Spruce Point Capital Releases A Strong Sell Forensic Research Opinion On XPO Logistics, Inc. (NYSE: XPO)

NEW YORK, Dec. 13, 2018 /PRNewswire/ -- Report entitled "Trucking Ridiculous: End Of The Road" outlines how XPO faces 40%-60% intermediate downside risk to approximately $24 to $36 per share, and 100% long-term downside as a result of a $4.7 billion debt overhang, flawed business model, questionable governance, dubious financial and accounting methods, increased regulatory scrutiny, and a loss of confidence in management.

-          An Ineffective Rollup Dependent On Financing For Survival: XPO has completed 17 acquisitions since CEO Brad Jacobs took control in 2011 and deployed $6.1 billion of capital. Yet by our calculations, the Company has generated $73m of cumulative adjusted free cash flow in an expansionary economic period. In our view, this is indicative of a failed business strategy yielding a paltry 1.2% return on invested capital.  XPO is dependent on external capital, asset sales, and factoring receivables to survive and is covering up a working capital crunch that can been seen by bank overdrafts.  As credit conditions tighten, cost of capital increases, and XPO's business practices come under greater scrutiny, its share price could swiftly collapse in Enron-style fashion. U.S. Senators are already investigating XPO's labor and safety practices, but we believe they should also review our report.

-          Select Management & Board Members Have Associations with Accounting Frauds or Ponzi Schemes:  CEO Jacobs has surrounded himself with a web of associates from his United Waste Systems and United Rentals days, companies where two of his former partners were convicted of accounting fraud and sent to jail.  One recent XPO Director was sanctioned by FINRA, undisclosed to investors, for employing one of Jacob's former partners that was sent to prison. XPO's Audit Committee Director omits from his bio that he played a role in distributing securities related to Marc Drier's $700m Ponzi Scheme.  In addition, XPO's Director of Technical Accounting and Financial Reporting worked at KPMG and Xerox during a period both companies were charged by the SEC with fraud. These facts should give investors extreme caution.

-          Myriad Accounting Gimmicks Materially Distort XPO Financial Condition: In our opinion, XPO has used a nearly identical playbook from United Rentals leading up to its SEC investigation, executive felony convictions, and share price collapse. We find concrete evidence to suggest dubious tax accounting, under-reporting of bad debts, phantom income through irreconcilable M&A earn-out liabilities, and aggressive amortization assumptions: all designed to portray glowing "Non-GAAP" results. Additionally, we provide evidence that its "organic revenue growth" cannot be relied upon, its free cash flow does not reflect its fragile financial condition, and numerous headwinds will pressure earnings.

-          Multiple Valuation Approaches Point To 40%-60% Downside Risk: XPO has morphed from a traditional third-party logistics provider into an integrated provider of transportation and logistics services (capital intensive).  As a result, we believe it should receive a lower multiple more in-line with larger integrated peers such as UPS and Fedex, albeit at a valuation discount to reflect its low-quality earnings from all the issues we've identified. We believe XPO's highly "adjusted" EPS estimates require $190 million in additional "modifications" to account for a combination of aggressive accounting, unsustainable pension gains, and poor labor and safety practices.  Our estimate of normalized EPS, adjusting for dilution, is $1.76 per share and suggests a price target of $24 to $36.

The research report can be found on our website at www.sprucepointcap.com and updates will be posted on twitter @sprucepointcap. 

Spruce Point Capital has a short position in XPO Logistics, Inc. (XPO) and stands to benefit if its share price falls.

About Spruce Point Capital
Spruce Point Capital Management, LLC, is a forensic fundamentally-oriented investment manager that focuses on short-selling, value and special situation investment opportunities.

Contact 
Sean Donohue  
Spruce Point Capital Management 
[email protected] 
212-519-9813

Spruce Point Capital Management, LLC is a member of the Financial Industry Regulatory Authority, CRD number 288248.

SOURCE Spruce Point Capital Management, LLC