01—Abstract
Summary
Summary of the 10-K filed March 1, 2012. Cited figures are marked; the original filing is the authoritative source.
XPO Logistics, Inc. reported a year of revenue growth but sharply lower net income for the year ended December 31, 2011.
Operating revenue rose to $177.1 milliona from $158.0 million in 2010, a 12.1% increase, driven mainly by international revenue at Express-1 and continued growth in Freight Brokerage. Operating income fell to $1.7 million from $8.4 million, and net income declined to $759,000 from $4.9 million. Results were weighed down by investment in a new executive team and corporate infrastructure, equity compensation, and indirect costs tied to the Equity Investment.
Net loss available to common stockholders was $44.6 millionb, or $(5.41) per share, after a $44.2 million deemed distribution from the beneficial conversion feature of the Series A Preferred Stock. The September 2011 Equity Investment by Jacobs Private Equity, LLC brought in $75.0 million in gross cash through 75,000 shares of Series A Convertible Perpetual Preferred Stock and warrants. Cash rose to $74.0 million at year-end from $561,000, and working capital increased to $83.1 million.
Bradley Jacobs, through JPE, controls a large share of the stock: the filing says conversion and exercise would represent approximately 70%c of outstanding common stock. The company is pursuing a growth strategy built on targeted acquisitions of non-asset based brokerage businesses, opening cold-start brokerage offices (the first in Phoenix, Arizona, in Q4 2011), and building a proprietary IT platform. The filing also discloses risk factors investors should weigh.
These include dependence on independent contractor drivers and their classification, the company's reliance on a few large automotive-related customers, a new and geographically dispersed senior management team, and the covenant-related technical non-compliance on preferred dividends that the lender waived. Management expects Corporate costs in 2012 to run at a slightly higher rate than in the fourth quarter of 2011.
02—Key points
Key Highlights
- Operating revenue grew 12.1% to $177.1 million in 2011 from $158.0 million in 2010, led by Expedited Transportation (up 14.2% to $87.6 million) and Freight Brokerage (up 46.0% to $29.2 million).
- Operating income fell to $1.7 million from $8.4 million, and net income dropped 84.5% to $759,000, reflecting new executive team costs, equity compensation and transaction-related expenses.
- Net loss available to common stockholders was $44.6 million, or $(5.41) per diluted share, including a $44.2 million deemed distribution from the beneficial conversion feature of the Series A Preferred Stock.
- The $75.0 million Equity Investment by Jacobs Private Equity, LLC closed in September 2011, lifting cash to $74.0 million at December 31, 2011 from $561,000 a year earlier.
- Gross margin was 16.8% in 2011 versus 17.3% in 2010, which management attributes mainly to growth in lower-margin international and brokerage business.
- Bradley Jacobs, through JPE, is described as controlling approximately 70% of outstanding common stock on an as-converted and exercised basis, giving him significant influence over the company.
- Management plans targeted acquisitions, new freight brokerage offices, and a proprietary IT system, with the first phase of acquisitions to be funded from existing cash and expanded credit facilities.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, Xpo kept $0.00.
- Revenue$177.1M100.0%
- Cost of revenue−$147.3M83.2%
- Gross profit$29.8M16.8%
- Operating costs−$28.1M15.8%
- Operating income$1.7M1.0%
- Interest, other & tax−$965,0000.5%
- Net income$759,0000.4%
Where FY2011 revenue went
$177.1M- Cost of revenue: $147.3M, 83% of revenue
- Operating costs: $28.1M, 16% of revenue
- Net income: $759,000, 0.4% of revenue
- Interest, other & tax: $965,000, 0.5% of revenue
Kept 0.4% as net incomeNet income $759,000 · 0.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed March 1, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $177.08M$157.99M | +12.1% |
| Gross Profit | $29.78M$27.40M | +8.7% |
| Operating Income | $1.72M$8.45M | −79.6% |
| Interest Expense | $191K$205K | −6.8% |
| Net Income | $759K$4.89M | −84.5% |
| EPS (Basic) | $-5.41$0.61 | −986.9% |
| EPS (Diluted) | $-5.41$0.59 | −1016.9% |
| Shares Outstanding (Basic) | 8.25M8.06M | +2.3% |
| Shares Outstanding (Diluted) | 8.25M8.28M | −0.4% |
05—Questions
Frequently Asked Questions
Why did net income fall sharply in 2011 even though revenue grew?
Selling, general and administrative expenses rose to $28.1 million, or 15.8% of revenue, from $19.0 million, or 12.0%, in 2010. The filing attributes the increase to investment in a new executive team and corporate infrastructure, including payroll, equity compensation and professional fees, plus indirect transaction costs related to the Equity Investment. Gross margin also declined slightly, to 16.8% from 17.3%.
What did the Equity Investment provide, and what are its terms?
Jacobs Private Equity, LLC and other investors paid $75.0 million in cash for 75,000 shares of Series A Convertible Perpetual Preferred Stock, initially convertible into 10,714,286 common shares, and warrants for 10,714,286 common shares at $7.00 per share. Net proceeds were $71.6 million after $3.4 million of issuance costs. The preferred stock pays quarterly dividends equal to the greater of the as-converted common dividend and 4% per year of the liquidation preference, and the warrants run until September 2, 2021.
What are the main risks to the business highlighted in the filing?
The filing highlights several risks: economic downturns that reduce freight volumes; intense competition; difficulty executing acquisitions and integrating them; reliance on independent contractor drivers and station owners, including the risk that they could be reclassified as employees; dependence on large customers, some in the cyclical automotive industry, under contracts terminable on short notice; fuel price volatility; and the risk that the new IT system may not succeed. It also notes that the preferred dividend payments and credit agreement covenants limit financial flexibility.
Does the company plan to pay dividends on its common stock?
No. The company states it has never paid cash dividends on its common stock and has no immediate plans to do so. It intends to retain earnings to develop the business. Its credit agreement also restricts dividend payments on common stock.
What is the company's growth strategy after the Equity Investment?
The company is pursuing three areas: selective acquisitions of non-asset based freight brokerage businesses, with potential acquisitions in freight forwarding, expedited and intermodal services; organic growth through new cold-start freight brokerage offices, the first of which opened in Phoenix, Arizona in the fourth quarter of 2011 with several more planned over two years; and optimizing operations through a customized proprietary IT platform. Management believes existing cash and expanded credit facilities can fund the first phase of acquisitions.
06—Continue