Radiant Logistics, Inc Q3 FY2022 Earnings Call

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, 2022. 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.

Thanks, Vishan. Thank you. Good afternoon, everyone, and thank you for joining today’s call. We are very pleased to continue our trend and report another quarter of record financial results for the March quarter. It was nothing short of a spectacular quarter, with us reporting new records for virtually every financial metric on which we report: revenues, net revenues, net income, adjusted net income, EBITDA, adjusted EBITDA, EBITDA margin, earnings per share, and adjusted earnings per share are all records. Our business remains quite strong across our various service offerings, particularly strong this quarter in our project charter business, thanks to the first full quarterly contribution from our December 2021 acquisition of Navegate. Each of our forwarding operations at both our company-owned and strategic operating partner locations, including our Canadian operations and U.S. brokerage operations, is making a meaningful contribution to our collective success. We are particularly proud that during the quarter, the Radiant team had the opportunity to continue to assist in COVID relief efforts, providing mission-critical support to move COVID test kits on behalf of the United States Department of Health and Human Services. The mission involved the chartering of 24 aircraft flying 85.4 million COVID test kits to the interior of the U.S. for final-mile delivery. This program included over 474,000 cartons of test kits followed by the safe and speedy transfer of the kits to over 230 53-foot trailers for delivery to strategic centers in the U.S., ultimately benefiting the American people. In addition, we remain very excited about the opportunities made available to us through our acquisition of Navegate. This acquisition solidifies our presence in Shanghai and strengthens our international services offering, particularly in the areas of customs brokerage, ocean forwarding, and drayage services, providing us with a robust global trade management capability. These new capabilities will enhance our entire Radiant network, offering customers purchase order and vendor management tools that unlock SKU-level visibility from the manufacturing floor in Asia through final delivery in the U.S. We believe that with both the enhanced service offerings and proprietary global trade management technology, we will distinguish ourselves in the marketplace and be better positioned to support both current and prospective customers moving forward. I will leave the detailed financial reporting to Todd, but it is worth noting that we have generated $55 million in adjusted EBITDA on $1.1 billion in revenues through the first 9 months of our fiscal year. This is an exciting milestone for Radiant, a direct result of the dedication of our employees and operating partners, the diversity of our service offerings, and the durability of our scalable non-asset-based business model. For the trailing 12 months ended March 31, 2022, we reported a record $69.5 million in adjusted EBITDA on $1.3 billion in revenues. We continue to deliver these record results with relatively modest leverage on our balance sheet, with net debt of approximately $76 million on almost $70 million in trailing 12-month adjusted EBITDA. While it is difficult to predict exactly what we should expect for next year, we believe Radiant’s new normal is meaningfully stronger than what the market is giving us credit for, which contributes to the current disconnect between the underlying value of our stock and our current stock price. We do not believe our current stock price accurately reflects Radiant’s intrinsic value or long-term growth prospects, particularly given our unlevered balance sheet, and therefore represents an excellent investment opportunity for both the company and our shareholders. With our stock price being unresponsive to our expanding earnings power, this disparity continues to grow. Accordingly, and in addition to our continued acquisition efforts, we expect to be active in repurchasing our stock to take advantage of the opportunity presented by this disconnect between the underlying value of our stock and our current stock price. We renewed our stock buyback program in February of this year, granting us authority to purchase up to 5 million shares through December 2023. Hopefully, our continuing strong performance and robust balance sheet will register with investors, and we will close the valuation gap between Radiant and its peers. Frankly, I believe we deserve it. We have earned it through our business model's demonstrated durability during the pandemic and our ongoing delivery of what is now four consecutive quarters of record results. With that, I’ll turn it over to Todd Macomber, our CFO, to walk us through our detailed financials, and then we’ll open it up to 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, 2022. For the 3 months ended March 31, 2022, we reported adjusted net income attributable to Radiant Logistics of $14.339 million on $460.9 million of revenues, or $0.29 per basic and $0.28 per fully diluted share. Please note this quarter included approximately a $2 million gain related to the change in fair value of the interest rate swap contracts, and more significantly, the quarter included approximately $62 million of COVID-related charter business. For the 3 months ended March 31, 2021, we reported net income attributable to Radiant Logistics of $4.984 million on $236.5 million of revenues, or $0.10 per basic and fully diluted share. This represents an increase of approximately $9.355 million of net income over the comparable prior year period, or 187.7%. For adjusted net income, we reported $16.828 million for the 3 months ended March 31, 2022, compared to adjusted net income of $9.148 million for the same period in 2021, showing an increase of approximately $7.680 million or approximately 84%. For adjusted EBITDA, we reported $23.596 million for the 3 months ended March 31, 2022, compared to adjusted EBITDA of $12.885 million for the 3 months ended March 31, 2021, reflecting an increase of approximately $10.711 million or approximately 83.1%. I’d also like to note the increase in adjusted EBITDA margin as a percentage of net revenues, which increased 510 basis points from 22.7% to 27.8%. Now, moving on to the 9-month results, for the 9 months ended March 31, 2022, we reported net income attributable to Radiant Logistics of $28.366 million on $1.080 billion in revenues, representing $0.57 per basic and $0.56 per fully diluted share. Please note that this period included 4 months of our recent acquisition of Navegate and significant charter business captured in the current quarter, slightly offset by a $1 million cyber event disclosed in December. For the 9 months ended March 31, 2021, we reported net income attributable to Radiant Logistics of $11.884 million on $631.2 million of revenues, equivalent to $0.24 per basic and $0.23 per fully diluted share. This marks an increase of approximately $16.482 million for the comparable prior year period, or 138.7%. For adjusted net income, we reported $39.708 million for the 9 months ended March 31, 2022, compared to adjusted net income of $24.308 million for the same period in 2021, reflecting an increase of approximately $15.400 million or approximately 63.4%. For adjusted EBITDA, we reported $55.396 million for the 9 months ended March 31, 2022, compared to adjusted EBITDA of $34.640 million for the 9 months ended March 31, 2021, showing an increase of approximately $20.756 million or approximately 59.9%. With that, I’ll turn the call back over to our moderator to facilitate any Q&A from our callers.

I see our first question comes from Mark Argento from Lake Street. Mark, please go ahead.

Hey, Bohn. Hey, Todd. Congrats on an enormous quarter. Really impressive, and I concur with your thinking about not getting credit. If you could just help us parse things a little bit. Firstly, I know you could give us the COVID-related project revenue and EBITDA contribution in the quarter. And then remind us of the size and scope of Navegate as well, how much they contributed in the quarter and then back into the organic growth rate of the core platform?

Sure, I will take the first crack at that. The COVID charter business does not flow through EBITDA, but I believe it’s in the press release that it was approximately $62 million in revenue for the quarter. Relative to Navegate, we did not break that business out separately, so I don’t want to speculate. However, Navegate is a Minneapolis-based company that we acquired back in December. That transaction was valued at roughly $35 million with notionally $6 million of earnings power. We are happy to report they are outperforming or outpacing those historical results, and we are really excited to have them as part of the team moving forward. They bring significant competency in ocean freight forwarding and customs brokerage, a presence in Shanghai, and some incremental technology that we are excited to integrate into the broader network to provide enhanced in-transit visibility tools down to the purchase order level, allowing shippers to better manage their supply chains down to the SKU level. With all the disruptions in the supply chain, customers are increasingly interested in these types of tools to better manage their logistics.

And when you think about the disruption in the supply chain and the backlog in air freight components, can you quantify or think about the growth rate? Do you believe you have benefitted disproportionately from the rise in air freight due to the current environment? Can you help us frame a more normalized run-rate for the business, if there is such a thing?

Yes, I appreciate the question. I would say it’s the proverbial rising tide lifts all boats. We’ve seen significant growth in ocean freight, notwithstanding some port congestion, while also managing charters and expedited freight. It’s a fair question, especially considering the ongoing conversation about our new normal and how we view the ongoing run rate of the business. We don’t want to provide specific guidance at this point relative to upcoming quarters, but I do believe the way people view our business is not consistent with the company we are today. We’ve grown substantially, and while I think everyone expects some level of softening moving forward, even in a downside scenario, we are still meaningfully ahead of our historical performance levels. I’d like to leave that particular conversation here for now specifically regarding guidance.

Fair enough. Todd, can you remind us what the new debt facility looks like, how much you’ve drawn down on it, and what the overall balance sheet looks like currently?

As of the period, we had roughly $40 million on our balance sheet as cash. We have significantly reduced our net debt, which is now $73 million. We had a facility and IPD loans of $113.6 million originally. To be more specific about the facility, as of March, it was $103.5 million, and since then, we have paid down about $40 million.

Got it. Given the current situation in the markets and your stock performance, have you considered committing a certain percentage of your free cash flow to the buyback, or are there more concrete plans in that regard?

The baseline scenario remains intact, Mark. People should expect us to earmark effectively half of our free cash flows for stock buybacks and the other half targeting tuck-in acquisitions. At times, we may deviate from that based on opportunities that arise. We believe we can progress in both areas, with stock buybacks being a viable avenue for capital deployment.

In terms of tuck-in acquisitions, would you consider something the size of Navegate now, or how do you define tuck-in size in today’s marketplace?

Historically, we thought of tuck-in acquisitions as being around $2 million of EBITDA. However, given our growth, it’s getting close to the edge of that. While we would pursue smaller acquisitions, we have a lot of potential. Ultimately, our focus is less on size and more on finding good strategic fits and opportunities to create shareholder value. As we are at a run rate of $70 million of EBITDA, this number probably increases closer to $5 million to $10 million for tuck-in acquisitions. It's about having the right platform and management team to integrate and manage those organizations, and we're building solid teams to support our acquisition activities.

Again, congrats. It's been great to watch your business grow over the years.

Thank you.

Next on the line, we have Jeff Kauffman from Vertical Research. Jeff, please go ahead.

Thank you very much. Congratulations, guys. A quick question. Now that you have direct exposure in Shanghai, can you discuss what’s happening there and how it may or may not affect your business compared to last quarter? Now that you are increasing your ocean freight business, I would appreciate your perspective on how March and April compare to January and February.

Thanks for your question, Jeff. I have been consistently questioning my organization about this. Freight is still moving, and we are busier than ever. Though some customers may be approaching their inventory limits, our ability to support them and move freight remains strong. Even though we hear about these lockdowns, freight is still moving. We don’t anticipate diminishing opportunities materially in the foreseeable future.

What about your domestic network? Is it getting easier to find capacity? Are there still challenges in obtaining available capacity where you need it?

Capacity is loosening up a bit, but it's also shifting. It’s been a little softer off the West Coast, but demand is rising in other regions. Overall, we are seeing improvements, and while it’s easier to secure capacity than before, challenges remain. As a non-asset-based 3PL, we are still bullish about the market and the opportunities it presents.

Thank you very much. That’s my question.

Alright. Thanks, Jeff.

Okay. And our last question comes from Mike Vermut from Newland Capital. Mike, please go ahead.

Hi, guys. Phenomenal quarter. It’s been amazing to see what this company can achieve now. Just following up on what Jeff said, what insights are you getting from your team regarding the current lockdowns in China? And how do you anticipate things to unfold once they start to reopen? Are you expecting a surge in freight, and how do you plan to capitalize on that opportunity?

Only time will tell. The team in China is quite effective at working remotely. There’s still a backlog at ports. As operations begin to normalize, I anticipate another surge in demand. What remains unclear is what impact the current shut-downs are having on manufacturing and their ability to ramp up quickly. I expect continued disruptions and capacity issues, which highlight the value of our services.

I’ve been with the company for a long time and observed our stock price has not kept pace with our performance. Given our free cash flow and lower leverage, could there be a point where management questions the value of being a public company? Given the significant disconnect in our stock price, when does management take action? Are stock buybacks an option?

Thanks for your questions. I share your frustration. We believe we create shareholder value by delivering strong financial results. Part of this is about financial flexibility. If we significantly lever our business for stock buybacks, it reduces our ability to act on other opportunities, like supporting the charter business. We’re not considering going private; instead, we're focused on long-term shareholder value. If this disconnect persists, we expect to conduct more stock buybacks while maintaining flexibility for strategic growth.

I completely agree. Management is generating value that isn't being recognized. There has to be a resolution, whether through accelerated buybacks or other strategic options.

We’ve previously discussed how our stock price seems to unlock value in a step-function manner, particularly as we work through institutional discovery. Cumulatively, we hope to see acknowledgment of our efforts reflect positively in our stock price. While I can't predict the timing or process of this acknowledgment, we remain committed to continuing to create value at these prices.

Great job, guys. Eventually, it will correct itself, and it’s encouraging to see you continue to perform.

Thank you.

There are no further questions at this time.

Let me close by saying that we remain optimistic about our prospects and opportunities to continue leveraging our best-in-class technology, robust North American footprint, extensive global network of service partners, and the recent acquisition of Navegate to build on the great platform we’ve created at Radiant. We’ve begun to thoughtfully relever our balance sheet, and through a combination of strategic acquisitions and stock buybacks, we believe we're creating meaningful intrinsic value for shareholders that has yet to be recognized in our stock price. Through organic growth, acquisitions, and buybacks, we believe we will continue creating meaningful value for our shareholders, operating partners, and the end customers that we serve. Thanks for listening and your support of Radiant Logistics.

Ladies and gentlemen, this does conclude today’s teleconference. You may now disconnect your lines at this time and enjoy the rest of your day.