XPO, Inc.

Welcome to the XPO first quarter 2025 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 dial 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 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. 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 information regarding forward-looking statements and non-GAAP financial measures in the investor's section of the company 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 with Kyle Wismans, our Chief Financial Officer, and Ali Faghri, our Chief Strategy Officer. This morning, we reported financial results that delivered on our outlook in a challenging freight market. Company-wide, we reported first quarter revenue of $2 billion and adjusted EBITDA of $278 billion. And our adjusted diluted EPS was 73 cents exceeding expectations. Importantly, our LTL segment maintained the momentum we carried through year end and outperformed the industry. The highlight of the quarter was a sequential LTL margin improvement that was better than normal seasonality. We've now improved our adjusted operating ratio by a cumulative 370 basis points over two years, keeping us on the industry's best trajectory for operating efficiency and profitability. In addition to strong margin performance, we accelerated yield growth, operated more cost-efficiently with line haul and labor, and enhanced service quality. At the same time, we continue to invest in our network to strengthen our competitive position and sustain high returns over time. I'll walk you through the levers driving our momentum in LTL, starting with customer service. In the first quarter, we delivered a damage claims ratio of 0.3%. Notably, we brought damages down to a record low in the quarter, which is a testament to the discipline built into our service culture. We also continued to raise the bar with on-time performance, marking our 12th straight quarter of year-over-year improvement. The service centers we've opened over the past year are playing a critical role in improving service by reducing re-handles and transit miles. This helps ensure consistent outcomes for our customers. And for our company, it supports both margin expansion and the scalability of our network. Our larger footprint is also driving tangible gains in efficiency across dock operations, line haul, and pickup and delivery. We've now opened almost all of the service centers we acquired, and we're seeing the benefit across our network. We've also met our goal of 30% excess door capacity in the current environment. The success capacity positions us to capture market share in a freight upturn and unlock more operating leverage. In addition to real estate, we're committed to investing in our fleet with both tractors and traders. Since launching our LTL growth plan in 2021, we've added more than 5,000 tractors and 16,000 trailers to our network. This, of course, continues insourcing of line haul and is helping us operate with greater flexibility for customers. The average age of our tractors is now down to four years at the low end of our targeted range. This benefits both reliability and safety, and it also reduces the cost of operating our fleet. Turning to pricing, this remains a cornerstone of our plan, and we're seeing the impact of our pricing initiatives on yield growth. In the first quarter, we grew yield excluding fuel by 6.9% year-over-year, marking an acceleration from the prior quarter. This reflects the strength of our commercial strategy and the value we bring to customers. Our high-quality service is earning pricing gains that outpace the market through contract renewals and new business. In addition, local customers and our premium services are becoming more meaningful parts of our revenue mix, and both channels carry a higher margin. We have a growing pipeline of customer demand for our premium offerings, including retail store rollouts and trade show transport. We expect these initiatives to continue driving above-market yield growth well into the future. Cost efficiency is another core part of our plan. and an area where we made major progress this quarter, particularly with line haul and labor productivity. We lowered our purchase transportation costs by 53% year over year and reduced our outsourced line haul miles to just 8.8% of total miles, the best level in the company's history. This is a reduction of more than 900 basis points, demonstrating that we're executing well ahead of plan. By year end, we expect to reduce outsourced miles even further into the mid-single digits, enhancing efficiency and customer service. And when demand returns, the insourcing we're doing now will protect our cost structure as truckload rates rise, enabling us to generate stronger incremental margins versus prior up cycles. We also continue to improve labor productivity in the quarter with our proprietary technology. Our software anticipates volume shifts before they happen, allowing our managers to flex labor hours in real time and making our network more resilient. This technology is unique to XPO and is helping us outperform on margins and profitability in the current strained downturn. It will become an even greater advantage for us in the future. Before I close, I want to spend a minute on artificial intelligence. We've been investing in proprietary AI technology to realize its full potential across our business. We've already identified a number of high-impact applications, initially with line haul optimization, labor planning, and pickup and delivery. These are areas where intelligent automation and better decision-making can directly enhance profitability. Recently, we deployed new AI-driven line haul models designed to improve freight flows across our network. These pilots are already delivering higher load averages and transit efficiencies. In our pickup and delivery operations, we're beta testing AI to optimize trailer and route assignments at the shipment level. These tools factor in appointment windows and other logistics to enhance on-time performance. We see AI playing a major role in how we operate, compete, and create value over the long term. In summary, our first quarter results reflected strong execution across the business. We delivered above-market yield growth, improved cost efficiency, and raised the bar on service quality, all of which strengthened our competitive position. And our investments in capacity and technology are making our network smarter and more agile while leveraging our scale. We built XPO to drive results in any environment, and we intend to keep outperforming the industry with sustained long-term margin expansion. 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. Revenue for the total company was $2 billion, down 3% year-over-year but up 2% sequentially from the fourth quarter. In our LTL segment, revenue was down 4% year-over-year and up 1% sequentially. The majority of the decline was related to lower fuel surcharge revenue tied to the price of diesel. Excluding fuel, LTL revenue was down 2% year-over-year and up 1% sequentially. On the cost side in LTL, we drove another significant reduction in purchase transportation expense. Our expense for third-party carriers decreased by 53% compared with the prior year as we insourced more of our line haul runs. This equated to a reduction of $41 million in the quarter. We also utilized our labor more productively, resulting in a 1% improvement and hours per shipment in a quarter. Notably, we're able to hold our total cost of salary, wages, and benefits at a similar level to last year's first quarter, despite inflation. To do this, we've been utilizing the productivity tools in our proprietary technology. These capabilities are unique to XPO and will be increasingly valuable as our network grows. On the equipment side, we achieved a 5% reduction in maintenance cost per mile. primarily due to our purchase of new tractors for our fleet. We expect this cost to track lower in the future as older units are retired. LTL depreciation expense increased by 10%, or $7 million, reflecting the priority we place on making ongoing investments in our network. Next, I'll cover adjusted EBITDA, starting with the company as a whole. We generated adjusted EBITDA of $278 million in the quarter, down 3% year-over-year. Within that number, adjusted EBITDA for the LTL segment was $250 million, down 2%. Our strong yield growth and cost efficiencies in the quarter were mitigated by the operating environment in the form of lower fuel surcharge revenue, tonnage, and pension income. But even with these constraints, the underlying trends in the business continue to gain momentum. In our European transportation segment, Adjusted EBITDA was $32 million for the quarter, and adjusted EBITDA for the corporate segment was a loss of $4 million. Returning to the company as a whole, we reported first quarter operating income of $151 million, up 9% year over year. And we grew net income by 3% to $69 million, representing diluted EPS of 58 cents. On an adjusted basis, our EPS for the quarter was 73 cents compared with 81 cents a year ago. And lastly, we generated $142 million of cash flow from operating activities in the quarter and deployed $191 million of net capex. Moving to the balance sheet, we ended the quarter with $212 million of cash on hand. Combined with available capacity under our committed borrowing facility, this gave us $811 million of liquidity. and our net debt leverage ratio at quarter end was 2.5 times trailing 12 months adjusted EBITDA. This was an improvement from 2.9 times in the first quarter of 2024. In February, we successfully repriced our $1.1 billion term loans and refinanced our ABL revolver into a new secured cash flow facility. This extended the maturity of our revolver to 2030 and stabilized our liquidity with a constant $600 million of availability while providing long-term capital structure flexibility. While we remain committed to investing in initiatives that support earnings growth, we expect our lower CapEx profile to generate a higher level of free cash flow this year. This dynamic over time should provide us with greater flexibility to return capital to shareholders. Recently, we announced an authorization by our board of directors for the repurchase of up to $750 million of our common stock. We expect to begin opportunistically re-purchasing shares this year with our excess cash. Now, I'll turn over to Ali, who will cover our operating results.