RADIANT LOGISTICS, INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS This report contains “forward-looking statements” within the meaning set forth in United States securities laws and regulations – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business, financial performance and financial condition, and often contain words such as “anticipate,” “believe,” “estimates,” “expect,” “future,” “intend,” “may,” “plan,” “see,” “seek,” “strategy,” or “will” or the negative thereof or any variation thereon or similar terminology or expressions. These forward-looking statements are not guarantees and are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. We have developed our forward-looking statements based on management’s beliefs and assumptions, which in turn rely upon information available to them at the time such statements were made. Such forward-looking statements reflect our current perspectives on our business, future performance, existing trends and information as of the date of this report. These include, but are not limited to, our beliefs about future revenue and expense levels, growth rates, prospects related to our strategic initiatives and business strategies, along with express or implied assumptions about, among other things: our continued relationships with our strategic operating partners; the performance of our historic business, as well as the businesses we have recently acquired, at levels consistent with recent trends and reflective of the synergies we believe will be available to us as a result of such acquisitions; our ability to successfully integrate our recently acquired businesses; our ability to locate suitable acquisition opportunities and secure the financing necessary to complete such acquisitions; transportation costs remaining in-line with recent levels and expected trends; our ability to mitigate, to the best extent possible, our dependence on current management and certain of our larger strategic operating partners; our compliance with financial and other covenants under our indebtedness; the absence of any adverse laws or governmental regulations affecting the transportation industry in general, and our operations in particular; the impact of COVID-19 on our operations and financial results; and such other factors that may be identified from time to time in our Securities and Exchange Commission (“SEC”) filings and other public announcements, including those set forth under the caption “Risk Factors” in our Form 10-K for the year ended June 30, 2019 and this Form 10-Q for the quarter ended March 31, 2020. In addition, the global economic climate and additional or unforeseen effects from the COVID-19 pandemic amplify many of these risks. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the foregoing. Readers are cautioned not to place undue reliance on our forward-looking statements, as they speak only as of the date made. We disclaim any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. The following discussion and analysis of our financial condition and result of operations should be read in conjunction with the condensed consolidated financial statements and the related notes and other information included elsewhere in this report. Overview We operate as a third-party logistics company, providing multi-modal transportation and logistics services primarily in the United States and Canada. We service a large and diversified account base consisting of consumer goods, food and beverage, manufacturing and retail customers, which we support from an extensive network of operating locations across North America as well as an integrated international service partner network located in other key markets around the globe. We provide these services through a multi-brand network, which includes over 100 locations operated exclusively on our behalf by independent agents, who we also refer to as our “strategic operating partners”, as well as approximately 20 Company-owned offices. As a third-party logistics company, we have approximately 10,000 asset-based transportation companies, including motor carriers, railroads, airlines and ocean lines in our carrier network. We believe shippers value our services because we are able to objectively arrange the most efficient and cost-effective means, type and provider of transportation service without undue influence caused by the ownership of transportation assets. In addition, our minimal investment in physical assets affords us the opportunity for a higher return on invested capital and net cash flows than our asset-based competitors. Through our operating locations across North America, we offer domestic, international air and ocean freight forwarding services and freight brokerage services, including truckload services, LTL services, and intermodal services, which is the movement of freight in trailers or containers by combination of truck and rail. Our primary business operations involve arranging the shipment, on behalf of our 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. Our services include arranging and monitoring all aspects of material flow activity utilizing advanced information technology systems. We also provide other value-added logistics services, including customs brokerage and MM&D solutions to complement our core transportation service offering. 30 We expect to grow our business organically and by completing acquisitions of ot her companies with complementary geographic and logistics service offerings. Our organic growth strategy will continue to focus on strengthening existing and expanding new customer relationships leveraging the benefit of our truck brokerage and intermodal service offerings, while continuing our efforts on the organic build-out of our network of strategic operating partner locations. In addition to our focus on organic growth, we continue to search for acquisition candidates that bring to our current platfor m a critical mass from a geographic and/or purchasing power standpoint along with complementary service offerings. As we continue to grow and scale our business, we believe that we are creating density in our trade lanes, which creates opportunities for us to more efficiently source and manage our transportation capacity. In addition, we remain focused on leveraging our back-office infrastructure to drive productivity improvement across the organization. COVID-19 The recent COVID-19 outbreak was declared a pandemic by the World Health Organization on March 11, 2020 and has rapidly spread to the United States and many other parts of the world and has impacted and may continue to impact our business operations, including employees, customers, financial condition, liquidity and cash flow for an extended period of time. In particular, we are seeing significant changes in demand among our various customers depending on their industry. Certain industries saw an increase in demand, while other industries experienced a slowdown of demand and production. Federal and state governments have implemented measures in an effort to contain the virus, including social distancing, travel restrictions, border closures, limitations on public gatherings, work from home, supply chain logistical changes, and closure of nonessential businesses. Since late March, we shifted our focus to delivering against four key objectives: ensuring the health and safety of our employees; providing supply chain continuity for our customers, operating partners and carriers; protecting the economic security of our people to the greatest extent possible; and taking the steps necessary to mitigate the impacts of the slowing economy on our own business. Our business model has also shown its strength in the diversity of our service offerings. Although the pandemic has had a substantial negative impact on many of the industry verticals and customers that we serve, the Radiant network is proud to be playing an active role in the fight against COVID-19: delivering personal protective equipment, food and beverage, consumer goods, technology and other essential products for our customers in North America and around the world. Notwithstanding this great effort by our team, we anticipate the contraction in our business from the shelter-at-home mandates, closing of manufacturing facilities and general global economic slowdown will more than off-set any financial benefit from our support of essential businesses. The effects of COVID-19, however, will not be fully reflected in our financial results until future periods. The extent to which the COVID-19 pandemic impacts our business going forward will depend on numerous evolving factors we cannot reliably predict, including the duration and scope of the pandemic; governmental, business, and individuals' actions in response to the pandemic; and the impact on economic activity including the possibility of recession or financial market instability. These factors may adversely impact consumer, business, and government spending as well as customers' ability to pay for our services on an ongoing basis. This uncertainty also affects management’s accounting estimates and assumptions, which could result in greater variability in a variety of areas that depend on these estimates and assumptions, including receivables and forward-looking guidance. In response to COVID-19 we have implemented the following measures to ensure the health and safety of our employees, the financial soundness of the Company and the continuity of our services to our customers : • We are applying the social distancing guidelines by having a majority of our office employees work from their homes; • We provide clear communication to our employees promoting essential healthy hygiene habits and assist in responsibly responding to potential symptoms including self-quarantining and testing; • We initiated a series of workforce reduction measures impacting employees across our U.S. operations that included 20% salary reductions, reduction in hours, furloughs and terminations; • We implemented temporary salary reductions for company executive officers and temporary reductions in cash retainers for board members; • Our executives have agreed to forgo any bonuses under the Company’s discretionary quarterly Short-term Incentive Plan; and • We have tabled any acquisition opportunities, suspended our stock buy-back program, deferred discretionary technology investments and reduced discretionary operating expenses. 31 Performance Metrics Our principal source of income is derived from freight forwarding and freight brokerage services we provide to our customers. As a third-party logistics provider, we arrange for the shipment of our customers’ freight from point of origin to point of destination. Generally, we quote our customers a turnkey cost for the movement of their freight. Our price quote will often depend upon the customer’s time-definite needs (first day through fifth day delivery), special handling needs (heavy equipment, delicate items, environmentally sensitive goods, electronic components, etc.), and the means of transport (motor carrier, air, ocean or rail). In turn, we assume the responsibility for arranging and paying for the underlying means of transportation. Our transportation revenue represents the total dollar value of services we sell to our customers. Our cost of transportation includes direct costs of transportation, including motor carrier, air, ocean and rail services. Our net transportation revenue (gross transportation revenue less the direct cost of transportation) is the primary indicator of our ability to source, add value and resell services provided by third parties, and is considered by management to be a key performance measure. In addition, management believes measuring its operating costs as a function of net transportation revenue provides a useful metric, as our ability to control costs as a function of net transportation revenue directly impacts operating earnings. Our operating results will be affected as acquisitions occur. Since all acquisitions are made using the acquisition method of accounting for business combinations, our financial statements will only include the results of operations and cash flows of acquired companies for periods subsequent to the date of acquisition. Our GAAP-based net income will be affected by non-cash charges relating to the amortization of customer related intangible assets and other intangible assets attributable to completed acquisitions. Under applicable accounting standards, purchasers are required to allocate the total consideration in a business combination to the identified assets acquired and liabilities assumed based on their fair values at the time of acquisition. The excess of the consideration paid over the fair value of the identifiable net assets acquired is to be allocated to goodwill, which is tested at least annually for impairment. Applicable accounting standards require that we separately account for and value certain identifiable intangible assets based on the unique facts and circumstances of each acquisition. As a result of our acquisition strategy, our net income will include material non-cash charges relating to the amortization of customer related intangible assets and other intangible assets acquired in our acquisitions. Although these charges may increase as we complete more acquisitions, we believe we will be growing the value of our intangible assets (e.g. customer relationships). Thus, we believe that earnings before interest, taxes, depreciation and amortization, or EBITDA, is a useful financial measure for investors because it eliminates the effect of these non-cash costs and provides an important metric for our business. EBITDA is a non-GAAP measure of income and does not include the effects of preferred stock dividends, interest and taxes, and excludes the “non-cash” effects of depreciation and amortization on long-term assets. Companies have some discretion as to which elements of depreciation and amortization are excluded in the EBITDA calculation. We exclude all depreciation charges related to property, technology, and equipment and all amortization charges (including amortization of leasehold improvements). We then further adjust EBITDA to exclude changes in fair value of contingent consideration, expenses specifically attributable to acquisitions, transition and lease termination costs, foreign currency transaction gains and losses, extraordinary items, share-based compensation expense, litigation expenses unrelated to our core operations, MM&D start-up costs and other non-cash charges. While management considers EBITDA and adjusted EBITDA useful in analyzing our results, it is not intended to replace any presentation included in our condensed consolidated financial statements. Our operating results are also subject to seasonal trends when measured on a quarterly basis. The impact of seasonality on our business will depend on numerous factors, including the markets in which we operate, holiday seasons, consumer demand, and economic conditions. Since our revenue is largely derived from customers whose shipments are dependent upon consumer demand and just-in-time production schedules, the timing of our revenue is often beyond our control. Factors such as shifting demand for retail goods and/or manufacturing production delays could unexpectedly affect the timing of our revenue. As we increase the scale of our operations, seasonal trends in one area of our business may be offset to an extent by opposite trends in another area. We cannot accurately predict the timing of these factors, nor can we accurately estimate the impact of any particular factor, and thus, we can give no assurance any historical seasonal patterns will continue in future periods. 32 Results of Operations Three months ended March 31, 2020 and 2019 (unaudited) The following table summarizes revenues, cost of transportation and other services, and net revenues by geographic operating segments for the three months ended March 31, 2020 and 2019 (in thousands): Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Revenues Transportation $ 148,941 $ 21,217 $ (123 ) $ 170,035 $ 175,462 $ 22,340 $ (165 ) $ 197,637 Value-added services 3,290 3,896 — 7,186 3,684 4,727 — 8,411 152,231 25,113 (123 ) 177,221 179,146 27,067 (165 ) 206,048 Cost of transportation and other services Transportation 109,657 17,383 (123 ) 126,917 131,242 17,956 (165 ) 149,033 Value-added services 2,073 450 — 2,523 2,548 1,721 — 4,269 111,730 17,833 (123 ) 129,440 133,790 19,677 (165 ) 153,302 Net revenues (1) Transportation 39,284 3,834 — 43,118 44,220 4,384 — 48,604 Value-added services 1,217 3,446 — 4,663 1,136 3,006 — 4,142 $ 40,501 $ 7,280 $ — $ 47,781 $ 45,356 $ 7,390 $ — $ 52,746 Net Margins Transportation 26.4 % 18.1 % N/A 25.4 % 25.2 % 19.6 % N/A 24.6 % Value-added services 37.0 % 88.4 % N/A 64.9 % 30.8 % 63.6 % N/A 49.2 % (1) Net revenues are revenues net of cost of transportation and other services. Transportation revenue was $170.0 million and $197.6 million for the three months ended March 31, 2020 and 2019, respectively. The decrease of $27.6 million, or 14.0%, is primarily attributable to general market softness including a slight impact from COVID-19, a decrease in non-recurring disaster relief project work reported in the comparable prior year period, and decisions to exit certain lower margin business. Net transportation revenue was $43.1 million and $48.6 million for the three months ended March 31, 2020 and 2019, respectively. Net transportation margins increased from 24.6% to 25.4%, primarily due to shifts in product mix and exiting certain lower margin business. Value-added services revenue was $7.2 million and $8.4 million, for the three months ended March 31, 2020 and 2019, respectively. The decrease of $1.2 million, or 14.6%, is primarily attributable to slowdown in our contract logistics and custom brokerage services offerings. Net value-added services revenue was $4.7 million for the three months ended March 31, 2020, compared to $4.1 million for the comparable prior year period. Net value-added services revenue margins increased from 49.2% to 64.9%, primarily due to lower personnel and warehousing costs as a percentage of revenue. 33 The following table compares condensed consolidated statements of comprehensive income data by operating segment for the th ree months ended March 31, 2020 and 2019 (in thousands): Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Net revenues (1) $ 40,501 $ 7,280 $ — $ 47,781 $ 45,356 $ 7,390 $ — $ 52,746 Operating expenses: Operating partner commissions 20,352 — — 20,352 23,125 — — 23,125 Personnel costs 10,216 3,278 918 14,412 10,664 3,197 945 14,806 Selling, general and administrative expenses 5,193 1,584 1,250 8,027 4,680 1,410 722 6,812 Depreciation and amortization 1,200 589 2,493 4,282 958 366 2,523 3,847 Change in fair value of contingent consideration — — 3 3 — — (611 ) (611 ) Total operating expenses 36,961 5,451 4,664 47,076 39,427 4,973 3,579 47,979 Income (loss) from operations 3,540 1,829 (4,664 ) 705 5,929 2,417 (3,579 ) 4,767 Other income (expense) 113 145 (735 ) (477 ) 136 (111 ) (671 ) (646 ) Income (loss) before income taxes 3,653 1,974 (5,399 ) 228 6,065 2,306 (4,250 ) 4,121 Income tax expense — — (102 ) (102 ) — — (942 ) (942 ) Net income (loss) 3,653 1,974 (5,501 ) 126 6,065 2,306 (5,192 ) 3,179 Less: Net income attributable to non-controlling interest (73 ) — — (73 ) (247 ) — — (247 ) Net income (loss) attributable to Radiant Logistics, Inc. 3,580 1,974 (5,501 ) 53 5,818 2,306 (5,192 ) 2,932 Net income (loss) attributable to common stockholders $ 3,580 $ 1,974 $ (5,501 ) $ 53 $ 5,818 $ 2,306 $ (5,192 ) $ 2,932 Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 Operating expenses as a percent of net revenue (1) : United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Operating partner commissions 50.3 % 0.0 % N/A 42.6 % 51.0 % 0.0 % N/A 43.8 % Personnel costs 25.2 % 45.0 % N/A 30.2 % 23.5 % 43.3 % N/A 28.1 % Selling, general and administrative expenses 12.8 % 21.8 % N/A 16.8 % 10.3 % 19.1 % N/A 12.9 % Depreciation and amortization 3.0 % 8.1 % N/A 9.0 % 2.1 % 5.0 % N/A 7.3 % (1) Net revenues are revenues net of cost of transportation and other services. Operating partner commissions decreased $2.7 million, or 12.0%, to $20.4 million for the three months ended March 31, 2020. The decrease is primarily due to decreased net revenues from operating partners. As a percentage of net revenues, operating partner commissions decreased 125 basis points to 42.6% from 43.8% for the three months ended March 31, 2020 and 2019, respectively, as a result of reduced volume of special projects with lower margin characteristic. Personnel costs decreased $0.4 million, or 2.7%, to $14.4 million for the three months ended March 31, 2020. The decrease is primarily due to decreased headcount. As a percentage of net revenues, personnel costs increased 209 basis points to 30.2% from 28.1% for the three months ended March 31, 2020 and 2019 , respectively. Selling, general and administrative (“SG&A”) expenses increased $1.2 million, or 17.8%, to $8.0 million for the three months ended March 31, 2020. The increase is primarily attributable to increased technology spending for the quarter. As a percentage of net revenues, SG&A increased 388 basis points to 16.8% from 12.9% for the three months ended March 31, 2020 and 2019 , respectively. Depreciation and amortization costs increased $0.5 million, or 11.3%, to $4.3 million for the three months ended March 31, 2020. The increase is due to investments in a new transportation management system and technology infrastructure. Change in fair value of contingent consideration represents the change in the fair value of contingent consideration due to former shareholders of acquired operations. The change in the current period is primarily attributable to an increase in management’s estimates of future earn-out payments through the remainder of the respective earn-out periods. Other net expenses were $0.5 million and $0.6 million for the three months ended March 31, 2020 and 2019 , respectively. Our change in net income is driven principally by decreased net revenues, partially offset by decreased operating expenses and decreased income taxes compared to the comparable prior year period . 34 Our future financial results may be impacted by amortization of intangible assets resulting from acquisitions as well as gains or losses from changes in fair value of contingent consideration that are difficult to predict. The following table provides a reconciliation for the three months ended March 31, 2020 and 2019 of adjusted EBITDA to net income (loss), the most directly comparable GAAP measure (in thousands): Three Months Ended March 31, 2020 Three Months Ended March 31, 2019 United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Net income (loss) attributable to common stockholders $ 3,580 $ 1,974 $ (5,501 ) $ 53 $ 5,818 $ 2,306 $ (5,192 ) $ 2,932 Net income (loss) attributable to Radiant Logistics, Inc. 3,580 1,974 (5,501 ) 53 5,818 2,306 (5,192 ) 2,932 Income tax expense — — 102 102 — — 942 942 Depreciation and amortization 1,200 589 2,493 4,282 958 366 2,523 3,847 Net interest expense — — 735 735 — — 671 671 EBITDA 4,780 2,563 (2,171 ) 5,172 6,776 2,672 (1,056 ) 8,392 Share-based compensation 211 60 138 409 253 37 119 409 Change in fair value of contingent consideration — — 3 3 — — (611 ) (611 ) Acquisition related costs — — 183 183 — — 75 75 Litigation costs — — 400 400 — — 148 148 Transition, lease termination, and other costs 59 — — 59 — — — — Foreign currency transaction loss (gain) (24 ) (145 ) — (169 ) (87 ) 111 — 24 Adjusted EBITDA $ 5,026 $ 2,478 $ (1,447 ) $ 6,057 $ 6,942 $ 2,820 $ (1,325 ) $ 8,437 Adjusted EBITDA as a % of net revenues (1) 12.4 % 34.0 % N/A 12.7 % 15.3 % 38.2 % N/A 16.0 % (1) Net rev enues are revenues net of cost of transportation and other services. 35 Nine months ended March 31, 2020 and 2019 (unaudited) The following table summarizes revenues, cost of transportation and other services, and net revenues by geographic operating segments for the nine months ended March 31, 2020 and 2019 (in thousands): Nine Months Ended March 31, 2020 Nine Months Ended March 31, 2019 United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Revenues Transportation $ 492,567 $ 63,402 $ (508 ) $ 555,461 $ 592,341 $ 69,197 $ (310 ) $ 661,228 Value-added services 11,642 12,588 — 24,230 9,781 14,859 — 24,640 504,209 75,990 (508 ) 579,691 602,122 84,056 (310 ) 685,868 Cost of transportation and other services Transportation 359,512 51,659 (508 ) 410,663 447,349 54,690 (310 ) 501,729 Value-added services 7,575 2,181 — 9,756 6,784 5,780 — 12,564 367,087 53,840 (508 ) 420,419 454,133 60,470 (310 ) 514,293 Net revenues (1) Transportation 133,055 11,743 — 144,798 144,992 14,507 — 159,499 Value-added services 4,067 10,407 — 14,474 2,997 9,079 — 12,076 $ 137,122 $ 22,150 $ — $ 159,272 $ 147,989 $ 23,586 $ — $ 171,575 Net Margins Transportation 27.0 % 18.5 % N/A 26.1 % 24.5 % 21.0 % N/A 24.1 % Value-added services 34.9 % 82.7 % N/A 59.7 % 30.6 % 61.1 % N/A 49.0 % (1) Net revenues are revenues net o f cost of transportation and other services. Transportation revenue was $555.5 million and $661.2 million for the nine months ended March 31, 2020 and 2019, respectively. The decrease of $105.7 million, or 16.0%, is primarily attributable to general market softness including a slight impact from COVID-19, a decrease in non-recurring disaster relief project revenue reported in the comparable prior year period, and decisions to exit certain lower margin business. Net transportation revenue was $144.8 million and $159.5 million for the nine months ended March 31, 2020 and 2019, respectively. Net transportation margins increased from 24.1% to 26.1%, primarily due to shifts in product mix and exiting certain lower margin business. Value-added services revenue was $24.2 million and $24.6 million, for the nine months ended March 31, 2020 and 2019, respectively. The decrease of $0.4 million, or 1.7%, is primarily attributable to the slowdown in our contract logistics and custom brokerage services offerings. Net value-added services revenue was $14.5 million for the nine months ended March 31, 2020, compared to $12.1 million for the comparable prior year period. Net value-added services revenue margins increased from 49.0% to 59.7%, primarily due to lower personnel and warehousing costs as a percentage of revenue. 36 The following table compares condensed consolidated statements of comprehensive income data by operating segment for the nine months ended March 31, 2020 and 2019 (in thousands): Nine Months Ended March 31, 2020 Nine Months Ended March 31, 2019 United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Net revenues (1) $ 137,122 $ 22,150 $ — $ 159,272 $ 147,989 $ 23,586 $ — $ 171,575 Operating expenses: Operating partner commissions 69,899 — — 69,899 76,309 — — 76,309 Personnel costs 31,617 10,136 2,734 44,487 32,055 10,403 2,798 45,256 Selling, general and administrative expenses 14,770 4,126 3,474 22,370 14,186 4,993 2,279 21,458 Depreciation and amortization 3,208 1,478 7,727 12,413 2,638 1,153 7,504 11,295 Transition, lease termination, and other costs 328 — — 328 (11 ) — — (11 ) Change in fair value of contingent consideration — — 52 52 — — (1,182 ) (1,182 ) Total operating expenses 119,822 15,740 13,987 149,549 125,177 16,549 11,399 153,125 Income (loss) from operations 17,300 6,410 (13,987 ) 9,723 22,812 7,037 (11,399 ) 18,450 Other income (expense) 183 101 (2,020 ) (1,736 ) 397 30 (2,308 ) (1,881 ) Income (loss) before income taxes 17,483 6,511 (16,007 ) 7,987 23,209 7,067 (13,707 ) 16,569 Income tax expense — — (1,850 ) (1,850 ) — — (3,793 ) (3,793 ) Net income (loss) 17,483 6,511 (17,857 ) 6,137 23,209 7,067 (17,500 ) 12,776 Less: net income attributable to non- controlling interest (262 ) — — (262 ) (891 ) — — (891 ) Net income (loss) attributable to Radiant Logistics, Inc. 17,221 6,511 (17,857 ) 5,875 22,318 7,067 (17,500 ) 11,885 Less: preferred stock dividends — — — — — — (956 ) (956 ) Less: issuance costs for preferred stock redemption — — — — — — (1,659 ) (1,659 ) Net income (loss) attributable to common stockholders $ 17,221 $ 6,511 $ (17,857 ) $ 5,875 $ 22,318 $ 7,067 $ (20,115 ) $ 9,270 Nine Months Ended March 31, 2020 Nine Months Ended March 31, 2019 Operating expenses as a percent of net revenue (1) : United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Operating partner commissions 51.0 % 0.0 % N/A 43.9 % 51.6 % 0.0 % N/A 44.5 % Personnel costs 23.1 % 45.8 % N/A 27.9 % 21.7 % 44.1 % N/A 26.4 % Selling, general and administrative expenses 10.8 % 18.6 % N/A 14.0 % 9.6 % 21.2 % N/A 12.5 % Depreciation and amortization 2.3 % 6.7 % N/A 7.8 % 1.8 % 4.9 % N/A 6.6 % (1) Net revenues are revenues net of cost of transportation and other services. Operating partner commissions decreased $6.4 million, or 8.4%, to $69.9 million for the nine months ended March 31, 2020. The decrease is primarily due to decreased net revenues from operating partners. As a percentage of net revenues, operating partner commissions decreased 59 basis points to 43.9% from 44.5% for the nine months ended March 31, 2020 and 2019, respectively. Personnel costs decreased $0.8 million, or 1.7%, to $44.5 million for the nine months ended March 31, 2020. The decrease is primarily due to decreased headcount. As a percentage of net revenues, personnel costs increased 155 basis points to 27.9% from 26.4% for the nine months ended March 31, 2020 and 2019 , respectively. Selling, general and administrative (“SG&A”) expenses increased $0.9 million, or 4.3%, to $22.4 million for the nine months ended March 31, 2020. The increase is primarily attributable to increased technology, legal and other general expenses for the nine-month period. As a percentage of net revenues, SG&A increased 154 basis points to 14.0% from 12.5% for the nine months ended March 31, 2020 and 2019 , respectively. Depreciation and amortization costs increased $1.1 million, or 9.9%, to $12.4 million for the nine months ended March 31, 2020. The increase is primarily due to investments in a new transportation management system and technology infrastructure. Transition, lease termination and other costs increased $0.3 million for the nine months ended March 31, 2020. The increase is primarily attributable to non-recurring severance expense during the most recent nine-month period. 37 Change in fair value of contingent cons ideration represents the change in the fair value of contingent consideration due to former shareholders of acquired operations. The change in the current period is primarily attributable to an increase in management’s estimates of future earn-out payments through the remainder of the respective earn-out periods. Other expenses were $1.7 million and $1.9 million for the nine months ended March 31, 2020 and 2019, respectively . Our change in net income is driven principally by decreased net revenues, partially offset by decreased operating expenses, and decreased income taxes compared to the comparable prior year period . Our future financial results may be impacted by amortization of intangible assets resulting from acquisitions as well as gains or losses from changes in fair value of contingent consideration that are difficult to predict. The following table provides a reconciliation for the nine months ended March 31, 2020 and 2019 of adjusted EBITDA to net income (loss), the most directly comparable GAAP measure (in thousands): Nine Months Ended March 31, 2020 Nine Months Ended March 31, 2019 United States Canada Corporate/ Eliminations Total United States Canada Corporate/ Eliminations Total Net income (loss) attributable to common stockholders $ 17,221 $ 6,511 $ (17,857 ) $ 5,875 $ 22,318 $ 7,067 $ (20,115 ) $ 9,270 Plus: preferred stock dividends — — — — — — 956 956 Plus: issuance costs for preferred stock redemption — — — — — — 1,659 1,659 Net income (loss) attributable to Radiant Logistics, Inc. 17,221 6,511 (17,857 ) 5,875 22,318 7,067 (17,500 ) 11,885 Income tax expense — — 1,850 1,850 — — 3,793 3,793 Depreciation and amortization 3,208 1,478 7,727 12,413 2,638 1,153 7,504 11,295 Net interest expense — — 2,020 2,020 — — 2,308 2,308 EBITDA 20,429 7,989 (6,260 ) 22,158 24,956 8,220 (3,895 ) 29,281 Share-based compensation 723 154 429 1,306 746 62 396 1,204 Change in fair value of contingent consideration — — 52 52 — — (1,182 ) (1,182 ) Acquisition related costs — — 495 495 — — 93 93 Litigation costs — — 832 832 — — 533 533 Transition, lease termination, and other costs 387 — — 387 (11 ) — — (11 ) Foreign currency transaction loss (gain) (19 ) (101 ) — (120 ) (179 ) 10 — (169 ) Adjusted EBITDA $ 21,520 $ 8,042 $ (4,452 ) $ 25,110 $ 25,512 $ 8,292 $ (4,055 ) $ 29,749 Adjusted EBITDA as a % of net revenues (1) 15.7 % 36.3 % N/A 15.8 % 17.2 % 35.2 % N/A 17.3 % (1) Net revenues are revenues net of cost of transportation and other services. 38 Liquidity and Capital Resources Generally, our primary sources of liquidity are cash generated from operating activities and borrowings under our Revolving Credit Facility, as described below. These sources also fund a portion of our capital expenditures and contractual contingent consideration obligations. Our level of cash and financing capabilities along with cash flows from operations have historically been sufficient to meet our operating and capital needs. We believe that during the next 12 months the COVID-19 pandemic is likely to impact general economic activity and demand in our markets, which if continued unabated could continue to have an adverse effect on our results of operations; which, in turn, could cause the amounts available to us under the Revolving Credit Facility to be limited and cause us to seek other external financing sources to meet our operating and capital needs. However, in this case, conditions in the credit markets may also deteriorate and the availability of alternative sources of credit on commercially reasonable terms may be reduced. In addition, the Company has a limited market capitalization and its stock price has declined roughly 30% since January 1, 2020. The Company believes access to capital markets has tightened and that accessing such markets at this time would be significantly detrimental to the business. Net cash used in operating activities were $1.3 million for the nine months ended March 31, 2020. Net cash provided by operating activities were $33.5 million for the nine months ended March 31, 2019. The cash used or provided primarily consisted of net income adjusted for depreciation and amortization and changes in accounts receivable, contract assets, accounts payable, income taxes, operating partner commissions payable, and accrued and other liabilities. Cash flow from operating activities for the nine months ended March 31, 2020 decreased by $34.8 million, compared with the same period in fiscal year 2019, primarily due to the decrease in net income and net change in operating assets and liabilities. Net cash used for investing activities were $13.8 million and $4.7 million for the nine months ended March 31, 2020 and 2019, respectively. The primary uses of cash were for business acquisitions and purchases of property, technology, and equipment. Cash paid for business acquisition were $9.2 million for the nine months ended March 31, 2020. Cash paid for purchases of property, technology, and equipment were $4.7 million for each of the nine months ended March 31, 2020 and 2019. Net cash provided by financing activities was $24.1 million for the nine months ended March 31, 2020. Net cash used for financing activities were $30.7 million for the nine months ended March 31, 2019. Net proceeds from the Revolving Credit Facility were $32.2 million for the nine months ended March 31, 2020. Net repayments to the Revolving Credit Facility were $4.7 million for the nine months ended March 31, 2019. Repayments of notes payable and finance lease liability were $3.2 million and $2.7 million for the nine months ended March 31, 2020 and 2019, respectively. Repurchases of common stock were $2.5 million for the nine months ended March 31, 2020. Payments of contingent consideration were $0 million and $0.2 million for the nine months ended March 31, 2020 and 2019, respectively. Payments for the redemption of preferred stock and payments of preferred stock dividends were $21 million and $1.3 million for the nine months ended March 31, 2019. Distributions to non-controlling interest were $0.3 million and $0.7 million for the nine months ended March 31, 2020 and 2019, respectively. Payments of employee tax withholdings related to vesting of restricted stock awards were $0.3 million for the nine months ended March 31, 2020. Payments of employee tax withholdings related to the cashless exercise of stock option were $0.1 million for both the nine months ended March 31, 2020 and 2019. Revolving Credit Facility The Company entered into a $150 million syndicated, revolving credit facility (the “Revolving Credit Facility”) pursuant to a Credit Agreement dated as of March 13, 2020. On March 31, 2020, the borrowings outstanding on the Revolving Credit Facility was $46 million. The Revolving Credit Facility was entered into with Bank of America Securities, Inc. as sole book runner and sole lead arranger, Bank of Montreal Chicago Branch, as lender and syndication agent, MUFG Union Bank, N.A as lender and documentation and Bank of America, N. A., Keybank National Association and Washington Federal Bank, National Association as lenders (such named lenders are collectively referred to herein as “Lenders”). This replaces the Company’s $75 million facility dated June 14, 2017. The Revolving Credit Facility has a term of five years, matures on March 13, 2025, and is collateralized by a first-priority security interest in the accounts receivable and other assets of the Company. Borrowings under the Revolving Credit Facility accrue interest (at the Company’s option), at the Lenders’ base rate plus 1.00% or LIBOR plus 2.00% and can be subsequently adjusted based on the Company’s consolidated leverage ratio under the facility at the Lenders’ base rate plus 1.00% to 1.75% or LIBOR plus 2.00% to 2.75%. The Revolving Credit Facility includes a $50.0 million accordion feature to support future acquisition opportunities. For general borrowings under the Revolving Credit Facility, the Company is subject to the maximum consolidated leverage ratio of 3.00 and minimum consolidated fixed charge coverage ratio of 1.25. Additional minimum availability requirements and financial covenants apply in the event the Company seeks to use advances under the Revolving Credit Facility to pursue acquisitions or repurchase its common stock. In conjunction with the Revolving Credit Facility, Radiant entered into two interest rate swap contracts. On March 20, 2020, and effective April 17, 2020, Radiant entered into an interest rate swap contract with Bank of America to trade variable interest cash inflows at one-month LIBOR for a $20,000 notional amount, for fixed interest cash outflows at 0.635%. This interest rate swap matures and terminates on March 13, 2025. On April 1, 2020, and effective April 2, 2020, Radiant entered into an interest rate swap 39 co ntract with Bank of America to trade the variable interest cash inflows at one-month LIBOR for a $10,000 notional amount, for fixed interest cash outflows at 0.5865%. This interest rate swap matures and terminates on March 13, 2025. Senior Secured Loan On April 2, 2015, Radiant Canada obtained a CAD$29.0 million senior secured Canadian term loan from Fiera Private Debt Fund IV LP (“FPD IV” formerly, Integrated Private Debt Fund IV LP) pursuant to a CAD$29,000,000 Credit Facilities Loan Agreement (the “FPD IV Loan Agreement”). The Company and its U.S. and Canadian subsidiaries are guarantors of the Radiant Canada obligations thereunder. The loan matures on April 1, 2024 and accrues interest at a rate of 6.65% per annum. We made interest-only payments for the first 12 months and blended principal and interest payments through maturity. In connection with the loan, we paid an amount equal to five months of interest payments into a debt service reserve account controlled by FPD IV. In connection with our acquisition of Lomas, Radiant Canada obtained a CAD$10.0 million senior secured Canadian term loan from Fiera Private Debt Fund V LP (“FPD V” formerly, Integrated Private Debt Fund V LP) pursuant to a CAD$10,000,000 Credit Facilities Loan Agreement (the “FPD V Loan Agreement,” and together with the FPD IV Loan Agreement, the “FPD Loan Agreements”). The Company and its U.S. and Canadian subsidiaries are guarantors of the Radiant Canada obligations thereunder. The loan matures on June 1, 2024 and accrues interest at a rate of 6.65% per annum. The loan repayment consists of monthly blended principal and interest payments. The loans may be prepaid in whole at any time upon providing at least 30 days prior written notice and paying 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. For additional information regarding our indebtedness, see Note 8 to our unaudited condensed consolidated financial statements contained elsewhere in this report. Working Capital The outbreak of COVID-19 has already started to have an adverse impact on the Company’s results of operations during its quarter ended March 31, 2020. If these conditions continue unabated for more than the short-term, as most industry sources are predicting, the impact of COVID-19 is expected to significantly reduce our revenue, earnings and operating cash flow in future quarters. Since continued growth through strategic acquisitions would normally require additional draws from our sources of financing, the Company’s search for new, potential acquisitions has been temporarily paused. Furthermore, the Company has temporarily suspended its stock repurchase program. 40 Item 3. Quantitative and Qualitat ive Disclosure About Market Risk The Company uses interest rate swaps for the management of interest rate risk exposure, as the interest rate swaps effectively convert a portion of the Company’s Revolving Credit Facility from a floating to a fixed rate. The interest rate swap is an agreement between the Company and Bank of America to pay, in the future, a fixed-rate payment in exchange for Bank of America paying the Company a variable payment. The net payment obligation is based on the notional amount of the swap contract and the prevailing market interest rates. The Company may terminate the swap contract prior to its expiration date, at which point a realized gain or loss would be recognized. The value of the Company’s commitment would increase or decrease based primarily on the extent to which interest rates move against the rate fixed for each swap. Radiant entered into two interest rate swap contracts. On March 20, 2020, and effective April 17, 2020, Radiant entered into an interest rate swap contract with Bank of America to trade variable interest cash inflows at one-month LIBOR for a $20,000 notional amount, for fixed interest cash outflows at 0.635%. This interest rate swap matures and terminates on March 13, 2025. On April 1, 2020, and effective April 2, 2020, Radiant entered into an interest rate swap contract with Bank of America to trade the variable interest cash inflows at one-month LIBOR for a $10,000 notional amount, for fixed interest cash outflows at 0.5865%. This interest rate swap matures and terminates on March 13, 2025.