Radiant Logistics Q2 2024 Earnings Call Transcript

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February 8, 2024

There are 7 speakers on the call.

Operator

This afternoon, Bon Crain, Radient Logistics' Founder and CEO and Radient's Chief Financial Officer, Todd Macomber, will provide a general business update and discuss financial results for the company's 2nd fiscal quarter 6 months ended December 31, 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.

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 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 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 Radian's Founder and CEO, Bong Crane.

Operator

Sir, the floor is yours.

Speaker 1

Thank you, Ali. Good afternoon, everyone, and thank you for joining in on today's call. Our results for the quarter ended December 31, 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 twenty twenty four.

Speaker 1

Notwithstanding the tough year over year comparisons, we continue to deliver meaningfully positive results and have generated $16,900,000 in adjusted EBITDA $12,100,000 in cash from operations for the 6 months ended December 31, 2023. In addition, we continue to enjoy a strong balance sheet finishing the quarter with approximately $33,000,000 of cash on hand and nothing drawn on our $200,000,000 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 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 Delray and the Select businesses, which will combine solidify our offering in support of the cruise line industry in South Florida.

Speaker 1

We launched Radian 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 and A.

Speaker 2

Thanks, Paul, and good afternoon, everyone. Today, we will be discussing our financial results, including just net income and adjusted EBITDA for the 3 6 months ended December 31, 2023. For the 3 months ended December 31, 2023, we reported net income attributable to Radient Logistics of $985,000 on $201,100,000 of revenues or $0.02 per basic and fully diluted share. For the 3 months ended December 31, 2022, we reported net income attributable to Radian Logistics of $4,836,000 on $278,100,000 of revenues or $0.10 per basic and diluted share. This represents a decrease of approximately $3,851,000 of net income over the comparable prior year period were 79.6%.

Speaker 2

For adjusted net income, we reported $5,496,000 for the 3 months ended December 31, 2023 compared to adjusted net income of $11,142,000 for the 3 months ended December 31, 2022. This represents a decrease of approximately $5,646,000 are approximately 50.7%. For adjusted EBITDA, we reported $7,708,000 for the 3 months ended December 31, 2023 compared to adjusted EBITDA of $16,203,000 for the 3 months ended December 31, 2022. This represents a decrease of approximately $8,495,000 or approximately 52.4%. Moving along to the 6 month results.

Speaker 2

For the 6 months ended December 31, 2023, we reported net income attributable to Radient Logistics of $3,607,000 on $411,900,000 of revenues or $0.08 per basic and $0.07 per fully diluted share. For the 6 months ended December 31, 2022, we reported net income attributable to Radient Logistics of $13,269,000 on $609,100,000 of revenues or $0.27 per basic and fully diluted share. This represents a decrease of approximately $9,662,000 over the comparable prior year period were 72.8%. For adjusted net income, we reported $12,046,000 for the 6 months ended December 31, 2023 compared to adjusted net income of $24,621,000 for the 6 months ended December 31, 2022. This represents a decrease of approximately $12,575,000

Speaker 1

were approximately 51.1%.

Speaker 2

For adjusted EBITDA, we reported $16,873,000 for the 6 months ended December 31, 2023 compared to adjusted EBITDA of $34,871,000 for the 6 months ended December 31, 2022. This represents a decrease of approximately $17,998,000 are approximately 51.6%. With that, I will turn the call back over to our moderator to facilitate any Q and A for more callers.

Operator

Thank you. At this time, we will be conducting our question and answer 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.

Operator

Your line is live.

Speaker 3

Thank you, operator. Good afternoon, Bon and Todd. A couple of questions for 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.

Speaker 1

Thanks, Jason. So this is Bon. To answer the question, I guess a Couple of different ways. Historically, we've talked about kind of the inherent Agency 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 agency network and they can vary in Size from painting with a broad brush anywhere from $500,000 to $2,000,000 of incremental EBITDA to the bottom line would kind of be the typical And as a reminder to maybe some folks that aren't as familiar with the mechanics, our agency stations, When we buy in an agency station that ultimately manifests itself as Margin expression defined as EBITDA divided by gross margin.

Speaker 1

So when we convert an existing agent station to a company in store, Our revenues don't increase. Our gross margins really don't increase. It's just that the HEI station commissions get eliminated And we onboard their local level labor and SG and A cost 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, 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 agency stations, there'll be redundant cost 2 facilities as an example of various facilities.

Speaker 1

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 it wouldn't We're not going to do one of these a month, but it wouldn't surprise me that if we were to do 1 a quarter type thing 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.

Speaker 3

That makes sense. I'm sorry, I thought before that one was an agent and one was not. Bon, when you take a step back and you look at the broader market on the forwarding side, a lot's been going on both from the macro and geopolitical side. How is that impacting results or how do you see that impacting results here in the current quarter?

Speaker 1

Well, it's certainly slowed down I think for everyone. And I think the general narrative is It was obviously slow through December. I think it will continue to be slow relatively through the March quarter. And then I'm optimistic that we'll start to see certainly sequential improvement After that as we kind of find our way back to some sense of normalcy, but we've got As you alluded to, any number of kind of political or kind of geopolitical things going on and Interest rates and all there's any number of kind of headwinds, but I think we're I would like to think and believe we've kind of have seen the worst of it. And I'm pretty hopeful for improvement on the back half of the year.

Speaker 1

And for us kind of individually, 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, we're intending to just continue to execute our core strategy right through the storm, so to speak. And through the combination of kind of these tuck in acquisitions, conversions and stock buybacks.

Speaker 3

Okay. I appreciate that color. One quick thing, maybe Todd, this is for you. Just good to see you guys buying back stock. Looks like you did it under $6 At current levels, should we expect you to continue to support shares going forward?

Speaker 1

Yes.

Speaker 3

Love the clarification. Gentlemen, thanks for

Speaker 2

the time as always. You bet. Thank you.

Operator

Thank you. Our next question is coming from Mark Argento with Lake Street Capital. Your line is live.

Speaker 4

Hey, Bohn. Hey, Todd. Just quickly, just following up on kind of the M and A scenario or conversation, I should say. Maybe could you just walk us through how many agent stations you have out there? What's realistic over Time, the opportunity to buy those.

Speaker 4

And I know you mentioned kind of 1 a quarter, but what over time, how do you envision this playing out? And does that pace Side of the core agent station market at this point, maybe just walk us through kind of how you envision that point out?

Speaker 1

Yes. Well, I think we have to begin with kind of Recognizing or acknowledging we're here to support our agents' stations on the timeline or timeframe that suits them. So 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, none of us are getting any younger, Right.

Speaker 1

And so we have to come back to the demographics. Folks are just naturally coming to a point where they're deciding to kind of raise their hand and kind of move forward with some of those conversations. So we have roughly 80 agent stations in the network. So there's a 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 Continue, I mean, it will accelerate infinitely, but I wouldn't expect us to do More than 1 quarter, but that kind of feels kind of where we are right now in terms of what I could tell you kind of anecdotally is, We're actively talking to more of our stations now than we ever have in the history of the company.

Speaker 1

I think it just comes back to the demographics of things.

Speaker 4

That's helpful. And just also maybe just remind us and if it's Changes at all, but the typical structure in terms of part upfront and then the rest of them kind of earn out as they hit their bogeys in terms of performance

Speaker 2

Yes, typically 50% upfront and then we'll do typically a 3 year on With sort of obviously the targets, the EBITDA targets.

Speaker 4

Great. That's it for me. Thanks guys.

Speaker 2

You bet.

Operator

Thank you. Our next question is coming from Kevin Gainey with Thompson Davis. Your line is live.

Speaker 5

Hey, Vaughan and Todd. Actually to kind of continue the M and 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?

Speaker 1

Not off the top of our head. No. At least nothing that we're prepared to disclose or to kind of talk about on the call today. 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.

Speaker 5

Yes. I just wanted to size up the opportunity for

Speaker 1

you guys from that standpoint. We just don't know

Speaker 2

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 they're not 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.

Speaker 1

Yes. But at least a place to at least But again to at least dimensionalize that as 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 agency stations, That cost would go away as we convert them to agency stations. And then that will manifest itself as margin expansion, right?

Speaker 1

EBITDA is a function of gross margin. There's our non answer answer to your

Speaker 5

Not how 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?

Speaker 1

Greater consumer confidence It's part of it, right. I think generically, we're starting to see Ocean volumes 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 hopefully that will continue to improve and kind of the geopolitical Stuff will settle down, but again that kind of remains to be seen. So we need a little better balance between Shipper demand and transportation capacity and some of the weaker hands are Being forced out whether it's yellow or others, that's helping the market rationalize at the end of the day And the I guess what they call constructive destruction that's going on.

Speaker 5

I appreciate the insight. That's all.

Speaker 1

All right. Thank you. Thank you.

Operator

Thank you. Our next question is coming from Jeff Kauffman with Vertical Research Partners. Your line is live.

Speaker 6

Thank you very much. Good afternoon, guys. Hey, it's strange as I sit here and kind of listen to all these earnings calls and everybody's forward outlook, I The consistent theme is we feel we're getting close,

Speaker 1

but the fog is

Speaker 6

a little thicker and Visibility isn't that great right now. Would you disagree with that comment?

Speaker 1

No. I think that's very fair.

Speaker 6

So when you talk about we feel like things could be turning, is it more just Well, we know the inventory destock is done. We see trade starting to flow, ISMs getting better. Or are you actually seeing things Maybe in some sub industries or some parts of your network that leads you to believe that we could be bottoming on the curve here.

Speaker 1

We're seeing some Early indications of things improving on the ocean kind of on the ocean side in particular. So that's helpful. I would say intermodal and truck brokerage is still probably The toughest area at least for us and kind of good news, bad news is kind of the smallest piece of our business. But that's been certainly a tough go in this environment. Again, at a high level, our core forwarding business continues to do reasonably well.

Speaker 1

Canada continues to do reasonably well. And international ocean is starting to improve modestly.

Speaker 2

It was

Speaker 1

slow going in late November December early January As we're watching kind of weekly postings in February, things are starting to kind of lift off of those lowest levels. And so hopefully that and there's obviously some seasonality in that that we would expect. None of that's like Revolutionary, right? That's kind of what we would generally expect. But I think that's kind of the dynamic.

Speaker 1

So I don't have any Yes. Hard evidence to offer into the courtroom today, but

Speaker 6

There were other things in

Speaker 1

the courtroom today. Yes, exactly.

Speaker 6

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 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?

Speaker 1

Historically, we've had much more significant trade flows in the transpacific Tradeway? So we would like we've got more exposure to Transpac than Transatlantic. Not that we don't do both, but we certainly have a bigger exposure on So I think as we see those trade flows improve for any number of reasons, I think That will be a net positive for us.

Speaker 6

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?

Speaker 6

Do the goods still flow, but Just a different way or does that negatively affect some of that Transpac business for you? Well,

Speaker 1

I think that the short answer is the more complicated global trade gets, the more Value we can provide our customers. So 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 we're not. And there certainly could be individual commodities that get impacted. So it's really just kind of a facts and circumstances to know kind of what Specific tariffs are being impacted and if that's kind of I'm thinking if you sunk my battleship, right, B-forty 7, right, if it happens to Yes, a particular commodity that we're servicing that we could be impacted, but it could bid out of the same breath, it could just as easily be helping come up with alternative solutions or alternative sourcing strategies that Great incremental opportunities as well.

Speaker 6

All right. Awesome. Well, thank you both very much and congratulations.

Speaker 2

Thank you.

Speaker 5

All right. Thank you.

Operator

Thank you. As we currently have no further questions in queue, I will hand the call back over to Mr. Crane for any closing comments.

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 as we continue to build on the great platform we've created here at Radian. At the same time, we intend to thoughtfully relever our balance sheet and do a combination of Asia Station conversions, synergistic tuck in acquisitions and stock buybacks. Through this multi pronged 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 Radian Logistics.

Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time and we thank you for your participation.

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