Radiant Logistics Inc (RLGT) 2012 Q4 法說會逐字稿

This afternoon, Bohn Crain, Radiant Logistics Founder and CEO, will discuss financial results for the Company's fourth fiscal quarter and year ended June 30, 2012. 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 been in the past and may in the future be identified in the Company's SEC filings and other public announcements which are available on the Radiant website at www.radiantdelivers.com. In addition, past results are not necessarily an indication of future performance.

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

Thanks, Doug. Good afternoon, everyone, and thank you for joining in on today's call. As we've 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 the value that they've 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 keen 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 via on-boarding new agent stations that 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 also have an 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, non-vessel owner common carrier, and customs brokerage services.

I will now shift my comments over to our financial results and then I will open it up for Q&A.

Today we will be discussing our financial results for our three months and year ended June 30, 2012. As we discuss our financial results, in addition to a discussion of reported net income, we also provide financial metrics in terms of adjusted EBITDA which excludes the impact of stock-based compensation, change in contingent purchase price, and certain nonrecurring items.

We believe EBITDA is an important metric to help investors more fully understand our earnings trends without the impact of certain non-cash charges associated with purchase accounting and the amortization of the acquired customer relationship assets. And this measurement of adjusted EBITDA is used by our creditors in assessing debt covenant declines.

For the three months ended June 30, 2012, we reported net income of $903,000 on $81.8 million of revenues, or $0.03 per basic and fully diluted share, including a gain of $920,000 associated with the change in contingent consideration, $15,000 in nonrecurring transaction and severance costs, and $314,000 in nonrecurring transition and legal costs.

For the three months ended June 30 of 2011, we reported net income of $582,000 on $70.9 million of revenues, or $0.02 per basic and fully diluted share, including $139,000 in nonrecurring transaction and severance costs and $583,000 in nonrecurring transition costs associated with DBA.

For the year ended June 30, 2012, we recorded net income of $1.901 million on $297 million of revenues, or $0.06 per basic and $0.05 per fully diluted share, including $424,000 in nonrecurring transaction and severance costs related to our recent acquisitions, $1.536 million in nonrecurring transition and legal costs associated with DBA, and a gain of $900,000 retained in contingent consideration.

For the year ended June 30, 2011, we recorded net income of $2.852 million on $203.8 million of revenues, or $0.09 per basic and fully diluted share, including $139,000 in nonrecurring transaction and severance costs, $583,000 in nonrecurring transition costs associated with DBA, and a loss on litigation settlement of $150,000.

Let me now highlight our reported EBITDA numbers. We reported adjusted EBITDA of $2.332 million for the three months ended June 30, 2012. That includes $314,000 in nonrecurring costs comprised of $125,000 in nonrecurring transition costs that are principally personnel costs that were being eliminated in connection with the transition of DBA's historical back office operations and $189,000 in nonrecurring legal costs.

This compares to adjusted EBITDA of $1.902 million for the three months ended June 30, 2011, which included $583,000 in nonrecurring transition costs for an increase of $430,000. Excluding these nonrecurring items, we would have reported $2.646 million in adjusted EBITDA for the quarter for an increase of $161,000, or 6.5%.

We also reported adjusted EBITDA of $7.519 million for the year ended June 30, 2012, which includes $1.536 million in nonrecurring costs comprised of $1.018 million in nonrecurring transition costs and $518,000 in nonrecurring legal costs. This compares to adjusted EBITDA of $6.823 million for the year ended June 30, 2011, which included $583,000 in nonrecurring transition costs.

Excluding these nonrecurring costs, we would have reported $9.055 million in adjusted EBITDA for the year ended June 30, 2012, for an increase of $1.649 million or an increase of 22.3%. A reconciliation of our adjusted EBITDA to the most directly comparable GAAP measure appears at the end of our press release.

We remain very encouraged with the overall performance of our business and our ability to continue to deliver solid growth, notwithstanding the distractions presented over this past fiscal year. For the fiscal year ended June 30, 2012, we posted record revenues of $297 million, an improvement of $93.2 million, or 45.7%, compared to $203.8 million of revenues for June 30, 2011.

Domestic transportation revenues increased 57.9% year over year to $179.9 million from $113.9 million in the prior year, and international transportation revenues increased 30.3% year over year to $117.1 million from $89.9 million for the prior year. Net transportation revenues also increased 35.5% to $84.7 million as compared to $62.5 million for the comparable prior-year period.

We did see some compression in the margin characteristics of the business moving from 30.7% to 28.5% year over year 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 more (technical difficulty) deferred truck and JFK with a significant book of international business.

We believe that 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 previously discussed, as a non-asset based 3PL, we are ultimately most interested in our ability to grow our net revenue dollars on an absolute basis and then managing our operating costs as a function of these net revenues.

All in all, we are very pleased to have grown our net transportation revenues by 35% year over year. Even so, these positive results were frustrating because of our ongoing dispute with the former DBA shareholders who we believe breached their noncompetition obligations in Los Angeles, along with significant nonrecurring legal expenses that we have occurred 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 expenses from 67.8% to 61.9%, partially offset by increases in our personnel costs from 12.4% to 15.6%. This general dynamic is as expected with the composition of our network now including significant company-owned operations in Newark, Los Angeles, Laredo, and New York-JFK.

We also reported significant increases in our SG&A expenses during the quarter which were 13.4% of net revenues for the year as compared to 8.5% of net revenues for the comparable prior-year period. These higher costs were driven in part by the expected incremental facilities cost of our new company-owned locations, as well as by the nonrecurring transaction expenses of approximately $424,000 incurred in connection with our recent acquisitions and approximately $518,000 in legal expenses that we incurred in connection with our ongoing dispute with the former DBA shareholders, uplifting to the New York Stock Exchange, and other legal matters.

Our 2012 results also include over $1 million in nonrecurring transition costs, which represent the back office and operations cost of DBA's Somerset, New Jersey, location that we were able to eliminate over the course of this prior year. In addition, we also experienced significant increase in depreciation and amortization expense, going from 2.1% to 3.7% as a result of our recent acquisition activity and corresponding increase in amortizable intangibles.

Let me also take a moment here and 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 certain claims for indemnification against the former shareholders of DBA under the agreement and plan of merger dated March 29, 2011, related to, among other things, the loss of certain Los Angeles-based customer accounts as a result of solicitation by the former DBA shareholder, Paul Pollara, who managed our Los Angeles office, together with the shareholder's spouse, [Gretta Santini], who managed certain Los Angeles-based account relationships that constituted a breach of noncompetition and nonsolicitation covenants in the agreement governing the transaction.

In February of 2012, we filed a formal arbitration action in New Jersey against the former DBA shareholders detailing these claims and asserting our right of set-off against amounts otherwise payable to the DBA shareholders in the future. That arbitration date has been set for November, and absent some slide in schedule, we would expect resolution on this matter sometime in our second fiscal quarter ended December 31, 2012.

In a separate but related matter, we are also engaged in litigation in California where we have asserted claims against Gretta Santini, the spouse of selling shareholder, Paul Pollara, and a former employee of DBA. In this case, the claim centers around misappropriation of trade secrets, breach of duty of loyalty, and unfair competition. The trial date for this matter is scheduled for May 7, 2013, so it will be some time before this aspect of the dispute comes to rest.

The degradation and performance of our company-owned operations in Los Angeles, along with the associated legal costs associated with the previously described breaches, have obviously impacted our historical results and will continue to be a drag on performance for fiscal year ended June 30, 2013.

In recognition of these facts and what appears to be an increasingly sluggish economy, we have reduced our preliminary guidance for our fiscal year ended June 30, 2013, now projecting $12 million rather than $14 million of adjusted EBITDA on total revenue of $339 million and expect earnings of $3.5 million. This compares to $7.5 million in adjusted EBITDA on total revenues of $297 million and net earnings of $1.9 for our fiscal year ended June 30, 2012.

While these projections represent significant improvement over our actual results for our fiscal year ended June 30, 2012, there is potential upside as this guidance excludes any benefit that we might recognize in the future as a result of our claims against the former shareholders of DBA or our ability to enforce the noncompetition obligations contemplated in that transaction. The guidance also excludes the benefit of any new agent offices or further acquisitions that we may complete over the course of fiscal 2013.

Again, a reconciliation of our normalized EBITDA to the most directly comparable GAAP measure appears later in this release.

Economic cycles will come and go and, thankfully, so too will the Pollaras. What I hope you will take away from the call today is that we are excited as we have ever been about what we have achieved and the opportunity ahead. We are in the right place at the right time with the right value proposition. Network expansion, margin expansion, and the opportunity for liquidity for our operating partners are all part of our bright future.

I think it's fair to say that our stock price has been negatively impacted by the shenanigans in Los Angeles with our stock trading down to a significant discount to our competitors. Based on our current 33 million shares outstanding, our $12 million in EBITDA guidance, and approximately $21 million in debt, at our current stock price we are trading at a valuation multiple of approximately 6.5 times our projected earnings power, well below larger comps that are not growing nearly as fast.

We are taking corrective actions in Los Angeles and looking forward to a favorable response in our stock price as we are able to provide better visibility to our progress in LA.

With that, I'll turn the call back over to our moderator to facilitate any Q&A from our callers.

(Operator Instructions) Tim Fronda, Sidoti & Company.

Hi, Mr. Crain. Thanks for taking my questions.

Happy to.

Can you just talk about the status of the Laredo and JFK acquisitions? I mean are they fully integrated and where are they scaling those operations to where you want them to be, taking advantage of your existing network?

A couple of comments and thanks for the question. I guess the first point I want to make is these are new transactions and actually happening within this fiscal period. And the results that we are sharing with you here on the call only represent seven months contribution from Laredo which was acquired in December of 2011 and only reflect four months of contribution from JFK as that transaction really came online for the month beginning March of 2012.

And we are making -- both organizations are fully integrated and Laredo in particular is performing very well in terms of their contributions to the network, and I think that is reflected in the fact that they have been here seven months. JFK we are a little further behind in kind of getting them where we would expect them to be, but a big part of that I think just has to do with their newness to the organization.

We continue to be very happy to have them as part of the organization and kind of their -- our expectation of their roles in the network as serving as gateways and resources for the balance of the network is playing itself out.

Okay. Can you talk a little bit about sort of your acquisition pipeline in the coming year? Is it -- is there a certain area or type of services you are looking at? With that, now that you have the gateway and JFK, maybe a gateway to Asia or Latin America and another spot?

Sure. Our primary focus will remain on what I will call this community of agent-based forwarders. So we are in kind of continuous conversation with our own stations about conversions to company-owned stores, talking to agent stations and other networks about [joining] agents or acquisition in the context of joining our network.

We also remain very interested in acquiring other agent-based forwarding networks like Airgroup, Adcom, and DBA. We think there is a lot of power in those types of transactions for ourselves.

And then, beyond that, we also have an interest and have certainly been looking for acquisition candidates in what I would characterize as the complimentary adjacent particles, specifically the truck brokerage space. We have also looked at some and NVOCCs as potential acquisition opportunities.

We have launched our own customs brokerage group, Radiant Custom Services, and we are launching that component organically, but that provides another opportunity for us to look at acquisitions that are -- and all these are types of services that we are buying in the ordinary course of delivering comprehensive services back to our customers today and are a natural extension of what we already do.

Historically, we have taken the view that we are -- we wanted to get a little bit bigger before we went offshore, if you will. With that said, we are approaching a size where I think we would at least entertain the idea for a presence in some of the more obvious offshore markets if the right opportunity presented itself.

Great. Thanks for taking my questions.

You bet.

Howard Halpern, Taglich Brothers.

Congratulations on a solid year.

Thanks, Howard.

Of the potential complimentary businesses that you just talked about, what are the margin -- the net revenue margin characteristics compared to that 29% figured that you provided?

You know, I think generally speaking, those will be lower margin type businesses. Our core business today is time -- high-value, high velocity, time definite transportation solutions. So in terms of modality and margin characteristics, our core business is in those higher, generally speaking, in those higher margin segments of the supply chain.

So on a calculated gross margin basis, as an example, we have made a significant acquisition in the truck brokerage space. We would see that have a negative impact on the gross margin percent expressed as a percentage.

But offset by the leverage that you would be creating?

Exactly. That was the point that I was going to move to is at the end of the day we are trying to grow our gross margin dollars and then managing our own controllable costs, our people and SG&A costs, as a function of those gross margin dollars. So as long as we can -- we are very -- we would be very interested to acquire a truck brokerage platform as an example, notwithstanding the fact that it may operate at lower margins, so long as the underlying integrity of how we think about valuing earnings and structuring transaction holds true.

How many agency stations did you end the year with compared to the prior year?

I think the technically precise answer to that is -- I want to say 93 stations. I think we started right at 100 stations. There is a couple of things that kind of come into play in connection with that.

One is we consolidated a couple of locations, so whereas historically we had both Airgroup and Distribution By Air operating in Newark, we were able to collapse those together. And there were a few, kind of what I would characterize as very small stations, that went other directions over the course of the year.

Okay. In terms of -- and this will be pure speculation on your part. Just want to get your take on the economics that are going on with the economy that is going on. Do you believe that there could be a boost, I guess, if and when that fiscal cliff gets resolved and just puts away some of the uncertainty that might be out there? Do you see companies are ready to do things as long as there is some certainty out there?

I think so. I think a lot of people have their horns in and are continuing to be very, very cautious in their capital allocations, but I do think that we are very well-positioned to kind of respond to those opportunities as they present themselves.

So if when the clouds part and the sun shines through -- and ultimately it will, it is just a question of when -- we would certainly expect to see a lift in connection with that. Kind of, I guess, a good opportunity to kind of reinforce both in the prior economic cycle and what may prove to be kind of another cycle that we are looking into here.

We never -- a couple of comments. We didn't lose any customers. Our customers shipped less. When our customers ship less that is reflected in our numbers. And as our customer ship more, that, too, will be reflected in our numbers.

So two comments, at least experience has shown us as we go through these types of cycles we don't lose customers, but we are there to support them and the volumes of business, whatever they may be. And secondarily, we have demonstrated an ability to grow in down markets, specifically kind of the last cycle is when we were able to conclude the Adcom transaction. We continued to post double-digit growth right through that cycle.

So on a -- if we kind of take kind of glass half-empty view for a moment and say there is going to be some compression and there is going to be some tough times, at least our previous experience has said -- has suggested that on a same-store basis we would kind of suffer right along with the rest of the economy. But the ultimate strategy that we are executing will still deliver growth in that market by operation of our acquisitions and on-boarding additional (technical difficulty) stations.

And one final question. You talked a little bit about maybe going offshore to some -- when the right acquisition candidate might come along. Do you see -- of the two areas would south of the boarder be more likely -- into Mexico, Central, South America, rather than the Asia Pacific region, or it could be either/or?

I think it could be either/or and, ultimately, someday both. Whatever challenges Asia may or may not be facing on a particular time, Asia, as a global trading partner isn't going away. The fact remains we have a significant amount of Asia-North America business that we service and support today, as we do with Mexico.

And to the extent we could internalize some capabilities in Asia and effectively migrate that book of business onto our own company-owned office, rather than using third parties to do it, that would just be another opportunity for us to capture more profit out of the transaction we are already touching.

Okay, that sounds good. Well, just keep up the good work.

All right. Thank you.

(Operator Instructions) Adam Wyden, ADW Capital.

Hey, Bohn. Congratulations on making some progress. You know, I guess my first question stems from the second comment you made about the litigation.

In prior quarters, you had been pretty close mouthed about who the parties are and kind of where we are in the litigation and all the rest. You mentioned Paul Pollara and I guess his wife, and you have two separate lawsuits. Now, can you kind of expound on that?

Vis-a-vis, the wife specifically. Breach of loyalty, breach of -- I guess that's a separate lawsuit versus the noncompete? Can you kind of explain, broadly speaking, what that is kind of predicated on and what the potential damages could be and kind of why you're even spending our money on it?

Given the sensitivity of the case, I am really not in a position to get into those details. The scope of my comments historically and today were kind of constrained or limited by our disclosures in the K. So kind of what I have are -- I didn't call them by name previously because they weren't previously disclosed in our K by name.

Right.

And I disclosed them today by name because they are disclosed in our K by name. And so I apologize for dodging that particular question, but I would rather save the bullets for the courtroom.

Save the bullets for the courtroom. So they are two separate lawsuits, is that correct?

They are two separate proceedings, that's correct.

And they will both take place in November?

No.

So one -- the noncompete will take place in November. Is that correct?

The arbitration proceeding is scheduled for November. We have -- which is the New Jersey matter. And the California litigation, we have a court date, I believe it is May 7, and that is reflected in our public disclosures as well.

So just is the results -- the guidance that you posted and the results that you are posting include degradation associated with the Los Angeles station and some degradation associated with the Newark station, or is that not included as well? I am trying to understand how many stations are underperforming as a function of DBA.

Historically -- and that's a good question. The short answer is the degradation that we are focused on and is of such significance is in Los Angeles. Newark, to kind of compare and contrast, Newark was where DBA's historical back office operations were.

Right.

And so that's kind of -- is representative of the broad basket of costs that we refer to as transition costs, which were people that -- as we were kind of running off the tail on the receivables and payables and integrating our historical Airgroup operations with the DBA offices, because we had two company-owned offices in Newark that allowed us to capture those types of synergies.

So there are nonrecurring costs associated with New Jersey that we were always kind of expected or kind of thematically expected because we were -- we acquired DBA with the expectation of winding down and eliminating those costs over time.

Right.

So the transition costs were effectively carved out and certainly identified so people could recognize those as such. LA is a different animal all together.

So vis-a-vis the litigation, you said that one of the litigations has to do with the Los Angeles location and the other has to do with Newark.

No, just -- I'm sorry if I wasn't more precise. The arbitration proceeding is subject to New Jersey law and the arbitration is taking place in New Jersey.

Okay, very good.

We kind of refer to that as the New Jersey matter as opposed to the California matter. But it just has to do with venue, nothing to do with the operations per se of Somerset, New Jersey.

And I mean, obviously, you think you have a pretty good case and you think that there is some potential for not just reimbursement of costs, but the business coming back and potentially some damages in some capacity. Is that correct?

Well, time will tell and I don't want to get ahead of ourselves. I am trying to be ultrasensitive, because I know for a fact there is people on this call who are on the other side of that conversation.

Well, hope you hang them up to dry because they are costing us money, so I hope they are listening and they are scared.

I guess the only other question I had is you talked a little bit about horizontal business expansion. Can you talk a little bit about kind of where your focus is there? Which of the product offerings are most time sensitive or areas that you want to expand in?

And I guess which of these services can you layer on with your existing store base such that you create kind of a cross-selling or an organic revenue opportunity? Because I think you have this massive -- you have built this massive network and so to be able to cross-sell new services throughout your existing kind of locations is a really great organic opportunity. I just kind of wanted to know how you thought about that and which ones --?

At the top of our shopping list is probably -- one, we are opportunistic so we are looking at a lot of opportunities. It's got to be the right deal and the right terms and the right structure and the right people and all of those things.

Setting that aside, and to answer your question, is probably at the top of our shopping list would be a truck brokerage opportunity. And the reason is fairly simple and straightforward. We use truck brokerage services in delivering our capabilities today and a lot of our installed customer base we provide the airfreight, kind of the time-definite solutions, but we are not participating in the truck brokerage piece of the business.

I believe that with our -- what I will call wearing our freight forwarder hat, we have a much deeper and stronger relationship with the shipper than a traditional transactional-based truck broker would. And so I think we are in a -- are potentially in a unique position to be able to go back into our accounts and effectively say we are doing all of the hard stuff for you, give us an opportunity to do some of the easier transactional type work for you.

With the right technology and business processes in place, we could very quickly compete right along with some of the bigger guys in pursuing a little bit more of this transactional type business. So that has and remains an area of interest for us. With that said, we just haven't found the right entry point to go after that opportunity.

Great. But you think the truck brokerage seems to be the service capability where you can best cross-sell your existing customers within your existing agent stations and build two plus two equals seven, hopefully, right?

Yes.

Good. All right, that's it for me. Thank you. Congratulations and let's (technical difficulty) forward to getting these guys real bad (technical difficulty) in the next couple months.

Thanks. (technical difficulty)

There are no further questions. I would like to hand the call back over to management for closing comments.

Let me close by saying we remain very excited with our progress and prospects here at Radiant. We continue to make good progress on executing our strategy, leveraging the platform to bring value to the agent-based forwarding community. We remain very excited about the opportunity for continued organic growth available through the 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 partner 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 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.