Xpo, Inc. · NYSE:XPO
Xpo — Investor Day (October 2022)
70 slides from Xpo's investor day presentation, October 2022
Slide 1: Investor Day Presentation
Investor Day Presentation October 2022
Slide 2: Non-GAAP financial measures
Non-GAAP financial measures As required by the rules of the Securities and Exchange Commission (“SEC”), we provide reconciliations of the non-GAAP financial measures contained in this presentation to the most directly comparable measure under GAAP, which are set forth in the financial tables attache
Slide 3: Forward-looking statements
Forward-looking statements This presentation includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements relating to the planned spin-off, the expected timing of the spin-off, the ant
Slide 4: Presenters
Presenters Mario Harik Matt Fassler Jay Silberkleit LTL President; Chief Executive Chief Strategy Officer Chief Information Officer Elect Officer Elect Tony Graham Marissa Christensen Martin Ryan President, West Division Vice President, National Sales Senior Director, Pricing 4
Slide 5: Strategic path to the separation
Strategic path to the separation Announces planned 7th best-performing brokered stock of last decade on Announces planned transportation Completes Fortune 5001 logistics spin-off spin-off spin-off Jan 2020 Dec 2020 Aug 2021 Mar 2022 Nov 2022 Exploration Sells Announces intent of strategic intermodal
Slide 6: Separation will create two high-ROIC transportation leaders with vast potential
Separation will create two high-ROIC transportation leaders with vast potential One of the largest LTL providers in North America 4th largest US full truckload broker • $51 billion industry with stable landscape and few large players • $750+ billion addressable market for service offerings • Asset-b
Slide 7: Agenda
Agenda Reasons to invest in XPO Why LTL is an attractive growth industry XPO’s differentiation and competitive advantages Comprehensive growth plan Financial summary and outlook 7
Slide 8: Reasons to invest in XPO
Reasons to invest in XPO 1 2 3 4 5 Leader in a bedrock Critical nationwide Data-driven levers of profit High-ROIC business with Results-oriented leaders industry with network coverage, with growth embedded in compelling outlook and with long history of disciplined pricing and in-house sources of pro
Slide 9: Our strategic plan over the next five years
Our strategic plan over the next five years Leverage tech to deliver Gain market share Optimize pricing operational excellence • Invest in capacity • Leverage machine-learning in • Optimize linehaul, pickup and pricing technology delivery and dock operating costs • Provide best-in-class service thro
Slide 10: 11% to 13% adjusted EBITDA CAGR for six-year period 2021-2027
11% to 13% adjusted EBITDA CAGR for six-year period 2021-2027 Expected contribution Drivers of profit growth to adjusted EBITDA CAGR Combination of volume gains + pricing over inflation 6% to 7% Operating costs optimized through technology 3% to 4% Linehaul insourced from third parties 2% 11% to 13%
Slide 11: XPO's LTL platform is a springboard for significant growth
XPO’s LTL platform is a springboard for significant growth 13 million 18 billion 630 million 25,000 Shipments per year Pounds of freight per year Linehaul miles run per year Accounts served 13,000 27,000 294 22,000 Drivers Trailers Terminals Employees $4.4 billion 8% 36% 1 84% 2 Annual revenue 2021
Slide 12: Why LTL is an attractive growth industry
Why LTL is an attractive growth industry 12
Slide 13: North American LTL industry overview
North American LTL industry overview Defining Characteristics • Shipment is too small to require an entire truck, but larger than parcel, typically shipped on pallets • Freight for different customers consolidated in the same trailer • Networked hub-and-spoke operating model of terminals and other f
Slide 14: High degree of difficulty for entry
High degree of difficulty for entry Major capital investment High performance bar Hard-to-replicate scaled network coverage Reputational business; strong service levels are a key must be in place on day one gating factor for share gains Requires integrated terminals, fleet Customers view choice of L
Slide 15: Fourth largest domestic LTL provider with ability to gain share
Fourth largest domestic LTL provider with ability to gain share in a stable competitive landscape $8.6 Top 10 LTL carriers by revenue, 2021 $ in billions $5.2 $5.1 $4.1 $3.8 $3.2 $2.5 $2.4 $2.3 $1.5 = top 10 LTL carriers by revenue a decade ago 9 largest carriers were also in top 1
Slide 16: Industry's terminal capacity has stayed essentially flat, despite growth in demand
Industry's terminal capacity has stayed essentially flat, despite growth in demand Number of LTL terminals1 Reduction of 3% 1,733 1,679 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022E Creates ongoing opportunities for well-capitalized incumbents Source: Third-party research; company filings
Slide 17: Favorable industry pricing dynamics with YoY yield improvement over time
Favorable industry pricing dynamics with YoY yield improvement over time Continued growth through COVID-19 11% 7% 5% 2% 2% 1% 2016 2017 2018 2019 2020 2021 Yield Improvement YoY Three-Year Average Average improvement of ~5% per year over last six years1 Source: Third-party research; company filings
Slide 18: LTL is a growing industry providing a critical service to the economy
LTL is a growing industry providing a critical service to the economy Major secular tailwinds Nearshoring of industrial Supply chain proximity to Shifting consumer habits and Visibility and productivity manufacturing customers expectations through technology 5.6% LTL industry revenue CAGR since 2010
Slide 19: XPO's differentiation and competitive advantages
XPO’s differentiation and competitive advantages 19
Slide 20: Strong competitive platform, with levers unique to XPO
Strong competitive platform, with levers unique to XPO Critical network scale, with Differentiated technology in-house capabilities to optimizes network and grow capacity pricing Quality people and service Well-defined culture driving customer strategy for share choice of XPO and profit growth 20
Slide 21: Strategic footprint with hub-and-spoke model
Strategic footprint with hub-and-spoke model Targets high population densities and gateways to demand Freight Assembly Centers Service Centers Note: XPO also provides service to Alaska, Hawaii and the Caribbean (not shown) 21
Slide 22: Each hub provides significant coverage for customers
Each hub provides significant coverage for customers Example: Chicago Heights origin hub Next Day 2 Days 3 Days 4 Days 5+ Days 22
Slide 23: In-house trailer manufacturing and driver training schools are unique advantages
In-house trailer manufacturing and 130 driver training schools are unique advantages Producing 4,700 trailers in 2022 • Manufactures 28 ft. to 57 ft. units • Flexibility to adjust specs for customers as needed • Maintains OEM parts for in-house shops • Engineers new products Training 1,700 drivers i
Slide 24: Proprietary technology is a key competitive advantage
Proprietary technology is a key competitive advantage Proprietary technology touches all components of LTL Feedback loop identifies areas of greatest impact Best-in-class engineers transform LTL operations Pricing platform to enhance yields and customer interactions Productivity tools optimize costs
Slide 25: XPO is building a fully dynamic network across the shipment lifecycle
XPO is building a fully dynamic network across the shipment lifecycle Pick-up and Dock and Yard Linehaul Pricing Customer Function Delivery Operations Operations Optimization Engagement Solution Intelligent routing Labor Piece-level AI-driven Dynamic Customized cost Customer self-service and product
Slide 26: XPO's people thrive on providing superior service
XPO’s people thrive on providing superior service Employee engagement 17% improvement in engagement over the last year, highest score since acquisition Safety >2,000 drivers have achieved one million accident-free miles Experience 47% of all drivers have a tenure of over 10 years Best-in-class drive
Slide 27: Quality service driving quality results
Quality service driving quality results Employee Best-in-class Leadership Safety Experience Diversity engagement drivers development Pride, Damage-free Knowledge On-time Pipeline of quality Recruitment and accountability and freight handling; leveraged by team performance; brand managers as retentio
Slide 28: Robust ESG framework
Robust ESG framework • Executive compensation tied to ESG targets ESG scorecard categories • Core DE&I objectives for recruitment and retention • Collaborating with historically Black colleges and universities (HBCUs) and others • Promoting women and minority employees to middle and senior managemen
Slide 29: Proven leadership team with valuable skill sets and experience
Proven leadership team with valuable skill sets and experience Mario Harik CEO Elect 19 years Carl Jay Tony Tim Anthony Anderson Silberkleit Graham Staroba Hoereth CFO Elect CIO Elect President, President, SVP, Sales 25 years 18 years West Division East Division 28 years 35 years 27 years Diana Greg
Slide 30: Comprehensive growth plan
Comprehensive growth plan 30
Slide 31: Three pillars of XPO's growth plan
Three pillars of XPO’s growth plan • Grow capacity to accommodate demand Gain market share • Provide best-in-class service to gain new business and grow wallet share • Expand sales resources and target growing verticals • Increase win rate on contracts Optimize pricing • Capture real-time opportunit
Slide 32: Strategic capex plan with concrete commercial goals
Strategic capex plan with concrete commercial goals Gross capex as % of revenue Targeted investments 9-10% • In 2021, began accelerating LTL 2.0 investments for share gains and high returns, after focusing on capital efficiency and margin expansion in LTL 1.0 strategy post-acquisition • Adding 900 n
Slide 33: The Case for Growth
The Case for Growth Atlanta market is on the fast track Rationale for investment In top quintile for population growth XPO footprint in Atlanta ripe for strategic expansion (2016-2021) • Significant capacity allocated to linehaul LTL linehaul gateway to Florida, with 15 of • Limited capacity for pic
Slide 34: Elevating service through incentives and technology
Elevating service through incentives and technology Gladiator incentive Dockworkers recognized Trailer rating system program for terminals for achievement fosters accountability • Supervisor receives • Visible recognition in • Self-scoring increases bonus when terminal front of peers awareness of qu
Slide 35: Investing in sales group to drive growth
Investing in sales group to drive growth Dedicated LTL sales strategy Tiered account structure1 • Established new team with strategic focus on the 200 largest LTL shippers Local Strategic 26% 31% • Added ~7% salespeople and ~20% more national account executives from January 1, 2021 to June 30, 2022
Slide 36: Mix of verticals with durable long-term demand, led by industrial
Mix of verticals with durable long-term demand, led by industrial XPO’s vertical mix1 Other 25,000 8% Total accounts as of June 30, 2022 Consumer and Retail / E-Commerce 28% No single customer more than 2% of revenue Industrial 65% Average tenure of top 10 customers 16 Years Large upside expected fr
Slide 37: Mission-critical partner to blue-chip customers with diverse end markets
Mission-critical partner to blue-chip customers with diverse end markets Selected customers 37
Slide 38: Industrial distribution
Industrial distribution Key customer requirements • High network velocity to deliver next-day and two-day service Long-term support of customer • Weekly scoring and monthly reviews with leaders of top shipping sites since 1983 • On-site customer visits to collaborate with XPO teams and inspect damag
Slide 39: Industrial manufacturing
Industrial manufacturing Key customer requirements • Nationwide coverage, including remote areas Fortune 100 equipment • Additional trailer capacity for peak season manufacturer • Custom technology integration for scorecards and invoicing Deep collaboration at all levels has driven rapid relationshi
Slide 40: Construction
Construction Key customer requirements Strategic partnership for NAFTA • Experienced LTL service across US, Canada and Mexico, with border services coverage • Enough network scale to consolidate LTL with one national carrier Major construction firm sought to consolidate LTL relationships to support
Slide 41: Retail
Retail Key customer requirements Omnichannel B2C and B2B retail chain • Solutions-focused national provider with strong technology • Investment in doors and other capacity in key growth markets Sought to replace LTL incumbent with an innovative partner willing to invest • Timely customer service res
Slide 42: Optimized pricing: Strong platform supports current and future developments
Optimized pricing: Strong platform supports current and future developments XPO yield trajectory $20.65 Revenue per hundredweight, $19.80 excluding fuel surcharges $18.63 $18.27 $17.70 $17.20 $17.32 $16.48 2015 2016 2017 2018 2019 2020 2021 LTM 6/30 2022 Decision science Decision support Process sup
Slide 43: Proprietary pricing technology gives XPO an advantage
Proprietary pricing technology gives XPO an advantage in managing billions of combinations of shipment variables Enormous range of potential outcomes per shipment Type of Weight of Freight Shipment Lane Network Density Balance XPO’s pricing platform has differentiated capabilities to manage contract
Slide 44: New contractual pricing platform is delivering widespread benefits
New contractual pricing platform is delivering widespread benefits Capability Impact ~80% reduction in response time, due to automating manual Aggregate all key customer data processes Win rate for renewal RFPs increased 60% from Q2 2021 to Q2 2022 Set customer-specific prices due to better KPI anal
Slide 45: Dynamic pricing drives profitability by responding to real-time network opportunities
Dynamic pricing drives profitability by responding to real-time network opportunities Capability Impact Machine learning-based algorithms instantly Virtuous cycle of feedback loops and instantaneous capture network dynamics adjustments Balances pricing quotes to drive both price Optimizes for capaci
Slide 46: Differentiated cost modeling enables accurate assessment for margin expansion
Differentiated cost modeling enables accurate assessment for margin expansion Capability Impact Algorithms accommodate unique cost structures Fully controllable, proprietary solution excels at producing highly in modeling accurate estimations of outcomes Generates a more accurate allocation of sales
Slide 47: Benefit of 1 point cost reduction by area
XPO’s LTL platform is a springboard for significant growth BENEFIT OF 1 PT COST REDUCTION: • Volume and route optimization Linehaul • Insourcing third-party miles: 1% insourcing provides $16 million ~$5 million benefit Pickup and Delivery • Intelligent sequencing $7 million • On-time service • Produ
Slide 48: Linehaul technology optimizes miles driven and reduces rehandling of freight
Linehaul technology optimizes miles driven and reduces rehandling of freight Proprietary capabilities Impacts Weekly and daily optimizers build load plans to Moves 30,000 trailer loads per day with fewer miles driven move freight across network Improves load factor; a miles per weight metric Bypass
Slide 49: Linehaul is the backbone of the network and one of our largest cost opportunities
Linehaul is the backbone of the network and one of our largest cost opportunities Two-day transit from Minneapolis to Boston 8pm Monday 1am Tuesday 8am Tuesday 2pm Tuesday 8pm Tuesday 1am Wednesday 8am Wednesday Minneapolis, MN Tomah, WI Boston, MA Chicago Heights, IL Montgomery, NY Lorain, OH Woodl
Slide 50: Plan to reduce third-party linehaul carrier miles can save ~$55 mm
Plan to reduce third-party linehaul carrier miles over time can save ~$55 mm of linehaul costs • Acquired an operating model with high reliance on third-party Outsourced linehaul as a % of linehaul providers XPO linehaul miles • Significantly reduced use of third parties 2017-2022E 32% • Benefits of
Slide 51: Proprietary pick-up and delivery optimization is driving tangible results
Proprietary pick-up and delivery optimization is driving tangible results Capability Impact Machine learning-based algorithm anticipates Reduces miles per stop and cost per stop pick-up densities and locations Right-sizes number of drivers per workload Automates route stop sequencing Priority sequen
Slide 52: XPO Smart productivity tools improve dock labor costs and employee efficiency
XPO Smart® productivity tools improve dock labor costs and employee efficiency Cloud Time and Applications Attendance Machine Forecasting Learning Mobile Devices IoT Data and Handhelds Model Training Analytics Transactional Data Large-Format Displays XPO Smart® reduces freight rehandle with 5% less
Slide 53: XPO's piece-level tracking reduces trailer misloads and improves visibility
XPO’s piece-level tracking reduces trailer misloads and improves visibility Assigns unique identifiers to shipments with multiple pieces • Tracks per pallet vs. per shipment, enabling rapid resolution of misplaced freight • Optimizes downstream processes, such as trailer loading and dock-level plann
Slide 54: Financial summary and outlook
Financial summary and outlook 54
Slide 55: Long-term targets driven by investments in the business
Long-term targets driven by investments in the business, leveraged by technology and scale 1 Revenue Growth 2 Adjusted EBITDA 3 Adjusted Operating Ratio Revenue CAGR 6% to 8%, EBITDA CAGR 11% to 13%, At least 600 bps of improvement, 2021 – 2027 2021 – 2027 2021 – 2027 Gross Capex 8% to 12% of revenu
Slide 56: Continuously improving adjusted operating ratio
Continuously improving adjusted operating ratio 93% 84% 79% 2015 2021 2027E Note: Adjusted operating ratio as currently defined, excluding standalone costs and real estate, including pension income; refer to "Non-GAAP Financial Measures" section on page 2 and Supplemental Materials for related infor
Slide 57: At least 600 bps of adjusted operating ratio improvement from 2021-2027
At least 600 bps of adjusted operating ratio improvement from 2021-2027 88% At least 600 bps 4% 84% improvement 82% 2021 Includes corporate costs, PF 2021 PF 2027E removes pension income Note: Adjusted operating ratio excludes real estate gains; refer to "Non-GAAP Financial Measures" section on page
Slide 58: Disciplined investing in high return projects
Disciplined investing in high return projects 9-10% 10.0% 700 600 8.0% Gross capex as a % of revenue 500 ~$425 - 450 Gross capex ($ MM) 6.0% 5.2% 400 4.8% 4.1% 3.8% 300 4.0% $197 $197 200 $145 $145 2.0% 100 0 0.0% 2018 2019 2020 2021 2022E Tractor age (yrs) 5.3 5.1 5.4 5.9 5.9 2022 capex prioritizes
Slide 59: Capital allocation generates robust returns
Capital allocation generates robust returns Standalone return on invested capital 38% 38% 33% 36% 2019 2020 2021 LTM 6/30 2022 ROIC above 30% Note: The company expects a near-term moderation in LTL ROIC given its planned capex, followed by a return to current levels and with a much higher level of e
Slide 60: Strong track record of deleveraging the balance sheet
Strong track record of deleveraging the balance sheet Net leverage 3.3 x Cash proceeds from 2.9 x RXO used to pay 2.7 x down debt 2.0 x 2019 2020 2021 PF 2022E PF for spin-off of RXO Note: Refer to "Non-GAAP Financial Measures" section on page 2 and Supplemental Materials for related information; 20
Slide 61: Disciplined capital allocation to maximize opportunities as a standalone company
Disciplined capital allocation to maximize opportunities as a standalone company Organic Debt Return of Capital to Growth Reduction Shareholders • Deployment of capital in • Targeting investment grade • Balanced approach of high- return projects credit metrics returning capital to • Technology and p
Slide 62: Reasons to invest in XPO
Reasons to invest in XPO 1 2 3 4 5 Leader in a bedrock Critical nationwide Data-driven levers of profit High-ROIC business with Results-oriented leaders industry with network coverage, with growth embedded in compelling outlook and with long history of disciplined pricing and in-house sources of pro
Slide 63: Supplemental materials
} Supplementar materials ee . as XPO
Slide 64: Q&A participants
Q&A participants Mario Harik Matt Fassler Jay Silberkleit LTL President; Chief Executive Chief Strategy Officer Chief Information Officer Elect Officer Elect Tony Graham Marissa Christensen Martin Ryan President, West Division Vice President, National Sales Senior Director, Pricing 64
Slide 65: XPO's new board composition after the separation
XPO’s new board composition after the separation Brad Jacobs Johnny C. Taylor, Jr. Allison Landry Jason Aiken Bella Allaire Mario Harik Michael Jesselson Irene Moshouris Executive Lead Independent Vice Chairman Director Director Director Director Director Chairman Director Former senior Chief financ
Slide 66: Reconciliations
Reconciliations 66
Slide 67: Financial reconciliations
Financial reconciliations The following table reconciles XPO’s operating income attributable to its North American less-than-truckload business to adjusted operating income, adjusted operating ratio, adjusted EBITDA and net cash for the respective periods shown in the table below. Reconciliations of
Slide 68: Financial reconciliations (cont.)
Financial reconciliations (cont.) The following tables calculate XPO’s net leverage and net debt for the periods presented. We believe that net leverage and net debt are important measures of our overall liquidity position and are calculated by removing cash and cash equivalents from our reported to
Slide 69: Financial reconciliations (cont.)
Financial reconciliations (cont.) The following table calculates XPO's return on invested capital (ROIC) attributable to its North American less-than-truckload business for the periods presented. We believe that ROIC is an important metric, as it measures how effectively we deploy our capital base.
Slide 70: Financial reconciliations (cont.)
Financial reconciliations (cont.) The following table reconciles XPO’s historical revenue to XPO's revenue attributable to the remaining company after the planned spin-off of RXO (1) and the divestiture of our North American intermodal operation for the trailing twelve months ended June 30, 2022, th