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XPO Announces Third Quarter 2020 Results

Press Release | Greenwich, Conn. | Nov. 5, 2020

Reports dramatic rebound across service offerings and geographies

Provides 2020 guidance for fourth quarter and full year adjusted EBITDA and free cash flow

XPO Logistics, Inc. (NYSE: XPO) today announced its financial results for the third quarter 2020. Revenue increased to $4.22 billion, compared with $4.15 billion for the third quarter 2019. Net income attributable to common shareholders was $84 million, compared with $117 million for the third quarter 2019. Operating income was $223 million, compared with $229 million for the third quarter 2019. Diluted earnings per share was $0.83, compared with $1.14 for the third quarter 2019.

Adjusted net income attributable to common shareholders, a non-GAAP financial measure, was $86 million for the third quarter 2020, compared with $121 million for the same period in 2019. Adjusted diluted earnings per share, a non-GAAP financial measure, was $0.84 for the third quarter 2020, compared with $1.18 for the same period in 2019. GAAP and adjusted diluted EPS for the third quarter 2020 were impacted by approximately $0.25 related to a higher income tax rate and $0.07 related to higher interest expense, compared with the same period last year.

Adjusted earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), a non-GAAP financial measure, was $439 million for the third quarter 2020, compared with $438 million for the same period in 2019.

For the third quarter 2020, the company generated $298 million of cash flow from operations and $247 million of free cash flow, a non-GAAP financial measure. Reconciliations of non-GAAP financial measures used in this release are provided in the attached financial tables.

2020 Guidance

The company expects to generate:

  • Adjusted EBITDA of $400 million to $410 million for the fourth quarter 2020, and adjusted EBITDA of approximately $1.35 billion for the full year 2020; and
  • Free cash flow of $25 million to $50 million for the fourth quarter 2020, and free cash flow of approximately $500 million for the full year 2020.

CEO Comments

Brad Jacobs, chairman and chief executive officer of XPO Logistics, said, “Our business rebounded dramatically in the third quarter. Revenue, adjusted EBITDA, adjusted EPS and free cash flow were all decisively higher than expected. Our growth was broad-based, spanning our service offerings and geographies.

“Supply chain outsourcing is accelerating, and e-commerce continues to be a huge tailwind for us, particularly in contract logistics and last mile. We grew our last mile revenue by 11% in the quarter, year-over-year, by leveraging our North American hubs and XPO Direct network. In truck brokerage, we realized revenue growth of 27%, with a 13% increase in net revenue per load. Our XPO Connect technology is a major driver of these results — all of our non-asset transportation services now use this powerful platform to manage their freight movements.”

Jacobs continued, “Importantly, in North American less-than-truckload, our focus on yield, service and efficiency improved our third quarter operating ratio to 81.7%, the best operating ratio of any quarter in the history of our LTL operation. Our adjusted OR was also a record at 79.7%.”

Liquidity

As of September 30, 2020, the company had access to approximately $3.1 billion of total liquidity, including $2.0 billion of cash and cash equivalents and $1.1 billion of available borrowing capacity.

Third Quarter 2020 Results by Segment

  • Transportation: The company’s transportation segment generated revenue of $2.68 billion for the third quarter 2020, unchanged from the same period a year ago.

    Operating income for the transportation segment was $202 million for the third quarter 2020, compared with $208 million for the same period in 2019. Adjusted EBITDA for the segment was $329 million for the quarter, compared with $333 million for the same period in 2019. Segment operating income and adjusted EBITDA for the third quarter 2020 include a $6 million impact from COVID-related costs, including $4 million in less-than-truckload.

    In North American less-than-truckload (LTL), yield excluding fuel increased by 1.7% year-over-year for the third quarter 2020. The third quarter operating ratio for LTL was a quarterly record at 81.7%. Adjusted operating ratio, a non-GAAP financial measure, was also a record at 79.7%, an improvement of 110 basis points year-over-year. Excluding gains from sales of real estate in both periods, adjusted operating ratio improved by 100 basis points.

  • Logistics: The company’s logistics segment generated revenue of $1.58 billion for the third quarter 2020, compared with $1.51 billion for the same period in 2019. Segment revenue growth was led by strong demand from e-commerce and other consumer-related verticals, partially offset by COVID impacts in other areas and the company’s exit from certain low-margin business.

    Logistics segment operating income was $77 million for the third quarter 2020, compared with $61 million for the same period in 2019. Adjusted EBITDA was $162 million for the quarter, compared with $142 million for the same period in 2019. The increases in operating income and adjusted EBITDA are primarily related to the increase in segment revenue, partially offset by higher labor and facility costs. Segment operating income and adjusted EBITDA for the third quarter 2020 include a $3 million impact from COVID-related costs.

  • Corporate: Corporate expense was $56 million for the third quarter 2020, compared with $40 million for the same period in 2019. The year-over-year increase in corporate expense was primarily due to higher expenses for incentive compensation, insurance and purchased services.

Conference Call  

The company will hold a conference call on Friday, November 6, 2020, at 8:30 a.m. Eastern Time. Participants can call toll-free (from US/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, xpo.com/investors. The conference will be archived until December 6, 2020. To access the replay by phone, call toll-free (from US/Canada) 1-877-660-6853; international callers dial +1-201-612-7415. Use participant passcode 13711605.

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 30 countries, with 1,499 locations and approximately 97,000 employees. XPO uses its network to help more than 50,000 customers manage their goods most efficiently throughout their supply chains. XPO’s corporate headquarters are in Greenwich, Conn., USA, and its European headquarters are in Lyon, France. xpo.com

Non-GAAP Financial Measures

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 release.

XPO’s non-GAAP financial measures for the three and nine months ended September 30, 2020 and 2019 used in this release include: earnings before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA and adjusted EBITDA margin on a consolidated basis and for our transportation and logistics segments; free cash flow; adjusted net income attributable to common shareholders and adjusted earnings per share (basic and diluted) ("adjusted EPS"); net revenue for our transportation and logistics segments, including net revenue and net revenue per load for our North American truck brokerage business, and for our intersegment eliminations; and adjusted operating income and adjusted operating ratio for our North American less-than-truckload business.

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. These non-GAAP financial 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 transaction and integration costs, as well as restructuring costs and other adjustments as set forth in the attached tables. Transaction and integration adjustments are generally incremental costs that result from an actual or planned acquisition or divestiture and may include transaction costs, consulting fees, retention awards, and, in the case of acquisitions, 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. Restructuring costs primarily relate to severance costs associated with business optimization initiatives. 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 calculate free cash flow as adjusted net cash provided by operating activities, less payment for purchases of property and equipment plus proceeds from sale of property and equipment, with adjusted net cash provided by operating activities defined as net cash provided by operating activities plus cash collected on deferred purchase price receivables. We believe that EBITDA, adjusted EBITDA and adjusted EBITDA margin 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 core operating activities and thereby assist investors with assessing trends in our underlying businesses. 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 and net revenue margin improve 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 and adjusted operating ratio for our North American less-than-truckload business improve the comparability of our operating results from period to period by (i) removing the impact of certain transaction and integration and restructuring costs, as well as amortization expenses and (ii) including the impact of pension income incurred in the reporting period as set out in the attached tables.

With respect to our fourth quarter and full year 2020 financial targets for adjusted EBITDA and free cash flow, a reconciliation of these non-GAAP measures to the corresponding GAAP measures is not available without unreasonable effort due to the variability and complexity of the reconciling items described above that we exclude from these non-GAAP target measures. 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 statement of income and statement of cash flows prepared in accordance with GAAP that would be required to produce such a reconciliation.

Forward-looking Statements

This 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 the company’s fourth quarter and full year 2020 financial targets for adjusted EBITDA and free cash flow. 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," "trajectory" 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 the risks discussed in our filings with the SEC and the following: the severity, magnitude, duration and aftereffects of the COVID-19 pandemic and government responses to the COVID-19 pandemic; public health crises (including COVID-19); 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 integrate and realize anticipated synergies, cost savings and profit improvement opportunities with respect to acquired companies; our ability to develop and implement suitable information technology systems and prevent failures in or breaches of such systems; our substantial indebtedness; our ability to raise debt and equity capital; our ability to implement our cost and revenue initiatives; 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 and securities class actions; labor matters, including our ability to manage our subcontractors, and risks associated with labor disputes at our customers and efforts by labor organizations to organize our employees; 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; fuel price and fuel surcharge changes; issues related to our intellectual property rights; governmental regulation, including trade compliance laws, as well as changes in international trade policies and tax regimes; governmental or political actions, including the United Kingdom's exit from the European Union; and natural disasters, terrorist attacks or similar incidents. All forward-looking statements set forth in this release are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to or effects on us or our business or operations. Forward-looking statements set forth in this release speak only as of the date hereof, and we do not undertake any 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.

Condensed Consolidated Statements of Income (Loss)

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Transportation Summary Financial Table

Transportation Key Data by Service Offering

North American LTL Summary Data Table

North American LTL Adjusted Operating Ratio

Logistics Summary Financial Table

Logistics Key Data by Geography

XPO Corporate Summary of Sales, General and Administrative Expense

Intersegment Eliminations Summary Financial Table

Consolidated Reconciliation of Net Income (Loss) to Adjusted EBITDA

Consolidated Reconciliation of GAAP Net Income (Loss) and Net Income (Loss) Per Share to Adjusted Net Income and Adjusted Net Income Per Share

Reconciliation of Cash Flows from Operating Activities to Free Cash Flow

Reconciliation of GAAP Revenue to Net Revenue for North American Truck Brokerage

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