Radiant Logistics Inc (RLGT) 2018 Q3 法說會逐字稿

This afternoon, Bohn Crain with -- 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, 2018. 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 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, please go ahead.

Thank you. Good afternoon everyone and thank you for joining in on today's call. We're pleased to report solid growth with record third fiscal quarter gross and net revenues in our seasonally slowest quarter ended March 31, 2018.

Top-line revenues were $203.9 million for the quarter, up $22.1 million or 12.2% over the comparable prior year period. We saw revenue growth across all categories with forwarding revenues up $17.5 million and 13.4%, brokerage revenues up $2.7 million and 5.5% and value-added services revenues up $2 million and 122.7%.

Net revenues were $49.1 million for the quarter, up $3.4 million or 7.5% over the comparable prior year period, with net transportation revenues contributing $1.4 million and value-added services contributing an additional $2 million in net revenues. We experience continued margin pressure with our underlying asset-based carrier partners taking prices higher in this tight capacity market environment but believe we are well positioned to deliver sequential improvement over the next several quarters as we work to pass these increases on to our end customers or continue to grow our overall shipment volumes.

In addition, we continue to see strong demand for our Canada-based materials management and distribution solutions and believe our strategic decision to bundle value-added logistic solutions with our core transportation service offering will continue to deliver positive results. These positive results were negatively impacted over the short-term principally as a result of an increase in our personnel costs up $2.1 million and an increase in our G&A, up $1.6 million in connection with our recent acquisitions of Lomas and DLT along with our investment in several sales and technology initiatives which we are expecting to deliver organic growth and productivity improvement in future periods.

As a result, we posted adjusted EBITDA of $5.7 million for the quarter ended March 31, 2018, compared to $6.5 million for the comparable prior year period. On the sales front, we continued to grow our industry vertical and field sales organizations. We also continue to make a number of other strategic technology initiatives including blueprinting efforts to operationalize our air and ocean functionality within our new SAP platform, accelerating the digitization of our back-office operations through the deployment of X-Suite's optical character recognition and process automation solution which will streamline our procure-to-pay processes with our carriers and migrating our mission critical systems to Amazon's cloud computing AWS platform which will give us cost-effective access to greater computing power, database storage, content delivery and other functionality to help us scale and grow our business.

While we continue to look for interesting acquisition opportunities, we have also recently authorized a stock buyback program. We believe the share price does not currently reflect our long-term growth prospects and, therefore, represents an excellent investment opportunity for both the company and our shareholders. In addition, given the current anticipated future financial performance of Radiant's temperature controlled business at Clipper, we recently entered into a capital lease program to deploy up to $5 million to begin to refresh our refrigerated trailer fleet at Clipper. The lease program allows us to mobilize equipment into what we believe will continue to represent an interesting market opportunity while maximizing our financial flexibility to pursue acquisition opportunities to stock buyback and/or the retirement of our $21 million redeemable preferred later this year, should we choose to do so.

With that said, I'll now turn it over to Todd Macomber, our Chief Financial Officer, to walk us through our detailed financial results, and then we can 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, 2018. For the 3 months ended March 31, 2018, we reported net income attributable to common stockholders of $167,000 on $203.9 million of revenues or $0.00 for basic and fully diluted share. 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. This represents a decrease of approximately $229,000 from the comparable prior year period or 57.8%. For the 3 months ended March 31, 2018 we reported adjusted net income attributable to common stockholders of $2,695,000. For the 3 months ended March 31, 2017, we reported adjusted net income attributable to common stockholders at $3,661,000. This represents a decrease of approximately $966,000 or approximately 26.4%.

We reported adjusted EBITDA of $5,710,000 for the 3 months ended March 31, 2018 compared to adjusted EBITDA of $6,488,000 for the 3 months ended March 31, 2017. This represented a decrease of $778,000 or approximately 12%.

Moving along to the 9-month results. For the 9 months ended March 31, 2018, we reported net income attributable to common stockholders of $3,813,000 on $608.6 million of revenues or $0.08 per basic and fully diluted share which included $107,000 of transition and lease termination costs. For the 3 months ended March 31, 2017, 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 including $1,307,000 of transition and lease termination costs and an additional $1,793,000 of change in contingent consideration.

Overall, this represented a decrease of approximately $33,000 over the comparable prior year period or less than 1%. For the 9 months ended March 31, 2018, we reported adjusted net income attributable to common stockholders of $9,189,000. For the 9 months ended March 31, 2017 we reported adjusted net income attributable to common stockholders of $13,437,000. This represented a decrease of approximately $4,248,000 or approximately 31.6%.

We reported adjusted EBITDA of $19,327,000 for the 9 months ended March 31, 2018, compared to adjusted EBITDA of $22,680,000 for the 9 months ended March 31, 2017. This represented a decrease of approximately $3,353,000 or approximately 14.8%. 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 Mark Argento with Lake Street Capital Markets.

Bohn and Todd, just wanted to drill down a little bit on the contracts, the reprice in renewals. Can you talk a little bit about kind of how you see that playing out over the next couple of quarters and what kind of potential impact that could have to the P&L?

Sure. Thanks, Mark. So that process has begun. Without getting precise, I think generally the market is sensitized to the dynamics, understands prices are going up, so we're having good success and getting the increases that we need to get to cover the increasing cost and kind of get our margins back kind of in line with what we would expect them to be. And just as a reminder for people who aren't necessarily familiar with kind of the background for the question that Mark was asking, our forwarding business, which is the lion's share of the business, is more transactional in nature and not the target of this particular question but in our brokerage business, and specifically the legacy Clipper business in the U.S., a lot of that business is contractual in nature and with the underlying price increases that has taken place on the truck side in particular, we've been kind of working our way through some contract periods which are all in the process of repricing. So basically, every -- things are in the process of and will have been kind of repriced by the end of June, I believe it is, so we'll have a kind of little bit of a tail in this segment of the business through the quarter ended June, but we should have a cleaner core -- a clean quarter for the quarter ended September relative to the pricing of Clipper's contract business.

That's very helpful. And then I know value-added services is something you guys have focused more of your attention on. You had some facilities that you're bringing online that were underutilized. Where are you now in terms of kind of capacity utilization, albeit I know it's kind of the seasonally slower part of the year here, but how are you feeling about the ability to fill those up and get the utilization rates up?

So in Canada, which is where we really have been working in this particular area, we have had a lot of success in kind of repositioning facilities, adding new facilities in connection with our acquisition of Lomas and incremental facility at Mill Creek that we took on. All of those facilities are now effectively full. We did have some -- what you would characterize as one-time start-up costs associated with on-boarding customers in the facilities in this quarter. So the (inaudible) is full in this quarter but this quarter didn't necessarily reflect the full contribution of the existing platform because of the -- kind of the cost of instantiating the customers and getting the freight positioned in the facility in this quarter. But the quarter ended June, the fiscal quarter we're in now should be a better reflection of the contribution of the Canadian value-added services based on existing facilities. And there seems to be additional demand out there, so we'll be evaluating incremental facilities and incremental opportunities from the Canadian platform.

Got it, and this is the last one. Todd, I don't know if you guys quantified, I haven't got to the full release yet here, but the cost of your investments? I know you got SAP and maybe a Salesforce implementation. Where are you guys at in terms of that -- the implementation cycle? And is that fully baked in your capex? Or is that expenses incurred?

Well, no, we're capitalizing it as far as the TM goes. For the Salesforce, that's pretty much done. We've [expensed] that, that's -- going forward. But the bigger piece, of course, is the TM, and we're working through basically bringing up a new TM system. You know the ECC part, which is the accounting piece, that's all done. So now we're on the transportation management side of things, and so those costs are getting capitalized each quarter.

Yes, and I'll kind of build on that a little bit. We recently have added and continue to look to add additional sales resources, both by industry vertical sales folks as well as field sales. And so we're incrementally adding headcount and dollars and functionally investing in our organic growth through incremental sales resources. I think we're up probably an incremental 6 headcount on the sales side of things on a comparable year-over-year basis which is contributing to the increase in labor costs, but those being -- these folks are putting points on the board. Although we don't have a full year's benefit of their run rate contributions as most of them are relatively new.

Our next question comes from Kevin Sterling with Seaport Global Securities.

Bohn and Todd, I just want to say -- first of all just say I've been following you guys for a long time, it's really nice to see a (inaudible) growth and net revenue expansion. So it seems like everything is kind of starting to come together. So congrats on that. Let me ask you, Bohn, how did things progress sequentially throughout the quarter? And then maybe can you update us how April and May are trending, like maybe quickly take us month-by-month as we gradually see an improvement each month? And how are (inaudible) shaping up?

Yes, I – thanks, Kevin. So it has -- we're not going to get terribly precise but it is fair to say that we have been building progressively each month and it seems to be getting stronger in -- as we're coming into the current month. So we're pretty optimistic of the trajectory. I think, even in our prepared comments we kind of called out that we're fully expecting sequential improvement in the quarters as we move out from here. We're getting new customer wins, we're seeing growth across each of the categories, the bundling of transportation and value-added contract logistic services is working. We're making progress on the TM rollout, and there's -- maybe not sexy on some fronts, but there's a lot of things we're doing in terms of the back office that I'm really excited about in terms of driving productivity improvement and really enabling a step function scalability opportunity in our own back office through some of the things we're doing with X-Suite and how we're going to interact -- be able to interact with our trading partners, specifically our carriers and our strategic operating partners, and settling out transportation payables, which sounds mundane perhaps but it's the biggest kind of consumer and labor resources in our back office, and we're pointing some technology at that that's going to help drive productivity improvement both here in the back office as well as out in the field, and we're really excited about that.

Yes. No, I get that, Bohn. Let me take that a step further, if you don't mind. As you do this, kind of build this platform, I would -- I got to see, I got to believe, it's probably a competitive advantage that Radiant has versus some of your competitors. And along those lines, are you able to kind of see some agent growth? I know you mentioned hiring of salespeople and ramp it up with some big producers. But also along those lines kind of as you kind of build this out and kind of just really develop this platform, it just seems like to me that it's going to give you a competitive advantage over others, along those lines, able to recruit additional agents. So am I thinking about that right?

Yes, I think so. I think our technology suite, we're really -- I mean, there's a lot of different ways to look at it but through one lens, one of the things we're focused on is how do we make ourselves easier to do business with, both from a customer-facing and operating partner standpoint. And the technology set that we are in the process of delivering through SAP TM and the X-Suite back-office functionalities that we're bringing, I really believe on an absolute basis, is going to be a differentiated technology set that we're going to put in the hands of all of our operating partners out in the field. And I think that's going to translate into enhanced profitability on our existing book of business and incremental business that we couldn't necessarily have gotten that historically, that we'll be able to win.

Okay. Great. It sounds like to me, at the end of the day, you're getting nice revenue growth. We all know it's a dynamic freight environment. But you see an opportunity -- with this growth and with the opportunities, you really see something out there to kind of reinvest in the business. And that sounds like what you're doing and really kind of gearing up for something big down the road. But I guess my point is, it seems like you're taking this opportunity with these freight markets and like, hey, now is the time to reinvest in the business and let's really kind of grow this platform.

Absolutely. The word today seems to be digitization, right? Well, there's a lot of work we're doing around digitization. A lot of our investments we've been making literally over the past several years and kind of refining the solution set and SAP and getting it kind of ready to go so we can actually begin to harvest the benefits of our investment, I think we're here. And of course, the proof will be in our results going forward, but I feel really good about the intersection that we're at and our opportunity going forward.

Yes, strike while the iron is hot, right?

That's right.

So Bohn, let me ask you, as we look at this revenue growth, is it -- is most of that organic and cross-selling opportunities? Or is it -- I know you -- I think you had...

Yes, most of it is organic. We did some very small tuck-in -- we had a conversion of an agency station, but that was really indigenous, right, that wasn't incremental. And we did another small tuck-in of Sandifer-Valley, and I think that would be the only comparable year-over-year. And that was a relatively small international piece of business in the scheme of things. So this is, by and large, organic in its nature. And so to be able to post double-digit numbers on an organic basis is, I think, what people have been looking at for a while or looking for from us for a while. And so we're starting to hit our stride a little bit on that front. But at the same time, we're making investments we're excited about in terms of the back office to continue to drive organic growth. And I think it's kind of a good segue, you haven't asked the question directly, but I'll take the opportunity, as we look at M&A opportunities out there, just kind of valuations of deals that size are very, very frothy, and so it makes -- as we think about deploying our own capital, it makes more sense than ever for us to look at our stock buyback and kind of investing in our sales because there's simply not -- there's no better value we've been able to identify in the marketplace other than our own stock at this point.

Yes, no, I'll just second -- I've been waiting for a while to see this double-digit organic growth too. So like I said, I've been following you guys a long time and, man, it is really encouraging to see, so congrats there. Last question, Bohn, you talked about the temperature controlled business. What -- talk to us a little bit about the opportunity that you see in the refrigerated market and really kind of why you're targeting this article?

Yes, sure. So again, for everybody's benefit, when we think about Clipper, Clipper is focused in on 3 different areas of business. By and large, its largest segment of business is on the intermodal side, and then there's a small truck brokerage piece and a small temperature controlled where it's refrigerated trailers moving intermodally. They've participated in that space for a long time, long before we ever acquired it. And in this market environment where capacity is so tight, our temperature controlled -- this temp controlled business is really humming along. And so we're going to take the opportunity to -- I guess, under the category of doing it if it feels good, this business deserves access to more capital based upon its current performance and kind of projected future growth. As more and more product is focused on organic and fresh, that drives more demand towards the temp controlled space as well as, you may be aware, that the whole e-commerce space has pulled temp capacity off of the -- kind of out of the market in support of some e-commerce activities, putting just more of a pinch on temp controlled assets and kind of lack of availability. So it happens to be an area where we have a lot of history and specialization, and so we're going to begin to refresh that fleet a little bit to continue to participate in that opportunity.

Makes sense, Bohn. Well, great, that's all I had. Congrats once again on this double-digit organic growth. It's refreshing to see, so keep it up. Take care.

Thank you.

Thanks.

Our next question comes from Jeff Kauffman with Tahoe Ventures.

Bohn, I wanted to come back to a couple of the points you were making about investment. You mentioned that some of the investment on some of the technology platforms at least in terms of the cash out the door is winding down as you're starting to integrate, but you also talked about the reinvestment in the temperature controlled fleet. I just want to look out Fiscal 2019, Fiscal 2020 and think about what kind of capital plan you were thinking about as you looked toward investing in the different areas. I know you talked about the people investment that you're making right now, but I'm thinking more about the CapEx dollars.

Yes, so on the -- so we have a -- what I'll characterize fairly as a basket of up to $5 million where we could take on additional temp equipment should we choose. Right now, we're probably looking at something closer to $3 million of identified investment, so we may not necessarily tap that full $5 million of availability under that lease line, for lack of a better term. And I guess I'll just also draw attention to the fact that -- one of the reasons we did that is we wanted to kind of keep our powder dry in terms of our ABL facility and access to capacity to support other opportunities whether it be on the M&A front or other restructuring opportunities. And then -- but I -- so that's part, in part, responsive to your question. On the IT side, and I think more broadly inclusive of IT, I would expect we will be at an ongoing kind of CapEx/technology investment of, call it, plus or minus $5 million a year seems to be our current run rate as we continue to deploy the domestic module, do the blueprinting for the international module and get that deployed and rolled out. And then we still have some good opportunities to further integrate the back offices of Clipper and Wheels Canada, there's a lot of additional kind of productivity gains we can achieve as we get everybody onto a singular back-office platform or that's where we're headed, so we see that as a good opportunity as well in terms of some of the opportunities we're trying to get at through a slow and steady migration to a singular back-office platform. So we're going to try to live within our means, so to speak, and we'll try to live within a $5 million CapEx number in pursuit of those goals and objectives.

Roughly how many temperature controlled units are in the Clipper fleet?

I believe it's around 350 right now.

Okay. And then final question, you were talking about the back-office benefits that you're seeing with the system integration. Should the way we think about this be it's not going to show up so much as dollar cost savings as it is you're going to be able to do business at a better incremental margin or a better incremental contribution going forward?

Well, I think it's actually both. So let me pull it apart a little bit. And again, this is a little -- I need to provide a little historical context to do justice to the question. When -- historically, when we've acquired other agent-based freight forwarding networks, we've been able to centralize and standardize on a singular set of processes and capture all of the cost synergies. But when we got to the SBA transaction, we didn't have enough bandwidth in our legacy IT platform to immediately onboard the SBA stations and sunset and retire some of their back-office operations. So we're still carrying plus or minus a million dollars a year in ongoing costs of keeping -- kind of keeping the preverbal lights on for the SBA transportation management system. And so as we're able to get the SBA stations converted over to SAP TM, there's another million dollars of cost synergies that we'll be able to get at associated just from that enablement. So there's that piece, and then there's kind of the other kind of broader more efficient kind of dollars and cents per transaction and being able to drive reduced unit cost in our processing of transaction and events here in the back office.

I would now like to turn the floor back over to Bohn for closing comments.

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 we have created and the scalability of our nonasset-based business model. Our now 12-year first to market advantage in executing our multi-brand strategy and consolidating agent-based freight forwarding networks, ongoing investment in technology and low leverage on our balance sheet puts us in a unique position to support further consolidation in the marketplace. We believe this represents our longer-term and most 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 our pursuit of this long-term vision which we believe over time will deliver meaningful value to 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 teleconference. Thank you for your participation. You may disconnect your lines at this time.