XPO, Inc.

Welcome to the XGO Logistics fourth quarter 2021 earnings conference call and webcast. My name is Rob and I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we'll 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 statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its 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. Reconciliation 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 are 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 investor section on the company's website. I will now turn the call over to Brad Jacobs. Mr. Jacobs, you may now begin.

Good morning, everybody. Thanks for joining our call. With me today in Greenwich are Robbie Tulsian, our CFO, Matt Fassler, our Chief Strategy Officer, Mario Harik, our CIO and Acting President of LTL, and Drew Wilkerson, President of North American Transportation. Yesterday, we reported a fourth quarter that delivered a number of record results. The company as a whole performed well. We grew revenue by 14% year over year to $3.4 billion, which was the highest revenue of any quarter in our history. We generated adjusted EBITDA that was a solid beat versus our fourth quarter guidance, and we beat on full-year EBITDA as well. We also reported the highest adjusted diluted EPS of any quarter in our history. Again, significantly higher than expectations. Our growth was led by our two largest businesses, North American LTL and Truck Brokerage. In LTL, we delivered record fourth quarter revenue and record year over year growth in yield. Our adjusted operating ratio in the quarter degraded year over year, which was expected, given some third quarter challenges within our network. But the negative trend bottomed out in October when we launched our LTL action plan with Mario at the helm. Our plan had an immediate impact on our year-over-year performance. We reduced the erosion in our operating ratio and improved our volume trend as the quarter progressed. Importantly, we expect our year-over-year adjusted operating ratio ex-real estate to to inflect positive mid-year and generate over 100 basis points of improvement in 2022. In truck brokerage, we had another quarter of outstanding growth with load count increasing to record levels for the third consecutive quarter. The biggest tailwind driving our volume is XPO Connect, our digital brokerage platform. Shipper and carrier adoption of Connect is growing extremely fast. In December, we exceeded 600,000 cumulative driver downloads of the platform's mobile app, which is good news for customers because they want digital access to as many carriers as possible. In the fourth quarter, weekly carrier usage on XPO Connect was up year over year by 74%. So in sum, a good fourth quarter with great traction going into 2022. The full year guidance we issued yesterday reflects our expectation of strong earnings growth this year. The midpoint of our guidance range for 2022 adjusted EBITDA reflects 11% growth versus 2021. And the midpoint for adjusted diluted EPS reflects 22% growth. Our LTL action plan is moving our adjusted operating ratio in the right direction. We still expect to generate at least $1 billion of adjusted EBITDA in LTL this year. And our truck brokerage revenue is growing at a pace that's three times faster than industry growth. Finally, we remain committed to deleveraging toward a net leverage ratio of one to two times by the first half of next year. This will be a key milestone in achieving an investment-grade rating. We're intent on being best in class in every aspect of our business, and we're confident of continuing to deliver superior shareholder value. Now I'll hand it over to Ravi to discuss our results and our balance sheet.

Ravi? Thank you, Brad, and good morning, everyone. Today I will discuss our fourth quarter and full year results our balance sheet and liquidity, and our outlook for 2022. I'll start with the fourth quarter, where we delivered strong year-over-year growth in revenue, adjusted EBITDA, and adjusted diluted EPS. Revenue in the quarter was a record $3.4 billion, up 14% year-over-year. The net impact of fail prices and FX contributed three points to this growth. Organic revenue growth for the quarter was 11%. We grew adjusted EBITDA by 12% to a Q4 record of $323 million. This reflects strong growth and execution in our brokerage and other services segment. Looking at the two-year stack, adjusted EBITDA was up 25% on a pro forma basis. Our adjusted earnings per diluted share for the quarter was $1.34, which was up from 53 cents from a year ago, an increase of over 150%. This increase was primarily driven by higher adjusted EBITDA, lower interest expense, and a lower tax rate. We generated $98 million of cash flow from continuing operations, spent $101 million on gross capex, and received $60 million of proceeds from asset sales. As a result, Our free cash flow was $57 million, which was at the high end of our expectations. For the full year 2021, we delivered revenue of $12.8 billion, a year-over-year increase of 26%. Adjusted EBITDA for the year was $1.24 billion, reflecting growth of 46%. We more than quadrupled our adjusted earnings per diluted share from continuing operations to $4.30 compared to $1.01 from a year ago. We generated free cash flow of $425 million and increase of over $200 million year over year, representing a free cash conversion rate on net income of 97%. Our cash balance at December 31st was $260 million. This cash, combined with available debt capacity under committed borrowing facilities, gave us $1.3 billion of liquidity at year end. We had no borrowings outstanding under our ABL facility. Maintaining strong liquidity remains a top priority for us. We reduced our gross debt by approximately $3 billion in the year. and we have no significant debt maturities until 2025. Our 2021 net leverage at year-end was 2.7 times adjusted EBITDA. Our plan is to continue to delever our balance sheet through free cash flow generation and adjusted EBITDA growth. Our progress on deleveraging is important in the context of our commitment to achieve an investment-grade rating. Turning to the guidance we issued yesterday after market close. Our full year guidance for adjusted EBITDA is $1.36 billion to $1.4 billion. This guide assumes gains from real estate sales of approximately $50 million versus $62 million in 2021. Our current plan is to execute real estate sales in the second half of the year, and these sales will primarily consist of excess land that does not fit our long-term needs. On the cash flow front, our outlook is for full-year free cash flow of $400 million to $450 million. We expect full-year growth capex to be $500 million to $550 million and net capex to be $425 to $475 million. This significant year-over-year increase in growth capex reflects our plan to make growth investments in our LTL business. Our full year guidance for depreciation and amortization expense is approximately $400 million, and we expect interest expense of $170 million to $180 million. We expect our full year tax rate to be 24% to 25%. Our average diluted common share count for the year is expected to be approximately $117 million. And our outlook for fully adjusted EPS is $5 to $5.45. For the first quarter, we expect our adjusted EBITDA to be $280 million to $285 million. This guidance assumes no real estate sales in the quarter versus $17 million in the same period a year ago. In conclusion, we are continuing to execute on our strategy of driving shareholder value as a pure-play transportation company And we are excited about our prospects for 2022. I will now turn things over to Matt. Thanks, Ravi.