Radiant Logistics, Inc.

This afternoon, Bond Crane, Radian Logistics founder and CEO, and Radian's Chief Financial Officer, Todd Makenber, will discuss financial results for the company's third fiscal quarter and nine months ended March 31, 2022. 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 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 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, Vaughn Crane.

Thanks, Michonne. Thank you. Good afternoon, everyone, and thank you for joining in on today's call. We are very pleased to continue our trend and report another quarter of record financial results for the March quarter. It was nothing short of a spectacular quarter with us reporting new records for virtually every financial metric on which we report. Revenues, net revenues, net income, adjusted net income, EBITDA, adjusted EBITDA, EBITDA margin, earnings per share, and adjusted earnings per share. All records. Our business remains quite strong across our various service offerings, with particularly strong showing this quarter in our project charter business and the first full quarterly contribution from our December 2021 acquisition of Navigate. Across the board, in our forwarding operations at both our company-owned and strategic operating partner locations, our Canadian operations, and our U.S. brokerage operations, each and every group is making a meaningful contribution to our collective success. We are particularly proud that during the corridor, the Radiant team had the opportunity to continue to assist in COVID relief efforts providing mission-critical support to move COVID test kits on behalf of the United States Department of Health and Human Services. The mission, including coordination of cargo at origin, uplift, and delivery, involved the chartering of 24 aircraft flying 85.4 million COVID test kits to the interior of the U.S. for final mile delivery and ultimate distributions. The program details included over 474,000 cartons of test kits on these 24 flights, followed by the safe and speedy transfer of the kits to over 230 53-foot trailers for delivery to strategic centers in the U.S., with the ultimate destination into the hands of the American people. In addition, we remain very excited about the opportunities made available to us through our acquisition of Navigate, In addition to solidifying our presence in Shanghai, Navigate also strengthens our international services offering, particularly in the areas of customs brokerage, ocean forwarding, and drainage services, and brings to us a robust global trade management capability. 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 global trade management 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 moving forward. I will leave the detailed financial reporting to Todd, but it is worth noting that we have now generated $55 million in adjusted EBITDA on 1.1 billion, that's with a B, billion in revenues through the first nine months of our fiscal year. This is a very exciting milestone for Radiant and a direct result of the dedication of our employees and operating partners, the diversity of our service offerings, and the durability of our scalable non-asset based business model. For the trailing 12 months into March 31 of 2022, we have now reported a record $69.5 million in adjusted EBITDA on $1.3 billion in revenues. We continue to deliver these record results with relatively modest leverage on our balance sheet with net debt of approximately $76 million on almost $70 million in trailing 12-month adjusted EBITDA. And while it is difficult to predict exactly what we should expect for next year, we do believe that Radiant's new normal is meaningfully stronger than what the market is giving us credit for, and we believe this is contributing to the current disconnect between the underlying value of our stock and our current stock price. As we previously discussed, we do not believe that our current stock price accurately reflects Radiant's intrinsic value or long-term growth prospects. particularly given our unlevered balance sheet, and therefore represents an excellent investment opportunity for both the company and our shareholders. With our stock price being non-responsive to our expanding earnings power, this disparity continues to grow. Accordingly, and in addition to our continued acquisition efforts, we expect to be active in the repurchase of our stock and take advantage of the opportunity being presented to us in this disconnect between the underlying value of our stock and our current stock price. In this regard, we renewed our stock buyback program in February of this year with authority to purchase up to 5 million shares through December of 2023. Hopefully, our continuing strong performance and strong balance sheet will begin to register with investors, and we will begin to close the valuation gap between Radiant and its peers. Quite frankly, I believe we deserve it, and we've earned it through the demonstrated durability of our business model, through the challenges of the pandemic, and our ongoing delivery of what is now four consecutive quarters of record results. With that, I'll turn it over to Todd Maycumber, our CFO, to walk us through our detailed financials, and then we'll open it up to some Q&A.

Thanks, Vaughn, and good afternoon, everyone. Today, we will be discussing our financial results. including adjusted net income, adjusted EBITDA, for the three and nine months ended March 31, 2022. For the three months ended March 31, 2022, we reported adjusted net income attributable to Radiant Logistics of $14,339,000 on $460.9 million of revenues, or $0.29 per basic and $0.28 per fully diluted share. Please note this quarter included approximately a $2 million gain related to change in fair value of the interest rate swap contracts, and more meaningfully, the quarter was approximately with $62 million of COVID-related charter business. For the three months ended March 31, 2021, we reported net income attributable to Radiant Logistics of $4,984,000 on $236.5 million of revenues or 10 cents per basic and fully diluted share. This represents an increase of approximately $9,355,000 of net income over the comparable prior year period, or 187.7%. For adjusted net income, we reported $16,828,000 for the three months ended March 31, 2022, compared to adjusted net income of $9,148,000 for the three months ended March 31, 2021. This represents an increase of approximately $7,680,000 or approximately 84%. For adjusted EBITDA, we reported $23,596,000 for the three months ended March 31, 2022 compared to adjusted EBITDA of $12,885,000 for the three months ended March 31, 2021. This represents an increase of approximately $10,711,000 for approximately 83.1%. I'd also like to call out the increase in adjusted EBITDA margin as a percentage of net revenues, something Bon and I track regularly, increasing 510 basis points from 22.7% to 27.8%. Moving along to the nine-month results, For the nine months ended March 31, 2022, we reported net income attributable to Radiant Logistics of $28,366,000 on $1,080,000 representing 57 cents per basic and 56 cents for fully diluted share. Please note this period included four months of our recent acquisition of Navigate, significant charter business captured in the current quarter, slightly offset by a million in the cyber event disclosed in December. For the nine months ended March 31, 2021, we reported net income attributable to Radiant Logistics of $11,884,000 on $631.2 million of revenues for $0.24 per basic and $0.23 per fully diluted share. This represents an increase of approximately $16,482,000 with a comparable prior year period or 138.7%. For adjusted net income, we reported $39,708,000 the nine months ended March 31, 2022, compared to adjusted net income of $24,308,000 for the nine months ended March 31, 2021. This represents an increase of approximately $15,400,000, or approximately 63.4%. For adjusted EBITDA, we reported $55,396,000 for the nine months ended March 31, 2022, compared to adjusted EBITDA of $34,640,000 for the nine months ended March 31, 2021. This represents an increase for approximately $20,756,000, or approximately 59.9%. With that, I will turn the call back over to our moderator, to facilitate any Q&A from our callers.

Ladies and gentlemen, you have reached the question and answer portion of the call. To ask a question, please press star 1 on your telephone keypad at this time. Again, that's star 1 for any questions at this time. I see our first question comes from Mark Argento from Lake Street. Mark, please go ahead.

Hey, Bon. Hey, Todd. An enormous quarter. It's really, really impressive. And I concur with your thinking about not getting credit. If you could just help us parse things a little bit. Can you give us, first again, if you could give us what the COVID-related project revenue and EBITDA contribution was in the quarter. And then remind us of the size and scope of Navigate as well. how much they contributed in the quarter, and then backing into the organic growth rate of the quarter platform.

I'll take a first crack at that. The COVID charter business, we don't take it to EBITDA, but I believe it's in the press release there. I think it was $62 million and change was the revenue for the quarter. That's in the press release. relative to Navigate. We did not break that business out separately, so I don't want to get kind of beyond the scope of the release. Yeah, but in terms of a high level, so Navigate's a Minneapolis-based company that we acquired back in December. That transaction was valued at roughly a $35 million purchase price on notionally $6 million of earnings power. We're happy to report they're outperforming or outpacing those historical results, and we're really excited to have them as part of the team moving forward. They bring to us a significant competency in ocean freight forwarding and customs brokerage a presence in Shanghai and some incremental technology that we're excited to bring back to the broader network that will provide kind of enhanced in transit visibility tools down to the PO level which will allow shippers to kind of better manage their supply chains down to the SKU level and with all the disruptions in supply chain and everything going on in Asia and around the world, you know, customers are increasingly interested in these types of tools and visibility to be more proactive in managing their supply chain.

And when you think about the disruption of supply chain and, you know, kind of the catch-up and the air freighting of components and Is there any way to quantify or when you kind of think about the growth, you know, kind of what we'll call more steady state growth, do you think you guys have benefited disproportionately, you know, from more air freighting going on given this environment? You know, maybe try to help us think about, you know, more normalized kind of run rate for the business if there's such a thing.

Yeah, I don't know that we – I appreciate the question. I would say it's been the proverbial rising tide lifts all boats, I mean, literally as well as figuratively. In terms of modality, we've had significant growth in the ocean product, notwithstanding some of the port congestion and those types of things, while also doing charters and other expedited freight as well. It's certainly a fair question, and it gets to this notion of new normal and how do we think about the ongoing run rate of the business. We don't want to go so far out onto the proverbial limb in terms of providing guidance at this point relative to upcoming quarters, but at least it's my perception that the way that people think about us and our business isn't consistent with the company that we are today. We've grown substantially, and while I think everybody expects there to be some level of softening as we move forward in a lot of these uncertainties, even in kind of a downside scenario, we're still going to be meaningfully ahead of our historical levels of performance. And I think I want to leave that conversation here for now relative to specific guidance.

Yeah, that's fair. Todd, just quickly, can you just remind us on the new, I think you guys put a new debt facility in place, what you have pulled down on it, what the balance sheet looks like right now?

Yeah, so, I mean, you know, as of the period, I think we're at $100 million. We have $40 million on the balance sheet as far as cash, and we've paid it down a lot. The net debt is $73 million as of this. We had $113.6 million, which was really the facility and the IPD loans. But to get more specific as far as facility, as of the balance sheet date, it was $103.5 million. as of March. So with the $40 million, and like I said, since then, obviously post-balance sheet, we've paid down about $40 million.

Got it. And then with the stock in broader markets, you guys aren't the only stock that's not really getting a whole lot of love, but Have you thought about committing a certain percentage of your free cash flow to the buyback or kind of taking advantage of the situation? I know you alluded to the buyback, but anything more concrete on that?

I think kind of our baseline scenario remains intact, Mark, which is people should expect us to effectively take half of our free cash flow's and have those earmarked to stock buybacks and the other half of our free cash flows targeted to tuck-in acquisitions. And then, you know, opportunistically, we may deviate off of that baseline in pursuit of one or the other. But, you know, our intention is to continue to take a balanced approach. You know, we believe we can progress both of those opportunities with stock buybacks being a meaningful opportunity. and quite viable place for us to deploy our capital.

And in terms of tuck-in acquisition size, would you consider like a Navigate? Is that a tuck-in acquisition size now, or what is tuck-in in your world today? Because you've grown quite a bit.

Yeah, that's another interesting observation, but I think you're right. Historically, we would have thought of our tuck-in acquisitions of being plus or minus $2 million of EBITDA. That's not to say we wouldn't continue to do those, and it's not to say that we won't continue to support our operating partners in their own exit strategy, but we have a lot of dry powder. at the end of the day, it's probably less about size and where we see good strategic fit and the opportunity to create shareholder value. But certainly, you know, probably, I really haven't had to think of it in these terms, you know, the size of a tuck-in acquisition, but it probably, you know, if we're at a run rate of, You know, $70 million of EBITDA, you know, that number probably gets up closer to $5 to $10 million numbers. You know, and just to kind of build on that thought a little bit more, you know, part of the notion of tuck-in is having a platform and infrastructure and management team to tuck it in and be a good steward of that organization. And we continue to build out really solid teams you know, here in Renton, in Canada, and in Chicago to support our acquisition activities. So tuck-in is not only a function of balance sheet, but also a function of the management teams that we continue to build out.

All right. Well, again, congrats. It's been fun to watch you grow this business over a number of years. I've covered you guys. Keep doing what you're doing. You'll get rewarded at some point.

Thank you.

Next on the line, we have Jeff Kaufman from Vertical Research. Jeff, please go ahead.

Thank you very much. Congratulations, guys. Quick question. Now that you have direct Shanghai exposure, can you talk about what's going on over there, how that may or may not be affecting your business this quarter versus last quarter? Now that you're doing more ocean than you used to, you have kind of a broader view of what's happening in global markets. I would just be interested in hearing how March and April were comparing to January and February.

You know, so thanks for your question, Jeff. And I'm kind of consistently interrogating my own organization with that very question. And we're still seeing good volumes. I mean, I think it's fair to say everybody's having to work a lot harder than we might have had to in different times. But freight's still moving. We're still busier than heck. And, you know, while there might be certain, you know, little pockets where, you know, customers or accounts might be approaching inventory levels and might be slowing down in their own purchases, at the end of the day, our ability to support our customers and sourcing capacity and moving freight continues. So even though we hear about these lockdowns, which are true, right, freight is still moving. And so, you know, we're working hard to get it done. And, you know, I... I think those opportunities, we don't see them diminishing in any material way for the foreseeable future.

Okay, same question for your domestic network. Is it getting easier to find capacity? Are there still challenges getting available capacity to places you need it?

I think capacity is loosening up a little bit. But in some respects, it's also shifting, right? So it's been a little softer off the West Coast, but demand has picked up in other geographies of the country. So, you know, I think on an absolute and accurate basis, we're seeing, you know, I won't say, I don't know if softness is even the right word. I think we're seeing some, and I won't even say reversion to norm, but there's, you know, there, you know, less rejections on quotes and all that stuff going on. So it's getting a little easier to get at the capacity, right? There is certainly a time where you could be on the phone all day trying to secure a single truck for an account, and folks aren't having to work quite that hard. But, you know, I think, you know, it still remains... And I guess here's another opportunity to kind of ring the bell for the non-asset-based 3PL, right? So I can't speak on behalf of how the asset-intensive businesses are doing in this environment, but as a non-asset-based 3PL, we're still very bullish about the market and the opportunities that it presents.

Thank you very much. That's my question.

All right. Thanks, Jeff.

Okay. And our last question comes from Mike Vermitt from Newman Capital. Mike, please go ahead.

Hey, guys. How are you doing? Phenomenal quarter. It's amazing being around this long and seeing what this company can do now. Just following up with something on what Jeff's saying, what are your guys saying about, you know, you have, I guess, 300, 400 million people shut in in China right now. And I know we have offices in Shanghai. What are they saying or what are they believing will happen once that starts to open up? And I assume we're going to be flooded with freight when that happens. And, you know, how do you look at that for opportunity?

Well, you know, only time will tell, I guess, but sure enough, the folks in China are just as effective at working from home as some of us here in the States are, right? So, you know, it's a combination of things. I think where it will be interesting, you know, I guess there's a couple of thematics. One, you know, there's still boats at anchor trying to be ingested in LA, so I think we're having... chance to try to kind of work some of that through but the fact is there's still a backlog and as things open back up we would you know I'm kind of anticipating a second surge to a certain extent you know what I don't have particularly good visibility into is what's happening on the manufacturing floor in Asia and what impact these shutterings are having on their ability to for production and their ability to kind of ramp back up as they're able to come back in to do their work. But I'm anticipating kind of another wave, another surge, continued disruptions, continued capacity issues, all those things that make the work we do that much more valuable in supporting our customers.

Excellent. Now, you know, getting to, you know, I've been with the company, you know, invested in the company for quite a long time. And, you know, our stock price, when you look at it now, I believe, you know, is below where we were five or six years ago. And we are consistently putting up phenomenal numbers. We're doing now about three times the EBITDA that we were when our, you know, five, six years ago when our stock was higher. So there's some massive disconnect and there comes a breaking point with management. You know, you guys are, your entire company is doing so well right now. You have such free cashflow, low leverage that you say to yourself, it's not worth being a public company anymore. Right. And you do the math, even at $10, The payback, if you borrowed 90% of that, you could pay off that debt in seven years, right? So something has to give eventually, right? If we're trading at the same spot we were six years ago and we're generating three to four times EBITDA, when does management start to say this can't sustain itself, we have to do something? I understand buying stock. Maybe you expedite the buyback. Or is there a point where let's go and try to do something strategic here because it doesn't make any sense? There's no other company in our space trading at these valuations or even close on a non-asset basis. So I'm just trying to understand where you guys are thinking it's not sustainable to remain at these valuations.

So thanks for your question. I share your frustration and your observation. You know, we continue to believe that we're creating shareholder value every day when we get up and come to work, and that kind of bears it out in our financial results, if not our stock price. You know, there's a number of things that we're, you know, will continue to do because we think, you know, kind of fundamentally they're sound and help us get where we want to go. You know, part of the, you know, you know, at its heart or part of the trade-off is ultimately financial flexibility. So if we go and meaningfully lever up our business to do a stock buyback, that will negatively impact our financial flexibility to do some other things. A great example is all this charter business that we just had the opportunity to do. Had we done a significant stock buyback in one lump sum, we would have really not been able to take that phone call and said, yes, we're here to support everything the government was trying to do around COVID relief and all those types of things. So part of this equation is financial flexibility and dry powder to take advantage or support opportunities as they present themselves whether it's project work that's going to, on a short-term basis, consume a lot of working capital, whether it's to be there to support our operating partners in their own exit strategies. These are all things that we've got to keep on our peripheral vision as we think about capital allocation. We're not thinking around taking the company private, which I think is kind of at the, was at the heart of your question. You know, I think we are, you know, believe we're creating long-term value. I, and I think management team has a long-term view or horizon around what that looks like. And we're happy to continue to, you know, create shareholder value, take a balanced approach in terms of capital allocation and, and, to the extent this disconnect is going to continue to exist, you know, we'll likely do more than less of the stock buyback while trying to preserve our financial flexibility to, you know, also grow the business strategically in terms of acquisition and incremental capabilities and the like.

Excellent. Yeah, look, I was really saying it in management is creating all the value for the company and it's not being – rewarded in the marketplace. This disconnect is unsustainable at some point in time. That's all I'm saying is that you are creating the value. It's just not being recognized. There are opportunities out there. Accelerating the buyback is one of them if it stays at these levels for sure.

One of the things that we've talked about before is this notion of that our stock price seems to kind of unlock value in a step function type way, right, as we're kind of a micro cap and kind of been working our way through institutional discovery and that whole process. And so ever so often, the cumulative weight of the evidence, you know, allows some acknowledgement of all the work we've done. And I don't know how many consecutive quarters we have to put together for that tipping point where we, get one of those kind of step function unlocks. But I'm hoping one or more analysts or investors on this call or out there will do the work and put out a report that kind of highlights the disparity in implied multiple of our stock relative to effectively the rest of our peer group, because while generally speaking most of the transports have had a nice run-up, we never did. So while there may be some perceived downside in some of these other transports that have run up, it's hard for me to see Anything but upside in investing in radiant logistic at these prices.

Fully, fully agree. And, you know, great job, guys. Eventually it'll fix itself or you'll get to buy in more and more stock. So keep it up.

Thanks, Mike.

There are no further questions at this time.

All right. Thank you, Operator. 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, and recent acquisition of Navigate to continue to build on the great platform we've created here at Radiant. At the same time, we've begun to thoughtfully relever our balance sheet, and through a combination of strategic acquisition and stock buybacks, we believe we're creating meaningful, intrinsic value for shareholders that has yet to be recognized in our stock price. Through this multi-pronged approach of organic growth, acquisitions, 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.

Ladies and gentlemen, this does conclude today's teleconference. You may now disconnect your lines at this time and enjoy the rest of your day.