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Radiant Logistics, Inc. (NYSEMKT:RLGT)
Q3 2019 Earnings Call
May 9, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Radiant Logistics Conference Call. 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 third fiscal quarter and nine months ended March 31, 2019. 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 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 or may in the future be identified in the company's SEC filings and other public announcements, which are available on Radiant's website at www.radiantdelivers.com. In addition, past results are not necessarily an indication of future performance.

Now, I'd like to turn the call over to Radiant's Founder and CEO, Bohn Crain.

Bohn Crain -- Founder and Chief Executive Officer

Thank you. Good afternoon, everyone, and thank you for joining in on today's call. We're pleased to report another quarter of record results for the third quarter ended March 31, 2019, highlighted by continued margin expansion along with strong cash flows. We posted record results for the March quarter, with revenues of $206 million, up $2.1 million or 1%, net revenues of $52.7 million, up $4.1 million or 8.4%, and also saw our net revenue margins up 177 basis points to 25.6% from 23.8% for the comparable prior-year period.

We also reported net income attributable to common shareholders of $2.9 million, up $2.7 million; adjusted net income attributable to common shareholders of $5.6 million, up $2.9 million or 107.4%; and adjusted EBITDA of $8.4 million, up $2.7 million or 47.4% over the comparable prior year period. In addition, we also saw improvement in our adjusted EBITDA margins, which increased 425 basis points to a record 16% from 11.8% for the comparable prior-year period.

In the U.S., we reported revenues of $179.1 million, up $1.9 million or 1.1%, and net revenues of $45.4 million, up 2.9% or 6.8% over the comparable prior-year period. U.S. transportation net revenues of $44.2 million were up $2.6 million, or 6.3% for the comparable prior-year period. U.S. valued-added services net revenues of $1.1 million were up $0.2 million or 22.2%.

In Canada, we reported revenues of $27.1 million, up $0.1 million or 0.4%, and net revenues of $7.4 million, up 1.3% or 21.3% over the comparable prior-year period. Canada's transportation net revenues of $4.4 million were up $0.2 million or 4.8% for the comparable prior-year period, while Canada's value-added services net revenues of $3 million was up $1.1 million or 57.9%.

The business also continues to deliver strong cash flows, generating $17.1 million in cash from operations for the three months ended March 31, '19 and generating $33.5 million in cash from operations for the nine months ended March 31.

We are, in short, in the best financial position in the company's history. On a trailing 12-month basis through March 31 of '19, we generated adjusted EBITDA of $39.7 million. Having retired the $21 million preferred stock in December, we continued to pay down debt and, as of the end of the quarter, we had approximately $16.9 million drawn on the company's $75 million credit facility and total net debt of approximately $34.7 million, which is less than one turn of our trailing 12-month adjusted EBITDA.

Our now more than 10-year first-to-market advantage in executing our multi-brand strategy in consolidating agent-based freight-forwarding networks, ongoing investment in technology, and low leverage on our balance sheet puts us in a unique position to support further consolidation in the marketplace. We remain committed to our long-term strategy to deliver profitable growth through a combination of organic and acquisition growth, which we believe, over time, will continue to deliver meaningful value for our shareholders, our operating partners, and the end customers that we serve.

With that, I'll turn it over to Todd Macomber, our Chief Financial Officer, to walk us through our detailed financial results, and then we'll open it up for some Q&A.

Todd Macomber -- Senior Vice President and Chief Financial Officer

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, 2019.

For the three months ended March 31, 2019, we reported net income allocable to common stockholders of $2.932 million on $206 million of revenues, or $0.06 per basic and fully diluted share, including a $611,000 gain on change in contingent consideration. For the three months ended March 31, 2018, we reported net income allocable to common stockholders of $167,000 on $203.9 million of revenues or $0.00 per basic and fully diluted share. This represents an increase of approximately $2.765 million over the comparable prior year period or 1,655.7%.

For the three months ended March 31, 2019, we reported adjusted net income attributable to common stockholders of $5.579 million. For the three months ended March 31, 2018, we reported adjusted net income attributable to common stockholders of $2.695 million. This represents an increase of approximately $2.884 million or approximately 107%.

We reported adjusted EBITDA of $8.437 million for the three months ended March 31, 2019, compared to adjusted EBITDA of $5.710 million for the three months ended March 31, 2018. This represents an increase of approximately $2.727 million or approximately 47.8%.

Moving along to the nine-month results, for the nine months ended March 31, 2019, we reported net income allocable to common stockholders of $9.270 million on $685.9 million of revenues, or $0.19 per basic and $0.18 per fully diluted share, including a $1.182 million gain on change in contingent consideration. For the nine months ended March 31, 2018, we reported net income allocable to common stockholders of $3.813 million on $608.6 million of revenues, or $0.08 per basic and fully diluted share. This represents an increase of approximately $5.457 million over the comparable prior-year period or 143.1%.

For the nine months ended March 31, 2019, we reported adjusted net income attributable to common stockholders of $19.110 million. For the nine months ended March 31, 2018, we reported adjusted net income attributable to common stockholders of $9.189 million. This represents an increase of approximately $9.921 million or approximately 108%.

We reported adjusted EBITDA of $29.749 million for the nine months ended March 31, 2019, compared to adjusted EBITDA of $19.327 million for the nine months ended March 31, 2018. This represents an increase of approximately $10.422 million or approximately 53.9%.

With that, I will turn the call back over to our moderator to facilitate any Q&A from our callers.

Questions and Answers:

Operator

The floor is now open for questions. If you would like to ask a question, please press "*1" on your telephone keypad. A confirmation tone will indicate your line is in the question queue. [Audio disruption] if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing "*". Once again, that is "*1" to register your questions at this time.

Our first question is coming from Kevin Sterling of Seaport Global Securities. Please go ahead with your question.

Kevin Sterling -- Seaport Global Securities -- Analyst

Thank you. Good afternoon, Bohn and Todd.

Bohn Crain -- Founder and Chief Executive Officer

Good afternoon.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Good afternoon, Kevin.

Kevin Sterling -- Seaport Global Securities -- Analyst

Congratulations, I keep hearing a lot of records.

Bohn Crain -- Founder and Chief Executive Officer

Well, thank you.

Kevin Sterling -- Seaport Global Securities -- Analyst

I thought last quarter was a lot of records but we keep repeating, so congrats. So, let me start with that because your operating cash flow in the quarter, if I'm not mistaken, is a record. But how should we think about your free cash flow generation in the quarter? Could you help us there?

Bohn Crain -- Founder and Chief Executive Officer

Sure. Todd, you want to walk him through those numbers?

Todd Macomber -- Senior Vice President and Chief Financial Officer

Sure. For the quarter, we had operating cash flows of $17.1 million and our investments was about $2.5 million. So, overall, the free cash flows for the quarter was about $14.7 million.

Bohn Crain -- Founder and Chief Executive Officer

It was a very good quarter.

Kevin Sterling -- Seaport Global Securities -- Analyst

Wow. Thank you. I think that could be a record as well. So, congrats on that.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Thank you.

Kevin Sterling -- Seaport Global Securities -- Analyst

Yeah. And so along those lines, with all this cash you're generating and you guys, obviously, are leveraging, how should we think about the M&A pipeline?

Bohn Crain -- Founder and Chief Executive Officer

Well, it's fair to say we are open for business. We're actively out looking for things that make sense while trying to or fully intending to continue to be disciplined in our approach. We talked about it historically. There's a number of different thematics or categories that we view as good opportunities for us in the M&A frame, starting with conversion of our existing agent stations, as they would express an interest in being converted to a company-owned store -- agent stations and competing networks who would be looking for liquidity who might not be able to get that liquidity in their existing markets. And then looking at, on a little larger scale, other networks, to the extent that they could become available, similar to what we have done historically.

And then as we've all also talked about on prior calls, we really view ourselves as having three platforms, kind of functional platforms, from which to effect our acquisition and ultimate integration efforts, that being our traditional freight-forwarding operations supported here out of Bellevue, as well as Canadian-centric M&A opportunities that we could support out of Toronto, and then, ultimately, U.S. truck brokerage and intermodal-type opportunities that we could support out of Chicago. And we are consistently and actively looking across each of those categories. We've been kind of out on the trail meeting with folks and we expect to continue to do that. And when the time is right, in one or more of those areas, we expect to become increasingly active.

Kevin Sterling -- Seaport Global Securities -- Analyst

Got you. Thank you. So, to summarize, you've got the platform, you've got the cash, and it may sound like you're a little bit closer than you were, say, six months ago. I know it's hard to time but you're kind of in this situation where I think it's a good problem to have with all that cash. If you don't do any acquisitions, what else would you do with all the cash you're generating? Obviously, it's a good problem to have.

Bohn Crain -- Founder and Chief Executive Officer

Yeah, absolutely. Well, obviously, in the process of doing nothing, we're continuing to pay down debt, right? So, we have historically -- and, recently, as a reminder, we retired the preferred, which was the most expensive component of our capital structure at the time. That freed up some additional cash flow, in terms of avoided dividends. Ultimately, stock buybacks would remain, certainly, a viable option. I can tell you, being out in the marketplace, I don't know any other $40 million EBITDA businesses trading at our multiple. I think we continue to trade at a meaningful discount to the comps and where transactions are being done in the marketplace of scale.

So that means a couple of things. One, we'll continue to look for smaller tuck-in acquisitions but, as we move up market in terms of size of transactions, we would necessarily be paying a higher multiple if we do those. And those are part of the trade-offs that we've always talked about within the context of we're -- I don't know if content is the right word but we're certainly prepared to continue to serially try to do smaller tuck-in acquisitions because we think we can create a lot of shareholder value doing that, while at the same time, if kind of the right larger opportunity came along that we felt was really compelling, then, ultimately, we would progress against those types of opportunities as well.

So, paying down debt, we've got more financial flexibility than we ever have. As you were kind of laying this out a little bit, Kevin, we also should at least identify the shelf that we've got out, as well, that's effective. So, we really have a lot of tools available to us, with what truly is a record TTM run rate of our earnings power and free cash flows for business.

Kevin Sterling -- Seaport Global Securities -- Analyst

Yeah, no, totally understood. I mean, I've been following you guys a long time. I've never seen you in such a strong financial position. So, congrats. The other thing that jumped out at me, Bohn, is your margin expansion, particularly on the net revenue side. Is that a function of your scale and you guys buying your capacity better? Or maybe you were a little bit more opportunistic in the quarter and took advantage of some of the softness and loose capacity out there in the market. Or maybe it's a combination of both. How should we think about that?

Bohn Crain -- Founder and Chief Executive Officer

Well, I think it's a combination. So, when I think about scale, I think about scale manifesting itself more in the context of our EBITDA as a function of gross margin, and we saw good movement there as well. So, when I think about scale of the business, that's where I think our numbers will ultimately reflect that math as we continue to scale the business.

As we think about purchase transportation and margin expansion, in our relative size, we're one of the largest Asia-based freight-forwarding networks out there and are pretty far out on what I'll call the "efficient frontier curve," in terms of where we can buy transportation capacity relative to our peers. So, I think what you're seeing, in terms of the gross margin characteristics of the business, are more a function of mix and the modality of business that we're serving.

And so in this particular quarter, one of the things that kind of showed through in terms of this most recent quarter is some of our selectiveness in customers and types of business that we are pursuing. And so we've had an opportunity to high-grade some of our business and focus on customers that value doing business with us more. I think one of the areas where that really shows through is in Canada, as an example, and our bundling strategy and what we've been able to accomplish around driving a value proposition where we can enhance the margin characteristics of the business by bundling these value-added logistic solutions inside the warehouse.

Kevin Sterling -- Seaport Global Securities -- Analyst

Got you. No, that makes sense. And last question from me. Could you touch on some of the trends you're seeing in April, maybe, compare that to March, and then maybe last April may not be a good comparison, but at least kind of what you're seeing sequentially? And are we still seeing that margin expansion we talked about?

Bohn Crain -- Founder and Chief Executive Officer

Well, I think that's a good question. I may give you a slightly different answer than you're expecting but I'll take the opportunity to say that our comps are going to get harder going forward. We had the opportunity to onboard some good, chunky, incremental pieces of business last year and have had the benefit of that in some of these past quarters. And so we've kind of had our last relatively easy comp in terms of a quarter basis. So, while we certainly are happy with the results, I can't tell you we're going to have another 40% to 50% growth in adjusted EBITDA next quarter. The comps will get harder in prospective quarters. But I think that the general trends are holding in terms of margin characteristics of the business. But, certainly, the comps will get harder for us going forward. But, with that said, we're working hard. Our vertical strategy is continuing to the play out very nicely and we expect to continue to be able to grow from this new higher base.

Kevin Sterling -- Seaport Global Securities -- Analyst

Okay. That's all I had. Thanks so much for your time and congrats, once again, on a really, really solid quarter.

Bohn Crain -- Founder and Chief Executive Officer

All right, thank you.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Thank you, Kevin.

Operator

Thank you. Our next question is coming from Mark Argento of Lake Street Capital Markets. Please go ahead.

Mark Argento -- Lake Street Capital Markets -- Analyst

Hi, guys. Good afternoon and congrats on another solid quarter. I just wanted to maybe talk a little bit about some of the integration work you guys have done. Obviously, paying off well. How much of the volume do you guys have running through SAP? I think last time we checked in, was it over 10%? Maybe even higher? Maybe you could give us an update on that. And then just wanted to drill down on the value-added a little bit more, to better understand the opportunity there, where you guys are seeing those opportunities, the types of services you're providing. Thanks.

Bohn Crain -- Founder and Chief Executive Officer

Sure. I don't have a precise percentage to respond to your question with, but I'll tell you we continue to -- that it is increasing, that we continue to add more company-owned stores, and we also continue to, or are beginning to, onboard agency stations on to the new TM process. So, we continue to kind of work away at that. And what we haven't spent -- I'm not sure we spent time talking about, historically, or at least not that I recall, was the international capabilities. So, we've been busy at work, with kind of activating the international functionality within TM. And we're making good progress on that and we expect to activate the international functionality this fall, in terms of TM. So, up until now, all the work that we've been doing is, effectively, domestic transportation services. But, again, later this fall, we'll be able to kind of open up door No. 2 with the international functionality. And then we really will have kind of the soup-to-nuts capabilities within TM and that should accelerate the onboarding of the stations even faster on to TM.

Mark Argento -- Lake Street Capital Markets -- Analyst

And then, just quickly, on kind of the organic growth, how should we be thinking about -- I know you mentioned comps get tougher -- but the organic growth rate here? I mean, should we be able to grow in line to slightly better than the broader market? How do you guys think about organic growth relative to, say, your peers or the world broader market?

Bohn Crain -- Founder and Chief Executive Officer

Yeah. The way that we try to think about the business is in terms of growing our gross margin dollars and kind of the target we've set on a pre-M&A basis is a 4% to 6% organic number. And then growing our EBITDA at twice that, so 8% to 12% -- 4% to 6% and 8% to 12% at the gross margin and the adjusted EBITDA to gross margin metrics.

Mark Argento -- Lake Street Capital Markets -- Analyst

Fantastic. Appreciate it. Thank you, guys.

Bohn Crain -- Founder and Chief Executive Officer

All right. Thank you.

Operator

Thank you. Our next question is coming from David Campbell of Thompson Davis. Please go ahead.

David Campbell -- Thompson Davis & Co. -- Analyst

Yes, thank you very much, Bohn and Todd, for taking my question. The revenues have been hard to estimate for your company. You had excellent revenue growth in the December quarter and then, seasonally speaking, of course, March is way down from December quarter, but this year was down quite a bit more than I would have expected. Is the March quarter a stepping off point? I mean, is that a normal quarterly number, adjusted for seasonality, going forward?

Bohn Crain -- Founder and Chief Executive Officer

Yes. Yes, I think it is, David. And you're fair to kind of call it out kind of on both sides of your comment. One is March is the seasonally slowest quarter, historically has been, so you have that dynamic in the mix. But then pulling back on some of my prior comments, we have selectively de-marketed certain business which we didn't like the margin characteristics of and focused on higher-yielding accounts. So, we've seen a little bit of trade-off in those metrics as we've kind of sharpened our pencils around the contributions of some of the accounts that we were serving. But I think now, I think the number is kind of as you describe it. I think this is a good base to work from. Because I don't recall us having any meaningful kind of project, one-off work in this quarter that would be kind of a variable to the positive. I think this is a conservative base to work from for the seasonally slowest quarter.

David Campbell -- Thompson Davis & Co. -- Analyst

Right, right. Last year, in the June quarter, you had a significant increase, which is seasonal from March to June, and I assume you'll have some of that same increase this year.

Bohn Crain -- Founder and Chief Executive Officer

Yes, that's correct. Well, we certainly would hope and expect to.

David Campbell -- Thompson Davis & Co. -- Analyst

Right. And so it's nothing unusual. No unusual losses in the March quarter that would be causing the revenues to be so late.

Bohn Crain -- Founder and Chief Executive Officer

No.

David Campbell -- Thompson Davis & Co. -- Analyst

Just your trend of business is to focus on more profitable accounts, is that right?

Bohn Crain -- Founder and Chief Executive Officer

That's correct.

David Campbell -- Thompson Davis & Co. -- Analyst

Okay. Well, thank you very much and appreciate your help and hope you have a great June quarter.

Bohn Crain -- Founder and Chief Executive Officer

Thank you, sir.

Operator

Thank you. Our next question is coming from Jeff Kauffman of Loop Capital. Please go ahead.

Jeffrey Kauffman -- Loop Capital Markets -- Analyst

Thank you very much. Hi, guys.

Bohn Crain -- Founder and Chief Executive Officer

Hey, how's it going?

Todd Macomber -- Senior Vice President and Chief Financial Officer

Hi, Jeff.

Jeffrey Kauffman -- Loop Capital Markets -- Analyst

Good. Good, good. Quick one for DJ Bohn here, spinning all the records.

Bohn Crain -- Founder and Chief Executive Officer

That was good. That was pretty good.

Jeffrey Kauffman -- Loop Capital Markets -- Analyst

I've been waiting the whole quarter for this. So, help me understand, because I know comps are getting tougher but we're coming off of a fourth quarter with 20% organic growth, you said you de-marketed some business. Top-line growth slowed pretty dramatically this quarter and I'm trying to figure out a trend versus a slow first quarter. Could you help me disaggregate what took us from 20% down to kind of a 1% top-line growth rate? And how much of it is things that are more secular, how much is things that are more seasonal, and how much might be business that you're deemphasizing?

Bohn Crain -- Founder and Chief Executive Officer

No, I can't. That's beyond the scope of what we've done here in the call and that would create some disclosure complications and I don't want to be getting calls from folks asking me to issue another 8-K to bring things in line. So, I know the Q will be filed later this afternoon, if it's not out already, and in that segment reporting, you'll be able to delineate between U.S. and Canada and how those things played out and kind of where it was attributed to.

Jeffrey Kauffman -- Loop Capital Markets -- Analyst

Okay. And then I want to follow up on Kevin's free cash question because you're in a very enviable position. But then again, you've got to be careful when you have a lot of cash. You talked a little bit about waiting for the right opportunity in the market. You talked about some strategic investments that you might look to make globally. Where are we on the information technology side and that rollout? And, I guess, are there things that you don't have now that make sense to have down the road that might make sense to take advantage of the market and invest in?

Bohn Crain -- Founder and Chief Executive Officer

We have a pretty full suite. I mean, we can always expand in the places that we're not, if you will, and that's something that we'll look at. But, candidly, my focus is more toward density and where can we get further leverage and scale out of the infrastructure that we already have. And so what I'll point out is, over time, as we have acquired other agent-based networks, there was what I'll characterize as obvious redundant back-office infrastructure costs that we were able to capture and synergize.

But a less obvious, but kind of equally interesting, thematic is cost-synergy opportunities at the node level of the network. So, as we think about our various, now plus-or-minus 18 company-owned stores out in the field, each one of those represents a mini platform, if you will, and an opportunity to support other logistics entrepreneurs and what, candidly, would be smaller tuck-in type transactions. But when you look at those types of opportunities, everyone has their own facility, everyone has their own receptionist, there's two of everything as we would look at even doing these smaller tuck-in type acquisitions. So, that's an area that has and will remain very interesting to us as we continue to build out and solidify the network.

Canada also represents a very interesting opportunity for us. The team up there continues to do an outstanding job. And as we think about allocating capital, they're a team that I feel very comfortable putting more capital underneath to help support and grow those opportunities. Historically, we haven't -- although, we do -- I'll use the term dabble. We do dabble in e-commerce. We don't have a big e-commerce play that we're actively engaged in. That could be another area of pursuit. So, there's certainly lots of opportunity out there and we're looking.

Jeffrey Kauffman -- Loop Capital Markets -- Analyst

All right, Bohn. Congratulations, Todd. Thank you.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. At this time, I'd like to turn the call back over to management for any additional or closing remarks.

Bohn Crain -- Founder and Chief Executive Officer

All right. Thank you. Let me close by saying that we remain very excited with our progress and prospects here at Radiant and we remain very bullish on the growth platform that we have created and the scalability of our non-asset-based business model. Our now more than 10-year first-to-market advantage in executing our multi-brand strategy in consolidating agent-based freight-forwarding networks, ongoing investment in technology, and low leverage on our balance sheet puts us in a unique position for further consolidation.

We believe this represents our longer-term and almost perpetual opportunity and we continue to invest in technology and our people, with an eye toward building out a world-class, scalable, back-office infrastructure to support a much larger enterprise. We are patiently persistent in the pursuit of this long-term vision, which we believe, over time, will continue to deliver meaningful value for our shareholders, our operating partners, and the end customers that we serve. Thanks for listening and your support of Radiant Logistics.

Duration: 33 minutes

Call participants:

Bohn Crain -- Founder and Chief Executive Officer

Todd Macomber -- Senior Vice President and Chief Financial Officer

Kevin Sterling -- Seaport Global Securities -- Analyst

Mark Argento -- Lake Street Capital Markets -- Analyst

David Campbell -- Thompson Davis & Co. -- Analyst

Jeffrey Kauffman -- Loop Capital Markets -- Analyst

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