XPO, Inc. · NYSE:XPO
XPO — Investor Day (June 2022)
76 slides from XPO's investor day presentation, June 2022
Slide 1: Sell-Side Brokerage Day
JUNE 2022 Sell-Side Brokerage Day
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 document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including our future growth prospects for our North American Truck Brokerage b
Slide 4: Truck Brokerage: The Largest Driver of SpinCo Financial Performance
Truck Brokerage: 2021, TRUCK BROKERAGE DROVE The Largest Driver of SpinCo 57% 84% Financial of SpinCo revenue of SpinCo operating income Performance 4
Slide 5: Presenters and Q&A
Presenters and Q&A DREW WILKERSON LOU AMO YOAV AMIEL ALYSSA MYERS President, North American President, Truck Brokerage Senior Vice President, Technology, Vice President, Technology, Transportation SpinCo President-Elect, North American Transportation Brokerage SpinCo CEO-Elect Truck Brokerage SpinCo
Slide 6: Executive Summary
Executive Summary
Slide 7: XPO Brokerage: A Tech-Enabled Brokerage Platform
XPO Brokerage: A Tech-Enabled Brokerage Platform ~$400 billion ~$88 billion 4th largest ~4% total addressable industry size1 full truckload broker market share opportunity1 88,000 1.5 million 1,600 >5,000 carriers2 trucks2 employees customers 15-year 74% >700K High ROIC average tenure of of loads cr
Slide 8: XPO Is Growing Truck Brokerage at 3x the Industry Rate
XPO Is Growing Truck Brokerage at 3x the Industry Rate Expect to generate double-digit truck brokerage volume growth in 2022 and going forward US BROKERAGE INDUSTRY GROWTH XPO BROKERAGE REVENUE FROM 2013 TO 2021 1 GROWTH FROM 2013 TO 2021 $2.75 billion $88 billion R AG C RY GR T US CA D IN O 6% XP 9
Slide 9: Key Drivers of Value Creation
Key Drivers of Value Creation 1 Expanding industry with low penetration and secular tailwinds 2 Differentiated, scaled platform with market leadership in the US 3 Long-tenured, blue-chip customer relationships in attractive verticals 4 Proprietary technology with first-mover advantage 5 Asset-light
Slide 10: Industry Backdrop
Industry Backdrop
Slide 11: Rapid Industry Growth Propelled by Multiple Tailwinds
Rapid Industry Growth Propelled by Multiple Tailwinds PRIMARY GROWTH DRIVERS Continued outsourcing Adoption of differentiated Growing demand for Structural supply side of transportation services, digital solutions and supply chain visibility and shortage of drivers (and due to increasingly automatio
Slide 12: Consistent Increases in US Truck Brokerage Industry Penetration
Consistent Increases in US Truck Brokerage Industry Penetration BROKER PENETRATION OF US TRUCKLOAD INDUSTRY 28% 26% 25% 25% 24% 22% 21% 20% 20% 18% 16% 15% 14% 14% 13% 13% 13% 12% 12% 11% 10% 10% 10% 9% 8% 7% 7% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 201
Slide 13: Truck Brokerage Industry Poised to Outgrow GDP
Truck Brokerage Industry Poised to Outgrow GDP TRUCK BROKERAGE VOLUME AND REAL GDP Y AXIS: 2021 INDEXED TO 100 The brokerage industry is poised to continue 150 outgrowing GDP Load growth GROWTH DRIVERS Industry volume growth of § Outsourcing ~6.6% CAGR, >3X GDP growth § Digitization 125 § Demand for
Slide 14: Powerful Combination of Scale, Technology and Services
Powerful Combination of Scale, Technology and Services
Slide 15: Powerful Combination of Scale, Technology and Services
Powerful Combination of Scale, Technology and Services BEST-IN-CLASS TRUCK BROKER IN NORTH AMERICA § Long track record of outperforming the industry § Thousands of loads available on a daily basis from customer relationships, access to capacity, technology and service § Fourth largest broker of full
Slide 16: 4th Largest Full Truckload Broker in US after Just 11 Years
4th Largest Full Truckload (FTL) Broker in US after Just 11 Years 2021 FTL BROKERAGE – US GROSS REVENUE $ in billions 11.4 7.3 (UPS) 2.9 2.7 ~4% market share 2.4 2.2 2.1 + 1.8 1.8 + 1.6 Critical scale to grow market reach Source: Third-party research 16
Slide 17: Optimal Mode for Each Customer Need
Powerful Combination of Scale, Technology and Services OPTIMAL MODE FOR EACH CUSTOMER NEED Full truckload Expedite Drop trailers Dry van, refrigerated, hazmat Time-critical, special handling Capacity for transloaded Flatbed US cross-border OTR containers Mexico, Canada 17
Slide 18: Flexibility to Succeed in All Market Environments
Flexibility to Succeed in All Market Environments Our agility is enabled by our proprietary technology, strengthened by our pricing algorithms and amplified by our scale WE DEPLOY LEADING INDICATORS TO ANTICIPATE THE DIRECTION OF THE MARKET XPO “load-to-truck” ratio Outbound tender rejections Invent
Slide 19: Flexibility to Succeed in All Market Environments (cont.)
Flexibility to Succeed in All Market Environments (cont.) IF THE MARKET IS POISED TO IF THE MARKET IS POISED TO TIGHTEN, WE… LOOSEN, WE… § Review rates with our top customers § Look for opportunities to reduce carrier costs to expand margin § Hire to enable new capacity § Slow hiring, lean into prod
Slide 20: Strong Growth across Key Financial Metrics
Strong Growth across Key Financial Metrics BROKERAGE LOADS REVENUE $ in millions 2,749 2% 18% AG R: 4 R: C CAG 1,684 1,372 2019A 2020A 2021A 2019A 2020A 2021A MARGIN ADJUSTED EBITDA $ in millions $ in millions Margin 16.7% 17.0% 15.5% Margin: 6.6% 7.1% 7.4% Rate: 427 204 R: 36% % CAG R: 50 G CA 286
Slide 21: Asset-Light Model Generates High Returns and Substantial Free Cash Flow
Asset-Light Model Generates High Returns and Substantial Free Cash Flow VARIABLE COST STRUCTURE HIGH FREE CASH FLOW AND RETURNS Fixed ≤10% <1% >38% Capex as a % ROIC1 Variable of Revenue ≥90% § Highly variable cost structure, with less than 10% § Ongoing investments in technology deliver fixed costs
Slide 22: Diversified Exposure Across Attractive End Markets
Diversified Exposure Across Attractive End Markets 2021 XPO TRUCK BROKERAGE REVENUE DIVERSIFIED ACROSS END MARKETS INDUSTRIAL / CONSUMER OTHER 49% 51% Healthy diversification Other¹ across attractive verticals 16% with low concentration Retail / E-commerce risk; strategic focus on 25% Automotive 5%
Slide 23: Long-Tenured, Blue-Chip Customer Relationships in Attractive Verticals
Long-Tenured, Blue-Chip Customer Relationships in Attractive Verticals 2021 REVENUE BY CUSTOMER SELECT CUSTOMERS Customer 1-5 20% Others 30% Customer 6-10 8% Customer 11-20 11% Customer 21-100 31% 23
Slide 24: Proprietary Technology
Proprietary Technology Manages capacity to best cover customer loads under all demand environments PROPRIETARY LEVERS FOR PROFITABLE GROWTH Dynamic pricing algorithms use machine learning to optimize margin Automated processes and messaging improve productivity per head Captures volume and revenue a
Slide 25: Tiered Approach to Sales to Target Sustainable Growth
Tiered Approach to Sales to Target Sustainable Growth TIERED APPROACH TO SALES § Targets large enterprise customers Strategic Account 1 Manager Team § Key account managers have vertical-specific expertise (SAMs) § Tailored solutions to customer’s exact needs National Account 2 Manager Team § Targets
Slide 26: Case Study: Industrial
Case Study: Industrial RELATIONSHIP ORIGIN / CUSTOMER NEED § Customer needed help with flatbed solutions in 2013 § Due to the mission-critical nature of the company’s products, supply chain continuity is critical XPO SOLUTION § Progressed from small flatbed carrier to the largest brokered flatbed pr
Slide 27: Case Study: Retail (durable goods)
Case Study: Retail (durable goods) RELATIONSHIP ORIGIN / CUSTOMER NEED § Dry van service commenced in 2014 § Customer needs extensive project support XPO SOLUTION § XPO now provides flatbed, seasonal projects, transload services (helped with backlogs at ports) § Leading emergency freight provider (m
Slide 28: Case Study: Food and Beverage
Case Study: Food and Beverage RELATIONSHIP ORIGIN / CUSTOMER NEED § Relationship originated in 2004 with Canadian bottling counterpart (later brought in-house) for cross-border freight § XPO committed to take every uncovered load XPO SOLUTION § Deep technology integration § Extensive drop trailer ef
Slide 29: Case Study: Retail (apparel)
Case Study: Retail (apparel) RELATIONSHIP ORIGIN / CUSTOMER NEED § Relationship grew enormously from 2020 § XPO has been able to satisfy outsized demand at peak when other brokers turned it down XPO SOLUTION § Dry van, transloading, drop trailers § We flex up massively during peak § Customer appreci
Slide 30: Case Study: Food and Beverage
Case Study: Food and Beverage RELATIONSHIP ORIGIN / CUSTOMER NEED § Relationship commenced in 2012 XPO SOLUTION § Transloading, refrigerated and drop trailer § Massive contracted award § 99% of loads created or covered digitally KEY RESULTS § Carrier of the Year Award in 2021 § Brokerage revenue up
Slide 31: Case Study: Automotive
Case Study: Automotive Key managed transportation collaboration RELATIONSHIP ORIGIN / CUSTOMER NEED § New managed transportation customer in 2021 XPO SOLUTION § Services include cross-border brokerage, intra-Mexico brokerage, expedite, air charter, port diversion, drop trailers, air charter § Contra
Slide 32: Disruptive Digital Brokerage Platform
Disruptive Digital Brokerage Platform
Slide 33: XPO Is Leading Technological Disruption
XPO Is Leading Technological Disruption YEARS IN OPERATION KEY XPO CONNECT INNOVATIONS XPO 10 Cargo Chief 9 § XPO Connect’s proprietary freight optimization system Cargomatic 8 § Launched October 2012 Tru cker Path 8 Coyote 8 Next Trucking 6 § Digital freight marketplace FR8star 6 § Launched April 2
Slide 34: Executing Profit Initiatives Driven by Technology
Executing Profit Initiatives Driven by Technology THREE KEY AREAS WELL-DEFINED EXECUTION WITHIN BROKERAGE EXPAND XPO CONNECT® § Increases volume via API deployments, integration, automation and digital interfaces 1 Volume § Generates “touchless” revenue through marketplace interfaces with smaller cu
Slide 35: XPO Connect Video
XPO Connect® Video 2 | a —7 se ; ~\® ; - i 954 Ibs . J
Slide 36: XPO Connect Is a Powerful, Digital Ecosystem
XPO Connect® Is a Powerful, Digital Ecosystem CARRIERS CUSTOMERS REAL-TIME DRIVE XPO™ APP TRACKING ENGINE DEMAND SUPPLY CARRIER CUSTOMER INTERFACE INTERFACE FREIGHT OPTIMIZER CARRIER MOBILE CUSTOMER INTERFACE MOBILE INTERFACE API SOLUTIONS OPERATIONAL DIGITAL CAPACITY ZERO-TOUCH ORIENTATION SYNERGIE
Slide 37: Freight Optimizer Is the Scalable Freight Management Engine
Freight Optimizer Is the Scalable Freight Management Engine of XPO Connect® § Leverages machine learning to procure the optimal capacity for each load by analyzing data from multiple sources, weighted by cost and performance § Draws on ~88,000 registered carriers in XPO Connect® for rapid load-match
Slide 38: XPO Connect Generates Efficiencies for All Stakeholders
XPO Connect® Generates Efficiencies for All Stakeholders FLEXIBLE AND CUSTOMIZABLE SOLUTION CUSTOMER CARRIER PERSONALIZED FREIGHT TAILORED CAPACITY ENABLEMENT FUNCTIONALITY MANAGEMENT MANAGEMENT § Quote and buy § Post available capacity § Customize personal § Use mobile app to different kinds of bas
Slide 39: Drive XPO App Benefits Customers and Carriers
Drive XPO® App Benefits Customers and Carriers by Helping to Automate the Procurement Process § Carriers use Drive XPO® self-service dashboard to access XPO Connect® on their mobile devices § Over 700,000 driver downloads of the app to date with ongoing, rapid adoption § Fully mobilized transactiona
Slide 40: XPO Connect Tech Demo
XPO Connect® Tech Demo
Slide 41: XPO Connect is Widely Adopted and Growing Fast
XPO Connect® is Widely Adopted and Growing Fast CARRIERS 700,000 Total Drive XPO® app downloads 120,000 Total registered carrier users 600,000 100,000 500,000 80,000 400,000 60,000 300,000 200,000 40,000 100,000 20,000 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Slide 42: XPO Connect Captures Share and Reduces Costs
XPO Connect® Captures Share and Reduces Costs 1 Significant opportunity to unlock incremental revenue and profit well beyond current levels 2 Comprehensive digital platform enhances offering beyond traditional full truckload Reaches emerging growth customers with low-cost model: primarily digital, w
Slide 43: Productivity Measures Enhance Margins
Productivity Measures Enhance Margins LOAD PER HEAD PER DAY (6+ MONTHS TENURE) Q1 2017 INDEXED TO 100% Load growth of 71% vs. 35% Increase in Productivity headcount of 27% 135% § Simplifies pricing execution AGR with proprietary tools, 6% C including direct link to operational TMS 100% § Reduces tim
Slide 44: Pricing Levers Boost Revenue and Margins
Pricing Levers Boost Revenue and Margins OPTIMIZATION TOOLS § Costing algorithms and digital freight match capability Proprietary machine-learning § Purchases transportation at optimal rates and expands margins pricing engine for § Outperformed large competitors on margin 15 consecutive quarters, in
Slide 45: Experienced and Cohesive Leadership
Experienced and Cohesive Leadership D R EW W IL K ER SON President, North American Transportation § 15-year transportation industry veteran, joined XPO in 2012 § Served as president of XPO’s North American brokerage business § In 2020, named president of XPO’s North American Transportation § Prior t
Slide 46: Key Drivers of Value Creation
Key Drivers of Value Creation 1 Expanding industry with low penetration and secular tailwinds 2 Differentiated, scaled platform with market leadership in the US 3 Long-tenured, blue-chip customer relationships in attractive verticals 4 Proprietary technology with first-mover advantage 5 Asset-light
Slide 47: Q&A
Q&A
Slide 48: Reconciliation of North American Truck Brokerage Adjusted EBITDA
Reconciliation of North American Truck Brokerage Adjusted EBITDA The following table reconciles XPO’s operating income attributable to its North American Truck Brokerage business for the years ended December 31, 2019, 2020 and 2021, to adjusted EBITDA for the same periods. $ in millions unaudited 20
Slide 49: Return on Invested Capital and Truck Brokerage Margin Reconciliation
We believe that return on invested capital (ROIC) is an important metric, as it measures how effectively we deploy our capital base. ROIC is calculated as net operating profit after tax (NOPAT) for the trailing twelve months ended March 31, 2022, divided by invested capital as of March 31, 2022. NOP
Slide 50: Reconciliation of Income from Continuing Operations to Adjusted EBITDA
The following table reconciles XPO’s income from continuing operations for the trailing twelve months ended March 31, 2022, the three-month periods ended March 31, 2022 and 2021, and twelve months ended December 31, 2021, to adjusted EBITDA for the same periods. RECONCILIATION OF INCOME FROM CONTINU
Slide 51: XPO Brokerage Day Investor Presentation and Q&A
XPO Brokerage Day Investor Presentation and Q&A June 2022* Sections: Management Presentation 1–14 Q&A Session 14–23 1. Drew Wilkerson: Good morning. Welcome to our XPO Sell-Side Brokerage Day! I'm Drew Wilkerson, President of North American transportation for XPO. I'll be the CEO of SpinCo, which we
Slide 52: Transcript: Management presentation, XPO Connect
leveraged his experience in machine learning to lead the development of our XPO Connect brokerage platform, which is one of the most rapidly adopted technologies of its kind in the industry. Alyssa Myers, vice president of technology for brokerage, will be demonstrating XPO Connect. Alyssa joined XP
Slide 53: Transcript: Scale and digital focus
chain of the future is moving toward digital, and we're at the leading edge of that evolution. We're big believers in scale. We're one of only a small number of players that can solve the freight transportation needs of world-class companies, and we have a compelling commercial edge. Our customer ba
Slide 54: Transcript: Industry penetration and drivers
efficiently. These tools match shippers and carriers, and help each party to the transaction realize the best value. The structural shortage of drivers has been widely reported recently, but was present long before Covid and is likely to still be with us long after the pandemic fades. This puts an o
Slide 55: Transcript: Service modes
trailer service since our inception. It was typically done by asset-based carriers, and over time we've shown we have more dependable access to flexible capacity. This is a part of the market where we've been able to penetrate and take share. Transloading is another opportunity that we've seen from
Slide 56: Transcript: Market playbook
intelligent lane assignment. And, we backstop rates with customers who have a waterfall on their routing guide. Based on price and service, we'll go in and pick a spot on the routing guide and give a rate where we commit to take loads 100% of the time, so the customer doesn’t have to send loads out
Slide 57: Transcript: Sales and customers
17. Lou Amo: Thanks, Drew. Very early on at XPO, we launched brokerage cold-starts across the US. We opened 14 of these offices over a two-year period and bought nine more companies that had brokerage operations. Our strategy of organic growth coupled with the M&A fused the best of both worlds: an a
Slide 58: Transcript: Sales model
systems. These digital channels allow us to automate customer interactions. This is important, because automated pricing and customer integration allow us to win business, and XPO Connect generates quotes faster and more consistently than our reps can. We generate thousands of spot quotes daily, 24/
Slide 59: Transcript: Customer examples
freight is so important that they only allow two carriers to haul it, and we're one of them. We became an emergency shipment provider for Customer B in August 2020 when one of their incumbent's service levels deteriorated, and this was at a time when Covid supplies were added to the emergency shipme
Slide 60: Transcript: Customer examples and managed transportation
refrigerated, drop trailers and transloading. Our outside sales organization got us in the door. We proved ourselves by solving their toughest freight challenges and keeping our leadership team involved. Now, 99% of our orders with Customer E are created or covered digitally. In 2021, we booked over
Slide 61: Transcript: Technology
and carriers; and Drive XPO, which is our mobile app for drivers and fleet owners. While several other brokerage companies started to build digital capabilities, we benefit from first-mover advantage that we believe will continue to keep us ahead of the pack. 29. Yoav Amiel: Before I dive into the t
Slide 62: Transcript: XPO Connect interfaces
prices each time, while taking into account multiple data inputs. They learn from each calculation and they self-improve over time. At the same time, automation is embedded across the huge number of transactions we process daily. 32. Yoav Amiel: This brings us pillar two, the design of XPO Connect’s
Slide 63: Transcript: Digital adoption
— that’s a 39% increase in the past 12 months alone, and the number keeps climbing. Our Q1 2022 registered customer users grew by 41% from the prior year. So, you can see that there’s a lot of horsepower behind these initiatives! 35. Yoav Amiel: Digitization is integrated deeply into our business an
Slide 64: Q&A: Technology
America, which gives us critical mass and about 4% industry share. We have a huge opportunity and a long runway for growth ahead of us. Third, we have strong, long- tenured relationships with our customer base. We've got a terrific customer list, with key customers who have been with us year after y
Slide 65: Q&A: Technology and customers
decide where to build warehouses based on their transportation needs. Our tech is an invaluable decision-making tool for our customers. 42. As others develop capabilities that may mimic what you’re doing, do you think carriers and shippers will stay with your system? 43. XPO: Yes. Tech comes with th
Slide 66: Q&A: Future functionality and automation
48. What kind of future functionality would allow you to improve XPO Connect further, or is it pretty much done in terms of scope? 49. XPO: XPO Connect is evolving all the time. If we can envision it, the architecture we built for this platform will support it, whether it’s scaling up, or innovation
Slide 67: Q&A: Margin and automation
started to roll out our XPO Connect platform in 2018, our new hire productivity began to accelerate. 54. Can you talk about the relative margin contribution from a traditional brokerage (humans interacting) versus your apps? 55. XPO: Our technology allows us to increase our overall margins. All of o
Slide 68: Q&A: Technology advantages and competitors
built it for scale from the ground up, and that allows us to innovate quickly and deliver more and more functionality within relatively short timeframes. Second, we have an immense amount of data that’s consumed by our machine learning tools. It allows us to fine-tune our algorithms. Every time some
Slide 69: Q&A: Industry and Operations
spin. We’ll continue to enhance XPO Connect, focusing on margin expansion, productivity improvement and volume growth. Industry and Operations 66. You saw tremendous growth in 2021, especially in your volume. How sticky is the business you got last year? And what’s the outlook for adding more headco
Slide 70: Q&A: Customers and contract mix
satisfaction it creates for our customers. Over 70% of customers that use XPO Connect come back to us within a week. So, we’re not getting complacent. We’re monitoring and investing as appropriate. Right now, that investment is less than 1% of revenue. Regarding variable compensation, our people are
Slide 71: Q&A: Drop trailers and data
We’ve had trailer pools for over a decade now, since our inception. Drop trailers are more than 10% of our business. It’s a consistent revenue stream for us. Brokers and drop trailers go back over two decades. Our customers generally don’t care much about what the front of the truck is. They care ab
Slide 72: Q&A: Spin-Off and Strategy
positives. The Shanghai ports have opened back up and are operating at about 20% of what they were doing six or seven months ago, so we know that supply will come over to the US. We’ll have a back-to-school season like we haven’t had in the previous two years. And then there’s peak season. There’s a
Slide 73: Q&A: Spin-off and M&A
forwarding. We expect that the spin-off will enhance value, as these lines of business can run faster and farther with a singular focus on their operations. 96. Will you do M&A? 97. XPO: We don’t rule out M&A, but our first focus is on becoming investment-grade and continuing to grow organically. Ou
Slide 74: 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 document to the most directly comparable measure under GAAP, which are set forth in the tables posted in Sell-Side B
Slide 75: Forward-Looking Statements
Forward-Looking Statements This document includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including our future growth prospects for our North American Truck Brokerage b
Slide 76: Forward-Looking Statements (continued)
ability to attract and retain qualified drivers; labor matters, including our ability to manage our subcontractors, and risks associated with labor disputes at our customers and efforts by labor organizations to organize our employees and independent contractors; litigation, including litigation rel