RLGT - Radiant Logistics Inc. (RLGT) Q3 2023 Earnings Call Transcript
2023-05-10 20:01:03 ET
Radiant Logistics, Inc. (RLGT)
Q3 2023 Earnings Conference Call
May 10, 2023 4:30 PM ET
Company Participants
Bohn Crain - Founder and Chief Executive Officer
Todd Macomber - Chief Financial Officer
Conference Call Participants
Jacob Stephen - Lake Street capital
Elliot Alper - TD Cowen
Jeff Kauffman - Vertical Research Partners
Michael Vermut - Newland Capital Management
Presentation
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 Third 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. 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 been in the past and may be 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. Over to you.
Bohn Crain
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 have seen in the market as we have 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 market that has occurred in recent months. 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 durable, 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, reduced 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.
I view the fact that we generated over $11 million in adjusted EBITDA in our historically slowest seasonal quarter in what everyone recognizes as a very typical market environment as a very positive indicator for Radiant and our prospects as we come through the cycle. It is worth noting that we are in the strongest financial position in the history of the company. And having generated over $76 million in cash from operations through the nine months ended March 31, we remain virtually debt free and continue to make good progress with our stock buyback having acquired $5 million of stock through the nine months ended March 31 and another $4.2 million of our stock between March 31 and 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 this 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.
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&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 three and nine months ended March 31, 2023. For the three months ended March 31, 2023, we reported net income attributable to Radiant Logistics of $4,183,000 on $244.2 million of revenues or $0.09 per basic and $0.08 per fully diluted share for the three months ended March 31.
For the three months ended March 31, 2022 we reported net income attributable to Radiant Logistics of $13,567,000 on $441.3 million of revenues or $0.27 per basic and fully diluted share. This represents a decrease of approximately $9,384,000 of net income over the comparable prior year period, or 69.2%.
Our adjusted net income we reported $8,222,000 for the three months ended March 31, 2023, compared to adjusted net income of $16,056,000 for the three months ended March 31, 2022. This represents a decrease of approximately $7,834,000 or approximately 48.8%. Adjusted EBITDA, we reported $11,560,000 for the three months ended March 31, 2023, compared to adjusted EBITDA of $22,573,000 for the three months ended March 31, 2022. This represents a decrease of approximately $11,013,000 or approximately 48.8%.
Moving along to the nine month results. For the nine months ended March 31, 2023 we reported net income attributable Radiant Logistics of $17,452,000 on $853.3 million of revenues or $0.36 per basic and $0.35 per fully diluted share. For the three months ended March 31, 2022, we reported net income attributable to Radiant Logistics of $27,715,000 on $1.08 billion 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%.
Adjusted net income were reported $32,845,000 for the nine months ended March 31, 2023 compared to adjusted net income of $39,057,000 for the nine months ended March 31, 2022. This represents a decrease of approximately $6,212,000 or approximately 15.9%.
Our adjusted EBITDA we reported $46,434,000 for the nine months ended March 31, 2023, compared to adjusted EBITDA of $54,534,000 for the nine 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&A from our callers.
Question-and-Answer Session
Operator
[Operator Instructions] Your first question is coming from Jacob Stephen from Lake Street Capital.
Jacob Stephen
Jacob is 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 '24?
Bohn Crain
I'm sorry, Jacob, one more time as we look into what? I'm not sure I caught your question.
Jacob Stephen
Yes. Sorry, just as 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?
Bohn Crain
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 million 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 framed this on the last call is, we are 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 million to $60 million range, as we come to this -- kind of our own view of normal would be at a $50 million to $60 million run rate.
Jacob Stephen
Okay. That's helpful. Thank you. Maybe just kind of looking at the M&A environment overall. Have you guys seen your pipeline fill up with potential M&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? I'm just wondering what kind of…
Bohn Crain
We're always actively looking, just trying to find deals that make sense. And a lot of respects, our kind of view of the opportunity set hasn't changed. We think that there is 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 are ready. We call those agent station conversions. So there is no integration risk. They are 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 are here to support them when they do that. No one's getting any younger.
We think the rate at which those things will occur over time, will continue to accelerate, that will manifest itself in terms 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 us, that could be in our brokerage intermodal business or it could be in our -- supported by our Canadian platform. We have three platforms from which to support acquisitions. And then ultimately, buybacks. Our stock continues to trade at 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 of any other plus or minus $60 million EBITDA run rate, non-asset based 3PLs, that you can buy it plus or minus at 6x 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 million a quarter as what we've done most recently. 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, that won't be back 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 or 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 going to -- the lens through which we're looking to everything.
Operator
Your next question is coming from Elliot Alper of TD Cowen.
Elliot Alper
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?
Bohn Crain
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 relevant 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.
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 million 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 want 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. 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 has 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 '19, 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. And in this interim anomalous period, we generated a significant amount of cash flow that we were able to put to good use and delevering the business and buying back our stock.
Elliot Alper
Now, that's helpful. Thanks for that. 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?
Bohn Crain
I think it is -- we -- I guess I'll use a banking term out here sometime, green shoots, right? I think we're seeing some green shoots where we're optimistic, but I think we certainly have 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 or next calendar year, but I think I think we'll be working in the right direction. It's just the rate at which we achieve that recovery.
Operator
Your next question is coming from Mr. Jeff Kauffman from Vertical Research Partners.
Jeff Kauffman
Well, first of all, congratulations in a challenging operating environment. I want to ask two questions, if I can. One kind of general market and one a little more financial specific for Todd. Bohn, I'm just kind of curious, we all talk about normalization and kind of where we're going back to and nobody is 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, what's different on the other side of normalization now from where we started?
Bohn Crain
Well, that'll 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 nearshoring more business and potentially in and out of Mexico. But assuming all those things are true and assuming you and 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, even though strategies are going to take a long time to evolve. And even if people want to diversify, I don't think that means they are going to leave Asia. 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 is a return, whether the action follows the narrative, right? Whether we are going to see more manufacturing return to the states? Obviously, that would be a big 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 unfolding.
Jeff Kauffman
Okay. And then more of a detailed question for Todd. This was one of those rare quarters where earnings looked great and EBITDA looked a little light relative to what we were hoping for. And the source of it was the D&A part of it, which was a couple of million dollars less than the run rate you'd had in the previous couple of quarters. Could you talk a little bit about that?
Todd Macomber
Sure. We -- basically it was trademark names that we ended up writing off. We have 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 transitioned them in over to Radiant stores, and that takes a period of time and we end up like relabeling the trailers and things like that. We end up writing up the trade names associated with that, with the conversion to Radiant stores, to the Radiant brand.
Jeff Kauffman
And apologies, I'm just going through the release as we speak, but where would that write off have shown itself?
Todd Macomber
Well, it's in the amortization. It's the amortization of the trade gains.
Jeff Kauffman
Yes. Right, right. So the D&A is less.
Todd Macomber
The D&A line exactly.
Jeff Kauffman
Okay, I got you. All right. Now that was all my questions. Congratulations, guys.
Operator
Thank you, Jeff. And the next question is coming from Mike Vermut of Newland Capital. Mike, your line is live.
Michael Vermut
Hi, Todd. Hi, Bohn. So when we compare ourselves to 2019 versus current, how do you look at -- I guess the only way to look at it is, what's your opinion of the freight market now versus '19? '19 was in the bad freight market. And anecdotally, you have heard comments that this is one of the worst rate markets currently that many can remember. So what comparable freight market would you say we are in now to get a good understanding of how we are really performing in a specific market?
Bohn Crain
Yes. I don't know that I can point to another specific quarter. Look, there is some seasonality. So I think March versus March is the right kind of framework. But I think the point that you are pulling along 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 million of EBITDA and are debt free, 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 is 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.
Michael Vermut
Yes, that was where I was getting up after. And then on customer wins, how's the pipeline looking right now?
Bohn Crain
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.
And as you're aware, a lot of the asset base get -- 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 press down in this environment.
So, until we can get a little better supply demand balance between volumes and the 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.
Michael Vermut
And then last, do you feel like you get the sense that pricing is bottoming out here, give or take?
Bohn Crain
I do. I do.
Michael Vermut
Well, look, relatively it was a great quarter and great balance sheet. So looking forward to the next few quarters.
Operator
Your next question is coming from [Brandon Austin of Veneto].
Unidentified Analyst
Relatively new shareholder, we haven't spoken before. 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 million. That means like positive net cash of $17 million, right?
Bohn Crain
Correct.
Todd Macomber
Yes. So at least for us, net debt means debt less cash, so we had more cash than that.
Unidentified Analyst
So that's how I read the balance sheet. I just wanted to make sure I wasn't missing anything. And just again, sorry to do this. Just focusing on clarifying some of your comments that I mean we're talking about a seasonal trough quarter in what you seem to be saying and I seem to be hearing from other people is a trough macro. To the extent that you guys were able to do $11.5 million EBITDA and $0.17 share in 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?
Bohn Crain
Well, I would say in a normalized environment, we would be annualizing something north of that.
Unidentified Analyst
Okay. No, I mean, like, it's great. I'm looking at $0.60 in earnings and $47 million. You're saying normalized, 50 to 60 in a normal environment. I think a normal environment might look a lot better than this. And just on the acquisition side, not sure if we've covered it here, but what's the receptivity of your targets? Like, do they have unrealistic multiples? Are they saying cheese 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 two, three years of they sort of just don't feel like fighting the fight? Or…
Bohn Crain
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 center 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. 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 it, acquisitions of high multiples, and really leverage up our balance sheet because we would likely be having a significantly different conversation on this call had we done that. And so, at the end of the day, 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,
Unidentified Analyst
Sub 10x earnings and 6.5x EBITDA I think we can be patient.
Bohn Crain
Yes.
Unidentified Analyst
Don't need to push anything to make money here, hopefully.
Bohn Crain
Yes. Well, I mean, to your point, buying back our stock is just a great option.
Unidentified Analyst
Already bought your stock. So -- everyone on this call bought your stock, so we all agree.
Bohn Crain
Well, it's never too late to buy more.
Operator
Thank you, everybody. And that appears to be end of our Q&A session. I will now hand back over to Bohn for any closing remarks.
Bohn Crain
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 have created here at Radiant. At the same time, we intend to thoughtfully re-lever 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 Radiant 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 participation.
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Radiant Logistics, Inc. (RLGT) Q3 2023 Earnings Call Transcript