XPO Logistics' CEO Presents At The Deutsche Bank 2012 Aviation And Transportation Conference (Transcript)

XPO Logistics, Inc. (XPO)

Deutsche Bank 2012 Aviation and Transportation Conference

September 6, 2012 3:20 PM EST

Executives

Bradley Jacobs – Chairman and CEO

Scott Malat – Chief Strategy Officer

Presentation

Operator

Hey everybody, we’re going to delve back into the transport world before we have two more shipping panels. But hopefully you can hang with us as we’re getting deeper into the program here. But XPO Logistics, one of the more exciting small cap news that we cover and here to present we’ve got Chairman and President and CEO, Bradley Jacobs and Chief Strategy Officer Scott Malat. So without further ado I will turn it over to Brad.

Bradley Jacobs

Thank you, Justin. And thank you very much for attending this presentation and thanks to you on the webcast for tuning is as well. XPO is an exciting story as Justin said. We’re a relatively small company, $175 million in 2011 revenue. On track to do about $500 million revenue run rate by the end of this year and have a plan to create a top line of $4 billion to $6 billion over the next several years. And our strategy to do that is three pronged. Selective acquisitions in a methodical way, cold starts of Greenfield locations of primarily truck brokerage operations and to aggressively grow those acquired and homegrown operations organically, mainly by hiring sales people and giving them support from a centralized operation center that we’ve established in Charlotte, North Carolina.

In the last nine months we’ve completed 12 cold starts, including seven truck brokerage cold starts and two acquisitions. The management team that we’ve put together has a skill set that matches this very ambitious business plan and I have a slide in a few minutes that will go over some of the names. By way of background of myself, I’ve been a career CEO. I’ve been Chairman and CEO of four companies that I started from scratch and each one of those companies we built up to billion or multibillion dollar enterprises. The two most recent ones were United Waste Systems which some of you may know, you may have owned it. We took it public in 1992 and by 1997 we had built it up and we sold it to Waste Management for $2.5 billion creating substantial shareholder value.

Their earnings compounded at about 55% CAGR during that period while we were public and we outperformed – our stock price outperformed S&P by 5.6x. I started United Rentals in 1997 and ran it for 10 years and became the largest rental company in the world and we outperformed the S&P by 2.2x during the time that I ran it.

The reason that I’ve picked transportation logistics and specifically this truck brokerage model to be my next venture is it’s large, it’s growing and it’s fragmented. So if we’re going to create a $5 billion company we have to find an industry that is 10 times the size of that or more. Transportation logistics is clearly that. Logistics worldwide is about $3 trillion. US logistics is about $1 trillion. US trucking is about $350 billion and only about $50 billion of that or about 15% currently goes through brokers. The other $350 billion goes direct between a shipper and a carrier. So we’re positioning the company not just to compete for the $50 billion that’s going to brokers right now, but for the $300 billion that’s not yet going through brokers, but we think will.

We have reason to support our belief that that 15% brokerage penetration is going to increase. If you look at the trucking business which goes up and down straight with GDP, you compare that to truck brokerage which has been growing at two to three times GDP over the last decade. So that tells us that there’s an outsourcing trend already happening that’s just going to continue and that makes sense because from an economic point of view it is profitable for a shipper and it is profitable for a carrier to use a broker rather than go to direct many times. If you’re a shipper, instead of making two or three calls to some trucking companies thinking you’ve checked out the market, you’re better off calling a C.H Robinson and Echo and hopefully an XPO and indirectly through the brokerage market, check out tens of thousands of carriers availability. You’re more likely to get a better deal by going through a broker.

Similarly, if you’re one of the 96% of the 250,000 trucking companies in the United States who have less than 20 trucks, you are better off using a broker rather than just going through the roller decks. You can’t afford to have a roomful of sales people checking out the market, knowing the prices, knowing the availability of freight. You can make a call to XPO and we will find you freight for your truck. So I think over time that 50% penetration is going to up a lot. This is a very similar bet as I made at United Rentals in 1997 where I thought a similar percentage of penetration, mid teen percent was too low and equipment needed to be rented more to make economic sense too and lo and behold today over half of construction equipment in America is rented.

In addition to being a large market, a growing market, truck brokerage is very, very fragmented, much more fragmented than in other industries that I’ve consolidated. So you have on one hand you have 250,000 trucking companies for vendors. On the other hand you have literally millions of retailers, manufacturers, industrial, commercial enterprises of all sizes needing to ship goods. In the middle of that the truck brokers. You have over 10,000 licensed truck brokers in the United States. It’s a large number. It gets more interesting. Of those 10,000 truck brokers, only 25 of them have more than $200 million of revenue. So literally 99% of the 10,000 truck brokers out there have less than $10 million of EBITDA. Most of them have less than $10 million of revenue.

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