10-Q 1 rlgt-10q_20171231.htm 10-Q rlgt-10q_20171231.htm

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2017

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                      

Commission File Number 001-35392

 

RADIANT LOGISTICS, INC.

(Exact name of Registrant as Specified in Its Charter)

 

Delaware

 

04-3625550

 

 

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

 

 

405 114th Ave S.E., Bellevue, WA 98004

 

 

(Address of principal executive offices)

 

 

 

 

 

(425) 943-4599

 

 

(Registrant’s telephone number, including area code)

 

 

 

 

 

N/A

 

(Former name, former address, and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

  

  

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

Emerging growth company

 

  

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

There were 49,341,907 shares outstanding of the registrant’s common stock, par value $.001 per share, as of February 5, 2018.

 

 

 


 

RADIANT LOGISTICS, INC.

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

Item 1.

 

 

Condensed Consolidated Financial Statements - Unaudited

  

 

 

 

 

Condensed Consolidated Balance Sheets as of December 31, 2017 and June 30, 2017

  

3

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended December 31, 2017 and 2016

  

4

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the six months ended December 31, 2017

  

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2017 and 2016

  

6

 

 

 

Notes to Condensed Consolidated Financial Statements

  

8

 

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

24

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

  

34

 

Item 4.

 

 

Controls and Procedures

  

34

 

PART II. OTHER INFORMATION

  

 

 

Item 1.

 

 

Legal Proceedings

  

35

 

Item 1A.

 

 

Risk Factors

  

35

 

Item 6.

 

 

Exhibits

  

36

 

 

 

2


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Balance Sheets

(unaudited)

 

(In thousands, except share and per share data)

 

December 31,

 

 

June 30,

 

 

 

2017

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,476

 

 

$

5,808

 

Accounts receivable, net of allowance of $2,006 and $1,599, respectively

 

 

122,900

 

 

 

116,327

 

Employee and other receivables

 

 

215

 

 

 

251

 

Income tax deposit

 

 

1,677

 

 

 

432

 

Prepaid expenses and other current assets

 

 

6,354

 

 

 

6,902

 

Total current assets

 

 

135,622

 

 

 

129,720

 

 

 

 

 

 

 

 

 

 

Technology and equipment, net

 

 

16,131

 

 

 

15,227

 

 

 

 

 

 

 

 

 

 

Acquired intangibles, net

 

 

70,113

 

 

 

74,729

 

Goodwill

 

 

65,389

 

 

 

66,779

 

Deposits and other assets

 

 

3,218

 

 

 

3,085

 

Total long-term assets

 

 

138,720

 

 

 

144,593

 

Total assets

 

$

290,473

 

 

$

289,540

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued transportation costs

 

$

82,680

 

 

$

85,490

 

Commissions payable

 

 

11,202

 

 

 

10,843

 

Other accrued costs

 

 

4,646

 

 

 

4,778

 

Current portion of notes payable

 

 

3,527

 

 

 

3,382

 

Current portion of contingent consideration

 

 

2,400

 

 

 

4,130

 

Current portion of transition and lease termination liability

 

 

1,300

 

 

 

1,210

 

Other current liabilities

 

 

332

 

 

 

143

 

Total current liabilities

 

 

106,087

 

 

 

109,976

 

 

 

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

44,174

 

 

 

37,040

 

Contingent consideration, net of current portion

 

 

2,625

 

 

 

5,790

 

Transition and lease termination liability, net of current portion

 

 

402

 

 

 

804

 

Deferred rent liability

 

 

940

 

 

 

857

 

Deferred tax liability

 

 

7,538

 

 

 

10,826

 

Other long-term liabilities

 

 

884

 

 

 

782

 

Total long-term liabilities

 

 

56,563

 

 

 

56,099

 

Total liabilities

 

 

162,650

 

 

 

166,075

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized; 839,200 shares issued and

   outstanding, liquidation preference of $20,980

 

 

1

 

 

 

1

 

Common stock, $0.001 par value, 100,000,000 shares authorized; 49,375,185 and 49,177,215

   shares issued, and 49,283,387 and 49,085,417 shares outstanding, respectively

 

 

31

 

 

 

30

 

Additional paid-in capital

 

 

117,445

 

 

 

116,172

 

Treasury stock, at cost, 91,798 shares

 

 

(253

)

 

 

(253

)

Retained earnings

 

 

11,043

 

 

 

7,397

 

Accumulated other comprehensive income (loss)

 

 

(530

)

 

 

65

 

Total Radiant Logistics, Inc. stockholders’ equity

 

 

127,737

 

 

 

123,412

 

Non-controlling interest

 

 

86

 

 

 

53

 

Total stockholders’ equity

 

 

127,823

 

 

 

123,465

 

Total liabilities and stockholders’ equity

 

$

290,473

 

 

$

289,540

 

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

 

 

3


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(unaudited)

 

(In thousands, except share and per share data)

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenues

 

$

206,714

 

 

$

198,881

 

 

$

404,691

 

 

$

394,014

 

Cost of transportation

 

 

158,846

 

 

 

148,757

 

 

 

310,675

 

 

 

294,881

 

Net revenues

 

 

47,868

 

 

 

50,124

 

 

 

94,016

 

 

 

99,133

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating partner commissions

 

 

19,528

 

 

 

22,957

 

 

 

39,220

 

 

 

46,308

 

Personnel costs

 

 

14,909

 

 

 

12,954

 

 

 

28,902

 

 

 

25,732

 

Selling, general and administrative expenses

 

 

6,856

 

 

 

5,569

 

 

 

13,704

 

 

 

11,350

 

Depreciation and amortization

 

 

3,567

 

 

 

3,028

 

 

 

7,142

 

 

 

6,034

 

Transition and lease termination costs

 

 

 

 

 

385

 

 

 

107

 

 

 

862

 

Change in contingent consideration

 

 

190

 

 

 

806

 

 

 

(110

)

 

 

1,056

 

Total operating expenses

 

 

45,050

 

 

 

45,699

 

 

 

88,965

 

 

 

91,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income from operations

 

 

2,818

 

 

 

4,425

 

 

 

5,051

 

 

 

7,791

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

9

 

 

 

6

 

 

 

16

 

 

 

11

 

Interest expense

 

 

(811

)

 

 

(620

)

 

 

(1,582

)

 

 

(1,259

)

Foreign exchange gain (loss)

 

 

(55

)

 

 

188

 

 

 

(139

)

 

 

388

 

Other

 

 

96

 

 

 

116

 

 

 

226

 

 

 

310

 

Total other expense:

 

 

(761

)

 

 

(310

)

 

 

(1,479

)

 

 

(550

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income tax provision

 

 

2,057

 

 

 

4,115

 

 

 

3,572

 

 

 

7,241

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit (expense)

 

 

1,840

 

 

 

(1,489

)

 

 

1,214

 

 

 

(2,741

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

3,897

 

 

 

2,626

 

 

 

4,786

 

 

 

4,500

 

Less: Net income attributable to non-controlling interest

 

 

(56

)

 

 

(16

)

 

 

(117

)

 

 

(28

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Radiant Logistics, Inc.

 

 

3,841

 

 

 

2,610

 

 

 

4,669

 

 

 

4,472

 

Less: Preferred stock dividends

 

 

(511

)

 

 

(511

)

 

 

(1,023

)

 

 

(1,023

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

3,330

 

 

$

2,099

 

 

$

3,646

 

 

$

3,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation gain (loss)

 

 

210

 

 

 

317

 

 

 

(595

)

 

 

540

 

Comprehensive income

 

$

4,107

 

 

$

2,943

 

 

$

4,191

 

 

$

5,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share - basic and diluted

 

$

0.07

 

 

$

0.04

 

 

$

0.07

 

 

$

0.07

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic shares

 

 

49,174,789

 

 

 

48,789,684

 

 

 

49,130,167

 

 

 

48,825,598

 

Diluted shares

 

 

50,711,153

 

 

 

49,799,686

 

 

 

50,677,053

 

 

 

49,667,041

 

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

4


 

 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statement of Stockholders’ Equity

(unaudited)

 

 

RADIANT LOGISTICS, INC. STOCKHOLDERS' EQUITY

 

 

 

 

 

(In thousands, except share data)

Preferred Stock

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Treasury

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Non-

Controlling

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Stock

 

 

Earnings

 

 

Income (Loss)

 

 

Interest

 

 

Equity

 

Balance as of June 30, 2017

 

839,200

 

 

$

1

 

 

 

49,085,417

 

 

$

30

 

 

$

116,172

 

 

$

(253

)

 

$

7,397

 

 

$

65

 

 

$

53

 

 

$

123,465

 

Issuance of common stock to former

   shareholders of acquired operations

 

 

 

 

 

 

 

133,082

 

 

 

1

 

 

 

672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

673

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

730

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

730

 

Cashless exercise of stock options

 

 

 

 

 

 

 

64,888

 

 

 

 

 

 

(129

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(129

)

Preferred dividends paid

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,023

)

 

 

 

 

 

 

 

 

(1,023

)

Distribution to non-controlling interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(84

)

 

 

(84

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,669

 

 

 

 

 

 

117

 

 

 

4,786

 

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(595

)

 

 

 

 

 

(595

)

Balance as of December 31, 2017

 

839,200

 

 

$

1

 

 

 

49,283,387

 

 

$

31

 

 

$

117,445

 

 

$

(253

)

 

$

11,043

 

 

$

(530

)

 

$

86

 

 

$

127,823

 

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

 

 

5


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

(In thousands)

 

Six Months Ended December 31,

 

 

 

 

2017

 

 

 

2016

 

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

4,786

 

 

$

4,500

 

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

share-based compensation expense

 

 

730

 

 

 

660

 

amortization of intangibles

 

 

4,937

 

 

 

4,157

 

depreciation and leasehold amortization

 

 

2,205

 

 

 

1,877

 

deferred income tax benefit

 

 

(3,288

)

 

 

(658

)

amortization of loan fees

 

 

123

 

 

 

159

 

change in contingent consideration

 

 

(110

)

 

 

1,056

 

transition and lease termination costs

 

 

107

 

 

 

44

 

loss (gain) on disposal of technology and equipment

 

 

(19

)

 

 

4

 

change in (recovery of) provision for doubtful accounts

 

 

407

 

 

 

(17

)

CHANGE IN OPERATING ASSETS AND LIABILITIES:

 

 

 

 

 

 

 

 

accounts receivable

 

 

(3,243

)

 

 

(12,586

)

employee and other receivables

 

 

35

 

 

 

297

 

income tax deposit

 

 

(1,212

)

 

 

939

 

prepaid expenses, deposits and other assets

 

 

368

 

 

 

2,912

 

accounts payable and accrued transportation costs

 

 

(4,458

)

 

 

6,592

 

commissions payable

 

 

359

 

 

 

4,944

 

other accrued costs

 

 

(460

)

 

 

(1,248

)

other liabilities

 

 

452

 

 

 

2

 

deferred rent liability

 

 

89

 

 

 

57

 

payment of contingent consideration

 

 

(1,474

)

 

 

(425

)

transition and lease termination liability

 

 

(264

)

 

 

(530

)

Net cash provided by operating activities

 

 

70

 

 

 

12,736

 

 

 

 

 

 

 

 

 

 

CASH FLOWS USED FOR INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Acquisitions during the fiscal year

 

 

(1,161

)

 

 

(50

)

Purchases of technology and equipment

 

 

(3,061

)

 

 

(2,184

)

Proceeds from sale of technology and equipment

 

 

68

 

 

 

52

 

Payments to former shareholders of acquired operations

 

 

 

 

 

(50

)

Net cash used for investing activities

 

 

(4,154

)

 

 

(2,232

)

 

 

 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from (repayments to) credit facility, net

 

 

8,119

 

 

 

(979

)

Payments of loan fees

 

 

(88

)

 

 

 

Repayments of notes payable

 

 

(1,706

)

 

 

(1,166

)

Purchases of treasury stock

 

 

 

 

 

(253

)

Payments of contingent consideration

 

 

(413

)

 

 

(3,446

)

Payments of preferred stock dividends

 

 

(1,023

)

 

 

(1,023

)

Distribution to non-controlling interest

 

 

(84

)

 

 

(42

)

Payments of employee tax withholdings related to cashless stock option exercises

 

 

(129

)

 

 

(51

)

Net cash provided by (used for) financing activities

 

 

4,676

 

 

 

(6,960

)

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(1,924

)

 

 

(49

)

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

(1,332

)

 

 

3,495

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

5,808

 

 

 

4,768

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

4,476

 

 

$

8,263

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Income taxes paid

 

$

3,283

 

 

$

2,503

 

Interest paid

 

$

1,444

 

 

$

1,112

 

 

(continued)

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

6


 

RADIANT LOGISTICS, INC.

Condensed Consolidated Statements of Cash Flows (continued)

(unaudited)

Supplemental disclosure of non-cash investing and financing activities:

In September 2017, the Company issued 10,019 shares of common stock at a fair value of $4.99 per share in satisfaction of $50 of the Sandifer-Valley Transportation & Logistics, Ltd. purchase price, resulting in an increase to common stock and additional paid-in capital of $50.

In November 2017, the Company issued 123,063 shares of common stock at a fair value of $5.06 per share in satisfaction of $623 of various earn-out payments for the period ended June 30, 2017, resulting in a decrease to the current portion of contingent consideration, an increase to common stock of $1 and an increase to additional paid-in capital of $622.

 

The accompanying notes form an integral part of these condensed consolidated financial statements.

 

7


 

RADIANT LOGISTICS, INC.

Notes to the Condensed Consolidated Financial Statements

(unaudited)

(All amounts in these footnotes other than share amounts and per share amounts are in thousands)

 

NOTE 1 – THE COMPANY AND BASIS OF PRESENTATION

The Company

Radiant Logistics, Inc. (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 business operations involve arranging the shipment, 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 logistics services, including customs brokerage, order fulfillment, inventory management and warehousing 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, 2017.

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.

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Company 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 8), an affiliate of Bohn H. Crain, the Company’s Chief Executive Officer, whose accounts are included in the condensed consolidated financial statements. All significant intercompany balances and transactions have been eliminated. All amounts in the condensed consolidated financial statements are stated in thousands, except share and per share amounts.

 

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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)

Use of Estimates

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. Such estimates include revenue recognition, accruals for the cost of purchased transportation, the fair value of acquired assets and liabilities, changes in contingent consideration, accounting for the issuance of shares and share-based compensation, the assessment of the recoverability of long-lived assets and goodwill, and the establishment of an allowance for doubtful accounts. Estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period that they are determined to be necessary. Actual results could differ from those estimates.

b)

Fair Value Measurements

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.

c)

Fair Value of Financial Instruments

The carrying values of the Company’s receivables, accounts payable and accrued transportation costs, commissions payable, other accrued costs, and the income tax deposit approximate the fair values due to the relatively short maturities of these instruments. The carrying value of the Company’s credit facility, notes payable and other long-term liabilities would not differ significantly from fair value (based on Level 2 inputs) if recalculated based on current interest rates. Contingent consideration attributable to the Company’s acquisitions are reported at fair value using Level 3 inputs.

d)

Cash and Cash Equivalents

For purposes of the statements of cash flows, cash equivalents include all highly liquid investments with original maturities of three months or less. Cash balances may at times exceed federally insured limits. Checks issued by the Company that have not yet been presented to the bank for payment are reported as accounts payable and commissions payable in the accompanying condensed consolidated balance sheets. Accounts payable and commissions payable includes outstanding payments which had not yet been presented to the bank for payment in the amounts of $8,356 and $9,238 as of December 31, 2017 and June 30, 2017, respectively.

e)

Concentrations

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.

f)

Accounts Receivable

The Company’s receivables are recorded when billed and represent claims against third-parties that will be settled in cash. 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 a reserve for bad debts against amounts due in order to reduce the net recognized receivable to an amount the Company believes will be reasonably collected. The reserve is a discretionary amount determined from the analysis of the aging of the accounts receivables, historical experience and knowledge of specific customers.

9


 

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 bad debt expense related to the underlying customers being serviced by such strategic operating partner. To facilitate this arrangement, certain strategic operating partners are required to maintain a security deposit with the Company that is recognized as a liability in the Company’s financial statements. The Company charges each strategic operating partner’s bad debt reserve account for any accounts receivable aged beyond 90 days. However, the bad debt reserve account may carry a deficit balance when amounts charged to this reserve account exceed amounts otherwise available in this reserve account. In these circumstances, deficit bad debt reserve accounts, as well as other deficit balances owed to us by strategic operating partners, are recognized as a receivable in the Company’s financial statements. Other strategic operating partners are not required to establish a bad debt reserve, however, they are still responsible for deficits and their strategic operating partner agreements provide that the Company may withhold all or a portion of future commission checks payable to the strategic operating partner in satisfaction of any deficit balance. Currently, a number of the Company’s strategic operating partners have a deficit balance in their bad debt reserve account. The Company expects to replenish these funds through the future business operations of these strategic operating partners. 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 amount.

g)

Technology and Equipment

Technology (computer software, hardware, and communications), vehicles, furniture and equipment are stated at cost, less accumulated depreciation over the estimated useful lives of the respective assets. Depreciation is computed using three to fifteen year lives for vehicles, communication, office, furniture, and computer equipment using the straight line method of depreciation. Computer software is depreciated over a three to five year life using the straight line method of depreciation. For leasehold improvements, the cost is amortized over the shorter of the lease term or useful life on a straight line basis. 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 charged to expense as incurred. Major renewals and improvements are capitalized.

h)

Goodwill

Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of a business acquired. The Company typically performs its annual goodwill impairment test effective as of April 1 of each year, unless events or circumstances indicate impairment may have occurred before that time. The Company assesses qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. After assessing qualitative factors, the Company determined that no further testing was necessary. If further testing was necessary, the Company would determine the fair value of each reporting unit, and compare the fair value to the reporting unit’s carrying amount. As of December 31, 2017, management believes there are no indications of impairment.

i)

Long-Lived Assets

Acquired intangibles consist of customer related intangibles, trade names and trademarks, and non-compete agreements arising from the Company’s acquisitions. Customer related intangibles are amortized using the straight-line method over a period of up to 10 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 reviews long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of a long-lived asset is less than its carrying amount, the asset is considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the asset. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. 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, 2017.

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j)

Business Combinations

The Company accounts for business combinations using the purchase method of accounting and allocates the purchase price to the tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values at the acquisition date. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement. As a result, 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 offset 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 recorded in the condensed consolidated statements of operations.

The fair values of intangible assets acquired are estimated using a discounted cash flow approach with Level 3 inputs. Under this method, an intangible asset’s fair value 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 calculate 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.

The Company determines the acquisition date fair value of the contingent consideration payable based on the likelihood of paying the contingent consideration as part of the consideration transferred. 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 contingent liability is included in the condensed consolidated statements of operations.

k)

Commitments

The Company has operating lease commitments for equipment rentals, office space, and warehouse space under non-cancelable operating leases expiring at various dates through April 2023. Rent expense is recognized straight line over the term of the lease. Minimum future lease payments (excluding the lease payments included in the transition and lease termination liability) under these non-cancelable operating leases for each of the next five fiscal years ending June 30 and thereafter are as follows:

 

(In thousands)

 

 

 

2018 (remaining)

$

4,504

 

2019

 

8,690

 

2020

 

8,379

 

2021

 

7,169

 

2022

 

4,684

 

Thereafter

 

1,079

 

 

 

 

 

Total minimum lease payments

$

34,505

 

 

Rent expense amounted to $2,226 and $4,368 for the three and six months ended December 31, 2017, respectively, and $1,178 and $2,395 for the three and six months ended December 31, 2016, respectively.

l)

Transition and Lease Termination Costs

Lease termination costs consist of expenses related to future rent payments for which the Company no longer intends to receive any economic benefit. A liability is recorded when the Company ceases to use leased space. Lease termination costs are calculated as the present value of lease payments, net of expected sublease income, and the loss on disposition of assets. Retention and transition costs consist of retention bonuses expected to be paid, and non-recurring personnel costs identified for elimination in connection with the winding down of Service by Air, Inc. (“SBA”).

The transition and lease termination liability consists of the following:

 

(In thousands)

Lease Termination

Costs

 

 

Retention Costs

 

 

Total

 

Balance as of June 30, 2017

$

1,614

 

 

$

400

 

 

$

2,014

 

Transition and lease termination costs

 

107

 

 

 

 

 

 

107

 

Payments and other

 

(356

)

 

 

(63

)

 

 

(419

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2017

$

1,365

 

 

$

337

 

 

$

1,702

 

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m)

401(k) 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 $230 and $425 for the three and six months ended December 31, 2017, respectively, and $186 and $368 for the three and six months ended December 31, 2016, respectively.

n)

Income Taxes

Deferred income taxes are reported 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 reports a liability for unrecognized tax benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest and penalties, if any, are recorded as a component of interest expense or other expense, respectively.

o)

Revenue Recognition and Purchased Transportation Costs

The Company is the primary obligor responsible for providing the service desired by the customer and is responsible for fulfillment, including the acceptability of the service(s) ordered or purchased by the customer. At the Company’s sole discretion, it sets the prices charged to its customers, and is not required to obtain approval or consent from any other party in establishing its prices. The Company has multiple suppliers for the services it sells to its customers, and has the absolute and complete discretion and right to select the supplier that will provide the product(s) or service(s) ordered by a customer, including changing the supplier on a shipment-by-shipment basis. In most cases, the Company determines the nature, type, characteristics, and specifications of the service(s) ordered by the customer. The Company also assumes credit risk for the amount billed to the customer.

As a non asset-based carrier, the Company generally does not own transportation assets. The Company generates the major portion of its freight forwarding revenues by purchasing transportation services from direct (asset-based) carriers and reselling those services to its customers. Based upon the terms in the contract of carriage, revenues related to shipments where the Company issues a House Airway Bill or a House Ocean Bill of Lading are recognized at the time the freight is tendered to the direct carrier at origin net of duties and taxes. Costs related to the shipments are also recognized at this same time based upon anticipated margins, contractual arrangements with direct carriers, and other known factors. The estimates are routinely monitored and compared to actual invoiced costs. The estimates are adjusted as deemed necessary by the Company to reflect differences between the original accruals and actual costs of purchased transportation.

This method generally results in recognition of revenues and purchased transportation costs earlier than the preferred methods under GAAP which does not recognize revenue until a proof of delivery is received or which recognizes revenue as progress on the transit is made. The Company’s method of revenue and cost recognition does not result in a material difference from amounts that would be reported under such other methods.

All other revenue, including revenue from other value-added services including brokerage services, warehousing and fulfillment services, is recognized upon completion of the service.

p)

Share-Based Compensation

The Company has issued restricted stock awards, restricted stock units and stock options to certain directors, officers and employees. The Company accounts for share-based compensation under the fair value recognition provisions 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. 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.

The Company recorded share-based compensation expense of $380 and $730 for the three and six months ended December 31, 2017, respectively, and $329 and $660 for the three and six months ended December 31, 2016, respectively.

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q)

Basic and Diluted Income Per Share

 

Basic income per share is computed by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding. Diluted income per share is computed similar to basic income per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares, such as stock awards and stock options, had been issued and if the additional common shares were dilutive. Net income attributable to common stockholders is calculated after earned preferred stock dividends, whether or not declared.

The following table reconciles the numerator and denominator of the basic and diluted per share computations for earnings per share as follows:

 

 

Three Months Ended December 31,

 

 

Six Months Ended December 31,

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Weighted average basic shares outstanding

 

49,174,789

 

 

 

48,789,684

 

 

 

49,130,167

 

 

 

48,825,598

 

Dilutive effect of share-based awards

 

1,536,364

 

 

 

1,010,002

 

 

 

1,546,886

 

 

 

841,443

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average dilutive shares outstanding

 

50,711,153

 

 

 

49,799,686

 

 

 

50,677,053

 

 

 

49,667,041

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Potentially dilutive common shares excluded

 

1,101,454

 

 

 

2,048,574

 

 

 

1,102,093

 

 

 

2,139,847

 

 

r)

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 are recognized in the condensed consolidated statements of operations.

s)

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. In March 2016, the FASB issued ASU 2016-08 to further clarify the implementation guidance on principal versus agent considerations. The guidance is effective for the Company beginning July 1, 2018 and permits the use of either a retrospective or cumulative effect transition method. The Company is in the process of evaluating the adoption impact for each of its services, including any impact on gross versus net revenue recognition. As the Company completes the overall evaluation, it is identifying and preparing to implement changes to its accounting policies, practices, and controls to support the new standard.

In February 2016, the FASB issued ASU 2016-02, Leases, to replace existing guidance. The guidance requires the recognition of right-of-use assets and lease liabilities for operating leases with terms more than 12 months on the balance sheet. Guidance is also provided for the presentation of leases within the statement of operations and cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2018, and early adoption is permitted. The adoption of this standard will impact the Company’s consolidated financial statements as future minimum lease payments under noncancelable leases totaled approximately $34.5 million as of December 31, 2017. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

In October 2016, the FASB issued ASU 2016-16, Income Taxes, allowing the recognition of income tax consequences on intra-entity asset transfers. Current GAAP prohibits recognizing current and deferred income tax consequences for an intra-entity asset transfer until the asset has been sold to an outside party. The guidance is effective for annual and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company has approximately $1.8 million of such assets recorded in deposits and other assets in the consolidated balance sheets and is currently evaluating the impact and timing that the adoption of this guidance will have on its consolidated financial statements and related disclosures.

t)

Recently Adopted Accounting Pronouncements

In the prior fi