XPO Logistics reports strong first quarter results and organic growth

Non asset-based 3PL XPO Logistics reported strong first quarter results late yesterday.

First quarter gross revenue for XPO Logistics—at $282.4 million—was up 147.7 percent annually, while net revenue saw a 259.1 percent increase to $58.4 million.

XPO had a quarterly net loss of $28.1 million compared to $14.5 million a year ago, and EBITDA saw a $10.1 million quarterly loss compared to $9.8 million for the first quarter of 2013. XPO said it has roughly $157 million of cash, including $13 million of restricted cash as of March 31, following its acquisition of Dublin, Ohio-based Pacer International, a freight transportation and logistics services provider and the third largest provider of intermodal services in North America. For 2014, XPO is eyeing an annual revenue run rate of at least $2.75 billion and an annual EBITDA run rate of at least $100 million by December 31, while expecting to acquire at least $400 million of historical annual revenue in 2014, aside from the Pacer deal. Growing through acquisition had been a core strategy for XPO since CEO Brad Jacobs and his 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, first entered the business in 2011.

XPO’s freight brokerage business had a total quarterly gross revenue of $231.7 million, which was up 196.2 percent year-over-year, and net revenue margin at 19.1 percent compared to 12.9 percent a year earlier. XPO said the revenue and margin gains were largely because of its acquisition of last-mile logistics services providers 3PD and Optima Service Solutions in 2013, as well as 75 percent organic growth, and margin improvement. Quarterly operating income for the segment saw a $4.0 million loss, nearly matching last year’s $3.8 million loss.

The expedited transportation business group at XPO had $33.8 million in total gross revenue for a 41.6 percent annual increase, with net revenue margin at 33.6 percent compared to 15.9 percent in the first quarter of 2013, with XPO explaining that the gain in net revenue margin indicative of XPO’s acquisition of NLM, a managed transportation expeditor, that had $6.4 million of gross and net revenue in the first quarter. XPO’s expedited transportation operating income for the quarter was $3.7 million, topping last year’s $753,000.

For freight forwarding side, XPO said the business generated total revenue of $16.2 million, which was up 5.0 percent annually, with gross margin percentage up to 14.7 percent from 10.3 percent a year ago. XPO said that the increase in gross margin percentage was primarily driven by company-owned conversions from independently-owned stations, and cold-starts.

“I would characterize the first quarter as very strong for us,” Jacobs told LM. “There was significant growth in every major metric, including gross revenue and net revenue. Perhaps the most important statistics are for our organic growth, which is up 51 percent company wide.”

As for the integration of Pacer into XPO, Jacobs said that process is off to a smooth start, noting that XPO has named Julie Luna, former executive vice president, sales and marketing, intermodal at Pacer, as chief commercial officer. Luna will lead the combined sales force for XPO.

And he added that XPO has made significant progress in taking out costs at Pacer through various functions, including: moving the former Pacer truck brokerage operation into XPO’s proprietary Freight Optimizer technology, with access to more than 26,000 carriers; right-sizing costs in technology, real estate, sales, and administrative functions; closing ten underperforming locations and consolidating six duplicative offices in the U.S., Asia, and Europe, with the remaining locations now part of the XPO Global Logistics freight forwarding network. Jacobs added that these measures are expected to capture roughly $15 million of cost synergies, which is triple the company’s original estimate.

XPO also continues to remain active with its brokerage cold starts (opening offices in new locations), rolling out its eleventh freight brokerage cold start in Kansas City, which opened its doors on March 31.

XPO’s brokerage cold starts, according to Jacobs, already have a revenue run rate of more than $190 million, well ahead of the $78 million run rate from a year ago.

Looking ahead, in the second quarter Jacobs said XPO will be rebranding its Express-1 (expedited transportation) business to XPO Express, with its 3PD segment becoming XPO Last Mile, which he said will harmonize its businesses under the XPO banner.

Looking back at the first quarter in terms of market conditions, Jacobs said that weather-related issues created service issues for the railroads, which pushed intermodal freight back onto trucks and subsequently further tightened up already-tight truck capacity.

“That led to increased expedited business activity and how we saw the weather affect different parts of our business,” he said. “We moved freight through our brokerage network through Express-1, owner operators, and our auction platform, and air charter. A big part of our growth was getting our hands on capacity and moving a record amount of freight for us during severe weather disruptions and customers rewarded us with a substantial amount of spot business. While the weather’s impact was temporary, we gained new customers, when they hit a wall with their usual capacity providers and were able to build stronger relationships with existing customers. This has helped us to grow the business even as capacity loosened in recent weeks although the market is still generally tight, with rates up annually and capacity loosening up in other parts of the country, save for the southeast due to produce season.”