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Edited Transcript of RLGT earnings conference call or presentation 12-Nov-19 9:30pm GMT

Q1 2020 Radiant Logistics Inc Earnings Call

Bellevue Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Radiant Logistics Inc earnings conference call or presentation Tuesday, November 12, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Bohn H. Crain

Radiant Logistics, Inc. - Founder, CEO & Chairman

* Todd E. Macomber

Radiant Logistics, Inc. - Senior VP & CFO

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Conference Call Participants

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* Adam Kramer

Cowen and Company, LLC, Research Division - Associate

* David Pearce Campbell

Thompson, Davis & Company, Inc. - Senior VP, Research Analyst & Institutional Sales Partner

* Jeffrey Asher Kauffman

Loop Capital Markets LLC, Research Division - MD

* Mark Nicholas Argento

Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst, Founding Partner & Head of Institutional Equities

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Presentation

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Operator [1]

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Thank you for joining us. This afternoon, Bohn Crain, Radiant Logistics’ Founder and CEO; and Radiant's Chief Financial Officer, Todd Macomber, will discuss financial results of the company's first fiscal quarter ended September 30, 2019. Following their comments, we will open the call to questions. This conference is scheduled for 30 minutes.

This conference call may include forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. The company has based these forward-looking statements on its current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about the company that may cause the company's actual results or achievements to be materially different from the results or achievements expressed or implied by such forward-looking statements. While it is impossible to identify all the factors that may cause the company's actual results or achievements to differ materially from those set forth in our forward-looking statements, such factors include those that have in the past, and may in the future, be identified in the company's SEC filings and other public announcements, which are available on the Radiant website at www.radiantdelivers.com. In addition, past results are not necessarily an indication of future performance.

Now I'd like to pass the call over to Radiant's founder and CEO, Bohn Crain.

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [2]

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Thank you. Good afternoon, everyone, and thank you for joining in on today's call. We're very pleased to report another quarter of solid financial results for the first quarter ended September 30, 2019. While our revenues of $200.5 million were down $18.4 million over the comparable prior year period, we were able to deliver net revenues of $55.5 million, up $0.6 million or 1.1%.

A number of factors contributed to our reduction in revenues, including: one, our decision to exit certain low-margin business earlier in the year; two, nonrecurring disaster relief project work reported in the year ago period; and three, general market softness associated with slower global trade and margin pressures on our brokerage operations associated with excess truck capacity that exists in the marketplace.

For our first fiscal quarter ended September 30, in the U.S., we reported revenues of $175.9 million, down $15.3 million or 8% and net revenues of $48.2 million, up $1.1 million or 2.3% over the comparable prior year period. U.S. transportation net revenues of $46.7 million were up $0.3 million or 0.6% from the comparable prior year period. U.S. value-added services net revenues of $1.5 million were up $0.8 million or 114.3%. In Canada, we reported revenues of $24.8 million, down $2.9 million or 10.5% and net revenues of $7.3 million, down $0.4 million or 5.2% over the comparable prior year period. Canada's transportation net revenues of $3.9 million were down $1.1 million or 22% from the comparable prior year period. Canada's value-added services net revenues of $3.4 million were up $0.7 million or 25.9%.

We are also pleased with how our nonasset-based model continues to perform in what is generally recognized as a softer freight environment. Although we saw a reduction in revenues during the quarter compared to the comparable prior year period, the economic impact to the company was generally offset by improving net margins, up 262 basis points and a reduction of $0.6 million operating partner commissions, resulted in -- which resulted in net income attributable to common stockholders of $3.2 million, up $0.6 million or 23.1%, adjusted net income attributable to common shareholders of $6.5 million, up $1.1 million or 20.4% and adjusted EBITDA of $9.7 million, up $0.9 million or 10.2% over the comparable prior year period. In addition, we also continue to see improvement in our adjusted EBITDA margins, which increased 137 basis points to 17.4% from 16.1% for the comparable prior year period.

While we are pleased with our results for this most recent quarter, the outlook for the upcoming quarter looks relatively flat on a sequential basis as we are not seeing the traditional peak season trade flows that we would generally expect heading into the holidays. As an industry, we continue to work through the market uncertainties associated with global trade, tariffs and the prospects of impeachment along with digesting excess truck capacity and inventory build ups that are part of the current landscape.

In any event, we believe our success over this past year in delivering profitability, continuing to invest in our scalable back-office infrastructure and delevering our balance sheet leaves us very well positioned to take advantage of incremental organic and acquisition growth opportunities as they present themselves.

With that, I'll now turn it over to Todd Macomber, our CFO, to walk us through our detailed financial results and then we'll open it up for some Q&A.

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Todd E. Macomber, Radiant Logistics, Inc. - Senior VP & CFO [3]

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Thanks, Bohn, and good afternoon, everyone. Today, we will be discussing our financial results including adjusted net income and adjusted EBITDA for the 3 months ended September 30, 2019.

For the 3 months ended September 30, 2019, we reported net income attributable to common stockholders of $3.235 million on $200.5 million of revenues or $0.07 per basic and $0.06 per fully diluted share. For the 3 months ended September 30, 2018, we reported net income attributable to common stockholders of $2.572 million on $218.9 million of revenues or $0.05 per basic and fully diluted share. This represents an increase of approximately $663,000 over the comparable prior year period or 25.8%.

For the 3 months ended September 30, we reported adjusted net income attributable to common stockholders of $6.484 million or $0.13 per basic and fully diluted share. For the 3 months ended September 30, 2018, we reported adjusted net income attributable to common stockholders of $5.376 million or $0.11 per basic and fully diluted share. This represents an increase of approximately $1.108 million or approximately 20.6%.

We reported adjusted EBITDA of $9.678 million for the 3 months ended September 30, 2019 compared to adjusted EBITDA of $8.813 million for the 3 months ended September 30, 2018. This represents an increase of approximately $865,000 or approximately 9.8%.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will go first to Jason Seidl of Cowen and Company.

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Adam Kramer, Cowen and Company, LLC, Research Division - Associate [2]

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This is Adam on for Jason. First question, I wanted to ask a little bit about peak season thus far, specifically with regards to, obviously, the ongoing trade and tariff issues. How has peak season looked? Has it kind of looked more like 2018 or 2017? Or kind of what are the dynamics you guys are seeing so far?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [3]

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I think generally speaking, people are calling it the peek season rather than the peak season. So we're just not -- and it's not unique to us, and my industry peers anyone I've talked to, we're just not seeing the volumes. I guess it's not a surprise given some of the uncertainties in the marketplace. And I guess as part of that broader conversation is, I think, the recognition of people trying to pull forward inventories in advance of the tariffs. And I know at least for us on the West Coast, in particular, our warehouses are -- have been full from inventories that were kind of pull forward in that process. So we've got to work through -- we and our -- and the customers that we serve got to just kind of work through some of those dynamics.

So for us, at this point, our -- as we kind of commented in our prepared remarks, our comparable quarter ended December isn't going to look like last year's peak. I think it's going to look more comparable to the quarter we just reported. So still plus or minus $10 million in EBITDA for the quarter is something that I think we're certainly pleased about on a relative basis given the uncertainty of the marketplace and what's going on. So that's my response to your question.

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Adam Kramer, Cowen and Company, LLC, Research Division - Associate [4]

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Yes. Definitely very helpful. Just the second one for me. What are you guys hearing from your customers regarding potential or possible resolutions to the ongoing trade war with China? Do customers kind of seem hopeful that a resolution is near? Or that one will be reached at all? Or what are you hearing from them?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [5]

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I wouldn't want to get too far out over my skis on that one. I think we're -- I think we'd all like to be cautiously optimistic. I myself am a little more skeptical on a near-term resolution. But again, I'm not the geopolitician. I would just have to kind of come back to the viewpoint that we are in as good of a relative position to deal with the uncertainties as anyone that I'm aware of as I just think about, being a nonasset-based business model, having a very, very low leverage on our balance sheet that we're in a position to be opportunistic and respond to opportunities as they present themselves. And if things continue as they are, we're still doing extraordinarily well.

And if there are some things -- things went sideways, we're in a great position to weather whatever storm would be on the horizon. So we can't predict the future, only know that we're in a reasonably good position to deal with whatever might come our way.

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Adam Kramer, Cowen and Company, LLC, Research Division - Associate [6]

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Great. And then just a final one for me and I'll jump back into the queue. Just -- maybe just a quick update on M&A. What are you guys seeing in terms of valuations? How is the pipeline looking?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [7]

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Yes. Sure. So we continue to look for transactions that make sense as I've alluded to. We've got low leverage. And for the right opportunities, we're certainly looking to do deals if we can find the right deals to do, kind of categorically, those land in a few different buckets. We've for a long time talked about conversions of existing agent stations that are participating in our network. So as those opportunities would present themselves, we would certainly look forward and support our partners and doing those types of transactions. And then we can look outside of the network either on tuck-in type acquisitions or ultimately even larger transactions. Part of the dynamic is the larger transactions. The market clearing multiples may well prove to be higher than where our own kind of implied multiple would be trading. That creates some of its own challenges. So at the end of the day, for the -- would we do a larger transaction? For the absolute right deal, I think we would. At the same time, as I kind of look on the landscape, I don't know of a better value than Radiant Logistics stock. I don't know any other $40 million EBITDA businesses out there that we can buy with 0 integration risk at a multiple of 6x or 7x. So that will remain a viable alternative as we think about our allocation of capital here going forward.

But back specifically to M&A, we are actively looking and would expect the transactions generally be the smaller tuck-ins in nature with the asterisk that for the right opportunity we would certainly look at a larger transaction.

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Operator [8]

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We'll go next to Mark Argento of Lake Street Capital.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst, Founding Partner & Head of Institutional Equities [9]

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Just a couple of quick ones here. Just any update in terms of technology integration now? Last quarter, I think you said you'd been running your SAP in 25 locations. Just wanted to see kind of where you guys are at with the SAP rollout?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [10]

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Yes. Thanks, Mark. That continues to progress. We now have activated the international functionality and then have begun to pilot the international capabilities in a handful of locations. As that proves out, that will round out the solution and we'll be able to move more aggressively to deploy across the broader network. Peak season as it is, folks are busy, and I would expect to see a more robust kind of rollout across the network in various brands, in calendar -- I guess what would be calendar '20, as we get on the backside of piloting the international program. But long story short is we continue to make good progress, continue to take user feedback, make modest tweaks to enhance the user experience. So I think we're approaching 100,000 transactions now having occurred within TM across the networks. So it's fully functional from the order to cash process, operational life cycle of the shipment. We've captured within the system, and we'll continue to progress that moving forward. But it's in good shape and on track.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst, Founding Partner & Head of Institutional Equities [11]

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Great. Then just pivoting on the value-added service, looks like you continue to grow that still off of a relatively small base. But any thoughts on continuing to grow that business, the go-to-market strategy? And then do you typically see an uptick around the holidays you guys providing more kind of holiday-centric e-commerce type value-added services?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [12]

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So yes and yes. So yes, it remains an area of success and interest for us. Again, I always like to just kind of start this conversation in the context of Canada and the success that they're having in bundling value-added contract logistics services in with their core transportation service offering. We're trying to bring that back on the U.S. side of the border. We're also starting to get a little bit of traction with some cross-sell opportunities as between existing Canadian customers and being able to broaden the solution to include various geographies in the U.S. for some of our existing Canadian customers. So that's exciting. And we'll continue to expect value-added services to continue to be a thematic of growth, potentially even M&A opportunities as we move forward. That can take the form of contract logistics, it can take the form of customs brokerage services are just 2 areas that come to mind immediately with our -- as you mentioned although on a small base, they continue to grow nicely and enhance the user experience and the overall value proposition.

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Mark Nicholas Argento, Lake Street Capital Markets, LLC, Research Division - Senior Research Analyst, Founding Partner & Head of Institutional Equities [13]

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Last one for me, but can you just remind us with the share buyback in place, what kind of availability you saw booked on that?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [14]

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I believe we were authorized up to 5 million shares is how it was structured, and we have not tapped into that yet. So we have on paper 5 million shares authorized that we could currently action on. That current program expires under its own terms December 31. So as we move forward here, we'll be evaluating whether or not we would refresh that. I would expect we would. Those decisions haven't been finalized yet. When and if we do renew it, we will issue a separate press release and 8-K around that at that time.

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Operator [15]

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We'll move to Jeff Kauffman of Loop Capital Markets.

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Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [16]

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I wanted to talk a little bit about the war chest. For acquisitions, I noticed that you adopted the FAS for leases. So it optically changes the balance sheet a little bit. Can you talk about what -- how much dry powder you have for the right opportunities? And are there any credit metrics or anything like that that may limit you from using the full amount of that?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [17]

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Okay. Thanks, Jeff. So good questions. I guess as a reminder, we have a $75 million ABL credit facility in place. I think we have roughly $15 million drawn on that $75 million facility. So that would at least begin to frame out kind of where it sets. In terms of gross availability currently under the facility, it's like right at $64 million of gross availability. We would -- as we did acquisitions, we would get the benefit of adding in the incremental AR of the customers that we would acquire. So at least one way that I like to think about it because I think it is an aspect of our story and kind of balance sheet wherewithal that people may not necessarily appreciate. And so let's -- just to, kind of, I guess express it in terms of capacity. So -- and just playing with some math for a second. So let's assume that we went out and did acquire $20 million of EBITDA in the aggregate over a series of transactions, that would be -- and used our traditional earn-out mechanism, so $20 million at a multiple of 5 would be $100 million of purchasing power, half in earn-outs, half in cash that we would need. $50 million of effectively cash at closing to acquire that portfolio of acquisitions. And I think that the ultimate takeaway is, within our existing capital structure, we could do that. So we could go from $40 million of EBITDA to $60 million of EBITDA serially acquiring smaller acquisitions with virtually no dilution to our common shareholders.

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Jeffrey Asher Kauffman, Loop Capital Markets LLC, Research Division - MD [18]

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Okay. That's great. Can you give us an update of the IT investment, kind of where are you along that path? What's up and running? What's still needs to be invested in?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [19]

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Sure. So I think well, that's a big question, right? I'm just trying to jump in -- I'm going to jump -- I'll just jump into the middle of it and then you can redirect me as appropriate. So I guess it's the level set. We are an SAP shop. We've been on SAP from an accounting standpoint from the beginning of the time when we acquired the first platform company Airgroup back in 2006. They were on SAP. So we've always been an SAP shop. We've been transitioning away from the third-party TMS, called CargoWise to SAP. We took a modular approach to that deployment, first deploying SAP-TM's domestic product, which we've done. We're in the middle of piloting the international functionality, which all is going well on that front. In the meantime, we've deployed our production environment into the AWS cloud environment. So as we think about scalability of our infrastructure, we're in a really, really good shape.

In terms of financial spend, we're probably would spend, call it, $3 million to $5 million a year, if we were trying to -- you didn't ask me the question precisely, but I think indirectly as you're thinking -- as we're all kind of collectively thinking about cash from operations and free cash flow and kind of what portion of our cash flows we're earmarking or anticipate spending in the ongoing care and feeding of our technology platform, $3 million to $5 million is kind of where I would expect that to land at this point.

And we have a number of really interesting initiatives underway to kind of leverage the platform that we would have in place. And we talk about that in terms of a number of different portal strategies; a customer portal, a carrier portal, an operating partner portal, all of those things are in progress. So -- and kind of a companion idea to our technology investment is -- in our SAP platform is we will be one of the first third-party logistics companies in North America to have deployed SAP-TM, and there's a big universe of shippers, of manufacturers, of hard freight that operate on SAP, and we believe that's going to put us in a unique position to call upon those customers and really bring to them a new value proposition that people historically haven't been able to, which is the ability to kind of engage with them on an SAP to SAP platform. And not only help them move their freight, but also drive productivity improvements back into their own back offices because of the fact that we, like they, are operating in an SAP environment.

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Operator [20]

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(Operator Instructions) We'll move to David Campbell of Thompson, Davis & Company.

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David Pearce Campbell, Thompson, Davis & Company, Inc. - Senior VP, Research Analyst & Institutional Sales Partner [21]

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Bohn and Todd, how -- what do you think about sustaining adjusted gross profit margins, which had been roughly 28% in the last 2 quarters? You think that's sustainable in the current quarter? Or could it increase as the business slows down?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [22]

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My -- David, I guess my reaction to that is I think it is sustainable so long as international trade volumes remain weak. As those volumes recover -- because our international traffic moves naturally at a lower margin, some of our domestic is expedited. So I think kind of in this current environment, I think the margins will stay higher. They'll actually go down as things improve, which is a little counterintuitive, which is why we like to think about growing our gross margin dollars and getting as many of those gross margin dollars to the bottom line as we can as opposed to necessarily thinking about gross margin percentages on an absolute basis without getting into a deeper conversation around mix between domestic and international and charters and truck brokerage and intermodal and so on.

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David Pearce Campbell, Thompson, Davis & Company, Inc. - Senior VP, Research Analyst & Institutional Sales Partner [23]

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So the international is a lower-margin business. So that is under more pressure than the domestic businesses. So that should help sustain the gross profit margin?

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [24]

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Yes. I believe that's what I had said or at least intended to say.

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David Pearce Campbell, Thompson, Davis & Company, Inc. - Senior VP, Research Analyst & Institutional Sales Partner [25]

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Yes. Right, right, right. So the international is, of course, going to pick up if there is some Chinese deals if there's a deal with China. But that's not going to pick up anytime soon. So maybe the first quarter next year would be the first indication of that. But you're doing really well in a tough situation and your ability to hold the gross margins, profit margin -- gross profit margin is very, very good.

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [26]

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Thank you.

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Operator [27]

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And gentlemen, at this time, I have no other questions holding. I'll turn the conference back for any additional or closing comments.

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Bohn H. Crain, Radiant Logistics, Inc. - Founder, CEO & Chairman [28]

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Thank you. Let me close by saying that we remain very bullish on the growth platform that we've created at Radiant and the scalability of our nonasset-based business model. Our now more than 12 year first-to-market advantage in executing our multi-brand strategy and consolidating agent-based freight-forwarding networks, ongoing investment in technology and low leverage on our balance sheet puts us in a unique position to support further consolidation. We believe this represents our longer term and almost perpetual opportunity, and we continue to invest in technology and our people, with an eye towards building out a world-class, scalable, back-office infrastructure to support a much larger enterprise going forward. We are patiently persistent in the pursuit of this long-term vision, which we believe, over time, will deliver meaningful value for our shareholders, our operating partners and the end customers that we serve.

Thanks for listening and your support of Radiant Logistics.

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Operator [29]

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Ladies and gentlemen, that will conclude today's conference. We thank you for your participation. You may disconnect at this time, and have a great day.