The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
During the six months ended December 31, 2018, the Company acquired $812 of refrigerated trailers financed through a capital lease.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial Statements
(unaudited)
(Dollars in thousands, except share and per share data)
NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION
The Company
Radiant Logistics, Inc. and its consolidated subsidiaries (the “Company”) operates as a third-party logistics company, providing multi-modal transportation and logistics services primarily to customers based in the United States and Canada. The Company services a large and diversified account base, which it supports from an extensive multi-brand network of over 100 operating locations (including 20 Company-owned offices) across North America as well as an integrated international service partner network located in other key markets around the globe. As a third-party logistics company, the Company has a carrier network of approximately 10,000 asset-based transportation companies, including motor carriers, railroads, airlines and ocean lines. The Company believes shippers value its services because it is able to objectively arrange the most efficient and cost-effective means, type and provider of transportation service since it is not influenced by the ownership of transportation assets. In addition, the Company’s minimal investment in physical assets affords it the opportunity for a higher return on invested capital and net cash flows than the Company’s asset-based competitors.
Through its operating locations across North America, the Company offers domestic and international air and ocean freight forwarding services and freight brokerage services, including truckload services, less than truckload services, and intermodal services, which is the movement of freight in trailers or containers by combination of truck and rail. The Company’s primary transportation services involve arranging shipments, on behalf of its customers, of materials, products, equipment and other goods that are generally larger than shipments handled by integrated carriers of primarily small parcels, such as FedEx, DHL and UPS, including arranging and monitoring all aspects of material flow activity utilizing advanced information technology systems. The Company also provides other value-added supply chain services, including order fulfillment, inventory management, and warehouse and distribution services (collectively, “MM&D” services), and customs brokerage services to complement its core transportation service offering.
The Company expects to grow its business organically and by completing acquisitions of other companies with complementary geographical and logistics service offerings. The Company’s organic growth strategy will continue to focus on strengthening existing and expanding new customer relationships leveraging the benefit of the Company’s truck brokerage and intermodal service offerings, while continuing its efforts on the organic build-out of the Company’s network of strategic operating partner locations. In addition, as the Company continues to grow and scale its business, the Company believes that it is creating density in its trade lanes, which creates opportunities for the Company to more efficiently source and manage its transportation capacity.
In addition to its focus on organic growth, the Company will continue to search for acquisition candidates that bring critical mass from a geographic and purchasing power standpoint, along with providing complementary service offerings to the current platform. As the Company continues to grow and scale its business, it also remains focused on leveraging its back-office infrastructure and technology systems to drive productivity improvement across the organization.
Interim Disclosure
The condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The Company’s management believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2019.
The interim period information included in this Quarterly Report on Form 10-Q reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company’s management, necessary for a fair statement of the results of the respective interim periods. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year.
9
NOTE 2 - RECENT ACCOUNTING GUIDANCE
Recent Accounting Guidance Not Yet Adopted
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15 (Subtopic 350-40), Intangibles - Goodwill and Other - Internal-Use Software - Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for the Company in the first quarter of fiscal year 2021, and early adoption is permitted. The Company is assessing the impact of this guidance on its consolidated financial statements and disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13), which modifies the disclosure requirements on fair value measurements. ASU 2018-13 is effective for the Company in the first quarter of fiscal year 2021, and earlier adoption is permitted. The Company is assessing the impact of this guidance on its consolidated financial statements and disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, 2019-04, and 2019-05 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 is effective for the Company in the first quarter of fiscal year 2024. The Company is currently evaluating the impact of the standard on its consolidated financial statements and disclosures.
Recently Adopted Accounting Guidance
ASC 842 - Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20, and ASU 2019-01 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use (“ROU”) assets. Companies are required to use a modified retrospective approach on adoption, with the option of applying the requirements of the standard either (1) retrospectively to each prior comparative reporting period presented or (2) retrospectively at the beginning of the period of adoption, through a cumulative-effect adjustment to retained earnings. The Company adopted the standard on July 1, 2019. The Company transitioned using the modified retrospective approach at the beginning of the period of adoption. Consequently, periods before July 1, 2019 will continue to be reported in accordance with the prior accounting guidance in ASC 840. We elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical lease classification for leases that commenced before July 1, 2019.
The disclosure requirements of ASC 842 are included within Note 5. Adoption of the standard had no impact on our condensed consolidated statements of comprehensive income and condensed consolidated statements of cash flows. Adoption of Topic 842 resulted in increases in assets and liabilities in the Company’s condensed consolidated balance sheets as follows:
(In thousands)
|
Balance as of
June 30, 2019
|
|
|
Transition Adjustment
|
|
|
Balance as of
July 1, 2019
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
—
|
|
|
$
|
16,637
|
|
|
$
|
16,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of operating lease liability
|
|
—
|
|
|
|
6,711
|
|
|
|
6,711
|
|
Current portion of finance lease liability
|
|
683
|
|
|
|
—
|
|
|
|
683
|
|
Operating lease liability, net of current portion
|
|
—
|
|
|
|
10,788
|
|
|
|
10,788
|
|
Finance lease liability, net of current portion
|
|
3,161
|
|
|
|
—
|
|
|
|
3,161
|
|
Deferred rent liability
|
|
862
|
|
|
|
(862
|
)
|
|
|
—
|
|
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)
|
Principles of Consolidation
|
The condensed consolidated financial statements include the accounts of Radiant Logistics, Inc. and its wholly-owned subsidiaries as well as a single variable interest entity, Radiant Logistics Partners, LLC (“RLP”), which is 40% owned by Radiant Global Logistics, Inc. (“RGL”) and 60% owned by Radiant Capital Partners, LLC (“RCP”, see Note 10), an entity owned by the Company’s Chief Executive Officer. All significant intercompany balances and transactions have been eliminated.
10
Non-controlling interest in the condensed consolidated balance sheets represents RCP’s proportionate share of equity in RLP. Net income (loss) of non-wholly owned consolidated subsidiaries or variable interest entities is allocated to the Company and the holder(s) of the non-controlling interest in proportion to their percentage ownership.
The preparation of financial statements and related disclosures in accordance with accounting principles generally accepted in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that could differ from these estimates.
c)
|
Cash and Cash Equivalents
|
The Company maintains its cash in bank deposit accounts that, at times, may exceed federally-insured limits. The Company has not experienced any losses in such accounts.
The Company’s receivables are recorded when billed and represent amounts owed by third-party customers, as well as amounts owed by strategic operating partners. The carrying value of the Company’s receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company evaluates the collectability of accounts receivable on a customer-by-customer basis. The Company records an allowance for doubtful accounts to reduce the net recognized receivable to an amount the Company believes will be reasonably collected. The allowance for doubtful accounts is determined from the analysis of the aging of the accounts receivable, historical experience and knowledge of specific customers.
The Company derives a substantial portion of its revenue through independently-owned strategic operating partner locations operating under various Company brands. Each strategic operating partner is responsible for some or all of the collection of the accounts related to the underlying customers being serviced by such strategic operating partner. To facilitate this arrangement, based on contractual agreements, certain strategic operating partners are required to maintain a bad debt reserve in the form of a security deposit with the Company. The Company charges each strategic operating partner’s bad debt reserve account for any accounts receivable aged beyond 90 days along with any other amounts owed to the Company by strategic operating partners. However, the bad debt reserve account may carry a deficit balance when amounts charged to this reserve account exceed amounts otherwise available. In these circumstances, a deficit bad debt reserve account is recognized as a receivable in the Company’s financial statements. Some strategic operating partners are not required to establish a bad debt reserve; however, they are still responsible to make up for any deficits and the Company may withhold all or a portion of future commissions payable to the strategic operating partner to satisfy any deficit balance. Currently, a number of the Company’s strategic operating partners have a deficit balance in their bad debt reserve accounts. The Company expects to replenish these funds through the future business operations of these strategic operating partners or as their customers satisfy the amounts payable to the Company. However, to the extent any of these strategic operating partners were to cease operations or otherwise be unable to replenish these deficit accounts, the Company would be at risk of loss for any such amounts and generally would reserve for them.
e)
|
Property, Technology, and Equipment
|
Property, technology, and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets. Upon retirement or other disposition of these assets, the cost and related accumulated depreciation or amortization are removed from the accounts and the resulting gain or loss, if any, is reflected in other income or expense. Expenditures for maintenance, repairs and renewals of minor items are expensed as incurred. Major renewals and improvements are capitalized.
Goodwill represents the excess acquisition cost of an acquired entity over the estimated fair values assigned to the net tangible and identifiable intangible assets acquired. The Company typically performs its annual goodwill impairment test effective as of April 1 of each year or more frequently if facts or circumstances indicate that the carrying amount may not be recoverable. Based on the most recent annual impairment test, there was no impairment.
11
An entity has the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount prior to performing a quantitative impairment test. The qualitative assessment evaluates various factors, such as macro-economic conditions, industry and market conditions, cost factors, relevant events and financial trends that may impact the fair value of the reporting unit. If it is determined that the estimated fair value of the reporting unit is more-likely-than-not less than its carrying amount, including goodwill, a quantitative assessment is required. Otherwise, no further analysis is required.
If a quantitative assessment is performed, a reporting unit’s fair value is compared to its carrying value. A reporting unit’s fair value is determined based upon consideration of various valuation methodologies, including the income approach, which utilizes projected future cash flows discounted at rates commensurate with the risks involved and multiples of current and future earnings. If the fair value of a reporting unit is less than its carrying amount, an impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit. As of December 31, 2019, management believes there are no indications of impairment.
Long-lived assets, such as property, technology, and equipment and definite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company compares the undiscounted expected future cash flows to be generated by that asset or asset group to its carrying amount. If the carrying amount of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment charge is recognized to the extent the carrying amount of the asset or asset group exceeds the fair value. Fair values of long-lived assets are determined through various techniques, such as applying probability weighted, expected present value calculations to the estimated future cash flows using assumptions a market participant would utilize or through the use of a third-party independent appraiser or valuation specialist.
Management has performed a review of all long-lived assets and has determined no impairment of the respective carrying value has occurred as of December 31, 2019. Intangible assets consist of customer related intangible assets, trade names and trademarks, and non-compete agreements arising from the Company’s acquisitions. Customer related intangible assets are amortized using the straight-line method over a period of up to ten years, trademarks and trade names are amortized using the straight-line method over 15 years, and non-compete agreements are amortized using the straight-line method over the term of the underlying agreements.
The Company accounts for business acquisitions using the acquisition method as required by FASB ASC Topic 805, Business Combinations. The assets acquired and liabilities assumed in business combinations, including identifiable intangible assets, are recorded based upon their estimated fair values as of the acquisition date. The excess of the purchase price over the estimated fair value of the net tangible and identifiable intangible assets acquired is recorded as goodwill. Acquisition expenses are expensed as incurred. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed as of the acquisition date, the estimates are inherently uncertain and subject to refinement.
The fair values of intangible assets are estimated using a discounted cash flow approach with Level 3 inputs. The estimate of fair value of an intangible asset is equal to the present value of the incremental after-tax cash flows (excess earnings) attributable solely to the intangible asset over its remaining useful life. To estimate fair value, the Company uses risk-adjusted cash flows discounted at rates considered appropriate given the inherent risks associated with each type of asset. The Company believes the level and timing of cash flows appropriately reflects market participant assumptions.
For acquisitions that involve contingent consideration, the Company records a liability equal to the fair value of the contingent consideration obligation as of the acquisition date. The Company determines the acquisition date fair value of the contingent consideration based on the likelihood of paying the additional consideration. The fair value is estimated using projected future operating results and the corresponding future earn-out payments that can be earned upon the achievement of specified operating objectives and financial results by acquired companies using Level 3 inputs and the amounts are then discounted to present value. These liabilities are measured quarterly at fair value, and any change in the fair value of the contingent consideration liability is recognized in the condensed consolidated statements of comprehensive income. Amounts are generally due annually on November 1st and 90 days following the quarter of the final earn-out period of each respective acquisition.
During the measurement period, which may be up to one year from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with the corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recognized in the condensed consolidated statements of comprehensive income.
12
The Company’s revenues are primarily from transportation services, which includes providing for the arrangement of freight, both domestically and internationally, through modes of transportations, such as air freight, ocean freight, truckload, less than truckload and intermodal. The Company generates its transportation services revenue by purchasing transportation from direct carriers and reselling those services to its customers.
In general, each shipment transaction or service order constitutes a separate contract with the customer. A performance obligation is created once a customer agreement with an agreed upon transaction price exists. The transaction price is typically fixed and not contingent upon the occurrence or non-occurrence of any other event. The transaction price is generally due 30 to 45 days from the date of invoice. The Company’s transportation transactions provide for the arrangement of the movement of freight to a customer’s destination. The transportation services, including certain ancillary services, such as loading/unloading, freight insurance and customs clearance, that is provided to the customer as a single performance obligation. These performance obligations are satisfied and recognized in revenue upon the transfer of control of the services over the requisite transit period as the customer’s goods move from origin to destination. The Company determines the period to recognize revenue in transit based upon the departure date and the delivery date, which may be estimated if delivery has not occurred as of the reporting date. Determination of the transit period and the percentage of completion of the shipment as of the reporting date requires management to make judgments that affect the timing of revenue recognition. The Company has determined that revenue recognition over the transit period provides a reasonable estimate of the transfer of services to its customers as it depicts the pattern of the Company’s performance under the contracts with its customers.
The Company also provides warehouse and distribution logistics services for its customers under contracts generally ranging from a few months to five years and include renewal provisions. These warehouse and distribution logistics services contracts provide for inventory management, order fulfilment and warehousing of the Customer’s product and arrangement of transportation of the customer’s product. The Company’s performance obligations are satisfied over time as the customers simultaneously receive and consume the services provided by the Company as it performs. The transaction price is based on the consideration specified in the contract with the customer and contains fixed and variable consideration. In general, the fixed consideration component of a contract represents reimbursement for facility and equipment costs incurred to satisfy the performance obligation and is recognized on a straight-line basis over the term of the contract. The variable consideration component is comprised of cost reimbursement per unit pricing for time and pricing for materials used and is determined based on cost plus a mark-up for hours of services provided and materials used and is recognized over time based on the level of activity volume.
Other services include primarily customs clearance services performed as a single performance obligation. The Company recognizes revenue from this performance obligation at a point in time, which is the completion of the services. Duties and taxes collected from the customer and paid to the customs agent on behalf of the customers are excluded from revenue.
The Company uses independent contractors and third-party carriers in the performance of its transportation services. The Company evaluates who controls the transportation services to determine whether its performance obligation is to transfer services to the customer or to arrange for services to be provided by another party. The Company determined it acts as the principal for its transportation services performance obligation since it is in control of establishing the prices for the specified services, managing all aspects of the shipments process and assuming the risk of loss for delivery and collection. Such transportation services revenue is presented on a gross basis in the condensed consolidated statements of comprehensive income.
13
A summary of the Company’s gross revenues disaggregated by major service lines and geographic markets (reportable segments), and timing of revenue recognition for the three and six months ended December 31, 2019 and 2018 are as follows:
|
Three Months Ended December 31, 2019
|
|
(In thousands)
|
United States
|
|
|
Canada
|
|
|
Corporate/ Eliminations
|
|
|
Total
|
|
Major Service Lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation services
|
$
|
172,163
|
|
|
$
|
21,687
|
|
|
$
|
(213
|
)
|
|
$
|
193,637
|
|
Value-added services (1)
|
|
3,931
|
|
|
|
4,359
|
|
|
|
—
|
|
|
|
8,290
|
|
Total
|
$
|
176,094
|
|
|
$
|
26,046
|
|
|
$
|
(213
|
)
|
|
$
|
201,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services transferred over time
|
$
|
175,134
|
|
|
$
|
26,046
|
|
|
$
|
(213
|
)
|
|
$
|
200,967
|
|
Services transferred at a point in time
|
|
960
|
|
|
|
—
|
|
|
|
—
|
|
|
|
960
|
|
Total
|
$
|
176,094
|
|
|
$
|
26,046
|
|
|
$
|
(213
|
)
|
|
$
|
201,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2019
|
|
(In thousands)
|
United States
|
|
|
Canada
|
|
|
Corporate/ Eliminations
|
|
|
Total
|
|
Major Service Lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation services
|
$
|
343,626
|
|
|
$
|
42,185
|
|
|
$
|
(385
|
)
|
|
$
|
385,426
|
|
Value-added services (1)
|
|
8,352
|
|
|
|
8,692
|
|
|
|
—
|
|
|
|
17,044
|
|
Total
|
$
|
351,978
|
|
|
$
|
50,877
|
|
|
$
|
(385
|
)
|
|
$
|
402,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services transferred over time
|
$
|
350,227
|
|
|
$
|
50,877
|
|
|
$
|
(385
|
)
|
|
$
|
400,719
|
|
Services transferred at a point in time
|
|
1,751
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,751
|
|
Total
|
$
|
351,978
|
|
|
$
|
50,877
|
|
|
$
|
(385
|
)
|
|
$
|
402,470
|
|
|
Three Months Ended December 31, 2018
|
|
(In thousands)
|
United States
|
|
|
Canada
|
|
|
Corporate/ Eliminations
|
|
|
Total
|
|
Major Service Lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation services
|
$
|
228,630
|
|
|
$
|
23,921
|
|
|
$
|
(97
|
)
|
|
$
|
252,454
|
|
Value-added services (1)
|
|
3,129
|
|
|
|
5,355
|
|
|
|
—
|
|
|
|
8,484
|
|
Total
|
$
|
231,759
|
|
|
$
|
29,276
|
|
|
$
|
(97
|
)
|
|
$
|
260,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services transferred over time
|
$
|
231,037
|
|
|
$
|
29,276
|
|
|
$
|
(97
|
)
|
|
$
|
260,216
|
|
Services transferred at a point in time
|
|
722
|
|
|
|
—
|
|
|
|
—
|
|
|
|
722
|
|
Total
|
$
|
231,759
|
|
|
$
|
29,276
|
|
|
$
|
(97
|
)
|
|
$
|
260,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2018
|
|
(In thousands)
|
United States
|
|
|
Canada
|
|
|
Corporate/ Eliminations
|
|
|
Total
|
|
Major Service Lines:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation services
|
$
|
416,879
|
|
|
$
|
46,857
|
|
|
$
|
(145
|
)
|
|
$
|
463,591
|
|
Value-added services (1)
|
|
6,098
|
|
|
|
10,132
|
|
|
|
—
|
|
|
|
16,230
|
|
Total
|
$
|
422,977
|
|
|
$
|
56,989
|
|
|
$
|
(145
|
)
|
|
$
|
479,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timing of Revenue Recognition:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services transferred over time
|
$
|
421,573
|
|
|
$
|
56,989
|
|
|
$
|
(145
|
)
|
|
$
|
478,417
|
|
Services transferred at a point in time
|
|
1,404
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,404
|
|
Total
|
$
|
422,977
|
|
|
$
|
56,989
|
|
|
$
|
(145
|
)
|
|
$
|
479,821
|
|
(1)Value-added services includes warehouse, distribution services, and other services.
14
Practical Expedients
The Company has elected to not disclose the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of the end of the period as the Company’s contracts with its transportation customers have an expected duration of one year or less.
For the performance obligation to transfer warehouse and distribution services in contracts with customers, revenue is recognized in the amount for which the Company has the right to invoice the customer, as this amount corresponds directly with the value provided to the customer for the Company’s performance completed to date.
The Company also applies the practical expedient that permits the recognition of employee sales commissions related to transportation services as an expense when incurred since the amortization period of such costs is less than one year. These costs are included in the condensed consolidated statements of comprehensive income.
Contract Assets
Contract assets represent amounts for which the Company has the right to consideration for the services provided while a shipment is still in-transit but for which it has not yet completed the performance obligation or has not yet invoiced the customer. Upon completion of the performance obligations, which can vary in duration based upon the method of transport and billing the customer, these amounts become classified within accounts receivable.
Operating Partner Commissions
The Company enters into contractual arrangements with independent agents that operate, on behalf of the Company, an office in a specific location that engages primarily in arranging, domestic and international, transportation services. In return, the independent agent is compensated through the payment of sales commissions, which are based on individual shipments. The Company accrues the independent agent’s commission obligation ratably as the goods are transferred to the customer.
j)
|
Defined Contribution Savings Plans
|
The Company has an employee savings plan under which the Company provides safe harbor matching contributions. The Company’s contributions under the plan were $280 and $612 for the three and six months ended December 31, 2019, respectively and $230 and $452 for the three and six months ended December 31, 2018, respectively.
Income taxes are accounted for using the asset and liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
The Company records a liability for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Interest and penalties, if any, are recorded as a component of interest expense or other expense, respectively.
l)
|
Share-Based Compensation
|
The Company grants restricted stock awards, restricted stock units and stock options to certain directors, officers and employees. The Company accounts for share-based compensation as equity awards such that compensation cost is measured at the grant date based on the fair value of the award and is expensed ratably over the vesting period. The fair value of restricted stock is the market price as of the grant date, and the fair value of each stock option grant is estimated as of the grant date using the Black-Scholes option pricing model. Determining the fair value of share-based awards at the grant date requires judgment about, among other things, stock volatility, the expected life of the award, and other inputs. The Company accounts for forfeitures as they occur. The Company issues new shares of common stock to satisfy exercises and vesting of awards granted under its stock plans. Share-based compensation expense is reflected in the condensed consolidated statements of comprehensive income as part of personnel costs.
15
m)
|
Basic and Diluted Income per Share Allocable to Common Stockholders
|
Basic income per common share is computed by dividing net income allocable to common stockholders by the weighted average number of common shares outstanding. Diluted income per common share is computed by dividing net income allocable to common stockholders by the weighted average number of common shares outstanding, plus the number of additional common shares that would have been outstanding if the potential common shares, such as restricted stock awards and stock options, had been issued and were considered dilutive. Net income allocable to common stockholders is after consideration for preferred stock dividends, whether or not declared, and preferred stock redemption.
n)
|
Foreign Currency Translation
|
For the Company’s foreign subsidiaries that prepare financial statements in currencies other than U.S. dollars, the local currency is the functional currency. All assets and liabilities are translated at period-end exchange rates and all income statement amounts are translated at the weighted average rates for the period. Translation adjustments are recorded in accumulated other comprehensive (loss) income. Gains and losses on transactions of monetary items denominated in a foreign currency are recognized in other income (expense) in the condensed consolidated statements of comprehensive income.
o)
|
Reclassifications of Previously Issued Financial Statements
|
Certain amounts for prior periods have been reclassified in the condensed consolidated financial statements to conform to the current year presentation.
p)
|
Fair Value Measurement
|
The accounting guidance for fair value, among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The framework for measuring fair value consists of a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. The fair value measurement level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities measured at fair value are based on one or more of the following three valuation techniques:
|
•
|
Market approach: Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities;
|
|
•
|
Cost approach: Amount that would be required to replace the service capacity of an asset (replacement cost); and
|
|
•
|
Income approach: Techniques to convert future amounts to a single present amount based upon market expectations, including present value techniques, option-pricing, and excess earning models.
|
Fair Value of Financial Instruments
The carrying values of the Company’s cash, receivables, contract assets, accounts payable, commissions payable, accrued expenses, and the income tax receivable and payable approximate the fair values due to the relatively short maturities of these instruments. The carrying value of the Company’s credit facility and notes payable would not differ significantly from fair value (based on Level 2 inputs) if recalculated based on current interest rates.
16
q)
|
Leases (Effective July 1, 2019)
|
The Company determines if an arrangement is a lease at inception. Assets and obligations related to operating leases are included in operating lease right-of-use (“ROU”) assets; current portion of operating lease liability; and operating lease liability, net of current portion in our condensed consolidated balance sheets. Assets and obligations related to finance leases are included in property, technology, and equipment, net; current portion of finance lease liability; and finance lease liability, net of current portion in our condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, the incremental borrowing rate based on the information available at commencement date is used in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
The Company’s agreements with lease and non-lease components, are all each accounted for as a single lease component. For leases with an initial term of twelve months or less, the Company elected the exemption from recording right of use assets and lease liabilities for all leases that qualify and records rent expense on a straight-line basis over the lease term. Expenses for these short-term leases for the three and six months ended December 31, 2019 is immaterial.
Certain of our leases include variable payments, which may vary based upon changes in facts or circumstances after the start of the lease. We exclude variable payments from lease ROU assets and lease liabilities, to the extent not considered fixed, and instead expense as incurred.
NOTE 4 – EARNINGS PER SHARE
The computations of the numerator and denominator of basic and diluted income per share are as follows:
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
(In thousands, except share data)
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Radiant Logistics, Inc.
|
$
|
2,587
|
|
|
$
|
5,870
|
|
|
$
|
5,822
|
|
|
$
|
8,953
|
|
Less: preferred stock dividends
|
|
—
|
|
|
|
(445
|
)
|
|
|
—
|
|
|
|
(956
|
)
|
Less: issuance costs for preferred stock redemption
|
|
—
|
|
|
|
(1,659
|
)
|
|
|
—
|
|
|
|
(1,659
|
)
|
Net income attributable to common stockholders
|
$
|
2,587
|
|
|
$
|
3,766
|
|
|
$
|
5,822
|
|
|
$
|
6,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, basic
|
|
49,760,844
|
|
|
|
49,461,982
|
|
|
|
49,711,692
|
|
|
|
49,449,956
|
|
Dilutive effect of share-based awards
|
|
1,634,219
|
|
|
|
1,602,181
|
|
|
|
1,699,846
|
|
|
|
1,434,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding, diluted
|
|
51,395,063
|
|
|
|
51,064,163
|
|
|
|
51,411,538
|
|
|
|
50,884,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive common shares excluded
|
|
310,245
|
|
|
|
363,856
|
|
|
|
321,730
|
|
|
|
707,672
|
|
17
NOTE 5 – LEASES
The Company has operating and finance leases for office space, warehouse space, trailers and other equipment. Lease terms expire at various dates through October 2025 with options to renew for varying terms at the Company’s sole discretion. The Company has not included these options to extend or terminate in its calculation of right-or-use assets or lease liabilities as it is not reasonably certain to exercise these options.
The components of lease expense were as follows:
(In thousands)
|
Three Months Ended December 31, 2019
|
|
|
Six Months Ended December 31, 2019
|
|
Operating:
|
|
|
|
|
|
|
|
Operating lease cost
|
$
|
1,881
|
|
|
$
|
3,690
|
|
|
|
|
|
|
|
|
|
Financing:
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
158
|
|
|
|
313
|
|
Interest on lease liabilities
|
|
44
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
Total finance lease cost
|
$
|
202
|
|
|
$
|
403
|
|
Supplemental cash flow information related to leases was as follows:
(In thousands)
|
Six Months Ended December 31, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
Operating cash flows arising from operating leases
|
$
|
3,744
|
|
Operating cash flows arising from finance leases
|
|
90
|
|
Financing cash flows arising from finance leases
|
|
339
|
|
|
|
|
|
Right-of-use assets obtained in exchange for new lease liabilities:
|
|
|
|
Operating leases
|
|
855
|
|
Finance leases
|
|
40
|
|
18
Supplemental balance sheet information related to leases was as follows:
|
December 31,
|
|
(In thousands)
|
2019
|
|
Operating lease:
|
|
|
|
Operating lease right-of-use assets
|
$
|
13,943
|
|
|
|
|
|
Current portion of operating lease liability
|
|
6,728
|
|
Operating lease liability, net of current portion
|
|
8,019
|
|
|
|
|
|
Total operating lease liabilities
|
$
|
14,747
|
|
|
|
|
|
Finance lease:
|
|
|
|
Property, technology, and equipment, net
|
$
|
3,529
|
|
|
|
|
|
Current portion of finance lease liability
|
|
680
|
|
Finance lease liability, net of current portion
|
|
2,811
|
|
|
|
|
|
Total finance lease liabilities
|
$
|
3,491
|
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
|
Operating leases
|
2.7 years
|
|
Finance leases
|
4.9 years
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
Operating leases
|
|
3.19
|
%
|
Finance leases
|
|
4.52
|
%
|
As of December 31, 2019, maturities of lease liability for each of the next five fiscal years ending June 30 and thereafter are as follows:
(In thousands)
|
Operating
|
|
|
Finance
|
|
2020 (remaining)
|
$
|
3,672
|
|
|
$
|
426
|
|
2021
|
|
6,074
|
|
|
|
830
|
|
2022
|
|
4,002
|
|
|
|
814
|
|
2023
|
|
1,104
|
|
|
|
628
|
|
2024
|
|
394
|
|
|
|
554
|
|
Thereafter
|
|
317
|
|
|
|
698
|
|
|
|
|
|
|
|
|
|
Total lease payments
|
|
15,563
|
|
|
|
3,950
|
|
|
|
|
|
|
|
|
|
Less imputed interest
|
|
(816
|
)
|
|
|
(459
|
)
|
|
|
|
|
|
|
|
|
Total lease liability
|
$
|
14,747
|
|
|
$
|
3,491
|
|
19
NOTE 6 – PROPERTY, TECHNOLOGY, AND EQUIPMENT
|
|
|
December 31,
|
|
|
June 30,
|
|
(In thousands)
|
Useful Life
|
|
2019
|
|
|
2019
|
|
Computer software
|
3 - 5 years
|
|
$
|
20,366
|
|
|
$
|
18,013
|
|
Trailers and related equipment
|
3 - 15 years
|
|
|
6,810
|
|
|
|
6,941
|
|
Office and warehouse equipment
|
3 - 15 years
|
|
|
4,361
|
|
|
|
4,082
|
|
Leasehold improvements
|
(1)
|
|
|
3,804
|
|
|
|
3,672
|
|
Computer equipment
|
3 - 15 years
|
|
|
2,640
|
|
|
|
2,529
|
|
Furniture and fixtures
|
3 - 15 years
|
|
|
988
|
|
|
|
973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,969
|
|
|
|
36,210
|
|
Less: accumulated depreciation and amortization
|
|
|
|
(18,962
|
)
|
|
|
(16,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,007
|
|
|
$
|
20,127
|
|
(1) The cost is amortized over the shorter of the lease term or useful life.
Depreciation and amortization expenses related to property, technology, and equipment were $1,498 and $2,903 for the three and six months ended December 31, 2019, respectively and $1,314 and $2,476 for the three and six months ended December 31, 2018, respectively. Computer software includes approximately $492 and $722 of software in development as of December 31, 2019 and June 30, 2019, respectively.
NOTE 7 – INTANGIBLE ASSETS
Intangible assets consisted of the following as of December 31, 2019 and June 30, 2019, respectively:
|
December 31, 2019
|
|
(In thousands)
|
Weighted
Average
Amortization
Period
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Customer related
|
5.1 years
|
|
$
|
97,002
|
|
|
$
|
(56,774
|
)
|
|
$
|
40,228
|
|
Trade names and trademarks
|
10.1 years
|
|
|
14,977
|
|
|
|
(4,760
|
)
|
|
|
10,217
|
|
Covenants not to compete
|
2.3 years
|
|
|
875
|
|
|
|
(806
|
)
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
112,854
|
|
|
$
|
(62,340
|
)
|
|
$
|
50,514
|
|
|
June 30, 2019
|
|
(In thousands)
|
Weighted
Average
Amortization
Period
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Net
Carrying
Amount
|
|
Customer related
|
5.5 years
|
|
$
|
97,002
|
|
|
$
|
(52,076
|
)
|
|
$
|
44,926
|
|
Trade names and trademarks
|
10.6 years
|
|
|
14,977
|
|
|
|
(4,252
|
)
|
|
|
10,725
|
|
Covenants not to compete
|
2.7 years
|
|
|
875
|
|
|
|
(784
|
)
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
112,854
|
|
|
$
|
(57,112
|
)
|
|
$
|
55,742
|
|
Amortization expense amounted to $2,597 and $5,229 for the three and six months ended December 31, 2019, respectively and $2,501 and $4,972 for the three and six months ended December 31, 2018, respectively. Future amortization expense for each of the next five fiscal years ending June 30 are as follows:
(In thousands)
|
|
|
|
|
|
2020 (remaining)
|
|
|
$
|
4,725
|
|
2021
|
|
|
|
9,394
|
|
2022
|
|
|
|
8,841
|
|
2023
|
|
|
|
8,363
|
|
2024
|
|
|
|
7,988
|
|
20
NOTE 8 – NOTES PAYABLE
Notes payable consist of the following:
|
December 31,
|
|
|
June 30,
|
|
(In thousands)
|
2019
|
|
|
2019
|
|
Senior Credit Facility
|
$
|
17,246
|
|
|
$
|
13,781
|
|
Senior Secured Loans
|
|
18,927
|
|
|
|
20,591
|
|
Unamortized debt issuance costs
|
|
(531
|
)
|
|
|
(638
|
)
|
|
|
|
|
|
|
|
|
Total notes payable
|
|
35,642
|
|
|
|
33,734
|
|
Less: current portion
|
|
(3,842
|
)
|
|
|
(3,687
|
)
|
|
|
|
|
|
|
|
|
Total notes payable, net of current portion
|
$
|
31,800
|
|
|
$
|
30,047
|
|
Future maturities of notes payable for each of the next five fiscal years ending June 30 and thereafter are as follows:
(In thousands)
|
|
|
|
2020 (remaining)
|
$
|
1,889
|
|
2021
|
|
3,971
|
|
2022
|
|
21,490
|
|
2023
|
|
4,535
|
|
2024
|
|
4,288
|
|
|
|
|
|
|
$
|
36,173
|
|
Senior Credit Facility
The Company has a $75,000 senior credit facility (the “Senior Credit Facility”) with Bank of America, N.A. (the “Lender”) on its own behalf and as agent to the other lenders named therein, currently consisting of the Bank of Montreal (as the initial member of the syndicate under such loan), pursuant to a Second Amendment to Amended and Restated Loan and Security Agreement. The Senior Credit Facility includes a $3,500 sublimit to support letters of credit and matures June 14, 2022.
Borrowings accrue interest based on the Company’s average daily availability at the Lender’s base rate plus 0.25% to 0.75% or LIBOR plus 1.25% to 1.75%. The Senior Credit Facility provides for advances of up to 85% of the eligible Canadian and domestic accounts receivable, 75% of eligible accrued but unbilled domestic receivables and eligible foreign accounts receivable, all of which are subject to certain sub-limits, reserves and reductions. The Senior Credit Facility is collateralized by a first-priority security interest in all of the assets of the U.S. co-borrowers, a first-priority security interest in all of the accounts receivable and associated assets of the Canadian co-borrowers (the “Canadian A/R Assets”) and a second-priority security interest on the other assets of the Canadian borrowers.
Borrowings are available to fund future acquisitions, capital expenditures, repurchase of Company stock or for other corporate purposes. The terms of the Senior Credit Facility are subject to customary financial and operational covenants, including covenants that may limit or restrict the ability to, among other things, borrow under the Senior Credit Facility, incur indebtedness from other lenders, and make acquisitions. As of December 31, 2019, the Company was in compliance with all of its covenants.
As of December 31, 2019, based on available collateral and outstanding letter of credit commitments, there was $50,729 available for borrowing under the Senior Credit Facility.
Senior Secured Loans
In connection with the Company’s acquisition of Wheels International Inc. (“Wheels”), Wheels obtained a CAD$29,000 senior secured Canadian term loan from Integrated Private Debt Fund IV LP (“IPD IV”) pursuant to a CAD$29,000 Credit Facilities Loan Agreement. The Company and its U.S. and Canadian subsidiaries are guarantors of the Wheels obligations thereunder. The loan matures on April 1, 2024 and accrues interest at a rate of 6.65% per annum. The Company is required to maintain five months interest in a debt service reserve account to be controlled by IPD IV. The amount of approximately $600 is recorded as deposits and other assets in the accompanying condensed consolidated financial statements. The Company made interest-only payments for the first 12 months followed by monthly principal and interest payments of CAD$390 that will be paid through maturity.
In connection with the Company’s acquisition of Lomas, Wheels obtained a CAD$10,000 senior secured Canadian term loan from Integrated Private Debt Fund V LP pursuant to a CAD$10,000 Credit Facilities Loan Agreement. The Company and its U.S. and Canadian subsidiaries are guarantors of the Wheels obligations thereunder. The loan matures on June 1, 2024 and accrues interest at a fixed rate of 6.65% per annum. The loan repayment consists of monthly principal and interest payments of CAD$149.
21
The loans may be prepaid in whole at any time providing the Company gives at least 30 days prior written notice and pays the difference between (i) the present value of the loan interest and the principal payments foregone discounted at the Government of Canada Bond Yield for the term from the date of prepayment to the maturity date and (ii) the face value of the principal amount being prepaid.
The loans are collateralized by a (i) first-priority security interest in all of the assets of Wheels except the Canadian A/R Assets, (ii) a second-priority security interest in the Canadian A/R Assets, and (iii) a second-priority security interest on all of the Company’s assets. As of December 31, 2019, the Company was in compliance with all of its covenants.
NOTE 9 – STOCKHOLDERS’ EQUITY
The Company is authorized to issue 5,000,000 shares of preferred stock, par value at $0.001 per share and 100,000,000 shares of common stock, $0.001 per share.
Series A Preferred Stock
At June 30, 2018, the Company had 839,200 shares of 9.75% Series A Cumulative Redeemable Perpetual Preferred Stock (“Series A Preferred Shares”) outstanding with a liquidation preference of $25.00 per share that were issued on December 20, 2013. Net proceeds received from the Series A Preferred Shares issuance totaled approximately $19,320. Dividends on the Series A Preferred Shares were cumulative from the date of original issue and were payable on January 31, April 30, July 31 and October 31, as and if declared by the Company’s board of directors. Commencing on December 20, 2018, the Series A Preferred Shares were redeemable at the Company’s option, in whole or in part, at a cash redemption price of $25.00 per share plus accrued and unpaid dividends (whether declared).
On December 21, 2018, the Company redeemed all its Series A Preferred Shares for an aggregated price of $20,980 and charged to retained earnings $1,659 for the excess of consideration paid over carrying value of preferred stock on redemption. During the six months ended December 31, 2019, no dividend was paid. Dividends paid to prior holders of Series A Preferred Shares for the six months ended December 31, 2018 were $1.5536 per share, totaling $1,303.
Common Stock
In March 2018, the Company’s board of directors authorized the repurchase of up to 5,000,000 shares of the Company’s common stock through December 31, 2019. Under the stock repurchase program, the Company is authorized to repurchase, from time-to-time, shares of its outstanding common stock in the open market at prevailing market prices or through privately negotiated transactions as permitted by securities laws and other legal requirements. The program does not obligate the Company to repurchase any specific number of shares and could be suspended or terminated at any time without prior notice. Under this repurchase program, the Company purchased 189,558 shares of its common stock at an average cost of $5.28 per share for an aggregate cost of $1,000 during the three months ended December 31, 2019. Prior to this fiscal quarter, there were no purchases of common stock executed under the repurchase program authorized by the board of directors in March 2018.
NOTE 10 – VARIABLE INTEREST ENTITY AND RELATED PARTY TRANSACTIONS
RLP is owned 40% by RGL and 60% by RCP, a company for which the Chief Executive Officer of the Company is the sole member. RLP is a certified minority business enterprise that was formed for the purpose of providing the Company with a national accounts strategy to pursue corporate and government accounts with diversity initiatives. RCP’s ownership interest entitles it to a majority of the profits and distributable cash, if any, generated by RLP. The operations of RLP are intended to provide certain benefits to the Company, including expanding the scope of services offered by the Company and participating in supplier diversity programs not otherwise available to the Company. In the course of evaluating and approving the ownership structure, operations and economics emanating from RLP, a committee consisting of the independent Board member of the Company, considered, among other factors, the significant benefits provided to the Company through association with a minority business enterprise, particularly as many of the Company’s largest current and potential customers have a need for diversity offerings. In addition, the committee concluded that the economic relationship with RLP was on terms no less favorable to the Company than terms generally available from unaffiliated third-parties.
Certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have the sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties are considered variable interest entities. RLP qualifies as a variable interest entity and is consolidated in these condensed consolidated financial statements as the Company is the primary beneficiary.
RLP recorded $154 and $315 in profits, of which RCP’s distributable share was $93 and $189, for the three and six months ended December 31, 2019, respectively. RLP recorded $773 and $1,073 in profits, of which RCP’s distributable share was $464 and $644 for the three and six months ended December 31, 2018, respectively. The non-controlling interest recorded as a reduction of net income available to common stockholders in the condensed consolidated statements of comprehensive income represents RCP’s distributive share.
22
NOTE 11 – INCOME TAXES
For the three and six months ended December 31, 2019 and 2018, respectively, the Company’s income tax expense is composed of the following:
|
Three Months Ended December 31,
|
|
|
Six Months Ended December 31,
|
|
(In thousands)
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Current income tax expense
|
$
|
1,448
|
|
|
$
|
2,231
|
|
|
$
|
2,465
|
|
|
$
|
3,461
|
|
Deferred income tax benefit
|
|
(487
|
)
|
|
|
(357
|
)
|
|
|
(717
|
)
|
|
|
(610
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
$
|
961
|
|
|
$
|
1,874
|
|
|
$
|
1,748
|
|
|
$
|
2,851
|
|
The Company’s effective tax rates prior to discrete items for the six months ended December 31, 2019 and 2018 are higher than the U.S. federal statutory rates primarily due to earnings in foreign operations and state taxes. The actual income tax through the second quarter results in an effective tax rate of 23.0%, which is higher than the U.S. federal statutory rate primarily due to earnings in foreign operations and state taxes, but also includes $205 of share-based compensation benefits to date, which is discretely recognized in the quarter and is not a component of the company’s annualized forecasted effective tax rate for fiscal year 2020. The Company does not have any uncertain tax positions and has a federal net operating loss carryover of approximately $726 due to expire primarily through fiscal year 2027 and a foreign net operating loss carryover of approximately $1,730 due to expire through fiscal year 2038.
The Company and its wholly-owned U.S. subsidiaries file a consolidated federal income tax return. The Company also files unitary or separate returns in various state, local, and non-U.S. jurisdictions based on state, local and non-U.S. filing requirements. Tax years that remain subject to examination by U.S. authorities are the years ended June 30, 2017 through June 30, 2019. Tax years that remain subject to examination by state authorities are the years ended June 30, 2016 through June 30, 2019. Tax years that remain subject to examination by non-U.S. authorities are the fiscal year ended June 30, 2016 through June 30, 2019. Occasionally acquired entities have tax years that differ from the Company’s and are still open under the relevant statute of limitations and therefore are subject to potential adjustment.
The Company’s Canadian Subsidiary, Radiant Canada (previously called “Wheels International, Inc.”), is no longer under examination by the Canada Revenue Agency ("CRA") for fiscal year 2015. During the quarter ended December 31, 2019, the Company was notified that the audit had been finalized with the CRA and that the adjustment will result in an immaterial charge.
NOTE 12 – SHARE-BASED COMPENSATION
The Company has two stock-based plans: the 2005 Stock Incentive Plan and the 2012 Stock Option and Performance Award Plan. Each plan authorizes the granting of up to 5,000,000 shares of the Company’s common stock. The plans provide for the grant of stock options, stock appreciation rights, shares of restricted stock, restricted stock units, performance shares and performance units. Restricted stock awards and units are equivalent to one share of common stock and generally vest after three years. The Company does not plan to make additional grants under the 2005 Stock Incentive Plan.
Restricted Stock Awards
The Company recognized share-based compensation expense related to restricted stock awards of $314 and $571 for the three and six months ended December 31, 2019, respectively and $259 and $365 for the three and six months ended December 31, 2018, respectively. As of December 31, 2019, there was $2,502 of total unrecognized share-based compensation cost for restricted stock awards. Such costs are expected to be recognized over a weighted average period of approximately 2.29 years.
The following table summarizes stock award activity under the plans:
|
Number of
Units
|
|
|
Weighted Average
Grant Date Fair Value
|
|
Unvested balance as of June 30, 2019
|
|
687,920
|
|
|
$
|
4.08
|
|
Vested
|
|
(229,034
|
)
|
|
|
2.85
|
|
Granted
|
|
331,966
|
|
|
|
5.56
|
|
Forfeited
|
|
(10,293
|
)
|
|
|
4.98
|
|
|
|
|
|
|
|
|
|
Unvested balance as of December 31, 2019
|
|
780,559
|
|
|
$
|
5.06
|
|
23
Stock Options
Stock options are granted at exercise prices equal to the fair value of the common stock at the date of the grant and have a term of ten years. Generally, grants under each plan vest 20% annually over a five-year period from the date of grant. The Company recognized share-based compensation expense related to stock options of $153 and $326 for the three and six months ended December 31, 2019, respectively and $205 and $430 for the three and six months ended December 31, 2018, respectively. The aggregate intrinsic value of options exercised was $587 and $1,158 for the three and six months ended December 31, 2019, respectively and $125 and $335 for the three and six months ended December 31, 2018, respectively. As of December 31, 2019, there was $292 of total unrecognized share-based compensation cost for stock options. Such costs are expected to be recognized over a weighted average period of approximately 1.04 years.
The following table summarizes stock option activity under the plans:
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
|
|
Aggregate
Intrinsic Value
(In thousands)
|
|
Outstanding as of June 30, 2019
|
|
2,458,093
|
|
|
$
|
3.30
|
|
|
|
4.69
|
|
|
$
|
6,995
|
|
Exercised
|
|
(137,930
|
)
|
|
|
0.93
|
|
|
|
—
|
|
|
|
1,158
|
|
Forfeited
|
|
(30,000
|
)
|
|
|
4.74
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
2,290,163
|
|
|
$
|
3.42
|
|
|
|
4.35
|
|
|
$
|
4,961
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2019
|
|
1,991,400
|
|
|
$
|
3.30
|
|
|
|
4.13
|
|
|
$
|
4,539
|
|
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is involved in various claims and legal actions arising in the ordinary course of business. In many claims and actions, it is inherently difficult to determine whether any loss is probable or even reasonably possible or to estimate the size or range of the possible loss. Accordingly, an adverse outcome from such proceedings could have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. Legal expenses are expensed as incurred. A summary of potential material proceedings and litigation is as follows.
Ingrid Barahona v. Accountabilities, Inc. d/b/a/ Accountabilities Staffing, Inc., Radiant Global Logistics, Inc. and DBA Distribution Services, Inc. (Ingrid Barahona California Class Action)
On October 25, 2013, plaintiff Ingrid Barahona filed a purported class action lawsuit in the Superior Court of the State of California against Radiant Global Logistics, Inc. (“RGL”) and DBA Distribution Services, Inc. (“DBA”, a wholly-owned subsidiary) (collectively referred to as the “Company”), and two third-party staffing companies (collectively with the Company, the “Staffing Defendants”) with whom RGL and DBA contracted for temporary employees. In the lawsuit, Ms. Barahona, on behalf of herself and the putative class, sought damages and penalties under California law, plus interest, attorneys’ fees, and costs, along with equitable remedies, alleging that she and the putative class were the subject of unfair and unlawful business practices, including certain wage and hour violations relating to, among others, failure to provide meal and rest periods, failure to pay minimum wages and overtime, and failure to reimburse employees for work-related expenses. Ms. Barahona alleged that she was jointly employed by the staffing companies and RGL and DBA. RGL and DBA denied Ms. Barahona’s allegations in their entirety, denied that they were liable to Ms. Barahona or the putative class members in any way, and vigorously defended against these allegations based upon a preliminary evaluation of applicable records and legal standards. If Ms. Barahona were to prevail on her allegations on substantially all claims against the Company, the Company could be liable for uninsured damages in an amount that, while not significant when evaluated against either the Company’s assets or current and expected level of annual earnings, could be material when judged against the Company’s earnings in the particular quarter in which any such damages arose, if at all.
On February 19, 2019, the Company filed a Motion to Dismiss the class action case, which the court granted on March 14, 2019, and subsequently entered judgment in favor of the Company on April 30, 2019. On May 15, 2019, Plaintiff filed a Notice of Appeal, seeking appellate review. The trial judge’s decision to dismiss the case and enter judgment in favor of the Company will be reviewed by the Second District Court of Appeal for the State of California. To date, however, the Court of Appeal has not issued an appellate briefing schedule. At this time, the Company is unable to express an opinion as to the likely outcome of the matter.
24
Contingent Consideration and Earn-out Payments
The Company’s agreements with respect to previous acquisitions contain future consideration provisions, which provide for the selling equity owners to receive additional consideration if specified operating objectives and financial results are achieved in future periods. Earn-out payments are generally due annually on November 1st and 90 days following the quarter of the final earn-out period for each respective acquisition.
The following table represents the estimated undiscounted earn-out payments to be paid during the fiscal year ending June 30, 2020 (none in future periods):
(In thousands)
|
|
2020 (remaining)
|
|
Earn-out payments:
|
|
|
|
|
Cash
|
|
$
|
162
|
|
Equity (1)
|
|
|
54
|
|
|
|
|
|
|
Total estimated earn-out payments
|
|
$
|
216
|
|
(1)
|
The Company generally has the right but not the obligation to satisfy a portion of the earn-out payments in stock.
|
25
NOTE 14 – OPERATING AND GEOGRAPHIC SEGMENT INFORMATION
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker or decision-making group in making decisions regarding allocation of resources and assessing performance. The Company’s chief operating decision-maker is the Chief Executive Officer. The Company has two operating segments: United States and Canada.
The Company evaluates the performance of the segments primarily based on their respective revenues and income from operations. In addition, the Company includes the costs of the Company’s executives, board of directors, professional services, such as legal and consulting, amortization of intangible assets, and certain other corporate costs associated with operating as a public company as Corporate.
Three Months Ended December 31, 2019 (In thousands)
|
|
United States
|
|
|
Canada
|
|
|
Corporate/
Eliminations
|
|
|
Total
|
|
Revenues
|
|
$
|
176,094
|
|
|
$
|
26,046
|
|
|
$
|
(213
|
)
|
|
$
|
201,927
|
|
Income (loss) from operations
|
|
|
6,045
|
|
|
|
2,643
|
|
|
|
(4,472
|
)
|
|
|
4,216
|
|
Other income (expense)
|
|
|
75
|
|
|
|
(56
|
)
|
|
|
(594
|
)
|
|
|
(575
|
)
|
Income (loss) before income taxes
|
|
|
6,120
|
|
|
|
2,587
|
|
|
|
(5,066
|
)
|
|
|
3,641
|
|
Depreciation and amortization
|
|
|
1,020
|
|
|
|
474
|
|
|
|
2,601
|
|
|
|
4,095
|
|
Property, technology, and equipment, net
|
|
|
13,999
|
|
|
|
6,008
|
|
|
|
—
|
|
|
|
20,007
|
|
Transition, lease termination,
and other costs
|
|
|
337
|
|
|
|
—
|
|
|
|
—
|
|
|
|
337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, 2018 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
231,759
|
|
|
$
|
29,276
|
|
|
$
|
(97
|
)
|
|
$
|
260,938
|
|
Income (loss) from operations
|
|
|
9,067
|
|
|
|
3,421
|
|
|
|
(3,638
|
)
|
|
|
8,850
|
|
Other income (expense)
|
|
|
50
|
|
|
|
168
|
|
|
|
(860
|
)
|
|
|
(642
|
)
|
Income (loss) before income taxes
|
|
|
9,117
|
|
|
|
3,589
|
|
|
|
(4,498
|
)
|
|
|
8,208
|
|
Depreciation and amortization
|
|
|
910
|
|
|
|
400
|
|
|
|
2,505
|
|
|
|
3,815
|
|
Property, technology, and equipment, net
|
|
|
15,394
|
|
|
|
3,453
|
|
|
|
—
|
|
|
|
18,847
|
|
Transition, lease termination,
and other costs
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2019 (In thousands)
|
|
United States
|
|
|
Canada
|
|
|
Corporate/
Eliminations
|
|
|
Total
|
|
Revenues
|
|
$
|
351,978
|
|
|
$
|
50,877
|
|
|
$
|
(385
|
)
|
|
$
|
402,470
|
|
Income (loss) from operations
|
|
|
13,759
|
|
|
|
4,581
|
|
|
|
(9,322
|
)
|
|
|
9,018
|
|
Other income (expense)
|
|
|
71
|
|
|
|
(44
|
)
|
|
|
(1,286
|
)
|
|
|
(1,259
|
)
|
Income (loss) before income taxes
|
|
|
13,830
|
|
|
|
4,537
|
|
|
|
(10,608
|
)
|
|
|
7,759
|
|
Depreciation and amortization
|
|
|
2,009
|
|
|
|
889
|
|
|
|
5,234
|
|
|
|
8,132
|
|
Property, technology, and equipment, net
|
|
|
13,999
|
|
|
|
6,008
|
|
|
|
—
|
|
|
|
20,007
|
|
Transition, lease termination,
and other costs
|
|
|
328
|
|
|
|
—
|
|
|
|
—
|
|
|
|
328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31, 2018 (In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
422,977
|
|
|
$
|
56,989
|
|
|
$
|
(145
|
)
|
|
$
|
479,821
|
|
Income (loss) from operations
|
|
|
16,883
|
|
|
|
4,620
|
|
|
|
(7,820
|
)
|
|
|
13,683
|
|
Other income (expense)
|
|
|
261
|
|
|
|
141
|
|
|
|
(1,637
|
)
|
|
|
(1,235
|
)
|
Income (loss) before income taxes
|
|
|
17,144
|
|
|
|
4,761
|
|
|
|
(9,457
|
)
|
|
|
12,448
|
|
Depreciation and amortization
|
|
|
1,680
|
|
|
|
787
|
|
|
|
4,981
|
|
|
|
7,448
|
|
Property, technology, and equipment, net
|
|
|
15,394
|
|
|
|
3,453
|
|
|
|
—
|
|
|
|
18,847
|
|
Transition, lease termination,
and other costs
|
|
|
(11
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(11
|
)
|
26
NOTE 15 – SUBSEQUENT EVENTS
In March 2018, the Company’s board of directors authorized the repurchase of up to 5,000,000 shares of the Company’s common stock through December 31, 2019. On February 4, 2020, the Company announced that its board of directors has approved the renewal of the repurchase program through December 31, 2021. The timing and extent to which we repurchase shares will depend on market conditions and other corporate considerations. As of February 3, 2020, the Company has 49,676,263 shares outstanding.
On February 7, 2020 the Company acquired the assets and operations of two of its Adcom agency locations: Alexandria, Virginia based Friedway Enterprises, Inc. (“Friedway”) and Pittsburgh, Pennsylvania based CIC2, Inc. (“CIC2”) through its wholly-owned subsidiary, Radiant Global Logistics, Inc. As consideration for the acquisition, the Company paid $9,150 in cash on closing, and the seller is entitled to additional earn out payments, which will be accounted for as contingent consideration. The acquisition date fair value of the contingent consideration has not yet been determined due to the limited time since the acquisition date and the effort required to assess the fair value. Friedway and CIC2 are expected to transition to the Radiant brand and will continue to provide a full range of domestic and international services from the mid-Atlantic region.
27