Radiant Logistics Inc
AMEX:RLGT
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Earnings Call Analysis
Summary
Q1-2024
Radiant Logistics reported a significant year-over-year decline in earnings for Q3 2023, with net income dropping by 68.9% to $2.622 million on $210.8 million revenues, and adjusted EBITDA down by 50.9% to $9.167 million. However, management remains optimistic about a market upturn in coming quarters. Their robust balance sheet boasts $36 million in cash and no debt on their $200 million facility. Radiant continues to invest in stock buybacks and converting agents to company-owned stores. Amid modest customer order increases and a pivot towards Southeast Asia and Mexico, they see no significant change from the subdued ocean market for the near future. The company values stock as a capital allocation and is open to opportunities, suggesting a flat performance till year-end and a potential softer quarter in March. Bottom line focus is on absolute gross margin dollars over percentages, and current margins are expected to sustain over the next quarters barring ocean or project surges. Future growth is to be driven through organic means, acquisitions, and buybacks, enhancing shareholder value.
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Good 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 first fiscal quarter ended September 30, 2020. 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 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, 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, Angel. Good afternoon, everyone, and thank you for joining in on today's call. Our results for the quarter ended September 30, 2023, continue to reflect the difficult freight markets being experienced by the entire industry as well as our own operations. The confluence of shippers continuing to manage through elevated inventories, reduced imports and 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 for the prior year period.
With that said, we remain optimistic that we're at or near the bottom of the cycle and would expect markets to begin to find their way to more sustainable and normalized levels in coming quarters. Notwithstanding the tough year-over-year comparisons, we're very proud to report that we generated $9.2 million in adjusted EBITDA and almost $8 million in cash from operations for our quarter ended September 30. In addition, we continue to enjoy a strong balance sheet, finishing the quarter with approximately $36 million of cash on hand and nothing drawn on our $200 million credit facility.
And as we detailed in our press release, we continue to allocate capital in support of our stock buyback program as well as converting our agent stations to company-owned stores as we did with our Delray transaction in Florida. As previously discussed, 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 will 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 Asia station conversions synergistic tuck-in acquisitions and stock buybacks. Through this approach, we will continue to scale our business, leveraging our best-in-class technology, our extensive global network which we believe, over time, will 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 CFO, 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 3 months ended September 30, 2023.
For the 3 months ended September 30, 2023, we reported net income attributable to Radiant Logistics of $2.622 million on $210.8 million of revenues or $0.06 per basic and $0.05 per diluted share for the 3 months ended September 30, 2023.
For September 30, 2022, we reported net income attributable to Radiant Logistics of $8.433 million on $331 million of revenues or $0.17 per basic and fully diluted share. This represents a decrease of approximately $5.811 million of net income over the comparable prior year period or 68.9%.
For adjusted net income, we reported $6.549 million for the 3 months ended September 30, 2023, compared to adjusted net income of $13.481 million for the 3 months ended September 30, 2022. This represents a decrease of approximately $6.932 million or 51%.
For adjusted EBITDA, we reported $9.167 million for the 3 months ended September 30, 2023, compared to adjusted EBITDA of $18.669 million for the 3 months ended September 30, 2022. This represents a decrease of approximately $9.502 million or approximately 50.9%.
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 Elliot Alper with TD Cowen.
This is Elliot on for Jason. I was hoping you could put some more context around the revenue decline sequentially in the quarter, maybe between the different business units. I know last quarter you pointed to kind of a slight uptick on ocean bookings side. I guess how did that play out? And maybe what are you guys seeing on the ocean side of the business? .
Thanks. So Ocean remains soft for us, particularly as compared to a prior year period. I think everybody what the narrative would suggest is there's some modest uptick in imports on a little more activity on the West Coast. But on a comparative basis, it's still down and I think expected to be down for a good bit yet with blank sailings from the steamship lines and they're under -- while their coppers are full of cash, I think volumes are certainly down and they've got a lot of excess equipment at this point that they'll have to figure out what to deal with on kind of on that side of the equation.
But we don't see any I think, meaningful increase in ocean near term. call it, a muted peak might be a little bit of an understatement. And -- but with that said, we are seeing volumes come back ever so slowly or at least not continuing to decrease. Our kind of looking at it on a kind of division by division basis or kind of that type of conversation kind of core forwarding operations continue to kind of carry the day as well as Canada and in our operations up there continue to be meaningful contributors to what we're doing, while our ocean and brokerage business and brokerage, we would -- again, just as a reminder, we define as both our intermodal and truck brokerage business. That's obviously been soft in this market environment.
Having said that, I would take a second to just give a little bit of a shout out to the progress we're making in Kansas City with the truck brokerage team that we were able to onboard there kind of coming out of the wake of walling yellow, and we stood up a truck brokerage team in Kansas City. And while that's effectively an organic start for us starting that business from a standing start, it's kind of far out-ceding expectations in terms of their kind of their growth and trajectory and path to profitability with the team that we put in place there.
So we're really excited for that and what I would characterize as kind of expected incremental opportunities in the truck brokerage space. There's a lot of chaos in the marketplace right now in the wake of Convoy and others who have recently gone down and others that are kind of expected a rumor to be under pressure. And so we're seeing what opportunities may present themselves out of some of those dynamics as we move forward.
So again, but to recap, our core forwarding business along with the team in Canada continues to kind of lead the way for the organization. And while our ocean and brokerage businesses are profitable. They could be a lot more profitable as the market gets better.
Yes. No, absolutely. And maybe going off an earlier point, I know you guys do some LTL business. Talk about how that performed in the quarter. Maybe just your high-level thoughts on how some of the LTL consolidation affects your offering?
We don't do a lot of, what I would call, pure deferred LTL more. Our LTL was more expedited time definite. So we were necessarily impacted to the good or the bad around what's going on and kind of within the LTL community. There's obviously were some clear winners and clear losers in connection with kind of yellow and what happened there. So not a significant or meaningful kind of direct impact to us from what's been going on in the LTL space.
Understood. And then maybe just last question then I'll hand it over. I guess there's been a lot of mix porting on the Chinese economy. I know you guys have location in Shanghai. I would be curious to get your thoughts on maybe the outlook or anything you're seeing on the ocean bookings side in China.
It still remains soft. I think we're seeing a modest uptick in kind of orders from our customers. While at the same time, we're also seeing some of our customers begin to pivot to either Southeast Asia or Mexico, which we're all reading and hearing a lot about. So the volumes are anemic relative to historical levels, but we -- but certainly, China is not going away, but it remains soft, and we would I think as everybody on this call knows, right now, will typically be just the go-go time, we would be in the absolute height of peak season right now. And it's muted as best and then we're going to be in the Chinese New Year.
So we're not expecting any meaningful divergence from this kind of dampened ocean market. At least we're probably looking to next year's peak season in the next call to see what next fall looks like.
The next question comes from Mark Argento with Lake Street.
Just a couple of quick ones. One, I guess, the balance sheet is in fantastic shape. Are you starting to see any opportunities out there. Do you think we need a little more distress to set in before deals start popping, but any kind of overview on the M&A market right now?
Well, I think we're certainly as engaged as we can be, and we're hopeful that we'll have an opportunity to get some things done here in coming quarters. At the same time, we're going to continue to be kind of thoughtful in our approach. But I think there's going to be a lot of opportunities. I'm hopeful there will be lots of opportunities that we can consider.
The fact is, I think, at least a fair number of people in our space were had -- were levered up and had their balance sheets geared at kind of higher earnings levels. And so as everything softened up, while they might have thought they were at 3 or 4x levered, they may now find themselves at 5 or 7x levered, which isn't a particularly good place to be and -- in the current bank market. So there's really just not as many folks out there that are actionable to do deals. And so we're quite happy or appreciative to be in the position we are with the financial flexibility that we have.
But at the same -- having said that, we still believe our stock represents a pretty compelling use -- place for us to put our capital as we think about capital allocation. So while we're looking at a number of things, and we would -- we're certainly ready to action if things line up right, our feelings won't be hurt if we're continuing to buy in our own stock at what we think is a really attractive valuation.
That's helpful. And maybe, Todd, can you just remind me kind of what's the typical conversion of EBITDA or adjusted EBITDA to free cash flow given the capital structure you have right now?
Well, I mean I think the best -- if you're trying to track it, I mean I think adjusted net income is a good proxy for the free cash flow. That's probably the best metric.
Yes. I think the probably plus or minus, correct me Todd, but I think what he was asking for is effectively what are we going to be spending on CapEx, which is, for us, is largely technology. So I think plus or minus $5 million would be kind of kind of normalized technology being capitalized.
$5 million a year or over what period?
Yes. Yes, $5 million a year.
Okay. So like this quarter, you guys did adjusted EBITDA $9.2 million. I'm looking for adjusted net income. Adjusted income $6.5 million, less $1 million or $0.25 million whatever 5 divided by 4 is. So kind of $5 million roughly would probably be a good kind of free cash flow. So just over half of EBITDA you're turning into free cash.
Yes, I think that's fair and kind of where we are, I guess that was quite a big effort by that just in the context of -- I don't think anybody would characterize the current environment as being normalized. But in the kind of -- in the current kind of where we collectively are in the cycle, I think that's reflective of the profile and kind of cash flow characteristics of the business kind of in this down market. but we would expect it to be obviously higher than a little less of a headwind.
Yes. I mean if you can make $15 million to $20 million in free cap, generate $15 million to $20 million in free cash in this environment. and obviously, you got a great balance sheet. So you guys are in a great shape. But I appreciate it.
The next question comes from Jeff Kauffman with Vertical Research Partners.
A couple of knits here. Could you talk a little bit about what the impact of the Dollar acquisition is going to be to the financials? I guess since it's an agency, our former agency tuck-in, we're not going to see a revenue impact, but we will see more of a margin impact. Can you set me straight?
That particular transaction is pretty small in the scheme of things. So I wouldn't look for any meaningful impact to that particular transaction. But I think it is indicative of kind of not in terms of dollar value, but we do expect to have an opportunity to convert more agent stations to company-owned stores.
But it's a great question, Jeff, because I was going to tease you a little bit. So for -- everybody on the call, Jeff is notorious for modeling in M&A transactions into this guidance. So he's always high on guidance to the model again, M&A transaction. So don't model in any M&A transaction, Jeff, just give us the base loan.
I'm just skating to where the puck is going to be, not where it is. So I guess on a topic, normally, in a normal environment, second quarter seasonality would see revenues up about 4% to 5% sequentially from first quarter, and a little bit of deterioration on the net revenue margin because of mix. Given your comments on the kind of math peak season that we're seeing, would you -- guide is the wrong word, but would you convince us to be above or below that normal range? Or do you think we should think about this as a muted but normal transition from fiscal 1Q to fiscal 2Q?
We're in such kind of foreign territory. I'm not sure I would rely on some of those historical trends. right now. Firstly, we'll see how it plays out. But I would kind of anticipate us being relatively flat on a sequential basis here through the end of the year and then likely a softer quarter in March and building back from there.
Maybe give you something fun to talk about here. There's been a lot of discussion about near-shoring and reshoring and companies kind of moving supply chains around I know in Asia, it's resulted in some Chinese-based manufacturing going to, say, Vietnam or Thailand or Cambodia. Can you talk about where you're seeing the impact of reshoring, whether it's on the international side, whether it's say things going into Mexico and then coming into the U.S. through your networks? Just give us an idea of what you're seeing on that side.
Yes. I think the short answer is yes, right? So both of those and even before COVID and kind of the more recent challenges, those trends were occurring. There -- we always are kind of historically have been in this environment where manufacturing and seeking lower cost labor and all of that type of stuff. And so Mexico and Southeast Asia have been , I think ever so slightly taking share away from China over time. But I think what we're seeing is an acceleration of some of those strategies with kind of tipping more -- even more heavily towards Mexico. And kind of supply chain strategy.
But with that said, I don't want to give the impression, we would expect the turning off the lights in China and the trade [indiscernible]. It's still going to be an extraordinarily large market and an extraordinarily large opportunity set that we would expect to continue to participate in. So our conversations right now are more around what do we need to do to be in Southeast Asia to be in Mexico to support our existing and prospective customers as they're executing those types of strategy.
All right. And then one last one if I slip in through. There has been a lot of movement in -- I'm going to focus more on the domestic freight market, the domestic forwarding, domestic brokerage. Yellow went down, you were opportunistic came in, swooped up their logistics and brokerage effort. We've seen some trucking companies and brokers go out of business in recent weeks, a lot of stress in the marketplace. Where has this created new opportunities for you that maybe 6 or 8 months ago, we might not have been talking about?
I think for us, it really has -- that's created a little bit of an interesting environment, and it's kind of too early to it's way premature to be dancing in the end zone, if you will. But we think -- we've got a strong balance sheet. We've got the technology platform. We have the carrier relationships. And so as -- some of these folks are depending on hard times, we're in a great position to hopefully receive some of them and some of that business into our platform and we even knock on wood, have a great little case study in terms of what we were able to do in Kansas City with that team and how quickly we were to bring that -- bring that team on board and begin to support those customers.
So we've been spending -- I have recently been spending an unusual amount of time on Zoom calls with individuals looking for a new home, right? And so we'll see kind of how that played out over time. But at the same time, we're not the only platform out there that sees that opportunity set. So hopefully, we get kind of our share of opportunities. We think we've got a unique value proposition. And I guess one other aspect of this that I will call out because I think it's really interesting, a lot of these folks that might be looking for a new home out there, they've got their historical customer relationships where they presumably were selling truck brokerage services.
But if they cast their launch with Radiant, not only can they sell truck brokerage capabilities, but they can sell international porting, they can sell intermodal, they can sell customs brokerage. They can sell Mexico and Canadian cross border. So we think we represent an attractive platform for some of these folks who are coming out of these distressed truck brokerage operations with kind of a broader platform and more of a set of solutions that they can offer back into their account.
Next question comes from Kevin Gainey with Thompson, Davis.
Kevin on for David. Actually, maybe one thing that I wanted to kind of dive into was if we look -- we're looking at the gross margins for you guys, it's pretty much been a consistent step-up the last few quarters. And I was wondering how you guys think about that and what kind of at least visibility that you guys can maintain these levels moving forward?
Sure. We're comparing against prior year, right? And in the year ago period, Ocean was a bigger piece of our business and ocean revenues, which have been small margin, I mean, it went from around $3.8 per shipment this last year-over-year quarter. So it's really the product mix. So there's a much bigger piece of domestic, which is higher margin characteristics results in the overall margin, what do I want to say, composite margin. So I think what you're seeing now, we'll continue to see as far as margin characteristics.
In the slower market so I'll give maybe a slightly broader answer to that question. We always try to think about the business in terms of growing our absolute gross margin dollars and getting as many of those gross margin dollars to the bottom line as we can. So in our comparative prior year periods, we had lower margin ocean, and we had lower margin air charter business. And so with that kind of not in this current quarter, what we're seeing is something that domestic margins less dilutive by some of these lower margin modes or service lines.
But at the same time, our absolute gross margin dollars are down. So I would although it may sound a little counterintuitive. I would rather have lower gross margin percentages and more gross margin dollars to get to the bottom line. So that's kind of a kind of a long way of giving a more I guess, comprehensive response to your question. But if we're kind of -- if your questions were targeted towards how should we be thinking about modeling kind of upcoming quarters in terms of margin characteristics, I think this quarter's margin characteristics are indicative of what we would expect for the next several quarters. until we see some lift in ocean or if we get some surge in project work, which is entirely possible, given the state of global affairs with ongoing dynamics in Israel and Ukraine.
No, that's very helpful. And maybe just to kind of circle back one last time on kind of just the macro as well. I think you guys expressed that we're pretty much along the -- right at the bottom, and I was wondering what do you see that gives you that indication maybe that we're kind of at the bottom.
Well, so I hold -- every Monday, I hold staff calls with each of my operating divisions. And I ask them these very questions every -- literally every week. So I think I've got a pretty good pulse on kind of how they're feeling kind of what kind of feedback they're getting with our end customers. And so I think that's what I'm giving you is the best reflection based upon or kind of the team and their engagement with the end customers and feedback.
So I think that's the best answer I can give you.
It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional remarks.
All right. Thank you. 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 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 tuck-in acquisitions and stock buybacks. Through our multipronged 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 does conclude today's program. Thank you for your participation. You may disconnect at any time.