Radiant Logistics, Inc. (AMEX:RLGT) Q4 2022 Earnings Call Transcript

Radiant Logistics, Inc. (AMEX:RLGT) Q4 2022 Earnings Call Transcript March 27, 2023

Radiant Logistics, Inc. beats earnings expectations. Reported EPS is $0.25, expectations were $0.16.

Operator: 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 First Fiscal Quarter ended September 30, 2022 and Second Fiscal Quarter ended December 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 Web site 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.

Bohn Crain: Thanks, John. Good afternoon everyone and thank you for joining in on today’s call. First and foremost, I want to thank all of our loyal shareholders for being patient with us through this restatement process. It’s fair to say that we’ve been battle tested over these last few years, driven first by the pandemic and associated lockdowns of 2020. We were all reminded of the essential role of transportation and logistics and keeping our economy moving. For us, this translated into the opportunity to play an active role in the fight against COVID by, among other things, delivering PPE, food and beverage, consumer goods, technology and other essential products for our customers across North America and around the world.

As the economy worked to recover from those initial lockdowns, we were presented with a different set of challenges and opportunities as we were able to help our broader customer base bring their supply chains back online in the face of an extreme shortage of transportation capacity, soaring fuel prices and port congestion. In December of 2021, we experienced a cyber event that created its own set of challenges. And ultimately, we were put through our paces with the now completed rigorous review and restatement process. I will leave the detailed review of the numbers to Todd, our Chief Financial Officer, a little later in the call. But ultimately, the numbers speak for themselves. In the face of some very difficult circumstances, we have delivered some extraordinary results, generating over $80 million in EBITDA on $1.4 billion in revenues, and have effectively paid off our bank debt along the way.

We all know the cliché, that which doesn’t kill you makes you stronger. But we’ve survived COVID, the cyber attack and ultimately, we even survived the auditors, two sets. All kidding aside, as everyone has a chance to digest the numbers, it’s a fair point of discussion. Why in the world would the company pay its accountants and lawyers millions of dollars, run the risk of being delisted and undergo the organizational brain damage to restate our financial statements for what amounted to $0.01 per share, particularly in light of the fact that the company was doing so well? Well, the answer is not by choice, I can assure you. Restatements come in different flavors. In our case as the numbers show, the impact on our financial results was very small and the need for the restatement in the first place was very subjective, in my opinion.

As disclosed in our public filings, the restatement related to our accounting for in-transit revenues and for the accountants on the call application of ASC 606. ASC 606 is a relatively new accounting pronouncement that provides the guidelines for recognizing revenue, and a great source of incremental revenue for the accounting and consultancy firms out there. In the transportation industry, we historically recognize revenue on delivery date. That was until ASC 606 came along and changed the rules of the game that required companies to begin to effectively recognize revenue on a percentage completion basis. These new guidelines became effective in 2018, and require considerable use of estimates in terms of expected margins and transit times as these important inputs are not generally known until a shipment is ultimately delivered.

These estimated in-transit revenues map to the face of our balance sheet as a contract asset. It is this individual line item on the face of our balance sheet that became ground zero for our restatement. Given the financial gearings of our agent base business model, even a $10 million to $20 million swing in estimated revenue in relation to our $1.4 billion in revenue really doesn’t have much of an effect on net income, EBITDA or even working capital for that matter. Even so, the auditors concluded that the misstatement of contract asset, when viewed in isolation, could be viewed as material to the reader of our financial statements, and therefore require that we adopt their judgment as our own and restate our financial statements. This is the world in which we live.

The fact that we were delivering record results, the fact that the effect of the restatement on net income, EBITDA and working capital was negligible, the fact that we were effectively debt free and at no risk of breaching any of our financial covenants, none of that proved to be relevant to the analysis. So why were in-transit revenues off in the first place? As previously mentioned, the accounting for in-transit revenues requires considerable use of estimates in terms of expected margins and transit times, as these important inputs are not known until a shipment is ultimately delivered. During the restatement periods, we experienced the cyber event and ultimately unprecedented shipment volumes that were subject to extraordinary congestion at our U.S. ports.

These two factors frustrated our ability to accurately estimate our in-transit revenues. Even so, we recognize the need to improve our accounting for in-transit revenues and have a number of initiatives underway to improve our process. And while this process was nothing short of mind numbing, now that we have it behind us, we look at it as a positive byproduct of our significant growth over these last several years, and a testament to the strong work of our talented accounting and finance teams, and the ultimate proof of the overall integrity of our financial systems, and of course our need to always strive for continuous improvement in all that we do. Okay, so now hopefully that’s enough on that topic. Let me turn my comments to the great progress that we’ve been making on a number of other fronts, in addition to our record results.

In August of 2022, we took the opportunity to refresh and expand our $150 million senior credit facility with a $200 million facility. Given what is going on now in the banking markets, we are really happy to have a new facility in place and fully available. This facility provides us with continued financial flexibility to access capital support and accelerate our growth strategy, as well as the ability to repurchase the company’s stock should we choose. To that end, we continue to make good progress in our balanced approach to capital allocation through a combination of strategic acquisition and stock buyback initiatives. In October of 2022, we completed the acquisition of our longtime strategic operating partner, Cascade Enterprises of Minnesota.

And for the 18 months into December 31, 2022, we purchased approximately $16 million of our stock at an average price of $6.64 per share. And as of December 31, 2022, we have for the first time in the company’s history, even with the purchase of Cascade and the stock buybacks, no net debt with cash on hand of $62 million and total debt of only $53.7 million. And finally, our adjusted EBITDA for the trailing 12 months into December 31, 2022 sits at $82.8 million. And with the filing of these two most recent 10-Qs, we have now completed the process of bringing our filings current with the SEC. And we’re excited to be able to get back to the business of leveraging 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 have here at Radiant.

As we previously discussed, while we remain very optimistic about our prospects for fiscal ’23 and beyond, we are definitely seeing signs of a slowing economy and expect operations to return to more normalized levels and growth rates in the coming quarters. We believe we are well positioned with a durable, diverse service offering and strong balance sheet to support our customers and continue to execute upon our broader strategic initiatives. With that said, I’ll turn it over to Todd to walk us through our detailed financial results. And then we’ll open it up for Q&A.

Todd Macomber: Thanks, Bohn, and good afternoon, everyone. Today, we will be discussing our financial results, including adjusted net income and adjusted EBITDA for the 12 months ended June 30, 2022. Additionally, we will be providing financial results for the Q1 fiscal year ’23 three months ended September 30, 2022 and the Q2 fiscal ’23 financial results for the three and six months ended December 31, 2022. Q4 fiscal year ’22 year end results are as follows. For the 12 months ended June 30, 2022, we reported net income attributable to Radiant Logistics of 44,464,000 on 1.46 billion of revenues, or $0.90 per basic and $0.88 per fully diluted share. For the 12 months ended June 30, 2021, we reported net income attributable to Radiant Logistics of 23,110,000 on 899.8 million of revenues or $0.46 per basic and $0.45 per fully diluted share.

This represents an increase of approximately $21,354,000 over the comparable prior year period, or 92.4%. For adjusted net income, we reported $58,246,000 for the 12 months ended June 30, 2022 compared to adjusted net income of 34,548,000 for the 12 months ended June 30, 2021. This represents an increase of approximately $23,698,000 or approximately 68.6%. For adjusted EBITDA, we reported $80,918,000 for the 12 months ended June 30, 2022 compared to adjusted EBITDA of $49,003,000 for the 12 months ended June 30, 2021. This represents an increase of $31,915,000 or approximately 65.1%. Moving along to Q1. For the three months ended September 30, 2022, we reported net income attributable to Radiant Logistics of $8,433,000 on 331 million of revenues or $0.17 per basic and fully diluted share.

For the three months ended September 30, 2021, we reported net income attributable to Radiant Logistics of $7,609,000 on 289.4 million of revenues, or $0.15 for basic and fully diluted share. This represents an increase of approximately $824,000 of net income over the comparable prior year period, or 10.8%. For adjusted net income, we reported $13,365,000 for the three months ended September 30, 2022 compared to adjusted net income of 11,090,000 for the three months ended September 30, 2021. This represents an increase of approximately $2,275,000 or approximately 20.5%. For adjusted EBITDA, we reported $18,515,000 for the three months ended September 30, 2022 compared to adjusted EBITDA of $15,247,000 for the three months ended September 30, 2021.

This represents an increase of approximately $3,268,000 or approximately 21.4%. Moving along to Q2. For the three months ended December 31, 2022, we reported net income attributable to Radiant Logistics of $4,836,000 on 278.1 million of revenues or $0.10 per basic and fully diluted share. For the three months ended September 31, 2021, we reported net income attributable to Radiant Logistics of $6,539,000 on 335.8 million of revenue, or $0.13 for basic and fully diluted share. This represents a decrease of approximately 1.7 million of net income over the comparable prior year period of 26%. For adjusted net income, we reported $10,497,000 for the three months ended December 31, 2022 compared to adjusted net income of $11,908,000 for the three months ended December 31, 2021.

This represents a decrease of approximately 1.4 million or approximately 11.8%. For adjusted EBITDA, we reported $15,349,000 for the three months ended December 31, 2022 compared to adjusted EBITDA of $16,709,000 for the three months ended December 31, 2021. This represents a decrease of approximately $1,360,000 or approximately 8.1%. Moving along to six-month results. For the six months ended December 31, 2022, we reported net income attributable to Radiant Logistics of $13,269,000 on 609.1 million of revenues or $0.20 per basic and fully diluted share. For the six months ended December 31, 2021, we reported net income attributable to Radiant Logistics of $14,148,000 on 635.2 million of revenues or $0.28 per basic and fully diluted share. This represents a decrease of approximately $879,000 over the comparable prior year period, or 6.2%.

For adjusted net income, we reported $23,861,000 for the six months ended December 31, 2022 compared to adjusted net income of 23 million for the six months ended December 31, 2021. This represents an increase of approximately $860,000 or approximately 3.7%. For adjusted EBITDA, we reported $33,864,000 in the six months ended December 31, 2022 compared to adjusted EBITDA of $31,961,000 for the six months ended December 31, 2021. This represents an increase of approximately $1,903,000 or approximately 6%. With that, I will turn the call back over to our moderator to facilitate any Q&A from our callers.

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Q&A Session

Operator: Thank you. At this time, we will be conducting a question-and-answer session. . Our first question comes from Mark Argento with Lake Street. Please proceed.

Mark Argento: Hi, Bohn. Hi, Todd. Good to hear you guys get on a call and congrats on finally getting all that rigmarole behind you here. It was a long slog for you guys, but good to see the business continue to perform. I just wanted to drill down a little bit on some of your comments in particular. You had mentioned obviously the environment is normalizing here a little bit post COVID, and just with the economy slowing down a little bit or hopefully slowing down a little bit, can you kind of just maybe give us a little more color on what kind of a more €œnormalized€ environment means for you guys in particular, both at the gross revenue level but also what’s a good kind of thoughtful run rate EBITDA for your business today?

And now the business has changed since 19′, 20′, ’21, you did 80 million last year in EBITDA or last fiscal year and a run rate basis something that is even greater than that. But maybe if you could just kind of point us around a little bit on what the new normal is.

Bohn Crain: That’s getting harder and harder to answer. But I will very cautiously take a stab at it, which is that there are so many moving parts right now and a lot of uncertainties in the marketplace, further frustrated by labor inflation that I think everybody is feeling. But my best shot at kind of a normalized run rate EBITDA would be in $55 million to $60 million range right now. But I would put an asterisk by that, which would be I think that the first half of calendar ’23 might not be reflective of that run rate. As the pendulum was swinging really strong I think these first couple of quarters, I guess the ultimate way to just boil it down is, if you were using 60 to model, I wouldn’t necessarily put 15 million of EBITDA on Q1 and Q2.

Obviously, the seasonality that you know about, but there’s some — just like we were in a period of unusually strong times, I think at least the first half of this year is also going to be unusually weaker times as — and everybody’s read a lot of the kind of the market reconnaissance, but there’s excess inventories that people are chewing through or trying to work through. And so international trade is at an unusually low point right now. So when we — there’s a difference between saying what do you think normalized is? And what do you think your results are going to be for fiscal year ended 2023, which I’m not prepared to answer. So hopefully, that’s responsive to your question.

Mark Argento: That’s very helpful. And then when guys are thinking through that a little bit, and that’s obviously still an incredibly healthy clip and well above kind of where you were running before you even got into the pandemic environment. But obviously the stock, where it’s trading, we could talk reasons why broader market overhang, having to deal with the time to get the restates done, whatever it might be, kind of cranking through you guys are in a net cash position. I know you’ve been active with the buyback. But do you ever think about potentially a dividend or any other types of opportunities either crank up the buyback here a little bit more aggressively or institute a dividend? Because if you’re generating, call it, 55 to 60, I know you’re a taxpayer now, but you don’t have any interest expense, it seems like you guys are (ph) a cash flow machine. So any further thoughts on what you’re going to do with all that cash?