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XPO Logistics Announces Second Quarter 2018 Results
XPO Logistics, Inc. (NYSE: XPO) today announced financial results for the second quarter 2018. Revenue increased 16.0% year-over-year to $4.36 billion. Net income attributable to common shareholders was $137.5 million for the quarter, compared with net income attributable to common shareholders of $47.6 million for the same period in 2017. Earnings per diluted share was $1.03 for the quarter, compared with $0.38 for the same period in 2017.
Adjusted net income attributable to common shareholders, a non-GAAP financial measure, was $131.8 million for the quarter, compared with $75.0 million for the same period in 2017. Adjusted earnings per diluted share, a non-GAAP financial measure, was $0.98 for the quarter, compared with $0.60 for the same period in 2017. Adjusted net income attributable to common shareholders and adjusted earnings per diluted share for the second quarter 2018 exclude: a $15.7 million benefit, or $11.5 million after-tax, of non-cash unrealized gains on foreign currency contracts; and $7.8 million, or $5.8 million after-tax, of integration and rebranding costs. Reconciliations of non-GAAP financial measures used in this release are provided in the attached financial tables.
Adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), a non-GAAP financial measure, increased to $436.7 million for the second quarter 2018, excluding integration and rebranding costs of $7.8 million. This compared with $370.8 million of adjusted EBITDA for the same period in 2017.
For the second quarter 2018, the company generated $267.4 million of cash flow from operations and $192.9 million of free cash flow.
The company reaffirmed its full year 2018 target for adjusted EBITDA of at least $1.6 billion, and 2017-2018 target for cumulative free cash flow of approximately $1 billion.
Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, "Our strong second quarter performance was highlighted by record results for revenue, net income, adjusted EBITDA, cash flow from operations and free cash flow. We grew profitability faster than revenue, with a 178% increase in net income and an 18% increase in adjusted EBITDA on organic revenue growth of 11%.
"In logistics, we implemented a record 37 customer start-ups in three months - and once again, the big driver was e-commerce. In transportation, we increased freight brokerage net revenue by 46% with a lower headcount. North American last mile and European transport were also standouts. In our North American less-than-truckload business, we achieved the best adjusted operating ratio in 30 years at 84.3%."
Jacobs continued, "Our expanded sales force signed $2.1 billion of new business this year through June. We have innovations underway in every corner of the company. They include the ramp-up of our XPO Direct distribution network, the build-out of our digital freight marketplace, the expansion of our last mile footprint, and the deployment of dynamic analytics for workforce planning. These are secular growth drivers that create sustainable value for our customers and shareholders."
Operating income for the transportation segment increased to $205.4 million in the quarter, compared with $165.0 million for the same period in 2017. Adjusted EBITDA for the segment improved to $335.1 million, an increase of 13.7% from a year ago. The increases in operating income and adjusted EBITDA primarily were due to revenue growth and were broad-based across the segment, led by improved profitability in freight brokerage and last mile in North America, and dedicated truckload and less-than-truckload in Europe. Within the North American less-than-truckload unit, the operating ratio was 85.9%. The adjusted operating ratio was 84.3%, an improvement from 84.6% for the same period in 2017.
Operating income for the logistics segment increased to $67.3 million, compared with $49.4 million for the same period in 2017. Adjusted EBITDA for the segment improved to $134.0 million, an increase of 20.6% from a year ago. The increases in operating income and adjusted EBITDA primarily were due to revenue growth and site productivity improvements, partially offset by higher direct operating costs related to a record number of quarterly contract startups: 19 in North America and 18 in Europe.
For the six months ended June 30, 2018, the company reported total revenue of $8.56 billion, a 17.2% increase from the same period in 2017. Net income attributable to common shareholders was $204.4 million for the first six months of 2018, compared with $67.1 million for the same period in 2017. Earnings per diluted share was $1.53 for the first six months of 2018, compared with $0.54 for the same period in 2017.
Adjusted net income attributable to common shareholders, a non-GAAP measure, was $212.7 million for the first six months of 2018, compared with $112.6 million for the same period in 2017. Adjusted earnings per diluted share, a non-GAAP financial measure, was $1.59 for the first six months of 2018, compared with $0.90 for the same period in 2017. Adjusted net income attributable to common shareholders and adjusted earnings per diluted share for the first six months of 2018 exclude $15.0 million, or $11.0 million after-tax, of integration and rebranding costs; a benefit of $12.2 million, or $9.0 million after-tax, from non-cash unrealized gains on foreign currency contracts; and $10.3 million, or $7.5 million after-tax, of debt extinguishment costs related to the refinancing of an existing term loan.
Adjusted EBITDA for the first six months of 2018, a non-GAAP measure, improved to $766.9 million, compared with $660.8 million for the same period in 2017. Adjusted EBITDA for the first six months of 2018 excludes $15.0 million of integration and rebranding costs.
The company will hold a conference call on Thursday, August 2, 2018, at 8:30 a.m. Eastern Time. Participants can call toll-free (from U.S./Canada) 1-877-269-7756; international callers dial +1-201-689-7817. A live webcast of the conference will be available on the investor relations area of the company's website, www.xpo.com/investors. The conference will be archived until September 2, 2018. To access the replay by phone, call toll-free (from U.S./Canada) 1-877-660-6853; international callers dial +1-201-612-7415. Use participant passcode 13681035.
XPO Logistics, Inc. (NYSE: XPO) is a top ten global logistics provider of cutting-edge supply chain solutions to the most successful companies in the world. The company operates as a highly integrated network of people, technology and physical assets in 32 countries, with 1,505 locations and more than 97,000 employees. XPO uses its network to help more than 50,000 customers manage their goods more efficiently throughout their supply chains. XPO's corporate headquarters is in Greenwich, Conn., USA, and its European headquarters is in Lyon, France. www.xpo.com
As required by the rules of the Securities and Exchange Commission ("SEC"), we provide reconciliations of the non-GAAP financial measures contained in this press release to the most directly comparable measure under GAAP, which are set forth in the financial tables attached to this document. This document contains the following non-GAAP financial measures: earnings before interest, taxes, depreciation and amortization ("EBITDA") and adjusted EBITDA for the three and six-month periods ended June 30, 2018 and 2017, on a consolidated basis and for our transportation and logistics segments; free cash flow for the three and six-month periods ended June 30, 2018 and 2017; adjusted net income attributable to common shareholders and adjusted earnings per share (basic and diluted) ("adjusted EPS") for the three and six-month periods ended June 30, 2018 and 2017; net revenue for the three and six-month periods ended June 30, 2018 and 2017 for our transportation and logistics segments and corporate and intersegment eliminations; adjusted operating income for our North American less-than-truckload business for the three and six-month periods ended June 30, 2018 and 2017; and organic revenue for the three-month periods ended June 30, 2018 and 2017, on a consolidated basis.
We believe that the above adjusted financial measures facilitate analysis of our ongoing business operations because they exclude items that may not be reflective of, or are unrelated to, XPO and its business segments' core operating performance, and may assist investors with comparisons to prior periods and assessing trends in our underlying businesses. Other companies may calculate these non-GAAP financial measures differently, and therefore our measures may not be comparable to similarly titled measures of other companies. Items excluded from such non-GAAP financial measures are significant and necessary components of the operations of our business, and, therefore, such measures should only be used as supplemental measures of our operating performance.
Adjusted EBITDA, adjusted net income attributable to common shareholders and adjusted EPS include adjustments for acquisition costs and related integration, transformation and rebranding initiatives. Transaction and integration adjustments are generally incremental costs that result from an actual or planned acquisition and include transaction costs, restructuring costs, acquisition and integration consulting fees, internal salaries and wages (to the extent the individuals are assigned full-time to integration and transformation activities) and certain costs related to integrating and converging IT systems. Rebranding adjustments primarily relate to the rebranding of the XPO Logistics name on our truck fleet and buildings. Management uses these non-GAAP financial measures in making financial, operating and planning decisions and evaluating XPO's and each business segment's ongoing performance.
We believe that free cash flow is an important measure of our ability to repay maturing debt or fund other uses of capital that we believe will enhance stockholder value. We believe that EBITDA and adjusted EBITDA improve comparability from period to period by removing the impact of our capital structure (interest and financing expenses), asset base (depreciation and amortization), tax impacts and other adjustments as set out in the attached tables that management has determined are not reflective of normalized operating activities.
We believe that adjusted net income attributable to common shareholders and adjusted EPS improve the comparability of our operating results from period to period by removing the impact of certain costs and gains that management has determined are not reflective of our core operating activities. We believe that net revenue improves the comparability of our operating results from period to period by removing the cost of transportation and services, in particular the cost of fuel, incurred in the reporting period as set out in the attached tables. We believe that adjusted operating income for our North American less-than-truckload business improves the comparability of our operating results from period to period by removing the impact of certain transaction, integration and rebranding costs and amortization and depreciation expenses incurred in the reporting period as set out in the attached tables. We believe that organic revenue is an important measure because it excludes the impact of the following items: foreign currency exchange rate fluctuations and fuel surcharges.
With respect to our 2018 financial target of adjusted EBITDA and our 2017-2018 cumulative target for free cash flow, each of which is a non-GAAP measure, a reconciliation of the non-GAAP measure to the corresponding GAAP measure is not available without unreasonable effort due to the variability and complexity of the reconciling items described below that we exclude from the non-GAAP target measure. The variability of these items may have a significant impact on our future GAAP financial results and, as a result, we are unable to prepare the forward-looking balance sheet, statement of income and statement of cash flow, prepared in accordance with GAAP that would be required to produce such a reconciliation.
XPO Logistics, Inc.
Tavio Headley
+1-203-930-1602
tavio.headley@xpo.com
XPO Logistics, Inc.
Erin Kurtz
+1-203-489-1586
erin.kurtz@xpo.com
[1] The sum of quarterly net income attributable to common shareholders and earnings per share may not equal year-to-date amounts due to differences in the weighted-average number of shares outstanding during the respective periods and the impact of the two-class method of calculating earnings per share.
* In connection with the adoption of Accounting Standards Update 2016-18, the Company is required to reconcile to cash, cash equivalents and restricted cash in its cash flow statement. Restricted cash was $13.2 million, $52.1 million, $21.7 million and $26.4 million at June 30, 2018, December 31, 2017, June 30, 2017 and December 31, 2016, respectively. Prior period has been restated to reflect current period presentation.
[a] See the "Non-GAAP Financial Measures" section of the Press Release.
[b] Other income (expense) consists of pension income and is included in Other expense (income) on the Condensed Consolidated Statement of Operations.
* For purposes of the summary financial table, adjusted EBITDA is reconciled to operating income and excludes gains and losses below operating income in the Condensed Consolidated Statements of Operations.
[a] See the "Non-GAAP Financial Measures" section of the Press Release.
Less-Than-Truckload revenue is before intercompany eliminations and includes revenue from the Company's trailer manufacturing business.
Truckload revenue is before intercompany eliminations.
*Compared with the same quarter of the previous year.
**Total Average Load Factor equals freight pound miles divided by total linehaul miles.
[a] Operating ratio is calculated as (1 - (Operating income divided by Revenue)).
[b] See the "Non-GAAP Financial Measures" section of the Press Release.
[c] Adjusted operating ratio is calculated as (1 - (Adjusted operating income divided by Revenue)).
[a] See the "Non-GAAP Financial Measures" section of the Press Release.
[b] Other income (expense) consists of pension income and is included in Other expense (income) on the Condensed Consolidated Statement of Operations.
* For purposes of the summary financial table, adjusted EBITDA is reconciled to operating income and excludes gains and losses below operating income in the Condensed Consolidated Statements of Operations.
[a] See the "Non-GAAP Financial Measures" section of the Press Release.
Note: Intersegment Eliminations represent intercompany activity between the Company's reportable segments that is eliminated upon consolidation. The difference between operating income component line items in the Condensed Consolidated Statements of Operations and the sum of the respective line items from the Transportation and Logistics Summary Financial Tables and Corporate Summary of Sales, General and Administrative Expense above represents intercompany eliminations between our reportable segments. The table above summarizes the intersegment eliminations by line item.
[a] See the "Non-GAAP Financial Measures" section of the Press Release.
[a] See the "Non-GAAP Financial Measures" section of the Press Release. Adjusted EBITDA was prepared assuming 100% ownership of XPO Logistics Europe.
[1] The sum of quarterly net income attributable to common shareholders and distributed and undistributed net income may not equal year-to-date amounts due to the impact of the two-class method of calculating earnings per share.
[1] This line item reflects the aggregate tax benefit (provision) of all non-tax related adjustments reflected in the table above. The detail by line item is as follows:
[2] Adjustments consist of $2.5 million release of reserves related to uncertain tax positions and $3.3 million release of a valuation allowance related to state tax matters for the six months ended June 30, 2017.
[a] See the "Non-GAAP Financial Measures" section of the Press Release.
The Company has evaluated the guidance in accordance with Compliance and Disclosure Interpretations of the U.S. Securities and Exchange Commission table to calculate the non-GAAP Adjusted Net Income and Adjusted Net Income Per Share. The table above includes the U.S. GAAP financial statement items that have been reconciled to arrive at Adjusted Net Income and Adjusted Net Income per share. The adjusted performance metrics are based on the GAAP annual effective rate, excluding discrete items. A corresponding noncontrolling interest has been calculated for those reconciling items reported within the acquired Norbert Dentressangle SA legal entities.
[a] See the "Non-GAAP Financial Measures" section of the Press Release.
[a] Organic revenue is a non-GAAP measure. Organic Revenue reflects adjustments to (i) exclude the estimated revenue attributable to fuel and (ii) apply a constant foreign exchange rate to both periods (based on average rates during the monthly periods).
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