Earnings Call Transcript - RLGT Q3 2020

Operator, Operator

Good day, ladies and gentlemen. 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 Nine Months ending March 31, 2019. 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 or 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 turn the call over to Radiant's Founder and CEO, Bohn Crain. Sir, the floor is yours.

Bohn Crain, CEO

Thank you. Good afternoon, everyone, and thank you for joining in on today's call. I am very proud of the Radiant network and our response to these unprecedented times. We began the quarter looking to make use of our recently expanded credit facility to execute again a series of small or strategic tuck-in acquisitions, while accelerating our stock buyback program and bullishly looking for growth opportunities in which we could add value to our oil customers and dedicated network of strategic operating partners. Unfortunately, as we came to recognize the true magnitude of the COVID-19 pandemic, we had to quickly pivot to a new set of priorities. Since late March, we shifted our focus to delivering against four key objectives; ensuring the health and safety of our employees, providing supply chain continuity for our customers, operating partners and carriers, protecting the economic security of our people to the greatest extent possible and taking the steps necessary to mitigate the impacts of the slowing economy on our own business. Confronted with an eroding demand within the global shipping community, during March we also had to make difficult decisions to initiate a series of workforce reduction measures impacting employees across our US operation. This included a 20% salary reduction, reductions in hours, furloughs and in some cases terminations. As part of this initiative, I initiated a 50% reduction in my base salary and the balance of our US-based leadership team agreed to reduce their base salaries by 20%. In addition, we all agreed to forgo any bonuses under the company's discretionary quarterly cash bonus plan. In support of these initiatives, our Board of Directors also agreed to a 50% reduction in their board cash compensation. All of these concessions will remain in effect until our senior leaders and board conclude that the adverse effects of COVID-19 have subsided and the company regains its pre-COVID financial trends. The impact of these cost reductions, however, will not be more fully realized until the quarter ended June 30, given these initiatives were not launched until late in March of this year. We had long since found the benefits of our variable cost non-asset based business model. Those benefits have never been more appreciated as much as they have during these past months, as the decentralized nature of our non-asset and agent-based business model have provided a clear advantage in an environment where social distancing can disrupt businesses that operate on a more centralized basis. Even so, we have been exposed to an unprecedented combination of global reduction in demand and output that has nearly crippled many of our customers in the airline, retail, tradeshow, hospitality and travel and leisure businesses across the country. While others could shrink under these pressures, our extraordinary team of associates across the Radiant network have continued to deliver for our customers. With mission-critical teammates reporting for duty to over 100 operating locations across North America, we keep essential freight moving, we've been able to leverage our industry-leading technology to allow the majority of our 550 US-based employees to work from home. This initiative has helped to protect the health and well-being of our employees and their families, reduce the risk of community spread and substantially limited the potential for disruption to our operations. I could not be more appreciative of the people that report to work each day, whether in person or remotely, that make this company that we started some 14 years ago a special place to work. In addition, our business model has also shown its strength and the diversity of our service offerings. Although the pandemic has had a substantial negative impact on many of the industry verticals and customers that we serve, the Radiant network is proud to be playing an active role in the fight against COVID-19, delivering personal protective equipment, food and beverage, consumer goods, technology and other essential products for our customers across North America and around the world. Notwithstanding this great effort by our team, we anticipate the contraction in our business from the shelter-at-home mandates, closing of manufacturing facilities and general economic slowdown will be more than offset by any near-term benefit from our support of essential businesses. We are working hard to mitigate the negative financial impacts of COVID-19 with a number of initiatives. We have tabled any acquisition opportunities, suspended our stock buyback program, deferred discretionary technology investments, reduced discretionary operating expenses and in late March, initiated a series of what we hope will be temporary workforce reductions to mitigate our declining gross margin until our business recovers. At the same time, we've also taken steps to provide additional support to our strategic operating partners and are intensely focused on working with them to understand the underlying financial health of our legacy customers in the face of COVID-19. We anticipate providing our strategic operating partners with additional financial support in connection with slow and nonpaying customers for which they are responsible. In addition, in an effort to encourage our ongoing sales efforts, we've also launched the Radiant Spark program, securing profitable accounts at reasonable credit to provide our strategic operating partners with a financial incentive to pursue new business while taking a heightened interest in the underlying credit quality of potential new accounts. The impact of COVID-19 will likely continue to have an adverse effect on our financial results for the foreseeable future. However, all things considered, we're very fortunate to have been disciplined in our allocation of capital over the years and entered this economic downturn with very low leverage on our balance sheet. Ultimately, the economy will recover. As this happens, we believe this will create a great opportunity to support our customers and bring their supply chains back online. In the interim, we will continue to work to keep our employees safe and essential freight moving, while giving our strategic operating partners the support they need. At the same time, we will continue to flex our non-asset-based business model and remain focused on the cost reduction initiatives that we have underway. We believe that all these initiatives, when taken together, will ensure that we emerge from the pandemic as a stronger, more vibrant competitor. With that said, I'll now 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.

Todd Macomber, CFO

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 nine months ended March 31, 2020. For the three months ended March 31, 2020, we reported net income attributable to common stockholders of $53,000 on $177.2 million of revenues or $0.00 per basic and fully diluted share. For the three months ended March 31, 2019, we reported net income attributable to common stockholders of $2,932,000 on $206 million of revenues or $0.06 per basic and fully diluted share. This represents a decrease of approximately $2,879,000 over the comparable prior year period. For the three months ended March 31, 2020, we reported adjusted net income attributable to common stockholders of $3,965,000. For the three months ended March 31, 2019, we reported adjusted net income attributable to common stockholders of $5,579,000. This represents a decrease of approximately $1,614,000 or approximately 28.9%. We reported adjusted EBITDA of $6,057,000 for the three months ended March 31, 2020, compared to adjusted EBITDA of $8,437,000 for the three months ended March 31, 2019. This represents a decrease of $2,380,000 or approximately 28.2%. Reviewing longer than nine month results, which are as follows, for the nine months ended March 31, 2020, we reported net income attributable to common stockholders of $5,875,000 on $579.7 million of revenues or $0.12 per basic and $0.11 per fully diluted share. For the nine months ended March 31, 2019, we reported net income attributable to common stockholders of $9,270,000 on $685.9 million of revenues or $0.19 per basic and $0.18 per fully diluted share. This represents a decrease of approximately $3,395,000 over the comparable prior year period or 36.6%. For the nine months ended March 31, 2020, we reported adjusted net income attributable to common stockholders of $16,747,000. For the nine months ended March 31, 2019, we reported adjusted net income attributable to common stockholders of $19,110,000. This represents a decrease of approximately $2,363,000 or approximately 12.4%. We reported adjusted EBITDA of $25,110,000 for the nine months ended March 31, 2020, compared to adjusted EBITDA of $29,749,000 for the nine months ended March 31, 2019. This represented a decrease of approximately $4,639,000 or approximately 15.6%. With that, I will turn the call back over to our moderator to facilitate any Q&A from our callers.

Operator, Operator

Our first question comes from Jason Seidl with Cowen. Please go ahead.

Jason Seidl, Analyst

Bohn, can you talk a little bit about how you expect the business to trend as the economy slowly comes back online and then maybe you can give us some info on what you've seen early in the quarter?

Bohn Crain, CEO

Thank you, Jason. I would say that while there are some positive developments, the overall situation is mixed and we don't have clear visibility. Certain segments of our business, especially in food and beverage and particularly in Canada, have been performing better than others. Conversely, we are also serving customers in areas like tradeshows and cruise lines, which are not doing as well in the current market. Eventually, we expect a rebound, and this could lead customers to reassess their supply chains and reposition their products and inventories, which they have not been able to move as needed. This scenario presents opportunities for us and others in air freight and expedited services to meet the needs of our customers as they recover. I hope that addresses your question. Currently, we lack visibility for near-term improvement. Historically, the quarter ending in March is the slowest, but the significant impacts of the shelter-in-place orders mostly affected us and others in the quarter ending June 30. This is the dynamic we are dealing with. However, we have been fortunate to assist in the fight against COVID-19 through the movement of PPE and other essential products, which should somewhat lessen the overall decline we anticipate for the June quarter. We remain optimistic that things will improve in the September quarter, allowing for a more definitive outlook, but it's too early to gauge at this moment.

Jason Seidl, Analyst

And if we can drill down a bit on the brokerage side that you guys have, the stuff that you acquired wheels, we're hearing from a lot of the brokers out there that obviously with this downturn and the spot rates, have you seen some of the margins expand. What's your percent of your mix of business between contract and transactional business in the brokerage unit?

Bohn Crain, CEO

We are primarily focused on the contract side rather than spot rates. Specifically, for our brokerage business in the US, known as Radiant Clipper, the majority of our operations are in intermodal transport, with only a small portion dedicated to truck brokerage. Consequently, our results are more influenced by the developments in intermodal transport and the shifts between truck and rail. While we are positioned well within the right commodity groups, we are not fully benefiting from the advantages seen by those who are more focused on truck brokerage. In Canada, however, we are managing to maintain our performance by servicing lighter accounts with appropriate value propositions and suitable modalities, which has helped us perform better compared to other segments of our business cycle.

Jason Seidl, Analyst

Understand, let me ask one more question. I'll turn it over to somebody else; I won't take up time, but has this downturn caused you to rethink your mix of business that you want going forward and if so, what should we look from you guys once you resume your M&A platform later down the road?

Bohn Crain, CEO

No, I don't think it necessarily changes our view. I think we at least from our perspective very diversified, which we think is a good thing, and so good news, bad news associated with being diversified. In this market, we got some winners and some losers effectively, but I think there are certainly areas of our business that we would expect to be slower to recover, but that doesn't mean we have any intention of abandoning them or abandoning our strategic operating partners that serve those particular niches. We continue to think if we really look on the horizon, we think the same value proposition and the same opportunities remain intact. We're uniquely positioned in supporting the agent-based reporting community and we continue to try to build a back office and infrastructure that can support a larger enterprise and at the end of the day, notwithstanding our government's efforts, not everybody is going to make it through this right. We're going to have customers that go bankrupt and go away unfortunately and I expect we'll have some competitors go bankrupt and go away and so this is for better or worse or better of a financial survival of the fittest. I think we were fortunate to have a strong balance sheet and be unlevered as we came into the cycle. A lot of our competitors might have been levered at four or five times before the cycle started. We were levered at less than one times as the cycle started. So this certainly doesn't feel good for us and we're experiencing our own fair share of pain. I can't imagine what those folks are going through that are levered, particularly at five times coming into the cycle. So we think we're in as good a shape as we possibly can be. We're making the tough decisions. We're being aggressive with our working capital and cash management and shut down acquisitions near-term, shutdown stock buybacks to make sure that we come out of this on the other side in as best shape as we can.

Jason Seidl, Analyst

Bohn, clearly that's fortunate for Radiant and do you think that as you do come out of this that some of the people that may make it out and make it out a bit injured, do you think that will create more opportunities on the M&A side for you?

Bohn Crain, CEO

Potentially, I certainly don't view ourselves as predatory in this impairment. We want to make sure we come out of this with all of our fingers and toes intact on the other side of this and then where this partnering opportunities we'll be eager to engage with folks and create win-win situations to the extent we can.

Operator, Operator

We'll take our next question from Mark Argento with Lake Street Capital Markets. Please go ahead, sir.

Mark Argento, Analyst

Just wanted to I think in the press release and also in your prepared remarks, mention some of the things that you're doing the work with your customers. I think you announced an offering or some type of a program, maybe you could talk a little bit about what you're doing to work with your customers and kind of value chain participants to try to keep in good working shape. I think you called the spark…

Bohn Crain, CEO

I would call out two things. So in our agent-based business model, basically our strategic operating partners are in a first loss position and bad debt right. So we literally spend two hours a day on conference calls with folks within the various regions making sure we understand the financial health of our underlying customers, how they're faring through the pandemic to make sure that we're making good business decisions, supporting customers where we can, but also making sure we are paid for the work that we're doing or when and if we have to putting people on credit hold because we have to continue to pay our carriers timely to keep our freight moving. And while we can provide a little relief, at the end of the day, we can't move freight for free. So that's a big part of our conversation and focus. At the same time, we launched this new program called the Spark program, an acronym for securing profitable accounts at reasonable credit. Naturally, people are a little more defensive in this environment, but we wanted to try to create an environment or incentive for our agent stations to be thinking ahead, thinking aggressively and going and looking for new business. So we effectively rolled out a program to give them a holiday on the corporate fees associated with them winning new business, so long as they onboard the new business following a very prescriptive onboarding process that we could really understand the credit quality of the customers that we were onboarding because in this environment, slow and nonpaying customers can get fired from one service provider and they'll start ricocheting across the transportation community. We want to make sure we didn't end up picking up somebody else's problem for a nonperforming customer. So the Spark program has really worked. We had a lot of new customer ads here in this environment where our stations are taking advantage of the Spark program, but we're doing it in a thoughtful proactive way around credit and that's going to serve us well over time and it gives the stations a little more leeway to be aggressive in pursuing new business at the same time.

Mark Argento, Analyst

Got it. That's a helpful description. Obviously, nobody has a crystal ball to know when the economy is going to come back online to a greater degree, but when you do think about the opportunity to be maybe aggressive—opportunistic might not be the right word, but to play a role as a consolidator or even within your own agent base, station base groups in terms of more M&A, what do you need to see in the market that will give you confidence that you can start to resume the strategy that has really got where you are today?

Bohn Crain, CEO

Well, I think we want to see our own underlying business improve. I don’t think June is going to tell us anything right. June is a bit of a pass at least for me mentally and I do—I guess not grounded in a lot of hard facts, but perhaps for my own mental sake, I think of June as being the darkest. As we get through June and into September, hopefully we will have better visibility into some positive developments both in terms of what's happening with Asia and international freight starting to pick back up as well as the health of some of our underlying customers. As we think about the fivefold, our numbers are down, but we—it's not that we've lost any customers, right. When we tell everybody to go home and cease business, well that certainly slows down the freight volume. So at the end of the day we're going to have to get people back to work and get the consumer back out there spending. So I don't think I have any hard prescriptive data points, but we got very good visibility kind of comparative week over week numbers. We got a pretty good handle on a weekly basis in terms of what's happening, by individual operating locations, both company-owned and stations out across the country and I don't think it's going to be—I think it's going to be a light switch. I think it's going to be a grind to bring the business back online. So it may take longer than any of us would like, but hopefully the darkest days are here in the quarter ended June.

Mark Argento, Analyst

Last question for Todd. You recently updated your credit facility, which is approximately $150 million. Can you discuss your liquidity situation regarding that facility? Is any portion of it tied to receivables, or could you provide an overview of your liquidity profile?

Todd Macomber, CFO

Yeah, this one is cash flow-based as opposed to the asset side. So it's a multiple of EBITDA, and it's three times is what it is and there is a fixed charge coverage too. So that's a difference between the two programs.

Bohn Crain, CEO

I will embellish on that a little bit. So coming into this, we were $38 million, $40 million of EBITDA so it's been in a position to tap that full facility on a standalone basis. It was really put in place in anticipation of being able to support M&A. So as we think about kind of our—the face amount of the facility is 150, but our ability to access bonds under that facility will really be limited by three times our trailing 12 months EBITDA. So there are two principal covenants. One funded at the EBITDA which is at three times, as there is a fixed charge coverage ratio of 1.25 times.

Operator, Operator

And sir there appear to be no further questions at this time.

Bohn Crain, CEO

All right. Thank you. Let me close by saying that we remain very bullish on our prospects and the scalable non-asset-based platform that we've created at Radiant. Our unique multibrand strategy and consolidating agent-based reporting network, industry-leading technology platform and low leverage on our balance sheet puts us in a unique position to navigate these uncertain markets and position ourselves to emerge from this pandemic as a stronger competitor. Ultimately, the economy will recover. As this happens, we believe this will create a great opportunity to support our customers and bring their supply chains back online. In the interim, we will continue to work to keep our employees safe and essential freight moving while giving our strategic operating partners the support they need. At the same time, we remain patiently persistent in the pursuit of our vision to leverage our multibrand strategy and scalable back-office infrastructure to bring our unique value proposition to the agent-based community, which we believe over time will continue to 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.

Operator, Operator

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