XPO, Inc.

Welcome to the XPO Logistics second quarter 2022 earnings conference call and webcast. My name is Paul 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 press star 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 the 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 may also 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 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 of the company's website. I will now turn the call over to Brad Jacobs. Mr. Jacobs, you may begin.

Good morning, everybody, and thanks for joining our call. With me today in Greenwich are Robby Tulsian, our CFO, Matt Fassler, our Chief Strategy Officer, Mario Horek, President of LTL, and Drew Wilkerson, President of North American Transportation. Before we get into earnings, I want to comment on the succession plan we announced yesterday. Once we complete the spinoff, Mario will succeed me as CEO of XPO, and I'll remain with the company as Executive Chairman. I'll be the non-executive chairman of the spinoff, RxO. Appointing Mario as my successor was an easy decision for the board and me. Mario has a deep understanding of the nuts and bolts of our LTL operations. He's been hands-on with LTL as CIO for seven years because as soon as we acquired the network, we started developing technology for it. He also worked closely with the LTL sales team in his role as chief customer officer. and he's been running the entire LTL business since last year. Mario is mission critical to XPO. He was the third person I hired back in 2011, and we've worked side by side on every major initiative since then. He's been instrumental in the successful integration of 18 acquisitions, and he's spearheaded countless innovations that have given us a tremendous commercial advantage. Now, Mario and his management team will take the reins of our growth strategy for LTL and lead XPO into its next chapter as a pure play LTL carrier. I'm proud to report a very strong second quarter. All of our reported metrics were ahead of guidance and consensus. We had our ninth straight beat on adjusted EBITDA. And in fact, we generated more adjusted EBITDA in the second quarter than in any quarter in our history. Like adjusted EBITDA, our adjusted diluted EPS was a new record for any quarter. In our North American LTL business, we're continuing to build tremendous momentum. What a difference nine months make. Kudos to Mario and the team for delivering LTL revenue and adjusted EBITDA that were records for any quarter. Our adjusted operating ratio, ex-real estate, inflected positive in the quarter, by 70 basis points to 80.4%. That's another company record for any quarter. And it puts us right on track for an improvement of more than 100 basis points this year compared with 2021. Also in the second quarter, we maintained our highest level of LTL network fluidity since 2020. So it's not surprising that we've seen a significant increase in our customer satisfaction scores as measured both internally and by third parties. The LTL team has increased its focus on customer service over the last nine months now, and it's gratifying to see us continue to build high satisfaction levels after a V-shaped recovery in our service metrics. In North American truck brokerage, we continue to sharply outperform the industry. Our gross profit was a record for any quarter at 20.8%. up year over year by 610 basis points. And it's not just a price play. We grew volume year over year in the quarter by 16% in truck brokerage. This is a best-in-class business that's both highly profitable and taking share quarter after quarter. In Europe, our operations continue to perform well despite the war in Ukraine. Our organic revenue growth in Europe was 7% year over year, which was a sequential improvement from the 5% we reported in the first quarter. And in constant currency, we grew adjusted EBITDA year over year by a robust 14%. Company-wide, a key part of our success has been to pay rigorous attention to return on invested capital and free cash flow. And I'm pleased to report that as of the end of the second quarter, our trailing 12-month company-wide ROIC was 38%, and significantly higher in our North American LTL and truck brokerage businesses. It's worth noting that since we bought the LTL business in October 2015, the business has generated net cash of over $3.8 billion. And lastly, over the first six months of the year, we brought our net leverage ratio down from 2.7 times to 1.8 times. It's gratifying to see XPO perform so well across the board and our strategic actions on track. This includes the planned spinoff of our tech-enabled broker transportation platform, RXO, in the fourth quarter. Finally, I'd like to profoundly thank all of our 43,000 XPO employees for delivering a phenomenal quarter on route to a record year. Now I'll pass the call over to Ravi to go through the financials.

Thank you, Brad, and good morning, everyone. Today I will discuss our second quarter results, our balance sheet and liquidity, and our outlook for the balance of 2022. I'll start with our results. We delivered strong year-over-year growth with record second quarter revenue and the highest adjusted EBITDA and adjusted diluted EPS of any quarter in our history. Revenue in the quarter was $3.2 billion. Adjusting for the sale of our intermodal business, our year-over-year revenue increased 11%. We grew adjusted EBITDA year-over-year by 23% to $405 million, or 29% excluding intermodal and gains from real estate sales. This reflects strong earnings growth across all our businesses. FX negatively impacted EBITDA by $6 million in the quarter. Our adjusted EBITDA margin was a record 12.5%, and this was a year-over-year improvement of 210 basis points. Operating conditions in the quarter were favorable, and the firm pricing environment more than offset inflationary pressures for labor and purchase transportation. Our corporate costs in the quarter, excluding one-time expenses related to strategic initiatives, was down year-over-year by 29%. This reflects continued rationalization of our corporate cost structure. Our interest expense for the second quarter was $31 million compared to $58 million in the year-ago period. This reflects the pay down of approximately $3 billion of debt last year and over $600 million of debt during the second quarter. The effective tax rate for adjusted EPS for the quarter was 24%. Our adjusted earnings per diluted share was $1.81, which was up from $1.22 a year ago, an increase of 48%. The increase was primarily driven by high adjusted EBITDA and lower interest expense. We generated $199 million of cash flow from continuing operations, spent $130 million on gross capex, and received $4 million of proceeds from asset sales. Gross capex was up $69 million year over year, primarily allocated to growing our LTL network. Our free cash flow was $73 million. This includes $28 million of cash outflows related to transaction cost that were not contemplated in our free cash flow guidance. Excluding these transaction costs, our free cash flow was $101 million for the quarter. Looking at the balance sheet, we ended the quarter with $436 million of cash. This cash combined with available debt capacity under committed borrowing facilities gave us $1.4 billion of liquidity at quarter end. We had no borrowings outstanding under our ABL facility. Our net leverage at quarter end was 1.8 times adjusted EBITDA. We are ahead of schedule on our deleveraging plan and are well within our target leverage range of one to two times adjusted EBITDA. In light of our strong results in the first half and our expectations for the second half, we updated our guidance after market closed yesterday. Our new full year guidance for adjusted EBITDA is $1.4 billion to $1.43 billion. This increase primarily reflects our second quarter outperformance and does not include the impacts of our planned spin-off or the divestment of our European operations. We still expect to have up to $50 million of gains from real estate sales, and we currently expect all of these gains to be realized in the fourth quarter. We also issued guidance for the third quarter adjusted EBITDA of $330 million to $345 million. For FOMA for the intermodal sales, the midpoint of this range implies a third quarter adjusted EBITDA growth rate of 18% over the prior year. Our outlook for full year 2022 adjusted EPS anticipates a range of $5.55 to $5.90. This reflects our higher EBITDA outlook and slightly lower interest expense. The midpoint of our new full year guidance for adjusted EPS implies year-over-year growth of 33%. On the cash flow front, our outlook for full year cash flow is now $425 million to $475 million, up $25 million versus our previous outlook. As a reminder, this excludes all transaction-related cash outflows. We expect interest expense of $145 million to $150 million, which is down from our prior target of $150 million to $160 million. There is no change to our previous guidance for depreciation and amortization expense, capex, and the tax rate. In conclusion, we had a very strong first half of 2022, and we are entering the second half with good momentum. The execution of our strategic plan remains on track, and we are excited about creating two pure play transportation powerhouses. I will now turn things over to Matt.