Radiant Logistics Inc (RLGT) 2012 Q3 法說會逐字稿

Ladies and gentlemen, this afternoon, Bohn Crain, Radiant Logistics founder and CEO will discuss financial results for the Company's third fiscal quarter ended March 31, 2012. Following his comments, we will open the call to questions. This conference call 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 estimates 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 achievement 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 or 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 would like to pass the call over to Radiant's founder and CEO, Bohn Crain.

Thank you. Good afternoon, everyone, and thank you for joining in on today's call. As we have discussed on our previous calls, 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 helped create.

Providing a robust platform which is translating into better purchasing power with our vendors and more sophisticated technology 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 been key to our ability to grow.

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 onboarding new agent stations that could recognize the benefit of our platform.

In addition, we will also continue to be opportunistic in our pursuit of 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 competing networks, like our most recent Laredo and JFK acquisitions, and ultimately the potential acquisition of other competing networks.

In addition, we have also identified interest in other non-asset-based acquisition opportunities that are complementary to our current offering. Broadly, these would fall into the categories of truck brokerage, intermodal marketing companies, non-vessel-owner common carriers, and customs brokerage services.

We have developed a robust pipeline of acquisition candidates and have worked hard over the past year to maximize our own financial flexibility. With an expandable $20 million credit facility with Bank of America, a supportive sub debt lender in Caltius, and our $75 million shelf registration recently declared effective and ready to go. We believe we are well positioned with ready access to growth capital necessary to take advantage of these acquisition opportunities.

We are also focused on driving productivity improvements across the network. As we discussed on our last call, there are two levels of cost synergies that we were pursuing at DBA's historical corporate office location in Somerset, New Jersey. Our first opportunity was to eliminate those back-office operations that were redundant to our operations here in Bellevue. And more recently, we have had the opportunity to rationalize the station level operating costs.

As we discussed back in January of this year, we began our brand convergent strategy to operate each of our Company-owned locations directly under the Radiant brand rather than a separate legacy brand. This has allowed us to further rationalize our station level operating costs in New Jersey.

As you may remember, historically, we had significant Company-owned operations in Newark operating under the Airgroup brand which we were working to combine with the historical DBA operations. We completed the final step of the station level integration in May of this year and eliminated what was approximately $300,000 in fiscal Q3 costs in New Jersey.

I also want to provide an update on our integration of our December 2011 acquisition of Laredo, Texas-based Isla International, which serves as our gateway operation supporting the Mexico markets, and our February 2012 acquisition of New York JFK-based ALBS, which serves as our international gateway for both inbound and outbound shipments to the northeast.

I have a few points to be made here. First, both acquisitions have been fully integrated and are performing well. Second, both of these gateway locations have been embraced by the network, and we are excited to see what new opportunities may present themselves. We have 100 locations that now have the Mexico solution to offer to their existing accounts, and our international partners around the world now have access to a great resource in JFK.

And the final point, these two transactions represented our first real opportunities to provide liquidity to owners in connection with their exits from competing networks. We believe these transactions are indicative of the types of opportunities that will be available to us in the marketplace moving forward.

I will now shift my comments to our financial results, and then we'll open it up for Q&A. Today we will be discussing our financial results for our three months and nine months ended March 31, 2012. As we discuss our financial results, in addition to a discussion of reported net income, we will also provide financial metrics in terms of adjusted EBITDA, which excludes the impact of stock-based compensation, changes in contingent purchase price, and certain nonrecurring items.

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 the purchase accounting and the amortization of the acquired customer relationship assets. Secondly this measure of adjusted EBITDA is used by our creditors in assessing debt covenant compliance.

For the three months ended March 31, 2012, we reported a net loss attributable to shareholders of $74,600 on $70.7 million of revenue. This included $141,000 in nonrecurring transaction costs related to our recent acquisitions, and $439,000 in nonrecurring transition and legal costs which are principally associated with our acquisition of Distribution By Air. For the three months ended March 31, 2011, we reported net income attributable to shareholders of $771,000 on $42 million of revenue, or $0.03 per basic and $0.02 per fully diluted share.

For the nine months ended March 31, 2012, we reported net income attributable to shareholders of $998,000, on $215.2 million of revenues, or $0.03 per basic and fully diluted share. This included $409,000 in nonrecurring transaction costs related to our recent acquisitions, and $1.233 million in nonrecurring and legal costs, again, principally associated with our acquisition of DBA.

For the nine months ended March 31, 2011, we reported net income of $2.27 million on $132.9 million of revenue, or $0.07 per basic and fully diluted shares, including a charge on litigation settlement of $150,000.

Let me now highlight our reported EBITDA numbers. We reported adjusted EBITDA of $1.608 million for the three months ended March 31, 2012, which included $305,000 in nonrecurring transition costs associated with our acquisition of the DBA operations, as well as $134,000 in nonrecurring legal costs. This compared to adjusted EBITDA of $1.54 million for the three months ended March 31, 2011.

Excluding the $439,000 in nonrecurring transition and legal costs, we would have reported $2.047 million in adjusted EBITDA for the three months ended March 31, 2012, for an increase of $507,000, or 32.9% over the comparable prior-year period. We also reported adjusted EBITDA of $5.187 million for the nine months ended March 31, 2012, which includes $868,000 in nonrecurring transition costs associated with DBA, and $365,000 in other nonrecurring legal costs. This compared to adjusted EBITDA of $4.922 million for the comparable prior-year period.

Excluding the $1.233 million in nonrecurring costs, we would have reported $6.42 million in adjusted EBITDA for the nine months ended March 31, 2012, for an increase of $1.498 million or a 30.4% improvement over the comparable prior-year period. Our reconciliation of our adjusted EBITDA to the most directly comparable GAAP measure appears at the end of our press release.

We remain very pleased with our overall performance and progress in the integration of our JFK and Laredo transactions. Both of these gateway operations have been fully integrated into our platform, and have made an immediate and positive impact. For the quarter ended March 31, 2012, we posted record revenues of $70.7 million, an improvement of $28.7 million or 68% over the comparable prior-year period, in what is historically our slowest seasonal quarter.

Domestic revenues increased by 98.9% to $45.3 million for the three months ended March 31, 2012, and international revenues increased by 32.2% to $25.5 million for the three months ended March 31, 2012. Net transportation revenues also increased 56% to $20.3 million, as compared to $13 million for the comparable prior-year period.

We did see some compression in the margin characteristics of the business from 31% to 28.7% for the quarter, with a number of contributing factors including the introduction of our new Laredo and JFK locations, each of which carries a lower margin than our legacy business. Laredo, whose operations are typically deferred truck freight, and JFK with a significant book of international business.

We believe this aggregate gross margin percentage of plus or minus 29% is a reasonable expectation for the aggregate business going forward, recognizing that these percentages will be influenced by the unique margin characteristics of any subsequent acquisitions.

And as we have discussed previously, as a non-asset-based third-party logistics provider, we are ultimately most interested in our ability to grow our net revenue dollars on an absolute basis, and then manage our operating costs as a function of these revenues. All in all, we are very pleased to have grown our net transportation revenues by 56% year-over-year.

These positive results were somewhat frustrated by the significant non-cash charges flowing from our recent acquisition activity. The ongoing dispute with the former DBA shareholders and the associated legal expenses that we've incurred in connection with this and other matters.

As we look at our operating costs as a function of net revenues, we saw reductions in agent commission expense going from 67.9% to 60.3%, partially offset by increases in our personnel costs going from 12.1% to 16.5%. This general dynamic is as expected with the composition of our network now including significant Company-owned operations in Newark, Los Angeles, Laredo, and at New York-JFK.

We also reported significant increases in our selling and general administrative expenses during the quarter, which were 14.9% of revenues as compared to 8.5% for the comparable prior-year period. These higher costs were driven in part by the incremental facilities costs of our new Company-owned locations which were as expected.

As well as by the nonrecurring transaction expenses of approximately $141,000 incurred in connection with our recent acquisitions, and approximately $134,000 in legal expenses we incurred in connection with our uplisting to the AMEX and other ongoing disputes with the DBA shareholders.

The single biggest impact, however, came as a result of the significant increase in depreciation and amortization expense which went from 1.9% to 5.1% of net revenues as a result of our recent acquisition activity and the corresponding increase in our amortizable intangibles. I've already highlighted the $300,000 in nonrecurring costs for the quarter related to the station level cost synergies in New Jersey.

Let me also take a moment here to make some measured remarks on our Los Angeles operations and our ongoing dispute with the former shareholders of DBA. In January of 2012 we asserted claims for indemnification against the former shareholders of DBA under the agreement of plan and merger dated March 29, 2011, related to, among other things, the failure to identify certain purchase transportation charges, the failure to identify certain related party transactions.

And the loss of certain Los Angeles-based customer accounts as a result of solicitations by the former DBA shareholder who managed our Los Angeles office, together with the shareholder's spouse who managed certain Los Angeles-based account relationships. This constituted in our mind a breach of the non competition and non solicitation covenants under the agreement governing the transactions.

In February of 2012, we filed a formal arbitration against the former DBA shareholders detailing these claims and asserting our right of set-off of $1.8 million against amounts otherwise payable to the DBA shareholders in the future. Although the arbitration and ultimate resolution of this dispute will not likely occur within the short term, we do not believe that these breaches will have any meaningful long-term effect on our overall results of operations given, one, the termination of the previously undisclosed related-party transactions.

Two, our efforts to recover lost customer relationships and retain existing customer accounts. Three, efforts through the arbitration proceeding to assert legal remedies as a result of these breaches. And four, efforts through a concurrent civil proceeding to enjoin further customer solicitation and assert legal remedies against the former shareholder and his spouse.

Nevertheless, near-term earnings will -- have and will continue to be negatively impacted as a result of lost revenue experienced by our Los Angeles office, and the legal expenses incurred in connection with this matter. Although such amounts may ultimately be recoverable in addition to our initial $1.8 million claim.

As to our forward-looking guidance, we are reaffirming our guidance for fiscal year June 30, 2012, with normalized EBITDA of $10.5 million on $295 million in revenue, which includes only seven months of operations from our new Laredo gateway and only four months of operations from our JFK gateway. We are also reaffirming our preliminary guidance for our fiscal year ended June 30, 2013, with normalized EBITDA of approximately $14 million on $330 million in revenues.

These projections are burdened by the degradation in performance of our Company-owned operations in Los Angeles and exclude any benefit that we might recognize in the future as a result of our $1.8 million claim from the former shareholders of DBA, or our ability to enforce the non competition obligations contemplated in that transaction. Again, a reconciliation of our normalized EBITDA to the most directly comparable GAAP measure appears at the end of our release with respect to this forward-looking guidance.

I've touched on our acquisition pipeline, but let me reiterate how excited we are about the opportunities we are seeing in the marketplace. Both big and small, we believe we are in the right place at the right time with the right value proposition, and enjoy the financial flexibility to get the job done. With that, I will turn the call back over to our moderator to facilitate any Q& A from our callers.

Thank you. We'll now be conducting a question-and-answer session.

(Operator Instructions)

Howard Halpern, Taglich Brothers.

I guess my first question regarding the ongoing litigation -- what would you estimate, until it's resolved, what the ongoing legal expenses might approximate?

I would refer you to our press release and our earnings guidance, which we have -- we've factored in approximately $300,000 in legal expenses that we think that we will incur here in the coming quarter, working to resolve these matters.

Okay. And in terms of just some of the one-off charges that have occurred, is that about coming to an end, do you believe, and we're going to have more of a clean look at operations going forward?

The short answer is yes. Kind of the longer answer is, there's obviously been a lot of, what I'll call noise in our June 30, 2012 numbers, principally centered around DBA and the integration of that acquisition. That's one of the reasons that we were somewhat early in getting out to the marketplace with our June 30, 2013 guidance, because we think that's a lot more indicative of the run rate earnings power of the business. And then kind of coming back to your first point, assuming that we are successful in our arbitration proceeding, and I personally have a very high degree of confidence that we will be, we also have the opportunity to potentially recover the legal fees that we're incurring in connection with this transaction. So we're not counting any of that in our guidance, but as we're getting deeper into that process, we feel very strongly about the positions that we're asserting.

And how do you feel about the management team that you have in place out there now to meet with customers and try to build that business back regardless of the ongoing situation?

We brought in a seasoned industry executive by the name of Michael St. Julian there in the Los Angeles market who is now running that station, and he's doing a fantastic job kind of rebuilding what we've got going on there. So I've got absolute confidence in Michael, and it's certainly taking us a little longer than we would have liked. I am aghast at the behavior of the parties on the other side of our arbitration, but we're just going to have to -- the fact is, we're just going to have to work through it.

And with regards to the -- you talked about net revenue margin approximately in that 29% area, is there any room for the Laredo and the JFK and some of the other international operations to be able to tweak that to actually bring the numbers up just a little bit more? Every little bit helps. Or is it just a function of international versus domestic?

Well, it's not quit as simple as domestic and international, but you're kind of heading in the right direction. The nature of each of those two locations' books of business is such that they just carry a lower margin characteristic than kind of the aggregate pre-acquisition earnings of our consolidated group where the bulk of our business historically has been, expedited air freight which commands a very high -- one of the highest margins in terms of modality. The Laredo business, as an example, is more typical of what would you expect to see for an LTL, or less than truck load deferred truck product. So I don't think that we're going -- my expectation isn't necessarily to see a lift in the percentage, but my expectation is we will see growth in the absolute gross margin dollars because both Laredo and JFK represent new tools and new resources to the network.

We just wrapped up our annual meeting in Florida a couple weeks ago where we rolled out the capabilities of these two organizations, or these two new locations within our network, to the balance of our partners. And there was an incredible amount of energy within our own network and what they saw as incremental opportunities in their own installed customer base where across the country we have existing customers who have freight going to and from Mexico that we're not servicing today. And so we're very excited to get back into those customer accounts and share with them the exciting news we have about Laredo and its capabilities and think that will prove to be a driver for us as we move forward.

So we've really seen virtually no revenue from your existing station base through -- they have their own book of business, and now with this upcoming year we could see a flood of them getting new business from your existing stations.

That's correct. I like the use of the word flood. Hopefully we can live up to that expectation. But in all seriousness, we made a very conscious effort to allow Laredo the opportunity to integrate their existing book of business and make sure we didn't lose any of their legacy customers in the process of transitioning them to our network and had always intended to use our annual meeting as kind of the coming out party for Laredo to the balance of the network. And so that has occurred, and we're developing the marketing materials and collateral to put in the hands of our stations as we speak, because there is just a lot of energy and enthusiasm coming away from our annual meeting around what people see as new opportunities for us.

One final question, since we're moving along. Do you have any indication, is it the economy status quo as we move towards the end of -- we're almost in the middle of the year already. As we move forward, or do you see indications of a little slowing, or a little growth?

I think it's relatively flat, is kind of what we're seeing.

Okay,

In terms of the overall economy. But with that said, as we demonstrated before, or what we have historically demonstrated is we believe the strategy that we're executing is going to dramatically outperform the market in terms of its growth. And a lot of that will come through onboarding new agent stations as well as our acquisition efforts.

Okay. Well, thanks, and keep up the good work.

All right. Thank you.

Jim Fronda, Sidoti & Company.

Good afternoon. Thanks for taking my questions. With the shelf registration and funding you had received from that, do you expect to make bigger acquisitions down the road, or have you sort of found your sweet spot with the size of acquisitions you'll make?

No, I think we'll -- we look at, each transaction stands on its own. We look at it opportunistically. It's safe to say that our -- I would characterize our sweet spot as being these acquisition targets that are plus or minus $2 million in EBITDA businesses. We certainly have and will continue to look at larger transactions. As we look at larger transactions, typically valuations and structures get more difficult. So as long as we're prepared, so opportunistically we would consider doing a larger deal.

With that said, I think our best opportunity to really create shareholder value is to continue to do these -- what I'll call these smaller tuck-in type acquisitions. Metaphorically hitting singles rather than swinging for the fences. And I think that Laredo and JFK are indicative of the types of opportunities that will continue to be available to us in the marketplace. There's a time and a place to do different types of transactions, and our first three major transactions were acquiring these various networks to give us the scale and physical footprint to set out to do what we were trying to do. But I can tell you from hard-core experience, it's a heck of a lot easier to integrate a single node on a network rather than trying to integrate 35 locations at a time. And if you look at the math behind the numbers, each of -- let's focus on Laredo. Laredo as an individual station that we on boarded on to our network had a bigger economic contribution than any of the much larger agent-based networks that we acquired. I guess that's a long way of saying, you can expect us to be most active in growing our network one node at a time.

Okay, that's helpful. Thanks. And do you intend to keep the international and domestic revenue mix sort of as it stands now, or do you want to build up the international business a little bit more?

We're interested in growing both. And there are -- I think -- kind of the way I think about it is within what I'll call the forwarding vertical, I think the mix will probably stay more or less where it is, but there are -- as I alluded to, some adjacent supply chain segments that, as we move into those, could tip the scale one way or another. If we were to get active in the NVOCC space, that's the non-asset-based steamship world, we would see a heavier weighting into the international side. Conversely, if we were to get active in the truck brokerage space, you would see a weighting coming back more heavily on the domestic side. What I can tell you to give you a little bit of color is, our intention is to maintain a balanced approach to both. We don't want -- it's not our desire to be one or the other, but to have a comprehensive tool kit that we can offer up to our stations and the end customers that we serve.

Great. Thank you for your time. Good luck.

You bet.

Adam Wyden, ADW Capital.

Hey, Bohn. Congratulations on making some progress here.

Thank you.

Couple questions. Can you talk about the organic growth in the business? I understand LA is kind of a problem child, so to speak, and I hope you really tie them to the wall and beat them senseless, because that's not fair. But barring that, can you talk a little bit about the organic growth among your stations who are actually really trying to build value and are kind of on board with the program and all the rest? Can you talk a little bit about what you think your same-store sales growth is ex DBA LA?

Right. The numbers that I have on the top of my -- kind of top of mind that are responsive to the question is that if we look at fiscal June 30, 2011, versus June 30, 2010, we delivered organic growth of approximately 24%.

No, but I mean, I'm talking March 31, 2012 versus March 31, 2011. In the context of what you're getting in this year on an organic side.

I don't have those numbers at my fingertips. I would -- my general expectation is that on a -- my general expectation is this. As we saw through the last kind of economic cycle, we didn't necessarily -- we really didn't lose any customers at the station level. So as the business of our customers went, so went our business. And so on the same store basis, I would -- I would expect that we would generally track with GDP, plus, hopefully, a little bit on top of that with these new tools being brought to bear, like JFK and like Laredo and what that might be able to do to help the individual stations.

And then as we talked about on the prior calls, we view kind of these on-boarding a new station as a complementary component of our organic growth because it's not earnings that we're buying in. These are partners that see long-term value in our platform, and come and join us. So I think same-store growth, which I think is what you are looking for, is going to be modest. Hopefully marginally outperform GDP. But a big complementor to that, and really the big driver in that organic growth will most likely continue to be the on-boarding of new agent stations. Our views on that may change as we see the impact of Laredo and what that represents as a resource for the stations.

Right. But what about -- how is your on-boarding pipeline looking? Obviously you said your acquisition pipeline is pretty strong. Can you speak to what your pipeline is for on-boarding? Are you able to onboard larger stations or have the stations that you've onboarded last year, have those started to pick up in terms of same-store sales growth? Can you talk a little bit about how that's working out?

Well, again, we've touched on some of these concepts before, but we're actively talking to 10 or 15 people at any one point in time, and we have a number of folks that we expect to be joining us in coming periods, but I don't want to begin to set expectations around precisely when those things are going to happen. We're going to kind of continue to do what we do, execute our plan, and when they come, experience has shown they typically come in groups.

In stations like Nogales, just hypothetically, that was one that we opened up recently, that wasn't an acquisition, stations like that, do they -- do you find that these kind of newer onboards are taking advantage of the network and actually getting the power of the network and actually growing their sales base? Do you feel like these smaller onboards are really being able to take advantage of the network and grow their sales?

I think they are, but kind of the flip side of it is that because of the sharing of economics between the corporate -- kind of the corporate take and the agent stations, the lion's share of that benefit flows to the agent stations. It's one of the attractions for them being part of our network and being part of our business model. So those types of things are happening, and it's part of the attraction, kind of from this broader context. So I'm sorry I'm not able to --

That's fine.

Give you exactly what you're looking for there, but --

I know you probably don't like to comment on the Company's share price, but in the last year the Company has -- the shares have declined over 20% almost. We're at May now, May 16, or something like that, and if you go and kind of devolve back to May of 2011, May-June 2011, the share prices have devolved roughly 20%. Yet arguably, you've created a lot of value, in the context of integrating DBA, buying JFK, buying Isla, and to the extent you've integrated DBA, sans California, you've created a fair amount of value. When you combine that with the multiple share statements, registration statements, I think people are a little scared about kind of insiders' willingness or registration of shares and kind of the willingness to kind of sell low, so to speak. So can you speak to the fact about what your view on the valuation of the shares are and how you think about using the stock as currency and perhaps allay some of the market's concerns going forward and provide some vindication to the strategy that you're trying to execute here?

Sure. I guess I should start with the caveat that there are no absolutes. We put the shelf out there to ultimately position ourselves with the ultimate financial flexibility so we were in a position to respond to opportunities as we see them, as we move forward in time. With respect to me personally, we filed some registration statements related to some underlying stock option programs for the entire management team, and I think that created some -- I guess some false negatives in the marketplace. I'm certainly not in the market and don't intend to be in the market personally selling stock any time soon. To your point, I think our stock is not fairly valued, and certainly we see an incredible runway, an opportunity in the strategy that we're executing moving forward.

So that's kind of one side -- or kind of one comment. The other is, I guess the other general comment is, I think we've been -- we certainly have given our best efforts of being good stewards of -- and trying to create shareholder value. Some of those newer to the story may not remember that we initiated a stock buyback and bought in, I think right at 5 million shares of stock at -- I think the average price was $0.24 or $0.25 a share. So we always have our eye on the ball, on kind of that dynamic. As most people know, I'm a significant shareholder personally and hold about 10 million shares of stock.

With options more, right? Even more than that.

To say that this opportunity has my complete and undivided attention would be an understatement. But if you think -- and I guess the third point that I would make is, we started this business with basically $5 million of equity that we raised from third parties and went out and have created what we have done with that $5 million of equity base in our capital structure. And if I think about what we -- where we have come with what we started with, versus what we have available to us now, I've never been more excited about where we have positioned ourselves.

We've got a great partner in BofA with a $20 million facility. There's only $10 million drawn under that facility so we've got dry powder there to do more transactions, and we've got a willing partner in BofA to increase the size of that facility, as we have incremental receivables from acquisitions coming into the borrowing base. We've got a fantastic partner in Caltius who has consistently expressed a willingness to support us on other transactions and incremental access to capital for the right types of opportunities. And now we have this highly flexible and immediately actionable shelf registration in place that only further advances our agenda. So I'm not going to sit here and tell you we're never going to do X, Y, or Z, but I will tell you that we're ultra sensitive to it, and we're going to take a measured approach in whatever we do.

Right. Yes, no, I think, just from my personal perspective is that you have obviously got some roadblocks in the context of DBA, and I think you guys are approaching it the right way in terms of getting that kind of lined up, getting damages, making sure that kind of fits neatly into the program. But as you kind of think about your pro forma projections for 2013, and presuming you don't take on any more debt, I mean, if you just look on a random business in runoff and assume that none of your businesses -- none of your individual agent stations, if you didn't onboard any new people and your existing businesses didn't grow, that in theory you could be issuing equity at close to a 15% free cash flow yield. Which is very high for the strength and quality of this business so I think that's the only thing.

Clearly if there are phenomenal opportunities out there, and you feel like you have to have them, and there's organic and cross-selling and all the rest. It's great to have capital sources, in terms of debt and, I don't know, convertible debt, preferred, or all the rest. But from an equity standpoint, it seems like the cash flow is there and that it's very hard to find a better investment than your stock if you were to just kind of take a step back over the next 6 to 12 months and kind of let the cards where they play out. Am I think about in this the wrong way?

No, I don't think so. The one thing that I would come back and highlight, because I probably didn't frame this particular thought, and that is, for quite awhile, when we were in the marketplace, I spent a lot of my time trying to describe who Radiant was and what we were doing. And I don't have to do that any more. I certainly do in the capital markets, but not within our industry.

People know exactly who Radiant is and exactly what we're doing and we have quite a bit of credibility in our own little niche in terms of what we're doing, and candidly that credibility has created opportunities that wouldn't have been there for us before. And as we've also talked about, typically when we have the opportunity to do a transaction, these are the culmination of three to five-year conversations I've been having with people. So ultimately, it's very important to me and to the organization that we keep ourselves in a position to be actionable. The last thing we want to do is move downfield and progress a potential transaction to the 1-yard line and not be in a position to consummate the deal. We've got all the bells and whistles available to us now, and all the financial flexibility in the world to do deals that make good sense.

Right. So you don't think that the people who are registering their stock, Caltius and Jonathan Fuller from Laredo and all the rest, part of the component of these deals is stock. What is your take on that? Do you think these people plan on holding their stock? How do you view using your stock as a currency if they're just going to sell it down, or is there a precedent for that? How do you think about that?

Those -- both the Caltius financing and the Laredo transaction ultimately included piggyback registration rights as part of the deal. So in the context of putting the shelf up, we had a technical requirement to make good on those registration rights. The reality is, under the new holding -- vesting periods or holding periods under 144, to the extent they wanted to sell their stock, they could have sold it a long time ago. And they -- certainly it's inappropriate for me to kind of speak on behalf of either of those parties, but what I can offer to you tangentially is that neither Caltius or Jonathan Fuller and his team partnered with us with a short-term view.

Right. But they don't -- these people who have shares, all these agent stations who have shares who have gotten them, even if they are a piggyback, in theory they could sell stock and they wouldn't have to file it or ask your permission or anything like that. That's right? Is that correct?

Well, almost everybody -- speaking generally, almost all of our station owners, or the majority of our station owners are stockholders.

Right.

And almost all of those station owners have bought that stock in the open market.

Right.

They hold free trading shares that they purchased just like you did.

Right.

So that aspect I don't think has -- I personally don't see any -- where I think you're going with this, I personally don't see any big overhang from our operating partners who are also stockholders. They all get it. They all understand we're not managing the business quarter-to-quarter. They believe as strongly as I do in the opportunity and the results that we're putting up. So I don't see that as being an issue, and I think -- and kind of further this concept of sellers being stockholders will remain a feature of what we do, because it's important for the sellers to think beyond just their earn outs. We want them to think like stockholders.

Right. That makes sense. I've gotten -- tangentially, I've gotten very positive feedback from the agent stations that I spoke to who own stock, and they get it. I just wanted to ask about how you thought about that because, obviously when you pick -- when you go to the dance, you've got to find the right person who is going to contribute to the organization positively and believe in the story and not create more headaches. So I get that.

Last question from me. I don't know if you or anyone else on the call has been following XPO Logistics and the success that they've had in the marketplace in terms of getting a premium valuation and able to trade at 200 times EBITDA and the rest. Clearly with little EBITDA to speak for today, have you thought about cold starting different supply chain services in the context of truck brokerage or any of that stuff? Clearly the stock market is willing to ascribe a substantially higher valuation for something that is growing organically without capital having to be deployed in the context of acquisitions. Can you discuss where you are on that and how you think about that kind of stuff and what the road map is there for the next 6, 12, 24 months?

Wow. I'm reluctant to speak my mind on XPO. Obviously there's some smart guys over there. I know a lot of those guys, and I certainly wish them the best. They are enjoying, in my mind, an incredible, and perhaps irrational evaluation in terms of where they are, but more power to them in terms of that success. And we'll -- they've got a lot of smart people, and a lot of money. I think they were able to -- I've seen some research reports that are ascribing -- I think it was a 19 times EBITDA to enterprise value type multiple to come up with the types of valuations that they're enjoying in the marketplace with really not having done much yet. And I'm sure they're going to put some points on the board. I'm as curious as a lot of people to kind of see how that plays out. But I think I should just leave it there on that.

In terms of cold starts, I've found cold starts to be pretty darn hard. We're -- where we have done it or we are doing it on the customs brokerage side, we started a customs brokerage group organically, but that's moving slowly to be -- just to kind of call it like it is. So I think -- I would just kind of come back to it. I believe, with 100% conviction that we're executing the right strategy for us. And somebody once told me if you spend your time looking at what other people are doing, you'll get your neck broke. And so we're going to keep our head down, focused on what we know how to do, and -- because we think we've got a model that will deliver results.

Right. But, I mean, have you -- so you've got customs brokerage. Can you talk about what the other horizontal supply chain services that you could begin offering? The network is getting very large now, so I've got to imagine, the fact that you've got access to all these different cities and all the rest that there's incremental business that can be won by (multiple speakers) --

And the two -- kind of the two most obvious ones are truck brokerage and the NVOCC space. Customs brokerage is kind of a smaller value-added. I don't think it will ever be a huge economic contributor to the business, but it's a nice tuck-in service offering that we want to have to round out our capabilities in support of our customers. But basically ocean -- if we looked at a pie chart of the dollar amount that ocean freight forwarding services represented in our portfolio, it's probably less than 5%. We have a huge installed customer base that has a lot of ocean freight that we're just not participating in.

Similarly on the truck brokerage side, I personally believe wearing our freight forwarder hat we've got a much deeper and stronger relationship with the end customer than a traditional truck broker would have. So to kind of say it more crisply, I think we've got a better opportunity to sell truck brokerage services from our strength as a freight forwarder than a truck broker trying to sell freight forwarding services.

So we believe that truck brokerage is an interesting avenue for us. But I guess another concept that I should tee up here, based upon your comment, is that it's not always the case, but it's sometimes the case when we look at providing kind of the local station level business an opportunity for exit or look to buy them in, we might only first recognize them for the freight forwarding component of their business. But when we look behind the curtain, the freight forwarding is only one component of the portfolio of services that they offer. And they may have their own truck brokerage operation. They may have their own small crating operation.

And so part of -- in part, kind of the way we're organizing ourselves to support these multiple business segments, in addition to it making good sense strategically, it's also representative of really the component parts of even the smaller entrepreneurs and the services that they're providing out in the field. So that's a long way of saying that, if I had to guess right now, we're most likely to kind of move with any significance into the truck brokerage segment by operation of an acquisition of a small station that has that as a component of what they do.

Right. Like the reverse supply chain, returning cell phones, concert logistics and all that other stuff, is that a function of each individual agent's book of business, or is there --

We do a fair amount of reverse logistics today so that's just kind of marketing fluff, ultimately. There's different ways to bring value in the supply chains, and we do a fair amount of reverse logistics as part of what we do out across the network today.

Right. I'm just thinking about ways, if you could communicate ways you think you can kind of grow the business organically without having to make acquisitions or what kind of steps the Company is taking on a day-to-day basis to grow the business, really grow the Radiant brand and grow the business organically such that we're not constantly thinking about the growth of the business as four or five times EBITDA.

I think one of our opportunities, if we can find the right -- kind of the right acquisition, if you will, is a, I guess what I would conceptually call a small truck broker that we can leverage those capabilities back across the network. To your point earlier, we have a significant amount of transportation spend in the marketplace today. We're approaching a critical mass in our network that would allow us to begin to effectively broker trucks in and begin to build consolidations and begin to do optimizations that historically or practically can't be done in smaller networks. And so some of those opportunities will be available to us as we continue to move out.

Right. Great. Well, I look forward to seeing it, and the stock is cheap, and I hope you hang on to those certificates, because I think they're going to be worth a lot more, if we don't issue any. (laughter)

Loud and clear.

All right. Thank you.

Thank you.

John Rolfe, Argon Capital.

John?

(Operator Instructions)

Hey, Bohn, can you hear me?

Yes, I can.

Oh, okay, good. A few quick questions for you. First, just given some of the issues that have arisen with DBA, have you guys made any changes or are you making any changes to sort of your acquisition process in terms of either how you think about structuring some of those acquisitions or additional remedies you might be able to put in place? And then maybe in the context of that question, if you could just address whether it looked like you guys had hired a new general counsel, whether bringing her on board, what some of her mandates are going forward and what you hope she will be able to accomplish.

Sure. That was an interesting question in terms of structure. I don't know if you did this intentionally, but the practical and uncomfortable answer is DBA was the one transaction where we deviated from the structure, and boy have we been paying for it. So I think it's a reminder -- DBA is a good reminder of why it's so important to use earn outs as a mechanic of transactions, and I can offer to you that there's a few transactions we've looked at recently where the sellers weren't willing to accept an earn out, and based upon that, we walked away from them. And these customer relationship people oriented businesses, we have been reminded just how important the check and balance of the earn out mechanism is. And so we almost always do that, and we certainly will be doing that going forward. So hopefully that's responsive to your DBA question.

And I invited Alesia Pinney to join as our general counsel. She's been a fantastic addition to the team, and I invited her to join principally in anticipation of all of the acquisition opportunities that we're looking at. We have so much deal flow and opportunity. And candidly, I'm as frustrated as you might be with the nonrecurring legal expenses. I can assure you I am more frustrated. And so I wanted to get somebody in the chair that we could give the direct, kind of full-time responsibility for managing that leg of the business, because I'm happy to report we're not a $50 million company anymore. We're a $330 million company, and the complexity of our business and just the business of the business continues to grow, and if anything, I wish I had brought Alesia on sooner.

Okay. The gross margin sort of soft guidance you gave, or what to possibly expect going forward given the current mix of business, is it possible for you to kind of take that down to sort of an operating margin level? Again, I'm not looking for sort of near term. You guys have obviously put your expectations out there for fiscal 2013, but looking beyond that with a 29% give or take gross margin, given your expectations of the extent to which the operating expenses are scalable or not, can you talk, for instance, about at certain revenue levels what you might expect in terms of an EBIT or an EBITDA margin? Can you give me --

I need to frame it slightly different, but at least I can get you headed in the right direction. I'm reluctant to do it as a function of gross -- of top line revenue because of the variability. But we can hold an effective conversation as our EBITDA, as a function of our gross margin.

Yes.

So for 2013, June 30, 2013, we're projecting $14 million on what's normally $95 million or so of gross margin revenue, if I remember the number correctly. So we're kind of expecting a plus or minus 15% EBITDA as a function of gross margin.

Okay.

Okay. And if we -- we kind of talked about this, at least generically I've talked about it. If we look at some of the really big companies, the expeditors and CH Robinsons of the world and looked at their EBITDA as a function of gross margins, I think those numbers come in at 30% to 35%.

Okay.

So as we scale the business, that's the line along which we will march. And it would just be premature for me to say dollar sign blank equals this, because it's -- there's a fair amount of variability as we've unfortunately shown you in this last quarter.

No, that's fair. You've made the comment in the past about CH Robinson and expeditors as sort of a proxy or a target, and I just -- given that you've sort of put some new thoughts out about gross margin, I just wanted to make sure that those sorts of goals weren't really changing much. Taking the margin line down a bit further. That's really it for me. I guess, look, you've been pretty clear in terms of your responses to Adam's comments on equity issuance. I would just second his comments.

I do think the shelf registration is a bit of a necessary evil, and I say necessary because you need it to fund good opportunities, and I say evil because I think it does serve as a bit of an overhang on the equity given that there's an equity component, in terms of primary shares on that registration. I would just say, look, like Adam said, I certainly appreciate you guys being extremely cautious and stingy about issuing new equity at these sorts of levels. I do think if the business can sort of start showing some of the benefits of the recent acquisitions as we move into the next few quarters here, the share price will hopefully start to take care of itself and more closely track something that approaches fair value. So good luck moving forward in the next few quarters there.

Thanks, John.

Okay. Thanks.

Thank you. I'll now turn the call back over to Mr. Crain for closing comments.

All right, thanks for everyone's attention today. We continue to make good progress in executing our strategy, leveraging our platform to bring value to the agent-based forwarding community. We remain very excited about the opportunity for continued organic growth available to 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 that they helped create.

Providing a robust back office platform which is translating into better purchasing power with our vendors and more sophisticated technology solutions for our customers, and offering a unique opportunity in terms of succession planning and liquidity for our station owners. We are patiently persistent in the execution of this strategy, which we believe will continue to deliver value for our shareholders, our operating partners, and the end customers that we serve. Thanks for listening and your support of Radiant. Bye.

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