XPO Logistics Loss Widens Despite Huge Jump in Revenue.

XPO Logistics, which provides freight brokerage, expedited transportation and logistics services, has announced financial results for the third quarter showing total revenue was $194 million, a 173.3% increase from the same period in 2012.

While it may still be viewed by some as a relative newcomer to the freight transportation and logistics sectors, non asset-based 3PL XPO Logistics continues to impress, with another strong financial performance.

Despite the big upturn in business, the Connecticut-based company reported a net loss of $6 million, compared with a net loss of $3.1 million for the same period in 2012.

“In the third quarter, we drove 42% organic revenue growth on a year-over-year basis company-wide,” said Bradley Jacobs, chairman and chief executive officer of XPO Logistics. “We also achieved significant increases in gross margin percentage in every business unit. We delivered 146% organic revenue growth in our freight brokerage division, and improved our truckload brokerage gross margin percentage by 100 basis points.”

He said the expedite division operated more efficiently, resulting in year-over-year improvements in revenue and margin performance while the company’s freight forwarding division continued to generate double-digit growth.

The company has rebranded its formerly named Concert Group Logistics division as XPO Global Logistics

The company’s freight brokerage business generated total revenue of $152.6 million for the quarter, a 374.4% increase from the same period in 2012 while its expedited transportation business generated total revenue of $25.1 million for the quarter, a 5.7% increase during the same time. The company’s freight forwarding business generated total revenue of $19.1 million for the quarter, a 10.5% increase.

For the nine months ended September 30, XPO Logistics reported total revenue of $445.1 million, a 161.7% increase from the first nine months of 2012 while having a net loss of $37.9 million compared with one of $11 million for the same period last year.

Other business groups at XPO also had strong quarters, including:
-Expedited transportation with revenue at $25.1 million for a 5.7 percent annual gain, and gross margin at 18.1 percent, compared to 16.6 percent last year, which XPO said was due to lower direct expenses that were partially offset by the addition of expedite air charter revenue from its acquisition earlier this year of East Coast Air Charter. Quarterly operating income was $1.7 million, which saw a 22.9 percent annual gain due to an increase in gross margin; and
-Freight forwarding, which XPO has rebranded as XPO Global Logistics, had $19.1 million in total revenue for a 10.5 percent annual increase, due mainly to growth in growth in freight forwarding cold starts and increased international shipment volume. Gross margin percentage for this segment was 13.8 percent compared to 11.1 percent last year and was mostly due to branch conversions from independent ownership to company ownership. The operating loss for this segment was $2.6 million compared to last year’s $193,000.

XPO Chairman and CEO Brad Jacobs told LM that much of the company’s 173 percent gain in total revenue was due to the completion of the 3PD acquisition in August. And he said that XPO had 42 percent organic growth in the quarter, with brokerage seeing 146 percent organic growth.

“The growth in total and organically was really quite high, and gross margin dollars were up 251 percent,” said Jacobs. “We increased the gross margin percentage in each of our business units.”
Even though some other truck brokerages and truck brokerage subsidiaries at other companies did not see strong third quarter results, Jacobs noted that was not the case for XPO as it has been outpacing the industry for gross margin improvement.

The main reason for this, he explained, is that XPO is continuing to invest in hiring new salespeople and technology.

“We are investing in growth and hiring people and putting them through well though-out training programs, and we are giving them the technology tools to succeed…[with] algorithms to set pricing and methods to find just the right carrier and truck for each load,” he said. “Those are the main elements of operational excellence that our team is doing.”

With 3PD now officially part of XPO, Jacobs noted that things are going very well on that front, as it has become the largest provider of heavy goods, last mile logistics in North America through that deal.

And he explained that the last mile sector has been very strong for XPO, because it is one of the fastest-growing parts of logistics.

“It is important because our customers are doing well,” he observed. “If you look at the home goods retailers and manufacturers, they posted really solid results, and Black Friday promotions have started to hit in the last few days, and with growing e-commerce sales, we expect Cyber Monday [December 2] to be a big spike for us. And looking further out, favorable housing trends have given retailers and manufacturers the confidence to invest in going direct to market. As a result of that, 3PD has been active in a lot of national bids, with strong tailwinds overall driving last-mile growth, and retailers are making big investments in direct sales channels.”

XPO is currently actively bidding on last-mile business in appliances, furniture, electronics, and building materials. Jacobs also said that XPO is talking to a large potential customer that is a major electronics manufacturer that is expanding and growing fulfillment centers and needs last-mile services.

Regarding XPO’s overall progress since Jacobs took the helm in June 2011, when he, and a group of investors made a $150 million commitment into Express-1 Expedited Solutions, a non-asset-based third party logistics transportation provider, and subsequently re-named the company XPO Logistics, he said XPO is ahead of or on track of each component of his plan to build up a $5 billion company by 2017.

“Every component of that plan is playing out as we expected it to,” he said. “In the fourth quarter, we are on track to hit two major milestones. One is to be on a $1 billion revenue run rate by the end of the year. Another is our strategic account program that we rolled out in April, which saw us sign up 36 major new customers in the third quarter with billions of dollars in revenue. That team is actively bidding on business with 164 potential customers. Large shippers are a part of that and will continue to be a major focus. Another part of the plan is our cold start program, which is also doing very well, and seeing strong sequential margin growth.”