Radiant Logistics Inc (RLGT) 2017 Q3 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 third fiscal quarter and 9 months ended March 31, 2017. (Operator Instructions) 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 had 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.

Thank you, Tim. Good afternoon, everyone, and thank you for joining in on today's call. We are very pleased to report another solid quarter with continued margin expansion and earnings growth in our seasonally slowest quarter ended March 31, 2017. We posted adjusted EBITDA of $6.5 million for the quarter, up $1.8 million or 39.5% over the comparable prior year period. We are also encouraged by the margin characteristics of our business, particularly given the broader market environment of excess capacity and general margin pressures on the industry.

In the aggregate, net transportation margins improved 190 basis points to 24.5%, up from 22.6%. While our U.S. brokerage business was negatively impacted by the margin pressures associated with excess capacity, this was more than offset by margin improvement we enjoyed in our much larger forwarding operations. We also saw meaningful improvement in Canada where net transportation margins improved 430 basis points to 17.8%, up from 13.5%.

Our adjusted EBITDA margins also improved 310 basis points to 14.2%, up from 11.1%. As we previously discussed, our incremental cost of supporting that next dollar of gross margin is very small, and we are very excited about our opportunity to drive further adjusted EBITDA margin expansion as we continue to scale the business and leverage the benefits of our ongoing technology investments.

We also saw meaningful improvement in our adjusted net income attributable to common shareholders at $3.4 million or $0.07 per basic and fully diluted shares for the quarter compared to adjusted net income of $1.8 million or $0.04 per basic and fully diluted share for the comparable prior year period.

In addition, we also generated approximately $6.3 million in cash from operations for the quarter and a total of $15.5 million in cash from operations for the 9 months ended March 31.

We also have very low leverage on our balance sheet and enjoy approximately $47 million in availability under our existing credit facility and continue our disciplined approach of working to put this low cost of capital to work, acquiring acquisition candidates that bring critical mass from a geographic standpoint, purchasing power and/or complementary service offerings to the current platform.

In this regard, we recently completed our acquisition of Canada-based Lomas Logistics, which operates as a third-party logistics provider servicing companies across a diversified range of industries, including consumer goods, health care, food and technology, and operates in Ontario and British Columbia.

In addition, we have a number of additional acquisition candidates under consideration, and we look forward to providing further updates as these opportunities progress.

With that, I'll turn it over to Todd Macomber, our CFO, to walk us through our detailed financial results, and then we'll open it up for some 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 3 and 9 months ended March 31, 2017.

Quarterly net income results. For the 3 months ended March 31, 2017, we reported net income attributable to common stockholders of $396,000 on $181.8 million of revenues or $0.01 per basic and fully diluted share, which includes $446,000 of transition and lease termination costs and a $737,000 charge for change in contingent consideration expense.

For the 3 months ended March 31, 2016, we reported a net loss attributable to common stockholders of $2,230,000 on $178.3 million of revenues or a loss of $0.05 per basic and fully diluted share. This represents an improvement of approximately $2,626,000 over the comparable prior year period.

For quarterly adjusted net income results. For the 3 months ended March 31, 2017, we reported adjusted net income attributable to common stockholders of $3,359,000. For the 3 months ended March 31, 2016, we reported adjusted net income attributable to common stockholders of $1,766,000. This represents an improvement of approximately $1,593,000 or approximately 90.2%.

For quarterly adjusted EBITDA results. We reported adjusted EBITDA of $6,488,000 for the 3 months ended March 31, 2017, compared to adjusted EBITDA of $4,650,000 for the 3 months ended March 31, 2016. This represents an increase of $1,838,000 or approximately 39.5%.

Adding back transition costs associated with SBA's back office represents an additional $446,000, adjusted EBITDA would have been $6,934,000 for the March 31, 2017, period versus $5,204,000 for the March 31, 2016 period, which includes an addback of transition costs of $544,000. Overall, this represents an improvement of $1,730,000 or 33.2%.

And moving along, the 9-month results are as follows. For the 9 months ended March 31, we reported net income attributable to common stockholders of $3,846,000 on $575.8 million of revenues or $0.08 per basic and fully diluted share, which includes $1,307,000 of transition and lease termination costs and, additionally, a $1,793,000 charge on change in contingent consideration expense.

For the 9 months ended March 31, 2016, we reported a net loss attributable to common stockholders of $4,930,000 on $600.1 million of revenues or a loss of $0.10 per basic and fully diluted share. This represents an improvement of approximately $8,776,000 over the comparable prior year period.

For the 9-month adjusted net income results. For the 9 months ended March 31, 2017, we reported adjusted net income attributable to common stockholders of $12,364,000. For the 9 months ended March 31, 2016, we reported adjusted net income attributable to common stockholders of $9,002,000. This represents an increase of approximately $3,362,000 or approximately 37.3%.

Looking at the adjusted EBITDA results. For the -- we reported adjusted EBITDA of $22,680,000 for the 9 months ended March 31, 2017, compared to adjusted EBITDA of $18,986,000 for the 9 months ended March 31, 2016. This represents an increase of $3,694,000 or approximately 19.5%. Adding back transition costs associated with SBA's back office that represents an additional $1,263,000, adjusted EBITDA would have been $23,943,000 for the March, 31, 2017, period versus $20,917,000 for the March 31, 2016, period, which included an additional addback of transition costs of $1,931,000. Overall, it represents an increase of $3,026,000 or 14.5%.

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

(Operator Instructions) Our first question comes from the line of Mark Argento of Lake Street Capital Markets.

I just wanted to get some thoughts in terms of the M&A opportunities out there, how do you see that shaping up given the markets firming up?

Thanks, Mark. So I think it's kind of -- we're continuing on the trend. I think no new surprises, fairly consistent from some of our prior reconnaissance, which ultimately would translate into -- generally speaking, we're spending our time looking at what we would view as the smaller tuck in-type acquisition opportunities, which will manifest itself in existing agent stations looking to convert to company-owned stores, agent stations and competing networks who can't get liquidity where they are who might have an interest in joining our network. So kind of in the forwarding space, that's kind of principally where we'll be looking while we continue to look for tuck-in acquisition opportunities that could be supported from Chicago or Toronto and kind of the other platforms. And then from time to time, we'll look at larger deals. There's a fair number of things in the marketplace, so kind of the general theme is continuing. Expect us to be kind of serially doing smaller tuck in-type transactions following the general valuation and structure that we've all become accustomed to, at least in our world, which is using earnouts and valuations in the 4 to 5x range for these smaller acquisitions. And from time to time, we'll look at larger deals. And if we're compelled or feel that there's enough value there, then we can pursue those as well like we did with Wheels.

Got it. And then how would you characterize the pricing environment you guys are seeing out there? Obviously, looks like some of that excess capacity has come out of the trucking side of the equation. Are you guys seeing customers looking to lock in longer term? Where would you -- where are we in terms of taking that excess capacity out of the system?

Well, I think the practical answer is, unfortunately, we're not there yet. And that's seen most pronounced on kind of our U.S. brokerage operations, with our intermodal and truck brokerage being negatively impacted by those things. So we think ultimately, over the long term, there will be a rebalancing, and the clouds will part, and the sun will shine through. But in the interim, we're -- we and the guys in Chicago in particular are under some pressure on that segment. Fortunately for us, it's a small piece of the equation for us, and we've been able to kind of outdistance any of that negative side with what's been going on in the core forwarding operations as well as what's up, up in Canada. But there's -- you can read a lot of the industry digests, and everybody seems to think that things are going to revert in a few out quarters from here. But whether and when that ultimately manifests itself is kind of beyond our pay grade to make that call.

Sure, sure. I think -- I can't remember now, it's been a while, but maybe just last year that you guys decided to move away from providing guidance. Should we just assume that's going to stick? Or could you see starting to provide a little guidance if and when you get that certain level of visibility back that you're looking for?

Well, a little cynically, I would say right now -- well, I think to answer your question, we have no intention of kind of beginning to provide guidance near term. So that's the practical answer. And I don't know if you can feel the smile through the phone, but we know we haven't been providing guidance, but we've been meaningfully outperforming, and our stock's been performing quite nicely. So we don't feel a need to rush back into that construct.

So guidance is overrated is what I'm hearing.

That is -- amen, brother. So...

No, I hear you. I guess more -- and that's fine. I respect that, I guess. But more than anything, I was -- people are holding hope, but obviously, now that the stocks been acting well, that returning guidance is an important part of the equation. Obviously, it's not. So we'll assume we'll be flying a little blind on the guidance thing for a while.

Our next question comes from the line of Marco Rodriguez of Stonegate Capital Markets.

I was wondering if maybe you can spend a little bit of time on the forwarding business. You mentioned in your prepared remarks that you saw some pretty nice margin improvements there. Can you talk a little bit about the drivers there?

I think a lot of it has really come through improved-- so there's a couple of different aspects, and I can defer to Todd on some of the underlying details. But I think a big piece, particularly in kind of getting our gross margin dollars to the bottom line, has come through ultimately improvements in the operations in our company-owned stores and kind of more rigorously managing our labor dollars as a function of gross margins in those company-owned stores. And as we're successful in doing that, that really has a very positive financial impact for us. But more broadly, I think the stations, our independent agent stations as well as the company-owned stores have just done a good job out there in growing their businesses and preserving and, in some cases, enhancing the margins in the business. What we're -- this is a relatively clean quarter in that there's no kind of M&A that's not in the prior year period. So this is a pretty clean shot at kind of what the business is doing organically. And so we saw some decent growth in our gross margin dollars on an organic basis. And so we feel pretty good about that.

Got you, it's very helpful. Then in terms of the environment for forwarding, we've heard a little bit from some other players in the last few weeks. Just kind of wondering, how are you looking at that business and the kind of the expectations for that business next quarter and how you might be thinking about it as it unfolds through to fiscal '18 for the forwarding side?

Well, this is -- so as we kind of mentioned a little bit earlier, we still have -- a good piece of our forwarding business comes from the independent agent stations. So we don't necessarily have great visibility into that kind of subsegment of the business. But I don't think anybody would say the economy's in any kind of hockey-stick environment, but we seem to be enjoying some kind of slow and steady growth, and we're coming off of our seasonally slowest year. So at this point, I would think we'll certainly look better than a comparable prior year area, and I think -- and I would expect we'll look better on a sequential basis as well.

Got you. Then switching gears here to the Lomas Logistics acquisition, I'm not sure if I caught any of this in prior releases, but the structure of that transaction, has that been finalized? And can you review what that structure is?

Sure. That -- so that particular transaction, this was basically a carveout of a larger private company that was exiting this division. And that was an all-cash deal and, accordingly, discounted a little bit in terms of the multiple that we would have otherwise paid in an earnout structure.

Okay. So there was no earnout structure on that?

Correct.

Got you. And I know that you provided some fairly basic high-level financials for Lomas Logistics for the calendar year '16. When we think about kind of layering that business into yours, should we be thinking about the same sort of seasonality? Or is there something a little bit different there?

No. I think at this point, I would say -- I wouldn't attribute it as being particularly seasonal, this particular segment of the business. And I think there, we would generally expect their historical performance to carry forward. So for '16, that was CAD 2.3 million of incremental EBITDA into the business. So pick your exchange rate.

Sure, sure. And last quick question, I'll jump back in the queue. Do you by chance have what the post-close balance sheet looks like for cash and total debt? I'm assuming the debt's probably the same.

Yes. So if I understood your question correctly, kind of in connection with the closing of the Lomas transaction, which occurred on April 1, we actually funded the transaction on March 31 because we had to get capital kind of repositioned into Canada. So if you look at that 3/31 balance sheet, you'll see cash looks a little high, but it's reflective of kind of the net advances from the credit facility and kind of repositioning the cash to conclude that transaction.

(Operator Instructions) Our next question comes from the line of David Campbell of Thompson, Davis & Company.

Can you explain the increase in the gross margin in Canada? Is it sustainable? How did you -- what's that a function of?

We de-marketed an unprofitable -- a particularly unprofitable account. That was [an aside], but that's the answer.

And that had very low margins or no margins?

Yes.

All right. Okay, so that will continue then? That's a sustainable number?

Yes. Yes, sir.

Good. And in the United States, what -- you mentioned the truck brokerage margins are down like everybody else's. What would the company's gross margin have been in the quarter without that truck brokerage down compared to, let's say, 24.5% that you reported?

I don't have that broken out to that level. Obviously, the biggest piece is the freight forwarding. So I can tell you that obviously, the -- we've been under a lot of pressure in the truck brokerage side of things. And that's obviously weighed on, but I don't have that level of detail for you.

Yes. David, the U.S. brokerage business ultimately, in the scheme of things, is a fairly small contributor or piece of the overall contribution. So as that ultimately recovers, which we fully expect it to, I don't think it will have dramatic effect on our consolidated margins, at least given the current size and scale of our brokerage.

All right. So you wouldn't expect the gross margin percentage to be significantly -- it was -- last year went up from the March to the June quarter. I don't remember why that was, but would you expect the same thing in this year or because it's a seasonally strong quarter?

Yes, I think so. I mean, it's -- we've had a little uptick in the overall margin especially when you compare from the year ago period, and then it's been relatively flat over the past 4 quarters. So obviously, when the brokerage piece of it comes back, I think you'll see a very small and like Bohn's saying, not really meaningful overall uptick in the overall gross margin percentage because it's such a small percent of the overall picture.

But the increase last year, though, is related to seasonal factors, was it not?

Which period are you looking at? I mean, I've got the last 5 quarters in front of me.

From March to June last year, you -- the gross margin percentage went up from 24% to 25%.

Correct, that's correct.

Yes. Within the brokerage business, there's some seasonality relative to produce, and kind of temperature-controlled moves. And so that is my best seat-of-the-pants response to your question in terms of the seasonality within brokerage.

Okay. Are the Service By Air integration costs gone now? Are they still continuing in the June quarter?

They -- some of them gone, some of them continue, and it's really ultimately driven by our deployment of SAP's TM. So we have cut the costs substantially, but there's still a meaningful chunk of ongoing costs at SBA really perpetuating or sustaining SBA's legacy TM that will continue until we're able to migrate the SBA stations onto our new TM, which I would currently target to be in the first half of calendar '18.

But you would expect the Lomas acquisition to be incremental to second -- or the June quarter earnings?

Yes, sir.

And there are no unusual costs associated with the acquisition?

Well, there's going to be some costs of bringing them over and some -- just the normal...

But none other than traditional deal costs, correct.

Nothing like Service By Air and all that stuff?

Correct.

Our next question comes from the line of Kevin Sterling of Seaport Global Securities.

This is actually Will Milby on for Kevin. I just wanted to kind of ask you about trends you're seeing, good, bad or flat, as you look at April and the beginning of May here across the business lines.

On a kind of tactical week-to-week basis, we have our best visibility within our forwarding world because we really track down the agency location or station-by-station basis kind of comparable week-over-week results and trend lines. So we've got our best visibility to there, and I think we still feel pretty good about what we're -- kind of what we're seeing week-to-week on a comparable basis in the trends. So that's our best visibility, and I think it's positive. From that standpoint, we -- I think Canada continues to thrive. And with Lomas, we expect to see some improvements on that front. The ultimate wild card -- and not to belabor the point, but it continues to be the U.S. brokerage operations in kind of when and how will that market begin to turn. And unfortunately, we don't have much good visibility to effectively respond or provide much color other than to say we don't particularly like the way it feels right now. And we're optimistic -- you probably read more industry reconnaissance than I do, but there's certainly some out there saying the second half of the year capacity is going to tighten, pricing is going to improve. I can't comment on how reliable that is or not.

All right. Seems like the second half of every year is going to be the best no matter what the year.

Yes, exactly. That's why I'm not going to let you walk me out on that limb.

There are no further questions over the audio portion of the conference. I'd now like to hand the conference back over to management for closing remarks.

All right, thank you. 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 that we've created and the scalability of our non-asset-based business model. Our 10-year first-to-market advantage in executing our multi-brand strategy and consolidating agent-based forwarding networks, our ongoing investment in technology and low leverage puts us in a unique position to support further consolidation in the marketplace. We believe this represents our longer-term and almost perpetual opportunity, and we continue to invest in technology and our people with an eye towards building out a world-class, scalable back-office infrastructure to support a much larger enterprise going forward. We are patiently persistent in the pursuit of this long-term vision, which we believe, over time, will deliver meaningful value for our shareholders, our operating partners and the end customers that we serve.

Thanks for listening and your support of Radiant Logistics.

This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.