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Radiant Logistics Inc (NYSEMKT:RLGT)
Q1 2021 Earnings Call
Nov 9, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

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 First Fiscal Quarter ended September 30th, 2020. 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, Bohn Crain.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Thank you. Good afternoon, everyone and thank you for joining in on today's call. We are very pleased to report another quarter of solid financial results as we continue to navigate the challenges presented by the COVID-19 pandemic. We reported revenues of $175.9 million and net revenues of $46 million for the quarter ended September 30, 2020, which were down on a comparable prior year basis, largely as a result of the impacts of the COVID-19 pandemic. Fortunately, however, through a number of cost savings and other strategic initiatives, we were able to manage our operating costs to mitigate this negative financial impact and keep our bottom-line largely intact.

For the quarter ended September 30, we also reported net income of $3.1 million, adjusted net income of $6.5 million, and adjusted EBITDA of $9.2 million. In addition, we also continued our positive trends with our adjusted EBITDA margins, which were up 270 basis points to 20.1% from 17.4% for the comparable prior year period. Also over the same period, we generated $13.4 million in cash from operations, finishing the quarter with net debt of only $10.4 million. The pandemic as fortunate as it is, has reinforced the benefits of our non-asset based variable cost model, diverse service offerings, and low debt levels. Although the overall demand for transportation services has been significantly impacted, we continue to see slow and steady improvement across many industry verticals that we serve, along with a broad-based tightening of capacity as we head into peak season.

With the diversity of our customers and service offerings, the strength of our balance sheet, the scalability of our technology, and our extensive carrier partner network, we are certainly optimistic about the economy, it's ultimate recovery, and the opportunities that it will present for Radiant. In the months ahead, we will continue to closely monitor how we and the economy are progressing, and look forward to reengaging in acquisition opportunities and/or our stock buyback activities as the opportunities present themselves.

With that, 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&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 months ended September 30th, 2020. For the three months ended September 30th, we reported net income of $3,088,000 on $175.9 million of revenues or $0.06 per basic and fully diluted share. For the three months ended September 30th, 2019 we reported net income of $3,235,000 on $200.5 million of revenues or $0.07 per basic and $0.06 per fully diluted share; this represents a decrease of approximately $147,000 over the comparable prior year period of 4.5%.

For the three months ended September 30th, 2020 we reported adjusted net income of $6,520,000. For the three months ended September 30th, 2019 we reported adjusted net income of $6,484,000; this represents an increase of approximately $36,000 or approximately 0.6% or less than 1%. We reported adjusted EBITDA of $9,226,000 for the three months ended September 30th, 2020, compared to adjusted EBITDA of $9,678,000 for the three months ended September 30th, 2019; this represents a decrease of approximately $452,000, or approximately 4.7%.

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

Questions and Answers:

Operator

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Jason Seidl with Cowen. Please state your question.

Jason Seidl -- Cowen & Co LLC -- Analyst

Thank you, operator. Hey, Bohn. Hey, Todd. Bohn, I was hoping you can give us a sense of -- sort of how the demand progress as you move through the quarter in each of your divisions and sort of how we should look at modeling out your fiscal year second quarter?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

I guess, I'll start off and when it gets hard, I'll pass it over to Todd.

Jason Seidl -- Cowen & Co LLC -- Analyst

That's what CEOs do, right, when it gets tough.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Exactly; I'm learning. So I guess I'll start -- we'll start north and work our way south. So in Canada, they really have held up very well through the -- kind of the cycle in it's entirety through a combination of the industry verticals that they serve and how they've been able to continue to perform and grow our bundling strategy of bundling kind of value-added warehousing service with our core transportation service offering has really served us well in Canada and that group continues to do very, very well. As we alluded to in some of our prepared comments, and I think as you're keenly aware from all the time news found in the transportation sector, capacity has been extraordinarily tight. As of late, it really started on the West Coast, but it's slowly been kind of extending across the balance of the US. So capacity has been very, very tight and Clipper has been a beneficiary of that.

So more recently, they've really begun to hit their stride with intermodal picking up [Indecipherable]; remember, certainly there was a time when markets were soft, the asset-based carriers got very aggressive with their pricing, effectively took freight that they wouldn't normally take that impacted Clipper negatively as capacity has tightened intermodal and trucks have gotten more disciplined in their pricing and so freight volumes and customers that historically we would have served Clipper are coming back to us and so we're seeing that on that side.

Forwarding, which is obviously is the biggest piece of the business, there are certainly a handful of verticals that continue to be negatively impacted, cruise line, retail store, fixturing, tradeshow, you know, it will be some of the last return. But many of the other sectors which we participate -- always participated in but in more meaningfully ways more recently, whether it be PPE or life sciences or other time critical activities have been doing well in this environment. So that kind of gives you -- I guess, a general kind of overview in terms of kind of getting down into the nitty-gritty of how we would think about modeling the upcoming quarters.

I'll turn the microphone over to Todd and encourage him to be conservative.

Jason Seidl -- Cowen & Co LLC -- Analyst

Thanks, Bohn.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Thanks. All right, so as we look at OpEx, I mean, things are definitely coming back. I would expect as a percentage of revenue, it's going to be similar to what we're seeing in the current quarter. It's going to improve as a percent as we continue to onboard new stations. And if you remember, we brought in a couple of stations in February, so that ends up manifesting itself in a different area. Personnel costs are going to be much closer to what I would say was Q3. We did a lot of cost cuts and kind of management of that in Q4 and it also impacted a little bit of Q1, but I would anticipate that the personnel costs are going to be much more similar to what it was in Q3, pre-COVID. SG&A --

Jason Seidl -- Cowen & Co LLC -- Analyst

But before you leave that kind of line item, one of the call outs I would make Jason is we've been kind of consciously reinvesting in sales resources to help drive organic growth. So we've had a handful of incremental sales hires, kind of in this downtime. And so we'll see a little bit of incremental costs associated with that initiative and certainly, hopefully, overtime, some additional gross margins to be rewarded for those efforts.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Okay. And then SG&A, again, we were watching everything we could. So I would expect SG&A also to increase similar to Q3. Basically, we're getting back to closer to the levels where we were in the past. Depreciation and amortization; I mean, I would basically take the current numbers, those shouldn't -- those aren't going to change much quarter-over-quarter. And those are really the big drivers in regards to the modeling. I mean, the interest expense is going to be down a little bit, we keep paying down the debt. So consequently, we're going to have a little bit less interest.

Jason Seidl -- Cowen & Co LLC -- Analyst

I didn't want to ask about that but also want to make sure how should we think sort of your net revenue margin? Are things slowing down on that sort of buy versus self? Back and forth, you guys always deal with, is 2Q going to be somewhat easier than 1Q?

Todd Macomber -- Senior Vice President and Chief Financial Officer

Yeah, I'd say, you know, obviously, it's really hard to predict but I think what we're seeing right now, we're going to continue to see for the foreseeable future. Like Bohn said, capacity is tight. And you know, and I -- you know I'm guessing it's going to continue for a while. So I would expect Q2 to kind of play out similar to what we're seeing right now. I don't know if you have any different opinion, Bohn?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

No. I think these margins will hold through peak, certainly through this next quarter, it would be my general expectation, then we'll kind of see what happens kind of on the backside of the traditional holiday push. But at least for this next quarter, I would think kind of current environment will continue at least for this next quarter and perhaps beyond, depending on -- obviously, because there is a lot of moving parts now with global trade and Presidential transitions and some of those things that will ultimately have an impact. And part of that will ultimately also be impacted by how quickly the asset base guys get out their checkbooks and start reinvesting in incremental transportation assets.

Jason Seidl -- Cowen & Co LLC -- Analyst

Right. How should we actually think about your balance sheet? I mean, because -- clearly, it's been strengthening here. You paid down more debt this quarter. What are the sort of the leverage numbers that you're shooting for, again, acquisitions aside right now.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Well, I guess we should start with hoot-n-holler of some sort. I mean, we're approaching being effectively debt free. So you think about kind of the economic environment that we've come through and our ability to continue to deleverage the balance sheet, I think it's pretty extraordinary. So I think you should think our balance sheet is really pretty right now. So I would start there, it really is pretty. I'm particularly proud of our -- of really what we've been able to do with our balance sheet, where we stand, what that means in terms of financial flexibility and actionability to do deals, should opportunities present themselves. But all kidding aside, I would think our kind of normalized leverage would be plus or minus 2.5 times debt -- excuse me, 2.5 times EBITDA and obviously, we could flex up a little bit there, if we had to or circumstances warranted. But on a on a normalized basis, that's kind of how we would think about it.

Jason Seidl -- Cowen & Co LLC -- Analyst

Okay, fair enough. I'll turn it over to the next guy. And I appreciate the time as always, gentlemen.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Okay. Our next question comes from Mark Argento with Lake Street Capital. Please state your questions.

Mark Argento -- Lake Street Capital Markets LLC -- Analyst

Hey, Bohn. Hey, Todd. Just wanted to touch on kind of the current M&A environment. I don't know if you're seeing some more opportunities, given the environment we're in, some of the smaller guys, maybe talk a little bit about that opportunity to put some capital back to work. And then, just wanted to touch on obviously, big topic today had been a vaccine and the opportunity for you guys to participate in potentially some type of distribution as that comes to fruition.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Yeah. So as a reminder, kind of pre-COVID, we were trying to kind of reactivate some of our M&A initiatives and we're actively trying to cultivate pipelines across what we think of as all three of our platforms that we were looking to kind of build a pipeline for Canadian type M&A, a pipeline for our US brokerage M&A, for Clipper, as well as our forwarding operations. So there's been three different threads that we've -- how we kind of organize our thinking around M&A opportunities. So we'll be kind of reengaging in that process. I think it's certainly an interesting environment right now to think about M&A because generally speaking, everybody's trailing 12-month numbers are either unusually down or unusually good, right? So as we think about kind of normalized earnings power and being able to get deals cut with potential sellers, that will be something that we will have to be worked through.

Having said that, I think the -- kind of the earn out structure that we do use will lend itself to ability to get things done as we find the right types of opportunities. Having said that, and to kind of come back to one of our earlier themes, I don't know where else we can find -- call it $35 million to $40 million EBITDA business that we can acquire at a multiple of 7 times or 8 times with no integration risk, and that company is RLGT. So we'll continue as sexy, if that's the right word M&A is and is interested in as we are in doing it. We're also going to be grounded in kind of what our own underlying trading multiple has look like as we think about allocating capital and that will remain a very viable alternate way we think about the foreign capital.

Mark Argento -- Lake Street Capital Markets LLC -- Analyst

On the vaccine or any other types of initiatives, I know you guys do quite a bit with the government, any updates there given that news there.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Nothing in particular that we can share at this point in time. We were certainly active with FEMA and project Airbridge. We continue to enjoy a good relationship with FEMA. It'd be premature to say what if any opportunities will come our way. I don't think it's entirely clear what role FEMA itself will precisely play and there'll be certainly different contingents executing different strategies. I would think directly or indirectly, we will participate one way or another, even if it was as simple as vaccines are going to use -- going to require a lot of temperature-controlled equipment. Just a call on temperature control equipment is going to drive pricing around that solution set and Clipper does some temperature control business. So, you know, at its extreme, even if we didn't directly participate in the distribution of the vaccine, I think Clipper will benefit from the distribution of the vaccine and what's going to happen within its own temperature control solutions set as an example, but there's obviously a lot of people chasing those opportunities and we certainly won't be shy or bashful in our attempts to kind of have our opportunities to participate. And that can take the form of either the vaccines directly or indirectly with all of the kind of the delivery system and kits that will be associated with the ultimate administration of the vaccines and ongoing testing for the virus.

Mark Argento -- Lake Street Capital Markets LLC -- Analyst

Thank you guys.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Thank you.

Operator

Okay, our next question comes from Mike Vermut with Newland Capital. Please place your question.

Michael David Vermut -- Newland Capital Management LLC -- Analyst

Hey guys, how are you doing?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Good Mike.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Doing well.

Michael David Vermut -- Newland Capital Management LLC -- Analyst

Yeah. I got to say, it's amazing when I when I take a step back and think about the progress that Radiant has gone through. If I remember -- just trying to think about this today. Remember, correctly back in 2014, we were breakeven-ish on an adjusted earnings basis. Now we're at double digit EPS per quarter, roughly $0.10, $0.15. Back then, we had more than I think $55 million or $60 million of net debt and now we're approaching zero. If I calculate it correctly, I was looking at this, we're a lot higher than that right now. But if I normalize it, maybe $25 million plus of free cash flow run rate and our stock is pretty much in the exact same spot. It's amazing to me when I look at the progress that you've made on the balance sheet, on the earnings and the fact that it hasn't been discovered yet. Now we have put that free cash flow back into stock buybacks at these gift levels. There's a dramatic shrinkage in outstanding shares that can happen at an extremely rapid and accretive pace. You mentioned you're comfortable at 2.5 times debt to EBITDA, if you layered that debt on there, that's practically half of our market cap. It's hard to see any kind of acquisition out there that equals what the creativeness of Radiant. If you don't see those acquisitions, how rapidly in 2021 and 2022 if the stock stays around here, would you be willing to deploy the capital back into the stock?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Well, that's you know, how do you eat an elephant one bite at a time? So I think we'll take a measured approach and I guess, let me back up and say, we're going to continue to monitor closely the health of the economy and our health and we don't want to take any anything for granted or be cavalier in our approach to the market in our own circumstance. So we will continue to be measured in our approach. And so as we would think about -- we always think about stock buyback and deployment of capital, in part in the context of opportunity costs and make sure that we don't kind of shoot all of our bullets and not continue to have some financial flexibility to be able to take advantage of a really interesting M&A opportunity should have come along. So you know, I don't think you'll, I can't envision us doing some tender offer as an example and buying in a bunch of our shares in a single whack. I think we'll take more of a quarterly approach and kind of pick away at it over-time, like we had begun to do pre-COVID and just kind of work through it that way.

Michael David Vermut -- Newland Capital Management LLC -- Analyst

Like, if it stays at these levels, you can do a lot of picking away at with just the free cash flow, forgetting about taking on any leverage. You know, looking back, it's incredible I guess what you guys have done through these last two quarters with coronavirus with the cost save. Looking at the flip side, I know everyone's thinking about we've participated with FEMA, PPE movement, vaccine movement, that's great upside potential. But really looking on the opposite side of this, how much of our business was exposed to certain areas of the economy that are going to really get a push from the opening up of the full economy, cruise lines, trade shows, storefront edge, I got to believe that whether it starts to open up in six months, that that's going to be a dramatic tailwind for us. It's been amazing how you've stemmed the losses and you actually come out of this looking phenomenal. But what's the tailwind as we look ahead you know, two quarters from now, and how much I guess damage has been done from the absence of those end-markets?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Yeah. So I don't think we want to get super granular on that. But you know, painting with a broad brush and kind of in the early days, when people were asking kind of what's the impact on your business, we were seeing 30% to 35% degradation in our kind of in the darkest weeks or months of the business. And I think we've probably recovered half if not more than half of that. So again, painting with a broad brush, there's probably 10% to 15% degradation in our gross margin line item that hasn't been recovered yet, because of the softness in some of these categories. Now, we have to be a little bit careful and trying to push that number all the way to the bottom line, because a lot of that business is actually serviced through our agency station locations. So a chunk of that will -- there's a kind of inherent offset in that degradation in part because of the operating station commissions. But again, coming back to the kind of the high level point, there's probably 10% to 15%, gross margin restoration as things come back online.

Michael David Vermut -- Newland Capital Management LLC -- Analyst

Excellent. Another one, I'll just throw out there. Going through this and I'm sure it's become worse through it. Most of our competitors are highly levered. If I remember correctly, 4 times or 5 times to some are 7 times levered. We've gone the opposite way through this, right, and then gone to basically close to get into be debt free. Have you seen any agents or some of the smaller guys looking to break away and knocking on our door for M&A. And on the flip side, customers that are looking at us and saying, while Radiant is strong, the financially strong and sound player right now, we're going to start moving business to Radiant away from the higher leverage players.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Again, without getting too granular, certainly some of those conversations are happening, both at the station level and at the customer level. But at the same time, I would say, it can be difficult to affect some of those transitions. If for example, an existing target customer has a policy that they're not accepting visitors, right. So sometimes it's hard to get that face to face meeting that would help enable a new opportunity to occur. But those things are slowly opening up, right. We're slowly getting more and more of those meetings to kind of happen in real time and on a personal basis. And we certainly -- it's been kind of an ongoing theme. I think if we kind of look over time, and that add our progress, kind of the opportunities for us to participate in what I'll call larger, chunkier type RFPs and to win larger, incremental pieces of business continues to improve. And so we're and I think that's reflective of a lot of things, our size, our scale, people becoming more familiar with us in our financial strength, breadth and depth to service offering and so on.

Michael David Vermut -- Newland Capital Management LLC -- Analyst

All right guys, look, it's a phenomenal job that we've done. It's an impressive last couple of quarters and it's amazing that we're still at this valuation with the progress you've made. But you know, if you take advantage of it with buybacks, it's an opportunity out there. So congratulations.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Thanks Mike.

Todd Macomber -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Instructions] Our next question comes from David Campbell from Thompson Davis & Company. Please state your question.

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

Hi Bohn, Todd, thank you for taking my question. Is there anything you can say to help us understand the September quarter? There is a revenue change for each of the months, July, August and September. Is there any noticeable difference in how much it was going down in those months, relative to -- September was relative to July, for example?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

No, that's not something we get particularly detailed on a month by month basis. But it is fair to say that there is a steady increase month to month over the course of the quarter.

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

Sequential increase, you mean from month to month?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Yes.

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

Well, that's certainly encouraging. And the December quarter will be another quarter when you have comparable numbers compared to the September quarter, but maybe not. Maybe December will be up from December, although it is usually, seasonally it's not a good quarter. And you mentioned expenses going up with the increase in revenues, is that -- you can't take advantage of the decrease in salaries and related costs that's not sustainable when you get into more revenues.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

When kind of in the pick of it, we did some pretty dramatic cost reductions across the board, just to make sure we were durable through the pandemic. As a reminder, I myself took a 50% pay cut and the leadership team, everybody took a meaningful pay cut, it was a proverbial passing of the hat to make sure that we were durable through what was the unknown at the time. And as we're finding ourselves on better footing, we're restoring those compensations for folks where we can. So it's as much that as anything else, in terms of us kind of acknowledging there's going to be an increase in payroll.

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

Right. Well, certainly nice to have that with its matching up -- if you match it up with increases in revenue. So we'll be watching that pretty closely. I think you probably will do, obviously. Keep that situation. And SG&A, in terms of SG&A are there any changes in SG&A that you can sustain at lower levels when the revenue goes up?

Bohn Crain -- Founder, Chairman and Chief Executive Officer

We certainly have had some kind of facility rationalization, I'm thinking of an LA in particular, where we've been able to do some cost takeout. So there will be some level of kind of permanent improvement, if you will, on the SG&A line item as we made some kind of structural changes within our Forwarding segment around there.

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

Okay, that's great. Thank you very much. Let someone else have it.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

All right. Thank you.

Operator

It looks like that was our final question.

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Thank you. Let me close by saying that we remain very bullish on our prospect here at Radiant and the scalable, non-asset based platform that we've built. With the diversity of our customers and service offerings, the strength of our balance sheet, the scalability of our technology and our extensive carrier partner network, we are certainly optimistic about the economy, its ultimate recovery and the opportunities that it will present for Radiant. At the same time, we remain patiently persistent in our pursuit of our long-term vision to leverage our multi-brand strategy and scalable back-office infrastructure to support further consolidation in the marketplace, which we believe over-time, we'll 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: 0 minutes

Call participants:

Bohn Crain -- Founder, Chairman and Chief Executive Officer

Todd Macomber -- Senior Vice President and Chief Financial Officer

Jason Seidl -- Cowen & Co LLC -- Analyst

Mark Argento -- Lake Street Capital Markets LLC -- Analyst

Michael David Vermut -- Newland Capital Management LLC -- Analyst

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

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