Q3 2020 XPO Logistics Inc Earnings Call
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Welcome to the X.P.O. Logistics Q3, 2020 earnings conference call and webcast. My name is Hector and I will be your operator for today's call at.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
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Also may refer to certain non-GAAP financial measures as defined under applicable you rules reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables.
You can find a copy you can find a copy of the company's earnings release, which contains additional important information regarding forward looking statements and non-GAAP financial measures in the investors section on the company's website at <unk>.
I'll now turn the call over to Brad Jacobs Mr. Jacobs you may begin.
Thanks, Good morning, everybody I'm here today, with Dave Leisner, our CFO and Matt Fassler, our Chief strategy Officer, and also for the Q and a portion of the call. We have Todd Headley, our vice President of Investor Relations Robbie tools in our Treasurer, and Cao Wissmann Senior Vice President at PNM.
We had solid beat versus consensus across the board in the third quarter.
We beat revenue by $364 million or 9%.
We beat on adjusted EBITDA by $87 million or 25%.
We beat on adjusted EPS by 115%.
And notably we be free cash flow by a $173 million or 234%.
The $430 million of adjusted EBITDA, we generated in the quarter brought us back to par with the same period last year, and even a little bit better.
That was a big swing.
Third quarter, adjusted EBITDA was two and a half times, our second quarter adjusted EBITDA.
I'm, particularly pleased that our performance was broad based we rebounded to pre cold bid levels across our service lines and geographies.
In LTL, we improved our adjusted operating ratio by 110 basis points year over year to 79.7%.
That's the best adjusted operating ratio of any quarter in our history.
Our performance in truck brokerage was off the charts with net revenue up 17% and.
Net revenue per load up 13%.
We improved our last mile net revenue dollars by 15%.
And achieved a third quarter record net revenue margin of 35%.
This was the seventh consecutive quarter that our net revenue margin in last mile was up year over year.
Intermodal had a massive recovery in the third quarter.
Organic revenue per day recovered from a 34% year over year decline in the second quarter to.
To a 2% increase in the third quarter.
We grew EBITDA in our logistics business year over year by 14% on a 5% increase in revenue.
On the technology front Expo connects ex fuel smart and our LTL pricing algorithms and other technology innovations have been firing on all cylinders.
On a personal note, it's bittersweet to see my good friend and our Chief customer Officer, Greg Ritter retired into the Sunset of Colorado.
Greg was the fifth person I hired Axio way back in 2011.
He's been Super instrumental in the company's success.
He started our brokerage business from scratch and today, it's the second largest broker in the western hemisphere.
He also personally signed up dozens of customers, who became some of our largest accounts.
I'm grateful for his many accomplishments and wish him all the best in his retirement.
I also want to mention the recent appointment of Alex and Toro to the newly created position of Chief commercial officer.
Alex is turbocharging, our global sales organization overseeing everything from sales training compensation plans go to market strategy and most importantly, keeping our customers delighted.
So in summary, we had a remarkably good corner or exciting trends in our favor such as the growth in customer outsourcing and E commerce.
And it's gratifying to know that our years of investment in the business, especially technology have put us in a strong position to support our customers through the ups and downs of a recovery.
We have excellent momentum going into the fourth quarter and for 2021 with that I'd like to turn it over to David.
Thanks, Brad and good morning, everyone today, I'd like to discuss our third quarter results, our balance sheet and liquidity and our outlook.
In the third quarter, we generated revenue of $4.2 billion and adjusted EBITDA of $439 million.
Both figures reflect year over year increases despite negative impacts from cove, it and they are higher than we expected at the beginning of the quarter.
Our adjusted EBITDA is an all time third quarter record and reflects cost saving actions, we've taken throughout our operations and what has been a V shaped recovery for our business.
Amid the pandemic or financial results have reverted to near normal levels sooner than we had anticipated the trend of sequential monthly improvement that began in may continued through the third quarter and across our business.
Third quarter revenue increased 21% versus Q2.
As revenue increased we benefited from operating leverage inherent in our business and from actions we've taken over the last six months to reduce our costs now.
Matt will review our segment detail in a few minutes.
Our adjusted earnings were 84 cents per share in the quarter.
Our year over year, EPS comparison was negatively impacted by a higher than usual effective tax rate this year as well as increased interest expense.
We generated $298 million of cash flow from operations in Q3.
Spend $122 million on Capex and received $71 million of proceeds from asset sales.
As a result, we generated positive free cash flow of $247 million in the quarter.
This brings our year to date free cash flow to $463 million, which represents a year over year increase of $56 million.
We've been able to generate positive free cash flow during the pandemic by closely managing our working capital.
We became even more disciplined about collections in the covert environment working with our customers to limit our receivables and staying disciplined with respect to payment terms we provide.
We didnt repurchase any shares in the third quarter. So we continue to have $500 million of authorized share buyback capacity.
In April as you know, we throttled back our planned capital expenditures dramatically.
In the third quarter, we resumed some projects as our outlook for operating cash flow strengthened and new business opportunities rebounded.
We estimate that our gross capex will be $530 million to $550 million. This year, which is up from our July estimate of 450 to 475 million, but still represents a reduction of 14% from our pre pandemic plan [noise].
And we estimate that as a result of our regular course asset sales, our net capital expenditures will be $330 million to $350 million this year.
Maintaining strong liquidity continues to be a top priority for us as an organization.
We repaid $400 million of borrowings under our ABL facility in the third quarter and those funds continue to be available to us if we wish to access them.
Our cash balance at September 30 was $2 billion.
This cash combined with available debt capacity under committed borrowing facilities gives us total liquidity of more than $3 billion.
Our net leverage at September 30 was 3.4 times adjusted EBITDA.
We have no significant debt maturities until mid 2022, our liquidity position is strong.
Turning to our outlook our guidance reflects the improved operating environment. We saw in the third quarter, we had a sharp sequential rebound in revenues and adjusted EBITDA as well as our current estimates of the continuing effects from cobot.
We expect to generate $400 million to $410 million of adjusted EBITDA in Q4, even with the typical fourth quarter pressure on margin from our business mix and lower year over year gains from LTL real estate sales.
We're optimistic that demand will continue to be solid as many of our consumer facing customers anticipate a strong holiday peak, particularly in E commerce.
The year over year decline in fourth quarter adjusted EBITDA that we're forecasting is entirely due to lower LTL real estate sales gains and coated costs, which together represent a headwind of $25 million to $30 million.
On the cash flow front, we generated more than $460 million of free cash flow. So far this year and we estimate that our full year free cash flow will be roughly $500 million.
This implies lower free cash flow in Q4 than in Q3, largely due to our decision to resume some capital projects, we had put on hold and to working capital movements.
Approximately $60 million of free cash flow came in Q3, rather than Q4 due to the timing of working capital.
This past quarter, we successfully delivered year over year growth in revenue and EBITDA, even though coded and the uneven economic conditions associated with the pandemic continue to impact our business.
Our third quarter results are a credit to our colleagues around the globe, who prove to our customers that we can rise to challenges and serve them well in any climate.
Our liquidity is strong and our free cash flow generation is robust.
In addition, we continue to invest in our business in order to drive efficiency and differentiate our service offerings.
We're delivering on the objectives, we laid out six months ago, and we're positioning our business for future growth.
As a result, we're enthusiastic about our prospects as a leader in the markets we serve I.
Ill now turn things over to Matt.
Thanks, David I'll review, the third quarter operating details starting with our transportation segment.
In North American LTL, we showed a solid progression and tonnage and revenue through the quarter.
Tonnage was down 4% in the third quarter with July down, 6% August down, 4% and September down, 2%, our LTL shipments were 4% lower than last year, which was relatively consistent through the quarter with weight per shipment improving through the quarter and tracking in line with last years performance.
These trends in LTL reflected the ongoing strength in consumer spending, particularly E. Commerce. The consumer continues to lead the US economy. We also saw improvement in industrial production, notably, notably in auto as our customers resumed production after the Q2 shutdowns.
The pricing backdrop for LTL remains rational yield excluding fuel was 1.7% year over year consistent with the Q2 increase as Brad mentioned, we posted a record quarterly operating ratio for LTL, our adjusted or improved to 79.7%.
Which was 110 basis points better than the third quarter, a year ago, excluding real estate, we achieved in a bar of 82.5% 100 basis points better than a year ago. Gross operating ratios include a 50 basis point impact from Cove. It related costs, we also sought to risk.
Quick improvements in productivity in LTL, our load factor increased by 2.1% year over year, and we were 3.7% more efficient and pickup and delivery than we were last year, we are reducing LTL cost per stop by providing PND planners and dispatchers with the visibility to.
Lower costs during route planning.
Our freight brokerage business delivered outstanding results Istar here was our truck brokerage business, where we generated a 17% increase in net revenue and a 13% increase in net revenue per load outperforming the market the truckload market got tighter through the quarter and by September was as tight as.
We'd ever seen it was a dynamic environment and our team sees the opportunity with fantastic results, we honor our contracts, taking losses, where we needed to and our customers rewarded us with high margin spot business.
The leaders of our brokerage effort have had every job in the business from procurement to customer engagement to tracking loads and our incentive plans reward our reps for profitable volume and customer satisfaction.
Our performance was aided by Expo connect and our other proprietary technology across brokerage our drive Expo carrier App had 60000 downloads in Q3, which was nearly double the number of Q2 downloads cumulative downloads of the App now exceed 200000, which is.
More than three times higher than the download count at this time last year and active customer users on connect had jumped 94% since the start of the year.
Our intermodal business also rebounded from Q2 levels the year over year decline in intermodal edge towards flat in the third quarter with the rebound led by the resumption of automotive. We also saw increased demand for intermodal from retail customers in part because of higher truckload rates.
Our last mile business was a standout in the quarter. We grew last mile revenue, 11% year over year Howard by strong growth in E commerce, the shifting consumption to goods from services and a growing consumer focus on the home environment.
We saw notable growth in furniture appliances, and other home improvement goods as well as exercise equipment with much of that served through our last mile hub network.
These market dynamics contributed to our 15% growth in last mile net revenue in the quarter and increased our net revenue margin by 160 basis points to a third quarter record of 35%.
In European Transportation revenue was down 3% year over year, which was a 26 percentage point improvement from the second quarter's year over year growth rate.
European LTL and brokerage had the strongest performance of our major service lines on a country basis, our transportation business in Spain recovered to pre coded levels and then some followed by France, while the UK continued to lag importantly, we're getting significant traction in Europe with SPL.
Now we now have more than 4000 customers registered on Expo connect in Europe and planned to onboard thousands more by year end.
Turning to our logistics segment, we increased revenue, 5% in the third quarter year over year and realized meaningful operating leverage this helped grow adjusted EBITDA in this segment by 14%.
Key drivers of our revenue growth and logistics includes the global acceleration of E Commerce, which increases both fulfillment and returns as well as an increase in customer trend toward outsourcing and the rapid growth of supply chain automation, we excel in all of these areas and we are actively engaged in discussions with customers on men.
The new business opportunities.
Our Expo Smart labor management tools are driving productivity across our operations, we have rolled out the technology to about 80% of our supply chain sites in North America, and about 50% in Europe with ongoing Rollouts underway.
Initially, we saw productivity gains of 5% or better from deployments of SPD Smart and now our warehouse managers are realizing additional gains beyond the first year of adoption.
Our European logistics revenue rose, 12% in the third quarter year over year or 7%, excluding the impact of FX consumer verticals generated 80% to 82% of revenue in European logistics and within consumer the largest areas, where E commerce and food retail positioning us for Kurt.
Current trends and the long run several large new contracts are contributing to revenue growth and European logistics, our operations at Nestle's warehouse with the future of fully launched as is our service for Waitrose, which was a major win earlier this year.
In North American logistics, where our mix is a bit more diversified beyond the consumer our revenue was down 6% year over year, but that was a significant rebound from the second quarter, we had a tailwind from the reopening of brick and mortar retail and from some of our industrial customers with restocking activity coming back in both of these verticals.
We're also serving growing demand and omnichannel retail and consumer package goods. We continue we expect to see our revenue continued to improve in North American logistics as more of our customers return to pre coated levels, we onboard new wins and we lap the exit of some lower margin contracts are exco direct distribution.
Asian Network continues to thrive in this environment, the downsizing of us retail activity and the emergence of more direct to consumer brand are driving a surgeon opportunities for this unique shared space network Expo direct has operated in the black all year and we saw a nice year over year profit improvement in the third quarter.
Looking forward across our business the shift in consumer spending to goods from services continues to aid the freight markets. The retail peak has started earlier with more holiday shopping expected to take place by E commerce brick and mortar shopping is likely to be spread over a longer period of time as well as.
Tumors lift to avoid crowds our supply chain and last mile operations will be the biggest beneficiaries as we moved into October we saw a continuation of the solid trend that underpinned our performance in Q3, even as co that has ebbed and flowed consumers businesses and governments have a much better understood.
The ending of how to operate safely at Expo, we have shown that we operate at a high level under the most trying conditions and fulfill our responsibilities to our customers.
Applying that same forward lends to our service offerings in North American LTL growth and tonnage and revenue per day accelerated in October with tonnage turning positive year over year, we expect our fourth quarter allar, excluding real estate to be equal to or better than last year.
We believe that the industry's LTL tonnage trends are healthy, especially considering that industrial production is still soft if the industrial economy moves into expansion mode. Our LTL business is capable of significantly more acceleration.
Looking at our other transportation lines in truck brokerage the market remains tight net revenue per load in October was robust and load growth accelerated and intermodal capacity is also tight this is expected to persist.
In last mile consumer demand for heavy goods remained strong propelled by secular shifts to large E commerce purchases and direct to consumer sales of fitness equipment appliances and mattresses in European transportation activity tracked in line with Q3 and the same is true in our logistics segment, where our activity levels and so.
Sales opportunities are robust finally, we remain very focused on our 10 profit improvement initiatives pricing optimization margin expansion in European logistics, the high efficiency of Expo connect in brokerage and last mile and our Expo Smart labor analytics were all particularly effective.
I'll close with a few of the accolades we received in the quarter, starting with whirlpool awarding us with intermodal carrier of the year for 2020. We also received the Maytag Dependability Award for superior results and reverse logistics. In addition, we received a gold World Excellence Award from Ford for.
Our managed expedite service and we were just named supplier of the year by Owens Corning.
Expo was designated a bronze level military friendly employer by victory at victory with the queue for helping connect veterans with career opportunities.
As we prepare to move onto Q in a we know there's been speculation in the media about our M&A activity, we're not going to address questions about potential acquisitions or divestitures on this call with that I'll turn it back to the operator for your questions.
Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue and the interest of time. Please limit to one question and one follow up then reenter the queue for any additional question you May press.
Star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star key one.
One moment, please while we poll for questions.
Your first question comes from line of Jason Seidl with Cowen. Please proceed with your question.
Thanks, Operator, gentlemen, good morning impressive quarter each for Bebe wanted to talk a little bit about the overall exposure ecommerce slush retail in the past you've talked about it at a 25% levels clearly just the market itself is growing exponentially and you have some very good products out there in the marketplace that are probably allow.
And you have to take market share above market growth rates, where should we see that number growing overtime.
Jason This is Matt we continue to expect that number to move higher as a proportion of our mix you spoke about some of the products that we have that are well positioned to help us take.
More share in that arena I'd really focus on a couple of different avenues first of all on E. Commerce is a critical driver of our business and global contract logistics, we have the leading we are the leading local fulfillment platform in Europe, a world leader in reverse logistics globally, and a disproportionate amount in a good way.
Of our forward revenue opportunities for global contract logistics come from ecommerce Secondly, as you know we are the US leader in last mile for heavy goods and this has been an outstanding place to be this year, obviously, but there is a terrific secular opportunity it relates to certainly relating to the growth of ecommerce and.
The changing consumer habits also our scale here is a critical advantage in terms of procuring capacity offering the best best combination of loads and business opportunities.
Two our carriers finally within LTL kind of an emerging opportunity, we're seeing more and more impact of consumer and within that ecommerce driving LTL that certainly is beginning to help us here as we exit 2020 and enter 2021, so very optimistic about our ability to capture.
Relies on the secular trend.
Well, that's good color and that goes well into my next question is a follow up on the LTL you guys continued to.
To impress there I mean that sounds great operating ratio I've covered.
Ex fuel freight slush Conway for a long long time.
Wanted to know sort of you know we.
Where are you at with some of the productivity measures that you guys outlined for US a couple of quarters ago and sort of how much left do you think you can squeeze out of the margin and sort of get to that sort of top level of that one of your peers keeps raising the bar on.
Hi, Jason its Matt happy to grab that one as well we have a lot of room to go.
We have a number of initiatives within the 10 levers that we've discussed that relate to LTL pricing and revenue management as a terrific opportunity for us in LTL, we've talked about the impact of XP of smart on labor productivity, we continue to see improvement in dock productivity driven by smart and.
Somewhat earlier stages, but gaining momentum our route optimization Trokendi and line haul as you know we have a 1 billion dollar adjusted EBITDA target.
For LTL in 2022 and embedded in our path to that target is realization of some of the opportunities that we just discussed.
I appreciate the time as always.
Thank you.
Your next call comes from the line of Allison Poliniak with Wells Fargo. Please proceed with your question.
Hi, guys good morning.
Following on the last question looking at your growth through the lens of your technology investments is there a way to help quantify what percent of growth.
For above market growth their business wins were attributed to some of those technology investments.
Allison, it's David it's really hard to point to one particular item like technology in terms of the new business wins, but its clearly having a NIM in impact and in our case, a very positive impact is.
It's differentiating us in conversations.
With customers and I think in many cases are helping us to get over the finish line.
In helping US also in terms of other elements of the negotiations we have with our customers because our technology gives us a differentiating factor.
And that's really one of the reasons why we made the decision to step back up our technology and capital spending compared to how we had debt cut it back at the start of the pandemic, we see opportunities for strong returns on investment associated with that technology.
The spending across our business.
Great and then just on the lines of the new hires that you announced this summer I'm certainly still early on or near here, but any unique insights that they brought to the company over the past few months that are sort of looking how do you look at the company and the business model a little differently here.
Hi, Yes, hi ounces, Brad so you're referring to drawdown and Alex Eduardo has been focusing on revenue management.
On LTL efficiency initiatives and procurement amongst other things, but those three of those are the big things and lots of progress on those and a lot of high expectations going forward.
Alex We gave an additional responsibility recently to be Chief commercial officer, because he was looking at our organization is saying it we can do it a little bit differently with construction of Salesforce different Lincoln of reporting lines a bit different we can do this with training. We can do this with compensation, maybe we could to refine our go to market strategy here and these are all.
Fresh ideas was okay go run with it. So we also have high expectations for him as well.
Great. Thanks, a lot I'll pass it along thanks.
Thank you.
Your next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Hey, Thanks, good morning.
Maybe a little bit more specific on the LTL outlook for 2021, I know, it's early yet still blood.
Think about the operating ratio sort of puts and takes it seems like you have so little bit expenses, which I guess may or may not stick around for an extended period in 2021, we'll begin to lap the back half year, but then you have tonnage turned positive and then presumably pricing getting a little bit stronger given what's going on with the truckload backdrop. So can you talk a little bit about sort of.
How you use the word natural incrementals in that business in the circumstances that I just outlined I guess keeping in mind too that there's diesel sales you have to comp to sit and what do you think about put all that together how should we be thinking about incrementals in that business next year.
Sure Chris it's early for us to be talking about 2021, and we expect to provide our guidance there in in February when we announce full year results, but you know the points you raise I think are the right ones to be to be thinking about and this this past quarter kobin.
Costs were probably a half point headwind and at some point in 2021, we expect that.
And that is that to go away, that's a half point on operating ratio.
Clearly our tonnage was down 4% in the third quarter.
And with Cigna It was significantly impacted early in the quarter by kobe's. So we see the opportunity for volumes to be stronger than weve seen yield be fairly consistent.
A couple of points or so year over year for a while and our hope would certainly be that that yield continues to be a headwind a tailwind a favorable item for us going forward, we've seen the ability to drive a load factor and dock productivity and overall productivity up.
Over time, and we've been doing that even up against the challenges of co vid, which produce some inefficiencies some loss of network density and so forth and as a result, well.
Well the direct coded costs were only about a half a point impact on our operating ratio.
Could certainly make the case that the broader cobot impact is greater than that so well again, it's too early for us to predict or project is specifically on 2021 I do think that there are a number of tailwinds were things that were headwinds this year that should go away as we.
Move into next year.
Okay. That's helpful. I appreciate the color on that and then on the logistics contract logistics business margins improved nicely you got some operating leverage back into that business and as the revenue came back you had some key business when you've outlined benefit the topline here and those continue just sort of mature how.
You think about the margin profile of that business in general will those new contracts in sort of the pipeline that you're building.
Generally be accretive or does that have a bit of a dampening effect that you get some of these businesses up and running and realize the startup cost associated with that just kind of a sense of how that please.
We'll just margins.
Yeah, we feel good about the new business that we're bringing on we also feel good about a couple of of contracts that we have stepped away from because they were they were low margin over the last year or so.
So I think as we do as we look forward, we're enthusiastic about how we're positioned and in the same as LTL. Some of the Cogut has had some negative impacts on efficiency in our business and I think as those.
Ameliorate over the next year or so ideally over the next six months is coded impacts.
Become less that will be helpful to us as well, but I think the I think our ability to differentiate ourselves in terms of automation and technology that we that we bring to bear.
He is really helpful to us as we negotiate contract renewals and new business and that can be helpful to us.
From a from a margin perspective going forward over time.
Okay. That's helpful. Thank you very much with John appreciate it.
Hi, Chris.
Your next question comes from the line of Brandon Oglenski with Barclays. Please proceed with your question.
Hey, good morning, everyone and thanks for taking my question.
I guess I don't want to get too Nitty gritty on EBIT outlook for the fourth quarter, but Matt her brand. It does feel kind of sequentially like a normal pattern seasonally for you guys from Threeq to Fourq you.
Can you just talk about the puts and takes here with I think lower expected sale gains and then maybe what you're assuming for kind of like normal underlying acceleration in the economy.
Sure, it's actually David I'll, Oh, I'll take that one.
The the decline that we have it.
Sequentially is a is a typical oh actually little bit less than a typical Q3 to Q4 margin decline.
That that we have and when we look at.
EBITDA year over year, the decline is entirely due to lower LTL real estate gains and and co bid costs.
So from that perspective, excluding those two items, we'd be we'd be essentially flat.
Year over year in terms of our EBITDA and when we look at the sequential trends and adjust for for items like that what we what we see is that our decline is actually less than we would typically see moving sequentially from Q3 to Q4.
Okay, I appreciate that David and I guess.
If I were just just annualize that you guys are around $1.6 billion in annualized EBITDA.
When should we start thinking about these 10 initiatives really starting to deliver on that 700 to a billion dollar target and is it going to be linear or do you get in chunks at a time.
Sure. We we think where we are delivering benefits already from the from the 10 levers and they're they're helping us they helped us this past quarter and they will continue to help us going forward, it's not perfectly linear but I do expect.
These benefits to come in over time, and our goal or target or expectation is really to be at the 700 million to billion dollar run rate by the end of 2023. So we are expecting these to to come in over time and to produce benefits and that.
As a and that will help us as we move into 2021.
Thank you.
You.
Your next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your question.
Good morning. Thanks, So it's it doesn't go back to the beginning of this year and the original EBITDA guidance for 2020, I think implied around $1.8 billion of EBITDA and just as we look at that the second half run rate, you're sort of tracking pretty close to those levels and I know you don't want to give.
Perfect guidance, but maybe as a framework or are starting off point is it reasonable to assume that 2021 could look like the original 2020 guide.
Jade.
We just don't want to give guidance, yet 2021 get the cobot thing out there that the election day you get.
Positive stuff going on with E. Commerce, there's lot of puts and takes and let's see how the world looks but right now we're feeling very good and obviously had a very big rebounded quarter. There was a lot of momentum continuing into the fourth quarter.
Let's wait a little bit until we get a in a position to say were 2021 is it will look like at the moment right. The second is looking very good but some of that depends on things that have nothing to do with X fuel logistics.
Okay fair enough and.
And then just without commenting on that European logistics now could you give us an update on how you're thinking about capital allocation more broadly where do you stand as far as revisiting our strategic data or assets that versus re engaging in M&A in are you more inclined to consider one versus the other thank you.
Youre right were not going to comment on strategic alternatives on this call on terms of.
Generally capital allocation, it's the same Ah.
Choices that we've always had.
Between M&A, and Capex and paying down debt and buying back shares so forth and.
Our strategy is always going to be the same whatever is the best thing for our shareholders in terms of creating the most amount of shareholder value. That's what we'll do.
Okay. Thank you.
Thank you.
Your next question comes from the line of Amir Mehrotra with Deutsche Bank. Please proceed with your question. Thanks.
Thanks, Operator, hi, everybody I'm, David I wanted to ask about free cash conversion relative to EBITDA I think it was if you look at the guidance. This year. It implies kind of 37%. It was pretty much the same in 2019, plus a little bit higher but pretty much. The same is that the right way you know what I think about it structurally for the business you know mid long term and the reason.
I ask obviously, because we're expecting I think everybody is expecting nice growth, particularly in the logistics business next year I know there may be some working capital investments that are disproportionately higher as a result of that kind of mix shift even though I guess, maybe you guys have been doing actually a pretty good job on the on the working capital side, but I just want to understand kind of what's the.
The right expectation for free cash conversion relative to EBITDA.
Yeah.
The way I think about is the interest costs are are essentially a a fixed out outlay is that.
That we have and as a result measuring that as a percentage of EBITDA.
Bill will change depending on where our EBITDA. It says as our you know as EBITDA rebounds were seeing the interest outlay a portion a go go where go down a bit and so I think that will be helpful. Other than that item I don't really see anything really Uh huh.
Impacting cash flow conversion a bit, but we will we know, but we should have the tailwind associated with within that you saw in Q3 were interest becomes a lower percentage of EBITDA as EBITDA rebounds.
The other thing I would just point out is that that you're right to look at and free cash flow and free cash flow conversion on an annual basis, there's a fair amount of noise and volatility from quarter to quarter. So I do think it's very helpful.
To to approach it the way you were you were suggesting on more of an annual basis. So that's all just if I'm reading your comments correctly, then the working capital and Capex evolution relative to EBITDA growth shouldn't be that materially different correct.
Yes, we're not giving a projection 2021, yet, but but yes. That's that's correct. Okay. And then just a follow up for me you know David <unk>. The company has had this half a billion dollar cost opportunity out there for some time I think that 60% of the 702 billion you know the balances revenue and pricing driven but its idiosyncratic.
Cost opportunities about half a billion.
You know you broaden the company's brought in kind of proven executory is to go after that opportunity and then some do we start seeing you know more of a bending the cost curve in 2021, I mean, you guys have talked about 23 77 fixed versus variable cost structure that implies you know 30 percentage points sorry 30.
Percent of kind of incremental decrementals at your margin level, but when do we start seeing some bending about cost curve in the context of MBS and credit cost opportunity.
Yeah, I mean, we're it's a great point and I think it will be easier to see next year, we're actually generating a benefits from the actions we've taken a whether it's a smart labor planning and helping us manage costs from that perspective.
The optimization.
Initiatives that are going on and even SGN, a and back office savings that we've been able to implement obviously amid the pandemic the seeing that a few amid all the other moves in our yeah in revenues and costs is a bit harder, but we believe we're making progress there.
Already and I do think it will become even more evident overtime I.
And and you know one of the ways, we will be able to see that is as we look at 2021 compared to our last normalize year, which was 2019.
I expect the benefits that we're generating and the efforts that that it was zero and Alex and Ani and a ton of other people in our operations are taking will be evident. So that's a great point. So are you sure you're saying if I read you correctly. When we look at 2021, we should really compare.
The topline another revenue evolution, 2019, and kind of the contribution margins associated with hopefully that growth or whatever or even that contraction hopefully not.
The contribution margins associated with that change will.
Reflect a better kind of implied drop through them one to 23 77 fixed variable cost structures that because I am I reading you correctly, yeah. They yeah. They the comparisons to 2019, I think not only for us but for a lot of companies are going to be a cleaner and easier to understand and in our case.
The benefits of various initiatives will will will be more evident as well great. Thanks for the help appreciate it.
Thank you.
Your next question comes from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.
Thanks, very much good morning could you. Please compare and contrast conditions in North America versus Europe, thus far in fourth quarter, and just with regard to their they seem to be a little bit ahead of us hopefully we don't follow in restrictions right. Now. So just curious what are you have a pretty tight guidance.
Fourth quarter, only a month and a half to go what are your considerations in the guidance for for Colgate impacts and timing the peak season. Thanks.
So Scott its Matt I'll take that one.
We'll thoughts here.
Obviously in the third quarter.
The economy saw a meaningful recovery, both here and in Europe.
Versus the second quarter, each month was better than the next U.S., probably from a macro perspective, it talking about macro activity not cogut is a bit ahead of Europe. At this point in time is probably different from where we were a few months ago or we had started to see Europe. Our recover earlier I think in both regions the consumer is stronger than it.
Industrial the Feds industrial production number was down 7% and the third quarter as I'm sure you saw for the balance of the fourth quarter or could.
We see good momentum now there's three things that we need to watch how the virus evolves how that govern how governments response and how people behave.
In reaction to that we've considered in our guide.
The potential impact of some of the partial shutdowns that were announced in Europe over the weekend, our understanding that the shutdowns are more limited and more protective of business and particularly the kinds of businesses, where we have exposure. There is impact is more likely to be travel entertainment leisure.
Yes. So some of this fall out for industrial for example that we saw in the second quarter. So we think if there is an impact we do anticipate there could be some it will be more limited for the areas that matter to us Matt is exactly correct.
Each month in the quarter was better than the previous months, so theres a meaningful recovery taking place. Despite all this.
These adverse events going on in the world.
Partly due to our own positioning because you have so much consumer and if someone to E commerce is.
The all the demand for automation is strong and demand for outsourcing. If you will are outsourcing more than they were before the pandemic. So it's a lot of wind to our back here, let's see how the good things that are about us overtake any bad things in the outside world or let's see it's a bad.
Thanks to the outside World get better.
Hi, Thanks, Matt and Brad appreciate that and then just a quick follow up X PEO direct you touched on a little bit in prepared remarks, but looking for a progress report curious to see obviously, it's probably very dynamic. This time of year curious to see how you think that's tracking towards your long term objectives. Thanks.
Scott, we're really happy with direct we saw our third consecutive quarter of solid profit growth, we're seeing a surge in revenue opportunities here as E. Commerce continues to gain share versus brick and mortar retail and when you think about direct and the sweet spot for direct I think about the growth from mediums.
Size consumer facing firms, who really want to leverage this network rather than develop their own distribution infrastructure opt for E. Commerce growth from those kinds of players is what is really whats propelling both the growth and the additional opportunities that we see for apps via direct.
John Thanks.
Thank you.
Your next question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.
Thanks, Good morning, gentlemen.
Brad David Matt I know you guys don't quantify your pipeline of new business anymore, but can you just give us some color on kind of how that's looking at all so I'm going to run into that I'm not asking you for 2021 guidance, but.
But after the war lows relatively normal do you think that pipeline can support GDP plus growth or go back to the 2017 18 playbook off of growing at like two or three X GDP.
I mean, GDP plus a GDP plus two to three times GDP is also GDP plus so I'm greedy Midland.
Yeah, it's a quarter like this one by the way our revenue growth nicely outperformed growth in global GDP Global GDP year on year was down.
PDP was down year on year in every major market in which we participated in a revenue as a company was up year on year, we see terrific revenue opportunity. It will obviously guide to 21, when we get there and will also probably have a better sense of what global GDP might look like Austin, we have better sense than than we do now.
For 2021, but we continue to expect our businesses based both on the spaces that which we operate the fastest growing areas of transportation and logistics and our idiosyncratic revenue opportunities to nicely outgrow the economies in which we operate.
Great. Thanks for color and as a follow up Walmart recently announced a plan to drop a trial of using the robot still stuck at store shelves and going back to the humans instead.
Are you surprised by this.
Is this a one off thinking about leader and warehouse automation and robotics, I get that where how is that different than stores.
But are you seeing any trend either towards using a robotics and automation or away from it it's kind of given the state of the current workforce.
Robbie its Matt we saw that news I I've I've seen those robots inaction, our we have excellent momentum for the deployment of robotics and our warehouse the way, we use robotics and our contract logistics operations and the way and inventory tracking a robot operator.
It's in the store very very different Oh, we have excellent momentum up into the right. After the deployment of robotics, both in North America and in Europe and in contract logistics, we feel very good about the about the productivity that we're getting from our good to person and collaborative.
Robots in that regard don't forget that warehouses are very controlled environment, you're not interacting with bumping into consumers and this is all we can really we can really.
Right our radar on ticket for how we want a traffic pattern from sales to operate in warehouse to store is very very different.
Excellent Thanks, Matt.
In Q.
Your next question comes from the line of Brian Ossenbeck with Jpmorgan. Please proceed with your question.
Hi, Thank you. Good morning, So just a question about the investments has been restarting maybe for David could you just give us some sense as to what you're comfortable putting backing into play here, even from a capital or technology perspective, and then if you look at these opportunities for the next next couple of years, what do you think see capital intense.
Being the tech spending that will be relative to the previous years, you know to meet that potential growth, especially compared to maybe a couple of years ago, when you're scaling up some of the larger larger platforms and investments.
Sure when we look at it the fourth quarter or are or guide for for capital spending of <unk>.
Gross capex for the full year or $530 million to $550 million.
Implies potentially about $170 million of gross capex in a in Q4 and so that's that's sort of the ramp up in a little bit of catch up that we're seeing in the in the fourth quarter as well.
When we look ahead at TEGNA AD technology spending we continue to expect that to be a considerable part of our aggregate Capex and we're really excited about the returns that are available to that so I would expect that to be consistent with the you know with what we have.
Been doing over the prior years.
Because we've been really happy with the returns were able to generate on that I think the other thing to think about with respect to Capex is the that there there is the potential for some lumpiness there.
You know over the next couple of years, particularly in contract logistics.
Based on the contracts we sign so you know there there are situations there were additional capex. If it happens would be a good thing for us because it means we're bringing on a attractive new customers. So that's a that's an opportunity we'll continue to look at from a capex perspective going forward.
Okay got it one quick follow up on LTL.
When you think about maybe you can just give us the renewals for the quarter. If you gave it I think I missed it and then do you expect that can reach sort of in the mid single digits next year similar to 2018 or do you think that can you can potentially how punch that some of the focus.
You have on pricing.
And then maybe it's maybe it's not just for some price, but more of a holistic network approach with utilization.
And not just rate when you look at the longer term EBITDA target. Thank you.
Contract renewals in LTL was positive 4.4% in the quarters and that's up from 3.7% in the second quarter or the pricing environment. In LTL is good it's very rational it's very very constructive were migrating more and more towards Ah I T generated pricing as opposed to humans.
Generated pricing and we're seeing great benefits in that from the get go and as we keep refining it and keep validating it was going to increase it and I think that's the wave of the future. That's a general trend across our whole business and across industries. In general is automation AI machine learning, taking the power of of the comp.
Peter and figuring out ways to use it.
That is much better and more efficient more productive and more profitable than humans and that's that's an inevitable wave in our opinion.
All right. Thank you Brett.
Thank you.
Your next question comes from the line of Ari Rosa with Bank of America. Please proceed with your question.
Hey, good morning, guys and.
Congratulations on the strong results.
So you know we saw strong recovery, obviously from second quarter.
With the benefit of a little bit of of distance in terms of time.
Well, maybe you could reflect on what went wrong in second quarter, and how can investors get comfort that those kind of stumbles are unlikely to recur, especially as we see kind of rising covert cases, and lockdowns in Europe, which would you address a little earlier Matt.
I don't think we agree with the characterization of the second quarter was a stumble.
Second quarter, we Didnt focus on profit and we told people that we told people right. When koby hit we're going to put profit off to the side for a little while here and we're going to concentrate on the health and safety of employees to the extreme in terms of investing money and also investing time management time, so management's time across the.
Organization globally was just placed from focusing on raising revenue taking out costs growing margins generating free cash flow and all the things that all the blocking and tackling that we normally do and do well, we put that to the side and we prioritize getting our arms around this new and potentially very deadly endemic that way.
Unfolding and that's what we did and we didn't cut salaries, we paid $48 million of direct cobot costs.
Not a lot of employee appreciation bonuses.
In LTL, we didnt furlough as much as some of our competitors did we knew the business is going to come back we didnt want to have to retrain movies later.
And in the second quarter into industrial business got much worse than retail obviously, the consumer was still buying stuff in the second quarter, the industrial kind of shuts down and we have a large amount of our business and in LTL in particular, that's industrial related so that hurt us so industrial in LTL.
And then industrial and European transportation outsized exposure to sometimes that works for us sometimes it works against US the second quarter that worked against US. So now you see in the third quarter. We've got all the things that we have to learn already behind us in terms of protecting our employees in an efficient way and.
We've had the organization not compromising on that one iota, but also focusing on the blocking and tackling that weve done throughout the whole company. That's generated the superior returns that we've done so I feel very very comfortable about where we are going into the fourth quarter and going into next year and I'm, just hoping that the the world stays sane as well.
Got it understood and then just along those lines, we saw a bit of a step down in terms of <unk> 's DNA expense on a sequential basis. This quarter I know there were some bonuses and things like that that occurred in second quarter speaking of.
Taking care of your employees, but maybe you could talk about the sustainability of the S. DNA line as a percent of revenue that we saw this quarter going forward.
Yeah, there was a sequential step down in any even so the third quarter had a a a.
A number of of items in it that we're working against US we our self insurance costs are moving up a little bit FX didnt impact the percentage, but it did impact the a and the amount of SGN a expense we had year over year and there are still obviously, a cobi related costs direct kogut related costs.
I said are impacting those numbers. So when we when we look at that we actually still see some things that that over time that should abate and work in our favor.
Okay terrific. Thanks for the time.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr., Brad Jacobs for closing remarks.
Well. Thank you operator, thank everyone for participating in our call. Obviously was really great quarter, and we look forward to talking to you again in three months have a great. One thank you.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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Welcome to the X.P.O. Logistics Q3, 2020 earnings conference call and webcast. My name is Hector and I will be your operator for today's call.
At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
I have a question we dialed star one on your telephone keypad. Please note that this conference is being recorded.
Before the call begins let me read a brief statement on behalf of the company regarding forward looking statements and the use of non-GAAP financial measures.
During this call the company will be making certain forward looking statements within the meaning of applicable security laws, which by their nature involve a number of risk.
Cheese and other factors that could cause actual results to differ materially from those projected in the forward looking statements.
Discussion of factors that could cause actual results to differ materially is contained in the company's E filing.
The forward looking statements in the company's earnings release or made on this call are made only as of today and the company has no obligation to update any of these forward looking statements except to the extent required by law.
During this call the company also.
Also may refer to certain non-GAAP financial measures as defined under applicable rules.
Rules reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables.
You can find a copy you can find a copy of the company's earnings release, which contains additional important information regarding forward looking statements and non-GAAP financial measures in the investors section on the company's website.
I will now turn the call over to Brad Jacobs Mr. Jacobs you may begin.
Thanks, Good morning, everybody.
I'm here today with Dave Weisner, our CFO and Matt Fassler, our Chief strategy Officer, and also for the Q and a portion of the call. We have Todd Headley, our vice President of Investor Relations Robbie tools in our Treasurer, and Cao will Smith senior Vice President at PNM.
We had solid beat versus consensus across the board in the third quarter.
We beat revenue by $364 million or 9%.
We beat on adjusted EBITDA by $87 million or 25%.
We beat on adjusted EPS by a 115%.
And notably we be free cash flow by a $173 million or 234%.
The $430 million of adjusted EBITDA, we generated in the quarter brought us back to par with the same period last year, and even a little bit better.
That was a big swing our third quarter adjusted EBITDA was two and a half times, our second quarter adjusted EBITDA.
I'm, particularly pleased that our performance was broad based.
We rebounded to pre kobin levels across our service lines and geographies.
In LTL, we improved our adjusted operating ratio by 110 basis points year over year to 79.7%.
That's the best adjusted operating ratio of any quarter in our history.
Our performance in truck brokerage was off the charts with net revenue up 17%.
And net revenue per load up 13%.
We improved our last mile net revenue dollars by 15%.
And achieved a third quarter record net revenue margin of 35%.
This was the seventh consecutive quarter that our net revenue margin in last mile was up year over year.
Intermodal had a massive recovery in the third quarter.
Organic revenue per day recovered from a 34% year over year decline in the second quarter two.
To a 2% increase in the third quarter.
We grew EBITDA in our logistics business year over year by 14% on a 5% increase in revenue.
On the technology front Expo connects Expo smart in our LTL pricing algorithms and other technology innovations have been firing on all cylinders.
On a personal note, it's bittersweet to see my good friend and our Chief customer Officer, Greg Ritter retire into the Sunset of Colorado.
Greg was the fifth person I hired Exzeo way back in 2011.
He's been Super instrumental in the company's success.
He started our brokerage business from scratch and today, it's the second largest broker in the western hemisphere.
You also personally signed up dozens of customers, who became some of our largest account.
I'm grateful for his many accomplishments and wish him all the best in his retirement.
I also want to mention the recent appointment of Alex and Toro to the newly created position of Chief commercial officer.
Alex is turbocharging, our global sales organization overseeing everything from sales training compensation plans go to market strategy and most importantly, keeping our customers delighted.
So in summary, we had a remarkably good quarter there are exciting trends in our favor such as the growth in customer outsourcing and E commerce.
And it's gratifying to know that our years of investment in the business, especially technology have put us in a strong position to support our customers through the ups and downs of the recovery.
We have excellent momentum going into the fourth quarter and for 2021 with that I'd like to turn it over to David.
Thanks, Brad and good morning, everyone today, I'd like to discuss our third quarter results, our balance sheet and liquidity and our outlook.
In the third quarter, we generated revenue of $4.2 billion and adjusted EBITDA of $439 million.
Both figures reflect year over year increases despite negative impacts from cove, it and they are higher than we expected at the beginning of the quarter.
Our adjusted EBITDA is an all time third quarter record and reflects cost saving actions, we've taken throughout our operations and what has been a V shaped recovery for our business.
Amid the pandemic or financial results have reverted to near normal levels sooner than we had anticipated the trend of sequential monthly improvement that began in may continue through the third quarter and across our business.
Third quarter revenue increased 21% versus Q2.
As revenue increased we benefited from operating leverage inherent in our business and from actions we've taken over the last six months to reduce our costs now.
Matt will review our segment detail in a few minutes.
Our adjusted earnings were 84 cents per share in the quarter.
Our year over year, EPS comparison was negatively impacted by a higher than usual effective tax rate this year as well as increased interest expense.
We generated $298 million of cash flow from operations in Q3.
Spent a $122 million on Capex and received $71 million of proceeds from asset sales.
As a result, we generated positive free cash flow of $247 million in the quarter. This.
This brings our year to date free cash flow to $463 million, which represents a year over year increase of $56 million.
We've been able to generate positive free cash flow during the pandemic by closely managing our working capital.
We became even more disciplined about collections in the cobot environment working with our customers to limit our receivables and staying disciplined with respect to payment terms we provide.
We didnt repurchase any shares in the third quarter. So we continue to have $500 million of authorized share buyback capacity.
In April as you know, we throttled back our planned capital expenditures dramatically.
In the third quarter, we resumed some projects as our outlook for operating cash flow strengthened and new business opportunities rebounded.
We estimate that our gross capex will be $530 million to $550 million. This year, which is up from our July estimate of $450 million to $475 million, but still represents a reduction of 14% from our pre pandemic plan.
We estimate that as a result of our regular course asset sales, our net capital expenditures will be $330 million to $350 million this year.
Maintaining strong liquidity continues to be a top priority for us as an organization.
We repaid $400 million of borrowings under our ABL facility in the third quarter and those funds continue to be available to us if we wish to access them.
Our cash balance at September 30 was $2 billion.
This cash combined with available debt capacity under committed borrowing facilities gives us total liquidity of more than $3 billion.
Our net leverage at September 30 was 3.4 times adjusted EBITDA.
We have no significant debt maturities until mid 2022, our liquidity position is strong.
Turning to our outlook our guidance reflects the improved operating environment. We saw in the third quarter, we had a sharp sequential rebound in revenues and adjusted EBITDA as well as our current estimates of the continuing effects from Cove it.
We expect to generate $400 million to $410 million of adjusted EBITDA in Q4, even with the typical fourth quarter pressure on margin from our business mix and lower year over year gains from LTL real estate sales.
We're optimistic that demand will continue to be solid as many of our consumer facing customers anticipate a strong holiday peak, particularly in E commerce.
The year over year decline in fourth quarter adjusted EBITDA that we're forecasting is entirely due to lower LTL real estate sale gains and coated costs, which together represent a headwind of $25 million to $30 million.
On the cash flow front, we've generated more than $460 million of free cash flow. So far this year and we estimate that our full year free cash flow will be roughly $500 million.
This implies lower free cash flow in Q4 than in Q3, largely due to our decision to resume some capital projects, we had put on hold and to working capital movements.
Approximately $60 million of free cash flow came in Q3, rather than Q4 due to the timing of working capital.
This past quarter, we successfully delivered year over year growth in revenue and EBITDA, even though cobot and the uneven economic conditions associated with the pandemic continue to impact our business.
Our third quarter results are a credit to our colleagues around the globe, who prove to our customers that we can rise to challenges and serve them well in any climate.
Our liquidity is strong and our free cash flow generation is robust in.
In addition, we continue to invest in our business in order to drive efficiency and differentiate our service offerings.
We're delivering on the objectives, we laid out six months ago, and we're positioning our business for future growth.
As a result, we're enthusiastic about our prospects as a leader in the markets we serve.
I will now turn things over to Matt.
Thanks, David I'll review, the third quarter operating sales starting with our transportation segment.
In North American LTL, we showed a solid progression in tonnage and revenue through the quarter.
Tonnage was down 4% in the third quarter with July down, 6% August down, 4% and September down 2%.
Our LTL shipments were 4% lower than last year, which was relatively consistent through the quarter with weight per shipment improving through the quarter and tracking in line with last years performance.
These trends in LTL reflected the ongoing strength in consumer spending, particularly E. Commerce. The consumer continues to lead the US economy. We also saw improvement in industrial production, notably, notably in auto as our customers resumed production after the Q2 shots.
The pricing backdrop for LTL remains rational yield excluding fuel rose, 1.7% year over year consistent with the Q2 increase as Brad mentioned, we posted a record quarterly operating ratio for LTL, our adjusted our improved to 79.7%.
Which was 110 basis points better than the third quarter, a year ago, excluding real estate, we achieved our of 82.5% 100 basis points better than a year ago. Both operating ratios include a 50 basis point impact.
It related costs. We also saw terrific improvements in productivity in LTL, our load factor increased by 2.1% year over year, and we were 3.7% more efficient and pickup and delivery than we were last year, we are reducing LTL cost per stop by providing PND.
Planners and dispatchers with the visibility to lower costs during route planning.
Our freight brokerage business delivered outstanding results.
Start here was our truck brokerage business, where we generated a 17% increase in net revenue and a 13% increase in net revenue per load outperforming the market the truckload market got tighter through the quarter and by September with as tight as we'd ever seen.
The dynamic environment and our team sees the opportunity with fantastic results, we honor our contracts, taking losses, where we needed to and our customers rewarded us with high margin spot business.
The leaders of our brokerage effort have had every job and the business from procurement to customer engagement and tracking loads and our incentive plans reward our reps for profitable volume and customer satisfaction.
Our performance was aided by Expo connect and our other proprietary technology across brokerage.
Our drive Expo carrier App had 60000 downloads in Q3, which was nearly double the number of Q2 downloads cumulative downloads of the App now exceed 200000, which is more than three times higher than the download count at this time last year.
And active customer users connect had jumped 94% since the start of the year.
Our intermodal business also rebounded from Q2 levels the year over year decline in intermodal edge towards flat in the quarter with the rebound led by the resumption of automotive. We also saw increased demand for intermodal from retail customers in part because of higher truckload rates.
Our last mile business was a standout in the quarter. We grew last mile revenue, 11% year over year Howard by strong growth in E commerce shifting consumption to goods and services and a growing consumer focus on the home environment.
We saw notable growth in furniture appliances, and other home improvement goods as well as exercise equipment with much of that served through our last mile hub network.
These market dynamics contributed to our 15% growth in last mile net revenue in the quarter and increased our net revenue margin by 160 basis points to a third quarter record of 35%.
In European Transportation revenue was down 3% year over year, which was a 26 percentage point improvement from the second quarter's year over year growth rate.
Japan, LTL and brokerage had the strongest performance of our major service lines.
On a country basis, our transportation business in Spain recovered to pre cobot levels, and that's followed by France, while the UK continued to lag.
Importantly, we're getting significant traction in Europe with SPL Canal, we now have more than 4000 customers registered on Expo connect in Europe and plant to onboard thousands more by year end.
Turning to our logistics segment, we increased revenue, 5% in the third quarter year over year and realize meaningful operating leverage this helped grow adjusted EBITDA in this segment by 14%.
Key drivers of our revenue growth and logistics, including the global acceleration of E Commerce, which increases both fulfillment and returns as well as an increase in customer trend toward outsourcing and the rapid growth of supply chain automation.
We excel in all of these areas and we're actively engaged in discussions with customers on many new business opportunities.
Our SPD smart labor management tools are driving productivity across our operations, we've rolled out the technology to about 80% of our supply chain sites in North America, and about 50% in Europe with ongoing Rollouts underway.
Initially, we saw productivity gains of 5% or better from deployments of SPD Smart and now our warehouse managers are realizing additional gains beyond the first year of adoption.
Our European logistics revenue rose, 12% in the third quarter year over year or 7%, excluding the impact of FX consumer verticals generated 80, 82% of revenue in European logistics and within consumer the largest areas, where E commerce and food retail positioning us for Q.
Current trend and the long run.
Several large new contracts are contributing to revenue growth in European logistics operations at Nestle's warehouse of the future are fully launched as is our service for Waitrose, which was a major win earlier this year.
North American logistics, where our mix is a bit more diversified beyond the consumer our revenue was down 6% year over year, but that was a significant rebound from the second quarter.
We have a tailwind from the reopening of brick and mortar retail and from some of our industrial customers with restocking activity coming back in both of these verticals. We're also serving growing demand and omnichannel retail and consumer package goods. We can we expect to see our revenue continued to improve in North American logistics.
As more of our customers returned to pre covered levels, we onboard new wins and we lap the exit of some lower margin contracts.
Our EPS PEO direct distribution network continues to thrive in this environment, the downsizing of U.S. retail activity and the emergence of more direct to consumer brand are driving a surgeon opportunities for this unique shared space network Expo direct has operated in the black all year and we saw a nice year over year.
The improvement in the third quarter.
Looking forward across our business the shift consumer spending to goods from services continues to aid the freight markets. The retail peak has started earlier with more holiday shopping expected to take place by E commerce brick and mortar shopping is likely to be spread over a longer period of time as well as consumers look to look like.
Crowds, our supply chain and last mile operations will be the biggest beneficiaries as we moved into October we saw a continuation of the solid trends that underpinned our performance in Q3, even as co that has ebbs and flows.
Tumors businesses and governments have a much better understanding of how to operate safely at Expo. We have shown that we operate at a high level under the most trying condition.
And fulfill our responsibilities to our customers.
Applying that same forward lends to our service offerings in North American LTL growth and tonnage and revenue per day accelerated in October with tonnage turning positive year over year, we expect our fourth quarter, our excluding real estate to be equal to or better than last year. We.
We believe that the industry's LTL tonnage trends are healthy, especially considering that industrial production is still soft if the industrial economy moves into expansion mode. Our LTL business is capable of significantly more acceleration.
Looking at our other transportation lines in truck brokerage the market remains tight net per load in October was robust and load growth accelerated and intermodal capacity is also tight this is expected to persist.
In last mile consumer demand for heavy goods remains strong.
