Radiant Logistics Inc (RLGT) 2016 Q4 法說會逐字稿

Thank you for standing by. 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 fourth fiscal quarter and 12 months ended June 30, 2016. Following their 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 result or the 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 forward 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 Radiant website at www.radiantdelivers.com. In addition, past results are not necessarily an indication of future performance.

I would now like to turn the call over to Radiant's Founder and CEO Bohn Crain. Thank you; you may begin.

Thanks, Matt. Good afternoon, everyone, and thank you for joining in on today's call. We are very pleased to report record results for fiscal 2016 in what proved to be an increasingly difficult market over the course of the year.

We posted revenues of $782.5 million, up $279.8 million or 55.7%; net revenues of $186.7 million, up $63 million or 50.9%; and adjusted EBITDA of $24.4 million, up $7.1 million or 41.3% over the comparable prior-year period. Normalizing our adjusted EBITDA to exclude $2.4 million in nonrecurring transition costs associated with Service By Air's back office, we would have reported adjusted EBITDA of $26.8 million, up $9.4 million or 53.9% over the comparable prior-year period.

In addition, we also reported cash from operations for fiscal year ended June 30, 2016, of $21.4 million. For the quarter ended June 30, 2016, we posted revenues of $183.6 million, down $12.6 million or 6.4%; net revenues of $46.6 million, up $3.9 million or 9%; and adjusted EBITDA of $5.4 million, down $1.1 million or 17.2% over the comparable prior-year period.

These quarterly results reflect the impacts of excess capacity and related margin pressures of the current market environment, particularly in our brokerage operations as well as the previous disclosed loss of a significant customer at On Time Express, which is also a drag on our comparable year-over-year results for our forwarding operations.

We are responding to these market headwinds with a focus on the continuous improvement of our existing business through an accelerated investment in technology, targeted investment in additional sales staff, further integration of previously acquired operations, and unlocking the associated revenue and cost synergies within our current platform.

While improving the financial performance of our existing platform is our top priority, we also remain committed to our long-standing strategy to deliver profitable growth through a combination of organic and acquisition growth initiatives. We have low leverage on our balance sheet, strong free cash flow, and continue our disciplined search for acquisition candidates that bring critical mass to our current platform with respect to geography, purchasing power, and complementary service offerings.

I want to talk a little bit more about technology and what we have got going on in that area. The course we chart for ourselves around technology is one of our most significant priorities. Through our ongoing investment in technology, I believe we have a unique opportunity to deliver a state-of-the-art technology platform for our strategic operating partners and the end customers that we serve. At the same time, technology is key to driving productivity improvement in the back office and can ultimately help facilitate revenue synergies across the platform.

Most immediately, we are looking to capture the cost synergies associated with SBA's back-office operations, which we estimate to be in excess of $2 million per year in run rate savings, enabled by the recent upgrade of our SAP accounting system. When we deployed the new SAP accounting system earlier this year, we took the time to introduce a new piece of middleware into our environment that effectively allows our new accounting system to interface with multiple legacy TM applications. This new middleware gives us the flexibility going forward and will help support and accelerate the realization of back-office cost synergies associated with existing and future acquisitions.

Our next major milestone will be the deployment of an SAP-based TMS, which we are expecting to the pilot in calendar 2017. Over time, we will sunset our legacy freight forwarding platform Cargowise as we migrate our forwarding operations on to SAP. With the benefit of our middleware configured to interface with multiple TM systems, we expect to transition from Cargowise to SAP one station at a time, giving us the opportunity to address any challenges as we go and mitigate the risk of this transition.

Similarly, and over time, we will also expect to replicate this same two-step integration process for Wheels International in Toronto and Wheels Clipper in Chicago. First, integrating the various TMS applications at Wheels to our SAP accounting system, and then ultimately sunsetting these same legacy TM applications as we migrate to SAP's TM.

Getting our various operations onto a singular platform will not happen overnight. But we believe we have the right strategy to drive long-term shareholder value in terms of maximizing our opportunity to capture revenue and cost synergies while positioning ourselves to support future growth through acquisition.

With that, I will turn it over to Todd, and he can walk us through the more detailed numbers.

Thanks, Bohn, and good afternoon, everyone. Today we will be discussing our financial results, including adjusted net income and adjusted EBITDA for the 3 and 12 months ended June 30, 2016.

For the 3 months ended June 30, 2016, we reported a net loss attributable to common stockholders of $633,000 on $183.6 million of revenues or a loss of $0.01 per basic and fully diluted share, including a $1.180 million write-off associated with the retirement of the Alcentra/Triangle $25 million note; $837,000 of transition and lease termination costs; a $375,000 expense on change in contingent consideration; and approximately $319,000 in acquisition-related legal, accounting, and other nonrecurring costs, which are included in SG&A.

For the 3 months ended June 30, 2015, we reported net income attributable to common stockholders of $1.668 million on $196.2 million of revenues or $0.04 per basic and fully diluted share. This represents a decrease of approximately $2.301 million or approximately 138% over the comparable prior-year period.

For quarterly adjusted net income, for the 3 months ended June 30, 2016, we reported adjusted net income attributable to common stockholders of $2.792 million. For the 3 months ended June 30, 2015, we reported adjusted net income attributable to common stockholders of $2.116 million. This represents an increase of approximately $676,000 or approximately 32%.

For quarterly adjusted EBITDA results, we reported adjusted EBITDA of $5.420 million for the 3 months ended June 30, 2016, compared to adjusted EBITDA of $6.546 million for the 3 months ended June 30, 2015. This represents a decrease of $1.126 million or approximately 17.2%.

Adding back transition costs associated with SBA's back office, representing an additional $477,000, adjusted EBITDA would have been $5.897 million for the period ending June 30, 2016, versus $6.704 million for the period ending June 30, 2015, which includes an addback of transition costs of $158,000 for the 2015 period. This represents a decrease of $807,000 or 12%.

And moving along to the 12-month results, for the 12 months ended June 30, 2016, we reported a net loss attributable to common stockholders of $5.565 million on $782.5 million of revenues or a loss of $0.11 per basic and fully diluted share, which includes a $3.680 million impairment on the customer list for On Time Express; an additional $5.945 million of transition and lease termination costs; again, the $1.003 million on change in contingent consideration; and a $1.180 million of write-off associated with the retirement of the Alcentra/Triangle $25 million note; and approximately $2.799 million in acquisition-related legal, accounting, and other nonrecurring costs, which were included in SG&A.

For the 12 months ended June 30, 2015, we reported net income attributable to common stockholders of $3.829 million on $502.7 million of revenues or $0.11 per basic and $0.10 per fully diluted share. This represents a decrease of approximately $9.394 million or approximately 245.3% over the comparable prior-year period.

In looking at adjusted net income results for the 12 months ended June 30, 2016, we reported adjusted net income attributable to common stockholders of $11.793 million. For the 12 months ended June 30, 2015, we reported adjusted net income attributable to common stockholders of $6.825 million. This represents an increase of approximately $4.968 million or approximately 72.8%.

In reviewing the 12-month adjusted EBITDA results, we reported adjusted EBITDA of $24.406 million for the 12 months ended June 30, 2016, compared to adjusted EBITDA of $17.268 million for the 12 months ended June 30, 2015. This represents an increase of $7.138 million or approximately 41.3%.

Adding back transition costs associated with SBA's back office, representing an additional $2.408 million, adjusted EBITDA would have been $26.814 million for the period ended June 30, 2016, versus $17.426 million for the period ending June 30, 2015, which were including an addback of transition cost of $158,000 for the period ending June 30, 2015. This represents an overall increase of $9.388 million or 53.9%.

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

(Operator Instructions) Mark Argento, Lake Street Capital Markets.

Just wanted to talk a little bit about the environment out there; obviously tough. We have heard from others as well: tough environment both on the pricing side and on demand side.

Maybe you could talk about what you're seeing. I know we have heard anecdotally guys are starting to look at starting to lock in some longer-term contracts. Is there anything to get excited about in terms of looking at in an environment from -- are we troughed here? Is pricing starting to stabilize at all?

So thanks for your question. Obviously, it has been a tough market for the -- I think for the sector. Unfortunately, we didn't escape it ourselves. I think it is a little early. I think everyone is optimistic in looking to call the bottom.

I am not sure that we are or not there. Clearly, the asset-based guys who have become very aggressive with their pricing, which has spilled over into our environment, particularly on the truck brokerage side of things. And so I am hoping it is stabilizing, but I think it's a little too early for us to draw those conclusions.

And are there any part of the business that you are starting to see stabilize outside of trucking prices? Any sectors or any positives you can point to?

I think if we begin to segment the business a little bit, I think our forwarding side of the house is less susceptible to some of the pricing pressure at the end of the day. On the forwarding side, our business is more, generally speaking, transactional in nature and more of a cost-plus-type environment.

Where on the brokerage side and the Wheels business, it can be more contractual and long term in nature. And so we run into more RFP-type scenarios facing some aggressive pricing from the asset-based guys, who are worried about utilization.

So I think we are less susceptible on the forwarding side. And I do think on the brokerage side, it is short term in nature. And as excess capacity tightens up, I think we will revert to a little bit more normalized pricing environment. In my own view, I don't view this as a permanent difference, but a temporary thing until supply/demand comes back into a little more of an equilibrium.

Sure. Obviously, with the environment creating some headwinds for guys, in terms of the M&A pipeline, would you look to continue to be active there? Obviously you have plenty of capacity from a balance sheet perspective. Maybe share some thoughts a little more in-depth what you're looking for and what to expect on the M&A side?

Sure. We remain interested. We have looked at a few deals. Nothing has captured our imagination at this point, but we expect -- I think it's fair to say that ultimately the valuation multiple that we are rewarded with will somehow -- will have some implications on the size of deals that we do and the multiples that we would be able to pay for businesses.

So there has been handful of larger deals come to market where we just really have chose not to play based on the price talk of those deals and expected multiples relative to our own multiples, which is a long way of saying and a little bit of the backdrop that we remain interested. But our acquisitions will most likely be more tuck-in in nature and trying to leverage our existing platform.

And so as we have talked about before, with the benefit of Wheels, we really view our world as having three functional integration platforms: our legacy forwarding platform here in Bellevue, a US-centric brokerage platform in Chicago, and a Canadian-centric platform in Toronto. So we have looked and continue to look for deals across each of those categories, but at the same time are committed to being disciplined and committed to our earnout strategy or structure and some of the things to help us through that process.

That dovetails into my last question. Obviously, you can buy -- basically buy yourself, buy your own stock, given the multiple you are at relative to speccing on somebody else at 6 or 7 times the multiple, which you referred to, seems to be obviously depressed for reasons that are fairly apparent in the sector. Any thought on the buyback? Just remind us what you have available and if you have been active?

So we do have a buyback in place. We have not been active yet, but we continue to evaluate that as a viable option for us, just as we think about capital allocation and risk-adjusted deployment of capital.

Great. All right, good luck out there. Thanks.

Marco Rodriguez, Stonegate Capital.

Thanks for taking my questions. Sorry if I missed this on the call, but I didn't get any -- I didn't see any guidance information for fiscal 2017 where you normally guys provide something. Did I miss that?

No. For this particular release, until we can get some better visibility as to what's going on in the marketplace, we chose not to provide guidance.

Got you. And then following up on the investments you talked about earlier in technology, can you give us a little bit better of a sense as far as the costs associated with that investment? And then any sort of timing aspect that when you think you should have this rolled out throughout your network?

Ultimately, I think it will be a long-term and continuous process for us. But we -- I think if you look at our cash flow statements, I think we invested $4 million in the technology CapEx line item last year and another $3.6 million this year. And so I think that's a pretty good proxy of what our ongoing investment is going to be, at least at this point as we understand it.

Just to quickly try to summarize again, when we first launched the business back in 2006 with the acquisition of Airgroup, Airgroup was an SAP shop at that point in time and they had SAP's accounting applications integrated to Cargowise. And we have in the forwarding vertical relied on that and that served us well for a long time.

And then with our more recent acquisitions, our own aggregate technology requirements have increased, and opportunity for cost synergies and rationalizations have also increased. And to that end, we searched high and low, interrogated the marketplace to try to find what we thought would be the best third-party TMS, or transportation management system, for our platform going forward.

At this point in time, our view on that question is SAP, SAP has a TM that they rolled out. And so to get ourselves aligned along that path, we upgraded our SAP accounting system, put this new piece of middleware in place as well that allows us to integrate this new SAP environment to multiple legacy TMs.

So we have completed basically the integration of Cargowise through the middleware to our new accounting system. And that positions us to begin to transition really on a station-by-station basis and move people from Cargowise to the new TM.

We will be piloting or we expect to be piloting the new TM in calendar 2017. And based upon how that pilot goes and how that proves out, we will continue to migrate station by station and effectively sunset Cargowise. And so I will call that Phase 1A, if you will. And we will have that same opportunity relative to Wheels International in Canada and their various accounting software packages and TM applications. And then again in Chicago with Wheels Clipper.

So this will be a multi-year endeavor. But the real next big milestone for us is getting the pilot deployment of the SAP TM instantiated and working. And then migrating the first station into that pilot and working through any kinks and debugging it. And then one by one bringing additional stations over into the platform.

Got you. And that first pilot that you said that you wanted to launch here in fiscal 2017, is that a first-half-of-the-year, second-half-of-the-year type of event we should be [thinking about]?

I'm sorry. I thought I said calendar 2017 rather than fiscal, and so --

Sorry, maybe I misunderstood.

Yes, so I would expect it to be in the first half of the year.

Got you. Okay. And so if I am understanding things correctly here in terms of the technology investment, obviously being a little bit longer term, putting the Company on some good footing for long-term growth and productivity improvements more so than trying to help offsetting any short-term headwinds that you are seeing right now, obviously, in the marketplace that everyone is seeing? Does that seem fair?

Yes, I think -- at the end of the day, we have got to respond to market pricing and be competitive, right? So there is only so much we can do on that side, but there's a lot of things that we can do to help ourselves on the cost side of the ledger.

And the most obvious is the $2 million of cost savings available to us through SBA. We have had our eye on the price on that for a while, and it is right in front of us now. So that will be the first low-hanging fruit, if you will, in terms of being able to get at those cost synergies and getting that incremental $2 million to our bottom line.

And I apologize. Can you remind me: is that going to be happening next quarter or is that a little bit later down the road?

As we -- historically as we have integrated back offices of other agent-based forwarding networks, we will have a targeted cutover date and then ultimately we have got a -- I call it running off the tail, right? Once we stop instantiating new transactions into that legacy environment, we still have to collect all of the accounts receivable and pay all the payables and work through all of those legacy transactions.

So right now, we are targeting that cutover for October 1. So no new transactions in the SAP accounting system starting in October 1, and that will begin the runoff of the tail, so to speak. So over the next -- starting October 1, I would think over the next six months we will have largely concluded that exercise.

Got you. Appreciate your time, Bohn.

Jason Seidl, Cowen.

Couple quick questions here. Just to confirm: the contingent consideration that was in your numbers this quarter, is that just an earnout that wasn't reached?

Actually, it was a expense. Every quarter, we go through an exercise and evaluate all of the people who are entitled to the earnouts. And then we true them up as best we -- with the information that we have. And so what happened here was it was actually an expense. So what that means is we have stations on a net basis that are overall performing better than we anticipated the last time we looked at it.

And just a quick reminder for everybody on the call who doesn't live and breathe contingent consideration, right. When we do purchase accounting, we have to set up estimated future liabilities for payment.

So as acquisitions would underperform the estimates, it shows itself as a gain. And when they overperform, it shows itself as an expense. So a little bit counterintuitive, but such as GAAP sometimes. So what you are actually seeing are stations outperforming what we had initially set up for the quarter.

So we need to see more of these contingent considerations is what we are saying?

Well, it depends on how you look at it. So we will take it either way. Whenever it is a gain, the way that I look at that is our earnout mechanism is working and we are not paying for earnings that we didn't get. I like to say we are willing -- we are quite happy to pay fair value for businesses, we just don't want to overpay for businesses. And this earnout mechanism is the check and balance that helps us do that as best we can.

Right. Bohn, when I went through the release, I didn't see any mention of what your organic growth rate was. I was wondering if you could talk to that in each of your main business segments?

Well, overall, we are seeing -- along with everyone else, we know that many of our competitors have had year-over-year decreases, and we are no different. A lot of this is in reference to the fuel surcharge in the year-ago period, but overall --.

Let's at least get somewhat down the path. So when we think about growth, and Jason, I think we have talked about this a little bit before, we like to look at the net revenue line item rather than top-line revenue just because of fuel surcharge and the dynamics associated with that.

So if we look to hold this conversation at the gross margin line item, I think for the quarter we reported overall growth at 9% growth in net revenues for the quarter. But embedded in that -- and Todd, correct me, but I think it was -- was it a 6%?

Yes, a little over 6%.

6% degradation in same-store growth.

Okay. Now if you would split out freight forwarding from brokerage from IMC, how would that look? Is it evenly split? Is one worse off than the other, like is brokerage doing worse on that?

I don't have those precise numbers, but I can tell you brokerage would be doing worse than forwarding in terms of net revenue growth.

Okay. That's helpful. And Bohn, I think we talked about this before, but just to clarify, you guys don't have any exposure to Hanjin just because you're almost entirely air, correct?

Yes, in terms of our forwarding and in terms of our international, ocean, in terms of a modality, is a very small piece of our business by any measure. So I am sure we have got customers with a few containers here and there, but it would be very, very small.

Okay, fantastic. Guys, thank you for the time, as always.

David Campbell, Thompson Davis & Company.

Following up on that last comment about Hanjin and the impact on your Company, what do you think is the possibility of moving some sea freight -- shippers are moving sea freight into air? It doesn't take very much sea freight to move into air to have a significant impact on air freight. Is that a possibility or is it too early to know?

I think it's a little early, but certainly in concept, that would seem logical. And we have taken steps to initiate customer outreach to make them aware we are here to support them if they need to rescue freight and on an expedited basis get it to where it needs to go. That would be a good pop for us to the extent that it happens, but it is a little early for us to start trying to take credit for those types of dynamics in our own results.

Okay. And the net revenues were $46.5 million, as you mentioned, slightly less than -- that's slightly less than you were forecasting, but you still had adjusted net income of $2.8 million for the quarter. That's up from a year ago.

I wondered, given that result in the adjusted net income line, why you are so reluctant to talk about fiscal 2017? It seems like you have things under pretty good control in terms of profitability?

Well, there is a number of things -- when we think about guidance, there is a lot of different attributes, right? We have got, one, as I think everybody on the call knows, certainly a meaningful piece of our business is still driven by our agent locations, which aren't under our direct control.

We have got this capacity, excess capacity, hangover and not clear when that is going to realign. And then ultimately we have potential M&A activities that could offset and head the other direction.

At the end of the day, I would rather just be judged on our results rather than us missing by $0.01 and people trying to have an aha moment, just given the vagaries of the market. I would rather just keep score on a real-time basis rather than trying to make an estimate in this particular environment.

Okay. Last question is your comment about the $2 million potential cost savings from the Service By Air situation, it sounded like that some of those gains -- some of those cost savings would start October 1. Does that mean we will have continued --?

No, I think they will start -- I think they will more likely start to show up in calendar year 2017 because we still -- all those people we still need them to process the legacy transactions, pay the carriers. And so that takes 60 to 90 days before you make any meaningful headway, and then you're chasing all the odds and ends. Our experience is that is a six- to nine-month process that will begin for us October 1.

So it could be well into 2017 before you start benefiting from it?

That's true.

Okay, thank you. I will let someone else have it.

Mike Vermut, Newland Capital.

You might have answered this earlier on. You put together a great platform. You have the infrastructure there. You have a forwarding infrastructure, a brokerage, and it seems to me it is the organic growth side that you can attack now.

How do you go about doing that? Can you give us more specifics on, okay, how you leverage the model? How we move these margins from Radiant margin up to CH margins, Expeditors' margins, Landstar margins over time? And how we utilize what you have put in place already?

Sure. I can take a stab at it, right? So when we think about those types of metrics, and as we've talked about before, so ultimately we view us being in the business of trying to grow our gross margin dollars and getting as many of those gross margin dollars to the bottom line as we can.

So there is things that we can do, focused on the gross margin dollars first, right? So on that axis, we have got the opportunity to continue to pursue onboarding additional agent station locations as well as trying to harness the cross-sell opportunities between the brokerage and forwarding capabilities.

We seem to be having some success and differentiating ourselves in the marketplace with the Canadian competency. And so we are interested to continue to pursue that side of things.

We have also been putting some efforts towards segmenting our own sales strategy by industry vertical. And starting to identify incremental members of sales leadership that could come in and take a vertical by industry and help us drive additional business across the platform that way. And that's all on the organic rather than acquisition side.

And then we know historically our platform, our incremental cost of supporting that next dollar of gross margin is small. So as we can get more gross margin dollars, the lion's share of those will find their way to the bottom line if we are doing it right. In part, that's where our technology investment comes in in terms of driving further scale, but we certainly have the platform to support growth and support growth across these different categories that historically we haven't enjoyed.

So we have work to do, but the good news I think we are extraordinarily well positioned to take advantage of those opportunities. And while we are certainly hyperfocused on looking internally and driving improvement, we are still open for business on the M&A front and hope to continue to exercise those types of opportunities as well, which have always been an important part of our program.

Right. Then moving on to you have had impressive cash flow. That has continued, and the model supports heavy cash flow. At these levels, do you envision yourself starting a buyback?

Time will tell. That's always a dynamic question relative to other things on the table for us, but it is certainly on the table for consideration. But we will see. We will see.

Okay, and then last question. How do you envision -- this is an industry where size matters, right? Where scale -- there is buying power, there is revenue synergies. What do you see happening over the next two years?

There is a lot of private players out there. If we take a look over the next two, three years, where does Radiant stand? Is there consolidation? Do the big players get together? We have seen a little bit of consolidation starting now. What should we expect from Radiant and where do you envision us over two, three years?

I think -- so I think there will be continued consolidation and this whole notion of the graying of this agent-based forwarding community that is continuing to play out. And I think there will be further consolidation.

And candidly and factually, I think we have a ten-year first-to-market advantage in positioning ourselves to support multiple brands within the freight forwarding space. No one else has even attempted to do what we do, and I can tell you it takes a fair amount of time and energy and focus to get an organization and its back office oriented to support multiple brands and further consolidation.

And so I think we are uniquely positioned to be an active participant in those activities as they occur. At the same time, I also know it is not time until it's time, right? So these other counterparties, there can be a number of catalysts or events or circumstances that make them motivated participants.

But I think when they come to that intersection and are really prepared to engage in those types of conversations and look at the landscape and who the likely partners would be, we just will be at the top of that conversation. And candidly, we are making ongoing investments in technology in support of those hoped-for future events because we really have taken a long-term view that has played out and continues to play out along this thematic. So I like to say we're patiently persistent, but think that we still are in the right path.

Okay. All right, appreciate it and good luck on this year.

I would like to turn the floor back over to management for any closing comments.

Thanks, Matt. Let me close by saying that we remain very excited with our progress and prospects here at Radiant. And we remain very bullish on the growth platform we have created and the scalability of our non-asset-based business model and the benefits that will flow from our ongoing investment in technology. Thank you for listening and your support of Radiant Logistics.