Raises full year 2017 and 2018 EBITDA guidance

XPO Logistics, Inc. (NYSE: XPO) today announced financial results for the second quarter 2017. Revenue was $3.76 billion for the quarter, compared with $3.68 billion for the same period in 2016. Revenue increased year-over-year by $210.4 million, excluding the second quarter 2016 revenue from the North American truckload unit divested in October 2016. Net income attributable to common shareholders was $47.6 million for the quarter, or earnings of $0.38 per diluted share, compared with net income attributable to common shareholders of $42.6 million, or earnings of $0.35 per diluted share, for the same period in 2016.

Adjusted net income attributable to common shareholders, a non-GAAP financial measure, was $75.0 million, or adjusted earnings of $0.60 per diluted share for the second quarter of 2017. This compares with adjusted net income attributable to common shareholders of $50.4 million, or adjusted earnings of $0.42 per diluted share, for the same period in 2016. The adjusted net income attributable to common shareholders for the second quarter 2017 excludes: $19.9 million, or $12.8 million after-tax, of integration and rebranding costs; $27.2 million, or $17.6 million after-tax, from non-cash unrealized losses on foreign currency contracts; and a loss on the conversion of convertible notes of $0.4 million, or $0.3 million net of tax. 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, improved to $370.8 million for the quarter, excluding $19.9 million of integration and rebranding costs. This compares with $354.9 million of adjusted EBITDA for the same period in 2016, which included the North American truckload unit.

The company generated $216.0 million of cash flow from operations and $98.1 million of free cash flow in the quarter.

Raises Financial Guidance

The company raised its full year targets for adjusted EBITDA to at least $1.365 billion in 2017 and at least $1.6 billion in 2018.

The company reaffirmed its 2017-2018 cumulative free cash flow target of approximately $900 million, including at least $350 million of free cash flow generated in 2017.

CEO Comments  

Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, “Our strong start to the year accelerated in the second quarter, with record results for revenue, net income and adjusted EBITDA. The most notable growth came in last mile and contract logistics – two fast-growing parts of the supply chain where we hold leading positions in e-commerce. Importantly, we’re continuing to grow adjusted EBITDA faster than revenue in both transportation and logistics. In North American less-than-truckload, we increased volume while improving the adjusted operating ratio to 84.6%. This is the best quarterly adjusted operating ratio for our LTL business in at least two decades.”
  
Jacobs continued, “The investments we’re making in sales and technology have already yielded a record $1.43 billion of new business through June, which is 62% higher than last year. Our global pipeline stands at over $3.3 billion, our cost initiatives have substantial runway, and the operating environment is favorable. Given these strong fundamentals, we raised our two-year guidance. Our new targets are for adjusted EBITDA of at least $1.365 billion in 2017 and $1.6 billion in 2018.”

Second Quarter 2017 Results by Segment

• Transportation: The company’s transportation segment generated revenue of $2.41 billion in the quarter. This compares with $2.42 billion for the same period in 2016, which included $133.4 million of revenue from the North American truckload unit divested on October 27, 2016. Segment revenue was led by increases in truck brokerage and last mile, partially offset by a decrease in global forwarding revenue and unfavorable foreign exchange rates.

Operating income for the transportation segment increased to $160.0 million in the quarter, compared with $153.2 million a year ago. Adjusted EBITDA for the segment was $282.7 million. This compares with $275.7 million a year ago, which included the truckload unit. The increases in operating income and adjusted EBITDA were primarily due to an improvement in adjusted operating ratio in the North American less-than-truckload unit, to 84.6%, partially offset by higher purchased transportation costs in truck brokerage and intermodal.

• Logistics: The company’s logistics segment generated revenue of $1.40 billion for the quarter, compared with $1.33 billion for the same period in 2016. The year-over-year increase in revenue was primarily due to strong demand for contract logistics in both Europe and North America, partially offset by a decline in managed transportation revenue and unfavorable foreign exchange rates. In Europe, contract logistics growth was led by e-commerce and cold chain contracts in the UK and the Netherlands. In North America, the largest gains came from the e-commerce and industrial sectors.

Operating income for the logistics segment increased to $64.3 million, compared with $51.1 million a year ago. Adjusted EBITDA for the segment improved to $123.0 million, compared with $106.9 million a year ago. The increases in operating income and adjusted EBITDA were primarily due to revenue growth, productivity improvements and SG&A cost reduction.

• Corporate: Corporate SG&A expense was $39.3 million for the quarter, compared with $34.0 million for the same period in 2016. The increase in corporate expense primarily reflects an increase in share-based compensation expense tied to the increase in the share price of XPO stock.

Six Months 2017 Financial Results

For the six months ended June 30, 2017, the company reported total revenue of $7.3 billion, a 1.0% increase from the same period in 2016. Revenue increased year-over-year by $333.0 million, excluding the six-month 2016 revenue from the North American truckload unit divested in October 2016. Net income attributable to common shareholders was $67.1 million, or $0.54 per diluted share, for the first six months of 2017, compared with $22.0 million, or $0.19 per diluted share, for the same period in 2016.

Adjusted net income attributable to common shareholders, a non-GAAP measure, was $112.6 million, or $0.90 per diluted share for the first six months of 2017, excluding the items detailed below. This compares with adjusted net income attributable to common shareholders of $42.1 million, or $0.35 per diluted share, for the same period in 2016. Adjusted net income for the first six months of 2017 excludes $40.9 million, or $26.1 million after-tax, of one-time integration and rebranding costs; $39.1 million, or $25.0 million after-tax, from non-cash unrealized losses on foreign currency contracts; $9.0 million, or $5.7 million after-tax, of debt extinguishment costs related to the refinancing of an existing term loan; and a loss of $0.4 million, or $0.3 million after-tax, on the conversion of convertible notes.

Adjusted EBITDA for the first six months of 2017, a non-GAAP measure, improved to $660.8 million, compared with $604.2 million for the same period in 2016, which included the North American truckload unit. Adjusted EBITDA for the first six months of 2017 excludes $40.9 million of one-time integration and rebranding costs.