Radiant Logistics'(RLGT) CEO Bohn Crain on Q1 2018 Results - Earnings Call Transcript

|
About: Radiant Logistics, Inc. (RLGT)
by: SA Transcripts

Radiant Logistics, Inc. (NYSEMKT:RLGT) Q1 2018 Earnings Conference Call November 9, 2017 4:30 AM ET

Executives

Bohn Crain - Founder and Chief Executive Officer

Todd Macomber - Chief Financial Officer

Analysts

Kevin Sterling - Seaport Global Securities

Mark Argento - Lake Street Capital Markets

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 First Fiscal Quarter Ended September 30, 2017. 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 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. Please go ahead sir.

Bohn Crain

Good afternoon, everyone and thank you for joining in on today's call. It's been an interesting market to say the least. For most of the quarter we were operating margin pressure driven by the impacts of excess capacity and what I would generally characterize as a short and a painful period in which the domestic asset-based carriers and asset-based IMCs were in the market with unusually low pricing in an effort to attract trade volumes to keep their equipment moving.

Towards the end of the quarter we saw the pendulum swing, driven by a combination of a strengthening economy, driver shortages and the demands of hurricane relief efforts and now we find ourselves in a much more favorable market environment with the asset-based carriers beginning to once again rationalize their pricing in a tightening market.

Given these market headwinds that existed for most of the quarter, we reported adjusted EBITDA of $6.5 million on revenues of 198 million and net revenues of $46.4 million for the quarter ended September 30. On a comparable year-over-year basis, revenues were up $2.9 million or 1.5%, while net revenues were down 2.9 million or 5.9%.

Our transportation margins were down 4.2 million and partially offset by an incremental $1.4 million of net revenue contribution attributed to our acquisition of Lomas Logistics and our materials management and distribution capabilities in Canada. I'll also point out that 3.7 of the $4.2 million compression in our net transportation margins, was offset by a corresponding reduction in commissions paid to our operating partners.

In the face of these recent margin pressures, we made a strategic decision to expand our materials management and distribution capabilities with a goal of bundling these value-added solutions with our core transportation service offering, in order to further differentiate ourselves in the market place and attract higher margin business.

First, with the acquisition of Lomas Logistics and now with this competency on board, we've recently made additional investments during the quarter, with approximately $300,000 in onetime cost hitting our P&L, adding new and reconfiguring existing Canadian facilities to expand our materials management solution offering, which we believe will be a meaningful financial contributor in future quarters.

Looking forward, we believe we're well positioned to benefit from a more favorable market environment as capacity tightens and demand accelerates. We believe this will lead to expanding transportation margins and improve financial performance for both our forwarding and brokerage operations over the next several quarters.

In addition, we're seeing strong demand for our Canada based materials management and distribution services offering and have secured contracts with eight new customers that we estimate will contribute an incremental $3.5 million to $4 million in net revenues, that's net revenues, not gross revenues. That will come online over the next two quarters.

We believe our strategic decision to bundle these value-added services with core transportation service offering will continue to gain momentum and allow us to enhance our margins and accelerate our growth moving forward.

We also made meaningful progress on the technology front this last quarter, with a successful pilot of our new SAP based transportation management system in Phoenix, Arizona. This was an important milestone for the company and puts us in a position to begin a more broad-based rollout of the system in the first quarter of 2018.

As we've previously discussed, we believe our ongoing investment in technology provides us with a unique opportunity to deliver state of the art technology for our strategic operating partners and the end customers that we serve. At the same time our new technology set will enable a number of productivity initiatives to streamline our back-office processes and accelerate the realization of back office cost synergies associated with existing and future acquisitions and can ultimately help facilitate revenue synergies across the platform.

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

Thanks Bohn and afternoon everyone. Today we will be discussing our financial results including adjusted net income and adjusted EBITDA for the three months ended September 30, 2017.

For the three months ended September 30, 2017, we reported net income attributable to common stockholders of $316,000 on $188 million of revenues or $0.01 per basic and fully diluted share, which included $347,000 of MM&D investment costs in our Canadian operations, $107, 000 of lease termination costs and $300,000 change in contingent consideration income.

For the three months ended September 30, 2016, we reported net income attributable to common stockholders of 1 million, 351,000 on 195.1 million of revenues or $0.03 per basic and fully diluted share. This represents a decrease of approximately 1.35 million over the comparable prior year period.

For the three months ended September 30, 2017, we reported adjusted net income attributable to common stockholders of 2 million, $688,000 on. For the three months ended September 30, 2016, we reported adjusted net income attributable to common stockholders of 4 million, $30,000. This represents a decrease of approximately 1 million, $342,000 or approximately 33.3%.

For quarterly adjusted EBITDA, we reported adjusted EBITDA of 6 million, $483,000 for the three months ended September 30, 2017, compared to adjusted EBITDA of 7 million, $325,000 for the three months ended September 30, 2016. This represents a decrease of $842,000 or approximately 11.5%.

I'd like to highlight, included in the adjusted EBITDA is an add back of $347,000 for the MM&D startup cost at our Canadian operations that we anticipate would bring meaningful business in the coming quarters.

With that I'll turn the call back over to our moderator to facilitate any Q&A from our callers.

Question-and-Answer Session

Operator

Thank you. We'll now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Kevin Sterling from Seaport Global Securities. Please proceed with your question.

Kevin Sterling

Good afternoon, Bohn and Todd. How are you guys doing?

Bohn Crain

Good.

Todd Macomber

Doing fine.

How are you Kevin?

Kevin Sterling

Hey, congrats on a solid quarter. I know the challenging environment seems like guys kind of navigated some of the headwinds there. So that's kind of backward to look and let's look forward. Hey, you touched on this in the prepared remarks Bohn. What are you seeing today in terms of environment? Regardless of various truck brokers out there, IMCs price brokerage and Experior's [ph] has had a blow-up quarter, they all seem much more positive on environment stay than they were say three or six months ago. It seems like we're having a traditional peak season, something we haven't seen in roughly maybe ten year or so and it seems to be the environment really picked up, got good volume out there, capacity is extremely tight. Are you seeing the same things and if so I'd imagine that's got to be kind of in the sweet spot for Radiant? So I'd love to hear a little bit more color from you, if you mind though, what you're seeing today.

Bohn Crain

Yeah, sure, so as I alluded to in my comments, I can't remember kind of a bigger, more pronounced kind of point of inflection than kind of what happened kind of intra quarter for us. So we were kind of fighting the fight along with everybody else, but towards the beginning of September, things just really pivoted. And so as you called out, I think we're certainly seeing in some of our more recent numbers, a lot more favorable results and not to glove on it too much, but we made investments in Canada, opened up some new warehouses instead of - the quarter reflects kind of the carrying cost of these warehouses in their or effectively startup phase. In a relatively short period of time the Canadian leadership team was able to go out and effectively fully lease up that space. So we're holding contracts with a number of customers that's going to fully utilize that space and make pretty significant contributions to Canada going forward.

And then as you alluded to and we can kind of get into details a little bit and these - we would have called the excess market environment, we had - our intermodal business which is a big piece of our U.S. brokerage operations. We had the natural modal competition in truck versus rail and we also had what I'll call the asset based IMCs that were being very aggressive with the pricing or should I say non-pricing of their own boxes in the market place. Well as all of that capacity is being absorbed back into the market place. We are seeing kind of a more natural modal shift back to rail and more natural appropriate pricing for boxes kind of under the dominion of the asset-based IMCs. So, all of that bodes well for our brokerage operations in some of the macro headwinds that they had been facing, that seems to be abating and so I think things are set up to be meaningfully better going forward than what we saw this last quarter.

Kevin Sterling

Okay, now that's great and it sounds like things - it's amazing how things have turned on dawn, so it sounds like you guys are well positioned to capitalize on this. And let me touch on - you touched on a little bit about some historic cost you had if you will. I think you said in your press release maybe eight new customers. So comment - some of these new business wins, are these some cost selling opportunities maybe from existing customers where you have cost sold some additional products or is this all brand-new customers to the Radiant platform.

Bohn Crain

These are brand new customers to the Radiant platform and really kind of a strategic move we made to try to diversify our service offering starting in Canada and some of the pressures we were feeling on the brokerage side of the house to try to reposition ourselves in the market place and I think we were all pleasantly surprised with just how quickly we were able to kind of find a home. So I think I we've identified a kind of the market need or an appetite for this bundled service and so we are pretty interested to continue to prove it out as we move forward. But specifically to your question, it's all incremental and it's a combination of the contract was just fixed type revenues along with incremental transportation margins and on the warehousing side, almost all of those revenue falls to the bottom line because we are carrying the facilities cost. That's kind of the point or part of the drag on Canadian operations for the quarter as we basically - we are bearing the cost of obsess of a new facility and we didn't have paying customers in there yet. They are all contracted for now and just a matter of getting those installed into the facilities.

Kevin Sterling

Got it. So we should start seeing some of that benefit here in this next quarter - of the current we're in now and then even beyond that. Is that right we should start seeing some benefit now.

Bohn Crain

Yes, for the upcoming quarter into December, absolutely.

Kevin Sterling

Okay and then final one Bohn and I don't to want pin you down on guidance because you guys seem like you kind of step away from that, but as we think about kind of - you did adjusted to kind of 0.5 million in EBITDA for this quarter. As we think about the next quarter kind of given the - really market improvement we are seeing across the board in transportation and some of these new business wins, it's fair to say we are going to see a nice substantial sequential uptick in EBITDA as I think about that for the next quarter. Am I thinking about that right?

Todd Macomber

What's the saying from your lips the gods hear, that's certainly our expectation.

Kevin Sterling

Now, that's great. So congrats to you, definitely it seems like tide has turned and you guys are well positioned and keep on getting some new business wins. I think what you guys are doing is really resonates in the marketplace. Thanks for giving me your time.

Bohn Crain

Alright, thank you.

Todd Macomber

Thanks.

Operator

[Operator Instructions] Our next question is coming from Mark Argento from Lake Street Capital Markets. Please proceed with your question.

Mark Argento

Yeah, hi good afternoon guys. Just a quick question Bohn, around the bundling of services that you spoke of in your prepared remarks, can you walk through the, what do they call - I think you call materials handling for bundling that in and what that means for the business?

Bohn Crain

Sure. I am sorry; you just want a little more color on that?

Mark Argento

Yeah, I just don't - yeah, the whole concept looked more -

Bohn Crain

Yeah, sure, so the acronym was start at the top, so the acronym MM&D stands for materials management and distribution. So we kind of think of the businesses - the kind of our core businesses providing transportation services, I mean moving between points A and B, but there is whole host of value added services which we can kind of simply describe as those things happening inside the four walls of a facility that we can do to add value to products, whether it's picking, packing, co-packing, localization of lying goods, provide the French language for stuff coming into Canada as an example. And all of those things - ultimately those things allow us to ultimately align more strategically with our end customers to partner more deeply. And hopefully that - and we believe that ultimately will translate into a stickier customer in a book of business that carries a more favorable set of margin characteristics for us.

Mark Argento

Great, it's helpful. And then do you - I mean are you guys actually breaking down pallets and touch in product or you try to keep it at the pallet level I mean to what degree?

Bohn Crain

No, no, we are down to the edges in certain different product lines and it's kind of a good segue not necessarily to do this on this call, but I would really like to get you up to Toronto and see what we do. I think you will get a lot out of seeing kind of the sophistication in kind of what we are doing up in Canada that's pretty exciting.

Mark Argento

And the opportunities to do anything like that domestically here, is that in the cards or?

Bohn Crain

Yeah, we certainly have some similar capabilities at a number of locations including Los Angeles, but not on the scale and magnitude that we are doing in Toronto.

Mark Argento

Great and then just swinging back to the demand side of the equation obviously you're seeing things pickup pretty substantially. Can you get a little granular what parts of the transportation eco-system are you guys seeing demand for, obviously referred of trucking's picking up, you have less exposure this year in the states on the -

Bohn Crain

I think and - not to speak to grandly, but I think practically every mode of transportation has seen a lift in this environment. As Kevin, alluded to it seems like we are going to have a good solid peak season coming through and then kind of on the heels of that we have got to ELD stuff coming on line and at least the narrative about there from everything of I am hearing is that capacity is expected to remain tight for the foreseeable future. So long is that hold, I think we should be the beneficiary of that for sure.

Mark Argento

Great, thanks guys.

Todd Macomber

Thank you.

Bohn Crain

Alright, thank you.

Operator

[Operator Instructions] Ladies and gentlemen, we've reached the end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

Bohn Crain

Thank you. Let me close by saying that we remain very excited with 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 and the benefits that will flow from our ongoing investment in technology. We believe we are well positioned to benefit from the more favorable market environment has capacity tightens, which we believe will lead to expanding transportation margins and improve financing performance for both our forwarding and brokerage operations over the next several quarters. Thanks for listening and your support to Radiant Logistics.

Operator

Thank you, that dose conclude today's teleconference. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.