Q4 2019 Earnings Call
[music].
Yes, Kevin and I'll be your operator for today's call.
At this time of participants really listen only mode later, well conduct a question answer session.
If you ever question style Star one order telephone keypad.
Please note today's conference is being recorded.
Before the call begins with a brief statement for the company regarding forward looking statements.
Non-GAAP financial measures.
During this call the company, making certain forward looking statements within the meaning of applicable security laws.
Which by their nature involve a number of risks uncertainties and other factors that could cause actual results could differ materially from those projected and look forward looking statements.
Discussions of factors that could cause actual results could differ materially.
The company.
The forward looking statements from a company's earnings release.
Were made in this call.
As of today. The company has no obligation to update any these forward looking statements except to the extent required by law.
Sorry, just called you may also be refer to certain non-GAAP financial measures as defined under applicable FCC rules.
So you should have such non-GAAP financial measures to the most comparable GAAP measures are contains a companys earnings release related financial tables.
A copy of the company's earnings release, which contains additional important information regarding forward looking statements and non-GAAP financial measures really investor section of the company's website.
I'll now turn the call over the bread Jacobs Mr. Jacobs you may begin.
Thank you operator, good morning, everybody welcome to our earnings call and thank you for your interest in X.P.O.
I'm joined here this morning by Matt Fassler, our Chief strategy Officer, and job Hadley, Our senior director of Investor Relations.
I'm pleased to report that we delivered a solid full year performance cap by a strong fourth quarter.
I'm, particularly pleased that on a year over year basis, our fourth quarter adjusted EPS was up 56% coming in at the dollar 12 versus 72 cents last year.
And our adjusted EBITDA was $432 million for the quarter up 14% from the prior year with margin up 170 basis points.
Full year, adjusted EBITDA was up 7% to $1.67 billion.
We beat on free cash flow for the quarter at $221 million full year free cash flow was $628 million just above the midpoint of the higher guidance we issued in August.
In LTL, we had the best fourth quarter adjusted operating ratio in our history.
Coming in at 82.3%.
Year over year. This was an improvement of 500 basis points and excluding real estate. It was an improvement of 150 basis points.
LTL yield excluding fuel remain strong up 3.1% year over year.
Pricing on contract renewals was also strong at 3.4%.
Our team in truck brokerage executed remarkably well in the quarter.
We're continuing to automate brokerage and improved productivity.
In the fourth quarter, we grew volume, 1% with nearly 20% fewer people.
Excluding the downsizing of our largest customer volume was up 19%.
We've been experiencing exponential growth ex PEO connect our digital freight marketplace. We exceeded our goal of 100000 driver downloads of our drive X T O out in December.
In European Transportation, we generated low double digit organic revenue growth in the UK and high single digit organic revenue growth in Spain.
This offset a mid single digit decline in France.
And logistics in the fourth quarter, we achieved a double digit adjusted EBITDA margin, but the first time since 2015.
We've been laser focused on cost control and also exited some low margin business.
Last week, we announced we signed up a new customer Waitrose one of the biggest supermarket chains in the UK.
This is one of the largest logistics contracts in our history.
We'll be operating two critical logistics hubs for Waitrose, starting mid year and distributing an estimated 143 million cases or product annually.
We're proud to chose us for our expertise and omni channel distribution.
Based on sign contracts and a strong pipeline, we have excellent visibility into significant revenue growth into 2021, you know logistics segment.
To sum up the companywide results, we delivered a good quarter and a good year, despite a choppy macro.
We remain disciplined on cost in pricing and we continue to reap the benefits of our tech initiatives.
For 2020, we expect organic revenue growth of 3% to 5%.
Adjusted EBITDA growth of 7% to 10%.
And robust free cash flow and the remain in the range of $600 million to $700 million.
As you know aren't you.
We announced were exploring the sale or spin off of some of our business units.
As we said, we're not considering the sale or spin up North American LTL.
This process is consistent with our long held priority of maximizing shareholder value.
We're proud of the outsized returns we've already delivered for our shareholders, but we continue to trade at a significant discount so some of our parts into the valuation of our pure play peers.
The process is off to an excellent start.
We have no updates to share with you on this call.
Finally, I want to welcome David Weisner, who will become our new CFO on March 2nd.
David is a fantastic higher is 28. Your career includes 13 years of C of O experience with multi billion dollar public companies that completed major asset sales spin offs in acquisitions during his tenure.
You'll get to meet him on our next call.
With that I'll turn the presentation over to Matt Matt.
Thanks, Brad.
As I review the numbers, you'll see that were harnessing our tech driven initiatives in each business unit to drive solid results against a mixed macro backdrop I'll start by going through the fourth quarter numbers and our strategic focus by business unit.
Well began with our transportation segment and North American LTL, we improved profitability despite softer demand.
Growth in yield and pricing on new contracts reflected the rational market pricing, we've seen all year.
Tonnage declined by 6.3% year over year due to softer results from many of our industrial customers. This is consistent with the U.S. industrial sectors performance in general.
Contrast, most of the metrics related to volume for our customers and the consumer sector were steady.
Our adjusted operating ratio improved by 500 basis points to 82.3%.
Excluding gains on sale of real estate this year and last our adjusted our improved by 150 basis points to 85.8%.
As Brad said, it's our best fourth quarter adjusted our ever.
This strong performance was the result of steady yield improvement and tight cost control, our optimization of pricing and labor using our proprietary technology also continues to contribute to these results.
Within freight brokerage, we increased volume while remaining disciplined on price our freight brokerage gross revenue declined by 12% year over year slight improvement over Q3.
Excluding the previously announced decrease the brokerage business from our largest customer our underlying freight brokerage gross revenue fell by 6%.
Our net revenue margin eased the crops freight brokerage by 70 basis points to 17.9% as contractual rates declined and the spot market stabilize in truck brokerage specifically loans increased by 1% after declining 4% in Q3 importantly.
Excluding brokerage business with our largest customer our load count grew by 19%.
Our Expo connect digital freight marketplace is giving our customers more visibility enhancing price discovery and contributing to our market share gains.
Turning to our last mile operation revenues declined 24% year over year and the weight of the wind down of our postal injection business in Q1.
Excluding postal injection growth in our core last mile heavy goods business accelerated to 7% we brought onto customers, particularly through our hub network, where our investment paid off through strong growth in volumes in its first full year.
Net revenue margin at last mile increased sharply year over year. This was primarily due to mix as we discontinued our personal injection business earlier in the year and as we increased margin for our core heavy goods business by almost 200 basis points, we expect ongoing organic revenue grew.
For this line of business in 2020.
In Europe revenue declined by 1.7% in our transportation business during the quarter.
FX weighed on revenue by about two percentage points transportation revenue trends in Europe measured in local currency were excellent in the UK and saying they were softer in France as social unrest emerged began late in the quarter.
Where are the biggest LTL provider in France top three for dedicated truckload and LTL in the UK and a leader in European brokerage our competitive position in European Transportation is strong and we're excited for our prospects across the region.
Looking across our transportation segment overall revenue was down 8.3%, but adjusted EBITDA was up 12.5% and adjusted EBITDA margin rose by 220 basis points to 11.8% driven by improved margins in North American LTL intermodal.
Managed transportation and last mile turning to the logistics segment in North America, our revenue declines your 0.8%, reflecting the downsizing of business with our largest customer which impacted revenue by about 3% and exiting of some lower margin sites growth through the consumer package.
Goods aerospace and food and beverage factors offset this decline in Europe logistics revenue declined 2.5% FX had a negative impact of about two percentage points ecommerce and chemicals were our strongest verticals and European logistics, we continue to build on our market leading to.
In addition, as the largest outsource provider you fulfillment logistics in Europe.
We're confident about contract logistics revenue trends during the second half of this year for a lot of reasons, including the lapping of the downsizing of our largest customer recently signed new business, our robust pipeline and the ramp up of previously signed contracts that have longer implementation lead times like our nationally.
How's the future and UK, we see excellent visibility into 2021 and 2022 as well.
Adjusted EBITDA for logistics as a whole rose, 28% year over year, and adjusted EBITDA margin rose to 10.4% our improved profitability reflects strong cost management, including savings from recent restructurings and positive results from our technology initiatives Xps.
Smart continues to deliver strong productivity gains in the U.S. and we started to roll out more of these capabilities in Europe.
We exercise pricing discipline as we seek to deliver profitable growth recalled the increasing our European supply chain margins is one of our 10 profit levers, we executed well in Europe during peak and reduced the number of loss, making sites also our ex PEO direct share distribution platform is delivery.
Better profitability, given more scale and the optimization of our line haul model.
We're enthusiastic about the growth we're seeing from X PEO direct it continues to offer enormous opportunities for new business and we're in active discussions with a compelling list of new customers.
We ended 2019 with a companywide sales pipeline that surpassed $4 billion in fact, our pipeline exceeded $4 billion and every quarter of 2019.
It rose, 22% year over year and was up double digits in both transportation and logistics.
New business wins declined 7% year over year.
Typically lower truckload market pricing put pressure on the dollar value of our brokerage new business one.
Supply chain, new business why they increased year over year, and we're starting to see the logjam associated with Brexit in the UK clear up as customers getting more clarity about the path forward, our LTL new business, one increased year on year for the eighth quarter in a row.
Moving down the income statement interest expense rose to $74 million from $52 million a year ago.
This reflects our debt issuance earlier in the year to fund our share buyback program.
Our GAAP effective tax rate fell to 22% from 23% a year ago, our weighted average diluted share count was 103 million at year end compared with 137 million shares a year ago.
The year over year decrease reflects our share buyback activity.
There is no meaningful change quarter to quarter as we didnt repurchased any shares in Q4.
Our diluted earnings per share was 93 cents, a 50% from 62 cents a year ago, our adjusted diluted EPS rose to $1.12 up 56% from 72 cents a year ago.
Our buyback activity was 13 cents accretive to adjusted EPS for Q4, and 37 cents accretive for full year 2019.
Q4, gross capital expenditures increased to $188 million from $138 million, a year ago with the increase reflecting timing between quarters net capital expenditures were $128 million compared with $87 million a year ago all.
Then for the quarter free cash flow was $221 million versus $479 million a year ago for the year free cash flow was $628 million compared to $694 million a year ago.
In Q4, we had asset sales of $60 million, including $52 million from real estate and the remainder from equipment, we booked a gain on sale of assets of $37 million in the quarter of which $36 million related to real estate we.
We had a sequential benefit to free cash flow from trade receivables programs of $60 million in the quarter.
For the full year. These programs provided incremental benefit to free cash flow of $110 million.
Detailing our 2020 guidance.
We expect organic revenue growth of 3% to 5%.
This is based on gradual improvement in transportation markets in the second half of the year as Brad said earlier, we expect growth in adjusted EBITDA of 7% to 10%, we expect free cash flow of $600 million to $700 million. This includes gross capex.
$600 million to $650 million and asset sales of $150 million to $175 million, implying net capex in the range of $475 million to $525 million, we expect cash interest in the range of 285 to 305.
The $3 million to $5 million and cash taxes in the range of $155 million to $180 million. We expect an effective tax rate for full year 2020 in the range of 24% to 27% all of our forecast exclude the potential impact of transit.
Action related expenses.
We continue to make significant progress on the 10 operating initiatives that are driving $700 million to $1 billion a potential EBITDA improvement by year end 2022 speaking to some of the specific initiatives our tech work streams across the company continued to grow.
Gain momentum.
Yeah, we rolled out our smart workforce flat workforce planning platform to our full network. During Q4, we're seeing great results for instance, dock operations productivity improved 9%, we've launched a new P.D. platform for route planning and rolled it out to all of our.
Terminals, we will start seeing results through the course of 2020.
We introduced an automated RFP platform for local account pricing, 50% of all new opportunities in the local channel in the quarter were fully automated leading to quicker turnaround times and 80, our ability to close new business, we launched many advances in line haul, including a visual monitor.
I think tool that helps supervisors determine how full a trailer is so they can manage the adopt more efficiently.
In freight brokerage, our counteroffer capability within Sps connect enables us to work with carriers to negotiate a fair and competitive price contributing to our share gains as it has since we launched it in 2018.
While our technology is a fantastic gateway to our service our carrier relationships are critical to delivering that service to our customers. We have strategic relationships with thousands of contracted carriers in North America for which were a significant source of freight and revenue overall, we are experience.
Seeing dramatic growth in users bids and booked loads and we're using the dynamic Max pay capability, we develop in North America to drive share and our European brokerage line of business.
Contract logistics, our ability to assess the customer supply chain recommend optimal cost efficient solutions and implement them with speed is winning a high quality long term contracts with blue chip customers. It starts with tech leadership, our sales platform is backed by investments we've made in big.
Data analytics, when a customer comes to us with large amounts of data our ability to deploy that data to create a customized solution exceeds that of anyone else in the marketplace. We have our own warehouse management, an order management platforms, you integrate well with robotics and we are accelerating the pace of automation.
In our warehouses. This is resonating across verticals ranging from omnichannel retail to consumer technology to aerospace and defense to broader industrial and too many more.
I'm proud to say that we were named to the fortune most admires come to most admired companies less for the third straight year and ranked number one in the category of trucking transportation and logistics.
We were named to the top 100 of America's most responsible companies by Newsweek and ranked in the top five in our category on the corporate equality index by the Human Rights campaign Foundation underscoring our commitment to the LPG TQ community with that I'll turn it back to the operator and we'll take your questions.
Thank you will now be conducting a question answer session.
You got to be placed in the question could you. Please press star one of your telephone keypad.
Confirmation Tony will indicate your line is in the question Q, you mean press star to if you'd like to move your question from the Q.
Participants using speaker criminally, maybe necessary to be comprehensive before pressing star one.
One moment, please what we pull for questions.
Our first question is coming from Chris Wetherbee from Citi. Your line is not a lot.
Hey, Thanks, good morning, guys.
No. One is maybe starting on the specifics can you talk a little bit about the LTL side and maybe the tonnage declines that you saw in the quarter one to get a sense of sort of what what's happening there where you think.
Customer attrition as you go through a thing I just want to get a sense that it looked like it was a step down from what you had seen earlier in the year.
Hi, Chris It's Brad Good morning, I don't think it's specific to us for the better or for the worse I was just the market I think the industrial economies and saw for quite a long time now in its was soft in the fourth quarter.
We do see some potentially encouraging signs in January and year to date numbers were in LTL tonnage is definitely still down but it is down less than it was in the fourth quarter.
And by the same token yield is up and up more than it was in the fourth quarter. So I think it's too early to call a definitive bottom and have high conviction with that but theres. Some some encouraging signs about what's going on in the industrial economy.
Okay. That's helpful. I appreciate that and then I know you probably don't want to talk too much about the M&A process or the divestiture process, but when you think about if you could maybe give us a little bit of sort of the road map of what to expect from here in terms of either timing or a process standpoint, I think it'd be helpful. Just to kind of frame up what you think is going to happen you play out.
At over 2020.
The process is off to an excellent start a there's a lot of good momentum more than we had expected or we don't have any further updates to share with you at this time and when we do we'll do it publicly.
Okay I appreciate it I guess squeeze one more interest when you're thinking about the 700 million to 1 billion potential cost savings that you've outlined over the course. The next couple of years. How much do you think is included in guidance or how do you think about that that's still the opportunity set as you think about it maybe putting that aside relative to the divestiture process.
How much should we think about a 2020.
So the 10 lever process is still front and center of what we're working on its our main focus throughout the company the major projects like.
Automated pricing.
Like many forms of automation, including robotics productivity enhancements, especially workforce planning to the smart labor tools.
Attacking that $1.3 billion year, we spent on line haul in LTL and so forth.
These are big ticket items. These are ones that can have varied to monster Bull results improvement improving them result, and we're not taking our foot off the pedal at all on that a independent of the process to evaluate strategic alternatives for four of our business units.
Those 10 levers are driven by technology, and we're still investing in technology is still developing that competitive advantage.
When you look at the business split and you look at that $700 million to $1 billion of potential profit improvement over the next couple of years.
About half of it is in supply chain with a little bit more in the in North America versus your up about 30% is in LTL and about 20% is in transportation again, a little bit more North America, then in Europe.
So we're still moving full speed ahead on those 10 levers and we're on track with all of them.
And that's because of the intense focus we have as a management team on them.
Okay, that's a but but no sort of.
And what's going to actually be in 2020 attributes that sort of back end loaded do you think it sort of linear throughout the period I guess, that's what else are looking for.
So some of those we've already started to see some benefit from some of those are more longer term in nature and require more investment in more time.
There is some benefit from them embedded in the 2020 budget.
And the guidance and those were all.
Created on a bottoms up basis from the field with people tying their compensation to those those results. So while we don't want to quantify in specific dollars. Each one of the levers and how much it's each quarter I hope I'm, giving you a feel out there there is at beginning of results already coming in and that increases quarter after quarter you.
After year.
Got it thanks very much that's I appreciate it.
Thank you. Thank our next question is coming from Amit Malhotra from Deutsche Bank. Your line is now lives.
Thanks, Operator, hi, everybody. Thanks for taking my question abrupt Brad I just wanted to circle back on on the strategic alternatives I fully appreciate you know you're not wanting to talk about it but I guess a question comes from a little bit of a different perspective, because you on the board of characterize it as a sale or span.
If there was obviously not in the company or boards control given you know it's up it depends on the pricing you get out in the marketplace, but the spin of the businesses are completely in your control of the board's control. So really in that context I just want to understand how committed are you to actually separating the.
LTL business is from the non LTL businesses and what are the you know circumstances, whereby you don't pursue a spin off given the avenue is completely in the management and boards control.
Well good morning on it what I can tell you is were 100% committed to creating shareholder value.
It's always been our plan it still is our plan and in our estimation today.
Best way to create substantial shareholder value is to run a process for four of those business units, but not LTL.
And see what our options are in terms of valuation that comes back from those.
We're not putting a huge amount of effort right now into the spin because the sales process is in full gear. So let's see how that goes and then we'll take a step by step.
Okay and then can you just also talk about the disruption that this process has had on the business and you know one I mean, you have obviously I don't know 10000, plus employees related to the businesses, maybe even more they're looking to spin off or sell what are you doing there to retain.
In them and then what is the customer reaction Ben given.
Some of these contracts and logistics in particular, a multiyear or and I would just imagine that it has an impact in the customer mindset with respect to potential changes or controller management.
Yeah well.
In terms of employees, we have a large amount of goodwill that we've built up over the years with our employee base or 100000 members of the ex fuel logistics family and one of the reasons that we have that immense goodwill is that we've been very transparent and very communicative very straightforward with everything that we're always doing.
And and people appreciate that and we've kept them in the loop of what our plans are just as we've kept the street and ER and they appreciate that nobody likes well I should say nobody's most people don't like changed my most people don't like ambiguity, but our organization is agile is flexible is dynamic and it's used to.
Dealing with rapid change all the transformation projects that we've had in order to grow revenue $2 billion organically over last few years and grow EBITDA half a billion dollars over the last few years, that's because we had tens and tens of thousands employees, who were highly motivated and to succeed and to contribute.
To a major major process. So some people are actually excited that they could be part of a smaller more focused.
Business unit, but frankly, many people are mixed about it because we've created a great.
Global family atmosphere, and you know if we end up selling we're spending these four units that that will go with risk, but in terms of your question about would've done for retention.
We obviously spent a lot of time on retention and on Incentivization programs and I feel weve the team that in the HR and the comp and groups done an excellent job. It at taking care of that in terms of customers customers. Also appreciate open communication. They just want to get the job done so if they're in the transportation part of.
The business they want goods moves from here to there if they're in the supply chain part of the business. They want everything goes on the four walls that that warehouse be dealt with maximum efficiency and productivity and nothing's changed in that respect, we're still having very high levels of execution in our supply chain business.
We've been winning new contracts, we recently won waitrose the large supermarket chain in the UK.
And we recently won Mercedes Benz, which is another big contract we got.
Over over in Europe, So, we're winning contracts even after we've announced the strategic alternatives process.
Okay.
Okay I'll keep it at two thank you very much good luck in the process appreciate it.
Thank you. Thank our next question is coming from Scott Schneeberger from Oppenheimer. Your line is now alive.
Thanks, very much good morning, everyone I guess I'm the guy on the guidance for 2020, Oh, all organic revenue and EBITDA could you speak I guess two up how you look at it by segment and cadence and a and kind of macro versus internal thank you.
Sure. So as you think about.
Cadence.
We are expecting part one of the premises of the guidance that industrial economy, and the transportation markets show some recovery in the second half the year.
So the revenue momentum embedded in that three to five would build over the course of the year. If you think about LTL.
We expect Oh are improving adjusted or improvement.
Of approximately a 100 basis points or more so at least 100 basis points and then you can think about a relatively he then EBITDA growth among our transportation and logistics segments.
Great. Thanks for that and then I want to spend over two to Capex, a big pick up year over year on what you're planning to spend could you speak a little bit too well, where that's going I presume a lot inside he budget and Ah and just did just how much how much of that may or may not be spent.
Given.
The strategic alternatives and how that that could potentially influence what the plans are there. Thanks.
So the Capex budget is based on the company in its current structure and from a capex perspective in investment perspective, it's business as usual investing in all of our businesses now the gross Capex number of 600 to 650 is kind of at the 2019 number at the low end and slightly above.
At the high end the net number is a bit bigger because the asset sales embedded in the guide of 150 to 175 are lower than the level that we had in 2019 recall that in 2019 was sold in office property with proceeds in excess of $70 million, that's really the delta in the asset sales and that's it.
Big piece of the Delta in the net Capex number.
Thanks, very much I'll turn it over.
Thank you. Thank you. My next question is coming from Allison Landry from Credit Suisse. Your line is that a lot.
Good morning. Thanks, So just a question on LTL.
In terms of bridging tease out to the 1 billion of profits by 2021, how should we think about the pace of improvement this year versus next year and what do you expect EBIT to grow faster in 2020 or more backend loaded and then if you think about just started that the different buckets, whether its line haul PND utilization price.
You know, where where do you think you have to most opportunity left there.
Sure. So as you think about growth in EBITDA and I'll, let you do the specifics of your model. Let me just give you a couple of the premises that back that back our guidance, we do expect a better tonnage environment as the year progresses based both on comps and our expectation that the industrial economy.
Stabilizes and begins to grow.
We sized our expected are improving adjusted or improvement at 100 basis points or more you can use that certainly to get to EBITDA number you probably look at something close to even pacing between the years, but again you should work out the details on your out in terms of the for specific levers within our.
It seems like initiatives that are driving LTL, we're seeing the earliest benefits from pricing and that's manifested.
Both in yield and also to some degree and market share automated pricing effort. For example helps us get to local accounts quicker we expected to increase our conversion also as we said earlier on the call. We finished the rollout of smart to all of our LTL terminal. So that has started to have an impact on dock productivity today size that number.
In the fourth quarter, but that's a pound for pound, it's only really been in place through the network for very short period of time. We spoke also during the call about the rollout of our PND and line haul initiatives. Among the for those are the two more backend loaded initiatives, so you'll see implementation and some benefits this year.
Those are more stores for 2021 and beyond.
Okay. Thanks, So the other question I wanted to ask so you know under in the past you've highlighted that a number of your customers to use more than one Expo service and yeah, that's bad about a key selling point.
I know you just signed a couple of big contracts, but for shippers that you're trying to get new business last and that are also looking to use more than one service have you noticed that you know in the conversations with them.
There's been sort of any less willingness to to sign contracts because of the strategic exploration.
A little bit Allison, but not a lot.
People have confidence in whatever decision we make will.
Maintain high levels of customer service and execution little bit of delays and some customers, but not a not a big trend on the cross selling we still see a significant and growing amount of cross selling within North American transportation and within the European transportation the.
Actually I would say the momentum of cross selling within North American transportation is increasing we had about little over $300 million of cross selling within North American transportation in 2019 that was up about 37% or from the previous year, which.
Was up about 26% from 2018 and in Europe, We had about 170 million euros of cross selling within.
European Transportation in 2019 that was up not quite as much as it was North America, but it started.
After it started out North American it was up about 10 million euros year over year. So when you look at the took the $2 billion of increase in revenue that we organically.
Drove from 2015 2019.
About 500 million of that wasn't cross selling and nearly all of it was within those two business units that I just mentioned.
Okay. That's really helpful. Thank you guys.
Thank you.
Thank you. My next question is coming from Brian, though some back from Jpmorgan. Your line is not alive.
[noise] Hey, good morning, Thanks for taking the question.
Just wanted to ask about competition and more broadly in a softer freight market you seeing any indications across the business lines of disciplined slipping on price more than you would expect at this point in time, and then maybe specifically in brokerage.
Like truckload held up pretty well in terms of margin, but have you seen anything in Europe, where weve, where a few additional competitors, especially Cooper freight started to.
Launch in rollout more scale in that region specifically.
Brokerage always in every part of this cycle has a wide range of competitors some of which are being more discipline into some of which be left it's been the blend on price depending on their straight depending on their where they stand in the marketplace. What I'm very excited about isn't truck brokerage.
We grew year over year volumes, when you exclude the largest customer downsizing.
90% in the fourth quarter, our volumes were up 19% year over year, if you take that largest customers.
Downsizing out of both periods, even if even if you include that.
That downsizing bias is still out there about 1% I nearly 20% fewer heads so the automation that we've been focusing on the technology that we've been focusing on during the company has dramatically improved productivity, where we can be growing volumes with about a fifth.
Hi Tech Huh.
And we have an enormous opportunity in brokerage to target tier two and tier three so midsize and smaller sized customers because our main focus has been on those tier one customers. So I'm encouraged by what we're doing in freight brokerage I can't say the freight brokerage market is vibrant or are you going very healthy it's loose.
Pricing is we saw volumes of soft pricing, but we've been able to continue to stay focused on what we do well and the applications that we're using our technology for to grow despite the external environment now you asked about Hoover and and Europe.
Oh, we have a tremendous amount of respect free Hoover, we think that they have a tremendous up I really enviable a cultural ability to think big and to move fast and he's a that things that we value ourselves as well they understand the importance of tech. They really just bring a lot of dynamism in the industry as its just excite.
Didn't have a competitor that's got a lot of energy going on there in Europe, they've just begun so really haven't seen any any any effect on our business there, but frankly, we haven't seen a whole lot of effect on our business here from movers that we'd have another competitor coming into the market might be have for years and and that big plans and we wish them the very best.
Okay.
I just have up on the technology can you give some more context around the exco connect platform you know, what's the size either on a run rate basis or or growth or anything and give us just in terms of the context of how big that is a is it reaching critical mass with shippers and then are you highlighted you got about 100000 drivers to download the app.
To connect into it what's what's your sense of the retention.
For people, who are or downloading and using it or are they increasing in the stickiness with this platform as it continues to grow.
We have not reached critical mass well long shot with shippers are we've made huge impact right I think everybody has.
The vast majority of brokerage is still done over the telephone with a with human being for the most part throughout the industry.
That's changing there's a trend for short for it to be more digitally enabled and we are ready the forefront of that our strategy has been a little bit different and some of our competitors. Our strategy has been to go in two phases, where the first phase is intensely focused on carriers and particularly what we call our core carriers.
Most of our most of our business. There we have reached critical mass there we have 40000 different trucking companies, having downloaded X.P.O. drive FPL and that represents about 100000 drivers. So we have a very strong digital platform with the care.
For your base, we did not want to go to the shipper community until we had that critical mass with the carrier community. We have that now so the phase two will begin where we very aggressively market to the key to the shipper quite a universe with with the system fully worked out and with access to a very large amounts of cash.
Cassidy, we also and you saw that we exceeded our we exceeded 100000 download a target by by the end of December of drive ex fuel.
We also launched especial app for last mile carriers that plugs right into connect.
And now in Europe, and that also went live in 100% ever our loads there now published digitally.
And we're rolling out connect to LTL customers in the UK, France, and Spain, but our strategy will be very similar in consistent we perfect the technology.
We marketed to carriers regain tremendous access capacity. So when we go to our customer on the system. They get very competitive bid. The last thing in the world. We want is to roll out to customers. They put freight on the system and it's slower than just calling somebody on the telephone so I I like the progress we've made in Expo Canal.
It's very methodical I'm very optimistic on its future.
Hi, Brad Thanks for the details.
Thank you. Thank you my next question to these coming from Brandon Oglenski from Barclays. Your line is now alive.
Hey, good morning, everyone and thanks for taking my question, Brad I guess when I ask about the dual narratives I'm hearing on the call here because you guys are talking about.
Potentially 50% improvement earnings for next couple of years.
Well I have it through like overhead procurement common tech platform cross selling.
But the same time, you know the strategic review kind of wants to break up some of those opportunities. So can you talk about.
Know why that's the.
The best at Ford isn't just pursuing this $702 billion of EBITDA as opposed to potentially breaking that up in taking away [noise].
Some of those opportunities.
We've always been focused on creating tremendous shareholder value in both transportation and logistics. The strategy has always been consistent and that's why.
One of the reasons why we were the seventh best performing stock of a decade of the Fortune 500, we've been agile and we've adapted to evolve evolving circumstances that as they changed.
The possibility to continue in Tech company with the profit improvement opportunities of up to $1 billion is very attractive frankly, and that's not a bad plan b. It's it actually an excellent plan b, but plan hey is to get more shareholder value creation.
In the hearing now because the reality is that the market has given us what we call a conglomerate discount.
And we trade at a very significant discount to the some of our parts as well as evaluation of our peers and therefore, if we take these four business units and market at the market them in sales. There's a very good chance that we're going to get multiples that ICSI by substantial amount what we trade.
For as a conglomerate so to speak and while we're in love with a multi modal solution in the global reach some market does not reward us for that and as the same goes don't fight with reality because reality always when the reality is what we've put together here as a great company that customers.
Jay that employees love.
It's about eight times EBITDA and now even with this announcement only about nine in a bit times EBITDA. So we think the opportunity to create shareholder value in the hearing now in a significant way is best served by exploring these options it's strictly Matt.
Well I follow on that you know what a moment in time, Brad, but I guess if.
You have tremendous amount of confidence in this earnings outlook I would like to think that not only with shareholders benefit from the earnings upside that you guys are projecting but also most likely an improved valuation range at that level of profitability. So I guess again, it's just combat. This dual narrative. If you have a lot of confidence in that earnings expansion why even risks the cultural.
Shock the potential break up you know potentially losing employees over you know what could be a very uncertain future for the organization.
So it really comes down to whether I agree or disagree with one of your phase one of your sentences that the market is likely to give us a much higher multiple as they recognize our consistent profit improvement.
I haven't seen it Brad I haven't seen it despite many analysts including yourselves on rooftops, saying how great. The company is reality is the market has given us a high single digits EBITDA multiple and you have to accept that reality I don't feel there's a big risks to the things you mentioned about cultural shock.
In poison customers. These are temporary situation is that we'll get resolved a very easily and issues that come up on that the basic business is very very strong. We've got the second largest contract logistics company in North America, where leader in fast growing reverse logistics and and omni channel we got to unmatched.
Blue Chip customer list, we're the leader in automation and robotics and then if you look good in a you're up in our in our supply chain business. There too we've got leading positions in the fastest growing parts of logistics with the second largest contract was it.
Six provider in Europe, where that number one he fulfillment platform in most European markets, where the leader and click and collect where a top three logistics company in France, We're managing logistics for the biggest fresh foods network in Spain, we are a top five industrial tenants in Europe, and if you look in Europe.
In transportation extremely strong position, where we're the number one transportation <unk> company in France, and Spain, where the biggest LTL provider in France, where it top three truck broker in France topped two full truckload in France top three LTL UK top three dedicated transport in the UK number one truck brokerage.
They long list of rate Blue chip customers.
And if you come over to North America, and look at our North American Transportation unit.
We are and enough with a third or fourth depending on how you kind of largest truck broker in North America. We have technology. That's proven we have management that's been together for years and very stable and three quarters of our truck brokerage leadership is held every single job functioning truck brokers were very long in the to the expertise in how to make money.
Truck brokerage, we're number one in last mile from heavy goods.
Were top five minutes transportation company with a third largest intermodal company one of the largest raise networks in United States. We're number one and expedite so I just wanted on for hours, but we've built up a very strong company and I don't think the public markets have given us value for that if I agree with you that we would.
Get value for that same extent, we're getting a sale we wouldn't consider sale.
Thank you all right. Thank you Brett.
Thank you.
Thank you. My next question is coming from Stephanie Benjamin from Suntrust. Your line is now lives.
Hi, Good morning, Thank you for the question.
Good morning.
I wanted to switch to the a logistics segment and the contract logistics and just a very strong margin expansion Nissan the fourth quarter, you, maybe give us a little bit color and how we should think about the opportunity in 2020, I understand that there's a lot of labor tools and productivity initiatives that went into place towards the end of 29.
Team to maybe how we should think about the run rate going forward and turns of in terms of margin improvement that'd be helpful. Thank you.
Sure Good morning, Stephanie.
Looking at adjusted EBITDA margin across the businesses.
This was a year in contract logistics. According to your worry exercise excellent cost control really across the really across the franchise, we rolled out of smart workforce productivity tools generated strong pricing. We spoke about the progress that we made a drastic loss microsites in Europe exiting some low margin business, we spoke to you.
About a exco direct and improved profitability there, we exit we executed very well peak.
Benefited from some restructuring in Q3, which helped us rethink our S. Generic chart and drove benefits are there there's really no single magic bullet.
Helped us optimize profitability and contract logistics I in 2019, you know as I said earlier as we look at the breakout between the two major segments contract logistics and transportation I think about EBITDA growth at roughly similar levels in the same neighborhood within our 7% to 10% overall adjusted EBITDA growth.
In 2020, we have a number of initiatives that have excellent long term Pat in fact, as Brad I, let in a moment ago contract logistics represent 50% of the ultimate benefit from Amar business units from our seven to 10.
Levers and speaking specifically about some of the larger ones. They include automation NXP I'll direct or two of the biggest contributors to the profit levers overall and that's obviously a three year effort from here.
Great and lastly, if you could provide a little bit an update on just your axio direct platform I think he said they ultimately this could be a billion <unk> business, where we are today or I guess after 2019 kind of how you saw the business performing and the fourth quarter, particularly around the holiday season.
Then any additional color there would be great. Thank you.
So ex fuel direct is our shared space distribution network and we serve Omnichannel E com and retail in manufacturing customers in North America, we don't have that fuel direct in Europe.
This was a start up where we started roughly about a year ago as all startups or do they they lose money at first and true to form extra direct lost its fair share of money I'm pleased that we've improved the profitability of it in a significant way recently and expected to break even here in the first quarter.
Is great because revenue is growing and we want profitability to grow we are confident that we will be on a billion dollar revenue run rate by the end of 2022 that is the glide path that we're on a you asked about how it performed over or peak over holiday I performed very well and that's why ex fuel.
It is working and working wells because customers are getting good results from it.
And that's it for me. Thank you so much.
Thank you.
Thank you. My next question is coming from Ari Rosa from Bank of America. Your line is now alive.
Hey, good morning, guys nice quarter in the face of tough macro just wanted to touch on the outlook first so.
I hear you, saying getting contract renewals on LTL in the 3% range.
I wanted to contextualize that against the outlook for 3% to 5% revenue growth.
Obviously lapping the loss of a large customer a in 2020.
HM.
What are you kind of assuming in terms of the volume growth picture, because I guess I would've expected that to be a little bit stronger against the context of about 3%.
For pricing gains so is there something that that I'm kind of missing or is there. One segment that you expect to maybe contract a little bit more in terms of facing continuing headwinds on the volume side.
I'll, let Matt answer the majority of I wouldn't say just one thing you'll recall that when we had our largest customer insource EUR $600 million a business roughly about a year ago, we said.
2019 is going to be a year, where we rebuilt that we replace the business that we lost and then regrow rebuild from there afterwards resumed resumed growth from there I'm happy we did that I'd have we started the year with $600 million in the whole and still we're able to produce but.
Caustic numbers in a lousy market. So I'm very happy about that in terms of the guidance for this year, we assume a slight recovery in the second half the industrial economy, but not a huge one we assume that the consumers still continues to stay reasonably strong which it is and has been isn't it.
Incredibly resilient, which is one of the reasons, we had 7% organic revenue growth in our big and bulky last mile business, we're assuming that truck brokerage recover somewhat but not humongous leave it does come to recover a bit in the second half because that's like who is getting a little old now when you start starting to see rebalancing.
Mechanisms take place.
We're not assuming any impact from the strategic alternatives process, we're not assuming any major geopolitical shocks.
So that's our overview of the guidance that we gave magid you want to accident interested in very high level consider that LTL is really an extremely.
Stable business, you don't have a it theres not a ton of volatility in the revenue line. So we do expect to see some recovery in LTL revenue, we expect to see tonnage improve gradually we expect a yield growth to hold that or improve a bit from current strong levels, but there's probably a little.
No more swing and some of the other areas of the business.
That get us to that to the 3% to 5% guidance level.
Okay, Great that's perfect color.
So thank you for that.
Just for my second question I wanted to ask I, you know it seems like a lot of the I T initiatives and the.
The tech initiatives around efficiency savings have been driven by you know tech teams looking across the platform and I just wanted to understand better as you think about divestitures, how does that kind of how do you think about spreading the efforts of the tech team across across those divisions does that change then.
True of how Expo thinks about.
Allocating resources for Tech team, who stays in the case that you have spin offs. Obviously, you know exco has done a lot of great work around you know implementing technology, but how does the.
How does that division look subsequent to some of these spin offs.
So our tech organization is structured in two ways we have.
Robust tech professionals embedded within each business unit and over that we have mario's group that we didnt strategic vision and transplanting injured cross out across the planting a things that work in one area to another area. So for example, smart.
Smart the Genesis is smart within our logistics business in North America and it it was showing a mid to high single digits labor productivity out of the games are Wow. This is a really good invention and so we transplanted that into LTL, we translated that into Europe, and those prices are going underway.
So the de cross fertilization of best practices is really is on top side. So you won't have that going forward. If we split into five different companies you will still have each business unit. They very mature substantial check organization each of which has a leader each of which.
He has a great leadership team and is extraordinarily effective the kinds of initiatives that we've got going in and LTL. We'll just continue will continue as is all the PND line haul the pricing the cross dock.
And the check not the last part of your question about where does the technology go the technology goes where it belongs. So for example, we were talking about smart a minute ago smart will be a licensed in one form or another two or the contract logistics businesses here and in Europe, If we end up divesting or.
Spinning them off and it will also be in the LTL business, because we needed there as well we don't need smart in the more non asset parts of the business. So that does that doesn't really apply to there. The pricing algorithms are specifically designed for the most part specific each business unit because the business is different.
Different algorithm. So that's the part that is appropriate to them, which they've already been using they'll continue using that so Mario and the team have worked through a very careful a plan that if we end up divesting. These four companies the technology will be where it needs to be.
Thank you we have reached end of our question and answer session, let's turn the floor back from enterprise for closing comments.
Okay, well. Thank you everybody we had a good quarter anytime EPS is up 50% and adjusted EPS is up 56%.
I'm going to say, we have a good quarter.
I'd be justified in saying that we do feel that were well positioned going into 2020, you saw our guidance of adjusted EBITDA up 7% to 10% and free cash flow of 600 million to $70 million in LTL. We're proud of the record Omar we're completely on track for the billion dollars of EBITDA that we've committed to.
Next year.
Oh, the CFO the culmination of the CFO search I think we found the perfect match for what we need and the strategic alternatives process is going very very very well.
And final point is you can count on US no matter what the situation is to do what's best for the shareholders. Thank you very much for your attention and speak to in a few months.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.