, the US Transcom Department of Defense appointed Menlo as what people referred to as a 4PL or master logistics coordinator, and was tasked with effectively centralizing the logistics and transportation management on behalf of depots across North America. And we were able to effectively partner with Menlo and have been participating in their rollouts across the US and winning a fair number of new locations. And obviously, if you think about credit risk, notwithstanding all of the current Administration's incentive programs, is definitely a good customer to have. The Department of Defense is actually the largest shipper in the world as a customer, and they pay quickly and we're happy to have the opportunity to support our war fighters out there and that's been a nice opportunity for us.

One other quick question. Just what number are you using for book value?

Let me look at the balance sheet here.

I'm sorry, I apologize. I just didn't have it in front of me. I can look it up if you don't have it in front of you.

I've got my Q right here. Book value is about $24 million.

All right. Another thing too, I appreciate you and the Board stepping up and coming with your buyback. As a shareholder, we appreciate that. Thank you.

You're very welcome.

Thank you. At this time there are no further questions in queue. I'd like to turn the floor back over to Mr. Crain for any closing remarks.

All right, let me close by saying that we remain very excited about our progress and prospects here at Radiant. We continue to make good progress in executing our strategy, leveraging the Radiant platform to bring value to the agent forwarding community. We remain very excited about the opportunity for continued organic growth available through our expansion of our network and believe we remain uniquely positioned to bring value to our network participants, leveraging our status as a public company to provide our partners with an opportunity to share in the value they help create, 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 2010 but believe we are relatively well positioned to continue to deliver profitable growth even in this down market. Thanks for listening and thanks for your support of Radiant Logistics.

Ladies and Gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you very much for your participation and have a wonderful afternoon.