Radiant Logistics, Inc. (NYSE:RLGT) Q2 2022 Earnings Conference Call February 14, 2022 4:30 PM ET
Company Participants
Bohn Crain – Founder & Chief Executive Officer
Todd Macomber – Chief Financial Officer
Conference Call Participants
Jason Seidl – Cowen
Jeff Kauffman – Vertical Research Partners
Mark Argento – Lake Street
Mike Vermut – Newland Capital
David Kanen – Kanen Wealth Management
Operator
This afternoon, Bohn Crain, Radiant Logistics Founder and CEO; and Radiant’s Chief Financial Officer, Todd Macomber, will discuss financial results for the company’s second fiscal quarter and six months ended December 31, 2021. 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 meanings 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 achievement to be materially different from the results or achievements expressed or implied by such forward-looking statements.
While it is possible 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 Radiant’s 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.
Bohn Crain
Thanks, Matthew. Good afternoon, everyone, and thank you for joining in on today’s call. We don’t have flowers or chocolates to offer today on Valentine’s, but we do have some very good news to share, as we continued our trend with another quarter of record financial results for the December quarter.
We posted record revenues of $332.8 million, up $114 million or 52.1%; record net revenues of $71.6 million, up $16.3 million or 29.5%; record net income attributable to Radiant of $6.9 million, up $3.1 million or 81.6%; record adjusted net income of $12.3 million, up $3.7 million or 43%; and record adjusted EBITDA of $17.3 million, up $4.8 million or 38.4%.
In addition, we also saw improvement in our adjusted EBITDA margin, which increased 140 basis points to a record 24.1%, up from 22.7% in the comparable prior year period. These results reflect the benefit of our scalable non-asset-based business model, diversity of our service offerings and our ability to quickly respond to changing market dynamics and support our customers in this capacity-constrained market.
In addition, we delivered these record results while working through the challenges presented by our previously disclosed ransomware event that occurred on December 8. Also note that these record results reflect only a one-month contribution from Navegate given the fact that we did not complete the transaction until November 30.
With offices in the Twin Cities in Chicago as well as Shanghai, the Navegate platform itself represents an exciting new opportunity for the Radiant network and the end customers that we serve.
In addition to solidifying our presence in Shanghai, Navegate also strengthens our international service offering, particularly in the areas of customs brokerage, ocean forwarding and drayage services and brings with it a proprietary technology platform to facilitate global trade management.
These new global trade management capabilities will be made available to the entire Radiant network to provide our customers with purchase order and vendor management tools that unlock SKU-level visibility from the manufacturing floor in Asia through final delivery here in the U.S.
With both the enhanced service offerings and proprietary technology, we believe we will further differentiate ourselves in the marketplace and be even better positioned to provide additional support for both current and prospective customers. In addition to progress on the acquisition front, we also continue to put capital to work in our stock buyback program and have now purchased $6.3 million in stock through the six months ended December 31, 2021.
As we previously discussed, we believe that our current share price does not accurately reflect Radiant’s intrinsic value or long-term growth prospects, and we expect to continue to deploy our capital through a combination of strategic acquisitions and stock buybacks. It is also worth pointing out that the record results that we’ve delivered over each of these last several quarters have been fueled almost exclusively by organic growth.
Looking forward, we remain optimistic about our prospects and opportunities to continue to leverage our best-in-class technology, robust North American footprint and extensive global network of service partners to continue to build on the great platform we have built here at Radiant. At the same time, we have begun to thoughtfully relever our balance sheet and through a combination of strategic acquisitions and stock buybacks, we believe we are creating meaningful intrinsic value for shareholders that has yet to be recognized in our stock price.
With that, I’ll turn it over to Todd Macomber, our CFO, to walk us through our detailed financial results, and then we’ll open it up for some Q&A.
Todd Macomber
Thanks, Bohn, and 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, 2021. For the three months ended December 31, 2021, we reported net income attributable to Radiant Logistics of $6.948 million on $332.8 million of revenues or $0.14 per basic and fully diluted share. Please note that this quarter included approximately $750,000 of expense related to the cyber event disclosed in December.
For the three months ended December 31, 2020, we reported net income attributable to Radiant Logistics of $3.812 million on $218.8 million of revenues or $0.08 per basic and $0.07 per fully diluted share. This represents an increase of approximately $3.136 million of net income over the comparable prior year period or 82.3%.
For adjusted net income, we reported $12.317 million for the three months ended December 31, 2021, compared to adjusted net income of $8.642 million for the three months ended December 31, 2020. This represents an increase of approximately $3.675 million or approximately 42. 5%.
For adjusted EBITDA, we reported $17.251 million for the three months ended December 31, 2021, compared to adjusted EBITDA of $12.531 million for the three months ended December 31, 2020. This represents an increase of approximately $4.720 million or approximately 37.7%.
Moving along to the six-month results. For the six months ended December 31, 2021, we reported net income attributable to Radiant Logistics of $14.027 million on $618.9 million of revenues or $0.28 per basic and fully diluted share. Please note, this period also included the $750,000 expense related to the cyber event disclosed in December. The six months ended December 31st, 2020, we reported net income attributable to Radiant Logistics of $6.900 million on $394.7 million of revenues or $0.14 per basic and fully diluted share. This represents an increase of approximately $7.127 million over the prior comparable year period or approximately 103.3%.
Our adjusted net income, we reported $22.879 million for the six months ended December 31st, 2021, compared to adjusted net income of $15.159 million for the six months ended December 31st, 2020. This represents an increase of approximately $7.720 million or approximately 50.9%.
For adjusted EBITDA, we reported $31.798 million for the six months ended December 31st, 2021 compared to adjusted EBITDA of $21.753 million for the six months ended December 31st, 2020. This represents an increase of approximately $10.045 million or approximately 46.2%.
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
Certainly. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Your first question is coming from Jason Seidl from Cowen. Your line is live.
Jason Seidl
Hey operator. Thank you. Bohn and Todd, congrats on a very strong quarter. I have a couple of questions. One, could you give us an update on the ransomware? Should we expect any impact here in 1Q? If so, how much?
I guess the second question I would ask is Navegate, to help us out in terms of modeling it on a quarterly basis. Is there any special seasonality we should think about? And what sort of growth levels are you looking for in 2022? And then I have a follow-up question sort of on the overall market.
Bohn Crain
Okay. So, I guess, we’ll take them one at a time here. So, first, relative to the cyber event itself, that is largely behind us now at this point in terms of any incremental cost. So, I mean there might be some straggling costs that could come, but it should be really immaterial and nowhere in the magnitude of plus or minus $750,000 that we accrued into the quarter into December. So it was a challenging time, but that is largely behind us at this point in time to the cyber event itself.
The second was Navegate. We’re still early into the process in — ourselves in terms of integration. I don’t believe we’re not expecting significant seasonality. I mean, as — I think we would expect, we would be modestly slower in the quarter ended March and then continuing to build over the calendar year, like a lot of the traditional business is. So pretty standard in that form. So I don’t think there’s anything unique we need to do in terms of modeling as it relates to seasonality. It’s a little early…
Jason Seidl
They can grow off the numbers?
Bohn Crain
I am. Particularly, it’s early days in terms of our integration, but the technology itself we’re really excited about in terms of kind of detailed PO management SKU-level tool with — particularly in today’s environment with all of the frustrated supply chains and everybody’s appetite for increased visibility to what’s happening not only on the water but on the manufacturing floor, with the global challenges as COVID and managing workforces, et cetera, there’s just a heightened interest in that type of visibility.
And while historically, we could always provide shipment level visibility, we’ve never been able to offer back to our own customer base this PO-level, SKU-level, in-transit visibility. So we think it’s going to be really powerful and kind of an incremental opportunity within our installed customer base as well as just an opportunity to go out and further differentiate ourselves in the marketplace and win new customers. So it’s — we always look for transactions that we think we can value and structure in a way that makes sense relative to our own kind of trading multiples.
And for the Navegate transaction, we certainly achieved that, but we have this real nugget that we perceive in the technology set that was embedded within the business that we’re excited to kind of bring to market in a more robust way.
Jason Seidl
It seems like it’s going to be a good one, Bohn. Wanted to — my third and final one here. You talked a little bit about organic growth. Clearly, we see the revenue side. But maybe you could parse out sort of the shipment growth that we’re seeing because there’s been a lot of positive noise on the pricing front, given just sort of the global congested supply chains and what’s going on with ocean rates and air rates and trucking rates is just across the board. So how has the organic shipment growth been for you across your different business lines?
Bohn Crain
I think, generally speaking, it’s been really positive. I mean, obviously, we’ve got increased rates. But in this environment, it’s really created an opportunity for us to open up relationships with new customers who are craving capacity. So effectively, if you have capacity, you have opportunities. So kind of the opportunity to accelerate engagement with customers and new customers around capacity has been very interesting for us. And it’s been kind of a continuing theme as we’ve continued to grow up, but just kind of the size and sophistication of the customers that we have an opportunity to serve continues to increase. And kind of back to some of the technology angles of some of these conversations, I think that’s only going to continue to increase.
Jason Seidl
And Bohn, would you put it in sort of the low single digit, mid-single digit, upper single-digit growth rates in terms of the shipments?
Bohn Crain
There’s always — that’s always a bit of a tricky question when we start thinking about mix in terms of modalities. But I think we continue to think about baseline organic growth in the — in terms of growing our gross margin dollars, which we would think of in the — conservatively the 4% to 6% range and then getting the benefit of our scalable back office and seeing an expansion on that, on the EBITDA growth, kind of getting more and more dollars to the bottom line as a function of gross margin. And so, we would think of that in kind of the 8 to 12 times target. So 4% to 6% and 8% to 12%.
Jason Seidl
8% to 12%. All right. Very helpful, Bohn. Thank you for the time as always. And again, congrats on the quarter.
Bohn Crain
Thank you.
Operator
Thank you. Your next question is coming from Jeff Kauffman from Vertical Research Partners. Your line is live.
Jeff Kauffman
Thank you very much. Congratulations.
Bohn Crain
Thank you.
Todd Macomber
Thank you.
Jeff Kauffman
So a couple of questions. A big jump in the tax rate this quarter, almost 300 basis points. So is that kind of a one-time deal? Is something different as a result of Navegate being on board? Was it related to some of the one-time items? Could you give us some guidance on taxes in the quarter and then tax rate for the year?
Todd Macomber
Yes. Tax rate for the year, I’d have to — obviously, everything — we just went through a significant exercise over the — or actually over the weekend. And the rates — I think, the rate of what we’re booking now is going to be the rate going forward. But we did — we looked at — Navegate has more — had more state income taxes than Radiant as a whole. So overall, it changed the overall mix a little bit.
Operator
Thank you. Your next question is coming from Mark Argento from Lake Street. Your line is live.
Mark Argento
Hi, guys. Congrats on a solid quarter and sorry to hear about this Minnesota state tax rates. Unfortunately, know a little much about them. But anyway, congrats on a solid quarter. Obviously, you guys are hitting your stride. I guess —
Operator
Your next question is coming from…
Bohn Crain
So we lost — we’ve just lost the last two people.
Todd Macomber
Seem like I got cut off.
Operator: [Operator Instructions] Your next question is coming from Mike Vermut from Newland Capital. Your line is live.
Mike Vermut
Hey, guys. How you’re doing?
Bohn Crain
How you’re doing, Mike.
Todd Macomber
Yeah.
Bohn Crain
Hope, he’ll call back in. Go ahead, Mike.
Mike Vermut
Thank you. So, first of all, I got to say, it’s phenomenal. When we started out with investing in Radiant years ago, you never could have believed we’d be where we are today. It’s incredible. And as all of that there, it’s amazing we’re kind of close to the same stock price, and we’re earning 5 times what we used to. So just applaud you guys on that.
Lots happened competitively, I guess, in the last few months in our sector. Some of your — one of your largest competitors — it was announced, I guess, last week that Maersk acquired Pilot. And from what I can see, they paid over 14 times EBITDA. We’re trading under six, and I think we’re at 5.5 right now, a little less.
First of all, how do you balance that when you guys look at that? And what do you see happening out there in the competitive landscape? We’re the only public, I guess, logistics company in that space, right? There’s, I guess, three or four others that are privately owned. Maersk decided to buy Pilot, paid an amazing price for them. How do you see things developing out there? What’s your take on all of this? If you give that multiple to us, we’re at $23 right now. So there’s some massive disconnect here. I’m just wondering what you’re thinking?
Bohn Crain
Well, there’s a lot of different aspects to that, right? So I guess, starting with the obvious, which is Maersk and the other ocean lines have accumulated quite a bit of cash in this environment in terms of ocean pricing. So they — I think they also acquired LF Fong, and so there’s a — they have been and they may continue to be acquisitive for all that we know. So I think consolidation will continue, so it would seem.
And in terms of ourselves, we’re trying to continue to create shareholder value, executing our strategy. We haven’t been rewarded the way that we would like to be. That creates its own frustrations and its own opportunities. So we’ve begun to do some work on the stock buyback side of things. I think we’ve spent close to $7 million this past — through the first six months of this year. So it’s tough, right? I think that’s the straight answer.
When we started this journey, I think we were trading at $0.44 a share, right, and now — share somewhere along the way. So we think we are — I believe, absolutely, we’re executing a strategy that is creating meaningful intrinsic value in the business that ultimately for, I think, a number of contributing factors hasn’t been fully reflected in our stock price.
And I think that’s part of the reality of being — at least some portion of that is part of the reality of being a smaller public transport. But even some larger public transports, I think of Echo in particular, they had done a relatively good job of positioning themselves as a technology for non-asset-based 3PL. And ultimately, they decided to go private themselves.
So it’s something that we have to continue to think about in terms of the range of options for how we continue to move forward. But at least at this point, we believe we’re — there’s still plenty of work to be done, plenty of opportunity to create shareholder value. How and when that gets unlocked remains to be seen. But we’re still busy executing our strategy and continuing to put up really exceptional results.
And hopefully, the cumulative weight of the evidence will ultimately win out, and we’ll see some appreciation in our stock price. But at the same time, they’re — it’s irrefutable. There’s lots of money on the sidelines in the private equity world, and they’re aggressively bidding on businesses. So, that’s — we’ll always be — I shouldn’t say always, but at least in this current environment, remains an option available to us should that make sense.
Mike Vermut
Excellent. I just got to say you guys are doing an unbelievable job here. Acquisition looks fantastic. The earnings look great. And going through, I guess, what you dealt with too in the quarter, we — I’ve gone back. I can’t remember a public non-asset logistics company trading at these levels with your kind of organic growth. So congratulations. And yes, eventually, it will unlock. But great job there and continue it into 2022.
Bohn Crain
Thank you.
Operator
Thank you. Your next question is coming from David Kanen from Kanen Wealth Management. Your line is live.
David Kanen
Hi, good afternoon guys. Congratulations. Great job
Bohn Crain
Thank you.
David Kanen
So, first question is what is the leverage — what’s your comfort level in terms of leverage ratio versus EBITDA?
Bohn Crain
I think probably the short answer to that is probably two and a half times is where we would think the normalized leverage ratio, what we would target. Our existing credit facilities provide for three times and can flex up to 3.25 times kind of under our existing framework. So, plus or minus and a half times would probably be how we view that.
David Kanen
So we have a lot of room. My question is, if the stock continues to trade as the previous caller called out, sub-six times, five and a half times EBITDA, are you more likely to deploy your capital in buybacks or M&A given the current marketplace with most things trading at higher multiples than where your stock is? And by the way, Navegate, great job. I’ll do those deals all day long. So, what — how do you answer that?
Bohn Crain
Yes. Well, I think we have to continue to — I think we’re going to continue to do our best to take a balanced approach. We’ll continue to be interrogating the market, looking for synergistic, compelling acquisitions that we think make sense for the network — for the shareholders and the network, et cetera. But the hurdle rate becomes in part what that looks like relative to buying in our own stock.
And so it’s something that historically we’ve done. We’ve been doing what we said we were going to do, which is take this multipronged approach and through a combination of stock buybacks and continued what will likely be smaller tuck-in acquisitions. That’s the baseline playbook in terms of how we think about capital allocation. So–
David Kanen
Okay. And then as far as the impact from the ransomware attack, you quantified it at about $750,000. My question is the adjusted number, does it add back — the adjusted EPS number, does it add back the $750, 000 or that’s–
Bohn Crain
Yes, it does. Yes. In the press release, when you get to the — I think it’s the last page, there’s kind of reconciliation that takes place, and you’ll see that 750 is an add-back in those numbers, in both adjusted EBITDA and adjusted net income.
David Kanen
Okay. And then what was the net revenue number approximately that we lost from — I mean, I’m sure I could back into it using your EBITDA margin but…
Bohn Crain
Well, you can’t really get to a net revenue impact of the number. We’re sure that there is probably some small amount of revenue lost through the process, but not a ton. And what I mean by that is we continue to service our customers through the entire process. So some shipments were deferred or kind of slow to move. But there’s — we don’t believe that there was any meaningful top line revenue lost in the scheme of our overall financials. It was just — what you’re the $750,000 is the – basically the third-party costs we incurred in kind of parachuting in the SWAT team to deal with the cyber event to sell.
David Kanen
Okay. And then what…
Bohn Crain
I should take a moment to just kind of acknowledge the resiliency of the network and all the hard work they did as we were working through that. It was pretty amazing, the effort the team put forward to ensure that we didn’t miss a beat with our customers with less-than-optimal fact pattern as we worked through the ransomware.
David Kanen
Yes. Good call-out. And then what’s impressive is the organic growth in the quarter. Could you give us a sense as to what the drivers were? Was it new customers? Was it growth within existing customers? Was it one particular vertical or just sort of just completely dispersed?
Bohn Crain
I would say it was really broad-based. The guys in Canada continue to do an extraordinary job in their bundling strategy. We saw great growth in the forwarding business, a fair amount of that coming in the ocean product line. And then Clipper itself is seeing really positive results kind of across the board within their business, with probably the temperature control business leading the way within the work that they do.
David Kanen
And Bohn, this is the first time I’ve heard you call out the statement that you did previously about there’s a lot of private equity money out there. The implication is, hey, maybe someone’s going to — is kicking your tires. Could you just comment a little bit more on that? Are you getting inbound calls?
Bohn Crain
No. I would say unequivocally, no one’s kicking our tires. I don’t want to leave anyone with that impression. I get — I certainly get asked from time to time, ‘Hey, are you in the process of selling your business, right?’ And the answer is unequivocally, no, we’re not, right? We’re very passionate about what we’re doing. And so we’re not in any kind of process considering to sell ourselves.
David Kanen
Okay. Well, good luck next quarter. Keep up the great work, and we hope you guys accelerate the buyback in the absence of accretive M&A and take advantage of this opportunity of the disrespect the market is showing to the stock. Thank you.
Bohn Crain
All right. Thanks, Dave.
Operator
Thank you [Operator Instructions] Your next question is coming from Jeff Kauffman from Vertical Research Partners. Your line is live.
Jeff Kauffman
Hey. Round two.
Bohn Crain
Hey, sorry for that. You got a — hope you’ve got a roll of quarters there to keep beating the machine.
Jeff Kauffman
Yes, I’m calling from one of those old phones, I guess. Sorry about that.
Bohn Crain
I think it might have been on our end, so I apologize.
Jeff Kauffman
It’s okay, it’s okay. All right. So a lot of questions have been asked. I’m glad no one is kicking your tires and you’re not going private tomorrow. So let me focus on some other things. A lot of businesses that have reported this quarter have been talking about how Omicron really affected their business more than anyone thought in January and even into early February.
Absenteeism was up, and it wasn’t just their businesses, but they’re customers’ businesses. I was just curious, it doesn’t sound like it was a big deal in 4Q — or I’m sorry, fiscal 2Q. You had your own other issues.
But has Omicron hit your business at all? Or has this Canadian trucker protest hit your Canadian business? And are there any oddities we should be thinking about as we’re thinking through the third quarter forecasting?
Bohn Crain
Yes. Well, it seems like it’s the kind of the recurring/non-recurring oddities, right? So all of those things you are mentioning, Omicron, the border stuff, all of that stuff is challenging everyone, right? So ultimately, it’s the folks in the trenches that are — where the proverbial rubber meets the road that are still finding a way to get it done.
So it’s not without a lot of effort. So we are being, I guess, impacted in terms of blood, sweat and tears, but everybody is answering the bell and getting it done. But not — and again, not unique to us, but I think everybody is really challenged on the labor front, through a combination of inflation and then just people being out sick and in quarantine with Omicron.
So it’s — everyone’s shorthanded and trying to carry more water than they normally would need to, waiting for folks to get back on the job as they’re kind of recovering. So it’s kind of — we’ve had a lot of absenteeism in response to Omicron.
But fortunately, again, I think, generally recognized most folks aren’t going to the hospital with Omicron. They’re — it’s like they’re out for several days, but then they’re back. And so, we’re working through it as best we can, just like everybody else out there.
Todd Macomber
Hey, Jeff, as it relates to Canada, yes, I mean, great question. We — basically, Canada has been able to kind of navigate through that. As you know, the trucking, it’s been largely shut down. But they’re able to move stuff that — where they were trucking stuff, they’ve gone rail to get it across the border. So it’s a matter of kind of tactically attacking the issue, but they’ve been able to do that so far.
Jeff Kauffman
That’s great to hear.
Todd Macomber
It certainly impacts — it’s a challenge for them for sure. Hopefully, all that is getting resolved soon. I think it’s kind of starting to lighten up is what I saw in the news. But yes, it’s ongoing for now.
Jeff Kauffman
Todd, we got cut off. I was following up your tax comment because you have mentioned things are different now with Navegate.
Todd Macomber
Jeff, we’re going to have to cut you up again, you start asking tax rate question.
Jeff Kauffman
Well, I’m just wondering, what’s the right way to think about it going forward?
Todd Macomber
Yeah. I think the rate — I mean, everything got trued up, and we went through the whole exercise this — the last few days with our tax advisers. The reality of it is, if you look at Radiant as a whole, we’re in a lot of places where we’re not having to pay state taxes because we don’t have Nexus. But when you look at Navegate, they are largely in Minnesota, and they’ve got operations in Chicago. They’ve got boots on the ground there. So they’re paying state income taxes.
So I mean, the overall rates, I mean, everything was looked at very closely. I think the rates that we have right now this quarter, barring another acquisition, the rate here is what I think is going to stay the rest of the way. So that’s the best rate that you can use right now, barring another acquisition.
Jeff Kauffman
All right. Well, since I ask about tax rate twice, I guess, I should stop. So thank you very much.
Todd Macomber
You bet.
Bohn Crain
Thanks Jeff.
Operator
Thank you. There are no further questions in the queue. I’ll now hand the conference back to our host for closing remarks. Please go ahead.
Bohn Crain
Thanks. 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 and extensive global network of service partners to continue to build on the great platform we have here at Radiant. At the same time, we’ve begun to thoughtfully relever our balance sheet and through a combination of strategic acquisitions and stock buybacks, we believe we are creating meaningful intrinsic value for our shareholders that is yet to be recognized in our stock price. Through this multi-pronged approach of organic growth, acquisition and stock 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
Thank you. Ladies and gentlemen, this concludes today’s event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
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