XP Inc.

Welcome to XPO Q4 2024 Earnings Conference Call and Webcast. My name is Latonya, 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-answer session. If you have a question, please dial star-zip 1 on your telephone keypad. Please limit yourself to one question when you come up in the queue. If you have additional questions, you're welcome to get back in the queue. and we'll take as many as we can. 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 make 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 to differ materially from those projected in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as it is in earnings release. 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 may refer to certain non-GAAP financial measures as defined under applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earning release and the related financial tables or 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 will now turn the call over to XPO's Chief Executive Officer, Mario Harrett. Mr. Harrett, you may begin.

Good morning, everyone. Thanks for joining our call. I'm here with Kyle Wismans, our Chief Financial Officer, and Ali Faghri, our Chief Strategy Officer. This morning, we reported a strong fourth quarter with year-over-the-year earnings growth NLTL margin expansion that outperformed the industry. I'm pleased with the substantial progress we've made in the drop of the freight market cycle. For the full year, we grew revenue by 4% to a record $8.1 billion company-wide. We also generated $1.3 billion of adjusted EBITDA, a 27% increase from the prior year, reflecting significant operating leverage. And we delivered a 31% increase in adjusted diluted EPS at $3.83 for the year. Turning to our FTL segment, we're making great strides in executing our plan and optimizing all parts of the business. The results we've delivered so far are just the beginning of our potential. You can see that in the 260 basis point improvement in our adjusted operating ratio, which was better than our targeted range. This was underpinned by record customer service levels, which translated to profitable market share gains and above-market heel growth for the year. And we had a well-defined plan to keep driving our OR toward becoming industry best. We also seamlessly integrated 25 new service centers into our network, establishing a major competitive advantage of customer service capacity. And we operated more cost-efficiently across the board, including our line haul operations, where we reduced outsourced miles to the best level in our history. Now I'll summarize the highlights of 2024 in each of these areas, starting with world-class service. This is our most important lever for growth and profitability. In the fourth quarter, we delivered a damage claims ratio of 0.2%, which is an improvement from 0.3% last year. Importantly, we reduce damage frequency each quarter to a new company record. This metric is a real-time indicator of the service quality that our customers experience. To put it in perspective, we've improved damage frequency by over 80% since 2021, and we have significant room to make further progress over time. We also improved our on-time performance year over year for the 11th consecutive quarter. This is a testament to the speed and reliability that our customers value in our network. Next, I want to talk about a lever that touches every part of our plan, our network investments. On the real estate side, I mentioned that we brought 25 new service centers online last year and will integrate the remaining acquired sites over the next few months. When we expand our network capacity, we create more opportunity to improve service because it balances our network, adds density in strategic markets, and helps us run the business more efficiently. We're also adding rolling stock to serve our customers and support our ongoing insourcing of line haul transportation. Since 2021, we've produced over 15,000 trailers at our in-house manufacturing facility, And we're the only LTL carrier in North America with this capability. This is a major advantage because trailers are the backbone of efficient LTL operations. We rely on this capacity to consolidate and move freight across our network. We've also purchased nearly 5,000 tractors during the same period. We ended 2024 with an average fleet age of 4.1 years, giving us one of the youngest tractor fleets in the industry. As a result, we're operating our fleet at a lower cost per mile. Because we made these strategic investments throughout 2023 and 2024, we currently have nearly 30% excess door capacity and a robust fleet in the throb of the cycle. That's a major improvement from a few years ago when our excess capacity was about half of what it is today. We're one of only a few LTL carriers in North America with this kind of capacity in hand. It allows us to respond quickly to surges in demand, and it puts us in a strong position to accelerate operating leverage and profitable growth in a freight market upcycle. Yield is another key lever for us and the most impactful metric underlying margin improvement. For the full year, we grew yield excluding fuel by 7.8% year over year, directly contributing to our 260 basis points of OR improvements. Both yield and margin are being driven by our internal initiatives and proprietary technology. Here again, we see a long runway for further gains, including a double-digit pricing opportunity in the coming years propelled by three dynamics. First, by aligning price with the service value we deliver, we've been consistently outperforming the market in yield growth, and we expect this to continue. Second, we're committed to evolving our service offerings, to meet our customers' needs. The premium services we introduced last year contributed to above-market yield growth and account for an increasing share of our revenue mix. And third, investments in our sales force are generating market share gains with local customers. This is a strategic lever for margin expansion. The final component of our strategy is cost efficiency, with our primary focus being line haul insourcing and variable costs. In 2024, we reduced our purchase transportation costs by 32%, driven by a reduction of more than 600 basis points in line haul miles outsourced to third parties. We accelerated this initiative in the fourth quarter when we reduced our outsourced miles to 10.7% of total miles. That's nearly 900 basis points lower than a year ago, primarily due to the expansion of our road flex operation. And we expect this metric to drop into the single digits this year, which would be a new historic low. Our reduced reliance on third-party truckload carriers will help insulate our cost structure when demand returns and truckload rates rise, generating higher incremental margins versus prior upcycles. Importantly, we're also managing our labor costs more effectively with our proprietary technology. Our systems can forecast volume trends using predictive AI, so we can quickly align labor hours at the service center level. In 2024, this resulted in consistent labor productivity improvements in a changing volume environment, and we expect our technology to continue to deliver incremental benefits to our cost structure as we grow. Turning to Europe, we increased full-year segments revenue by 3%, which outperformed the industry in a soft macro. Our most robust performance was in the UK, where we grew year-over-year organic revenue by double digits. In summary, we delivered our strongest year of LTL margin improvement since 2016, and we achieved that in a historically soft freight environment. We also cemented our foundation for future growth, validated the opportunity ahead of us, and positioned the business to capitalize quickly in a freight market recovery. We're in our strongest position yet to unlock the potential within our network, and we expect to deliver significant margin expansion and earnings growth this year. Now I'm going to hand the call over to Kyle to discuss the financial results. Kyle, over to you.

Thank you, Mario, and good morning, everyone. I'll take you through our fourth quarter financial results, balance sheets, and liquidity, as well as our planning assumptions for 2025. We reported a strong fourth quarter, reflecting the continued execution of our plan, Our total revenue for the quarter was $1.9 billion, which is 1% lower than the prior year on a company-wide basis. In our LTL segment, revenue was down 3% year-over-year, reflecting a 23% decline in fuel surcharge revenue tied to the price of diesel. Excluding fuel, we increased segment revenue by 2%. We're continuing to realize new cost efficiencies in our LTL operations, including another material reduction in purchase transportation due largely to insourcing more line haul miles. Our first transportation expense in the fourth quarter was 47% lower than a year ago, equating to a savings of $39 million. We also managed LTL labor effectively, with hours per shipment improving year-over-year by 1%. This helped mitigate a four-quarter increase of 3% in total salary, wages, and benefits, primarily due to inflation. And we've realized continued cost efficiencies in our fleet operations, with our investments in new equipment bringing down our maintenance cost per mile by 10% year-over-year. Depreciation expense increased by 16%, or $11 million, reflecting the investments we're making in the business. This continues to be a key priority for capital allocation in LTL. Next, I'll add some details to adjusted EBITDA, starting with the company as a whole. We generated adjusted EBITDA of $303 million in the quarter, an increase of 15% from a year ago. Our adjusted EBITDA margin of 15.8% with a year-over-year improvement of 220 basis points. Looking at just the LTL segment, we grew adjusted EBITDA by 20% to $280 million. LTL adjusted EBITDA includes the impact of $34 million real estate gain in the fourth quarter. This primarily stemmed from the planned sale of a service center in Brooklyn as we opened a larger site we acquired in the same market. Excluding real estate, we grew LTL adjusted EBITDA by 6% year-over-year to $246 million. The increase is driven by yield growth and cost efficiencies, which more than offset the non-operational headwind from lower fuel surcharge revenue. In our European transportation segment, adjusted EBITDA was $27 million, and corporate adjusted EBITDA was a loss of $4 million for the quarter. Looking at the fourth quarter company-wide, we reported operating income of $148 million, up 24% year-over-year, and we grew net income from continuing operations by 31% to $76 million, representing diluted EPS from continuing operations of 63 cents. On an adjusted basis, diluted EPS increased by 16% year-over-year, And lastly, we generated $189 million of cash flow from operating activities in a quarter and deployed $108 million of net capex. Moving to the balance sheet, we ended the quarter with $246 million of cash on hand. Combined with available capacity under our committed borrowing facility, this gave us $757 million of liquidity. Our net debt leverage ratio at year end was 2.5 trillion 12 months adjusted EBITDA. This is improvement from three times at the end of 2023. While we remain committed to investing in our long-term growth initiatives, we expect LTL CapEx to moderate as a percent of revenue from the past two years of significant network expansion and additions to our fleet. With a lower CapEx profile and sustained earnings growth, we can generate higher levels of free cash flow, giving us greater flexibility to return capital to shareholders over time. Before I close, I'll summarize this year's planning assumptions to help you with your models. For 2025, we expect total company gross capex of $600 to $700 million, interest expense of $220 to $230 million, pension income of approximately $6 million, an adjusted effective tax rate of 24% to 25%, and a diluted share count of 120 million shares. These assumptions are included in our fourth quarter investor presentation. Now, I'll turn it over to our lead who will cover our operating results.