Radiant Logistics, Inc Q4 FY2023 Earnings Call

Greetings. Welcome to the financial discussion for Fourth Fiscal Quarter and Year-Ended June 30, 2023 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. This afternoon, Bohn Crain, Radiant Logistics' Founder and CEO; and Radiant's Chief Financial Officer, Todd Macomber, will provide a general business update and discuss financial results for the company's fourth fiscal quarter and year ended June 30, 2023. 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. 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, John. Good afternoon, everyone, and thank you for joining us on today's call. Our results for the quarter and year ended June 30, 2023, continue to reflect the macroeconomic effects of the difficult freight markets on the entire transportation sector as well as our own operations. The confluence of shippers continuing to manage through elevated inventories, reduced imports and a slowing economic growth has had a cascading effect across virtually every mode of transportation. As in the prior quarter, these market conditions have negatively impacted not only our current results, but also the year-over-year comparison to our record results from the prior year period. With that said, we believe we are at or near the bottom of the cycle and we would expect markets to begin to find their way to more sustainable and normalized levels in coming quarters. And while our results are down comparatively, I view the fact that we generated over $9 million in adjusted EBITDA for the quarter in this very difficult market as a positive indicator for Radiant and our prospects as we continue through this cycle. In addition, as we pointed out in the press release, we delivered a record $97.9 million in cash from operations for our fiscal year ended June 30, 2023. During the same period, we have remained relatively quiet on the acquisition front and have instead focused our attention on paying down debt and deploying just over $11 million to repurchase our stock. Through this disciplined approach to capital allocation, it is fair to say that we are in the strongest financial position in the company's history. As of June 30, '23, we have approximately $32.5 million of cash on hand and nothing drawn on our $200 million credit facility. Having fortified our balance sheet, we believe we are well positioned to navigate through these slower freight markets as we find our way back to more normalized market conditions. At the same time, we believe our patient and disciplined approach may be rewarded as market conditions become more conducive to our acquisition strategy, and we have ample dry powder to become more active on the acquisition front should the opportunity present itself. Looking ahead, we will remain focused on delivering profitable growth through a combination of organic and acquisition initiatives and thoughtfully relevering our balance sheet through a combination of agent station conversions, strategic tuck-in acquisitions and stock buybacks. Through this approach, we will continue to scale our business, leveraging our best-in-class technology and extensive global network, which we believe will over time continue to deliver meaningful value for our shareholders, operating partners and the end customers that we serve. With that, I'll turn it over to Todd Macomber, our Chief Financial Officer 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 three and 12 months ended June 30, 2023. For the three months ended June 30, 2023, we reported net income attributable to Radiant Logistics of $3,143,000 on $232.2 million of revenues or $0.07 per basic and $0.06 per fully diluted share. For the three months ended June 30, 2022, we reported net income attributable to Radiant Logistics of $16,748,000 on $382.9 million of revenues or $0.34 per basic and $0.33 per fully diluted share. This represents a decrease of approximately $13,605,000 of net income over the comparable prior year or 81.2%. For adjusted net income, we reported $6,456,000 for the three months ended June 30, 2023, compared to adjusted net income of $19,188,000 for the three months ended June 30, 2022. This represents a decrease of approximately $12,732,000 or approximately 66.4%. Adjusted EBITDA, we reported $9,207,000 for the three months ended June 30, 2023, compared to adjusted EBITDA of $26,323,000 for the three months ended June 30, 2022. This represents a decrease of approximately $17,176,000 or approximately 65.1%. Moving along to the 12-month results. For the 12 months ended June 30, 2023, we reported net income attributable to Radiant Logistics of $20,595,000 on $1.85 billion of revenues or $0.43 per basic and $0.42 per fully diluted share. For the 12 months ended June 30, 2022, we reported net income attributable to Radiant Logistics of $44,464,000 on $1.459 billion of revenues or $0.90 per basic and $0.88 per fully diluted share. This represents a decrease of approximately $23,869,000 over the comparable prior year period or 53.7%. For adjusted net income, we reported $39,301,000 for the 12 months ended June 30, 2023, compared to adjusted net income of $58,246,000 for the 12 months ended June 30, 2022. This represents a decrease of approximately $18,945,000 or approximately 32.5%. For adjusted EBITDA, we reported $55,638,000 for the 12 months ended June 30, 2023, and compared to adjusted EBITDA of $80,918,000 for the 12 months ended June 30, 2022. This represents a decrease of approximately $25,280,000 or approximately 31.2%. With that, I will turn the call back over to our moderator to facilitate any Q&A from our callers.

Thank you. At this time, we will be conducting a question-and-answer session. The first question comes from Jason Seidl with TD Cowen. Please proceed.

Thank you, operator. Bohn, Todd, good afternoon, here. Wanted to start off a little bit and look at the overall macro environment. I think you indicated you think you were off a bottom here. I guess what are you looking at that shows we're heading into maybe a little bit of a recovery and how should we think about Radiant's EBITDA coming off of that $80 million to $50 million some. How should we think about that for the current coming fiscal year?

Thank you, Jason. We're monitoring several data points closely in hopes of noticing some positive changes. We're beginning to see a slight uptick in our ocean bookings, which is promising given that ocean volumes have been quite low. This improvement is encouraging. Moving on to the over-the-road and intermodal sectors, I believe there has been a tightening in capacity, partly due to the exit of some larger market players, which should positively impact the overall rate structure for trucking and, in turn, benefit the intermodal sector, even though it's a smaller part of our business. While the improvements are modest, they are positive, which is something we haven’t been able to say recently. In terms of our earnings potential, it seems like we're always fluctuating. While we would not have considered an $80 million EBITDA a realistic long-term figure for us, $9 million or $10 million isn’t sustainable either. I think we could expect to see our EBITDA return to a normalized level of around $50 million to $60 million as we adjust towards what could be considered a new normal. Also, I want to highlight that we currently have a completely unlevered balance sheet. This positions us well to seize opportunities moving forward. Throughout this cycle, we've taken a cautious approach, allowing us to be in a strong position to take proactive steps when the right opportunities arise. We believe there is significant potential for us and our shareholders going forward.

You have touched on my next question, Bohn. When considering acquisitions for Radiant, in the past, you focused on agent conversions, which were generally small and faced little competition. What does the current economic landscape look like for resuming those agent conversions? Are you in a stronger position now to consider larger acquisitions, potentially exceeding $5 million in EBITDA, especially since financing these deals has become more challenging for some financial-backed companies compared to your unlevered status? Additionally, what level of leverage are you comfortable with for future acquisitions?

There’s a lot to unpack here. I won’t necessarily address everything in order, but I want to touch on a few points as they come to me. We consider a normalized leverage level to be around 2.5 times for our long-term modeling. It seems that many companies were highly leveraged, expecting favorable market conditions to last longer than they have. As the market has softened, many are now discussing covenant compliance with their banks, or they’ve reached their borrowing limits. Some companies that would typically be looking to acquire others are finding themselves limited under their current credit agreements, and the debt markets are not particularly supportive at the moment. Therefore, companies with platforms are likely hesitant to expand their credit lines, as they won’t be able to get similar deals to what they had before. Consequently, many potential acquirers are sitting on the sidelines more than usual given these conditions. This reduces the number of actionable parties in the market. Historically, I have emphasized the importance of maintaining financial flexibility to remain ready for opportunities. While we won’t go overboard, we will continue to adhere to our disciplined strategy. In this environment, we believe there will be chances to achieve significant progress while following our established approach.

And so I say you're in a good position for sure.

Yeah. But at the same time, even as we look at larger deals, they're still going to have to stand up to our alternative use of capital, which is buying back our stock. That continues to remain an attractive use of capital for us. And then kind of coming back to your first question, we have always and remain at the ready to support our agent stations to convert them to a company-owned store when and if they're ready. So it's really never been a question of our interest or financial wherewithal or access to capital or any of that kind of stuff. We're here to support our partners on their time frames when they're ready. And with that said, just biologically, none of us are getting any younger. And so the demographic of our agent-based network is aging out. And so the kind of that opportunity set has always been there, but I think the rate and opportunity for conversion will continue to accelerate just because of time.

That makes sense. It sounds like you're in a good position for both sides of the equation there. Real quickly, on the non-agent, the more platform acquisitions, what are you seeing in terms of the multiples? Are they starting to come in a bit?

I don't want to overstate things, but the short answer is yes, that's definitely true. We've passed on several deals in the past because sellers preferred a higher cash component instead of earn-outs, and due to market conditions, we couldn't find common ground with sellers regarding earn-out arrangements. However, in the current environment, as we engage with more sellers, there seems to be a greater willingness to accept earn-out structures. This shift is partly due to market competition and the players involved. Additionally, the economic cycle has been quite unpredictable, with significant fluctuations affecting how businesses are valued. Embracing an earn-out structure helps us navigate these complexities as acquirers.

It makes sense. Well, listen, I appreciate the time as always, I'll turn it over to somebody else.

Thank you.

Thank you. Looks like we don't have any further question in queue. I’d like to turn the floor back to management for any closing remarks.

All right. Thanks, John. Let me close by saying that we remain optimistic about our prospects and opportunities to continue to leverage our best-in-class technology, robust North American footprint, and extensive global network of service partners to continue to build on the great platform we've created here at Radiant. At the same time, we intend to thoughtfully relever our balance sheet and through a combination of agent station conversions, synergistic tuck-in acquisitions and stock buybacks. Through our multi-pronged approach of organic growth, acquisitions and stock buybacks, we believe we will continue to create meaningful value for our shareholders, operating partners and the end customers that we serve. Thanks for listening and your support of Radiant Logistics.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.