Earnings Call Transcript - RLGT Q2 2020

Operator, Operator

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 Second Fiscal Quarter and Six Months ended December 31st, 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 conference over to Radiant's Founder and CEO, Mr. Bohn Crain.

Bohn Crain, CEO

Thank you. Good afternoon, everyone, and thank you for joining today's call. We're very pleased to report another quarter of solid financial results, posting adjusted EBITDA of $9.4 million on revenues of $201.9 million, and net revenues of $56 million for the second quarter ended December 31, 2019, in what was generally recognized as a tough economic environment. We've certainly felt the impact of industry-wide headwinds, but as we indicated on our last quarterly call, our results are relatively flat on a quarterly sequential basis and down relative to the comparable prior year period. On a sequential quarterly comparison, revenues were up $1.4 million, net revenues were up $0.5 million, and adjusted EBITDA was down a modest $0.3 million relative to the quarter ended September 30th, 2019. A number of factors contributed to our difficult comparisons to our record results in the year-ago period, including $30 million in non-recurring disaster relief project work reported in the year-ago period, our decision to exit certain lower-margin business earlier in calendar 2019, and the general market softness associated with slower global trade and margin pressures on our brokerage operations related to the excess truck capacity that exists in the marketplace. Notwithstanding these market headwinds, we saw our net revenue margins improve 320 basis points over the comparable prior year period, which helped us to deliver the $9.4 million in adjusted EBITDA and over $6.2 million in cash from operations for the quarter. In addition, this last quarter we also took the opportunity to begin buying back our stock, and for the quarter ended December 31, we spent $1.0 million repurchasing 189,558 shares of our common stock at an average price of $5.28 per share. As we previously discussed, we believe the current share price does not accurately reflect Radiant's long-term growth prospects. In that regard, we recently announced the renewal of our stock buyback program, authorizing the repurchase of up to 5 million shares of our common stock through December 31, 2021. We also made some very recent progress on the acquisition front and earlier today announced the purchase of two of our Adcom agency locations in Alexandria, Virginia, and Pittsburgh, Pennsylvania, both owned by our long-term operating partner, Bonnie Knoedler. Supporting our operating partners in transition to a company-owned model remains a significant opportunity inherent in the Radiant Network. Looking forward, we remain committed to our long-standing strategy to deliver profitable growth through a combination of organic and acquisition growth initiatives. We will continue to make investments in our technology platform and incremental sales resources to drive organic growth. At the same time, we continue to enjoy low leverage on our balance sheet, strong free cash flow, and continue our disciplined search for additional acquisition opportunities, which we believe, over time, will deliver meaningful value for our shareholders, our operating partners, and the end customers that we serve. As we continue along this path, our stock buyback program will remain an integral part of how we think about capital allocation, acquisition multiples, and the use of our free cash flow. 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.

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 six months ended December 31st, 2019. For the three months ended December 31st, 2019, we reported net income attributable to common stockholders of $2,587,000 on $201.9 million of revenues or $0.05 per basic and fully diluted share. For the three months ended December 31st, 2018, we reported net income attributable to common stockholders of $3,766,000 on $260.9 million of revenues or $0.08 per basic and $0.07 per fully diluted share. This represents a decrease of approximately $1,179,000 over the comparable prior year period or 31.3%. For the three months ended December 31st, 2019, we reported adjusted net income attributable to common stockholders of $6,298,000. For the three months ended December 31st, 2018, we reported adjusted net income attributable to common stockholders of $8,154,000. This represents a decrease of approximately $1,856,000 or approximately 22.8%. We reported adjusted EBITDA of $9,374,000 for the three months ended December 31st, 2019, compared to adjusted EBITDA of $12,499,000 for the three months ended December 31st, 2018. This represents a decrease of $3,125,000 or approximately 25%. Keep in mind the prior period had significant disaster relief project work that favorably impacted the company by approximately $1.6 million in EBITDA, which did not reoccur in the current period. Moving along to the six-month income results. For the six months ended December 31st, 2019, we reported net income attributable to common stockholders of $5,822,000 on $402.5 million of revenues, or $0.12 per basic and $0.11 per fully diluted share. For the six months ended December 31st, 2018, we reported net income attributable to common stockholders of $6,338,000 on $479.8 million of revenues, or $0.13 per basic and $0.12 per fully diluted share. This represents a decrease of approximately $516,000 over the comparable prior year period or 8.1%. For the six months ended December 31st, 2019, we reported adjusted net income attributable to common stockholders of $12,782,000. For the six months ended December 31st, 2018, we reported adjusted net income attributable to common stockholders of $13,531,000. This represents a decrease of approximately $749,000 or approximately 5.5%. We reported adjusted EBITDA of $19,053,000 for the six months ended December 31st, 2019, compared to adjusted EBITDA of $21,312,000 for the six months ended December 31st, 2018. This represents a decrease of approximately $2,259,000 or approximately 10.6%. With that, I will turn the call back over to our moderator to facilitate any Q&A from our callers.

Operator, Operator

Thank you. We'll go first to Jason Seidl with Cowen.

Adam Kramer, Analyst

Hey guys, this is actually Adam on for Jason. I just wanted to ask, first of all, about the Coronavirus and any impact you guys are seeing on supply chains? What have you guys seen in terms of any disruption to supply chains?

Todd Macomber, CFO

Sure. We're definitely seeing volumes slow down, while at the same time people are trying to get themselves organized around how to ultimately accelerate supply chain. So it's certainly early in the process, but it certainly wouldn't surprise me over time to see a boost associated with the air freight and our charters, as everybody is trying to preserve the integrity of their supply chains. But in the near term, almost immediately, we are definitely seeing some slowing on the international side, somewhat compounded by the extended Chinese New Year.

Adam Kramer, Analyst

Got it. And do you think these are volumes that could be made up? In other words, could there be kind of a delayed surge later on in the year maybe, or maybe second or third quarter of some of these volumes are made up, and that could potentially be a positive for the business?

Bohn Crain, CEO

Yes, I would think so. It seems logical that people might shift volumes that would usually go by ocean freight to air freight in order to restock or reposition inventories during this catch-up phase. It's still early, as people are figuring out how to respond to the situation. I should also mention that out of our approximately $800 million in revenues, less than $200 million comes from true international sources, with around 60% to 70% of that being in the Asia-Pacific trade line.

Adam Kramer, Analyst

Got it. Appreciate the color there. And then just as a follow-up, I wanted to ask about, obviously, you guys announced the deal earlier today. I wanted to ask about kind of the M&A pipeline, and if there is a potential to do more of these smaller tuck-in deals? And what you guys are seeing more broadly in terms of M&A?

Bohn Crain, CEO

We believe there is a natural pipeline for small acquisitions that is more favorable than our agency-based network. Over time, we expect more of our strategic operating partners to transition from being agency-based to company-owned stores. We anticipate this will lead to margin expansion in our business. While our gross margin will remain unchanged, we will eliminate agent station commissions. This will improve our EBITDA as we continue to acquire agency stations, presenting an ongoing opportunity for us in the future. Additionally, we see ourselves having three main platforms to support mergers and acquisitions: a Canadian-focused platform for Canadian M&A opportunities, and our US brokerage operations, notably Clipper in Chicago, where we are actively seeking small truck brokerage acquisitions. This strategy aims to enhance our strengths in intermodal transportation by complementing it with smaller acquisitions in the truck brokerage sector.

Adam Kramer, Analyst

Got it. Thank you guys for the time. Appreciate it.

Operator, Operator

We'll go next to Mark Argento at Lake Street.

John Baumgartner, Analyst

Hey guys, this is John on for Mark. I appreciate you taking my question. I'm just to kind of follow up on the M&A. I guess, what are you seeing in terms of opportunities to continue expanding that value-added services area?

Bohn Crain, CEO

Value-added services encompass various opportunities for us, including contract logistics and customs brokerage, both of which are areas we are interested in. We are actively exploring opportunities that not only involve transportation but also these complementary services. Thus, we are certainly keen on pursuing such opportunities. However, as we evaluate these prospects, we consider them as enhancements to our core transportation business. When it comes to potential acquisitions, the primary focus will be on companies that mainly offer transportation services, with complementary value-added services being an enhancement to those businesses.

John Baumgartner, Analyst

Got it. And then second, thinking about kind of broad capital allocation going forward. How would you rank you guys are thinking about M&A versus buyback versus continuing to make technology investments? Thank you.

Bohn Crain, CEO

Sure. I believe we will proceed similarly to how we always have. Larger transactions will likely have market clearing multiples that exceed our own stock valuations. We're not completely ruling out these transactions, but we would need a strong reason to pay a premium for them. This leads us back to smaller tuck-in acquisitions where we can assess value and structure in a way that enhances long-term shareholder value. Additionally, we have started to engage in stock buybacks, which we see as an interesting opportunity. A fundamental approach for us would be to allocate half of our free cash flow toward stock buybacks and the other half for tuck-in acquisitions. If larger transactions arise that excite us, we won't dismiss them, but that will serve as a baseline as we evaluate other options. Our multi-prong strategy will likely involve continual investments in our technology, as well as potential incremental investments in our sales organization to promote organic growth. When it comes to M&A, we foresee our free cash flows aiding both tuck-in acquisitions and stock buybacks at current levels, guiding our assessment of other opportunities.

Operator, Operator

We'll go to Jeff Kauffman at Loop Capital Markets.

Jeff Kauffman, Analyst

It's a challenging environment right now. While the focus isn't primarily on Coronavirus, many freight companies have mentioned the difficulties they faced in the fourth quarter, although they are starting to see more positive trends in January. Can you share if things look any different to you this January, and if so, in what way?

Bohn Crain, CEO

I can’t comment on January yet, but I can say that our December results showed a positive trend compared to last year. It’s too early to predict how the Coronavirus and excess capacity will impact us. However, it’s important to remember that we are comparing against an exceptional quarter from last year, which included some one-time business. Despite the challenging economic environment, we are still achieving an annual run rate EBITDA of $40 million. When looking at our valuation in comparison to our peers, we believe we are still significantly undervalued, and we have very low leverage on our balance sheet. While we all hope for better days ahead, we see this current environment as a chance to activate some sellers and create opportunities that we might not otherwise see.

Jeff Kauffman, Analyst

Thank you. I have two quick questions. You've mentioned in the press release the acquisition of the two agency locations. How significant could this be when considering the elimination of station costs and its impact on EBITDA? Is this more of a small addition that won't materially affect the financials, or are these large agency locations that could slightly enhance growth?

Bohn Crain, CEO

We purposely didn't kind of get into the details of the particular transaction. So I don't want to veer from that on this call. But what I would say is, yes and yes. Yes, this is a tuck-in acquisition in the context of it's a longstanding partner, there is virtually zero integration risk because they are already a longstanding part of our network. But I would also say they were one of our very largest agent stations in terms of contributors. So I think they will make a meaningful impact as we move forward. Again, not at the top line revenue, not at the gross margin line item, but in terms of incremental EBITDA that their organization brings to the table is one of our bigger partners.

Jeff Kauffman, Analyst

All right. And thank you. And last question may be more of a Todd question. In the last few quarters, we've been talking about different systems that you've been upgrading. I think some on the accounting side, some on the TMS side. Can you give an update of where you are in that integration process and maybe how much more there is to go?

Bohn Crain, CEO

So I'll start and Todd can fill in, but just some good data points as we were updating our Board here last week. We now have transacted over $100 million of business inside of the new TM. We crossed over the 100,000 transaction mark inside of TM. So we continue to deploy it. It's certainly up and working; domestic is deployed, we continue to roll that out across stations. We work through the pilot on international and really are beginning to rollout international across the stations. We have a handful of agent stations up and running on TM, including a couple of our very largest agent stations that are virtually 100% on SAP TM at this point.

Todd Macomber, CFO

Yes. Regarding the accounting aspect, we have SAP ECC operational and functioning. We see opportunities to integrate additional parts of our business into that system, and we are exploring those options. However, our primary focus, as Bohn mentioned, is on TM, and that is progressing according to our plans.

Operator, Operator

And at this time, I have no other questions holding. I'll turn the conference back to management for any additional or closing comments.

Bohn Crain, CEO

All right. Let me close by saying that we remain very excited about our progress and prospects here at Radiant, and we remain very bullish on the growth platform that we've created and the scalability of our non-asset based business model. Our unique multi-brand strategy and consolidating agent-based forwarding networks, ongoing investment in technology, and low leverage on our balance sheet put us in a unique position to support further consolidation in the marketplace. We believe this represents our longer-term and almost 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 the pursuit of this long-term vision, which we believe over time will 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

Ladies and gentlemen, now we'll conclude today's call. We thank you for your participation. You may disconnect at this time and have a great day.