Radiant Logistics Inc (RLGT) 2011 Q2 法說會逐字稿

This afternoon Bohn Crain, Radiant Logistics' Chairman and CEO will discuss financial results for the Company's second fiscal quarter, ended December 31, 2010. Following his 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 the 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.

I would now like to pass the call over to Radiant's Chairman and CEO, Bohn Crain. Thank you; Mr. Crain, you may begin.

Thanks, Doug. Good afternoon, everyone, and thank you for joining in on today's call.

As we discussed on our last quarterly call, we remain very bullish on the growth platform we have created at Radiant and the scalability of our non-asset-based business model. The heart of our growth strategy continues to focus on bringing value to the agent-based forwarding community, leveraging our status as a public company to provide our partners with an opportunity to share in the value that 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. This approach has made us unique in the marketplace and has been key to our ability to grow, even through down markets.

Within this framework, we are fueling our growth through a combination of organic and acquisition initiatives. Organically, we continue to focus on improving the tools available to our existing network as well as expanding the network itself by on-boarding new agent stations that recognize the benefit of our platform.

In addition, we also continue to opportunistically pursue accretive acquisition opportunities to further accelerate our growth. Here too, the core of our effort will remain on acquisition candidates who are linked to the agent-based forwarding community. This would include the conversion of our current agent stations, the acquisition of agent stations participating in other networks and the acquisition of other competing networks.

In addition, we also have an interest in other non-asset-based acquisition opportunities that are complementary to our current offering. These would broadly fall into the categories of truck brokerage, intermodal marketing, non-vessel owner common carriage and customs brokerage services. As we discussed on our last call, we believe we are well positioned to complete our next significant transaction in 2011 and enjoy the financial flexibility to do so.

With that said, for all the opportunity to drive growth, obviously the key is to deliver profitable growth. And as we also discussed last quarter, we believe we have the platform in terms of the people, process and technology to do just that, to continue to deliver profitable growth.

The ultimate profitability of our operation is determined in large part on our ability to control our payroll facilities costs as a function of our net revenues. Our EBITDA margin expressed as a function of net revenues was approximately 12% for the quarter. As a reference point, some of our larger industry participants are enjoying EBITDA to net revenue margins in the range of 40%. That is the power of leverage within our non-asset-based business model, and as we scale the business we should expect significant margin expansion.

Of course, we do have some distance to travel before we achieve these higher levels, but the underlying opportunity is there.

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 three and six months ended December 31, 2010. 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 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 and the amortization of the acquired customer relationship asset, and adjusted EBITDA is also is also used by our creditors in assessing debt covenant compliance.

For the three months ended December 31, 2010, Radiant reported net income of $716,000 on $44.5 million of revenues, or $0.02 per basic and fully diluted share, and this included a charge on a litigation settlement of $150,000. For the three months ended December 31, 2009, Radiant reported net income of $549,000 on $39.1 million of revenues, again, on $0.02 per basic and fully diluted share, and this included a gain on litigation settlement of $355,000 for that period.

In December of 2010, we recorded a charge of $150,000 in connection with the settlement of a dispute with one of our competitors. By agreement amongst the parties, without admission of any wrongdoing on the part of the Company and with affirmation of the parties' rights to freely compete in the marketplace, we agreed to make a $150,000 donation to a mutually agreeable 501(c)(3) charitable organization. Neither the Company nor our competitor received any payment in connection with the settlement.

Also, by comparison, in December 2009 the Company recorded a gain of $355,000 in connection with the favorable settlement of a dispute with the former owner of Adcom Worldwide related to the calculation of payment of working capital and certain related post-closing items. For the six months ended December 31, 2010, Radiant reported net income of $1,499,000 on $90.9 million of revenues, or $0.05 per basic and fully diluted share, including the $150,000 litigation charge. For the six months ended December 31, 29, Radiant reported net income of $665,000 on $73.1 million of revenues, or $0.02 per basic and fully diluted share.

Let me now highlight our reported EBITDA numbers. We also reported adjusted EBITDA of $1,672,000 for the three months ended December 31, 2010, compared to adjusted EBITDA of $1,026,000 for the comparable prior-year period, an increase of $646,000 or 63%. For the six months ended December 31, 2010, we reported adjusted EBITDA of $3,381,000 compared to adjusted EBITDA of $1,750,000 for the comparable prior-year period, an increase of $1,631,000 or a 93.2% improvement. A reconciliation of our adjusted EBITDA to the most directly comparable GAAP measure appears at the end of our earnings release.

We're seeing encouraging trends with the improving economy and the scalability of our non-asset-based business model. We posted record revenues of $44.5 million for the quarter compared to $39.1 million for the comparable prior-year period, an improvement of $5.4 million and 13.8%. Domestic transportation revenues increased by 31.4% to $25.5 million for the three months ended December 31, from $19.4 million for the three months ended December 31 of 2009.

International transportation revenues decreased modestly, 3.6%, to $19 million for the three months ended December 31, 2010, from $19.7 million for the comparable prior-year period.

We were obviously very pleased to see the resurgence in our domestic service offering and corresponding growth in our net revenues. As pleased as we are with the top line, we are equally excited with the expanding margin characteristics of the business as we grow our net revenues. Our personnel costs expressed as a percentage of our net revenues decreased from 13.3% to 11% of our net revenues. Similarly, our SG&A expenses decreased from 10% to 8% of our net revenues. Looking to our adjusted EBITDA as a percentage of net revenues, we see our margins improving from 8.9% for the quarter ended December 31, 2009, to 11.8% for the quarter ended December 31, 2010.

These statistics are exciting to us and, we believe, indicative of the leverage available as we continue to execute our growth strategy. Given these strong results through December as well as our early visibility into our fiscal Q3, we have updated our prior guidance from $5 million on $165 million in revenues to $5.5 million in adjusted EBITDA on $175 million annual revenues. This equates to approximately $0.08 per basic and diluted share, and this is before considering the impact of any future acquisitions or organic network expansion.

Although we have seen some recent appreciation in our stock price, our stock continues to trade at a significant discount to our competitors. Based on our current 30.5 million shares outstanding, our $5.5 million in EBITDA guidance and approximately $4 million in bank debt, at our current stock price we are trading at a valuation multiple of approximately 6.5 times our projected earnings power. Our larger comps enjoy an EBITDA to enterprise value multiple of 18 times, and although they are certainly larger, are not growing nearly as fast.

We would also like to remind investors that our free cash flow is generally higher than our net income because we have significant non-cash depreciation and amortization expenses flowing through our financial statements as a result of the mechanics of accounting for acquisitions and the fact that we have minimal maintenance capital expenditure requirements.

I will also take a moment here to provide an update on our stock buyback program. Under the terms of the program we were authorized to purchase up to 5 million shares through December 31, 2010. Through this program, we spent approximately $1.4 million to repurchase a total of 4.9 million shares at an average price of $0.286 per share. And, obviously, we believe that represents a great value for our shareholders.

Even with the funds we deployed in connection with stock buyback, we also were able to reduce amounts outstanding under our $20 million credit facility with B of A and, at this point, only have about $4 million outstanding.

With a fair amount of dry powder available to us, we remain very active on the acquisition front and are in varying stages of due diligence with a number of potential acquisition candidates that could have a meaningful impact on our business.

With that, I will turn it over to the moderator to facilitate any Q&A from our callers.

(Operator instructions) Howard Halpern, Taglich Brothers.

Congratulations, great job, great quarter.

Thanks, Howard.

First question, I guess, falls in line with your visibility that you see so far into your Q3. In terms of, are US sales still going to outpace international sales like it did in this current quarter?

I think they will come more in phase, if that's the right terminology, as we move forward. Domestically we were much harder hit by the recession than we were in the international because of all of our exposure to exports, which continued to do pretty well through the economic cycle. So all in all, I think domestic is restoring itself to more traditional norms, and then we kind of continue to grow our international stuff. On a comparative basis, we had some project moves or some non-recurring type revenues in international that made the comparative year-over-year period look a little choppy. Specifically, we had done a fair amount of work out of our Las Vegas operations in support of the building of the City Center project there, as well as we had done a fair amount of work in support of our war fighters into Afghanistan that was impacting some of the international moves in the 2009 comparable period.

We're still having some of those spot-type moves occurring in these current periods, but it's kind of a timing issue which quarter those types of events are landing in. So we remain -- we continued to -- I guess we are very optimistic and pleased about the re-tracking, if you will, on domestic side. But with that said, we remain pretty bullish about international, what international means for us strategically and as an element of the ongoing growth of our international business segment.

So I wouldn't read this one quarter's activity -- I wouldn't read too much into that in terms of our future expectations of the international segment.

So I would be right, then, if I don't do it by quarter, but I take the second half of the year, because I was really looking in terms of -- because I know domestically, margin is a little better domestically than internationally. So I should really average that out, and taking that average, net revenue margin will probably be a little less than it was in the second quarter as things phase -- you know, more normalized phasing of the revenue streams. Am I right in assuming that?

Yes, I think that's fair.

Okay. In terms of potential acquisitions, and if we turn to maybe broadening additional non-asset based, like the truck brokerage or a custom brokerage, is that -- when you accomplish that or attempt to accomplish that, is that going to be where you buy a segment or an asset from another company? Or, will you just be buying another company?

Now, there are what I will call adjacent segments of the supply chain where there are ample acquisition opportunities, as I kind of alluded to in my prepared comments, one of which is the truck brokerage vertical, which, to the extent that we were able to pursue that, would allow us to effectively begin to provide a captive capacity provider back to the forwarding side of the house against staying true to the non-asset based philosophy of our business.

Similarly, what we refer to under the acronym NVOCC, which stands for non-vessel owner common carrier; that's effectively an ocean container or steamship transportation services that are provided on a non-asset based basis, and there are quite a few companies in each of those segments that would find value in our value proposition and could bring us value in terms of our combined group. And it all fits within the theme of making more tools available to our forwarding network to make them that much stronger in delivering services to our customers.

As, Howard, I think you are aware, we don't have a particularly big exposure today into ocean freight, which is one of the reasons we fared as well as we did through this last economic cycle. With that said, a large number of our installed customer base has motion services that we just don't participate in today. So by broadening our toolkit, it will just give us that much more opportunity to sell into the existing account base that we enjoy.

And what type of -- if you're able to accomplish this, what type of leverage expansion could we assume if something like this does occur?

I think it's going to vary mode to mode and opportunity to opportunity. So I would be way ahead of myself to start trying to dollarize those until we had a specific opportunity that we could present back to you and the balance of the shareholders in terms of what it would mean to us. But, in the broadest sense, I think the same kind of fundamental opportunity exists, which is we believe that in any one of these segments that I described, that there's a fairly lengthy list of privately held companies doing $1 million to $3 million of EBITDA that we can acquire at plus or minus five times earnings, using earnouts and our credit facilities onboard and bring value to the sellers and ourselves and our agent stations in a very powerful way.

One final one, and then I'll let someone else jump in -- this is more, I guess, housekeeping. On the balance sheet, you have your common stock listed and then you have common stock issuable. And I'm assuming that's for the Adcom acquisition. Is that going to just fold into regular common outstanding at some point?

Yes. Those were shares that we actually had instructed the transfer agent to issue but hadn't quite been issued as of the 12-31 cutoff. So it's kind of a hyper technical accounting point. So yes; it will totally morph back in, so that line item will disappear on our next balance sheet.

Okay. Well, just keep up the good work and I look forward to, I don't know, seeing an acquisition in the next six months or so.

From your lips to God's ears, as they say.

Okay.

Adam Wyden, ADW Capital

Bohn, congratulations on great quarter. I wanted to know if you could talk a little bit more about these ancillary opportunities in terms of custom brokerage and international logistics and what kind of margin characteristics those businesses will have and how does that differentiate from what your larger competitors have. And then could you talk a little bit about the size and scale of the opportunity to onboard more agents onto your franchise model and how your franchise model differentiates from others?

Wow, that's a lot. I guess I'll start at the top, in terms of the margin characteristics of these various segments, unfortunately. The short answer is, it depends. Each transaction or acquisition candidate will be unique and have its own character, margin characteristics. My own personal experience has been is let's kind of focus on the truck brokerage and NVOCC side of things. Those businesses will traditionally be lower-margin businesses on a net revenue basis, just given the nature of those particular product lines. So I guess, on an absolute basis, if we look at the gross margin line item, if you will, as we onboard some of those complementary segments, or as we have the opportunity to do some of those things. At the gross margin line item, I would expect to see some kind of margin compression on an absolute basis.

With that said, and this gets back to the heartbeat of the earnings power of the business and the whole scalability of what we are trying to accomplish is that we really believe that we have a pretty darned scalable platform which we've kind of demonstrated through the acquisition of Adcom, our ability to support that next incremental margin dollar with virtually no incremental back-office operating costs in support of that.

So let me give it to you a little bit differently. If we had the opportunity to onboard $100 million of revenue at a 10% margin, that would hamper or dampen the margin characteristics on the gross margin line item. But if I don't have to add any more back-office cost in support of that what would be $10 million of gross margin, that $10 million would go to our bottom line. And because we're not asset based in terms of not hanging up capital in terms of trains, planes and automobiles, those types of opportunities are very, very interesting to us.

So, although we remain very interested in preserving and growing the gross margin characteristics of our business, ultimately it's the ability for us to manage our own controllable operating costs that will ultimately carry the day in terms of whether we can meet our own objectives of profitable growth.

So I apologize if that's not a terribly crisp response to your question, but each of these transactions will be unique unto itself. But we will look at them in terms of what they can bring to the table, what our cost of capital is, how we can structure the transactions and ultimately make sure that they are synergistic to the broader platform and help make us that much more competitive in the marketplace.

No; I think that makes sense. I think what you're trying to relay -- correct me if I'm wrong -- is that even though some of these opportunities might have lower gross margin characteristics, because of the platform and the fixed costs associated with the business and the fact that you don't have to reinvest capital in these kind of opportunities because they are not asset based, kind of the cash flow characteristics of the business and the operational leverage in this business begins to expand. So it's gross margin dollars for free in terms of future capital reinvestment are good for the business going forward. So is that what you are saying?

Yes, I think that's exactly correct. And to emphasize the point, these agent-based forwarding networks themselves are low-margin businesses. But if I look at it through a slightly different lens, they are low margin businesses rich in accounts receivable, making them easily financeable, which basically provides a mechanism for low cost of capital as we think about growing our business.

Just as a quick reminder, we have grown the business to where it is today with an initial $5 million equity raise. And so we think we are pretty good stewards of our equity dollars in creating shareholder value with our approach and philosophy.

Great, that sounds great. The last part of the question -- can you talk about the opportunities you are seeing in onboarding new agent stations? I know you talked about the three-pronged strategy. But it seems to me, in terms of cost of capital, onboarding a new agent stationed costs no capital. You get gross margin dollars for, de facto, zero.

Can you talk about the opportunity that you are seeing in that market and how you are approaching that, because that seems like a phenomenal opportunity that maybe some of your company-owned different competitors don't necessarily have at their fingertips, and it's a great way for you to grow your business.

Yes. To start with just the historical context, when we initially acquired Airgroup, they were $50 million in revenue and we grew Airgroup from $50 million to $100 million organically in about 18 months, basically following the approach that you are alluding to there. And so a couple of things -- one of our primary reasons for being, in our own minds, is trying to be creative in bringing value to what we broadly call this agent-based forwarding community. And part and parcel of that is trying to get out and share the good word in terms of what our platform can mean to agent stations that are participating in our competitors' networks in terms of our buy rates, in terms of our technology, in terms of our opportunity to participate as shareholders and share in the value that they're helping to create and ultimately the liquidity opportunity available to them.

So we think we have a very unique and compelling value proposition to these logistics entrepreneurs that we are trying to support, and I couldn't agree with you more in terms of the shareholder value creation opportunity in terms of what it means to us as an organization to onboard agent stations. And thankfully, we've had an opportunity to have had lots of practice in terms of the folks who choose to join us and participate in what we have to offer.

With that said, it's a competitive marketplace out there, and rest assured that we are vigorously participating. Without getting into any particulars, at any point in time there is a handful of folks that we are engaged in conversations with. And along those lines, we certainly are in active conversations with a few folks now. I wouldn't want to get into -- try to walk down the path of dollarizing or providing timing for those. But there certainly are a fair number of conversations ongoing in that direction.

And then just one other point that I'll just make on this topic is that we have basically instituted a quarterly electronic communication within this universe of folks that are out there with the thought or intention of being top of mind with all of those -- with all of our potential new partners so that, when and if those thoughts start to enter their mind, that we are on the other end of the phone that they would pick up to begin to explore that next chapter.

Sounds like a great program. Last question -- you have successfully grown this business from $5 million of capital in your initial private placement, and now you have grown it into $35 million, $40 million, whatever the enterprise value is. You've gotten through that growing pains and you've gotten into a bigger business. In terms of growing pari passu, what thoughts have then made in terms of getting a listing off the pink sheets and on a major exchange like the AMEX or the NASDAQ to increase liquidity in the stock and get on the radar of larger investors?

Well, that's certainly part of the longer-term strategy. To your point, we see value in moving to one of the listed exchanges. We certainly have done some analysis around certainly criteria that you have to satisfy. And it's our belief that we will probably satisfy those criteria some time over the course of 2011, based upon the trajectory that we are on. So don't take this as any hard commitments, but it's certainly within the realm of possibilities that we could make our way over to what most likely would be for AMEX here in calendar 2012.

Great, good, keep up the good work.

[Tommy Tucker], private investor.

Well, I was going to ask a question about the stock exchange, except that has been done. But I live in the north Texas area, and I know there's a lot of shareholders both in volume and number of shareholders. And I wondered if there's a possibility of having a shareholder meeting in the Dallas area/Fort Worth area, would be a possibility in the future.

The short answer is yes. I can't resist; I'm originally from Texas, and there's a bumper sticker that says, I'm not from Texas but I got here as quick as I could. Right? So that's how I always feel about Texas. So I'm down there quite frequently. So, whether or not it raises to the level of a formal shareholders meeting or not is kind of a separate question. But I'm trafficking through Dallas and Houston with great regularity. So if you want to drop me a line outside of this call, I'll be happy to connect with you and buy you lunch.

Thank you. Next question would be, when are you looking toward bringing in some of these franchisees or a word that might be appropriate to that to their entire financials would flow into the corporate financials to add value to the stock and help it move to these listed exchanges?

Well, part of our underlying brand promise is to support our logistics entrepreneurs with their own succession plans and liquidity events. With that said, we stand ready to support our stations when they are ready to move forward on that basis. And it's fair to say that we are in preliminary discussions with a few stations along those lines and are very excited to make good on that promise and have the opportunity to do some of those things.

As you stated, that will represent, for us -- from a financial standpoint, it will drive improved margin characteristics of our business as the profitability of -- if you will bear with me in terms of mechanics of our financial statements for a second. As we convert agent stations to company-owned stores, the line item that represents our agent commissions will go down. That will be -- as that goes down, our personnel and SG&A costs that we inherit from the agent station will roll into our financial statements. With the underlying profitability of that agent station that we are acquiring in, that underlying profitability will flow through to our bottom line, enhancing the margin characteristics of the business that we have.

So we are -- what I would offer to you is, if you are aware of any of those folks either inside of our network or participating in any of our competitors' networks who have an interest in liquidity, please send them my way.

I am excited to be a part of this journey. Thank you very much.

(Operator instructions). Mr. Crain, it appears there are no other questions in the queue. Would you like to make some closing remarks?

Yes, thank you. Let me close by saying that we remain very excited with 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-based forwarding community. We remain very excited about the opportunity for continued organic growth available through expansion of our network and believe that 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 values that 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.

At least from our perspective, it appears the economy is making a slow and steady recovery, and we believe that we are well positioned to continue to deliver profitable growth. Finally, we are exploring acquisition opportunities to further accelerate our growth, and I look forward to providing you with further updates on our acquisition activities as things develop. Thanks for listening and thanks for your support in Radiant Logistics.

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