XPO, Inc.

Welcome to the XPO second quarter 2024 earnings conference call and webcast. My name is Sachi 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 one 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 be making certain forward-looking statements within the meaning of the 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 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 investor section of the company's website. I will now turn the call over to XPO's Chief Executive Officer, Mario Herrick. Mr. Herrick, you may begin.

Good morning, everyone. Thanks for joining our call. I'm here in Greenwich with Kyle Wismans, our Chief Financial Officer, and Ali Faghri, our Chief Strategy Officer. This morning, we reported a strong second quarter for both revenue and earnings in a soft market for freight transportation. Company-wide, we grew revenue year-over-year by 9% to $2.1 billion. and we increased our adjusted EBITDA by 41% to $343 million. Adjusted value to EPS was 58% higher year-over-year at $1.12. I'll start with a strategy that's driving our above-market earnings growth and margin expansion. There are four pillars to LTL 2.0. First is to provide world-class service This revolves around the service metrics that are most important to our customers. In the second quarter, we improved one of the most important metrics, damage claims ratio, to a company record of 0.2%. This compares with 0.3% in the first quarter and 0.7% last year. Since late 2021, when we started LTL 2.0, we've driven more than a 75% reduction in damage frequencies. We also improved our on-time performance on a year-over-year basis for the ninth consecutive quarter. We already have one of the industry's fastest networks of one- and two-day lanes, and when coupled with our strong on-time performance, this is a key differentiator for our customers. We achieved these improvements while handling higher volume across our network by prioritizing both operational excellence and network investment. Specifically, we have two major levers with Long Runway to improve our service. One is the opening of 28 new service centers, and the other is our insourcing of purchase transportation. In addition, we're constantly implementing a number of shorter-term initiatives. For example, we now have a freight airbag system installed in over 95% of our service centers. We're seeing a strong return on this investment through a reduction in damage claims. The second pillar is to invest in network capacity. Over the past three years, we've added nearly 14,000 trailers and more than 4,000 tractors to our fleet. This is a high return use of capital that allows us in-source line haul transportation, drive operational efficiencies, and improve customer service levels. So far this year, We've added over 1,900 new tractors, bringing down the average age to four years from five years at the end of 2023. These new tractors are more efficient to operate, resulting in a double-digit decline in our fleet maintenance costs in the second quarter. We've also manufactured over 2,600 trailers year-to-date at our in-house production facility in Arkansas. As the only U.S. freight transportation company to produce its own trailers, we can create capacity when our customers need it and at a lower cost. In addition, we're continuing to roll out the 28 service centers we acquired in December. We've opened 14 so far and expect to open another 10 in the back half of the year. The last four will be operational by early 2025, on track with our plans. These sites are in fast-growing freight markets. Each new center will help us operate more efficiently in the near term while giving us more capacity when the cycle recovers. Our larger footprint also reduces freight re-handling and brings us closer to our customers. And as our network continues to expand, the benefits of service will grow. Our third area of focus is yield. which is our single biggest opportunity for margin improvement. We've been reporting strong yield growth, and we're still in the early innings. In the second quarter, we grew yield excluding fuel by 9% year over year, which helped us deliver 440 basis points of adjusted operating ratio improvement. We have three distinct levers for yield improvement. We're aligning our price with the value we deliver, we're growing our accessorials business and we're expanding our local customer base. In the second quarter, our contract renewal pricing increased year over year by a half single digit for the fourth consecutive quarter, driven by the service improvements we're making. And accessorials generated double-digit revenue growth in the quarter. We're rolling out premium services that our customers are asking for like our expanded trade show service. We recently opened a new service center in Las Vegas, and we're already seeing strong customer demand for this offering. For our industrial base, we launched an expanded cross-border service called Mexico Plus that adds more capacity and border crossing points. It supports our customers who are shifting production to North America from overseas. We're also continuing to earn more market share from our local customer base, which is a higher margin business. In the second quarter, we increased shipments from local customers by over 9% compared to the year ago. The final pillar of our strategy is cost efficiency. The opportunities here are in purchase transportation, variable costs, and overhead. In the second quarter, We reduced our purchase transportation costs by 22% year-over-year through a combination of insourcing line haul and paying lower contract rates to third-party carriers. We ended the quarter with 15.9% of line haul miles outsourced to third parties, which was a reduction of 490 basis points year-over-year. This is the lowest level outsourced in our company's history. and we expect to accelerate the pace as we move forward. When we transport the freight ourselves, we have more quality control and more flexibility. Our drivers and service centers can move freight faster with less re-handling, which reduces damages. We also get better utilization of our trailers by redeploying them at their destination. We expect to have a few hundred driver teams and steeper cab trucks on the road by year-end to support more insourcings. Lastly, we're continuing to manage labor costs effectively in our operations. This is a direct result of the team's execution, as well as our proprietary technology for labor planning. The second quarter was our sixth straight quarterly improvement in labor productivity. Turning to Europe, our business continued to outperform the industry in a soft macro. On a year-over-year basis, we increased segment revenue by 4%. We also delivered the highest quarterly EBITDA since 2019, with year-over-year growth of 7%, driven by a combination of top-line growth and disciplined cost control. Our strongest EBITDA growth was in the UK and France. In the UK, the increase was in the high teens, and in France, it was in the high single digits. In summary, our strong results in the first half of the year demonstrate the disciplined progress we're making with the many initiatives we've put in place. Importantly, we're delivering record service levels with a direct connection between service and profitability. This dynamic is at the core of our strategy. It enables us to outpace the market with yield growth and profitable market share gains while operating more cost-efficiently at scale. but also continuing to invest capital where it can sustain high returns over time. These are all inherent strengths of our company that we'll use to improve the business in any environment. Together with our operating momentum, they create a powerful foundation for future growth. 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 key financial results balance sheet, and liquidity. We reported a strong second quarter across the company, with revenue up 9% year-over-year to $2.1 billion. This includes top-line growth of 12% in our LTL segment and 4% growth in Europe. Excluding fuel, our LTL revenue was up 13% year-over-year. As we took on more business in LTL, we also improved our labor productivity. From the first to second quarter, we reduced our headcount sequentially, while our shipments per day increased by 4%. This helps to mitigate the cost of salary, wages, and benefits, which in total were 11.5% higher in the quarter than a year ago. This primarily reflects wage and benefit inflation, as well as incentive compensation aligned with the segment's strong second quarter performance. We were also more cost-efficient with purchased transportation, primarily due to our insourcing initiative. Our expense for third-party carriers was down year-over-year by 22%, which equates to a $19 million savings in the quarter. Additionally, we continued to improve our maintenance costs, with our cost per mile down 12% year-over-year. Depreciation expense increased by 24% year-over-year, or $15 million, reflecting investments we're making in the business. This continues to be our top priority for capital allocation in LTL. Our second quarter CapEx was primarily allocated to purchase tractors from the OEMs and manufacture more trailers in-house. Next, I'll add some detail to adjusted EBITDA, starting with the company as a whole. We generated adjusted EBITDA of $343 million in the quarter, up 41% from a year ago. Our adjusted EBITDA margin was 16.5%, which was a year-over-year improvement of 380 basis points. This was supported by margin improvement in both segments and the continued rationalization of our corporate cost structure. In the second quarter, our corporate net expense was $3 million for a year-over-year savings of 70%. Looking at just the LTL segment, we grew adjusted operating income by 51% year-over-year to $214 million, and we grew adjusted EBITDA by 43% to $297 million. This reflects the combined impacts of our pricing gains, cost efficiencies, and the increase in volume. In our European transportation segment, adjusted operating income was $19 million, which was a 6% increase from the prior year. And we grew adjusted EBITDA by 7% to $49 million. Returning to the company as a whole, we reported operating income of $197 million for the quarter, up 84% year over year. And we grew net income from continuing operations by 384%, to $150 million representing delivered earnings per share of $1.25. The increase in net income from continuing operations includes a one-time tax benefit of $41 million related to the reorganization of our legal entities in Europe. We expect to receive a net cash refund of approximately $45 million in 2025. Note that we excluded the tax benefit from adjusted net income in our second quarter reporting. On an adjusted basis, EPS increased by 58% in the earlier year to $1.12. Lastly, we generated $210 million of cash flow from operating activities in the quarter and deployed $184 million of net capex. Moving to the balance sheet, we ended the quarter with $250 million of cash on hand. Combined with available capacity under our committed borrowing facility, This gave us $836 million of liquidity. We had no borrowings outstanding under our ABL facility at quarter end. Our net debt leverage ratio at the end of the quarter was 2.7 times trailing 12 months adjusted EBITDA. This was an improvement from 2.9 times at the end of the first quarter. And we expect to further reduce our leverage in the second half of the year. The ongoing investments we're making are enhancing our earnings growth trajectory and will support our long-term goals of achieving an investment grade profile. Now, I'll turn it over to Ali, who will cover our operating results.