XPO Logistics, Inc. 2021 Q1 Form 10-Q Summary
Business context and reporting period
The unaudited filing covers the three months ended March 31, 2021, with comparison to the three months ended March 31, 2020. XPO provides supply-chain solutions through two reportable segments: Transportation and Logistics.
XPO announced plans to spin off 100% of its Logistics segment as GXO Logistics, Inc. The transaction was expected in the second half of 2021, subject to conditions including board approval, but the filing states that completion, terms and timing were not assured. In January 2021, XPO acquired the majority of Kuehne + Nagel’s U.K. and Ireland contract-logistics operations.
Financial performance and key metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $4.774 billion | $3.864 billion | 23.6% increase |
| Operating income | $202 million | $81 million | 149.4% increase |
| Operating margin | 4.2% | 2.1% | 210 basis-point expansion |
| Net income | $118 million | $25 million | 372.0% increase |
| Net income attributable to XPO | $115 million | $23 million | Increase |
| Diluted EPS | $1.02 | $0.20 | Increase |
| Cash flow from operations | $173 million | $180 million | $7 million decrease |
| Capital expenditures | $140 million | $139 million | Broadly stable |
Cost of transportation and services was $2.328 billion, or 48.8% of revenue, versus 49.1% in the prior-year quarter. Direct operating expense was $1.656 billion, or 34.7% of revenue, versus 35.2%. SG&A was $588 million, or 12.3% of revenue, versus 13.6%.
Transportation revenue increased 21.6% to $2.989 billion, and segment operating income increased 74.2% to $209 million, producing a 7.0% margin versus 4.9%. Logistics revenue increased 26.5% to $1.818 billion, and segment operating income increased 78.9% to $68 million, producing a 3.7% margin versus 2.6%.
At March 31, 2021, cash and cash equivalents were $629 million, compared with $2.054 billion at December 31, 2020. Total current assets were $4.271 billion and total current liabilities were $4.176 billion. Management reported approximately $1.7 billion of available liquidity, including cash and cash equivalents.
Total debt carrying value was $5.250 billion at March 31, 2021, compared with $6.707 billion at December 31, 2020. The reduction primarily reflected redemption of $1.2 billion of senior notes due 2022 and repayment of $200 million drawn under the ABL Facility. ABL availability was $1.084 billion, and the company was in compliance with its debt covenants.
Material changes versus the prior comparable period
- Revenue growth reflected strong performance in both segments, the Kuehne + Nagel acquisition and favorable foreign-currency movements. The acquisition contributed approximately 3.1 percentage points to consolidated revenue growth.
- Operating income benefited from higher revenue, operating leverage and lower transaction-related costs. Q1 2021 included $18 million of transaction and integration costs and $4 million of restructuring costs, compared with $44 million and $3 million, respectively, in Q1 2020.
- SG&A included approximately $13 million of expenses related to the planned Logistics spin-off, compared with approximately $40 million of costs in Q1 2020 related to the terminated exploration of strategic alternatives.
- Financing cash use was $1.501 billion in Q1 2021, compared with financing cash provided of $668 million in Q1 2020. The 2021 use primarily comprised the $1.2 billion senior-notes redemption, $200 million ABL repayment and $49 million repayment under the receivables securitization program.
- Preferred-stock and warrant exchanges resulted in issuance of approximately 139,000 common shares for preferred-stock exchanges and 9.2 million common shares for warrant exchanges during Q1 2021. No common-stock repurchases occurred in the quarter.
- Other comprehensive loss improved to $42 million from $70 million, primarily reflecting a smaller foreign-currency translation loss.
Guidance, outlook, risks and unusual items
- Management expected 2021 net capital expenditures of $500 million to $550 million, excluding the planned Logistics spin-off, approximately $25 million higher than the prior estimate.
- Management stated that existing liquidity and capital sources were sufficient to support operations for the next 12 months and that maintaining strong liquidity remained a priority.
- The COVID-19 pandemic continued to affect demand, operating costs and economic activity. XPO expected pandemic-related effects to continue through 2021, although its variable cost structure and expense-management actions helped mitigate the impact.
- The company may incur additional restructuring costs in 2021 related to the planned spin-off or other actions, but the amount could not be reasonably estimated.
- The January 2021 debt refinancing and redemption generated an $8 million debt-extinguishment loss, consisting of $5 million related to the senior-notes redemption and $3 million related to the term-loan amendment.
- California intermodal drayage misclassification class actions were scheduled for trial in September 2021, although timing could be affected by COVID-19. XPO could not estimate any possible loss or range of loss.
- A shareholder securities class action was dismissed with prejudice in March 2021, but plaintiffs appealed. A related derivative action was stayed pending the appeal.
- On April 6, 2021, XPO announced an offer to acquire the remaining 3% of XPO Logistics Europe for approximately €108 million, or approximately $128 million, subject to regulatory and other approvals.
Most important facts for investors to verify
- Whether the planned GXO Logistics spin-off was completed on the expected timetable and on what terms.
- The sustainability of Q1 revenue growth and margin expansion after adjusting for the Kuehne + Nagel acquisition, foreign exchange and reduced transaction costs.
- Post-redemption liquidity, debt maturities, ABL availability and compliance with all debt covenants.
- Actual 2021 capital expenditures and any incremental costs associated with the spin-off, restructuring and acquisition integration.
- Developments and potential exposure in the California misclassification litigation and shareholder-related appeals.
- The cash funding and completion status of the proposed purchase of the remaining XPO Logistics Europe shares.