01—Abstract
Summary
Summary of the 10-K filed February 12, 2018. Cited figures are marked; the original filing is the authoritative source.
XPO Logistics, Inc. reported full-year 2017 revenue of $15,380.8 milliona, up from $14,619.4 million in 2016, with operating income rising to $623.2 million from $488.1 million.
Net income attributable to XPO was $340.2 millionb for 2017 versus $69.0 million in 2016, and includes a $173.1 million tax benefit from the Tax Cuts and Jobs Act. Results were driven by European contract logistics growth, U.S. LTL weight-per-day improvement, and growth in North American truck brokerage and last mile, partially offset by the October 2016 divestiture of the North American truckload operation and a $57.6 million foreign currency loss. The company operates two segments, Transportation and Logistics, with 2017 operating income of $538.8 million and $249.2 million respectively.
Operating cash flow was $798.6 millionc, up from $625.4 million, while capital expenditures were $503.8 million. Interest expense fell to $284.3 million from $361.1 million, reflecting lower average debt and refinancings. Total debt principal was $4,683.9 million at year-end, and the company completed a July 2017 common stock offering that raised $287.6 million net.
The filing also discloses material risks, including independent contractor classification claims, union organizing efforts, Brexit exposure (about 37%d of 2017 revenue in Europe), and sanctions-related voluntary disclosures to OFAC. Bradley Jacobs beneficially owns approximately 15% of common stock. The company has never paid cash dividends on common stock.
02—Key points
Key Highlights
- Revenue rose to $15,380.8 million in 2017 from $14,619.4 million in 2016, an increase of 5.2% as stated in the filing.
- Operating income increased to $623.2 million from $488.1 million, with operating margin of 4.0% versus 3.4% in 2016.
- Net income attributable to XPO was $340.2 million, including a $173.1 million tax benefit from the Tax Cuts and Jobs Act; diluted EPS was $2.45 versus $0.53.
- Interest expense decreased 21.3% to $284.3 million, reflecting lower average indebtedness and refinancings; $555.0 million of Term Loan debt was repurchased in late 2016.
- Operating cash flow was $798.6 million in 2017 versus $625.4 million in 2016; capital expenditures were $503.8 million.
- Logistics segment revenue grew 7.5% to $5,722.7 million, while Transportation segment revenue grew 3.8% to $9,820.5 million.
- The company completed a July 2017 common stock offering of 5 million shares, net proceeds $287.6 million, plus forward sale agreements covering 6 million additional shares.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Xpo kept $0.02.
- Revenue$15.38B100.0%
- Cost of revenue−$8.13B52.9%
- Gross profit$7.25B47.1%
- Operating costs−$6.67B43.3%
- Operating income$582.0M3.8%
- Interest, other & tax−$242.0M1.6%
- Net income$340.0M2.2%
Where FY2017 revenue went
$15.38B- Cost of revenue: $8.13B, 53% of revenue
- Other operating costs: $5.01B, 33% of revenue
- Net income: $340.0M, 2.2% of revenue
- SG&A: $1.66B, 11% of revenue
- Interest, other & tax: $242.0M, 1.6% of revenue
Kept 2.2% as net incomeNet income $340.0M · 2.2%Interest, other & tax $242.0M · 1.6%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 12, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $15.38B$14.62B | +5.2% |
| Cost of Revenue | $8.13B$7.89B | +3.1% |
| Gross Profit | $7.25B$6.73B | +7.7% |
| SG&A Expenses | $1.66B— | — |
| Operating Expenses | $14.80B$14.15B | +4.5% |
| Operating Income | $582.00M$464.00M | +25.4% |
| Interest Expense | $284.00M$361.00M | −21.3% |
| Net Income | $340.00M$69.00M | +392.8% |
| EPS (Basic) | $2.72$0.57 | +377.2% |
| EPS (Diluted) | $2.45$0.53 | +362.3% |
| Shares Outstanding (Basic) | 115.00M110.00M | +4.5% |
| Shares Outstanding (Diluted) | 128.00M123.00M | +4.1% |
05—Questions
Frequently Asked Questions
What drove the improvement in profitability in 2017?
The filing attributes higher operating income in both segments to revenue growth, cost savings initiatives, technology-enabled labor efficiencies, and reduced interest expense, partially offset by foreign currency losses. SG&A as a percentage of revenue improved to 10.8% from 11.3%.
How much did the Tax Cuts and Jobs Act affect results?
The Act reduced the U.S. federal corporate rate from 35% to 21%, and the company recorded a $173.1 million tax benefit in the fourth quarter of 2017 from revaluing net deferred tax liabilities. The effective tax rate for 2017 was (38.2)%. The company expects the lower rate to be a material improvement to earnings per share and cash flow.
What are the main risks related to independent contractor drivers?
The filing discloses numerous lawsuits and administrative proceedings claiming that owner-operators and contract carriers should be treated as employees. Adverse decisions have been rendered in certain cases, and an adverse final outcome could change the business model, create employment and withholding tax liabilities, and have a material adverse effect. The company believes these workers are properly classified as independent contractors.
How is the company's debt structure changing?
Total debt principal was $4,683.9 million at December 31, 2017. In 2017 the company refinanced its term loan, extending maturity to October 30, 2021, and redeemed its 2018 and 2021 senior notes. The filing notes that the ABL Facility had $655.4 million of availability at year-end, and the European trade securitization program's maximum amount was increased to €350 million in the first quarter of 2018.
What is the company's exposure to Europe and the U.K.?
The filing states that approximately 37% of 2017 revenue was derived in Europe, including 12% in the U.K. The company owns 86.25% of XPO Logistics Europe SA, and Brexit could adversely affect demand and operations in the U.K. and EU. Foreign currency movements also affected results, with a $57.6 million foreign currency loss in 2017.
06—Continue