Q&A: XPO Logistics CEO Jacobs discusses Q1 results, next steps for company’s growth
May 10, 2012
Non asset-based 3PL XPO Logistics XPO Logistics posted mixed first quarter earnings this week. Total quarterly revenue—at $44.6 million—was up 7.4 percent annually, while its net loss for the quarter was $2.7 million compared to a net gain of $1.1 million a year ago.
To say XPO has been busy making a name for itself as well as carving a new identity since XPO CEO and Chairman Bradley S. Jacobs, whom is also an entrepreneur and founder and owner of Jacobs Private Equity LLC, and a group of investors made a $150 million commitment into Express-1 Expedited Solutions, a non-asset-based third party logistics transportation provider, and subsequently re-named the company XPO Logistics would be an understatement.
Under Jacobs’ watch, the company has made a focus and concerted effort towards building a multi-billion dollar transportation brokerage business in the coming years, growing organically and through acquisitions, building a comprehensive IT structure, and getting the right management team in place.
And on top of this week’s earnings news, XPO announced it has made its first acquisition, buying Continental Freight Services, a non-asset based 3PL focused on truck brokerage services and based in Columbia, S.C.
Looking at XPO’s quarterly performance by company segment, its freight brokerage group had total revenue of $7.9 million for a 32.5 percent annual improvement. Concert Logistics Group, its freight forwarding segment was down 1.8 percent at $15.5 million, and its Express-1 expedited transportation business group was up 8.1 percent at $22.4 million.
Logistics Management Group News Editor Jeff Berman recently spoke with Jacobs to discuss XPO’s first quarter results, his outlook on the market, and the future. A transcript of the conversation is below.
LM: What are your overall thoughts regarding XPO’s first quarter performance?
Jacobs: In the quarter, the results were mixed. You had truck brokerage which was on fire and growing like a weed. Our South Bend, Indiana office more than doubled its profits year-over-year and is validating our cold start (establishing new operations in new cities) program. On the freight forwarding side, we experienced the same conditions as other freight forwarders, with low ocean and air volumes. We still have a plan to grow and have opened up 27 stations and have 8 more stations circled on the map that we want to open in the next year or two, and we are hiring more salespeople in some of the key stations. In the first quarter, we opened three new stations in Atlanta, Charlotte, and Los Angeles, which shows how we are swimming upstream in a difficult environment. Expedited gross revenues were up but net revenues were down, with a warm winter and few supply chain disruptions and we did not have a lot of business from other logistics companies and we saw some weakness in some of our core customer business. There were some bright spots in Expedited though. Our cross-border business into Mexico was good and growing very nicely, and the temperature-controlled business is growing nicely, too.
LM: When we previously spoke, you said there were a number of candidates in the acquisition pipeline for XPO. Carolina Freight Services represents the first company joining the XPO fold through acquisition. What made this company attractive to XPO and how will it fit in?
Jacobs: The business plan is to significantly scale up Continental and expand the sales force. We are also looking for a new building to house more staffers. People at Continental are excited about this deal and are looking forward to tapping into our carrier procurement and our capacity in Charlotte that we have been growing. And in addition to the carriers they have been working with for the last 32 years, they also now have access to a whole bunch more capacity in that area so they can service their customers all that much more better. Their main office is in Columbia, S.C. and they have another office in Forest City, N.C. and in Charleston, S.C., as well as a satellite office in Florida, two in Texas, among others.
LM: Your cold start program is definitely making inroads, it seems. How are things going?
Jacobs: We are ahead of plan with this. We had a goal to open 5 cold starts at the beginning of the year, and we already have 3 opened and it is only May. Phoenix, which was the first one we opened this year, booked $760,000 of revenue last month and are at a revenue run rate of around $9 million, which is excited. Ann Arbor, Michigan opened in mid-April, and Dallas started up last week and is already booking loads.
LM: In the XPO earnings statement, it says that the new IT platform the company rolled out in March is providing greater internal visibility and stronger tools for sales and service management. That was a major work in progress. Can you provide some examples of the difference it has made for XPO?
Jacobs: The implementation went great, and the system is highly scalable and the software systems we are developing have the potential to change how we move goods. We are talking a next-generation approach and are seeing ways in which we can capture pricing better and have greater visibility into freight movements and just have more connection with customers. What we hear from customers is that they want the ability to have quick access to quality carriers and want it in real time, and they want us to be very proactive in the way we communicate with them and want extreme accuracy and want information at the speed of light. The IT system we are rolling out will have continuous updates to continually improve our ability to price freight so we can bid on loads accurately and well and also to find the best truck for a specific load. We also rolled out a new Web site at http://www.xpologistics.com which, is targeted to carriers, shippers, and prospective employees. Customers can use this site to request a quote, track loads, and it is the first of several customer-facing Web and mobile products that we are going to release over the course of the year. One of these offerings is a self-service freight management tool for shippers. This was done in response to customer input. A big part of our culture is to ask a lot: ask employees and customers how can we do a better job.
LM: Now that you been in the transportation and logistics sector for a little while, what is your view of the market? Are things improving or is there a bit of an ebb and flow, due to economic uncertainty brought on by things like mixed jobs numbers and consumer confidence, among others?
Jacobs: In the truck brokerage part of the business, things are pretty balanced in terms of demand. You can get a truck. It is not as is capacity is so tight that you can’t. There are parts of the country and different times in the month when it is more tight than it is loose. On the expedited side it is soft due mainly to the warmer weather. Freight forwarding is the same as expedited, with China and Europe slowing down and that affects us.
LM: What are some things that you want to work on as a company to drive earnings and margins going forward as you build up the XPO brand in the market?
Jacobs: To me, it is really about great people and great IT systems, and that is what we are trying to do. We are going to try to continue to attract top talent. Building up the Charlotte operations center is a real competitive advantage; we are targeting 100 people to be there by the end of the year and we have already hired nearly 30. All of our cold starts and acquisitions will have access to the carrier capacity we generate in Charlotte. Companies we acquire will keep their existing relationships but in addition to that will have access to our capacity, which makes it a real win-win kind of deal. Charlotte is the backbone of our whole expansion program and it is ramping up nicely and will help up scale up our acquisitions and our cold starts.
LM: What are the next steps for acquisitions for XPO?
Jacobs: We are expecting to purchase about another $250 million in revenue by year end (Continental Freight Services generated trailing 12 months of revenue of roughly $22 million as of March 31, 2012). Which month and which quarter is hard to say, given how M&A tends to have a life of its own. For the balance of the year, we have a healthy backlog of acquisition candidates. We are keeping our target of being at a $500 million revenue run rate as a company, with about half of that coming from acquired revenue.
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