With recapitalization in the past, CEVA is confident about the future

Second quarter earnings for global third-party logistics (3PL) services provider CEVA Logistics were solid, the Netherlands-based company recently announced.

Revenue was up 6 percent compared to the first quarter at $1.978 million and down 4.2 percent annually, and adjusted EBITDA was up 40 percent compared to the first quarter at $60 million, and was down 25 percent annually. Quarterly EBITDA was lower annually, due to the company’s Freight Management group revenues being negatively affected by lower market rates.

CEVA said the sequential gains from the first quarter to the second quarter were driven by:
-a 31 percent annual increase in new business wins to $763 million;
-a 7 percent gain in oceanfreight volumes, surpassing the industry growth rate; and
-the company’s additions to the senior management team

The annual decline in revenue, CEVA said, was spurred by last year’s recapitalization, which was an agreement with its major note holders to recapitalize its balance sheet and raise new capital in the first half of 2013 and make for a stronger balance sheet for CEVA, enabling the company to grow faster and better compete in the logistics and supply chain marketplace, as well as give CEVA the flexibility of making additional capex investments. Another factor for the company was terminating lower margin business.

CEVA’s Airfreight and Oceanfreight groups both saw gains in export volumes on both a sequential and annual basis, and it said that the 7 percent increase in ocean volumes represents early success in the 2014 tender seasons. For the airfreight sector, CEVA said that volumes were up 1 percent annually and got stronger as the quarter moved on as three-week rolling volumes were up 4 percent in June.

“Our performance improvement coupled with the strong increase in our new business pipeline points to the company being on the right track for growth,” said CEVA CEO Xavier Urbain in a statement. “Since joining CEVA in January, I have focused on strengthening the executive management team, expanding our current talent base with additional industry experience to drive forward our strategy, building revenue and improving operational efficiency for the benefit of our customers. The numbers show we are gaining traction and are positioned well to make further progress in the future.”

CEVA CFO Rubin McDougal told LM in an interview that the company exceeded expectations overall and was very pleased with the progress the company made both within its ocean and air groups, the former of which has dealt with volume pressure due to the company’s recapitalization, which is now in the past and no longer an issue.

“June was particularly good for both products,” he said.  “We saw strong progress all around, which was great. And our Contract Logistics group also had very solid margins and are as good as anyone’s in the business. Our objective for these groups going forward is to build the revenue line out for future growth.”

For new business wins, CEVA cited various factors, including investments in its tender management, trade lane management, and field sales force contributing to the growth in the quarter.

The investments in tender management at the end of last year into early this year included doubling the size of the team in order to deal with higher-volume RFQ’s it received and expected to receive as a result of the recapitalization, said McDougal.

“The intent there was to be able to handle higher volume and handle it well as a tool to be more profitable when we secured new wins,” he explained. “It allowed us to be aggressive in a where we wanted to be in order to grow margins and improve our hit rate, or the number of RFQ’s we win or the volume we are awarded out of the potential number we had. We were successful in both.”

For trade lane management, he said the value came from working with the tender management group and the field sales force to identify where to be more aggressive in a specific trade lane for a specific reason like traffic flows or a certain type of cargo that might be ideal for consolidation, among other things.

Gains for both ocean and air freight were due in large part to collaboration with some key customers that have been growing rapidly.

“We have been able to make successful offers to give them a complete solution,” he said. “And with the field sales force, which previously was understaffed and focusing on the wrong things, has been redirected towards small and medium enterprises, too, and we are seeing gains from that targeting their specific needs and identifying what works best for them.”

Peak thoughts: When asked about the likelihood of a 2014 Peak Season, McDougal said that this year there will be a Peak Season for the first time in many years, with the expectation of Peak Season “pressures” for its ocean and air products, despite the differences in the timing of Peak Season for each mode.

“We expect pressure on pricing for both products and we expect things to follow a more normal curve, almost like it was in a pre-2009 pattern,” he said. “This is due to strengthening economic growth, especially in the U.S., along with carriers taking steps to have control over capacity and manufacturers and marketers having good control over inventory. In the absence of excess capacity and inventory and a solid economic position for top consumer markets, it puts you in a position where you can see a strong Peak Season growth pattern. But, obviously, we won’t know for sure until we see what happens.”