Q4 2020 XPO Logistics Inc Earnings Call
Welcome to the X P O logistics fourth quarter of 2020 earnings Conference call and webcast. My name is Melissa 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. If you have a question. Please press 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 of the company will be making certain forward looking statements within the meaning of applicable securities laws, which by their nature involve a number of risks uncertainties and other factors that could cause actual results.
The differ materially from those projected in the forward looking statements for.
For instance, there can be no assurance that the company's planned spin off of its logistics business will occur as currently contemplated or at all of.
A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings 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 update any of these forward looking statements except to the extent of required by law.
During the call. The company also may refer to certain non-GAAP financial measures is on different as defined under the applicable SEC 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 on its website.
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'll now turn the call over to Brad Jacobs.
Jacobs you may begin.
Thank you Melissa and good morning, everybody and welcome to our fourth quarter and full year 2020 earnings call.
Joining me on the call today are mouth of Wilson, our CEO of ex Europe, David Weisner, our CFO and Matt Fassler, our Chief strategy Officer.
I'm very pleased with our fourth quarter results, we reported much better than expected revenue adjusted EBITDA, adjusted EPS and free cash flow.
Year over year revenue was up 13%.
And strengthened across every business unit in logistics and transportation.
In fact revenue in both segments showed increases in the double digits.
Adjusted EBITDA for the fourth quarter record.
We also generated solid free cash flow that brought us to over half of $1 billion for the full year.
Within transportation in our <unk> business, our fourth quarter adjusted operating ratio, excluding real estate was also a record.
And on truck brokerage results were simply stellar.
Within logistics or growth accelerated in both North America, and Europe, and these higher volumes are increasingly being handled by robots.
We're off to a great start in Q1 across our key regions. The consumer led recovery remains robust.
And the industrial economy is starting to catch up.
Demand for our expertise has never been greater driven by the shift to outsourcing ecommerce growth and customer interest in our technology.
We're seeing strong momentum in our three largest lines of business truck brokerage and logistics.
And we expect both of our segments to generate year over year EBITDA growth in the range of 24% to 29%.
We issued higher than expected guidance for full year adjusted EBITDA of.
1725 to $1 $8 billion.
Yeah.
We're also making good progress on the planned spin off of our logistics segment.
We've named the World Class management team from our own ranks and we're excited about the impressive talent we're recruiting.
We're still targeting of completion date in the second half of this year.
We remain confident that the spin is completed as planned would enhance the growth prospects of both companies, giving them greater flexibilities of tailored strategies and capital allocations to the end market.
We believe that the planned spin off is an effective way to unlock significant value for our customers employees and shareholders.
Now I'll turn the call over to Mount the Wilson to update you on our European business.
Mountain of runs our European operations and upon the completion of the planned spin will become CEO of the global logistics business.
Malcolm has been managing multinational three pls for three decades in Europe, North America and Asia.
He joined US from 2015, when we acquired Norbert onto the song where he grew the logistics division into its largest revenue producing unit.
And then he came to X P O and let our logistics business to unprecedented growth inefficiencies. He's ideally suited for this next opportunity Malcolm.
Thank you, Brian and good morning, everyone.
I'm very excited about our momentum in Europe.
The business has fully recovered from Covid and of our transportation business is most of the way back on.
European Logistics business operates in 15 countries and we're the leader in many important verticals well most of among these is E commerce, where we are the first European outsource provider of logistics.
Across E Commerce, and all of that was the C codes, we're helping our customers accelerate their adoption of new technology, we have of large and growing population of rollout in our warehouses and the benefit of on X fuel small productivity tools. We believe we will see watch oops.
Kind of two productivity when it all smart is fully utilized in all of our logistics size.
To give you an idea of our operating landscape in Europe, we have the blue base of Blue chip customer basis.
With an average customer relationship of between five and 10 years. Some of these relationships go back 30 years old more.
We infuse more technology into our operations the 10 year is growing.
10 years contracts are becoming quite normal back.
As is the case in the U S. Covid has created a real appreciation of the critical importance of supply chain from Europe.
During the past four years, our senior management team have delivered 12% CAGR in logistics gross margin, while tackling big projects in a variety of market environments. The.
The company has been very resilient through the pandemic.
We still do our highly automated facility in the U K during the height of corporate last year, while maintaining stringent safety measures.
This brought the facility online in time to deliver on excellent peak season performance. We also saw the new operations, the cerebral omni channel retailer, including the luxury brand the pirate nor of the nature of it where we loan of large campus of automated warehouses.
So in the peak of Covid.
Although new Lockdowns were implemented in many countries in the fourth quarter governments have been much more thoughtful about how they apply these measures the.
The latest restrictions were designed to keep commerce, moving we've seen no material impact to our business.
That's the Brexit.
We've experienced only minimal impact there as well I will lead you stick the states in the U K has been unaffected by the changes in the trading relationship with the rest of Europe.
Although the U K sites, well actually the customers who sell to U K consumers.
And with our U K transportation business breaks it on its actually work in I would say the we've been able to recoup the costs related to board of the delays on some of our competitors have exited the lanes going into the U K. So we've picked up share.
Looking forward, we have several new high profile project, starting in 2021, well notable logistics contract is with nutrition <unk> health care products business. This will be a fully automated facility in the Netherlands and finally.
With very anxiety sort of completed the acquisition of the majority of Kuehne and Nagel with U K based NACE, which gave us the opportunity to welcome nearly six times, the new colleagues, serving three strategic verticals Tech and E Commerce foodservice and beverages.
We also on boarded many new customers with the acquisition. These blue chip brands operate across Europe, and we are already seeing new business opportunities with the the.
The tech cost of his input.
Include many industry leaders, such as Virgin media and beat T. All of the cost of myself of high quality relationships.
The transaction closed on the first of January the <unk>.
Transition has gone smoothly on all customers and key employees have been repaid.
The identified significant synergy benefits price of the acquisition on a number of these are already in process.
We expect this acquisition to add more than $600 million so on.
Annual revenue and drive significant synergies during 2021.
We have an enormous opportunity in front of us and even more so as a separate company.
On the pleasure of meeting some of you and I'm looking forward to spending time with more of you in the months ahead.
No.
David will cover the results.
Thanks, Malcolm and good morning, everyone today, I'd like to discuss our fourth quarter and full year results, our balance sheet and liquidity from insights we gained during the pandemic and our outlook for 2021.
In the fourth quarter, we generated revenue of $4 $7 billion and adjusted EBITDA of $449 million.
Both figures reflect the year over year increases despite the pandemic and they are higher than we expected at the beginning of the quarter.
Our adjusted EBITDA is an all time fourth quarter record and reflects our commercial momentum and a continued strong recovery over the last six months.
As Brad mentioned revenue grew 13% year over year on the fourth quarter.
We incurred direct COVID-19 related costs of $9 million and our gains on the L. T. L. Real estate sales were $14 million versus 32 million last year.
Excluding those two items adjusted EBITDA in the quarter grew by 11%.
The holiday peak was long and strong we.
We saw robust consumer demand and of continuing rebound in industrial activity.
As revenue increased we began to see we began to benefit from the operating leverage inherent in our business, Matt will review our segment detail in a few minutes.
Our adjusted earnings were $1 19 per diluted share in the quarter and increased year over year, despite higher interest expense.
We generated $193 million of cash flow from operations in the fourth quarter.
<unk> of $149 million on gross Capex of received $47 million of proceeds from asset sales.
As a result, we generated free cash flow of $91 million in the quarter.
We did not repurchase any common stock in the fourth quarter. So we continue to have $500 million of authorized share buyback capacity.
For the full year, we generated revenue of $16 $3 billion and adjusted EBITDA of $1 $4 billion.
Our adjusted earnings were $2 from one cent per diluted share.
For analysts, who exclude amortization of acquisition related intangible assets for comparison purposes.
Note that our full year 2020 results include 96 cents of amortization expense related to intangibles.
Going forward, we're going to add the intangible assets amortization back in our calculation of adjusted EPS.
We and many investors we've spoken with think that produces a more comparable and meaningful metric.
With this modification our 'twenty 'twenty adjusted earnings of $2.97 per diluted share.
Our gross capital expenditures were $526 million from 2020, which reflects the decisions. We made in the second half of the year to resume capital spending in support of key initiatives.
After considering our regular course asset sales, our net capital expenditures were $331 million in 2020.
And importantly, our full year 2020 free cash flow was $554 million.
Maintaining strong liquidity continues to be a top priority for us as an organization.
Our cash balance at December 31 was $2 $1 billion.
This cash combined with available debt capacity under committed borrowing facilities gave us total liquidity of more than $3 billion at year end.
Our net leverage was three three times LTM adjusted EBITDA.
We redeemed our six NAV per se the senior notes due 2022, and January which reduced our debt and cash balances by an equivalent amount.
No significant debt maturities until September 2023, and our liquidity position is strong.
Yeah.
We've learned a lot over the course of the last year.
The list of insights as a mile long, but here are a few key takeaways.
Our business is incredibly resilient both of our transportation and logistics segments, having the ability to operate rebound and prosper even when circumstances are at their most challenging.
In 2020, we also proved our agility by adjusting our expenses to changes in demand, even though the changes were sharp and unpredictable.
On a macro level, we're benefiting from the trends towards ecommerce outsourcing and automation all of which have accelerated.
Transportation and logistics customers of all sizes see the advantages of working with strong partners like X P O and in many cases. They also as all of the risks associated with relying on firms that don't have the resources we do.
And lastly, once the scope of the Covid impact on our end markets took shape. We were quick to take actions that strengthened our position in the recovery like retaining people securing new business and investing in technology.
We saw an opportunity to grow rather than retrench and it has proven to be the right move.
Turning to our outlook our guidance reflects the improved operating environment, we saw on the fourth quarter as well as our expectation that the effects of Covid will continue to moderate in 'twenty and 'twenty one.
All of our projections exclude impacts from our planned spin off of our logistics segment.
As Brad highlighted we expect to generate 1.7 to five to one $8 billion of adjusted EBITDA in 2021 with growth of 24% to 29% in each of our transportation and logistics segments.
Our outlook assumes ongoing COVID-19 related costs for at least the first six months of the year and lower year over year gains from L. T L real estate sales.
We are optimistic that our base case scenario will prevail that is that consumer demand will continue to be solid.
E Commerce will continue to grow industrial demand will continue to recover.
On new business opportunities will continue to emerge.
In the first quarter, we expect that our adjusted EBITDA will be in the low twenties as a percentage of our full year adjusted EBITDA, which is consistent with our typical seasonality.
On the cash flow front, we estimate that our full year free cash flow will be in the 600 to 700 million dollar range, we're targeting roughly $650 million of gross capital expenditures and $500 million of net capex. Although both of these estimates could vary based on new business opportunities in our logistics.
The segment.
We expect depreciation excluding intangibles amortization to be up slightly this year to $635 million to $655 million.
With the repayment of our $1 $2 billion of senior notes in January we're forecasting $275 million to $285 million of interest expense in 2021, which represents a nearly $50 million year over year reduction.
And we estimate that our effective tax rate will be in the 24 to 26 per cent range, which is standard for us.
With nearly all of our outstanding convertible preferred stock having been converted into common stock in December.
I'll have 113 million diluted common shares outstanding this year.
As a result, we are projecting adjusted earnings of $5 from 10 cents to $5.85 per diluted share representing 84 per cent year over year growth at the midpoint.
These figures all add back the intangibles amortization expense I mentioned.
In sum we delivered strong results again this quarter ahead of both street expectations and our own.
We move into 'twenty and 'twenty, one with the wind at our back with robust liquidity growing revenues solid results in both segments of our business and record adjusted EBITDA in each of the last two quarters. Despite the pandemic.
We remain enthusiastic about our prospects as a leader in the markets we serve and.
We believe that we're proceeding toward our planned spin off of our logistics business from a position of strength.
I'll now turn things over to Matt.
Thanks, David I'll review, the fourth quarter operating results, starting with our transportation segment in North American L. T. L. We showed a solid progression in revenue trends throughout the quarter, our tonnage per day accelerated to one 6% growth, which was an improvement from the third quarter.
<unk> of almost six percentage points tonnage was positive in every month of the quarter. We also saw a pickup in the trend of shipments per day, which were down 0.7% year over year. That's three three percentage points better than Q3 weight per shipment rose two 6% year over year.
<unk>, which compares to flattish in Q3.
The pricing backdrop for L. T L remains rational.
Excluding fuel rose one 5% year over year.
<unk> with our Q on Q3 increase on.
Your line yield trends improved quarter to quarter offset by the increase in weight per shipment, which tends to impact reported yield numbers.
Growth in revenue per shipment, excluding fuel improved to three 8%, which is more than twice the growth rate. We saw it in the third quarter and it accelerated through the fourth quarter.
Growth in revenue per day, excluding fuel also accelerated through the quarter. The three 1% that picked up five seven percentage points from the third quarter.
Tonnage trends improved in all of our top seven verticals, which together comprise 85% of our throughput.
Consumer verticals remained stronger than industrial you'll recall that we're overweight industrial N L T L and any improvement in the industrial economy is good for our business.
Our adjusted operating ratio of 83 per cent compared to 82, 3% of year ago, Excluding real estate gains our adjusted all of our improved to 84, 5%, which was 130 basis points better than the fourth quarter of year ago. We've improved this fourth quarter metric for six.
Consecutive years.
Both the operating ratios include a 60 basis point impact from Covid related costs adjusted operating income ex real estate increased by 11%.
We also saw ongoing improvements in productivity and L. T out our load factor increased by three 1% year over year.
And we were three 7% more efficient in pickup and delivery than we were last year.
Internal adoption of our X P O smart labor management tools, and our LTE on facilities increased by over 50% from the first quarter to the fourth quarter in 2020 contributing to our labor efficiency, we see big upside from this technology as it becomes fully utilized.
Our North American truck brokerage business delivered tremendous results, we generated a 76% year on year increase in revenue and a 110 per cent increase in net revenue loads per day increased by 24% sharply outpacing the market net revenue per load increased by 69%.
Net revenue margin rate increased by 300 basis points year over year to 18, 6%.
As you might imagine earnings for this business rose substantially it marked the continuation of the strong performance, we generated for the past several quarters and truck brokerage, there's a great story behind the volume growth in the second half of the year, we drove that growth by making a strategic decision to hire and train people at the bottom of the Mark.
Yet as the man rebounded in the environment you can't exceptionally tight we were in a strong position to help our customers procure capacity.
Our brokerage teams continue to leverage our X P O connect digital platform to drive profit in tandem with our real time pricing tools. We're also using API tools to generate quotes for some shippers. This is a relatively recent pricing channel for us, it's an efficient touchless way to capture revenue.
And maintain our margin.
In the fourth quarter, we increased the number of API quotes we issued by about 45% quarter over quarter, which led to nearly twice the number of delivered loads negotiated through these tools, we're seeing year over year quarterly improvements in brokerage loads per head, even as we staff up we're growing.
<unk> faster than head count again, because of X P O connect and carrier adoption of the platform is on the strong upward trajectory, we've seen a 47% increase in downloads for our drive X P. O carrier App in the last three months, taking the cumulative total from 200000 at the end of the third quarter to over.
300000 at year end, we now have approximately 58000 brokerage carriers registered on X P. O connect in North America, and another 17000 or so in Europe and these numbers keep climbing.
Looking at our transportation segment overall revenue increased by 13% year over year in the quarter and adjusted EBITDA increased by 8% Covid costs impacted our EBITDA growth by two percentage points and lower gains from the L. T O real estate impacted it by eight percentage points.
Turning to our logistics segment, we increased revenue, 13% in the fourth quarter year over year. The biggest growth driver for contract logistics continues to be E. Commerce, both in Europe, and North America, there's been a lot written about the secular shift to online and omni channel and we're seeing it firsthand demand from useful.
<unk> and returns management expertise is surging at our existing sites and the spring new commercial opportunities in 2020, we shipped about five times as many units using robotic automation than we did in the prior year, our European logistics business has excellent momentum as the largest <unk>.
Outsourcing E fulfillment platform in Europe, where of natural place for E Commerce customers to turn we see a lot of new business ahead as these customers seek out our scale and automation capabilities are.
Our European logistics revenue rose, 19% in the fourth quarter year over year or 13%, excluding the impact of FX for the full year consumer goods generated over 80% of the revenue in European logistics in North American logistics, our revenue grew 4% year over year and important.
It accelerated while our strongest growth emanated from omni channel retail. We also saw a big increase in consumer packaged goods. There are also some challenges in the quarter as E commerce volumes surged over the course of an extended peak warehouse employment rose, 9% in December and seasonal hourly wages.
Spike the increase was sharp and sudden with of 4% month over month of pop in December alone. This led to higher compensation costs, particularly for season. The labor. In addition, COVID-19 created some special constraints for launching new projects. We completed 11 startups from the fourth quarter versus eight a year.
Ago. These required complex installations of equipment and technology as well as permitting inspections and testing many of which ran into delays from COVID-19. This added to the cost of launching the customer projects, but the issues are temporary seasonal labor costs are abating and our recent startups are running.
Well these new contracts will generate significant revenue and profit over the next five to 10 years.
We get off the a lot about our share distribution network in North America, well X P of direct had a terrific quarter with its fourth consecutive quarter of year on year profit improvement if that's P O direct where its own vertical it would have been our fastest growing vertical in Q4 for the logistics business the better.
Instead of resonating most strongly with retailers and brands is that they can use the X P O direct network to position their inventory close to end customers and to reposition it when demand patterns change the shortened distribution times were on boarding numerous emerging and midsized firms, who trust us to provide fulfill them.
The services for their consumers.
Returning to our global logistics business overall, we expect year over year profit growth in this business of the at least 15% in the first quarter and growth of 24% to 29% in line with our guidance for the company overall for the full year.
And that's pretty much the theme of 2021 across all our lines of business. They were all off to a strong start in January.
The <unk> spending growth remains strong with the shift to E commerce persisting and the industrial economy is beginning to regain momentum.
We remain focused on driving share gains and efficiency through innovation and.
Our warehouses, we plan to roughly double the number of robots in place over the course of this year, which will continue to deliver critical productivity improvement.
P O smart is helping us drive consistent 5% to 7% productivity improvement in contract logistics labor and it's improving dock productivity in the L. T O as well on.
Also on L. T L. Our pricing algorithms are driving fully automated responses. The 75 per cent of the Rfps. We receive as you can see automated pricing is a consistent theme throughout our transportation segment to give you a little color on January and L. T L revenue growth ex fuel.
Continued to accelerate growth tonnage growth and yield growth picked up further from Q4 levels. We successfully executed our annual G. R. I and the pricing backdrop is constructed we expect year over year adjusted or improvement in Q1 with significant or improvement for the full year.
In truck brokerage volume growth remains very strong in a tight market. This take this is driven largely by the supply side with ongoing congestion at some of the major ports and the driver shortage. There has been some loosening of capacity from the seasonal peak, which helps us with procuring capacity for our customer.
Yeah.
Our organic revenue growth in our logistics segment in January was consistent with the fourth quarter levels and again, our outlook for Q1 earnings growth in logistics is solidly positive.
I'll close with a few of the accolades we received in the quarter.
On the customer front, we received Dallas Sustainability Award for 2020 and road transportation and we were named the global trends L. T O collaborator of the year.
We also won a green supply chain award from supply and demand chain Executive magazine. Finally, we were named a world's most admired company by Fortune magazine for the fourth straight year with that I'll turn it over to the operator for your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad of confirmation tone will indicate your line is in the question can you.
You May press star two if you'd like to remove your question from the queue.
Just minutes using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Our first question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Hey, Thanks, and good morning, everybody.
I I'd like to touch on the guidance for a moment. She gave some some pretty detailed and good guidance, particularly on the profit level I was wondering what the outlook is on the revenue side and maybe if you could kind of break that down into the global logistics business as well as the transport business could you give us a sense of sort of what the the revenue growth potential could be what the backlog might look like for 2021.
Chris its Matt good morning.
On a couple of points on on the the revenue revenue.
Around a lot due to the exogenous factors like currency FX and fuel true.
Load rates.
So we haven't guided to revenue this year and we typically havent guided to revenue we're off to a very strong start for.
For the first quarter and the the trends that you saw in the fourth quarter of pretty good sign all in of what we're seeing in Q1, but we expect strong balanced revenue growth over the course of the year of both for transportation and for logistics keep in mind as you model revenue for the year that we claw.
The kind of novel acquisition at the outset of the year, we're taking that as of about $600 million to revenue over the course of the year. So as you build your models that's something to consider for the total number all of the comments I gave you about the tone of business or prior to considering the addition of Canada.
Yes.
Okay. That's helpful and then.
Maybe just as a follow up to that in terms of the logistics side can you talk a little bit about the pipeline in terms of the new business wins will take care of that out for a moment. It sounds like there's a lot out there from a from a pipeline standpoint can you just give us a sense of what that might look like.
The the backlog for contract logistics is very strong there are so many tailwind for the contract logistics business you think about the tailwind from outsourcing you think about the tailwind from industrial automation and the way we deploy our technology on our warehouses of course, you think about the tailwind from it.
Commerce, which if anything gain momentum as we made our way through 2020, certainly on the demand for incremental E. Commerce projects is a very substantial part of our backlog. So we have a strong backlog both in North America and in Europe, as we look forward to 2021 and we.
Spect that to be the case from years ahead.
Oh, Okay, and if I could just sneak one in on the L. P. On side, you mentioned year over year gains on the or in the first quarter and then more substantial improvement beyond that can you just talk a little bit about sort of what the opportunity of it looks like you have tonnage and pricing both turning positive here or are we kind of turning positive pricing accelerating from where we were on the fourth quarter.
How should these incremental margins look on this business I know you have a target for $1 billion of profit going out into the future of just want to get a sense of what 'twenty, one might look like from an or standpoint.
Sure.
The answer the first part of your question, we do expect our improvement in Q1, and we expect our improvement of at least a couple of hundred basis points, excluding real estate for the full year. Now in addition to tonnage, which you cited and pricing, which you cited we are of a number of company specific initiatives.
Continuing to drive productivity through X P of smart continuing to drive route optimization.
The pickup and delivery and line haul on these are company specific initiatives that will help us on the cost front. In addition to the top line drivers that you cited all of these are part of our game plan for achieving strong or expansion this year and for achieving that LTE all EBITDA target of at least $2 billion in 2022.
Great. Thanks, so much for the time thank.
Thank you.
Thank you. Our next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your question.
Oh good morning. Thanks.
Another one on on L. T. L. I think around a couple of years, the Guy who you guys are talking about them.
Pricing algorithms in the automated pricing facilitating an ability to gain some share and I think he specifically maybe talk about you know of being able to go after some spot market freight. So I'm wondering if you could remind us of the potential size of this opportunity you know I think it was may be challenging on the front end.
In 2020, but any.
Any sense of you know if you think you can make some inroads here and in 2021.
Allison This is Matt two points to make first of all we're really in the early innings of optimizing pricing and L. T. L. A we've made some good habit of headway, but we are of a lot more to go particularly in terms of price elasticity a.
Secondly on one of the skills that we've been developing and L. T. L. A is the scale of assessing the O. Our profile of the freight as we bring it into the network. So one of the reasons. We continue to drive strong of our improvement and we had very strong incremental margins in the L. T. L. A in the fourth quarter year over year, as we think about pricing in terms of not.
Just the deal but also in terms of the profile of the freight we bring in and that has certainly been helping us drive that operating income improvement you saw that 11% EBIT increase and L. T out and excluding the impact of real estate are clearly our pricing work is one of the drivers of that improvement.
Okay and then.
You just sort of lifted some of the the different tailwind the and contract logistics of maybe this is more of a question for from Malcolm but could you just sort of give us a sense of the nature of some of the the commercial opportunities more recently because of Covid. The more just the sort of broad outsourcing trend or is there more of a trend for.
You know one in industrial automation or warehousing of the future fulfillment, maybe if you could just sort of give us the sense of how those discussions.
Have evolved over the last you know I don't know six to 12 months on and in terms of those sort of buckets of growth drivers.
Matt.
I'll take that question. Please.
So Allison what we're seeing is really a we're just able to capitalize on being a logistics fulfillment provider in Europe.
The reverse logistics returns management the strength, we hopping omni channel distribution and of course ex vivo direct what we'd seen crew cold. He's he's brought to the new appreciation of just the critical nature of supply chain to our customers and that's fueling.
Our ability to sign longer term contracts. So in the past you know 10 years' worth of being a long contract no. It's more and more of the normal type of contract. We're seeing the ability also boasts the most are really wanting more of them more technology in their operations. So it's more of a more roll ups in our warehouses.
Collaborative robots larger automation sense sortation centers. So all of the police driver you've got very very positive trend in terms of organic growth and of course technology brings productivity I'm not that's enabled us enabling us also to improve EBITDA levels.
Okay. So is it fair to think about you know on some of them more.
More complex nature of the pipeline as of May be have a lot of better margin profile versus historical.
I think it allows us to bring most of our relationship without of course.
Really moves the result, the importance of the supply chain. So we mentioned earlier I think Mike mentioned the by the warehouse of the future that we successfully implemented in 2020 not projecting it was two years from the beginning to the Yang involving of Greenfield construction of the site.
<unk> be on deploying all of the skill sets you know to turn of Greenfield each of highly automated warehouse that was delivered on time and able to deliver excellent performance.
Peak of the season, even in a COVID-19 environment. So we're seeing really of that customers are coming to ex fuel.
Really because of those experiencing that reputation that we have of delivering things on time in a reliable way you know really making ourselves I mean, Tycho Pas and assistance to the success also.
Okay. Thank you guys.
Thank you.
Thank you. Our next question comes from the line of Scott Schneeberger with Oppenheimer and company. Please proceed with your question.
Thanks, very much good morning, I was hoping you could address the on the contract logistics EBITDA margin some of them some headwinds in the fourth quarter, you outlined and it sounds like a kind of similar to Chris's question on on L. T. L. First quarter will will will be solid, but it would really be the latter of quarters took the lead.
Just oh elaborate on on what you see and it sounds like a lot of the one business in 2020 and more on the pipeline, how how you're going to become more efficient with the margin and what type of expectations you have for that that segment business over the course of the year. Thanks.
Sure Scott This is Matt I'm happy to take that question.
Think about the margin pressure that we saw in contract logistics in the fourth quarter of 2020 as an isolated incident related specifically to the two unique idiosyncratic factors that I discussed a moment ago, one of them relates to pressure on the seasonal wages that we saw on the fourth.
Quarter and the second relates to the challenge of starting up new business and of Covid environment, and just the shed a little more light on that some of the projects that we implemented in the second half of the year had very advanced automation at their core as we installed some of the some of this new machinery, we need to meet.
Neither of US move people around the country, we needed to get sign off from municipalities the answer.
Fashion process with sometimes of delays and we have to provide interim solution that were quite labor intensive but going back to the prior issue at the moment in time with labor was extremely expensive. We did what we needed to do to deliver for our customers in the fourth quarter. It cost of somebody happily as we speak today.
These issues are in the rearview mirror, we stated a moment ago that we expect the.
Adjusted EBITDA growth for contract logistics in the first quarter of it.
15%, we expect adjusted EBITDA growth for logistics, and the 24% to 29% range for the year consistent with our outlook for the broader company of should we feel very good about the earnings outlook for the for the logistics business.
Great. Thanks, I appreciate that and then curious to hear about last mile logistics given it was the peak quarter, just a just a little bit more insight into how you handle the quarter end AR and what you're expecting for the coming year. Thanks.
Yeah happy to take that one as well so our last mile revenue grew 13%.
In the quarter, our contribution dollars from last mile grew 15% year over year on the contribution margin rate increased to 22% from 21.6% as you know, we're the largest outsource provider of last mile logistics for heavy goods from most of the leading retailers and E tailers out there.
Not a surprise what customers tell us that that our service metrics are best in class our claims frequency.
It is astounding one out of only 600 or so deliveries on our results in a claim we bought and integrated this business from 2013 to 2015 as you know before the industry really came to a high profile notice. We had first mover advantage here really starting with the one on one of our kind of platform.
The three P. D. More recently, we've invested in world class consumer facing technology, which is really enhance the value proposition for our customers. So a very strong close to the year for this business to your point.
Thanks, I'll turn it over.
Thank you.
Thank you. Our next question comes from the line of Tom a lot of words with UBS. Please proceed with your question.
Oh, Yeah. Good morning, I wanted to ask you a little bit of all of the brokerage and the congratulations on the the really impressive results and brokerage.
Can you give us a sense of what that percentage change was in the brokerage head count year over year and also how you think about the increase in automation. If you could give a sense of kind of you know what percent of loads were automated on one side.
We're on both sides just to think about you know kind of where you're at in that process of leveraging the you know the kind of D. F M type of approach.
Tom It's Matt our brokerage head count was up 20% year over year true.
A stat that I gave in my prepared remarks, our load count was up 24% year over year. So we achieved improvement in productivity per rep, even as we staffed up but the most importantly, the most important metrics to integrate or synthesize with that picture or the increases that we drove in that.
Margin per load, which was substantial and that tied to our ability to really invest time working for our customers procuring capacity in a very dynamic market on your question on digital at this point all of our orders are running through the <unk> connect platform in one or another and this is on.
This is the system that our customers and our carriers use for transacting business with us. So there's a digital element to everything that we're doing in brokerage and one of the great changes over the past year or two is the way connect has been integrated into the day to day our business.
Mrs of our reps and that is contributing to the efficiency of contributing to better price discovery and contributing to the margin of profit results that we delivered in the fourth quarter.
How would you think about you.
You know fourth quarter seem to be a kind of uniquely good environment for brokers, obviously, you capitalize on that but I guess, if we go back to you know if you would think of 'twenty 'twenty one is analogous to 2018.
You know contract rates up a lot that's a pretty good environment for brokers as well how do you think about the kind of pace of top line growth.
In 2021 for your brokerage business just given the that it was a such a big step up in activity in fourth quarter.
Sure.
We're almost halfway through the first quarter, we're doing extremely well and truck brokerage Q1 would be spectacular maybe not quite as spectacular as the fourth quarter, but it'll be exceptionally strong I typically as you know you would see of seasonal step down from the fourth quarter to the first quarter one thing to keep in mind the on a recent high.
<unk> is the tenure of these new hires increases there'll be more impactful will be able the trends that they will be able to transact more business than they did in the past. So we think we're setting ourselves up here for a sustained period of success relative to the market.
Yeah, if I can sneak in one other quick one just what about intermodal within freight brokerage anything of note happening there.
Intermodal had a massive recovery.
In the fourth quarter, our organic revenue per day was up low double digits that was a nice acceleration from Q3 loads per day were up 4%. This was the first positive quarter that we had on this metric.
2020 gross margin per load was up 8% and you can think about the recovery of they are reflecting the tight truckload market, which leads to some conversion to intermodal and incremental demand from consumer and retail customers, particularly with debt extended peak later in the year.
Okay. Thank you for the time.
Q.
Thank you. Our next question comes from the line of Jason Seidl with Cowen and company. Please proceed with your question.
Thank you operator, and good morning, gentlemen.
How should we think about tonnage growth on the L. T. L side, considering the industrial economy is still lagging so that's the on the comp.
Jason It's Matt the industrial economy is still lagging the consumer economy, though it is beginning to recover our tonnage per day in January was stronger than our tonnage per day in the.
In the fourth quarter and our expectation is that we will see improvement as the industrial economy continues to recover.
Okay, one of the suite.
Over to the robotics side so it's.
Made some interesting comments about.
How much increase you guys of seniors and what Youre going to plan for 2021, you know the fourth quarter saw a big spike in seasonal wages.
For your logistics business as you implement more and more robotics throughout your business does that sort of.
Buttressed, you a little bit or away from the seasonal wage increase issues that may come and go depending upon the given year.
Overtime.
Overtime. It can I mean, we're continuing to see.
Six fold productivity improvement with good to personal robotics versus manual sites are we said earlier, we shipped five times as many units using robotic automation of technology year on year. We grew the number of robots in our warehouses all day about Forex of there's some productivity improvement embedded within that for US as you can see we've.
Plant to plant the double the number of robots that we have.
In 2021, we have a first mover advantage and goods to person robots on the cost of entry is high many customers are consequently, outsourcing that including to us and robots of particularly critical in supporting large scale I E commerce rollout in tandem with our work force.
And what part of the robots.
As a percentage of your Capex is it still less than two three per cent.
It's a it's a small number in the Grand scheme of the.
Capex guide that David gave you a moment ago, but of it'll it'll grow over time as day as they emerge as a bigger part of our story.
Okay. Appreciate the color of nice quarter. Thank.
Thank you.
Thank you. Our next question comes from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.
Thanks, Operator, hi, everybody Malcolm congrats on.
On the appointment of CEO of spin co I guess, I guess I would like to direct my first question to you Malcolm if that's okay and that's really just regarding.
The structural return potential in contract logistics.
Just this year, but kind of over the next several years, because we talk a lot about revenue growth and logistics and that's clearly very compelling, but we don't talk about margin expansion of the structural margin expansion and one of the concerns out there with investors and analysts as the relatively low margin profile of the logistics business.
That context, Malcolm I was just wondering.
Is there a structural margin expansion story at logistics as you penetrate more value added.
Services and if you could just talk about in terms of what that structural return potential could be over.
Over the next five years.
Thank you Amit.
Okay.
Just to remind full quota of one were already tracking all of it.
Logistics business to be a bowl of 15% and adjusted eat B I D E and for quarter, 124% to 29% to the solely on in line with the business.
Going forward, if I, if I can say the the.
On.
The experience that we have we can see of lots of potential for margin expansion, that's coming from more of a more deployment of technology into our business. So it's not just explained.
On the productivity improvements that we get from.
On the cooperative for all the boats and automate autonomous rule of box is really quite significant we're also seeing significant productivity improvement from our ex fuel small productivity tools. So these things combined give us great confidence that we can expand margins on.
On the go forward.
Right.
So what is what is the ceiling on that as the high single digit operating margins low double digit EBITDA margins like what is the opportunity from here.
Right right no, we where we're operating our business with double digit double digit EBITDA margins and we expect that to have the ability to expand as we're rolling out these new technologies the solutions our customers.
Demanding.
Larger more complex more embracing we're obviously seeing the benefits of the huge secular change that's coming as a consequence of E. Commerce, we're all buying more of them more things on the on line and that's driving our ability to deploy more of the more technology in our work.
So these things all altogether, but definitely on going to allow us to expand margins and not to not to lose sight of the very leading position. We have you know strongest the fulfillment provider I was strength in reverse logistics and returns management. The strength, we have the normally channel and of course.
In North America ex fuel direct so there's a lot of runway ahead for us to improve.
Yeah. Okay. Thank you Malcolm and then just as my follow up maybe for David or Matt.
If I, if I strip out the $600 million of.
Clear inaugural U K logistics.
Again it growth this year on the top line it looks like and I could be wrong on this but it looks like the implied incrementals on the organic growth.
Low to mid 20% range and I just want of thought it would be higher than that given one the split between fixed and variable cost and you're Comping. Covid costs. Then you have this $500 million of non volume opportunity. So I'd love you to kind of help me with the first of all is that right in terms of low to mid 20% incremental on the organic.
Growth and why that isn't higher given all of these kind of lapping of cost on the non volume of different cost opportunity.
So a couple of points on that and some of them are going to repeat I think the that's the clear premises you have on your question.
We do see of strong revenue performance in Q1 and for the year. We do expect substantial operating leverage in 2021, we talked about Canada and it is coming in a most likely in the lower EBITDA margin, but we're gonna buildup margin up over time.
The synergies are your math is pretty good excluding I can and we expect to generate incremental margins.
Into the Twenty's, it's early in the year, let's see where we can take this.
Okay very good. Thank you for answering my questions appreciate it thank.
Thank you.
Thank you. Our next question comes from the line of Brad.
No go on ski with Barclays. Please proceed with your question.
Hey, good morning, and thanks for taking my question I'll, just keep it the two today, but Malcolm I guess coming off that answer the more holistically, how do you want to manage the business.
From a growth perspective would you rather get price of margin or would you rather see greater organic expansion of looking forward and I guess the along those lines you know how much of the benefits from the robotics and productivity in the business do you have to give back just be of your contract structures.
Yeah.
Thank you Brendan.
Going forward, we're going to use the same strategy that we've had since <unk> acquired the and the like I say business.
On the my leadership that strategy is still a bit of 17% cake in logistics gross margin, while adding 6% CAGR revenue growth.
All while for Wayne on tons of free cash flow no acquisitions in those numbers just good solid punishment. It's been achieved the highest capitalizing on our leading position in home the channel and the fulfillment logistics.
We get superb and reliable customer service to our Blue Chip Christmas.
The C not during the last year of the pandemic.
Tim Iceni of operations, we utilize the technology all of the robotics.
Tomatoes, sortation machines all of them.
Of those how T PA business lean and efficient and finally.
We work hard in developing the very positive engagement with all of our employees and that's an integral part of our success. When you put all of these things together, we've got years and years ahead of us.
In terms of strong organic revenue and EBITDA April that's for the combined based on this.
I think the I think the volume not on the acceleration that we see in robotic technology in automation and technology and technology generally that we're able to deploy in the warehouse.
Super exciting environment that we're in and really bodes very very well for the future of of our logistics business.
Okay.
Well. Thank you for the response here and I understand you know like a big drive here what the split is to be very focused on capital deployment.
Any changes there does M&A move up the list for you as you look forward or is it more internal development.
Yeah.
For our internal development, we scrutinize every project we look at the auto line returns that we got on Nitro project and we're going to carry on with that so a really good cadence.
In the new spin the company when he comes to acquisitions.
Got tons of experiments of acquisitions.
Just complete seat on the K and N deal indeed, being the quiet myself on a couple of occasions that gives us a great perspective on appreciation of well.
Goes into making a very smooth and the successful integration.
But really in the initial environment, we're just going to focus on our core business in North America in Asia Pacific in Europe.
The current wheelhouse, you know the fulfillment reverse logistics omni channel XP or direct.
The largest and fastest growing vertical we've seen retail and E. Com, we believe with the Blue chip customers and then on top of all of that got out of leading position in automation and robotics would try using the full deployment of affects the whole smart productivity.
We've got plenty of things to be getting on the waves, but of course, well always be all kinds of projects that will be accretive to our shareholders value.
Alright, I appreciate the thorough response.
Thank you.
Thank you, Okay I see it's 930.
The market is opening up we very much appreciate the hour we got the spend with you all obviously had a fantastic quarter good job team X P O.
All of a lot of winter are back.
Especially from E commerce from the outsourcing trend from the significant investments we've made in technology over the year, we need to stay focused and keep executing well. Thank you for your support talked to you in three months everyone.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.