Radiant Logistics Inc (RLGT) 2016 Q2 法說會逐字稿

This afternoon, Bohn Crain, Radiant Logistics' founder and CEO; and Radiant's Chief Financial Officer, Todd Macomber, will discuss financial results for the Company's second fiscal quarter and six months ended December 31, 2015. Following their statements, we will open the call to questions.

This conference is scheduled for 30 minutes. The 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 that the Company -- that may cause the Company's actual results or achievements to be materially different from the results or achievements expressed or implied by such forward-looking statements.

While it is impossible to identify all the factors that may cause the Company's actual results or achievements to differ materially from those set forth in our forward-looking statements, such factors include those that have in the past, and may in the future, be identified in the Company's SEC filings and other public announcements, 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'd 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. We are pleased to report record results for the quarter ended December 31, 2015 and our continuing trend of profitable growth, notwithstanding some isolated headwinds from our On Time operations.

We posted revenues of $207 million, up $101 million or 95.3%; net revenues of $47.6 million, up $20 million or 72.5%; and adjusted EBITDA of $6.2 million, up $2.4 million or 65% over the comparable prior-year period. We also continued to make good progress in leveraging our personnel and general administrative costs as a function of our net revenues, with adjusted EBITDA normalized to exclude the SBA back-office operations as a percentage of net revenues, improving 100 basis points from 13.5% to 14.5% for the comparable prior-year period.

In addition, we also reported cash from operations for the six months of $15.7 million. Excluding the impact of On Time, which we'll get to in a minute, we also made good progress in our efforts to drive organic growth, growing our quarterly net revenues organically by 7.5% relative to the comparable prior-year period.

These record results are inclusive of some isolated challenges we encountered with On Time Express, our Phoenix-based linehaul operations, which reported an adjusted EBITDA loss of $473,000 for the quarter, compared to adjusted EBITDA contribution of $705,000 for the comparable prior-year period, as a result of the loss of a significant piece of business from one of its customers.

Excluding OTE's adjusted EBITDA loss, we would have reported normalized adjusted EBITDA of $7.4 million for the quarter ended December. We've moved aggressively to rightsize the organization and expect OTE to return to profitability over the second half of our fiscal year ended June 30, 2016.

In addition, we wrote off the remaining $300,000 in contingent earnout payments, and recognized a $3.7 million pretax loss on impairment of the acquired intangible assets we were carrying on our books in connection with that acquisition. More broadly, the balance of the platform continues to deliver solid results.

There's obviously a fair bit of economic uncertainty as we head into the second half of our fiscal year. The good news for Radiant is we sit in the strongest financial position in the Company's history -- low leverage; a $65 million ABL facility that remains untapped; solid free cash flow; and poised to take advantage of market opportunities as they present themselves.

We also remain committed to our long-standing strategy to deliver profitable growth through a combination of organic and acquisition growth initiatives. On the organic front, we recently added Joe Bento to our leadership team, and we are excited about his impact on the organization going forward. On the acquisitions side, we continue to focus on tuck-in acquisitions, with a particular interest in buying in agent station locations, both inside and outside our network.

Given the current weakness in our stock price, we also announced a stock buyback earlier this year, and will be continuing to evaluate the repurchase of up to 5 million shares of our stock as we consider how best to allocate our capital. In addition, should we choose, starting in April of this year, we have the opportunity to use our ABL facility, which is priced at LIBOR plus 150, to pay off $25 million in sub-debt, which carries a rate of 10.5%. This would represent approximately $2 million in annual pretax savings to the Company.

In short, we continue to be very bullish on Radiant's current position and long-term prospects, and we enjoy a number of levers to drive shareholder value. With respect to our guidance for fiscal 2016, we -- and assuming the economy continues to hold, we believe adjusted EBITDA in line with current consistent consensus estimates of approximately $30 million is still achievable. Given the possibility of further softening in the economy is at least a possibility, we are updating our guidance to reflect adjusted EBITDA in the range of $28 million to $30 million.

Based on the recent deterioration in fuel price, which is generally a pass-through in our business, we are also reducing our guidance for topline revenues to $836 million to $852 million, with net revenues of $188.8 million to $192.4 million. This equates to adjusted net income attributable to common shareholders of the range of $9.9 million to $11.2 million, or $0.20 to $0.23 per basic and fully diluted share, and does not give effect for the potential benefit and interest expense reduction available to us, if we ultimately choose to use our ABL facility to retire our $25 million of sub-debt.

With that, I'll now turn it over to Todd Macomber, our CFO, to walk us through our detailed financial results, and then we will open it up for Q&A.

Thanks, Bohn, and good afternoon, everyone. Today, we will be discussing our financial results, including adjusted net income and adjusted EBITDA for the three and six months ended December 31, 2015 quarterly net income results. For the three months ended December 31, 2015, we reported a net loss attributable to common stockholders of $2,527,000 on $207 million of revenues or a loss of $0.05 per basic and fully diluted share.

Included in that is a $3.7 million impairment for the customer list of On Time; $1,157,000 of transition and lease termination costs; and $598,000 of expense on change in contingent consideration; and additionally, approximately $412,000 in legal costs we anticipate will be nonrecurring.

For the three months ended December 31, 2014, we reported net income attributable to common stockholders of $327,000 on $105.9 million of revenues, or $0.01 per basic and fully diluted shares. This represents a decrease of approximately $2,854,000 or approximately 872.9% over the comparable prior-year period.

In reviewing the quarterly adjusted net income results, for the three months ended December 31, 2015, we reported adjusted net income attributable to common stockholders of $3,027,000, or $0.06 per basic and fully diluted share. For the three months ended December 31, 2014, we reported adjusted net income attributable to common stockholders of $1,689,000, or $0.05 per basic and fully diluted share. This represents an increase of approximately $1,338,000 or 79.2%.

In reviewing the quarterly adjusted EBITDA results, we reported adjusted EBITDA of $6,152,000 for the three months ended December 31, 2015 compared to adjusted EBITDA of $3,728,000 for the three months ended December 31, 2014. This represents an increase of $2,424,000 or approximately 65%. If we add back the transition costs associated with SBA's back-office, which represents an additional $737,000, adjusted EBITDA would have been $6,889,000 or an increase of $3,161,000 or 84.8%.

Now moving along to the six months results are as follows -- six months net income results for the six months ended December 31, 2015, we reported a net loss attributable to common stockholders of $2.7 million on $425.6 million of revenues or a loss of $0.06 per basic and fully diluted share, which includes the $3.7 million impairment on the customer list of On Time Express; additionally, $4,320,000 of transition and lease termination costs; and the $186,000 expense on change in consideration and additionally, $722,000 in legal costs we expect will be nonrecurring.

For the six months ended December 31, 2014, we reported net income attributable to common stockholders of $1,337,000 on $204.2 million of revenues or $0.04 per basic and fully diluted share. This represents a decrease of approximately $4,037,000 or approximately 301.9% over the comparable prior-year period.

In reviewing the six-month adjusted net income results, for the six months ended December 31, 2015, we reported adjusted net income attributable to common stockholders of $7,236,000, or $0.15 per basic and fully diluted shares. For the six months ended December 31, 2014, we reported adjusted net income attributable to common stockholders of $3,342,000, or $0.10 per basic and $0.09 per fully diluted share. This represents an increase of approximately $3,893,000 or approximately 116.5%.

In reviewing the six-month adjusted EBITDA results, we reported adjusted EBITDA of $14,336,000 for the six months ended December 31, 2015 compared to adjusted EBITDA of $7,315,000 for the six months ended December 31, 2014. This represents an increase of $7,021,000, or approximately 95.9%. Adding back the transition cost associated with SBA's back-office represents an additional $1,378,000, and adjusted EBITDA would have been $15,713,000 or an increase of $8,398,000 or [114.8%].

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

(Operator Instructions) Kevin Sterling, BB&T Capital Markets.

Congrats on another solid quarter in a challenging environment. Let's see, Bohn, you talked about nonrecurring transition costs with interim operation service by air, back-office operations, which I think cost you about $700,000 in EBITDA in the quarter. Are these costs done? Will we see them in the third quarter?

I think they are not done yet. We -- I would expect most likely beginning in the new fiscal year, they will be done. So we'll be continuing this transition process into next quarter and probably spilling over into our fourth fiscal quarter, but we would expect them to be gone as we enter the new fiscal year.

And again for people folks not familiar with the concept -- when we acquired Service by Air, they've got effectively redundant back-office infrastructure that we will be eliminating as we get the SBA operating locations integrated into and supported by our back-office operations in -- up in Bellevue.

Yes, great. Can you remind me how much cost you can eliminate with Service By Air as you put them on your systems? In total?

Well, I think, I believe -- and Todd can talk in here as well, but I believe kind of the add-back this quarter is reflective of the courtly cost savings that we'll be achieving commencing with our new fiscal year.

Yes, we break that out, Bohn, so it's on the Page 6 of the press release. But yes, you were correct.

Okay. So on an annual basis -- I just want to make sure I got this right -- on an annual basis, we're looking at potential cost savings, I guess you will, to EBITDA of almost $3 million. Is that right, in your next fiscal year?

I would probably haircut that a little bit. Because as we make that transition, we'll probably have a modest offsetting increase in headcount in Bellevue to transition to work but it will be substantially that number.

Yes. Or $2 million -- maybe between $2.5 million and $3 million.

Correct.

Okay. Great. And so you had some moving parts this quarter. So if I adjust for the On Time loss, your EBITDA would have been $7.4 million. And then if I add back the Service By Air back-office charge, I get $8.1 million. Is that -- am I doing the math right?

Todd, do you want to respond to that?

Sure. The On Time was a loss of about $400,000 and adding back the normalized transition costs, it was around [$6.9 million]. So I would take the [$6.9 million] and the [$400,000] -- loss -- because immediately we're going to at least get back to breakeven. So I would look at that more like around $7.3 million.

Okay. Thank you. And speaking of On Time, Bohn, what were some of the challenges in this business? Was there a customer loss or something else going on?

Yes, it was -- the ultimate catalyst was a singular customer that -- the short version is they put the business out to bid, and ultimately at a price that we weren't willing to move forward with the business on. And that kind of set in motion some of the challenges at On Time.

I think there's two points I'd want to make relative to that -- one is we've heard at least some rumblings the customer isn't necessarily happy with the decision they've made, and so we continue to do business with that customer. We hope to earn some of that business back at a more commercially reasonable rate. That full story is yet to be written.

And then the second point that I would make is that, excluding the impact of On Time, the business -- the broader business has really performed well in this kind of crazy economic environment in which we're operating in. And I was particularly happy to see the organic growth in our net revenues.

For those that have been listening in on the calls for the last several quarters, have known our organic growth has been relatively anemic. We've been trying to bring some focus to that and I was really happy to see the growth in our net revenue line item.

Great. I was too. And so, Bohn, this is kind of back up to On Time real quick -- it sounds like it was maybe sometimes a single customer, could've been a little bit lower margin business. They put it up for bid, it was going to be even lower. You made the prudent decision to walk away. And now if you get that business back or replace it, it could be with ultimately higher freight -- higher-margin freight. Am I thinking about that right?

Yes, I think so. Well, we acquired On Time with the thought that it could act as a strategic differentiator for us and providing a linehaul capability for the network. And that customer that has now exited stage left was an inhibitor of us really being able to service the network, we were focused -- our On Time was focused more on servicing that particular customer.

So this may well be kind of a one step backwards so we can take two steps forward in getting the realization of some of the strategic benefits of the linehaul service offering that we were envisioning when we made the original investment.

Got you. No, that makes a lot of sense. And last question here, I'll get back in line. You talked about the organic growth. How did January look? And how are you turning so far in February?

Well, we don't roll up all the numbers across the consolidated group to have absolute visibility, but we do maintain kind of station level postings to see kind of volumes and pricing. And as I think we've mentioned before, there's a lot of uncertainty about what's happening in the economy and some kind of -- the proverbial going off the cliff. And we're still not -- happily, we're still not seeing that in our numbers.

Now I can't tell you what's going to happen next quarter, but as of right now, we still feel pretty upbeat all in all, given the vagaries of the market. We think our model and our operations in the various locations are continuing to do pretty well.

Yes. No, great. Thank you for your time. Like I said, congrats on another solid quarter in -- I know it's a difficult environment. Thank you.

Thank you.

Mark Argento, Lake Street Capital Markets.

Hi, Bohn. Hi, Todd. Just a couple of questions on -- obviously the environment has gotten a little more difficult, as you referred to. Has that changed it all kind of your pipeline in terms of additional tuck-in acquisitions? And are you guys like enough is enough; I've been doing this too long, I'm stressing out -- look to sell? And does your pipeline, has there been any change of the pipeline as a result of the environment?

I would say at this -- what I'll call this early stage, no, not necessarily, but that's -- I wouldn't interpret that as a negative either. We have had and we continue to enjoy a pretty interesting pipeline of acquisitions.

Kind of pulling on your question a little bit, I think the practicality is our standard thought process is effectively to focus on these smaller tuck-in acquisitions kind of in line with our historical practice. and from time to time, look at larger acquisitions like the Wheels transaction.

I think the reality is in this environment, it's even less likely that we would do a larger transaction, just given candidly the implied multiples in our own stock relative to what I would expect the market clearing multiples to be in the larger transactions. So we're absolutely committed and as enthused as ever about M&A, but generally speaking, you should expect us to be focused on our historical model valuing businesses at plus or minus 5 times and using our earnout structure.

And I guess the other point that I would make is, if we look back in time at what I'll call the last cycle, what we can say is that environment did act as a catalyst to bring some sellers to the table. And specifically it was the Adcom transaction that we were able to complete back in 2008, kind of having into a tough cycle, that really served us well through that time period.

That's helpful. Hopefully, we don't have a repeat of previous, but buyers showing up or sellers showing up is never a bad thing I guess. Turning the page quickly just to the balance sheet, I know you talked a little bit about the -- your ability to use the ABL at much cheaper debt to potentially pay down or pay off some of the sub-debt. Would there be any penalty to prepaying the sub-debt? Maybe just walk us through that, the math on that a little bit.

Yes, sure. There is a 3% penalty in year one -- or excuse me, let's back up. When we put that piece of paper on the books, there was a no prepayment in year one, a 3% penalty in year two, and then no penalty after that. So we're coming up on the one year anniversary. So if we were going to exercise our optionality around this particular piece of debt, then that $2 million in annual savings would be offset by a $750,000 penalty in year one.

It sounds like a no-brainer if there is such a thing. So anyways, thanks, guys. Appreciate it.

Thank you.

Jason Seidl, Cowen and Company.

Talk a little bit about the integration with Wheels now and the cross-sell, and can you put any numbers behind it in terms of what percent of customers are now using both as opposed to what they were when you first had the transaction?

It's hard to get very quantitative in response but I can tell you it's continuing to build. We've got ongoing momentum around that and kind of going both ways. We've got what I'll call our traditional freight forwarding customers bringing kind of Canadian-centric solutions to their customers that the Toronto folks are able to support.

The inverse of that also applies where we've been able to work with our US operations being able to sell intermodal capabilities and leveraging the capabilities there. And kind of the third prong of that is we're getting increasing traction with our own stations using Wheels out of Chicago for truck brokerage opportunities. Kind of what we've always talked about is kind of our dollar spend in the brokerage space with third parties and being able to again to capture that internally.

So all of those things are happening and with an increasing frequency, but I can't yet give you precise numbers around that connectedness. I guess the other thing that I would point out is coming this -- what will be this May, we'll be having our annual meeting where we bring all of our stations together, and it will be kind of a good opportunity for the -- kind of what I'll call the brokerage and the boarding sides of the house to kind of reconnect more closely and continue to build on that momentum.

So I guess to sum it up, it feels like it's improving nowhere near you think it -- nowhere near where you think it could go to, but it looks good?

Yes. That's absolutely correct. I would say we haven't even -- but our numbers don't begin to scratch the surface of kind of the natural opportunity for cross-sell between these two groups.

Okay. No, that's fair enough. And getting back to that contract, one of the asset based carriers recently took a contract off of a logistics player that was about $1 million in EBITDA. Is this about the similar size of the contract that these guys lost for you, or didn't win, I guess?

I'm sorry -- ask that question one more time.

The OTE contracts -- an asset-based carrier recently won a smaller contract off of a logistics player for about $1 million of EBITDA. Is this the same type of a size? I'm just trying to see if it's a similar type of size?

Yes. I think in rough orders of magnitude, yes.

Okay. And are there any other instances like that where you guys would fear the loss of one major customer would cause a write-down in any of the prior transactions?

No.

Okay. Fair enough. Gentlemen, that's all I have. Thank you for the time, as always.

Thank you.

Jeff Kauffman, Buckingham Research.

Okay. A couple quick questions. You announced the share buyback a little while ago; not any time to buy back during the fiscal second quarter. Have any shares been repurchased so far this fiscal third?

Not as of yet, no.

Okay. So we've got the authority; we haven't used it yet. One of the things I was a little surprised at looking at the numbers is the gross transportation revenues were down sequentially, the net transportation numbers were down sequentially, but to the commissions expense, the agent commissions expense was up sequentially. Can you help me understand some of the dynamics with that?

Yes. So I think a big piece of it -- or at least a component -- and we tried to at least call it out in the press release, was fuel price. So with fuel coming down, which is generally a past-due in our business model, we're seeing topline revenues coming down with kind of gross margins largely staying intact, or kind of gross margin dollars in terms of what's going on.

There's a little bit of seasonality that comes into play, but also ultimately as -- if you remember, on the domestic -- this is kind of a mouthful but just to kind of remind people -- on the domestic forwarding product, we generally share -- or we generally don't bear the risk of margin expansion or compression. And as fuel has come down and there's been a bigger -- as revenues have come down in an around fuel and gross margin percentages have gone up, that benefit has slowed to the benefit of the agent station.

Got you. Got you, got you.

Hopefully, that makes sense and is responsive to your question.

No, it does. So I'm more likely to see the benefits of the cost reduction activity and the personnel costs in SG&A lines?

Correct. Yes, we continue to think about growing our gross margin dollars and getting as many of those gross margin dollars to the bottom line as we can, which is why we look at EBITDA as a function of gross margin. And we think those metrics will continue to improve and were dampened a little bit by some of the things going on with on time. But we continue to think there's a lot of leverage and scale in the back-office.

Okay. And then one other -- just trying to sort through the trees through the forest here. Once we get out and begin to anniversary the Wheels acquisition I think in April, I love that the quote/unquote same-store sales number was up pretty strong this quarter, but how should we be thinking, assuming you do no more incremental deals a better run rate topline growth rate once we anniversary Wheels?

That's a good question.

There's a lot of moving pieces.

Yes, exactly. The way that I try to organize my response to that question, which we get regularly, is we think about having two flavors of organic growth -- our same-store growth and our new store growth. Our same-store growth has been a GDP plus a little bit type story, as we are able to get some more traction around cross-sales opportunity, and having Joe Bento onboard and bringing some heightened focus in the commercial orientation to the business that we can improve upon that a little bit.

And so hopefully, that's GDP plus a couple of points. And then another historical big contributor to organic growth has been our ability to onboard new agent stations to who we're not acquiring but who just exit their legacy networks and join our platform. So historically that's been a component part.

So that's a long way of giving some foundational comments to say if I were throwing the proverbial dart, I would probably (technical difficulty) mid-single-digit kind of range -- maybe a 4% to 6% range.

All right, ex any incremental acquisitions?

Correct.

Okay. Well, congratulations, guys. Best of luck to Joe and thanks so much.

All right. Thank you.

Marco Rodriguez, Stonegate Capital Markets.

Thanks for taking my questions. Wanted to kind of just quantify a little bit to come back here on the OTE challenges in the quarter. Can you kind of quantify the revenue impact?

Todd, do you want to take a crack at that?

I don't have it at my fingertips.

Okay. Maybe I'll follow back up with you at a later point on that. And a real quick housekeeping item before I ask my next question. When looking at the adjusted net income on adjusted EPS, what's the weighted average diluted share count for that?

You say for the projections?

No, no, no, for your reported.

Yes, hold on.

I believe it's [48.5], but I'll let Todd --

Yes, let me --

I can follow back up with you guys if that's going to take up too much of your time.

I think it is [48.5].

Okay. Okay, great. And then next question here, Bohn, in terms of the acquisition side, obviously you talked a little bit about the acquisitions -- tuck-in acquisitions on a prior question. Just wondering if you could shed a little bit more light on purchasing station locations, particularly ones that are already inside of your network? Can you talk a little bit about the incentive for the drivers for these people that are already in there -- why they might want to basically sell to become part of the internal structure, if you will?

Sure. So that's a great kind of launching point. So, again for people who may not be as familiar with Radiant, if you -- at least one way to express what we've been up to at Radiant is we are in the business of partnering with logistics entrepreneurs. And ultimately our brand promise to our operating partners is quite simply prove you can be nice and we'll be able here to support you in your own exit strategy when you're ready.

And over the past 10 years, we've had, I'm happy to say, quite a few folks come and join our network with the thought there was a built-in exit strategy available to them when they were ready to monetize their life's work. And so there can be a number of contributing factors and when they make that decision, it could be anything from age and just approaching retirement age or it can be other dynamics that can come into play -- generally all on the personal side, where people just, for whatever reason, have that catalyst where they're ready to take some chips off the table and (technical difficulty) areas of their life. And we are here to support them when we do that.

And one of the nice things is when we have the opportunity to do that, these folks are already pre-integrated. They're already part of our organization at the time. And as we've talked about, when we do those transactions, when we do those conversions, that manifests itself as margin expansion. Because when we buy them in, the revenue does change, the gross margins doesn't change, we effectively eliminate the agent station commission that we would be paying out to them onboard their separate company personnel and SG&A costs.

And that profit that we bought in will find its way to the bottom line. And then the second part of that -- and we've also kind of highlighted this notion before -- is, when we buy other agent-based reporting networks, we know that there is redundant back-office structure and cost synergies available to us; we've talked about that stuff here today relative to the SB transaction.

But we also have a similar opportunity at the node level of the network in location where we already have company-owned stores. So we have company-owned locations in about 50 markets across North America today. And where we have an opportunity to buy in an agent station in one of those markets, there's also going to be cost synergy opportunities. Because that location is going to have its own facilities, it's own rent, its own utilities, and its own back-office organization that will be, in some respects, duplicative of what we already have in that operating location.

Got it. That's very helpful. And last quick question -- just kind of wanted to follow up here on the guidance. Obviously it's a relatively tough environment out there and you'd expressed that in your prepared remarks and the press release as far as slightly reducing some of the ranges there.

But at the same time, if I heard you correctly on the call, you said I believe that you really haven't seen a lot of that softness in your markets. So I'm wondering if you can kind of help me kind of bridge the gap there. Are we just trying to be a little bit more conservative?

Yes. I mean, from where we sit today, we think we can still get $30 million of EBITDA, which is in line with consensus out there. But at the same time, I think we need to recognize that every newspaper I read says there's at least a (technical difficulty) [50%] chance that (technical difficulty) So I thought it was appropriate that we at least acknowledge that. And that ultimately, there's a lot of things beyond our control that could impact our ultimate results for the year.

Got it. Thanks a lot. I appreciate it, guys.

Thank you.

Douglas Weiss, DWS Investments.

Could you talk a little bit about -- and maybe this is not that much of an issue based on your customer base, but on Amazon logistics and whether that represents a new competitor to you and if you are seeing any impact there?

We certainly haven't seen any impact at this point. They're obviously making a lot of noise out there in the marketplace. We -- and I haven't been following what they're doing particularly, but we'll start to focus on that a little bit more, particularly given that they are right in our backyard and many of them are neighbors in my community.

But I think more broadly speaking, our business is dramatically more business-to-business focused. And for better or worse, we have not (technical difficulty) thought of kind of home delivery and kind of the eFulfillment commerce world is not a big component of our business today.

And so I think they're going to be doing -- or I would presume they are going to at least be focusing initially on kind of the small package to the door to the end customer. And candidly, that's just not a (technical difficulty) meaningful part of our business in today's environment.

Okay. And then just another question on the -- in terms of the impact a recession could have, are there parts of your business that are more vulnerable? And could you kind of give a range of the kind of revenue impact you had in the last recession, and how much of that you can offset with cost-cutting and how much you really can't offset, and just how material the impact is in sort of a more moderate recession?

Yes. So again, I'm reluctant to try to get too quantitative, but I can make a few comments in that direction. One of the benefits of being non-asset-based is ultimately we can be very nimble and responsive to what's going on in the marketplace. Obviously it's more fun to be adding people and growing the business, but when you need to, we can move swiftly and take cost out of the organization.

That's in contrast to the underlying asset base guys who have a lot of capital hung up in trains, planes and automobiles. So ultimately we think -- we're certainly not looking for trouble in terms of a recession, but if one comes, we are certainly in a better position than the asset-based guys to respond to something like that, and in a better position ourselves individually than we've ever been in the history of this Company and our low leverage debt capacity, free cash flow that we're generating in the business.

So I guess that's in part another response to your question. If I look back to the last recession in 2008, we didn't have a silver bullet, per se. And what I mean by that is, as our customers were moving less freight, we had -- there was a lot of (technical difficulty) opportunities with those customers, per se, in that cycle, but the customers that we enjoyed were moving less business.

So my remembrance of that particular recession was that, individually, stations were down plus or minus 15%. But because of our companion M&A strategy, we were, on a consolidated basis, we were able to basically grow at a faster rate than the individual stations that were being hit. So on a consolidated basis, if you look at our historical results, we grew through the last cycle.

Right. Okay. And then someone asked about revenue synergies with Wheels. Are there cost opportunities there? And where are you in that process?

Sure. So I'll tackle a few different aspects of that. (technical difficulty) was the product of some M&A but they hadn't done a lot of consolidation. So if you'll remember in Toronto alone, they still had three different facilities, and we've got everybody under one facility in Toronto now, and they are realigning the organization. And so there's some -- there's definitely some cost synergies intra-Wheels that we're driving for right now.

So Tim Boyden and Jamison and that team are doing a great job bringing focus to what I'll call the intra-Wheels cost structure. And then ultimately I think we'll have some cost synergy opportunities across the Organization, but that will be enabled somewhat by ongoing technology investment.

Okay. Well, thank you for the answers.

Okay. Thank you.

Kevin Sterling, BB&T Capital Markets.

Thanks, Bohn and Todd. Real quick -- with the reduction in On Time and On Time's EBITDA metrics, how much are you saving in the payout? Is it a wash essentially? Could you help us think about that?

Well, so I don't know if wash is the right term, but obviously when we do transactions, where we can, we announce that there's a built-in risk mitigate coming forth (technical difficulty) any incremental payments. So we have written off any future payments relative to On Time, so that's part of what we acknowledge there.

So and having said that, a business came back, we would end up having to write the earnout obligation back up -- one of the kind of the nuances of contingent purchase price we have to, every quarter, update our estimates. And actually this year, we actually I think wrote up (technical difficulty) our expected future payouts based upon the positive performance of some location.

But you are making a good point in that there certainly is an offsetting kind of cost savings, if you will, for not having to make any future earnout payments based upon the future performance of kind of the currently expected performance of On Time.

But we are going to continuing (technical difficulty) to road test getting On Time firing on all cylinders. And hopefully someday we'll be able to report back we owe some money under the earnout; that would be a good thing.

That would be a good thing. Yes. Okay. Thanks so much, Bohn. I appreciate it.

Thank you.

Our last question in the queue comes from the line of Matt Miller from Boyles Asset Management. Please proceed with your question.

I appreciate it. You have, in the press release, an organic growth in net revenue of 7.5% for the quarter, excluding the impact of OTE. Do you happen to have that number including the impact of OTE?

It would be whatever the -- so it would be the published result in the Q. I want to say it was like 1.5% or something like that inclusive, but it would be stated results that could be calculated on the face of the Q.

Yes. And the Wheels -- are you able to give us specific numbers as it relates to Wheels, specifically organic growth in the quarter?

I don't have that number; Todd may.

Yes, I don't have that number. I've got more at a holistic level, is what I've got. But I don't have it broken down by specific to Wheels precisely.

Okay. And I just wanted to clarify --

I'll give you a little color on Wheels, though. I think in the aggregate, Wheels on Canadian dollar base has performed what I would call in line with expectations. Gross revenues have been down, have been a little softer than we had expected, but they've more than made up for it in kind of [below the line] operating cost have come quicker than we would've expected.

So their all-in financial contribution has been in line with expectations in Canadian dollars. There's -- we've got some currency exposure in Canadian dollars that are -- they're ultimate -- the Canadian portion of their business as converted into US dollars has been a little less than what we would have expected originally.

But for those of you who might remember in connection with the Wheels transaction, we put on [$29 million] of Canadian dollar debt, so we have a natural currency hedge built into the Wheels transaction and we'll be servicing that Canadian dollar debt with the close from Wheels Canyon.

Great. And the transition costs that are noted in the adjustments, I just wanted to clarify -- I couldn't understand if I had heard something correctly or incorrectly. That $737,000 number in the quarter, this is reflective of what the reduction in costs would be after those adjustments are made? Or is this the actual cost of those adjustments?

No. This is the existence of the back-office of SBA. And as Bohn mentioned earlier, as we transition the back-office to Bellevue, we don't pick up the full amount because we're going to have to add some headcount to offset the movement of the work over to Bellevue. But we will get a significant portion of that.

Right. Okay. But it's fair to say of that $737,000 number, the investment in that expense won't create a further incremental benefit in future periods -- is that right?

I'm not sure I follow the question. The easiest way for me to express it is that number principally represents (technical difficulty) that won't be there going forward until we complete the transition.

Okay. And then just real quickly, my last question was on CapEx. What was CapEx in the quarter? And then is this kind of still running at a couple-million-dollars in your mind, the quarter going forward?

It's about [1.4] for the current quarter. And yes, it will be roughly $2 million, $2.5 million is my expectation going forward.

Okay. So that's about an $8 million CapEx number?

I would think that's a little high on an annual basis. I don't think we're expecting to spend -- I think [$4 million] or so for the year might be a good number, not $2 million a quarter.

Oh, yes, I didn't -- I'm sorry. I misrepresented -- I'd say more like $2 million to $2.5 million for the year is what my expectations are. Not --. Okay.

Yes. All right. Well, okay. All right. Appreciate it.

You bet.

There are no further questions in the queue. I'd like to turn the call back over to management for closing comments.

Thank you. Let me close by saying we remain very excited with our progress and prospects here at Radiant, and we remain very bullish on the growth platform we've aided, and the scalability of our non-asset-based business office. We are in the strongest financial position in the Company's history and enjoy the financial flexibility to take advantage of market opportunities as they present themselves.

We continue to make good progress in executing our strategy, leveraging the Radiant platform to bring value to our operating partners, and we remain very excited about the opportunity to grow our business organically, both on a same-store and new store basis, by completing acquisitions of other entities that will bring critical mass from a geographic standpoint, (technical difficulty) complementary service offerings, which will benefit the broader network.

At the right place at the right time, with the right value proposition, we look forward to reporting further progress in both organic and acquisition initiatives in the quarters ahead. Thanks for listening and your support of Radiant Logistics.