Radiant Logistics - Q2 2024
February 8, 2024
Transcript
Operator (participant)
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 second fiscal quarter and six months ended December 31st, 2023. Following their comments, we will open the call to questions. This conference is scheduled for 30 minutes. This conference 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 achievement 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 Logistics 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. Sir, the floor is yours.
Bohn Crain (Founder, Chairman & CEO)
Thank you, Alex. Good afternoon, everyone, and thank you for joining in on today's call. Our results for the quarter ended December 31st, 2023, continue to reflect the difficult freight markets being experienced by the entire industry as well as our operations. This extended period of weak freight demand, combined with excess capacity, continues to negatively impact 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 are at or near the bottom of the cycle, and we would expect markets to begin to find their way to more sustainable and normalized levels towards the back half of calendar 2024.
Notwithstanding the tough year-over-year comparisons, we continue to deliver meaningfully positive results and have generated $16.9 million in Adjusted EBITDA and $12.1 million in cash from operations for the six months ended December 31st, 2023. In addition, we continue to enjoy a strong balance sheet, finishing the quarter with approximately $33 million of cash on hand and nothing drawn on our $200 million credit facility. 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 remain focused on delivering profitable growth through a combination of organic and acquisition initiatives, and thoughtfully relevering our balance sheet through a combination of agent station conversions, synergistic tuck-in acquisitions, and stock buybacks.
Through this approach, we believe over time, we will continue to deliver meaningful value for our shareholders, operating partners, and the end customers that we serve. In this regard, we are very excited about our recent agent station conversions with the acquisition of Daleray and the Select businesses, which will combine to solidify our offering in support of the cruise line industry in South Florida. We launched Radiant Logistic in 2006 with the goal of partnering with logistics entrepreneurs who would benefit from our unique value proposition and the built-in exit strategy available to the entrepreneurs participating in our network. We believe these two transactions are representative of a broader pipeline of opportunities inherent in our agent-based network, and we look forward to supporting other strategic operating partners when they are ready to begin their transition from an agency to company-owned location.
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 (SVP & 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 31, 2023. For the three months ended December 31, 2023, we reported net income attributable to Radiant Logistics of $985,000 on $201 million of revenues, or $0.02 per basic and fully diluted share. 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. This represents a decrease of approximately $3,851,000 of net income over the comparable prior year period, or 79.6%.
For Adjusted Net Income, we reported $5,496,000 for the three months ended December 31, 2023, compared to Adjusted Net Income of $11,142,000 for the three months ended December 31, 2022. This represents a decrease of approximately $5,646,000, or approximately 50.7%. For Adjusted EBITDA, we reported $7,708,000 for the three months ended December 31, 2023, compared to Adjusted EBITDA of $16,203,000 for the three months ended December 31, 2022. This represents a decrease of approximately $8,495,000, or approximately 52.4%. Moving along to the six-month results.
For the six months ended December 31, 2023, we reported net income attributable to Radiant Logistics of $3,607,000 on $411.9 million of revenues, or 8 cents per basic and 7 cents per fully diluted share. 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 27 cents per basic and fully diluted share. This represents a decrease of approximately $9,662,000 over the comparable prior year period, or 72.8%.
For Adjusted Net Income, we reported $12,046,000 for the six months ended December 31, 2023, compared to Adjusted Net Income of $24,621,000 for the six months ended December 31, 2022. This represents a decrease of approximately $12,575,000, or approximately 51.1%. For Adjusted EBITDA, we reported $16,873,000 for the six months ended December 31, 2023, compared to Adjusted EBITDA of $34,871,000 for the six months ended December 31, 2022. This represents a decrease of approximately $17,998,000, or approximately 51.6%. With that, I will turn the call back over to our moderator to facilitate any Q&A from our callers.
Operator (participant)
Thank you. At this time, we will be conducting our question and answer session. If you would like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Thank you. Our first question is coming from Jason Seidl with TD Cowen. Your line is live.
Jason Seidl (Managing Director, Industrials - Airfreight & Surface Transportation)
Thank you, operator. Good afternoon, Bohn and Todd. A couple questions from me, guys. If I stick on the acquisitions, can you talk us through sort of what to expect from an EBITDA basis? And is there going to be any ramp-up cost to the outside private company that you onboarded, at least for the current quarter?
Bohn Crain (Founder, Chairman & CEO)
Thanks, Jason. So this is Bohn.
Jason Seidl (Managing Director, Industrials - Airfreight & Surface Transportation)
Hi, Bohn.
Bohn Crain (Founder, Chairman & CEO)
To answer the question, I guess a couple of different ways. You know, we've historically talked about kind of the inherent agent stations that at some point in time along the continuum are likely to seek their exit strategies. And the rate at which that is occurring, we expect to continue to accelerate just based upon the demographics of our agent network.
Jason Seidl (Managing Director, Industrials - Airfreight & Surface Transportation)
Right.
Bohn Crain (Founder, Chairman & CEO)
They can vary in size from, you know, just, you know, painting with a broad brush, anywhere from $0.5 million to $2 million of incremental EBITDA to the bottom line, would kind of be the typical profile. As a reminder to maybe some folks that aren't as familiar with the mechanics, our agent stations, you know, when we buy an agent station, that ultimately manifests itself as margin expansion, defined as EBITDA divided by gross margin. So when we convert an existing agent station to a company-owned store, our revenues don't increase, our gross margins really don't increase. It's just that the agent station commissions get eliminated, and we onboard their local labor and SG&A costs, and that difference is effectively the profitability of that business that we have onboarded.
So there's really no incremental cost per se, in terms of onboarding the acquisition. And a little bit to the contrary, and we've talked about this in some of our calls in the past. You know, in the early days, when we were acquiring other agent-based networks, there was redundant back office infrastructure costs that we were able to capture, and so that was the cost synergy. We have a similar but slightly different opportunity at the node level of the network. As we acquire in our agent stations, there'll be redundant costs, you know, to facilities as an example of various facilities.
So there should be some incremental cost synergies available to us at the node level of the network, as we continue to kind of make good on our brand promise and supporting our agent stations on their exit strategies, over time. And, you know, you know, we're not going to do one of these a month, but it wouldn't surprise me that if we were to do one a quarter type thing, you know, here over the next year or so, just as our network folks are kind of approaching the point where they're ready to ring the bell, and we're here to support them in that process as that occurs.
Jason Seidl (Managing Director, Industrials - Airfreight & Surface Transportation)
That makes sense. I'm sorry, I thought before that one was an agent and one was not. Bohn, when you take a step back and you look at the broader market on the forwarding side, you know, a lot's been going on, both from the macro and geopolitical side. You know, how is that impacting results, or how do you see that impacting results here in the current quarter?
Bohn Crain (Founder, Chairman & CEO)
Well, it's certainly slowed down, I think, for everyone. You know, I think the general narrative is, you know, it was obviously slow through December. You know, I think it'll continue to be slow relatively through the March quarter, and then, you know, I'm optimistic that we'll start to see, you know, certainly sequential improvement, you know, after that, as we kind of find our way back to some sense of normalcy. But, you know, we've got, you know, and as you alluded to, any number of kind of political or kind of geopolitical things going on, you know, and kind of interest rates and all kind...
You know, there's any number of kind of headwinds, but I think we're, you know, I would like to think and believe we've kind of have seen the worst of it, and and I'm, you know, I'm pretty hopeful for improvement on the back half of the year. And for us, kind of individually, you know, I count us as fortunate to be where we are in terms of debt-free, cash on the balance sheet. So kind of net-net, you know, we're intending to just continue to execute our core strategy right through the storm, so to speak. And, you know, through the combination of kind of these tuck-in acquisitions, conversions, and stock buybacks.
Jason Seidl (Managing Director, Industrials - Airfreight & Surface Transportation)
Okay, appreciate that color. One quick thing, maybe, Todd, this is for you. Just to, you know, good to see you guys buying back stock. Looks like you did it under $6. You know, at current levels, should we expect you to continue to support shares going forward?
Todd Macomber (SVP & CFO)
Yes.
Jason Seidl (Managing Director, Industrials - Airfreight & Surface Transportation)
Love the clarification. Gentlemen, thanks for the time, as always.
Todd Macomber (SVP & CFO)
You bet. Thank you.
Operator (participant)
Thank you. Our next question is coming from Mark Argento with Lake Street Capital. Your line is live.
Mark Argento (Co-Founder, Head of Institutional Equities and Senior Research Analyst)
Hey, Bohn, hey, Todd. Just quickly, just following up on kind of the M&A scenario or conversation, I should say. You know, maybe could you just walk us through how many, you know, agent stations you have out there? What's realistic over time, the opportunity to buy those? And I know you mentioned kind of one a quarter, but, you know, what, you know, over time, how do you envision this playing out? And does that pace continue to accelerate, I'm guessing, from here on out? And can you deploy enough capital there that you don't really need to look at anything outside of the core agent station market at this point? Maybe just walk us through kind of how you envision that playing out.
Bohn Crain (Founder, Chairman & CEO)
Yeah. Well, I think we have to begin with kind of recognizing or acknowledging we're here to support our agent stations on the timeline or timeframe that suits them. So, you know, we kind of stand ready to support our partners, but we're not out twisting their arms, trying to compel them to sell. So it will ultimately depend on when they're ready, and we'll be here to support them, right? With that said, you know, none of us are getting any younger, right? And so we have to kind of back to the demographics, folks are just naturally, you know, coming to a point where they're, you know, deciding to, to kind of raise their hand and kind of move forward with some of those conversations. So we have, you know, roughly 80 agent stations in the network.
So there's a, you know, there's a big, I guess, in banker terms, addressable market, right, of stations within our network that we can support over time. It's hard to say kind of when exactly those would happen, but my sense is kind of the rate and frequency at which that happens will, you know, continue. I mean, it won't accelerate infinitely, but, you know, I wouldn't expect us to do more than one a quarter, but that kind of feels, you know, kind of where we are right now in terms of, you know. What I could tell you kind of anecdotally is, you know, we're actively talking to more of our stations now than we ever have in the history of the company.
I think it just comes back to the demographics of things.
Mark Argento (Co-Founder, Head of Institutional Equities and Senior Research Analyst)
That's helpful. And just also maybe just remind us, and if it's changed at all, but the typical structure in terms of, you know, part up front and then the rest then kind of an earn out as they hit their bogeys in terms of performance post-acquisition.
Todd Macomber (SVP & CFO)
Yeah. Yeah, typically 50% upfront, and then we'll do typically a three-year earn out with obviously the targets, the EBITDA targets.
Mark Argento (Co-Founder, Head of Institutional Equities and Senior Research Analyst)
Great. That's it for me. Thanks, guys.
Todd Macomber (SVP & CFO)
You bet.
Operator (participant)
... Thank you. Our next question is coming from Kevin Gainey with Thompson Davis. Your line is live.
Kevin Gainey (Senior Research Analyst)
Hey, Bohn and Todd. Actually, to kind of continue the M&A kind of piece, for agencies, do you guys have maybe, like, a quantifiable EBITDA contribution that if you went and acquired, theoretically all of those guys, what it would add up to?
Bohn Crain (Founder, Chairman & CEO)
not off the top of our he-
Todd Macomber (SVP & CFO)
Yeah.
Bohn Crain (Founder, Chairman & CEO)
Off the top of our head, no. At least not, nothing that we're prepared to disclose or kind of talk about on the call today.
Kevin Gainey (Senior Research Analyst)
Yeah.
Bohn Crain (Founder, Chairman & CEO)
But I'll take that as a homework assignment, and maybe that's something we can work into some future disclosures, and then we would be in a better position to talk about it on this call.
Kevin Gainey (Senior Research Analyst)
Yeah, I just want the size of the opportunity for you guys from that standpoint, you know?
Todd Macomber (SVP & CFO)
We just don't know what their operating costs are, right? We know what their gross margins are, but we don't know what their operating costs are. We don't... You know, they're not going to, you know, share that with us until we get in a position to where we're looking at the acquisition. So part of it's known, but not the complete picture.
Bohn Crain (Founder, Chairman & CEO)
Yeah, but at least a place to begin to dimensionalize that is you can look on the face of our income statement at that line item of operating partner commissions, right? That's our single biggest cost, right? And as we buy in the agent stations, that cost would go away as we convert them to agent stations. And then that will manifest itself as margin expansion, right? EBITDA is a function of gross margin. There's our non-answer answer to you.
Kevin Gainey (Senior Research Analyst)
No, that works. Also, maybe if we can talk about how you're thinking about the second calendar, second half, what conditions or factors would you think would lead to that pickup?
Bohn Crain (Founder, Chairman & CEO)
Greater consumer confidence, you know, is part of it, right? You know, I think generically, we're starting to see, you know, ocean volume start to pick up, pricing start to pick up a little bit. So that's encouraging, not just for the ocean piece, but for the inland piece and just kind of supply and demand dynamics for the inland transportation side of things. That you know, hopefully that'll continue to improve and kind of the geopolitical stuff will settle down. But again, that kind of remains to be seen.
But, you know, we need, you know, a little better balance between, you know, shipper demand and transportation capacity, and some of the weaker hands are, you know, being forced out, whether it's Yellow or others, you know, that's helping the market rationalize at the end of the day, in the what I guess, what they call constructive destruction that's going on in the market.
Kevin Gainey (Senior Research Analyst)
I appreciate the insight. That's all.
Bohn Crain (Founder, Chairman & CEO)
All right.
Todd Macomber (SVP & CFO)
Thank you.
Operator (participant)
Thank you. Once again, if there are any remaining questions and comments, please press star one on your phone at this time. Our next question is coming from Jeff Kaufman with Vertical Research Partners. Your line is live.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Thank you very much. Good afternoon, guys.
Bohn Crain (Founder, Chairman & CEO)
Hey.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Hey, you know, it's strange, as I sit here and kind of listen to all these earnings calls and everybody's forward outlook, I think the consistent theme is we feel we're getting close, but the fog's a little thicker, and visibility isn't that great right now. Would you disagree with that comment?
Bohn Crain (Founder, Chairman & CEO)
No.
Todd Macomber (SVP & CFO)
I think that's very fair.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
So when you talk about, you know, we feel like things could be turning, is it more just, well, we know the inventory destock's done, we see trade starting to flow, ISM's getting better, or are you actually seeing things maybe in, in some sub-industries or some parts of your network that lead you to believe that, you know, we could be bottoming on the curve here?
Bohn Crain (Founder, Chairman & CEO)
Well, you know, we're seeing some, you know, early indications of things improving on the ocean, kind of on the ocean side in particular.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Mm-hmm.
Bohn Crain (Founder, Chairman & CEO)
So that's hopeful. You know, I would say intermodal and truck brokerage is still probably the toughest area, at least for us, and kind of good news, bad news, it's kind of the smallest piece of our business. But that's been certainly a tough go in this environment. You know, again, at a high level, our core forwarding business continues to do reasonably well. Canada continues to do reasonably well. And international ocean is starting to improve, you know, modestly. You know, it was, you know, slow going in late November and December and early January, you know, as we're watching kind of weekly postings in February, you know, things are starting to kind of lift off of those lowest levels. And so hopefully that, you know, and there's obviously some seasonality in that that we would expect.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Mm-hmm.
Bohn Crain (Founder, Chairman & CEO)
So none of that's like revolutionary, right? That's kind of what we would generally expect. But, you know, I think that's kind of the dynamics. So, you know, I don't have any kind of hard evidence to offer into the courtroom today, but, but you know, it, it-
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
There were other things in the courtroom today.
Bohn Crain (Founder, Chairman & CEO)
Yeah. Yeah, exactly.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
So just following up on that, we are starting to see a little bit of a shift from goods coming into the East Coast to goods going into the West Coast. And, you know, some of that's Suez, some of that's Panama Canal, some of it's a whole bunch of other things. Do you care which coast it comes in on? I mean, I know you've got nationwide operations, but is traffic coming in on the West Coast different for you than traffic coming in on the East Coast?
Bohn Crain (Founder, Chairman & CEO)
Historically, we've had much more significant trade flow in the Transpacific trade lane.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Mm-hmm.
Bohn Crain (Founder, Chairman & CEO)
We've got more exposure to Transpacific and Transatlantic. Not that we don't do both, but we certainly have a bigger exposure on the Transpacific side. So I think as we see those trade flows improve for any number of reasons, I think that'll be a net positive for us.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Okay, and then one last oddball question here. Just kind of given the news coming out of the Supreme Court today. What happened to your business the last time President Trump was in power, and we had these tariffs on Chinese goods? Is that anything that affects you positively or negatively? Do the goods still flow, but just a different way, or does that negatively affect some of that Transpac business for you?
Bohn Crain (Founder, Chairman & CEO)
Well, I think that the short answer is, the more complicated global trade gets, the more value we can provide our customers.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Mm-hmm.
Bohn Crain (Founder, Chairman & CEO)
So, you know, tariffs and those types of things could kind of impact some of that stuff, but that doesn't mean trade stops happening, right? So things might flow a little differently, but, you know, we're not... And there certainly can be individual commodities that get impacted. So it's really just kind of the facts and circumstances to know kind of what specific tariffs, you know, are being impacted. And if that's kind of-
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Mm-hmm.
Bohn Crain (Founder, Chairman & CEO)
I'm thinking of you sunk my battleship, right? You know, B 47, right? If it happens to-
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
Right
Bohn Crain (Founder, Chairman & CEO)
... you know, hit a particular commodity that we're servicing, that, you know, then we could be impacted. But it could be, you know, but in the same breath, it could just as easily be, you know, helping come up with alternative solutions or alternative sourcing strategies that create incremental opportunities as well, so.
Jeff Kauffman (Partner and Transportation & Logistics Equity Research Analyst)
All right. Awesome. Well, thank you, both very much, and congratulations.
Bohn Crain (Founder, Chairman & CEO)
Thank you.
Todd Macomber (SVP & CFO)
All right. Thank you.
Operator (participant)
Thank you. As we currently have no further questions in queue, I will hand the call back over to Mr. Crain for any closing comments.
Bohn Crain (Founder, Chairman & CEO)
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, extensive global network of service partners, as we 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-in acquisitions, and stock buybacks. Through this multipronged approach of organic growth, acquisitions, and 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.
Operator (participant)
Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.