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XPO Logistics Announces Second Quarter 2016 Results
Reports record levels of net income, EBITDA, cash flow from operations and free cash flow
Raises 2016 financial targets
GREENWICH, Conn. - August 3, 2016 - XPO Logistics, Inc. (NYSE: XPO) today announced financial results for the second quarter of 2016. Total gross revenue increased 202.9% year-over-year to $3.7 billion. Net income attributable to common shareholders was $42.6 million for the quarter, or earnings of $0.35 per diluted share, compared with a net loss attributable to common shareholders of $75.1 million, or a loss of $0.89 per diluted share, for the same period in 2015.
The adjusted net income attributable to common shareholders, a non-GAAP measure, was $50.4 million, or earnings of $0.42 per diluted share for the second quarter of 2016, excluding the items detailed below. This compares with an adjusted net loss attributable to common shareholders of $13.6 million, or a loss of $0.16 per diluted share, for the second quarter of 2015.
The adjusted net income attributable to common shareholders for the second quarter of 2016 excludes: $21.5 million, or $13.9 million after-tax, of one-time transaction-related and rebranding costs net of noncontrolling interests; and a $6.1 million, or $4.1 million after-tax, benefit related to unrealized foreign exchange cost. Reconciliations of adjusted net income attributable to common shareholders and adjusted EPS, as well as reconciliations of other non-GAAP measures used throughout this release, are provided in the attached financial tables.
Adjusted earnings before interest, taxes, depreciation and amortization ("adjusted EBITDA"), a non-GAAP financial measure, improved to $354.9 million for the quarter, compared with $79.7 million for the same period in 2015. Adjusted EBITDA in the second quarter of 2016 excludes $21.5 million of one-time transaction-related and rebranding costs.
The company generated $260.7 million of cash flow from operations and $169.5 million of free cash flow in the quarter.
Raises 2016 Financial Targets
For 2016, the company has:
In addition, the company has reaffirmed its full year 2018 target of approximately $1.7 billion of EBITDA.
Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, "In the second quarter, we generated $355 million of adjusted EBITDA, $261 million of cash flow from operations, and $170 million of free cash flow - all records for our company. We're at an inflection point in the evolution of our business, accelerating our EBITDA and cash generation while continuing to invest in technology, our sales force and other levers of future growth.
"Our strong performance in the quarter was led by our North American operations for last mile and less-than-truckload, and by our European supply chain operations. While market conditions were sluggish overall, e-commerce was a major tailwind - driving margin expansion in last mile, and resulting in major contract wins in contract logistics on both sides of the Atlantic. In LTL, we increased operating income by 66% from last year's second quarter, pre-acquisition."
Jacobs continued, "We've raised our 2016 target for adjusted EBITDA to at least $1.265 billion, up from $1.25 billion. We also raised our free cash flow target to at least $150 million, up from a range of $100 million to $150 million. From here, we have a well-defined path to our target of $1.7 billion of EBITDA for 2018. More than $300 million of our profit improvement opportunities are company-specific and independent of macro conditions, including the global optimization of our network and the rationalization of $14 billion of addressable spend."
Second Quarter 2016 Results by Segment
Net revenue margin for the second quarter improved to 29.1%, compared with 22.5% in 2015. The increase in margin was primarily due to the acquisition of the less-than-truckload business in October 2015, as well as margin improvements in last mile and global forwarding, partially offset by lower intermodal and expedite margins.
Second quarter operating income for the transportation segment increased to $153.2 million, compared with operating income of $23.0 million a year ago. Second quarter adjusted EBITDA improved to $275.7 million, compared with $59.3 million a year ago. The increases in operating income and adjusted EBITDA were primarily due to 2015 acquisitions.
In the North American LTL business, the company improved operating income to $115.5 million, a 66% increase from the same period a year ago, pre-acquisition. On an adjusted basis, LTL operating income increased 81%, excluding transaction-related costs and amortization related to the acquisition. The increase in LTL operating income was primarily driven by yield improvement and SG&A cost reductions.
Adjusted EBITDA for the logistics segment was higher than expected in the quarter, led by volume increases from e-commerce and high tech and the strong performance of the European business overall.
Six Months 2016 Financial Results
For the six months ended June 30, 2016, the company reported total revenue of $7.2 billion, a 276.7% increase from the same period in 2015.
The company reported net income attributable to common shareholders of $22.0 million, or $0.19 per diluted share, for the first six months of 2016, compared with a net loss of $90.3 million, or a loss of $1.11 per diluted share, for the same period in 2015.
The adjusted net income attributable to common shareholders, a non-GAAP measure, was $42.1 million, or $0.35 per diluted share for the first six months, excluding the items detailed below. This compares with an adjusted net loss attributable to common shareholders of $22.7 million, or a loss of $0.28 per diluted share, for the same period in 2015.
Adjusted net income for the first six months of 2016 excludes $48.5 million, or $30.7 million after-tax, of one-time transaction, integration and rebranding costs net of noncontrolling interests; a $5.8 million, or $3.6 million after-tax, benefit to depreciation and amortization related to the updated purchase price allocation of acquired assets; and a $4.1 million, or $3.5 million after-tax, benefit related to unrealized foreign exchange positions.
Adjusted EBITDA for the first six months of 2016, a non-GAAP measure, improved to $604.2 million, compared with $109.3 million for the same period in 2015. Adjusted EBITDA for the first six months of 2016 excludes $48.5 million of one-time transaction, integration and rebranding costs.
Launches Next Generation Website
The company announced the next generation of its website at www.xpo.com and its new tagline Results MatterSM. The site's enhanced functionality connects customers with transportation and logistics experts and provides more information about ways in which XPO helps customers manage their goods more efficiently throughout their supply chains.
The company will hold a conference call on Thursday, August 4, 2016, 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 4, 2016. 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 13640360.
About XPO Logistics
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 34 countries, with over 88,000 employees and 1,440 locations. XPO uses its network to help more than 50,000 customers manage their goods more efficiently throughout their supply chains. The company has two reporting segments: transportation and logistics, and within these segments, its business is well diversified by geographies, verticals and types of service. XPO's corporate headquarters is in Greenwich, Conn., USA, and its European headquarters is in Lyon, France. www.xpo.com
Non-GAAP Financial Measures
This press release contains certain non-GAAP financial measures as defined under rules of the Securities and Exchange Commission ("SEC"), including adjusted net income (loss) attributable to common shareholders for the three- and six-month periods ended June 30, 2016; adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") for the three- and six-month periods ended June 30, 2016 and 2015, on a consolidated basis and for the company's transportation and logistics segments; free cash flow for the three-month period ended June 30, 2016; and adjusted operating income for the North American LTL business for the three-month periods ended June 30, 2016 and 2015. As required by SEC rules, we provide reconciliations of these historical measures to the most directly comparable measure under United States generally accepted accounting principles ("GAAP"), which are set forth in the financial tables attached to this document. With respect to our 2016 financial targets of adjusted EBITDA and free cash flow, and our 2018 financial target of EBITDA, 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 non-cash and other 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. 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 expense from our outstanding debt), asset base (depreciation and amortization) tax consequences, and the nonrecurring items noted in the reconciliation. We believe that adjusted operating income (loss) improves comparability from period to period by removing the impact of nonrecurring expense items such as one-time transaction-related costs. In addition to its use by management, we believe that EBITDA and adjusted EBITDA are measures widely used by securities analysts, investors and others to evaluate the financial performance of companies in our industry. Other companies may calculate EBITDA and adjusted EBITDA differently, and therefore our measure may not be comparable to similarly titled measures of other companies. Free cash flow, EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP and should not be considered in isolation or as an alternative to net income, cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from EBITDA and adjusted EBITDA are significant and necessary components of the operations of our business, and, therefore, EBITDA and adjusted EBITDA should only be used as a supplemental measure of our operating performance.
This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including our 2016 and 2018 financial targets, our expected ability to generate organic revenue growth and profit improvement opportunities, including through cost rationalization, global procurement and the cross-fertilization of best practices. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as "anticipate," "estimate," "believe," "continue," "could," "intend," "may," "plan," "potential," "predict," "should," "will," "expect," "objective," "projection," "forecast," "goal," "guidance," "outlook," "effort," "target" or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.
These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed in XPO's filings with the SEC and the following: economic conditions generally; competition and pricing pressures; our ability to align our investments in capital assets, including equipment, service centers and warehouses, to our customers' demands; our ability to successfully manage our growth, including by maintaining effective internal controls; our ability to successfully integrate and realize anticipated synergies, cost savings and profit improvement opportunities with respect to acquired companies; our ability to retain our and our acquired businesses' largest customers; our ability to develop and implement suitable information technology systems; our substantial indebtedness; our ability to raise debt and equity capital; our ability to attract and retain key employees to execute our strategy, including retention of acquired companies' key employees; our ability to maintain positive relationships with our network of third-party transportation providers; our ability to attract and retain qualified drivers; litigation, including litigation related to alleged misclassification of independent contractors; labor matters; risks associated with our self-insured claims; risks associated with defined benefit plans for our current and former employees; fluctuations in currency exchange rates; fluctuations in fixed and floating interest rates; our ability to execute our growth strategy through acquisitions; fuel price and fuel surcharge changes; weather and other service disruptions; governmental regulation; and governmental or political actions, including the United Kingdom's likely exit from the European Union. All forward-looking statements set forth in this press release are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, XPO or its businesses or operations. Forward-looking statements set forth in this press release speak only as of the date hereof, and XPO undertakes no obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events except to the extent required by law.
* Includes $3.3 million and $0.6 million non-cash allocation of undistributed earnings for the three and six months ended June 30, 2016, respectively. Includes $0.7 million and $1.5 million preferred dividends for the three and six months ended June 30, 2016 and 2015, respectively.
* Adjusted EBITDA does not include gain on sale of assets, unrealized gain/loss and other expense
Less-Than-Truckload revenue is before intercompany eliminations and includes revenue from the Company's trailer manufacturing business.
**Compared with the same quarter of the previous year
* Adjusted EBITDA does not include gain on sale of assets, unrealized gain/loss and other expense
Note: Intersegment eliminations represent intercompany activity between the Company's reportable segments that is eliminated upon consolidation. The difference between operating income (loss) component line items in the 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 & Administrative Expense above represents intercompany eliminations between our reportable segments. The table above summarizes the intersegment eliminations by line item.
Note: Please refer to the "Non-GAAP Financial Measures" section of the press release. Adjusted EBITDA was prepared assuming 100% ownership of XPO Logistics Europe.
Note: Please refer to the "Non-GAAP Financial Measures" section of the press release.
The Company has evaluated the guidance in accordance with Compliance and Disclosure Interpretations (C&DI) of the U.S. Securities and Exchange Commission table to calculate the non-GAAP Adjusted Net Income (loss) and Adjusted Net Income (loss) Per Share. The table above includes the U.S. GAAP financial statement items that have been reconciled to arrive at Adjusted Net Income (loss) and Adjusted Net Income (loss) per share. The Company has applied the jurisdictional statutory tax rate to the performance measures in the above table to calculate the adjusted performance metrics. The jurisdictional tax rate is materially consistent with our estimated effective tax rate for fiscal 2016. The tax effects are reported for each reconciling item. A corresponding noncontrolling interest has been calculated for those reconciling items reported within the acquired Norbert Dentressangle SA legal entities.