Radiant Logistics Inc (RLGT) 2018 Q1 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 first fiscal quarter ended September 30, 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 important 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. Please go ahead, sir.

Thank you. Good afternoon, everyone, and thank you for joining in on today's call. It's been an interesting market to say the least. For most of the quarter, we were operating under margin pressure driven by the impacts of excess capacity and what I would generally characterize as a short but painful period, in which the domestic asset-based carriers and asset-based IMCs were in the market with unusually low pricing in an effort to attract freight volumes to keep their equipment moving.

Towards the end of the quarter, we saw the pendulum swing driven by a combination of the strengthening economy, driver shortages and the demands of hurricane relief efforts. And now we find ourselves in a much more favorable market environment with the asset-based carriers beginning to once again rationalize their pricing in a tightening market.

Given these market headwinds that existed for most of the quarter, we reported adjusted EBITDA of $6.5 million on revenues of $198 million and net revenues of $46.1 million for the quarter ended September 30. On a comparable year-over-year basis, revenues were up $2.9 million, or 1.5%, while net revenues were down $2.9 million or 5.9%.

Our transportation margins were down $4.2 million and partially offset by an incremental $1.4 million of net revenue contribution attributed to our acquisition of Lomas Logistics and our materials management and distribution capabilities in Canada. I will also point out that $3.7 million of the $4.2 million compression in our net transportation margins was offset by a corresponding reduction in commissions paid to our operating partners.

In the face of these recent margin pressures, we made a strategic decision to expand our materials management and distribution capabilities with the goal of bundling these value-added solutions with our core transportation service offering in order to further differentiate ourselves in the marketplace and attract higher margin business.

First with the acquisition of Lomas Logistics and now with this competency onboard, we have recently made additional investments during the quarter with approximately $300,000 in onetime costs hitting our P&L, adding new and reconfiguring existing Canadian facilities to expand our materials management solution offering, which we believe will be a meaningful financial contributor in future quarters.

Looking forward, we believe we are well positioned to benefit from a more favorable market environment as capacity tightens and demand accelerates. We believe this will lead to expanding transportation margins and improved financial performance for both our forwarding and brokerage operations over the next several quarters.

In addition, we are seeing strong demand for our Canada-based materials management and distribution services offering and have secured contracts with 8 new customers that we estimate will contribute an incremental $3.5 million to $4 million in net revenues, that's net revenues not gross revenues, that will come online over the next 2 quarters. We believe our strategic decision to bundle these value-added services with our core transportation service offering will continue to gain momentum and allow us to enhance our margins and accelerate our growth moving forward.

We also made meaningful progress on the technology front this last quarter with a successful pilot of our new SAP-based transportation management system in Phoenix, Arizona. This was an important milestone for the company and puts us in a position to begin a more broad-based rollout of the system in the first quarter of 2018.

As we've previously discussed, we believe our ongoing investment in technology provides us with a unique opportunity to deliver state-of-the-art technology for our strategic operating partners and the end customers that we serve. At the same time, our new technology set will enable a number of productivity initiatives to streamline our back-office processes and accelerate the realization of back-office cost synergies associated with existing and future acquisitions, and can ultimately help facilitate revenue synergies across the platform.

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 months ended September 30, 2017.

For the 3 months ended September 30, 2017, we reported net income attributable to common stockholders of $316,000 on $198 million of revenues or $0.01 per basic and fully diluted share. Which included $347,000 of MM&D investment cost in our Canadian operations, $107,000 of lease termination costs and a $300,000 change in contingent consideration income.

For the 3 months ended September 30, 2016, we reported net income attributable to common stockholders of $1,351,000 on $195.1 million of revenues or $0.03 per basic and fully diluted share. This represents a decrease of approximately $1.35 million over the comparable prior year period.

For the 3 months ended September 30, 2017, we reported adjusted net income attributable to common stockholders of $2,688,000. For the 3 months ended September 30, 2016, we reported adjusted net income attributable to common stockholders of $4,030,000. This represents a decrease of approximately $1,342,000 or approximately 33.3%.

For quarterly adjusted EBITDA, we reported adjusted EBITDA of $6,483,000 for the 3 months ended September 30, 2017, compared to adjusted EBITDA of $7,325,000 for the 3 months ended September 30, 2016. This represents a decrease of $842,000 or approximately 11.5%.

I'd like to highlight, included in the adjusted EBITDA is an add back of $347,000 for the MM&D startup cost at our Canadian operations, that we anticipate will bring meaningful business in the coming quarters.

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

(Operator Instructions) Our first question is coming from Kevin Sterling from Seaport Global Securities.

Congrats on a solid quarter. I know it's a challenging environment, it seems like you guys kind of navigated some of the headwinds there. But let's -- that's kind of backwards and look, and let's look forward. You touched on this in your prepared remarks, Bohn. What are you seeing today in terms of environment? When I listen to various truck brokers out there, IMCs, freight forwarders and suppliers just had a blowout quarter. They all seem much more positive on environment today than they were, say, 3, 6 months ago. It seems like we're having a traditional peak season, something we haven't seen in roughly maybe 10 years or so. And it seems to me the environment has really picked up, got good volume out there, capacity is extremely tight. Are you seeing the same things? And as I've said, I imagine that's got to be kind of the sweet spot for Radiant. So I'd love to hear a little bit more color from you, if you don't mind, on what you're seeing today?

Yes. Sure. So as I alluded to in my comments, I can't remember kind of a bigger, more pronounced kind of point of inflection than kind of what happened kind of intra-quarter for us. So we were kind of fighting the fight along with everybody else. But towards the beginning of September, things just really pivoted. And so as you called out, I think we're certainly seeing in some of our more recent numbers a lot more favorable results. And not to dwell on it too much, but we made investments in Canada, opened up some new warehouses and kind of -- the quarter reflects kind of the carrying cost of these warehouses and their -- what were effectively their start-up phase. In a relatively short period of time, the Canadian leadership team was able to go out and effectively fully lease up that space. So we're holding contracts with a number of customers that's going to fully utilize that space and make some pretty significant contributions to Canada going forward. And then as you alluded to and where we can kind of get into the details a little bit, in the -- and what I'll call the excess market environment, we had -- our intermodal business, which is a big piece of our U.S. brokerage operations, we had kind of the natural modal competition in truck versus rail. And we also had what I'll call the asset-based IMCs who were being very aggressive with the pricing, or should I say non-pricing, of their own boxes in the marketplace. Well, as all of that capacity has been or is being absorbed back into the marketplace, we're seeing kind of a more natural modal shift back to rail and kind of a more natural appropriate pricing for boxes, kind of under the dominion of the asset-based IMCs. So all of that bodes well for our brokerage operations and some of the macro headwinds that they had been facing. That seems to be abating, and so I think things are set up to be meaningfully better going forward than what we saw of this last quarter.

That's great. And it sounds like things -- it's amazing how things have turned on a dime, so it sounds like you guys are well positioned to capitalize on this. And so let me touch on -- you touched on a little bit about some of the startup cost you had, if you will. I think you said in your press release, maybe 8 new customers. So on some of these new business wins, are these some cross-selling opportunities maybe from existing customers where you cross-sold some additional products? Or is this all new brand new customers to the Radiant platform?

These are brand new customers to the Radiant platform. And really kind of a strategic move we made to try to diversify our service offering, starting in Canada and some of the pressures we were feeling on the brokerage side of the house to try to reposition ourselves in the marketplace. And I think we were all pleasantly surprised with just how quickly we were able to kind of find a home. I think we've identified a -- kind of the proverbial market need or an appetite for this bundled service, and so we're pretty interested to continue to prove it out as we move forward. But specifically to your question, it's all incremental and it's a combination of the -- kind of the contract logistics-type revenues along with incremental transportation margins. And on the warehousing side, almost all of the revenue falls to the bottom line because we're carrying the facilities costs. That's kind of the point or part of the drag on the Canadian operations for the quarter as we basically -- we're bearing the cost of the upfit of a new facility and we didn't have paying customers in there yet. They're all contracted for now, it's just a matter of getting those installed into the facilities.

Got you. So we should start seeing some of that benefit here in this next quarter -- or the current quarter we're in now and then even beyond that, is that right? We should start seeing some benefit now?

Yes. Yes. For the upcoming quarter in December, absolutely.

Okay. And then, Bohn, along those lines, and I don't want to pin you down on guidance because it -- you guys seems like you kind of stepped away from that. But as we think about kind of -- you said adjusted $6.5 million in EBITDA for this quarter. As we think about the next quarter kind of given the, really, market improvement we're seeing across the board in transportation and then some of these new business wins, it's fair to say we're going to see a nice, substantial sequential uptick in EBITDA as we think about that for the next quarter. Am I thinking about that, right?

What's the saying, from your lips to God's ears, that's certainly our expectation.

That's great. So congrats to you. It definitely seemed that has turned and you guys are well positioned and keep on getting some new business wins. I think what you guys are doing is really resonating in the marketplace.

(Operator Instructions) Our next question is coming from Mark Argento from Lake Street Capital Markets.

Just a quick question, Bohn, about around the bundling of services that you spoke of in your prepared remarks. Can you walk through that? I think you called materials handling, but bundling that in and what that means for the business?

Sure. I'm sorry, you just want a little more color on that?

Yes. I just don't -- yes, the whole concept...

Yes. Yes. Yes. Sure. So the acronym -- we'll just start at the top. So the acronym MM&D stands for materials management and distribution. And so we kind of think of the business as, kind of our core business as providing transportation services, need moving between points A and B. But there's a whole host of value-added services, which we can kind simply describe as those things happening inside the 4 walls of the facility that we can do to add value to products, whether it's picking, packing, co-packing, localization of language, provide the French language for stuff coming into Canada, as an example. And all of those things -- ultimately those things allow us to ultimately align more strategically with our end customers, the partner more deeply. And hopefully, that will -- and we believe that, ultimately, will translate into a stickier customer and a book of business that carries a more favorable set of margin characteristics for us.

Great. That's helpful. And then do you -- I mean, are you guys actually breaking down pallets and touching product? Or you try to keep it at the pallet level? I mean, to what degree...

No. No. We're down to the each's in certain different product lines. And it's kind of a good segue, not necessarily to do this on this call, but I would really like to get you up to Toronto and see what we do. I think you'd get a lot out of seeing kind of the sophistication and kind of what we're doing up in Canada. It's pretty exciting.

And the opportunity to do anything like that domestically here, is that in the cards or...

Yes. We certainly have some similar capabilities in a number of locations, including Los Angeles, but not on the scale and magnitude that we're doing in Toronto.

Great. And then just swinging back to the demand side of the equation. Obviously, you're seeing things pick up pretty substantially. What -- could you get a little granular? What parts of the transportation ecosystem are you guys seeing demand for? Obviously, we've heard that trucking's picking up, you have less exposure at least here in the states and the...

I think -- and not to speak too grandly, but I think practically every mode of transportation has seen a lift in this environment. As Kevin alluded to, it seems like we're going to have a good, solid peak season coming through. And then kind of on the heels of that, we've got the ELD stuff coming online. And at least the narrative out there from everything I'm hearing is that capacity is expected to remain tight for the foreseeable future. So long as that holds, I think we should be a beneficiary of that, for sure.

(Operator Instructions) Ladies and gentlemen, we've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Thank you. Let me close by saying that we remain very excited with our progress and prospects here at Radiant and remain very bullish on the growth platform that we've created and the scalability of our non-asset based business model and the benefits that will flow from our ongoing investment in technology. We believe we're well positioned to benefit from a more favorable market environment as capacity tightens, which we believe will lead to expanding transportation margins and improved financial performance for both our forwarding and brokerage operations over the next several quarters. Thanks for listening and your support of Radiant Logistics.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.