XPO sees large Q2 revenue gains, acquires New Breed Logistics and Atlantic Central Logistics

Yesterday was a busy day for non asset-based 3PL XPO Logistics, as the company announced second quarter earnings and the acquisition of two companies, New Breed Logistics, a non asset-based 3PL focusing in contract logistics services, for roughly $615 million, and Atlantic Central Logistics, a 3PL provider of last-mile logistics services, for roughly $36.5 million.

First quarter gross revenue for XPO Logistics—at $581.0 million—was up 323.8 percent annually, and gross margin dollars increased 140.0 percent annually to $16.3 million, with net revenue improved by 530.1 percent to $121.9 million. And it reported a net loss of $13.8 million, down from $17.4 million for the same quarter last year, with some of the factors behind that including a $2.3 million after-tax charge due to the rebranding of its Express-1 business and costs related to its 2013 acquisition of Pacer International. Second quarter EBITDA at $14.1 million far outpaced the $12.4 million loss it incurred a year ago.

As of June 30, 2014, XPO had $129 million in cash, with $17 million of restricted cash.

For its full-year outlook, XPO said it now expects an annual revenue run rate of more than $3 billion by December 31, up from a previous forecast of $2.75 billion, and an annual EBITDA run rate of at least $150 million for the same period, ahead of a previous target of $100 million.

“In the second quarter, we outperformed a favorable brokerage environment and delivered strong results across the board,” said Bradley Jacobs, chairman and chief executive officer of XPO Logistics, in a statement. “Our gross revenue, volume, net revenue margin and EBITDA all came in significantly ahead of plan. We reported robust organic growth of 49 percent company-wide, and in our freight brokerage unit, we generated outsized organic growth of 67 percent. We accomplished this by capitalizing on our increasing scale and lane density, and by improving the productivity of our sales force.”

Individual Q2 XPO group results:
-Freight brokerage: the group’s total gross revenue of $493.4 million was up 417.4 percent, and net revenue margin was up 21.3 percent from 13.2 percent a year ago, with these gains due mainly to acquiring 3PD, Optima Service Solutions, and Pacer, as well as 67 percent organic growth;
-Expedited transportation: the group’s total gross revenue was up 37 percent at $36.2 million, with net revenue margin up 30.8 percent compared to 15.9 percent a year ago. XPO said margin gains were due to getting more revenue per mile; and
-Freight forwarding: the group’s total gross revenue was up 180.2 percent at $54.2 million, with net revenue margin up 10.3 percent compared to 13.3 percent last year. XPO said the net revenue margin decrease was partly due to consolidating the former Pacer freight forwarding operations into the XPO Global Logistics Network, which XPO said pushed the revenue mix towards higher-revenue, lower-margin international transactions

XPO CFO John Hardig said in an interview that second quarter EBITDA and gross revenue were both significantly ahead of expectations. He also noted that organic growth, which represents growth in any business XPO acquired more than 12 months ago, was up 49 percent company-wide, with organic growth revenue up 67 percent.

When asked about the growth XPO continues to see specifically for its freight brokerage business, Hardig said it was a combination of things.

“It is the maturity of our business and our sales reps, and the great technology we have developed that that helps the reps be more productive to price and find capacity in meeting our customers needs,” he said. “The market feels healthier. I would not say there is a ton more freight out there, but it is more stable than it was over the winter. It is not a significant uptick in freight. It is more that the market is more at equilibrium and still pretty even keeled from a supply and demand point of view.”

Acquistions: XPO’s $615 acquisition of High Point, N.C.-based New Breed Logistics is expected to bring myriad benefits to the company, according to company officials.

New Breed’s core focus on the contract logistics side centers around services related to omni-channel distribution, reverse logistics, transportation management, freight bill audit and payment, lean manufacturing support, aftermarket support, and supply chain optimization. XPO said New Breed processes more than 275,000 orders per day, which are usually for premium, high-value products, through 171 facilities, and it has about 6,800 employees. When this deal is made official, XPO said it will have about 10,000 employees and more than 200 locations. This deal also represents the single largest acquisition XPO has made, with the August 2013 acquisition of 3PD, the largest non-asset, third party provider of heavy goods, last-mile logistics in North America, next at $365 million.

Bringing New Breed into the fold will also access entry for XPO into the contact logistics sector, which the company described as high-margin, customized services with high contractual revenue renewal rates and low cyclicality. And it added that this deal is true to the XPO strategy of acquiring leading positions in sectors where it expects sustained demand for its services, as evidenced by New Breed’s compound annual growth rate of 16 percent over the last ten years. XPO said New Breed’s growth is due largely to various vertical segments, including technology, e-commerce, aerospace and defense, medical equipment, and manufacturing.

Other key factors include: the potential for cross-selling opportunities between New Breed and XPO, with New Breed customers gaining access to truck brokerage, intermodal, expedite, last-mile, and freight forwarding; the doubling of XPO’s IT team to about 600 people; and XPO looking to integrate its XPO NLM expedited freight management platform with New Breed’s TMS, which leverage complex modeling tools for freight optimization, routing guide management, and carrier selection that is based on cost, service requirements, performance metrics, and transit times.

“We’re making a transformational move in acquiring New Breed - one that gives us critical mass and elevates our service offering,” said Jacobs. “We’ll be able to deliver integrated, end-to-end logistics solutions for any company, of any size, with any combination of transportation needs. New Breed is a jewel in the crown of contract logistics: a world-class provider entrusted with critical services by some of the most prestigious corporate names in America. We’ll gain leadership in one of the most financially attractive sectors of contract logistics, and we’ll use our new platform to engage customers in our broader offering, just as we’ve done over the past 12 months with our acquisitions of 3PD, NLM and Pacer.”

Atlantic Central Logistics: Based in Elizabeth, N.J., ACL provides last-mile logistics through about 200 contracted carriers and 160 employees at 14 locations on the East Coast, and it serves what XPO called “burgeoning demand” for e-commerce fulfillment through the facilitation of time-sensitive, local movement of goods between distribution centers and the end-consumer.

This acquisition was formally closed on July 29.

“This is obviously a smaller deal than New Breed but strategically it is just as important to us, because it has a vast scalability around e-commerce,” said CFO Hardig. “Their lanes and delivery schedules really compliment those of our XPO last-mile business. We have already begun the integration process and are really going to be able to leverage our capacity across the two businesses.”