RLGT- Radiant Logistics

[rpadebet]

This is a cyclical industry, so revenues will bob around with the economy. Good thing about being asset lite is they can adjust pretty quickly.

 

EBITDA estimates are down mainly because of reduced anticipated revenues due to the general economy.

 

Organic growth seems anemic mainly because of loss on one big low margin client. Rest of the businesses seem to have grown well. Organic growth though is more important for high margin businesses. I think RLGT should focus on getting cost synergies and expanding their margins for now.

 

They still have a high priced debt which can be paid down in April. Management seems to say that it would save 2mill per year in interest costs alone.

 

These guys still have lot of levers to grow.... It won't be quick if the economy slows down, but with low debt, low margins, asset lite nature, I think they are well positioned.

[ratiman]

Don't listen to the Crain happy talk. He does that every quarter. None of the deals work. There is a fundamental flaw in the business model. The plan is, old guy wants to retire, Radiant buys his customers. But the customers leave. Radiant is buying deteriorating assets. The only deal that outperformed expectations was the Philly deal, and that guy was young and wanted to work for Radiant. Once all the customers leave, the return on these deals is less than 10%. It's value destroying. Without selling/issuing overvalued stock, this would be at $1. That's just my opinion, stock could open higher for all I know.

[rpadebet]

Don't listen to the Crain happy talk. He does that every quarter. None of the deals work. There is a fundamental flaw in the business model. The plan is, old guy wants to retire, Radiant buys his customers. But the customers leave. Radiant is buying deteriorating assets. The only deal that outperformed expectations was the Philly deal, and that guy was young and wanted to work for Radiant. Once all the customers leave, the return on these deals is less than 10%. It's value destroying. Without selling/issuing overvalued stock, this would be at $1. That's just my opinion, stock could open higher for all I know.

 

I see your point. It makes sense

 

Can't they adjust for this affect with paying a majority of the purchase price in contingent considerations? Write it off if the customers do leave.

 

Yes the stock sale last year was opportunistic. Their financial position is better off because of it. If they reduce that 10% debt they are carrying, it would get even better.

 

I am just not sure whether they should buyback stock now or if they should use their capacity to do more acquisitions now and pay for it by issuing stock later if and when it gets pricier.  I am tending to lean towards the later as the logic behind this roll up is scale and margin expansion. If they wait they are probably going to miss out on opportunities to add scale. If they do a bunch of 4-5x deals in this uncertain environment (with a lot of contingent considerations), they might avoid overpaying. Not really sure if the sellers are going to be motivated now though..

[flesh]

Don't listen to the Crain happy talk. He does that every quarter. None of the deals work. There is a fundamental flaw in the business model. The plan is, old guy wants to retire, Radiant buys his customers. But the customers leave. Radiant is buying deteriorating assets. The only deal that outperformed expectations was the Philly deal, and that guy was young and wanted to work for Radiant. Once all the customers leave, the return on these deals is less than 10%. It's value destroying. Without selling/issuing overvalued stock, this would be at $1. That's just my opinion, stock could open higher for all I know.

 

I see your point. It makes sense

 

Can't they adjust for this affect with paying a majority of the purchase price in contingent considerations? Write it off if the customers do leave.

 

Yes the stock sale last year was opportunistic. Their financial position is better off because of it. If they reduce that 10% debt they are carrying, it would get even better.

 

I am just not sure whether they should buyback stock now or if they should use their capacity to do more acquisitions now and pay for it by issuing stock later if and when it gets pricier.  I am tending to lean towards the later as the logic behind this roll up is scale and margin expansion. If they wait they are probably going to miss out on opportunities to add scale. If they do a bunch of 4-5x deals in this uncertain environment (with a lot of contingent considerations), they might avoid overpaying. Not really sure if the sellers are going to be motivated now though..

 

Part of the rev guidance reduction has to do with the pass through of fuel surcharges as well. In addition to the 25m 10% debt they can pay off with their 3.5% abl facility this spring there's another opportunity to do the same a couple years out on the 10% preferred's.

 

It was a bit disingenuous of Crain to exclude the loss of on time in the organic growth number because clearly when you're losing a big customer that's exactly what effects organic growth. He said it would have been 1.5% vs 7.4% excluding OTE.

 

That said it's not accurate to say they never grow organically. If it was the case that they lost many customers of acquisitions then they wouldn't be showing any organic growth because they are made up of mostly acquisitions. It's the nature of the business to have contracts re bid annually, sometimes less in the case of long time customer relationships. They will gain some and lose some but if they have any organic growth they must be net gain (whether from gdp or customer wins).

 

Lots of levers from here with the 2m in savings from the debt this spring, another in a couple years. I'd buy back anything under 3 going forward. Also, buying 2m ebitda companies at 4-5x at 3.5% is still accretive to earnings. If they do 2-4 of these a year this will add value as RLGT's 5 year average price/ebitda is around 7-8 and sometimes much higher.

[ratiman]

How much did the Wheels/SBA/Skyways deal cost, like $110M? OK, at this point net ebitda growth has been $8-$10M. That is . . . not terrific, as Donald Trump would say. Buy the preferred and get a nice 10%+ return, which is better? Combine the ISLA/DBA/Wheels/SBA/OTE deals and you've got about $155M of invested capital and a return of about $12M ebitda. Abysmal. This company is a Potemkin village, just like that conference call yesterday. There's nothing there but bad deals financed by overvalued stock propped up by empty promises.

[flesh]

How much did the Wheels/SBA/Skyways deal cost, like $110M? OK, at this point net ebitda growth has been $8-$10M. That is . . . not terrific, as Donald Trump would say. Buy the preferred and get a nice 10%+ return, which is better? Combine the ISLA/DBA/Wheels/SBA/OTE deals and you've got about $155M of invested capital and a return of about $12M ebitda. Abysmal. This company is a Potemkin village, just like that conference call yesterday. There's nothing there but bad deals financed by overvalued stock propped up by empty promises.

 

Sure, I agree the past doesn't look great. What about the future? I didn't buy until mid 3's after they raised equity capital at 6.75.

 

If you assume a slightly lower average acquisition multiple (2m ebitda companies), what would the return be on the next 100m vs the past? The balance sheet is completely different. Their future coc is way down and it will be some time before it would make any sense to use anything but the BOA line, unless of course the share price went way up.

 

I don't love the business. I love it for the next couple years. My buddy owns a logistics company as well and I worked there for 3 weeks but he wouldn't sell me enough equity for me to stay.

 

I should say I sold 75% of my position today at 3.38. I figured optically people wouldn't like the ec and as it was a relatively new position for me figured I wait for it to go back down to 3 to re up. I plan on making it a 15% position again at 3.00-, hopefully.

 

 

 

 

 

 

 

 

[whatdadil9]

why is this in free fall?

 

stock looks pretty cheap on jun-17 numbers... Huge insider ownership. Dont think they want to see this go to zero.. what is the issue..?

[kab60]

It's not exactly valued as if anyone expects it to go to zero, though it's not expensive either. Not sure what the market thinks, but I sold at around breakeven (when it was around 3,3x) after getting pretty tired of listening to an overly optimistic CEO/salesman and thought there were better opportunities out there. They recently had to lower their guidance, which I suppose is one of the reasons it's down. Their COO was also fired/quit recently. Just reading the press release about that is an awful experience since it all sounds so dishonest. Anyway, with 150m EV (175m with preferred shares) and around 28m EBITDA guidance you're looking at a multiple around 6,25. Not sure if that's bargain territory if one doesn't believe the story. I really like the 3PL industry, but I can't get comfortable with the valuation of the bigger players, though they surely demand a significant premium due to scale advantages.

[ratiman]

The diversification outside of freight forwarding has been the problem:

 

On Time: $20M acquisition at 6x peak ebitda in a mini-Forward Air type airport-to-airport LTL truck network. Nothing but trouble since the acquisition.

 

Wheels: US freight brokerage margins are really bad, at 8.5% ($12M of $140M last year) the margins are way too low to make any money. That business has been sold multiple times and will probably have to be shut down at some point, 8.5% gross margins are unsustainable.

 

If Crain had simply stuck with the simple cost-plus freight forwarding business, Radiant would probably be doing OK. Instead he got into LTL and then truck brokerage and predictably lost money. Also,Radiant wouldn't be doing an expensive ERP upgrade if it  had  stuck with small forwarding agent stations.

[whatdadil9]

On time: had one customer. Now its gone. that biz is shutdown from what we understand. never coming back.

 

Wheels: same thing. always been poorly run. no one wanted to buy including Transforce that bought Vitran. Was shopped forever. Bohn felt he could buy because he knew he had funny money currency. 8x EBTIDA with 10x-12x EBITDA currency (arguably more because he knew OTE was going down), he felt he was getting a good deal and could get the momentum and sellside behind him to do a massive delevering deal. He did it. Then he had to find a way to integrate. Which he cant.

 

The only difference between Bohn and Michael Pearson is:

 

A) He does not have an Icarus complex and has opportunistically used equity and never gotten over his skis from a leverage perspective.

 

B) Pearson actually attempted to integrate assets and raise prices it just backfired.

 

The agency based forwarding biz is a very good biz (especially the franchise model). We are more skeptical of buying in franchisees at 5x bc we believe this also occurs at peak ebitda and there is a trail after the entrepreneur gets his earnout --> biz depletes.

 

Buying the networks, getting scale/purchasing power, and onboarding agent stations is a good biz. In fact, its a differentiated biz and has more competitive moat than some of these others.

 

The reality is though: Bohn overpaid big time for Wheels and obviously OTE and probably Isla and DBA too.

 

Bohn fancies himself a Henry Singleton but it doesnt matter if you use expensive stock to buy even more expensive assets prospectively.

 

The positives are that the biz isnt levered and Bohn probably doesnt want to BK this thing...

 

The negatives are that there is prob another shoe to drop on the numbers. The street is still way too high and this prob a $20-22MM EBITDA runrate asset. We suspect the stock trades back under 2. The stock was effectively hung at 2.50 before he did this massive sellside pimp into wheels, etc. The guy issued 60 pct of the Company at higher values but albeit in value destroying ways...

 

There is probably a good amount of tax selling left from insts. who bought the deal last year at 6.75  also and the timing is right...

 

If Bohn is smart he will try and sell to Brad Jacobs or a sponsor but I suspect he will try to acquire his way out of this like he always does....

 

This needs an activist. Perhaps Bohn finds one at 1.50

[flesh]

Would you mind sharing how you get to 20-22m ebitda run rate?

[whatdadil9]

June quarter is a middle of the road qtr. they did 5.6 mm.. I think wheels can get worse..

 

technology we have heard is being way overburdened and on verge of collapse in conversations with agent stations. Doubt they will be able to get those service by air synergies any time soon.

[flesh]

June quarter is a middle of the road qtr. they did 5.6 mm.. I think wheels can get worse..

 

technology we have heard is being way overburdened and on verge of collapse in conversations with agent stations. Doubt they will be able to get those service by air synergies any time soon.

 

That's interesting "over burdened" could you elaborate on that point? I'm trying to understand how a TMS could be burdened to the point it collapses? I can imagine slowing down due to tech restraints but I guess I'm just not sure what you mean?

 

According to latest ec SBA synergies should show up next cy. Putting the old system in runoff october first and Crain says it will take about 90 days to be done with. Do you have reason to believe this wont happen? Is this tied in the the TMS being over burdened?

[ratiman]

One problem with buying networks is that Radiant has to maintain multiple brands, as you can see by visiting the web site. Los Angeles has DBA, Adcom, Radiant Global, and Airgroup. Radiant can't consolidate the brands because they're franchisees, Radiant doesn't own them. There may be scale advantages in purchasing but there are no scale advantages in maintaining four different locations and four different brands in LA. Likewise the vertical integration may have failed because the franchisees had no obligation to buy trucking services from Radiant. Radiant already has  100 locations across US and Canada, so a new network would largely just duplicate the existing four overlapping networks. That's a valuable asset but Radiant may have exhausted the opportunities.

 

One thing the diversification into brokerage and Canada did was open up new avenues for acquisitions. There are still a ton of small truck brokerages out there to be consolidated at relatively low prices. That was the original XPO/Brad Jacobs strategy. If Radiant starts making some small brokerage acquisitions at very low multiples and adds that onto the existing brokerage/forwarding network (once it's all running on SAP), that could be a decent strategy.

[muscleman]

I am going through its financials and I found some discrepancy in its long term debt in 2012.

https://www.sec.gov/Archives/edgar/data/1171155/000119312513383579/d554023d10k.htm#fin554023_2

 

Page F-3 says 2012 Notes payable and other long-term debt, net of current portion and debt discount 16,257,695

 

 

https://www.sec.gov/Archives/edgar/data/1171155/000114420412053025/v322416_10k.htm

 

Page F-3 says 2012 Notes payable and other long-term debt, net of current portion and debt discount 20,532,934

 

 

Does anyone know what's going on here? I can't find any accounting restatements.

 

 

[muscleman]

In addition, does anyone know the reason for the long term debt to drop from 84M to 28M in one year? The 10-K doesn't mention anything about it.

[Guest Schwab711]

I am going through its financials and I found some discrepancy in its long term debt in 2012.

https://www.sec.gov/Archives/edgar/data/1171155/000119312513383579/d554023d10k.htm#fin554023_2

 

Page F-3 says 2012 Notes payable and other long-term debt, net of current portion and debt discount 16,257,695

 

 

https://www.sec.gov/Archives/edgar/data/1171155/000114420412053025/v322416_10k.htm

 

Page F-3 says 2012 Notes payable and other long-term debt, net of current portion and debt discount 20,532,934

 

 

Does anyone know what's going on here? I can't find any accounting restatements.

 

Relevant Notes:

2013 - Note 2(d)

2013 - Note 6

2012 - Note 13

 

2012 - Note 13:

As of June 30, 2012, the Company had $7,159,159 in advances under the Credit Facility and $4,275,239 in outstanding checks, which had not yet been presented to the bank for payment. The outstanding checks have been reclassed from cash as they will be advanced from, or against, the Credit Facility when presented for payment to the bank. These amounts total the balance of other long-term debt in the consolidated balance sheet of $11,434,398.

 

 

In 2013, they added language to Note 2(d):

Accounts payable and commissions payable includes

outstanding payments which had not yet been presented to the bank for payment in the amounts of $4,775,189 and $4,275,239 as of June 30, 2013

and 2012, respectively.

 

Good luck.

[Guest Schwab711]

In addition, does anyone know the reason for the long term debt to drop from 84M to 28M in one year? The 10-K doesn't mention anything about it.

 

See cash flow statement

[whatdadil9]

Crain issued effectively 100m of stock between wheels and Secondary. He paid some cash for wheels + some of that was offset from cashflow from operations. When the biz declines ..working capital is a source of funds...

 

But whats the point?

 

Can someone explain how this is a good standalone opty. Rollup of truckbrokerage dont work and certainly using Wheels as a platform doesnt work either. Talk to anyone in the industry...BNSF, XPO, CHRW, alll of these guys were largely organic growth not acq... Acq. have worked in freight forwarding to some degree and 3PL... Brokerage is too transactional and not sticky.

 

Buying the networks is good i would disagree. IF you can buyin franchisees and combine locations into 1 brand(location) that can be very lucrative. Prob is that tech blows and he cant put up any more capacity onto their TMS system or its liable to crash.. I think thats why u havent seen any onboards recently...

 

I think street is still too high and there is another shoe to drop. Tax loss season is a couple months away... Tell me why to ctach falling knife now?

[flesh]

"Crain issued effectively 100m of stock between wheels and Secondary. He paid some cash for wheels + some of that was offset from cashflow from operations. When the biz declines ..working capital is a source of funds..."

 

Not too nit pick but wasn't it closer to 80m? How do you arrive at 100m?

 

You mentioned that acquisitions can be profitable if they are share a back office, isn't that what Bohn is doing in most cases and certainly going forward?

 

Regarding the timing of when to buy in I have no idea, there could be some tax loss selling and next quarter's earnings are likely to disappoint due to SBA not running off. Probably better to wait.

 

 

 

[whatdadil9]

It may be 80 and then the cash flow got the deleveraging to 100mm.. Sorry if it wasnt clear. Between cash from ops and the deals he deleverd a good amount. Some of the cash was unwind of WC tho.

 

I guess my point is that there are def back office saving in all deals. My point is that the company owned store buy in model is inherently flawed. The guy sells peak nubmers. busts his ass to hit his earnout. he leaves numbers go down. QED.

 

Same thing to some degree on brokerage except that its even more transactional and has no moat. U rarely see large scale acqs. of brokerage. Autoinfo was purchased at like 4-5x ebitda a few years back. ITs not sticky.

 

I like the agency forwarding model because the franchise revenue stream is stable/sticky, you dont share in cost structure on way down, and the franchisee is motivated to bust his but to make as much profit to cover his costs. you will never get a better manager than the guy watching his bottom line.

 

IF bohn want to do company owned deals, I think hes better off collapsing mutlitple brands in network so he can remove 3 manager costs at once, remove 3 rents, etc. etc. He prob also has a better shot of recruiting someone good to run a bigger station...

 

I think this need to be in the hands of someone else though. Bohn has no vision/very poor judgment as evidence. He also wont buyin stock until this trtades 4x TTM EBITDA and we are about 1.50 away from that...

 

 

[muscleman]

I am going through its financials and I found some discrepancy in its long term debt in 2012.

https://www.sec.gov/Archives/edgar/data/1171155/000119312513383579/d554023d10k.htm#fin554023_2

 

Page F-3 says 2012 Notes payable and other long-term debt, net of current portion and debt discount 16,257,695

 

 

https://www.sec.gov/Archives/edgar/data/1171155/000114420412053025/v322416_10k.htm

 

Page F-3 says 2012 Notes payable and other long-term debt, net of current portion and debt discount 20,532,934

 

 

Does anyone know what's going on here? I can't find any accounting restatements.

 

Relevant Notes:

2013 - Note 2(d)

2013 - Note 6

2012 - Note 13

 

2012 - Note 13:

As of June 30, 2012, the Company had $7,159,159 in advances under the Credit Facility and $4,275,239 in outstanding checks, which had not yet been presented to the bank for payment. The outstanding checks have been reclassed from cash as they will be advanced from, or against, the Credit Facility when presented for payment to the bank. These amounts total the balance of other long-term debt in the consolidated balance sheet of $11,434,398.

 

 

In 2013, they added language to Note 2(d):

Accounts payable and commissions payable includes

outstanding payments which had not yet been presented to the bank for payment in the amounts of $4,775,189 and $4,275,239 as of June 30, 2013

and 2012, respectively.

 

Good luck.

 

Thank you very much! I appreciate it!

I read that a few times trying to think what's actually happening under the hood and what metrics were they trying to improve on the YoY comparision. But I can't figure out. It is common for any company to have checks that haven't been presented to the bank for payment, but I don't see other companies quietly changing their long term debt level without a restatement filing.

 

When I compare its 2011 balance sheet in its 2011 and 2012 10-Ks, they are exactly the same.

 

 

 

[ratiman]

If Radiant were better run, the deals probably wouldn't leak so much revenue. The deals are out there and both brokerage and forwarding are ripe for a consolidator like Radiant. But Radiant is now much bigger than it was and needs higher caliber managers . . . If Radiant hired management from EXPD or ECHO or CHRW to turn it around while Crain did the deals, that would be promising. As it is there's no reason to believe that Radiant will be better run because nothing has really changed. Activism seems like a dead end while Crain and his friends own 30%.

[whatdadil9]

perhaps bohn realizes that hes taken this as far as he can take it ...and selling is a better outcome than it going to zero.. isnt that a risk longer term if he doesnt keep doing deals and organically the thing keeps declining?

[ratiman]

The chances he'll say "OK I'm done here" are zilch. He's taken this from a couple million dollars and a reverse merger to $800M in revenue, so he has accomplished a lot. He fired the COO but more needs to be done to turn Radiant into a well run company and Crain obviously needs more help with that.