XPO Logistics, Inc. — Fiscal 2015 Form 10-K Summary
Business context and reporting period
XPO Logistics, Inc. reported for the fiscal year ended December 31, 2015. The filing is an annual Form 10-K, not a standalone quarterly filing; fourth-quarter results are included in the annual financial statements and quarterly data.
XPO operated as a global transportation and logistics company with approximately 89,000 employees, 1,451 locations in 33 countries, and more than 50,000 customers. Its two reportable segments were Transportation and Logistics. Major 2015 acquisitions included Norbert Dentressangle, Con-way, Bridge Terminal Transport and UX Specialized Logistics.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $7,623.2 million | $2,356.6 million |
| Net revenue | $3,451.8 million | $654.8 million |
| Net revenue margin | 45.3% | 27.8% |
| Operating loss | $28.6 million | $40.9 million |
| Net loss | $191.6 million | $63.6 million |
| Net loss attributable to common shareholders | $245.9 million | $107.4 million |
| Loss per diluted share | $2.65 | $2.00 |
| Cash flow from operations | $90.8 million | $(21.3) million |
| Capital expenditures | $249.0 million | $44.6 million |
| Cash and cash equivalents | $289.8 million | $644.1 million |
| Total debt, before certain discounts and issuance costs | $5,600.7 million | $608.8 million |
| Working capital | $262.8 million | $842.8 million |
Revenue increased 223.5%, while net revenue increased 427.2%. The reported net revenue margin expanded substantially because the acquired businesses generally have different revenue and cost structures and because of operating improvements. XPO nevertheless remained unprofitable at both the operating and net-income levels.
- Transportation: revenue was $4,924.4 million, net revenue was $1,205.6 million, and operating income was $51.6 million, compared with $18.9 million of operating income in 2014.
- Logistics: revenue was $2,768.4 million, net revenue was $2,246.8 million, and operating income was $81.6 million, compared with $17.6 million in 2014.
- Corporate: corporate SG&A was $162.0 million, including $74.3 million of transaction and integration costs, $6.2 million of non-cash stock compensation and $6.5 million of litigation-related legal costs.
Material changes versus the prior comparable period
- Con-way closed on October 30, 2015 for approximately $2.3 billion of consideration and added approximately 30,000 employees and 582 locations. It contributed $896.2 million of 2015 revenue and $0.5 million of operating income.
- XPO acquired approximately 86.25% of Norbert Dentressangle for total consideration of $2,955.3 million. ND contributed $3,463.1 million of revenue and $45.1 million of operating income.
- Total assets increased to $12,643.2 million from $2,749.4 million, driven primarily by acquisitions. Goodwill increased to $4,610.6 million from $929.3 million, and identifiable intangible assets increased to $1,876.5 million from $341.5 million.
- Debt increased materially to $5,600.7 million, including a $1.6 billion term loan, $1.6 billion of Senior Notes due 2022, €500 million of Senior Notes due 2021 and assumed Con-way debt.
- Interest expense increased to $216.7 million from $48.0 million. Foreign currency loss increased to $34.1 million from $0.4 million.
- The company raised $1,228.1 million of net proceeds from common and preferred equity offerings and issued 15.5 million common shares plus preferred stock that subsequently converted into 12.5 million common shares.
- Operating cash flow improved to $90.8 million, but investing activities used $4,085.4 million, primarily for $3,887.0 million of acquisitions. Financing activities provided $3,644.9 million.
- Fourth-quarter revenue was $3,342.3 million, operating loss was $38.0 million, net loss was $63.1 million and net loss attributable to common shareholders was $62.8 million.
Guidance, outlook, commentary, risks and unusual items
Management stated that 2016 would focus primarily on integrating recent acquisitions, improving profitability, cross-selling services, leveraging network capacity and realizing anticipated synergies. The company expected 2016 net capital expenditures of approximately $475 million to $500 million and stated that existing cash and revolving-credit availability were expected to fund existing operations.
At December 31, 2015, the ABL facility had $692.3 million of availability after $240.6 million of outstanding letters of credit. XPO reported compliance with applicable financial covenants. However, management highlighted substantial leverage, floating-rate exposure, foreign-currency exposure and the need to refinance or repay significant maturities.
- Contractual cash obligations totaled $10,121.8 million, including $2,206.8 million of operating leases and $5,600.7 million of debt before discounts and issuance costs.
- Integration, restructuring and acquisition-related costs were significant. Restructuring charges incurred in 2015 totaled $56.9 million, with a year-end reserve of $61.2 million.
- Management identified risks that expected acquisition synergies may be delayed or may not materialize, and that integration could strain systems, controls, personnel and liquidity. Acquired businesses representing $10.6 billion of assets and $4.6 billion of revenue were excluded from management’s year-end internal-control assessment because of their proximity to the acquisition dates.
- Independent-contractor classification and wage-and-hour litigation remains a material contingency. A California court awarded approximately $2.9 million plus interest and attorneys’ fees to seven owner-operators; additional claims and putative class actions could involve hundreds of claimants, and potential losses in excess of accrued amounts were not clearly estimable.
- XPO disclosed a Department of Defense Inspector General and Department of Justice investigation involving an acquired government-services business. The filing states that the outcome and any loss beyond accrued amounts could not be estimated.
- Seasonality typically results in lower first-quarter revenue and profitability. Other key risks include economic freight-volume cycles, driver and carrier availability, fuel prices, regulatory changes, cybersecurity, labor disputes, insurance claims, pensions and currency fluctuations.
- The company does not pay dividends on common stock and does not anticipate paying them in the near future.
Most important facts for an investor to verify
- Whether Con-way and Norbert Dentressangle integration produces the expected operating, network and cross-selling synergies.
- Debt repayment capacity, covenant compliance, refinancing needs and exposure to floating interest rates.
- Whether operating cash flow and projected 2016 capital expenditures support the company’s asset-based expansion plans.
- Goodwill and intangible-asset valuation, particularly after the substantial 2015 acquisition activity.
- The ultimate cost and scope of independent-contractor, wage-and-hour, TCPA, LTL meal-break and other litigation.
- The outcome of the government-services investigation and any related penalties or damages.
- Progress in strengthening internal controls at acquired businesses that were excluded from the 2015 assessment.