XPO XPO Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 29, 2014

 

 

XPO LOGISTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		001-32172		03-0450326
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

Five Greenwich Office Park, Greenwich, Connecticut 06831

(Address of principal executive offices)

(855) 976-4636

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02.

Results of Operations and Financial Condition

On July 29, 2014, XPO Logistics, Inc. (the “Company”) issued a press release announcing its results of operations for the fiscal quarter ended June 30, 2014. A copy of the press release is furnished as Exhibit 99.1 to this Current Report on Form 8-K.

The information furnished pursuant to this Item 2.02, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Exchange Act or the Securities Act of 1933, as amended (the “Securities Act”), except to the extent that the registrant specifically incorporates any such information by reference.

 

Item 7.01.

Regulation FD Disclosure.

On July 29, 2014, the Company released a slide presentation expected to be used by the Company in connection with certain future investor presentations, together with a corresponding script. Copies of the slide presentation and script are attached as Exhibit 99.2 and Exhibit 99.3, respectively, to this Current Report on Form 8-K.

The slide presentation and script should be read together and with the Company’s filings with the Securities and Exchange Commission (the “SEC”), including the Quarterly Report on Form 10-Q for the quarter ended June 30, 2014.

The information furnished in this Item 7.01, including Exhibit 99.2 and Exhibit 99.3, shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that Section, and shall not be deemed to be incorporated by reference into any filing of the Company under the Exchange Act or the Securities Act, except to the extent that the registrant specifically incorporates any such information by reference.

 

Item 9.01.

Financial Statements and Exhibits.

(d) Exhibits

 

Exhibit No.		Exhibit Description
99.1		Press Release, dated July 29, 2014, issued by XPO Logistics, Inc.
99.2		Investor Presentation, dated July 29, 2014
99.3		Investor Presentation Script, dated July 29, 2014

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: July 29, 2014						XPO LOGISTICS, INC.
						By:		/s/ Gordon E. Devens
								Gordon E. Devens
								Senior Vice President and General Counsel

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EXHIBIT INDEX

 

Exhibit No.		Exhibit Description
99.1		Press Release, dated July 29, 2014, issued by XPO Logistics, Inc.
99.2		Investor Presentation, dated July 29, 2014
99.3		Investor Presentation Script, dated July 29, 2014

Exhibit 99.1

 

XPO Logistics Announces Second Quarter 2014 Results

Reports 49% organic growth company-wide

Generates higher-than-expected gross revenue and EBITDA

Raises year-end target run rates to $3 billion of revenue and $150 million of EBITDA

GREENWICH, Conn. — July 29, 2014 — XPO Logistics, Inc. (NYSE: XPO) today announced financial results for the second quarter of 2014. Total gross revenue increased 323.8% year-over-year to $581.0 million, and net revenue increased 530.1% to $121.9 million.

The company reported a net loss of $13.8 million for the quarter, compared with a net loss of $17.4 million for the same period in 2013. The net loss available to common shareholders was $14.5 million, or a loss of $0.28 per diluted share, compared with a net loss of $18.1 million, or a loss of $1.00 per diluted share, for the same period in 2013.

The adjusted net loss available to common shareholders, a non-GAAP measure, was $11.6 million, or a loss of $0.22 per share for the quarter. Adjusted net loss excludes: a primarily non-cash charge of $3.7 million, or $2.3 million after-tax, of accelerated amortization due to the rebranding of the company’s Express-1 business; and $720,000, or $593,000 after-tax, of transaction and integration costs related to the acquisition of Pacer International, Inc. (“Pacer”). Reconciliations of adjusted net loss to common shareholders and adjusted EPS are provided in the attached financial tables.

Adjusted earnings (loss) before interest, taxes, depreciation and amortization (“adjusted EBITDA”), a non-GAAP financial measure, was a gain of $14.1 million for the quarter, compared with a loss of $12.4 million for the same period in 2013. Adjusted EBITDA for 2014 excludes $627,000 of transaction and integration costs related to the acquisition of Pacer and $321,000 of rebranding costs; and includes $1.6 million of non-cash share-based compensation. A reconciliation of adjusted EBITDA to net income is provided in the attached financial table.

The company had approximately $129 million of cash, including $17 million of restricted cash, as of June 30, 2014.

Raises Full Year Financial Targets

The company has raised its full year 2014 financial targets as follows:

 

•

An annual revenue run rate of more than $3 billion by December 31, up from a prior target of $2.75 billion; and

 

•

An annual EBITDA run rate of at least $150 million by December 31, up from a prior target of $100 million.

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Acquisition Announcements

On July 29, 2014, the company announced that it has entered into a definitive agreement to acquire non-asset based logistics company New Breed Holding Company (“New Breed”) in a transaction valued at approximately $615 million. New Breed is the preeminent U.S. provider of industry-defining contract logistics services for omni-channel distribution, reverse logistics, transportation management, freight bill audit and payment, lean manufacturing support, aftermarket support and supply chain optimization. The transaction is expected to close in the third quarter, subject to customary approvals and conditions.

The company further announced that it has completed the acquisition of Atlantic Central Logistics (“ACL”), in a transaction valued at approximately $36.5 million. ACL is a non-asset based, third party provider of last mile logistics with 14 East Coast locations. The full text of the company’s acquisition announcements can be found at www.xpologistics.com/investors.

CEO Comments

Bradley Jacobs, chairman and chief executive officer of XPO Logistics, said, “In the second quarter, we outperformed a favorable brokerage environment and delivered strong results across the board. Our gross revenue, volume, net revenue margin and EBITDA all came in significantly ahead of plan. We reported robust organic growth of 49% company-wide, and in our freight brokerage unit, we generated outsized organic growth of 67%. We accomplished this by capitalizing on our increasing scale and lane density, and by improving the productivity of our sales force.”

Jacobs continued, “We’re very bullish about the two acquisitions we announced today. New Breed is the Rolls Royce of contract logistics – the preeminent provider of high margin, technology-intense, engineered solutions for blue chip customers. This will be a transformational addition to our service offering and a major increase in scale. Our XPO network will grow to more than 200 locations and approximately 10,000 employees. We’ll offer the most comprehensive range of logistics services in North America, with world-class technology and expertise.

“ACL is a strategically attractive, 14-location, last mile logistics company that we acquired yesterday. This transaction expands our tier one relationships in the e-commerce space, where the demand for last mile service is skyrocketing. ACL specializes in facilitating the time-sensitive, local movement of e-commerce goods between distribution centers and the end-consumer. We’ll integrate these operations with our XPO Last Mile business and leverage our combined capacity and expertise.”

Jacobs concluded, “We’ve raised our 2014 outlook to reflect our accelerated growth trajectory. We now expect a year-end revenue run rate of more than $3 billion, and an EBITDA run rate of at least $150 million – 50% more EBITDA than our original target.”

Second Quarter 2014 Results by Business Unit

 

•

Freight brokerage: The company’s freight brokerage business generated total gross revenue of $493.4 million for the quarter, a 417.4% increase from the same period in 2013. Net revenue margin was 21.3%, compared with 13.2% in 2013, an improvement of 810 basis points. The year-over-year increases in revenue and margin were primarily due to the acquisitions of 3PD, Optima Service Solutions and Pacer, and 67% organic revenue growth. Organic growth included revenue growth from our cold-starts, which are on an

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annualized revenue run rate of $220 million, compared with $90 million a year ago. Excluding the margin benefit of our last mile and intermodal operations, freight brokerage net revenue margin improved year-over-year, reflecting a more seasoned sales force and data-rich information technology. Second quarter operating income was a gain of $4.4 million, compared with a loss of $5.0 million a year ago.

 

•

Expedited transportation: The company’s expedited transportation business generated total gross revenue of $36.2 million for the quarter, a 37.0% increase from the same period in 2013. Net revenue margin was 30.8%, compared with 15.9% in 2013, an improvement of 1,490 basis points. Our ability to achieve more revenue per mile drove margin higher year-over-year, even excluding the substantial benefit of our XPO NLM business, acquired in December 2013. Second quarter operating income was a loss of $363,000, compared with a gain of $1.2 million a year ago, reflecting a one-time non-cash charge of $3.3 million related to the rebranding of Express-1 to XPO Express. Excluding this charge, second quarter operating income was a gain of $3.0 million.

 

•

Freight forwarding: The company’s freight forwarding business generated total gross revenue of $54.2 million for the quarter, a 180.2% increase from the same period in 2013. Net revenue margin was 10.3%, compared with 13.3% in 2013. The decrease in net revenue margin was due in part to the consolidation of the former Pacer freight forwarding operations into the XPO Global Logistics network, which shifted the revenue mix toward higher-revenue, lower-margin international transactions. Operating income was a loss of $903,000, compared with a gain of $478,000 a year ago, due in part to the consolidation of Pacer operations.

 

•

Corporate: Corporate SG&A expense for the second quarter of 2014 was $15.1 million, compared with $10.7 million for the second quarter of 2013. The higher corporate SG&A expense includes the allocation of expenses related to Pacer. Corporate SG&A for the second quarter includes: $627,000, or $516,000 after-tax, of integration charges related to the acquisition of Pacer; $1.3 million, or $1.1 million after-tax, of additional acquisition-related transaction costs; and $1.7 million, or $1.4 million after-tax, of litigation costs.

Six Months 2014 Financial Results

For the six months ended June 30, 2014, the company reported total revenue of $863.4 million, a 243.9% increase from the first six months of 2013.

Net loss was $41.9 million for the first six months of 2014, compared with net loss of $31.9 million for the same period last year. The company reported a six-month net loss available to common shareholders of $43.4 million, or a loss of $0.92 per diluted share, compared with a net loss of $33.4 million, or a loss of $1.84 per diluted share, for the same period in 2013.

Adjusted EBITDA was a gain of $14.8 million for the first six months of 2014, compared with a loss of $22.1 million for the same period in 2013. Adjusted EBITDA excludes $11.4 million of transaction and integration costs related to the acquisition of Pacer, and includes $3.8 million and $2.1 million of non-cash share-based compensation for 2014 and 2013, respectively. A reconciliation of adjusted EBITDA to net income is provided in the attached financial table.

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Rebrands Expedited Transportation and Last Mile Operations

In June, the company rebranded two of its core businesses to further its market strategy of serving customers as one, integrated portfolio of supply chain services under the XPO brand. The Express-1 expedited transportation business now operates as XPO Express, and the 3PD last mile business now operates as XPO Last Mile. More information about these services can be found at www.xpo-express.com and www.xpolastmile.com, respectively.

Conference Call

The company will hold a conference call on Wednesday, July 30, 2014, at 9:30 a.m. Eastern Time. Participants can call toll-free (from U.S./Canada) 1-800-708-4540; international callers dial +1-847-619-6397. A live webcast of the conference will be available on the investor relations area of the company’s website, www.xpologistics.com/investors. The conference will be archived until August 29, 2014. To access the replay by phone, call toll-free (from U.S./Canada) 1-888-843-7419; international callers dial +1-630-652-3042. Use participant passcode 37627194.

About XPO Logistics, Inc.

XPO Logistics, Inc. (NYSE: XPO) is one of the fastest growing providers of transportation logistics services in North America: the fourth largest freight brokerage firm, the third largest provider of intermodal services, the largest provider of last-mile logistics for heavy goods, and the largest manager of expedited shipments, with growing positions in managed transportation, global freight forwarding and less-than-truckload brokerage. The company facilitates more than 31,000 deliveries a day throughout the U.S., Mexico and Canada.

XPO Logistics has 148 locations and approximately 3,100 employees. Its three business segments – freight brokerage, expedited transportation and freight forwarding – utilize relationships with ground, rail, sea and air carriers to serve over 14,000 customers in the manufacturing, industrial, retail, commercial, life sciences and government sectors. The company has more than 3,600 trucks under contract to its drayage, expedited and last-mile subsidiaries, and has access to additional capacity through its relationships with over 27,000 other carriers. For more information: www.xpologistics.com

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures as defined under Securities and Exchange Commission (“SEC”) rules, such as adjusted net loss available to common shareholders and adjusted EPS, in each case for the quarter ended June 30, 2014, and earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted EBITDA for the quarters ended June 30, 2014 and 2013. As required by SEC rules, we provide reconciliations of these measures to the most directly comparable measure under United States generally accepted accounting principles (“GAAP”), which are set forth in the attachments to this release. We believe that adjusted net loss available to common shareholders improves comparability from period to period by removing the impact of nonrecurring expense items related to our rebranding of Express-1 to XPO Express and our acquisition of Pacer, which we completed on March 31, 2014. We believe that EBITDA and adjusted EBITDA improve comparability from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization) and tax consequences, and, in the case of adjusted EBITDA, non-recurring costs related to the Pacer acquisition. In addition to its use by management, we believe that EBITDA and adjusted EBITDA are measures widely used by

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securities analysts, investors and others to evaluate the financial performance of companies in our industry. Other companies may calculate EBITDA and adjusted EBITDA differently, and therefore our measures may not be comparable to similarly titled measures of other companies. EBITDA and adjusted EBITDA are not measures of financial performance or liquidity under GAAP and should not be considered in isolation or as an alternative to net income, cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from EBITDA and adjusted EBITDA are significant and necessary components of the operations of our business, and, therefore, EBITDA and adjusted EBITDA should only be used as supplemental measures of our operating performance.

Forward-looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the company’s full year 2014 financial targets. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed in XPO’s filings with the SEC and the following: economic conditions generally; competition; XPO’s ability to find suitable acquisition candidates and execute its acquisition strategy; the expected impact of the acquisitions of New Breed and ACL, including the expected impact on XPO’s results of operations; the ability to obtain the requisite regulatory approvals and the satisfaction of other conditions to consummation of the New Breed transaction; the ability to realize anticipated synergies and cost savings with respect to acquired companies; XPO’s ability to raise debt and equity capital; XPO’s ability to attract and retain key employees to execute its growth strategy, including New Breed’s and ACL’s management teams; litigation, including litigation related to alleged misclassification of independent contractors; the ability to develop and implement a suitable information technology system; the ability to maintain positive relationships with XPO’s networks of third-party transportation providers; the ability to retain XPO’s and acquired companies’ largest customers; XPO’s ability to successfully integrate New Breed, ACL and other acquired businesses; rail and other network changes; weather and other service disruptions; and governmental regulation. All forward-looking statements set forth in this press release are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, XPO or its businesses or operations. Forward-looking statements set forth in this document speak only as of the date hereof, and XPO undertakes no obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events except to the extent required by law.

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Investor Contact:

XPO Logistics, Inc.

Tavio Headley, +1-203-930-1602

tavio.headley@xpologistics.com

Media Contacts:

Brunswick Group

Gemma Hart, Darren McDermott, +1-212-333-3810

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XPO Logistics, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except per share data)

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2014				2013				2014				2013
Revenue		$	581,009			$	137,091			$	863,412			$	251,090
Operating expenses
Cost of purchased transportation and services			459,139				117,751				683,145				215,490
Direct operating expense			27,212				—				31,092				—
Sales, general and administrative expense			106,553				33,355				182,431				60,982
Total operating expenses			592,904				151,106				896,668				276,472
Operating loss			(11,895	)			(14,015	)			(33,256	)			(25,382	)
Other expense			235				167				250				58
Interest expense			3,403				3,106				13,461				6,170
Loss before income tax provision			(15,533	)			(17,288	)			(46,967	)			(31,610	)
Income tax (benefit) provision			(1,771	)			74				(5,070	)			296
Net loss			(13,762	)			(17,362	)			(41,897	)			(31,906	)
Cumulative preferred dividends			(733	)			(743	)			(1,475	)			(1,486	)
Net loss available to common shareholders		$	(14,495	)		$	(18,105	)		$	(43,372	)		$	(33,392	)
Basic loss per share
Net loss		$	(0.28	)		$	(1.00	)		$	(0.92	)		$	(1.84	)
Diluted loss per share
Net loss		$	(0.28	)		$	(1.00	)		$	(0.92	)		$	(1.84	)
Weighted average common shares outstanding
Basic weighted average common shares outstanding			52,565				18,180				46,970				18,107
Diluted weighted average common shares outstanding			52,565				18,180				46,970				18,107

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XPO Logistics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share data)

 

		June 30, 2014				December 31, 2013
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	111,620			$	21,524
Accounts receivable, net of allowances of $6,593 and $3,539, respectively			342,182				134,227
Prepaid expenses			12,764				3,935
Deferred tax asset, current			6,885				3,041
Other current assets			9,965				7,304
Total current assets			483,416				170,031
Property and equipment, net of $22,634 and $11,803 in accumulated depreciation, respectively			97,378				56,571
Goodwill			540,954				363,448
Identifiable intangible assets, net of $37,655 and $15,411 in accumulated amortization, respectively			231,915				185,179
Deferred tax asset, long-term			75				72
Restricted cash			17,017				2,141
Other long-term assets			10,075				2,799
Total long-term assets			897,414				610,210
Total assets		$	1,380,830			$	780,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	216,969			$	71,391
Accrued salaries and wages			16,454				11,741
Accrued expenses, other			30,947				9,489
Current maturities of long-term debt			1,565				2,028
Other current liabilities			6,819				4,684
Total current liabilities			272,754				99,333
Convertible senior notes			101,074				106,268
Revolving credit facility and other long-term debt, net of current maturities			484				75,373
Deferred tax liability, long-term			21,658				15,200
Other long-term liabilities			34,108				28,224
Total long-term liabilities			157,324				225,065
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value; 10,000,000 shares; 73,335 and 74,175 shares issued and outstanding, respectively			42,258				42,737
Common stock, $.001 par value; 150,000,000 shares authorized; 52,637,017 and 30,583,073 shares issued, respectively; and 52,592,017 and 30,538,073 shares outstanding, respectively			53				30
Additional paid-in capital			1,063,709				524,972
Treasury stock, at cost, 45,000 shares held			(107	)			(107	)
Accumulated deficit			(155,161	)			(111,789	)
Total stockholders’ equity			950,752				455,843
Total liabilities and stockholders’ equity		$	1,380,830			$	780,241

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XPO Logistics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

		Six Months Ended June 30,
		2014				2013
Operating activities
Net loss		$	(41,897	)		$	(31,906	)
Adjustments to reconcile net loss to net cash from operating activities
Provisions for allowance for doubtful accounts			3,180				627
Depreciation and amortization			36,543				3,349
Stock compensation expense			3,843				2,147
Accretion of debt			2,663				2,916
Deferred tax expense			(7,071	)			167
Other			2,335				(130	)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable			(57,334	)			(24,134	)
Income tax payable			2,441				(732	)
Prepaid expense and other current assets			(3,551	)			(275	)
Other long-term assets			(7,101	)			(28	)
Accounts payable			37,791				(4,013	)
Accrued expenses and other liabilities			1,552				2,939
Cash flows used by operating activities			(26,606	)			(49,073	)
Investing activities
Acquisition of businesses, net of cash acquired			(200,999	)			(19,660	)
Payment for purchases of property and equipment			(9,822	)			(3,864	)
Other			265				125
Cash flows used by investing activities			(210,556	)			(23,399	)
Financing activities
Repayment of borrowings on revolving credit facility			(75,000	)			—
Proceeds from stock offering, net			413,164				—
Payment for cash held as collateral in lending arrangement			(8,503	)			—
Dividends paid to preferred stockholders			(1,475	)			(1,486	)
Other			(928	)			(180	)
Cash flows provided (used) by financing activities			327,258				(1,666	)
Net increase (decrease) in cash			90,096				(74,138	)
Cash and cash equivalents, beginning of period			21,524				252,293
Cash and cash equivalents, end of period		$	111,620			$	178,155
Supplemental disclosure of cash flow information:
Cash paid for interest		$	4,726			$	3,337
Cash (received) paid for income taxes		$	(291	)		$	906
Equity portion of acquisition purchase price		$	108,187			$	3,089

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Freight Brokerage

Summary Financial Table

(Unaudited)

(In thousands)

 

		Three Months Ended June 30,																Six Months Ended June 30,
		2014				2013				$Variance				Change %				2014				2013				$Variance				Change %
Revenue		$	493,390			$	95,360			$	398,030				417.4	%		$	725,078			$	173,590			$	551,488				317.7	%
Cost of purchased transportation and services			388,282				82,793				305,489				369.0	%			575,654				150,957				424,697				281.3	%
Net revenue			105,108				12,567				92,541				736.4	%			149,424				22,633				126,791				560.2	%
Direct operating expense			27,212				—				27,212				100.0	%			31,092				—				31,092				100.0	%
SG&A expense
Salaries & benefits			38,795				12,367				26,428				213.7	%			64,321				22,530				41,791				185.5	%
Other SG&A expense			11,339				3,031				8,308				274.1	%			19,180				4,926				14,254				289.4	%
Purchased services			4,736				979				3,757				383.8	%			6,808				1,793				5,015				279.7	%
Depreciation & amortization			18,595				1,180				17,415				1475.8	%			27,589				2,194				25,395				1157.5	%
Total SG&A expense			73,465				17,557				55,908				318.4	%			117,898				31,443				86,455				275.0	%
Operating income (loss)		$	4,431			$	(4,990	)		$	9,421				-188.8	%		$	434			$	(8,810	)		$	9,244				-104.9	%

Note: Total depreciation and amortization for the Freight Brokerage reportable segment included in both direct operating expense and SG&A, was $ 19,271,000 and $1,180,000 for the three-months ended June 30, 2014 and 2013, respectively, and $28,264,000 and $2,194,000 for the six-months ended June 30, 2014 and 2013, respectively.

Freight Brokerage

Key Data

(In thousands, except personnel data)

 

		3 Mos Ended June 30, 2014				3 Mos Ended June 30, 2013				6 Mos Ended June 30, 2014				6 Mos Ended June 30, 2013
Revenue
Truckload, LTL, and Intermodal		$	387,492			$	95,360			$	532,076			$	173,590
Last Mile			105,898				—				193,002				—
Total Revenue		$	493,390			$	95,360			$	725,078			$	173,590
Net Revenue
Truckload and LTL		$	23,894			$	12,489			$	43,612			$	22,582
Intermodal			50,149				78				50,351				51
Total Truckload, LTL, and Intermodal			74,043				12,567				93,963				22,633
Last Mile			31,065				—				55,461				—
Total Net Revenue		$	105,108			$	12,567			$	149,424			$	22,633
Net Revenue %
Truckload, LTL, and Intermodal			19.1	%			13.2	%			17.7	%			13.0	%
Last Mile			29.3	%			—				28.7	%			—
Overall Net Revenue %			21.3	%			13.2	%			20.6	%			13.0	%
Direct Operating Expense
Intermodal		$	22,872			$	—			$	22,872			$	—
Last Mile			4,340				—				8,220				—
Total Direct Operating Expense		$	27,212			$	—			$	31,092			$	—
Freight Brokerage personnel (end of period)			2,245				788

Note: Employee totals are as of period end, and primarily include the positions of shipper sales, carrier procurement and brokerage operations, and reflect the impact of recruitment and acquisitions.

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Expedited Transportation

Summary Financial Table

(Unaudited)

(In thousands)

 

		Three Months Ended June 30,																Six Months Ended June 30,
		2014				2013				$ Variance				Change %				2014				2013				$ Variance				Change %
Revenue		$	36,231			$	26,445			$	9,786				37.0	%		$	70,041			$	50,320			$	19,721				39.2	%
Cost of purchased transportation and services			25,067				22,235				2,832				12.7	%			47,510				42,302				5,208				12.3	%
Net revenue			11,164				4,210				6,954				165.2	%			22,531				8,018				14,513				181.0	%
SG&A expense
Salaries & benefits			4,376				2,016				2,360				117.1	%			8,530				3,961				4,569				115.3	%
Other SG&A expense			1,670				513				1,157				225.5	%			3,127				1,117				2,010				179.9	%
Purchased services			562				246				316				128.5	%			996				535				461				86.2	%
Depreciation & amortization			4,919				248				4,671				1883.5	%			6,497				465				6,032				1297.2	%
Total SG&A expense			11,527				3,023				8,504				281.3	%			19,150				6,078				13,072				215.1	%
Operating (loss) income			(363	)			1,187				(1,550	)			-130.6	%			3,381				1,940				1,441				74.3	%
Accelerated amortization of Express-1 trade name			3,346				—				3,346				100.0	%			3,346				—				3,346				100.0	%
Adjusted operating income (loss)		$	2,983			$	1,187			$	1,796				151.3	%		$	6,727			$	1,940			$	4,787				246.8	%

Note: Total depreciation and amortization for the Expedited Transportation reportable segment included in both cost of purchased transportation and services and SG&A, was $4,954,000 and $291,000 for the three-months ended June 30, 2014 and 2013, respectively, and $6,566,000 and $559,000 for the six-months ended June 30, 2014 and 2013, respectively.

Note: Please refer to the “Non-GAAP Financial Measures” section of the press release.

Freight Forwarding

Summary Financial Table

(Unaudited)

(In thousands)

 

		Three Months Ended June 30,																Six Months Ended June 30,
		2014				2013				$ Variance				Change %				2014				2013				$ Variance				Change %
Revenue		$	54,178			$	19,338			$	34,840				180.2	%		$	73,684			$	35,571			$	38,113				107.1	%
Cost of purchased transportation and services			48,580				16,775				31,805				189.6	%			65,373				30,622				34,751				113.5	%
Net revenue			5,598				2,563				3,035				118.4	%			8,311				4,949				3,362				67.9	%
SG&A expense
Salaries & benefits			1,627				1,518				109				7.2	%			3,262				2,951				311				10.5	%
Other SG&A expense			4,130				317				3,813				1202.8	%			4,478				720				3,758				521.9	%
Purchased services			243				157				86				54.8	%			320				247				73				29.6	%
Depreciation & amortization			501				93				408				438.7	%			601				181				420				232.0	%
Total SG&A expense			6,501				2,085				4,416				211.8	%			8,661				4,099				4,562				111.3	%
Operating (loss) income		$	(903	)		$	478			$	(1,381	)			-288.9	%		$	(350	)		$	850			$	(1,200	)			-141.2	%

XPO Corporate

Summary of Sales, General & Administrative Expense

(Unaudited)

(In thousands)

 

		Three Months Ended June 30,																Six Months Ended June 30,
		2014				2013				$ Variance				Change %				2014				2013				$ Variance				Change %
SG&A expense
Salaries & benefits		$	6,952			$	4,590			$	2,362				51.5	%		$	16,795			$	9,097			$	7,698				84.6	%
Other SG&A expense			1,872				1,337				535				40.0	%			5,492				2,696				2,796				103.7	%
Purchased services			5,692				4,532				1,160				25.6	%			13,322				7,154				6,168				86.2	%
Depreciation & amortization			544				231				313				135.5	%			1,112				415				697				168.0	%
Total SG&A expense		$	15,060			$	10,690			$	4,370				40.9	%		$	36,721			$	19,362			$	17,359				89.7	%

Note: Intercompany eliminations included revenue of $2.8 million and $4.1 million for the three-months ended June 30, 2014 and 2013, respectively, and $5.4 million and $8.4 million for the six-months ended June 30, 2014 and 2013, respectively.

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Reconciliation of Non-GAAP Measures

XPO Logistics, Inc.

Consolidated Reconciliation of EBITDA to Net Loss

(In thousands)

 

		Three Months Ended June 30,												Six Months Ended June 30,
		2014				2013				Change %				2014				2013				Change %
Net loss available to common shareholders		$	(14,495	)		$	(18,105	)			-19.9	%		$	(43,372	)		$	(33,392	)			29.9	%
Preferred dividends			(733	)			(743	)			-1.3	%			(1,475	)			(1,486	)			-0.7	%
Net loss			(13,762	)			(17,362	)			-20.7	%			(41,897	)			(31,906	)			31.3	%
Pacer debt commitment fee(1)			93				—				100.0	%			4,624				—				100.0	%
Other interest expense			3,310				3,106				6.6	%			8,837				6,170				43.2	%
Income tax (benefit) provision			(1,771	)			74				-2493.2	%			(5,070	)			296				-1812.8	%
Accelerated amortization of Express-1 trade name			3,346				—				100.0	%			3,346				—				100.0	%
Other depreciation and amortization			21,924				1,795				1121.4	%			33,197				3,349				891.3	%
EBITDA		$	13,140			$	(12,387	)			-206.1	%		$	3,037			$	(22,091	)			-113.7	%
Pacer transaction and restructuring costs			627				—				100.0	%			11,408				—				100.0	%
XPO Express and XPO Last Mile rebranding costs			321				—				100.0	%			321				—				100.0	%
Adjusted EBITDA		$	14,088			$	(12,387	)			-213.7	%		$	14,766			$	(22,091	)			-166.8	%

 

(1)	Pacer debt commitment fee is recorded in interest expense.

Note: Please refer to the “Non-GAAP Financial Measures” section of the press release.

Reconciliation of Non-GAAP Measures

XPO Logistics, Inc.

Consolidated Reconciliation of GAAP Net Loss and Net Loss Per Share to Adjusted Net Loss and Net Loss Per Share

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2014				2013				2014				2013
GAAP net loss available to common shareholders		$	(14,495	)		$	(18,105	)		$	(43,372	)		$	(33,392	)
Accelerated amortization of Express-1 trade name			3,346				—				3,346				—
XPO Express and XPO Last Mile rebranding costs			321				—				321				—
Pacer transaction and restructuring costs			627				—				11,408				—
Pacer debt commitment fee(1)			93								4,624
Adjustment to tax benefit			(1,460	)							(3,883	)
Adjusted net loss available to common shareholders		$	(11,568	)		$	(18,105	)		$	(27,556	)		$	(33,392	)
Adjusted basic loss per share
Adjusted net loss		$	(0.22	)		$	(1.00	)		$	(0.59	)		$	(1.84	)
Adjusted diluted loss per share
Adjusted net loss		$	(0.22	)		$	(1.00	)		$	(0.59	)		$	(1.84	)
Weighted average common shares outstanding
Basic weighted average common shares outstanding			52,565				18,180				46,970				18,107
Diluted weighted average common shares outstanding			52,565				18,180				46,970				18,107

 

(1)	Pacer debt commitment fee is recorded in interest expense.

Note: Please refer to the “Non-GAAP Financial Measures” section of the press release.

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XPO Logistics, Inc.

Consolidated Calculation of Diluted Weighted Shares Outstanding

 

		Three Months Ended								Six Months Ended
		June 30, 2014				June 30, 2013				June 30, 2014				June 30, 2013
Basic common stock outstanding			52,564,636				18,179,570				46,969,847				18,106,564
Potentially Dilutive Securities:
Shares underlying the conversion of preferred stock to common stock			10,476,430				10,610,714				10,489,784				10,610,714
Shares underlying the conversion of the convertible senior notes			7,341,524				8,749,239				7,540,478				8,749,239
Shares underlying warrants to purchase common stock			7,765,457				6,262,380				7,886,891				6,302,668
Shares underlying stock options to purchase common stock			497,716				526,813				513,254				533,977
Shares underlying restricted stock units			714,896				436,275				657,583				418,898
			26,796,023				26,585,421				27,087,990				26,615,496
Diluted weighted shares outstanding			79,360,659				44,764,991				74,057,837				44,722,060

Note: For dilution purposes, GAAP requires diluted shares to be reflected on a weighted average basis, which takes into account the portion of the period in which the diluted shares were outstanding. The table above reflects the weighted average diluted shares for the periods presented. The impact of this dilution was not reflected in the earnings per share calculations on the Condensed Consolidated Statements of Operations because the impact was anti-dilutive. The treasury method was used to determine the shares underlying the warrants to purchase common stock with an average closing market price of common stock of $26.41 per share and $16.85 per share for the three months ended June 30, 2014 and 2013, respectively, and $27.61 per share and $17.00 per share for the six months ended June 30, 2014 and 2013, respectively.

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Exhibit 99.3

 

July 29, 2014

Presentation Script

The following script should be read in conjunction with the accompanying slide presentation, which contains, among other information, source data for certain information set forth in the script.

Thank you for joining us today. We’ll start with our planned acquisition of New Breed and our completed acquisition of Atlantic Central Logistics (ACL), which we announced earlier today. After that, we’ll give you an introduction to our company and our intense focus on world-class performance for customers. We’ll also explain the strategy that has driven XPO’s 33% revenue CAGR quarter-over-quarter for the past 30 months.

First, New Breed and contract logistics. Contract logistics refers to the outsourcing of warehousing, distribution and other inventory management responsibilities to a third-party provider. It can include storing, distributing and transporting raw materials, finished goods and spare parts, reverse logistics, and value-added services such as supply chain consultation and production flow management.

New Breed is the preeminent U.S. provider of complex, technology-enabled contract logistics for blue chip customers. The company was founded in 1968, and became focused on high-end contract logistics under Louis DeJoy when he took over as president and CEO in 1983. Mr. DeJoy reinvented the company from a regional business with 10 employees to the leading national provider of highly engineered supply chain innovations. Once the transaction is complete, Mr. DeJoy will lead XPO’s contract logistics business as its chief executive from the current operations center in High Point, N.C.

We agreed to acquire New Breed for a purchase price of $615 million on a cash-free, debt-free basis, assuming a normalized level of working capital. At the closing, Mr. DeJoy will use $30 million of proceeds from the transaction to purchase XPO restricted stock. New Breed had revenue of approximately $597 million and adjusted EBITDA of approximately $77 million for the trailing 12 months ended June 30, 2014. The value of the transaction represents a consideration of approximately 8.0 times trailing 12 months adjusted EBITDA. We expect to close in the third quarter of 2014, subject to Hart-Scott-Rodino clearance and other customary conditions.

This is a transformational acquisition for XPO on many fronts:

 

•

New Breed is a jewel in the crown of contract logistics: a world-class provider entrusted with critical services by some of the most prestigious corporate names in America. Its customers are handpicked in sectors with high-growth supply chain outsourcing opportunities. New Breed targets companies that produce premium, high-value products,

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and companies with complex supply chain requirements. This is the most desirable sector of contract logistics: customized services with solid margins, high contractual revenue renewal rates and low cyclicality. New Breed’s revenue renewal rate for the past three years has been approximately 99%. In the Great Recession, New Breed substantially increased its EBITDA by 38% year-over-year in 2008, and by another 45%in 2009.

 

•

New Breed’s non-asset based business model generates a high return on capital and strong free cash flow conversion. Capital expenditures for 2013 were 4.2% of revenue and largely devoted to developing proprietary information technology. For the full year 2013, New Breed’s return on invested capital was approximately 38% and free cash flow conversion was approximately 71%.

 

•

New Breed currently processes over 275,000 orders per day through 71 facilities, and employs approximately 6,800 people. After closing, we expect to triple our headcount to approximately 10,000 XPO employees and more than 200 locations. We’ll gain critical mass and be able to deliver integrated, end-to-end logistics solutions for any company, of any size, with any combination of transportation needs.

 

•

The acquisition is consistent with the XPO strategy of building a broad and integrated logistics offering by acquiring leading positions in sectors where we expect sustained demand for our services. For the past 10 years, New Breed has increased revenue at a compound annual growth rate of 16%, and realized a compound annual growth rate of 19% on adjusted EBITDA. New Breed’s growth is being driven by its focus on attractive customer verticals, namely technology, telcom retail/e-commerce, aerospace and defenses, medical equipment and select areas of manufacturing.

 

•

The capabilities of XPO and New Breed are complementary, and we expect the combination to create significant cross-selling opportunities. New Breed’s customers are candidates for the truck brokerage, intermodal, expedite, last mile and freight forwarding services XPO offers, as are the tens of thousands of vendors that move freight in and out of New Breed facilities. In addition, many of our XPO strategic accounts utilize the kind of high quality, customized solutions New Breed offers. These services typically are complex contract logistics such as omni-channel distribution, reverse logistics, transportation management, freight bill audit and payment, lean manufacturing support, aftermarket support and supply chain optimization.

 

•

We’ll use our new contract logistics platform to engage customers in our broader offering, just as we’ve done over the past 12 months with our acquisitions of 3PD, NLM and Pacer. We’re in a strong position to leverage an important industry trend: many customers, particularly large shippers, want to winnow down their relationships to fewer, larger 3PLs with deep capacity across a range of services. We’re being responsive to the needs of our customers by becoming a source of deep capacity across all major modes of transportation.

 

•

Both XPO and New Breed have an intense commitment to cutting edge technology. The combination will double our XPO IT workforce to approximately 600 talented, forward-thinking IT professionals innovating new ways to serve customers.

 

•

We expect to integrate our XPO NLM technology with New Breed’s transportation management system to offer customers industry-defining managed transportation

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solutions. XPO NLM is the largest expedited freight management platform in North America. New Breed’s system uses complex modeling tools to deliver dynamic freight optimization, routing guide management, and carrier selection based on cost, service requirements, performance metrics and transit times.

We’ve obtained commitments from Credit Suisse AG, Morgan Stanley Senior Funding, Inc., Citigroup Inc. and Deutsche Bank AG for a total of up to $645 million in senior secured term loan facilities to fund the New Breed transaction and general corporate purposes, including potential future acquisitions. The transaction is not conditioned on financing.

The second announcement we made today was our acquisition of ACL. We bought ACL for a cash purchase price of $36.5 million on a cash-free, debt-free basis, excluding any working capital adjustments. ACL is a last mile logistics company with approximately 200 contracted carriers, 160 employees and 14 locations on the East Coast. It had revenue of $63 million and adjusted EBITDA of $6.2 million for the trailing 12 months ended June 30, 2014. The value of this transaction represents a consideration of approximately 5.9 times trailing 12 months adjusted EBITDA.

The ACL acquisition is strategically important to the growth of our last mile business. It’s highly scalable, and it expands our presence in the high-growth e-commerce sector, which is projected to grow at a rate in the mid-teens over at least the next three years. ACL’s delivery patterns complement those of XPO Last Mile, which will allow us to leverage capacity as we increase our volume. We’ll integrate ACL with XPO Last Mile and deliver even more resources to retailers and their channel partners. Last mile is a platform we can grow both organically and through acquisitions – we still have a very active pipeline of targets.

When we established our foothold in last mile in August of 2013, we did it in a big way by acquiring 3PD – the largest provider of last-mile logistics for heavy goods home delivery in North America. Heavy goods home delivery is a $13 billion sector of last mile that’s growing at five to six times GDP. Then we built on this opportunity with our purchase of Optima Service Solutions, the leading arranger of last mile installations for large appliances and electronics. Like ACL, the former 3PD and Optima operations are both highly scalable. Today, XPO Last Mile (which includes former brands 3PD, Optima and ACL) facilitates approximately seven million last-mile deliveries a year.

In addition to its industry position, 3PD was attractive for three additional reasons. First, last mile is a major beneficiary of the growth in e-commerce, which is expected to continue to show robust growth for the foreseeable future. We gained leading, proprietary software for real-time workflow visibility and customer experience management. Shippers depend on us to use the right contract carriers to effectively represent their brands during “white glove” deliveries inside a customer’s home, and this technology helps ensure brand protection. And second, 3PD had assembled an impressive leadership team – they built a strong, customer-centric culture where less-than-stellar service was not an option. These executives are all on board now with XPO running our last mail operations, with Karl Meyer as divisional chief executive.

Karl’s a legend in last mile. He founded 3PD and was instrumental in building it into a highly successful, service-oriented operation. His commitment to innovation produced some of the industry’s most groundbreaking mobile technologies. Karl began his logistics career in progressively higher management positions with Home Depot, where he led the multi-billion dollar delivery business and successfully transitioned these operations from Home Depot’s in-house model to an outsourced model.

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That gives you some insights into our growth paths for contract logistics and last mile logistics. Now we’d like to tell you more about XPO, and the ways in which we’re driving company-wide growth through the precise execution of a clearly defined strategy.

We took control of XPO Logistics in September of 2011, with the objective of building a world-class transportation logistics company under the new XPO Logistics brand. We put a highly skilled management team in place and began executing our disciplined strategy for growth:

 

•

Acquire attractive companies that bring value and are highly scalable;

 

•

Optimize our existing operations with vigorous recruitment and training programs and state-of-the-art IT; and

 

•

Open cold-starts in locations where we can hire a large number of qualified salespeople to drive returns.

Today, we’re one of the fastest-growing logistics companies in North America, with a freight brokerage division that we took from a single location to the fourth largest brokerage firm in two years. We’re the largest provider of last-mile logistics for heavy goods, the largest manager of expedited shipments, and the third largest provider of intermodal services, with growing positions in managed transportation, freight forwarding and less-than-truckload brokerage. And we’re the number one intermodal provider in the cross-border Mexico sector, where demand is skyrocketing due to the trend toward near-shoring by manufacturers.

We’ve instilled a high-octane, performance-driven culture focused on delivering world-class service to customers. Our sales and operations people know how to deal with customers on a professional basis. They understand our goal of zero service failures. We see an opportunity to differentiate XPO on the basis of phenomenal customer service in each of our lines of business.

We grew our headcount from barely 200 employees in late 2011 to approximately 3,100 today, and expect to triple our headcount this quarter with New Breed. We developed cutting-edge recruiting, training and onboarding programs. And we introduced a scalable IT platform, with three major upgrades and enhancements every few weeks.

We have a nationwide cold-start program underway with 23 locations operating under experienced leadership: 11 in freight brokerage, 11 in freight forwarding and one in expedite. Our drayage, expedited and last mile subsidiaries have more than 3,600 owner-operator trucks under contract. And our capacity procurement hubs in Charlotte, Chicago and Atlanta manage relationships with an additional 27,000 carriers, representing capacity of more than half a million trucks on the road.

And we’ve completed twelve acquisitions to date, including the billion-dollar Pacer business in March, and ACL this week. ACL is our fifth acquisition in the last eight months. In March, we bought Pacer International. In the last half of 2013, we bought 3PD and Optima – the largest providers in their areas of last-mile logistics. In December, we acquired NLM, the leading online manager of expedited shipments. The addition of NLM to our expedited group made us the largest manager of expedited shipments in North America, and gave us a foothold in managed transportation that we can lever with the New Breed combination.

We’ve made XPO a major player in the fastest-growing areas of logistics. Intermodal, for example, is growing at three to five times GDP. Intermodal is a dynamic, $15 billion sector and a huge opportunity for us. Many shippers are discovering that they can use intermodal to lower their transportation costs for freight that travels at least 600 miles, in part because rail can be up

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to three times more fuel-efficient than truck for long haul freight. In addition, freight trains don’t stop at the border, so intermodal transit time can be very competitive with trucking. Currently, more than a third of our over-the-road freight movements travel more than 600 miles – that makes many of them ripe for conversion to intermodal.

When we acquired Pacer in March, we gained instant scale in intermodal as the third largest provider in North America. It gave us access to 60,000 miles of network rail routes and decades-deep relationships with the rails. The transaction added about a billion dollars of revenue, 31 locations and approximately 800 employees to XPO. Our position in Mexico is particularly exciting: we’re the number one provider of cross-border intermodal, with the benefit of 30 years of Pacer experience in Mexico. It’s estimated that approximately 2.8 million trucks move cross-border each year, so there’s a large potential universe for conversion to rail.

Strong growth in cross-border intermodal demand is being driven by a shift to near-shoring by manufacturers. There are a lot of factors driving this secular trend. Mexico offers a competitively-priced labor force and greater speed-to-market than overseas locales such as China. The labor pool of inexpensive workers has diminished as China’s middle class has emerged, and under China’s Employment Promotion Plan, the minimum wage is planned to increase by at least 13% through 2015. Regulatory expenses, tax implications and sub-standard intellectual property rights, relative to Mexico, have begun to further alter the cost differential between China and Mexico, making China a less attractive option for manufacturers. In addition, the railroads and the Mexican government have invested billions of dollars in the country’s transportation infrastructure.

Further bolstering the attractiveness of Mexico as a manufacturing contender are the Maquila Decree and the tailwind of just-in-time (JIT). The 1989 Maquila Decree allows for the temporary importation of foreign merchandise into Mexico for assembly, manufacturing or repair prior to export almost tax-free. The trend toward JIT and lean production makes Mexico very attractive in terms of speed to market. For example, a shipment from Shanghai to Dallas via a combination of ocean and truck takes an average of 19 days. The same shipment, via a combination of rail and truck from Mexico to Dallas, takes only three days. Likewise, a 19-day freight movement from Shanghai to New York City becomes a seven-day movement when shipped via intermodal from Mexico.

For all of these reasons, Mexico is fast becoming the site of choice for many U.S. manufacturers, as well as companies from other countries with North American market interests. While automotive manufacturers have a high profile in Mexico, a sizable amount of near-shoring growth is being driven by non-automotive sectors. For example, food and beverage giant Unilever has announced plans to invest $500 million in Mexico operations. According to The Offshore Group, companies are investing billions of dollars in Mexican production capacity at a rate that would cause Mexico to surpass China as the U.S.’s top trading partner by 2019. This growth serves XPO more than any other intermodal provider because of our leading position in Mexico. As large as the cross-border intermodal opportunity is for us today, it may be small in relation to future demand.

In addition to Mexico and the broader industry growth in North America, the Pacer acquisition delivered significant cost synergies. We’re on track to realize $15 million of synergies – triple our original projection – and we’ve already executed on many of them. We’ve identified these synergies in technology, real estate, sales and administrative functions, public company costs, and duplicative personnel.

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The integration of Pacer is going very well. We implemented our plan to reverse the losses of Pacer’s logistics business. We closed or consolidated 16 offices and retained 10 operations as part of our XPO Global Logistics freight forwarding group. And we put the former Pacer truck brokerage business under the leadership of Josh Allen, and fully integrated it with XPO. Josh is one of our regional VPs – he’s been growing our brokerage offices in Louisville and Cincinnati at a fast clip. We moved the operations onto our proprietary Freight Optimizer technology, which allows the team to serve customers better and price loads more effectively. They can do their job faster on our more user-friendly system, with access to our more than 27,000 carrier relationships.

We put our intermodal operations under the leadership of Paul Smith, who had been Pacer’s vice president of network profitability and management. With Pacer, Paul was responsible for optimizing all aspects of the intermodal network, including capacity flow and asset management, market-based pricing, and capacity planning for rail relationships. His experience is a valuable resource in driving the performance and growth of our intermodal network.

Those are the highlights of our most recent acquisition announcements and the upsides of our service platforms. Now let’s take a closer look at each part of our strategy and the significant growth that’s embedded in our business model.

First is scale and optimization. This starts with our industry fundamentals. The transportation logistics industry in the United States alone is about a trillion dollars annually. Over-the-road trucking is about $350 billion of that spend, with an estimated 15% penetration rate by brokers. This equates to a $50 billion opportunity that’s growing at about two to three times GDP. Currently, we have more than 14,000 customers, primarily in manufacturing, industrial, retail, commercial, life sciences and government-related accounts – yet we serve less than 2% of the addressable market.

One thing that’s likely to drive increased penetration is an outsourcing trend with both shippers and carriers. It makes economic sense for carriers to find loads through brokers instead of carrying the costs of an internal sales team. And shippers – including those with direct carrier relationships – need large 3PLs as a source of critical capacity when trucks are hard to find. We’ve positioned our company to benefit from this long-term trend. We’re building XPO not just for the $50 billion that’s going through brokers right now, but for the $300 billion that’s currently going direct from shippers to carriers.

In addition to being large and growing, our industry is highly fragmented. There are more than 10,000 licensed brokers in the U.S., but only about 25 brokerage firms with more than $200 million in revenue. Fragmentation gives us a dual benefit: it supports the acquisition leg of our strategy, and creates a competitive advantage for XPO as one of the largest brokerage firms in North America.

We’re working diligently to raise our profile in front of every prospective customer in the transportation space. We’ve identified the 2,000 largest shippers in North America as strategic account targets. The next largest 5,000 shippers are our national account targets. In addition, there are hundreds of thousands of small and medium-sized customers who can use our services. Our branch network reaches out to them every day.

We see huge growth potential in strategic accounts. Last year, we launched a dedicated team to target opportunities with strategic accounts. Every one of our strategic account managers has deep industry experience, and a long track record with large shippers. They’re very attentive to the nuances of the needs of large shippers, and they get a favorable response from these

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customers. In the second quarter alone, we added 26 large customers that are first-time strategic accounts for XPO. Collectively, these accounts represent a potential spend of about $400 million when they ramp up over the next few years.

Our strategic accounts team is led by Julie Luna, our chief commercial officer. Julie has over 25 years of industry experience – she was the executive vice president of sales and marketing for Pacer’s intermodal business when we acquired it. Prior to Pacer, Julie held senior positions in sales and marketing and national account management over 23 years with Union Pacific Railroad. As UP’s vice president and general manager for its automotive business, she led a $1.2 billion business focused on transporting automotive vehicles and parts.

Our strategic accounts team includes a number of high-profile industry veterans, including Jeff Battle, Dennis McCaffrey, Greg Ritter and Jim Commiskey. Jeff is one of the key executives who led the growth of Turbo Logistics over the last two decades. Dennis has 20 years in the industry, and most recently ran the outside sales organization for our expedited transportation group. Greg was previously president of Knight Brokerage, and before that he was with C.H. Robinson for 22 years. And Jim came to us from Pacer. He has more than 20 years of transportation experience, including management positions with UPS and Menlo Worldwide.

Beyond strategic accounts, we’re focused on leveraging our broader multi-modal offering with customers of all sizes, both new business and existing accounts. We’re doing this in a disciplined and organized manner. All of our salespeople are on salesforce.com, and we’ve assigned a single point of contact for each customer. This gives us good visibility into the progress of sales activities, and it helps us to cross-sell our services.

Less-than-truckload is another revenue stream that’s on our doorstep. We’re taking steps to tap into this $32 billion sector in a big way. Currently, less than $25 million of our company’s annual revenue comes from LTL – yet almost all of our full truckload customers have LTL business. Our acquisition of Interide in 2013 brought us a lot of LTL expertise, as well as an LTL technology platform that we’ve rolled out in all of our sales offices. Now that we’ve combined Interide’s carriers with our own network, we’re already getting better LTL rates. We’re very excited about the magnitude of the LTL opportunity.

Our experience tells us that the common denominator across all these lines of transportation is that customers want results. They want on-time pickup and delivery. They want their goods to arrive safely. They’re very focused on making sure that service failures don’t happen. If a problem does occur, they want to know about it right away and they want to see a solution. If you walk into one of our branch offices, you’ll see that our people are professional, efficient and on top of things.

One of the ways we empower our employees to deliver world-class service is through our information technology. We believe that our technology is a big differentiator in our industry. We have a dedicated IT team of over 300 talented professionals, headquartered in Cambridge, Mass., that focuses solely on driving innovation and the effectiveness of our systems. We design our systems to make sure they can accommodate huge scale and complex automation. They create the discipline that helps us manage rapid growth.

In 2012, we put a scalable IT platform in place across the company, with sales, service, carrier and track-and-trace capabilities. We followed that up with new pricing tools, load-covering capabilities, and the introduction of our proprietary freight optimizer software. More recently, we introduced a carrier rating engine and LTL upgrades, and enhanced our customer and carrier portals.

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Our IT team has created algorithms that provide actionable pricing information and carrier procurement, as well as analytic capabilities for truckload market conditions. As we acquire lane and pricing histories from the companies we purchase, this information gets added to our database and can be used by our salespeople. For example, we can pull in real-time market data to highlight demand and availability in specific lanes and regions. This gives our salespeople price and capacity visibility across North America.

We use detailed carrier profiling that identifies each carrier’s strengths, equipment, preferred lanes and performance metrics. And we have similar profiling for our customers, that pinpoints both operational and load requirements. We also have the ability to manage our customers’ specific routing guides and tariffs, which makes us a true partner to larger accounts.

That’s an overview of part one of our strategy: scale and optimization. Part two is acquisitions. When we look at a potential acquisition, it’s more than just a financial transaction. We ask ourselves, what special value does this company bring to the table? How does it fit into XPO? Is this an operation that we can grow to many times its current size? Will the employees be exceptional additions to our organization? And most important, is it a service that our customers need and want?

Last December, our acquisition of NLM, the leader in web-managed expedite logistics, gave us a strong foothold in managed transportation. We rebranded the business as XPO NLM and now manage more shipments in the $5 billion expedite sector than any other 3PL in North America. Currently, NLM manages a annual run rate of more than three quarters of a billion dollars of gross transportation spend.

Our company’s roots are in expedited transportation, which requires picking up and delivering freight very quickly, with a goal of zero service failures. Our expedite business dates back more than 20 years – so a do-or-die mindset of meeting customer needs is embedded in our DNA. In January, we appointed Chris Healy as president of our four expedited operations: XPO Express (formerly Express-1), XPO NLM, XPO Air Charter and our Gainesville, Ga., expedited office. Chris is a widely respected innovator in expedited transportation, having spent over 30 years in leadership positions with some of the most prominent expediters in North America. Prior to XPO, Chris was president and chief executive officer of Active Aero, and earlier served in senior management positions with Boyd Brothers Transportation, Caliber Logistics (now FedEx Supply Chain Services) and Roberts Express (now FedEx Custom Critical). He’s the first to bring our expedite group to market as one synergistic service offering.

Our acquisition program continues to be very lively – we’ve looked at over 1,000 companies in the last couple of years, and we’ve refined that list to the 100 most attractive companies. Our acquisition team is constantly in dialogue with these targets. Many are eager to join XPO. They like our energy – they know we’re going places. For our part, we’re being very disciplined about seeking out strategically sound acquisitions that align with our core competencies.

We design each acquisition to be a win-win. When we integrate an acquisition, we gain more carriers, customers and expertise that we can use company-wide. For example, we’ve added capabilities in LTL, last-mile, refrigerated and expedited air charter through acquisitions, as well as intermodal. Our acquisitions of Turbo, Kelron, Covered Logistics, 3PD, Pacer and ACL increased our penetration with Fortune 500 companies. The added locations give us more real-time visibility into the ebb and flow of pricing in various lanes. As a result of these synergies, our salespeople can cover loads more effectively.

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In addition, our acquired operations cross-sell the services of our other divisions, and we offer the acquired services to our broader XPO customer base. In June, we completed two major rebrandings that support our sales efforts: our over-the-road Express-1 expedited business is now XPO Express, and our former 3PD division is now XPO Last Mile. This furthers our market strategy of serving customers as one, integrated portfolio of supply chain services under the XPO brand.

Our cross-selling efforts are getting a lot of traction. In the second quarter, we met with 136 strategic accounts to sell XPO lines of business beyond what these shippers were currently using. We’ve already been awarded incremental business with 45 of these large accounts.

This brings us to the third part of our strategy, and an equally important one: cold-starts. Of the 23 cold-starts we mentioned earlier, 11 are in freight brokerage. Each location is led by a highly experienced branch president. Talent is the most important factor for cold-starts – both leadership and sales talent. We seek to locate our branches in prime areas for recruitment.

Even though our 11 brokerage cold-starts are barely a year and a half old on average, these locations are already on an annual revenue run rate of approximately $220 million. A year ago, the run rate was just $90 million, so our brokerage cold-start revenue is on a strong trajectory, and we’ll continue to grow them fast.

The amount of start-up capital per cold-start is relatively slim: generally a million dollars or less. And there’s a large component of variable-based incentive compensation – so cold-starts of any size can generate extremely high returns on invested capital.

That’s our business plan. Now it comes down to operational excellence: execution and management. So let’s spend a few minutes on our senior management team.

Our CEO, Brad Jacobs, started four highly successful companies from scratch prior to XPO Logistics, and built each of those companies into a billion or multi-billion dollar enterprise. Brad and the management teams he led created dramatic shareholder value. In the process, they completed nearly 500 acquisitions and opened approximately 250 cold-starts.

The two most recent companies Brad led were United Waste Systems, which he built into the fifth largest solid waste management company in North America, and United Rentals, which he grew to be the largest construction equipment rental company in the world. From 1992, when Brad took United Waste public, to 1997, when he sold it for $2.5 billion to Waste Management, the earnings compounded at about 55% CAGR and the stock price outperformed the S&P 500 by 5.6 times. At United Rentals, over the 10 years he led the company, United Rentals stock outperformed the Index by 2.2 times.

Brad spent the better part of his first year with XPO assembling a team whose collective skill set is the perfect fit for our company’s ambitious growth strategy. For a competitor to successfully copy our business plan, it would need the deep bench of talent that we have – not just at the senior executive level, but in every key position. Here are just a few examples of our talent:

Troy Cooper is our chief operating officer. Troy’s been instrumental in helping our company realize its growth strategy from the earliest days of XPO Logistics, with senior positions in operations and finance. Prior to XPO, as a vice president for United Rentals, Inc. under CEO Brad Jacobs, he helped to integrate over 200 acquisitions in the United States, Canada and Mexico. For United Waste Systems, Inc., he worked with Brad to build an integrated organization of 86 collection companies and 119 facilities in 25 states. Earlier, Troy was with OSI Specialties, Inc. (formerly a division of Union Carbide, Inc.).

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John Hardig, our chief financial officer, has been a significant presence in the transportation industry for nearly two decades. Before joining XPO, John was a managing director in the Transportation & Logistics group at Stifel Nicolaus Weisel, and an investment banker in the Transportation and Telecom groups at Alex. Brown and Sons. Over the course of his career, he has completed over 60 M&A transactions and his teams have raised billions of dollars of capital for many of the industry’s leading logistics companies, including IPOs for C.H. Robinson, Hub Group and Roadrunner Transportation, and follow-ons for Forward Air, Inc., Heartland Express, Inc. and Knight Transportation, Inc.

Scott Malat is our chief strategy officer. Scott’s responsible for our company’s strategy and capital structure, analyzing potential acquisition opportunities, and managing our technology organization. Prior to joining XPO, he was the senior transportation analyst covering air, rail, trucking and shipping at Goldman Sachs. Earlier he was an analyst with UBS, and served as an internal strategy manager with JPMorgan Chase, where he worked with several of the bank’s business units. As a global advisor for The Sharma Group, he focused on M&A opportunities.

Gordon Devens is XPO’s general counsel, responsible for executing our acquisition strategy as well as all corporate legal matters, governance and compliance, and legal interests relating to the company’s growth initiatives. Gordon is more than just a talented corporate lawyer. After working at Skadden, Arps, he spent 15 years with AutoNation, where he was associate general counsel, and later led AutoNation’s deal team. Gordon has completed over 250 M&A transactions during his career, and he brings that experience to XPO’s growth strategy.

Mario Harik is our CIO. He was previously the CIO at Oakleaf Waste Management, a logistics provider that was sold in 2011. Mario has been tapped over the years by Fortune 100 companies for his expertise in building comprehensive IT organizations and proprietary platforms, similar to what we’re doing here at XPO. He’s put together a superstar team that is using technology in innovative ways that tie directly to customer service. They’ve accomplished a huge amount in a short period of time.

On the carrier side, Lou Amo is our vice president–operational initiatives. Lou has 16 years of transportation and carrier management experience. He leads XPO’s strategic initiatives for carrier management and procurement in our truck brokerage operations. Lou first joined XPO as vice president–procurement and operations, and before that he was director of transportation for Electrolux Major Appliances North America. Earlier, he held senior positions with Union Pacific Corporation, Odyssey Logistics & Technology Corporation, and SABIC Innovative Plastics Holding BV (formerly GE Plastics).

Taken in its entirety, our organization is unique in the industry because it includes top talent from virtually every other major 3PL in North America. Not only do we have deep bench strength, we have a rich diversity of industry experience. We’ve assembled some of the most energetic thinkers in logistics.

Moving on to the financial picture: for the second quarter of 2014, our gross revenue, volume, net revenue margin and EBITDA all came in significantly ahead of plan. We delivered over $581 million of revenue company-wide, including year-over-year organic growth of 49%. We accomplished this by capitalizing on our increasing scale and lane density, and by improving the productivity of our sales force. In our freight brokerage unit, we increased revenue by 417% year-over-year, including outsized organic growth of 67%. In our expedited business, we increased revenue by 37%. And while margin in our freight forwarding business decreased to 10.3%, due in part to the Pacer consolidations, revenue was up more than 180%.

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We’re pleased that we’ve delivered on every target we’ve set since implementing our strategy in 2011. Given our accelerated growth trajectory, we’ve raised our financial targets for the current year. Our updated outlook for 2014 is:

 

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An annual revenue run rate of at least $3 billion by December 31; and

 

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An annual EBITDA run rate of at least $150 million by December 31 – 50% more EBITDA than our previous target.

And for 2017, we remain on track to deliver on our target of at least $425 million of EBITDA.

Finally, it’s worth noting that XPO management owns almost 30% of the company’s fully diluted shares, based on the SEC beneficial ownership rules. Our interests are entirely aligned with our public shareholders to create substantial long-term value.

So to sum it up: we’ve established leading positions in some of the fastest-growing areas of transportation – truck brokerage, intermodal, last-mile and expedited – and we’re capitalizing on the major trends in our operating environments. We’re getting bigger, faster and more efficient in the way we run our brokerage operations. Our brokerage cold-start revenue is ramping up quickly. We see significant growth ahead in intermodal across North America, and even more so in Mexico, where we’re first in line to benefit from the near-shoring of manufacturing. We’re growing our industry-leading position in expedite with our integrated ground, air and managed transportation offering. We’re expanding our last mile presence in exactly the right way to capture the burgeoning demand from e-commerce growth. And we’re about to become the leader in complex, blue chip contract logistics. We’re driving strong organic growth company-wide. And our acquired operations have been integrated and are performing well. Our accelerating EBITDA performance, together with our acquisition of ACL and our planned acquisition of New Breed, mark a positive inflection point at XPO.

As we look ahead, we see a clear path to grow the business far beyond our accomplishments to date. We’re excited about the future of XPO!

Thank you for your interest.

Forward-Looking Statements

This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including the company’s full year 2014 and full year 2017 financial targets. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in the circumstances.

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These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed in XPO’s filings with the SEC and the following: economic conditions generally; competition; XPO’s ability to find suitable acquisition candidates and execute its acquisition strategy; the expected impact of the acquisitions of New Breed and ACL, including the expected impact on XPO’s results of operations; the ability to obtain the requisite regulatory approvals and the satisfaction of other conditions to consummation of the New Breed transaction; the ability to realize anticipated synergies and cost savings with respect to acquired companies; XPO’s ability to raise debt and equity capital; XPO’s ability to attract and retain key employees to execute its growth strategy, including New Breed’s and ACL’s management teams; litigation, including litigation related to alleged misclassification of independent contractors; the ability to develop and implement a suitable information technology system; the ability to maintain positive relationships with XPO’s networks of third-party transportation providers; the ability to retain XPO’s and acquired companies’ largest customers; XPO’s ability to successfully integrate New Breed, ACL and other acquired businesses; rail and other network changes; weather and other service disruptions; and governmental regulation. All forward-looking statements set forth in this document are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, XPO or its businesses or operations. Forward-looking statements set forth in this document speak only as of the date hereof, and XPO undertakes no obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events except to the extent required by law.