News / XPO Logistics sprints ahead on its M&A spree, and CEO Jacobs now eyes profits

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US forwarder XPO Logistics more than doubled its revenues last year, following six acquisitions, although net losses also more than doubled, to $48.5 million.

Management announced the $335 million acquisition of US intermodal operator Pacer International in January, and expects to acquire another $400 million of revenue via M&A in 2014.

XPO generated $700 million in revenue in 2013, but in an interview yesterday, CEO Brad Jacobs (pictured) told The Loadstar he expects a $2.75 billion revenue run rate in 2014.

Run rates, which can paint a glossy picture, incorporate the results of acquired companies as if they had been owned for the entire financial reporting period.

Announcing fourth-quarter and full-year results this week, CEO Jacobs said his grand plan was to hit a $7.5 billion revenue run rate by 2017.

Spending freely on acquisitions while losing money can traditionally herald disaster, but XPO’s performance is just the latest chapter in a story which only started in 2011 when CEO Jacobs originally invested in what was then a $175 million a year truck brokerage.

His strategy – stellar growth via multi-pronged acquisition – hasn’t turned a profit yet, but this boss has a track-record of building billion-dollar companies from scratch.

He highlighted this week that XPO recorded earnings before interest, tax, depreciation and amortisation, or ebitda, of $500,000 in the final three months of 2013: the company’s first positive quarterly indicator of underlying profitability since he took over.

That translated to a loss largely because of $175 million of “sales, general and admin expenses (SG&A)”, which were more than triple the 2012 SG&A. The flipside to that, said CEO Jacobs, is that XPO won’t pay tax “for years”. Losing money has its perks.

Mr Jacobs told The Loadstar  he was laying the foundations for a major corporation and XPO’s return to ebitda profitability.

“A big chunk of our losses reflect investing in the future and one-time charges. We’re growing revenue and gross margin and I’m pretty proud of that.

“In order to get to $7.5 billion [revenues] you need infrastructure. I’ve done this before and the reason I’ve succeeded where other high-growth companies have failed is that I’ve invested in an organisational infrastructure that can support a much larger company.

“I have a backbone of accounts payable, accounts receivable, credit collection, an M&A team, a Sarbanes-Oxley compliance team, planning & analysis, sales & marketing, branding. These are all the nuts and bolts of a very big company and that requires people and that costs money.”

Mr Jacobs is also confident that the operating environment will help him towards his multi-billion dollar ambitions.

“Business has picked up and capacity has tightened. So this is a time when brokerage firms can really shine in getting shippers access to capacity in a tight, rate-improving environment. Rates are going up. People can disagree on whether they go up 2% or 5%, but they’re going up and the reason for that is there is more freight and less capacity.

“We do business with the thirty largest big box retailers. We do a lot of business with all types of manufacturing. We do business with pharmaceutical companies and the government. We touch all parts  of GDP and overall, business is coming back.”

Since 2011, XPO has expanded its main brokerage division, entered final mile logistics via the 3PD acquisition, invested in expedited freight and with the Pacer International acquisition, hugely increased its intermodal capability. Geographically, however, the focus remains tightly on North America.

“There’s so much freight here that we don’t have our hands on yet,” said Mr Jacobs. “I believe this industry will evolve and mature, in the way other industries I’ve worked in have, to the point where there will be two or three players who have the majority of the market share and one of those companies will be XPO.”