XPO, Inc.

Welcome to the XPO 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. If you have a question, please dial star 1 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 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 statement. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC 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 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 earnings release and the related financial tables. 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 website. I will now turn the call over to Brad Jacobs. Mr. Jacobs, you may begin.

Thanks, Hector. Good morning, everybody. I'm here today with David Weissner, our CFO, and Matt Fassler, our Chief Strategy Officer. And also for the Q&A portion of the call, we have Tavio Headley, our Vice President of Investor Relations, Ravi Tulsian, our Treasurer, and Kyle Wissman, Senior Vice President of FP&A. We had solid beats versus consensus across the board in the third quarter. We beat revenue by $364 million, or 9%. We beat unadjusted EBITDA by $87 million, or 25%. We beat unadjusted EPS by 115%. And notably, we beat free cash flow by $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-COVID 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 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, XPO Connect, XPO 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, retire into the sunset of Colorado. Greg was the fifth person I hired at XPO 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 Centoro 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 sum, 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 COVID, 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, our 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. 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 $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 COVID environment, working with our customers to limit our receivables and staying disciplined with respect to payment terms we provide. We didn't 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 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. And we estimate that as a result of our regular course asset sales, our net capital expenditures will be $330 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, and we had a sharp sequential rebound in revenues and adjusted EBITDA, as well as our current estimates of the continuing effects from COVID. We expect to generate $400 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 COVID costs. which together represent a headwind of $25 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 COVID 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'll now turn things over to Matt.