Radiant Logistics Q3 2023 Earnings Call Transcript

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May 10, 2023

There are 8 speakers on the call.

Operator

This afternoon, Bon Crane, 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 3rd fiscal quarter ended March 31, 2023. 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.

Operator

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 making statements. Such factors include those that have been in the past and may be in the future identified in the company's SEC filings and other public announcements, which are available on the Radient 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 Radient's Founder and CEO, Over to you.

Speaker 1

Thank you. Good afternoon, everyone, and thank you for joining in on today's call. Let me start by saying it's never dull in freight forwarding. The volatility that we've seen in the market as we've come through the pandemic is unprecedented. As you can see from the release, our results for the March quarter were heavily impacted by the rapid softening of the freight markets that has occurred in recent months.

Speaker 1

These quickly evolving market conditions have negatively impacted not only our results, but also the year over year comparison to our record results from the prior year period. While our core domestic forwarding services have been relatively Some of our smaller service lines including ocean imports and intermodal and truck brokerage operations have been particularly hard hit as a result of the dramatic fall off from the robust operating environment that we experienced last year. The confluence of shippers continuing to manage through elevated inventories, reduce imports and a slowing economic environment is having a cascading effect across virtually every mode of transportation, where the balance of supply and demand has shifted from a tight market a year ago to one that is now oversupplied. We do believe we are at or near the bottom of the cycle and would expect markets to begin to find their way to more sustainable and normalized levels over the balance of calendar 2023. While our comparative year over year numbers are down significantly from the historically strong freight market created by the pandemic and associated supply chain disruptions, our results for the quarter ended March continued to trend meaningfully ahead of our historical financial results from the pre pandemic era.

Speaker 1

I view the fact that we generated over $11,000,000 in adjusted EBITDA in our historically slowest seasonal quarter and what everyone recognizes is a very difficult market environment as a very positive indicator for Radient and our prospects as we come through this cycle. It is worth noting that we are in the strongest financial position in the history of the company And having generated over $76,000,000 in cash from operations through the 9 months ended March 31, we remain virtually debt free and continue to make good progress with our stock buyback having acquired $5,000,000 of stock through the 9 months ended March 31 and another $4,200,000 of our stock between March 31 May 5. Our disciplined approach to capital allocation and low leverage continues to serve us well and we believe we are well positioned to navigate through the slower period as shippers work through their remaining excess inventories and we find our way back to more normalized market conditions. Looking ahead, we also expect to continue our balanced approach to capital allocation through a combination of agent station conversions, synergistic tuck in acquisitions and stock buybacks. Through this approach, along with our organic growth initiatives, we will continue to scale our business leveraging our best in class technology and 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.

Speaker 1

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 Q

Speaker 2

and A. Thanks, Vaughn, and good afternoon, everyone. Today, we will be discussing our financial results, including adjusted net income and adjusted EBITDA for the 3 9 months ended March 31, 2023. For the 3 months ended March 31, 2023, we reported net income attributable to Radient Logistics of $4,183,000 on $244,200,000 of revenues or $0.09 per basic and $0.08 per fully diluted share for the 3 months ended March 31. For the 3 months ended March 31, 2022, we reported net income attributable to Radient Logistics of $13,567,000 on $441,300,000 of revenues or $0.27 per basic and fully diluted share.

Speaker 2

This represents a decrease of approximately $9,384,000 of net income over the comparable prior year period were 69.2%. For adjusted net income, we reported $8,222,000 for the 3 months ended March 31, 2023 compared to adjusted net income of $16,056,000 for the 3 months ended March 31, 2022. This represents a decrease of approximately $7,834,000 or approximately 48.8%. For adjusted EBITDA, we reported $11,560,000 for the 3 months ended March 31, 2023 compared to adjusted EBITDA of $22,573,000 for the 3 months ended March 31, 2022. This represents a decrease of approximately $11,013,000 or approximately 40.8%.

Speaker 2

Moving along to the 9 month results. For the 9 months ended March 31, 2023, we reported net income attributable to Radient Logistics $17,452,000 on $853,300,000 of revenues or $0.36 per basic and $0.35 for fully diluted share. For the 3 months ended March 31, 2022, we reported net income attributable to Radient Logistics of $27,715,000 on $1,080,000,000 of revenues or $0.55 per basic and fully diluted share. This represents a decrease of approximately $10,263,000 over the comparable prior year period or 37%. For adjusted net income, we reported $32,845,000 for the 9 months ended March 31, 2023, compared to adjusted net income of $39,057,000 for the 9 months ended March 31, 2022.

Speaker 2

This represents a decrease of approximately $6,212,000 or approximately 15.9%. Adjusted EBITDA, we reported $46,434,000 for the 9 months ended March 31, in 2023 compared to adjusted EBITDA of $54,534,000 for the 9 months ended March 31, 2022. This represents a decrease of approximately $8,100,000 or approximately 14.9%. With that, I will turn the call back over to our moderator to facilitate any Q and A from our callers.

Operator

Thank you very much. At this time, we're going to open the floor up for questions. A confirmation tone will indicate your line is in the queue. Thank you. Your first question is coming from Jacob Stephen from Lake Street Capital.

Operator

Jacob, your line is live.

Speaker 3

Hey, Jacob, it's on for Mark today. Thanks for taking my question. So maybe I just want to kind of hone in on kind of your visibility into this path to normalization. How much Visibility do you guys have and maybe what does that look like as we enter into your fiscal 2024?

Speaker 1

I'm sorry, Jacob. One more time as we look into what I'm not sure I caught your question. Yes. Sorry, just as

Speaker 3

we look into your next fiscal year here, crossing into June and the September quarters, What does that path to normalization kind of look like?

Speaker 1

I think as we kind of alluded to on our last call, The pendulum swings, right? So obviously, we had a particularly robust Fiscal year end this prior year doing over $80,000,000 in EBITDA. And I think the pendulum has swung back kind of the other way Disproportionately as we work through inventories and the slowing economy and all those things that we're all relatively familiar with at this point. So to kind of I guess get to the thrust of your question and kind of how we frame this on the last call is we're all trying to kind of figure out what the new normal looks like and kind of what that means for us and the economy more broadly. But we think of the Kind of the normalized run rate of our business to be in the $50,000,000 to $60,000,000 range.

Speaker 1

Okay. As we come to this kind of our own view of normal, would be at a $50,000,000 to $60,000,000 run

Speaker 3

Okay. That's helpful. Thank you. Maybe just kind of looking at The M and A environment overall, have you guys seen your pipeline fill up with potential M and A targets? Or are you guys kind of taking a wait and see approach as you kind of just discussed as you find out kind of what the new normal is?

Speaker 1

I'm just wondering if you're asking. We're always actively looking, just trying to find deals that make sense. And in a lot of respects, our kind of view of the opportunity set hasn't changed. We think that there's a what we sometimes describe as a built in Pipeline of potential tuck in acquisitions as we support our existing agency stations and their exit strategies when and if they're ready. We call those agent station conversions.

Speaker 1

So there's no integration risk. They're already on our system. For those that have been around our story for a while, appreciate the idea of the aging of our Agent station owners and then ultimately approaching a point in their own lives and sets of priorities where they seek their exit strategies. We're here to support them when they do that. No one's getting any younger.

Speaker 1

We think the rate at which those things will occur over time will continue to accelerate. That will manifest itself in terms of as in the form of margin expansion, expressed as EBITDA as a function of gross margin. So that's kind of one thematic. At the same time, we continue to look for other standalone tuck in type acquisitions that would be synergistic to us. Those could be in our core forwarding business, that could be in our brokerage intermodal business or it could be in our Canadian supported by our Canadian platform.

Speaker 1

We have Three platforms from which to support acquisitions and then ultimately buybacks. Our stock continues to trade that what we view to be kind of below fair value rates. And So as we think about capital allocation, we'll continue to look at the acquisition opportunity set Relative to just taking our money and buying back our own stock at this point, I'm not aware Any other plus or minus $60,000,000 EBITDA run rate non asset base 3PLs That you can buy at plus or minus a 6 times multiple with no integration risk. So we View it as a very attractive use and in many cases highest and best use of our capital. That's why you've seen us Kind of accelerate the rate at which we're doing that about $5,000,000 a quarter as what we've done most recently.

Speaker 1

And I think people should expect kind of more of that as we go, while we continue to look for acquisitions. So again, as we've described before, kind of the baseline scenario is Taking half of our free cash flow and using it for stock buybacks and the other half of our free cash flow to support our acquisition strategy. And of course, there won't be that precisely on an individual quarter basis, but in the aggregate, that's kind of the underlying thematic on how we're approaching the market. And then if we see something larger and more interesting that would cause us To deviate from that, obviously we'll look at it, but that's kind of our baseline scenario that we're kind The lens to which we're looking to do everything.

Speaker 3

Okay. Yes, certainly nice to see you guys active on the buyback, but Thanks for the color. I'll hop back in the queue.

Operator

Thank you very much. Your next question is coming from Elliot Lapar of TD Cowen. Elliot, your line is live.

Speaker 4

Great. Thank you. I want to start on freight forwarding. I know you touched on it briefly in the prepared remarks, but if you could talk about a little bit between the difference in the domestic and international businesses in the quarter?

Speaker 1

Yes, sure. So a couple of different aspects of that. So And to kind of reemphasize it, our core business, the kind of the heart and soul of our business is domestic forwarding, Time definite expedited forwarding across North America. And as we look at kind of the relative Service line or look at our various service lines and their relative performance. Our core business has actually proven to be the most durable at least At this point through the cycle.

Speaker 1

But as we come back to forwarding more broadly, then we're looking at domestic forwarding, which we just described as our core business as well as international forwarding, which we do several $100,000,000 worth of that business, but that is the business that has been more sensitive to this Economic cycle and Ocean in particular on a comparative basis. And I'm going to Divert here just for a second. Historically, Ocean was the smallest Service line within our business if you looked at kind of relative contribution. It was really only through The pandemic and COVID and all the supply chain disruptions and everything that happened at the ports and all of the challenges that came out of that is where we had this pop for lack of a better term that took place in and around Ocean Services over An 18 month period. So we had a nice Opportunity set within what was going in the market that we were able to participate in significantly.

Speaker 1

And so we were happy to have that opportunity and through that process generated significant cash flows, delevered the business And it really set us up in the strongest position the company's ever been in kind of from a balance sheet standpoint and all of those types of parameters. So are our numbers down Kind of on a comparative year over year basis, yes, and they're down significantly. The numbers show that. But if you put it in context, our March numbers are meaningfully higher for this quarter ended March than they were for the quarter ended March of 2019, which was the last pre pandemic March quarter we have to look at. So we're trending well ahead of where we were historically for the March quarter.

Speaker 1

And in this Interim anomalous period, we generated a significant amount of cash flow that we were able to But to good use in delevering the business and buying back our stock.

Speaker 4

That's helpful. I guess maybe just following up on the international side, I guess are you seeing anything noteworthy or any color on kind of the China reopening side?

Speaker 1

I think it is we are I guess I'll use a banking term out here sometime green shoots, Right. I think we're seeing some green shoots. We're optimistic, but I think we certainly have a ways to go as well. So we are, I think cautiously optimistic, but we're certainly not going to return to the Last year's levels in terms of ocean and rates and all of those types of things, but we are optimistic that it will return to a more normalized environment, If not this calendar year, next calendar year, but I think we'll be working in the right direction. It's just The rate at which we achieved that recovery.

Speaker 4

Okay, great. Thank you. Appreciate it.

Operator

Thank you very much. Your next question is coming from Mr. Jeff Kauffman from Vertical Research Partners. Jeff, Your line is live.

Speaker 5

Thank you very much. Hey, Bon. Hey, Todd. How are you? Good.

Speaker 1

Thank you. Good. Thanks.

Speaker 5

Well, first of all, congratulations on the challenging operating environment. I want to ask 2 questions, if I can. 1, kind of general market and 1 a little more Financial specific for Todd. Vaughn, I'm just kind of curious, we all talk about normalization and kind of where we're going back to and nobody's really sure. But I'm just kind of curious your view, as the floodwaters are receding here and we're going back to some semblance of normality, I'm just kind of curious how the coastline looks different to you, whether it's industry specific or product specific.

Speaker 5

What's Different on the other side of normalization now from where we started?

Speaker 1

Well, that will be interesting to see. I mean, I think there's certainly a higher sensitivity to Asia sourcing strategies, there's a lot of talk and narrative around near shoring more business and Potentially in and out of Mexico. But assuming all those things are true and assuming even everybody wants to go execute those Strategies, it's not going to be binary. It's not going to be a flip of the switch that even those strategies are going to take a long time to evolve. And even if people want to diversify, I don't think that means they're going to leave Asia.

Speaker 1

That seems pretty extreme. Maybe some shippers will, but on an aggregate basis, I just don't think that's reality of how things will play out. But that's certainly an area of interest, right, to kind of watch that happen or kind of see How quickly and deeply there's a return, whether the action follows the narrative, Right. Whether we're going to see more manufacturing return to the states, obviously that would be a big a positive for us, I think, in terms of our that would really be kind of in our sweet spot in terms of our domestic forwarding business. So I think that would all be a positive For us to the extent those types of dynamics unfolded.

Speaker 2

Okay. And then more of

Speaker 5

a detailed question for Todd. This was one of those rare quarters where earnings look great and EBITDA looked a little light relative to what we were hoping for. And the source of it was the D and A part Which was a couple of $1,000,000 less than the run rate you'd had in the previous couple of quarters. Could you talk a little bit about that?

Speaker 1

Sure, sure.

Speaker 2

Basically it was trademark names that we ended up writing off. We've been converting Stations from their previous Clipper, it was wheels. As we bought those companies to begin with, we kept their names for a while. And as we transition them over to Radiance stores and that takes a period of time and we end up like relabeling The trailers and things like that we ended up writing up the trade names associated with that with the conversion to Radiance stores to the Radient brand.

Speaker 5

And apologies, I'm just going through the release as we speak, but where would that write off have shown itself?

Speaker 2

Well, it's in the amortization. It's the amortization of the trade gains. Okay.

Speaker 1

Yes. Right, right, right. So the DNA is

Speaker 2

DNA line, exactly.

Speaker 5

Okay, I got you. All right. No, that was those were my questions. Congratulations, guys. Thank you.

Speaker 1

Well, thank you so much.

Operator

Thank you, Jeff. And the next question is coming from Mike Vermut of Newland Capital. Mike, your line is live.

Speaker 6

Hey, Todd. Hey, Yvonne. Quick question. So when we compare ourselves to 2019 versus current, How do you look at it? I guess the only way to look at it is what's your opinion of the freight market now versus 2019, 2019 wasn't a bad freight market.

Speaker 6

And anecdotally, you've heard comments that this is one of the worst freight markets currently that many can remember. So what comparable freight market would you say we're in now to get a good understanding of how we're really performing in a specific market?

Speaker 1

Yes. I don't know that I can point to another specific quarter because there's some seasonality. So I think March versus March is the right kind of framework. But I think the point that you're pulling on, Mike, is worth reemphasizing, which is, If this is our seasonally worst quarter historically, and this is everyone acknowledges A pretty rough freight market. If within that context, We're still doing $11,000,000 of EBITDA and are debt free.

Speaker 1

If this is the bad, Well, that's pretty good for Radiant in terms of where we are. So as the market improves and as the economy improves, Obviously, we see that as some opportunity to get some lift in the overall results as we continue to move forward. So I'm not sure if that's entirely responsive to your question, but I think that's the best way I can come at it.

Speaker 6

Yes, that was what I was getting up after. And then on customer wins, how is the pipeline looking right now?

Speaker 1

There are puts and takes. So we are certainly winning new customers and new larger customers, which is really great to see. At the same time, there are certainly customers, particularly in the ocean segment that when things were so when the market was so, so tight and what I'll call Some of the larger service providers out there weren't servicing their accounts and shippers were kind of seeking new service providers in the firefight to cover their loads. We picked up Some incremental customers, but it turns out they just wanted to date and not get married. So we dated while They were in the dating mood, but as the market has softened, some of those types of customers have kind of retrenched back with their historic trading partners.

Speaker 1

And as you're aware, a lot of the asset based in this market environment, a lot of the asset intensive companies have excess capacity, right? So they're kind of price takers right now and is what's keeping the pricing pressed down in this environment. Until we can get a little better supply demand balance between volumes and capacity, we're going to bounce along here. But Inevitably these things write themselves over a relatively short period of time and that's what we would expect here.

Speaker 6

Great. And then last question, do you feel like you get the sense that pricing is bottoming out here, give or take?

Speaker 1

I do. I do.

Speaker 6

Great. Well, look, relatively it's a great quarter and Great balance sheet. So looking forward to the next few quarters.

Speaker 1

All right. Thanks, Mike.

Operator

Thank you very much. Your next question is coming from Brandon Austin of Venator. Brandon, your line is live.

Speaker 7

Hey, guys. Relatively new shareholder. We haven't spoken before or we haven't spoken for several years. Can I just clarify a few things here, just sort of on the balance sheet, the double negative here, negative net debt of $17,000,000 That means Positive net cash of $17,000,000 right?

Speaker 1

Correct. So, yes, so at least for us net debt means debt less cash. So we had more cash than that.

Speaker 7

Well, that's how I read the balance sheet. I just want to make sure I wasn't missing anything. And just again, sorry to do this, just focusing on clarifying some of your comments there. I mean, we're talking about a seasonal trough quarter. And what you seem to be saying and I seem to be hearing from other people is a trough macro.

Speaker 7

To the extent that you guys were able to do $11,500,000 EBITDA and $0.17 share And adjusted net income, is it fair to say that in some future 12 month period, not very far out that you guys would be comfortable annualizing that or is there a little more macro managing to do?

Speaker 1

Well, I would say in a normalized environment, we would be annualizing at something north of that.

Speaker 7

Okay. Okay. No, I mean, look, it's great. I'm looking at $0.60 in earnings and $47,000,000 and you're saying normalized $50,000,000 to 60 in a normal environment. I think a normal environment might look a lot better than this.

Speaker 7

And just on the acquisition side, I'm not sure if we covered it here, but What's the receptivity of your targets? Like do they have unrealistic multiples? Are they saying, geez, we made a mint in the last couple of years. I'm ready to call it a day. I know people are getting older, but are people just like after how relatively easy it was for 2, 3 years?

Speaker 7

Are they sort of just don't feel like fighting the fight or

Speaker 1

Well, I think I have to go back to my pendulum analogy, right? So It was more difficult to at least for us, it was more difficult to transact In the last 12 to 18 months because everybody had peak earnings and you're leery on transacting on peak earnings knowing There's going to be some correction out there. So building consensus between buyer and sellers with what a fair Kind of run rate earnings power is, was kind of centered to any of those types of conversations. And here we are back to our pendulum again. Well, similarly, these near term Quarterly results for businesses likely aren't representative of normal outside of our own world just because of the dynamic and what's going on.

Speaker 1

So it's not necessarily These haven't necessarily been the easiest markets to transact in. With that said, I would say I'm really happy with the disciplined approach we have had and we didn't go do a lot of Acquisitions of high multiples and really leverage up our balance sheet because we would likely be having a significantly different conversation on this call Have we done that? And so at the end of the day, our Sometimes the rate at which we're doing acquisitions may not be sexy, but it's cautious and thoughtful And sitting here today, I'm really glad that we've taken the slow and steady wins the race approach.

Speaker 7

Sub 10 times earnings and 6.5 times EBITDA, I think we can be patient. Yes. Don't need to push anything to make money here hopefully.

Speaker 1

Yes. Well, I mean to your point, buying back our stock is just a great option.

Speaker 7

I already bought your stock, so everyone on this call bought your stock, so we all agree.

Speaker 1

Well, it's never too late to buy more.

Speaker 7

There you go. There you go. Thanks a lot, guys.

Speaker 1

All right. Thank you. Thanks.

Operator

Thank you, everybody. And that appears to the end of our Q and A session. I will now hand back over to Bon for any closing remarks.

Speaker 1

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 to continue to build on the great platform we've created here at Radient. 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 continue to create shareholder value. With that, I'll offer my thanks and thank you for your continued support of Radient Logistics.

Operator

Thank you, everybody. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your

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