XPO Logistics, Inc. (NYSE: XPO) today announced financial results for the first quarter 2018. Revenue increased 18.4% year-over-year to $4.19 billion. Net income attributable to common shareholders was $66.9 million for the quarter, or earnings of $0.50 per diluted share, compared with net income attributable to common shareholders of $19.5 million, or earnings of $0.16 per diluted share, for the same period in 2017.

Adjusted net income attributable to common shareholders, a non-GAAP financial measure, was $80.9 million for the quarter, compared with $37.9 million for the same period in 2017. Adjusted earnings per diluted share, a non-GAAP financial measure, was $0.61 for the quarter, compared with $0.30 for the same period in 2017. Adjusted net income attributable to common shareholders and adjusted earnings per diluted share for the first quarter 2018 exclude: $10.3 million, or $7.5 million after-tax, of costs related to debt extinguishment; $7.2 million, or $5.2 million after-tax, of integration and rebranding costs; and $3.5 million, or $2.5 million after-tax, of non-cash unrealized losses on foreign currency contracts. 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 $330.2 million for the quarter, excluding $7.2 million of integration and rebranding costs. This compares with $290.0 million of adjusted EBITDA for the same period in 2017.

For the first three months of 2018, cash flow from operations was cash usage of $19.4 million. Free cash flow, a non-GAAP financial measure, was cash usage of $151.1 million.

Reaffirms Financial Targets

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.

CEO Comments  

Brad Jacobs, chairman and chief executive officer of XPO Logistics, said, “We’re off to a strong start in 2018. We delivered record first quarter results for revenue, net income, EPS and adjusted EBITDA. Our 11% organic revenue growth reflected a healthy diversification of customer verticals and service lines. Organic growth in last mile was 15%, and logistics was 14%, both driven by e-commerce demand. Profit significantly outpaced revenue in our logistics segment, with operating income up 44% and adjusted EBITDA up 28%. In our transportation segment, we grew freight brokerage revenue by 30% in a tight market. We expanded our margins in North American freight brokerage and European dedicated truckload, and improved our adjusted operating ratio in North American less-than-truckload to 87.8%.”

Jacobs continued, “We’re making disciplined investments in innovation and sales to propel long-term growth. We recently introduced our digital freight marketplace, smart warehouse platform and voice integration for consumer self-service. In April, we announced XPO Direct, a shared-space distribution network of warehouses and last mile hubs that gives customers flexible capacity. In sales, we won a record $972 million of new business in the first quarter, and our sales pipeline stands at $3.6 billion. We remain on track to deliver at least $1.6 billion of adjusted EBITDA and approximately $625 million of free cash flow this year.”

First Quarter 2018 Results by Segment

• Transportation: The company's transportation segment generated revenue of $2.77 billion for the quarter, a 16.0% increase from the same period in 2017. Segment revenue growth was led by increases in freight brokerage and last mile in North America, as well as dedicated truckload transportation in Europe, and favorable foreign exchange rates.  

Operating income for the transportation segment increased to $139.0 million in the quarter, compared with $105.3 million for the same period in 2017. Adjusted EBITDA for the segment was $265.6 million, an increase of 13.6% from the first quarter of 2017. The increases in operating income and adjusted EBITDA were primarily the result of the growth in North American freight brokerage and European dedicated truckload, as well as an adjusted operating ratio of 87.8% for North American less-than-truckload, reflecting a year-over-year improvement of 120 basis points.

• Logistics: The company's logistics segment generated revenue of $1.45 billion for the quarter, a 23.2% increase from the same period in 2017. The increase in revenue was led by strong global demand for e-commerce contract logistics, as well as gains from the industrial sector in North America and the fashion sector in Europe, particularly in the UK, Netherlands, Spain and Italy. Favorable foreign exchange rates were also a benefit to revenue.

Operating income for the logistics segment increased to $47.5 million, compared with $32.9 million for the same period in 2017. Adjusted EBITDA for the segment was $111.9 million, an increase of 28.2% from the first quarter of 2017. The increases in operating income and adjusted EBITDA were primarily due to revenue growth and site productivity improvements, partially offset by higher direct operating costs related to new contract startups.

• Corporate: Corporate operating expense was $45.5 million for the quarter, compared with $34.4 million for the same period in 2017. 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.

Conference Call

The company will hold a conference call on Thursday, May 3, 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 June 3, 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 13678375.

Non-GAAP Financial Measures

This document contains certain non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission ("SEC"), including earnings before interest, taxes, depreciation and amortization ("EBITDA") and adjusted EBITDA for the three-month periods ended March 31, 2018 and 2017, on a consolidated basis and for our transportation and logistics segments; free cash flow for the three-month periods ended March 31, 2018 and 2017; adjusted net income attributable to common shareholders and adjusted earnings per share (basic and diluted) ("adjusted EPS") for the three-month periods ended March 31, 2018 and 2017; net revenue for the three-month periods ended March 31, 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-month periods ended March 31, 2018 and 2017; and organic revenue for the three-month periods ended March 31, 2018 and 2017, on a consolidated basis and for our last mile and logistics businesses.

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. In particular, adjusted EBITDA, adjusted net income attributable to common shareholders and adjusted EPS include adjustments for acquisition costs and related integration, transformation and rebranding initiatives as well as other adjustments that management has determined are not reflective of its business segments' core operating activities. Transaction and integration adjustments are generally incremental costs that result from an 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 relate primarily to the rebranding of the XPO Logistics name on our truck fleet and buildings. These adjustments are consistent with how management views our businesses. 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, on a consolidated basis and for our last mile and logistics businesses, is an important measure because it excludes the impact of the following items: foreign currency exchange rate fluctuations and fuel surcharges.

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, adjusted EBITDA, adjusted net income attributable to common shareholders, adjusted EPS, net revenue, adjusted operating income for our North American less-than-truckload business and organic revenue are not measures of financial performance or liquidity under United States generally accepted accounting principles (“GAAP”) and should not be considered in isolation or as an alternative to revenue, net income, operating income for our North American less-than-truckload business, cash flows provided (used) by 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.

As required by SEC rules, we provide reconciliations of these historical measures to the most directly comparable measure under GAAP, which are set forth in the financial tables attached to this document. With respect to our 2018 financial target of adjusted EBITDA, our 2017-2018 cumulative target for free cash flow and our 2018 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.

Forward-looking Statements

This document 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 financial targets for our consolidated 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: 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 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, 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; our ability to execute our growth strategy through acquisitions; fuel price and fuel surcharge changes; issues related to our intellectual property rights; governmental regulation, including trade compliance laws; and governmental or political actions, including the United Kingdom's likely exit from the European Union. All forward-looking statements set forth in this document 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 document 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.