Q2 2020 XPO Logistics Inc Earnings Call

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Welcome to the X.P.L. logistics second quarter 2020 earnings conference call and webcast. My name is Robyn I'll be your operator for today's call.

At this time all participants are in listen only mode. Later, we'll conduct a question answer session. If you have a question Steve style Star one on your telephone keypad.

Please note this conference is being recorded.

Before the call begins let me read a brief Steven 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 may 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.

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 FCC rules.

Conciliations 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.

You'll 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 on the company's website.

I will now turn the call over to Brad Jacobs, Mr. Jacobs you may begin.

Thank you operator, good morning, everybody.

In addition to my remarks today, you'll hear from David Weisner, Our Chief Financial Officer, Matt Fassler, Our Chief strategy Officer, and also for the Q in a portion of the call. We have top you'll Hadley or senior director of Investor Relations, Megan Hanson, our chief Human Resources Officer, Robbie till CNR Treasurer, and Kyle will Smith senior Vice President.

Your name.

The second quarter was dominated by the severe challenges of cobot 19.

Nevertheless, we did deliver better than was expected revenue adjusted Vps, adjusted EBITDA, and notably free cash flow.

For us the trough was in April in both North America and Europe.

Since then we've seen a recovery in Europe with a more recent rebound in North America and all of our sites are open.

Each month in the quarter showed sequential improvement across our operating regions.

Organic revenue for the company as a whole.

Has gone from being down 21% in April year over year, two down just 10% in June.

And we've continued to gain ground in July.

The improvement has been broad based in both transportation and logistics.

In North American LTL for example, our tonnage per day was down 24% in April year over year, but down only 13% in June.

We continue to regain tonnage in July.

In Europe, our LTL, how what count per day at the end of June was up from the trough in France by 49%.

And in Iberia by 44%.

The UK was up 25% from the trough.

And our European logistics business came back strong in the quarter.

With a 7% increase in year over year revenue per day in the month of June.

These are all positive trends going into the back half of the year.

I also want to mention the three executive appointments, we made this week.

Eduardo pellets, Sony is our new Chief transformation officer, and Alex and throw his executive Vice President of operations.

These are two rare talented operators, who work with our business leaders to turbocharge, our profit improvement initiatives. We're excited to have them bolt on board.

I'm also extremely please let me have our first cheap diversity officer it La-quinta Jacobs.

La-quinta has a in impressive record as a champion of diversity and Blue chip companies.

She'll be leading initiatives that are high priorities for us reporting directly to me.

So to wrap it up.

I'm proud of the extraordinary focus our organization has placed on keeping our employees safe throughout the pin debit, while keeping supply chains movie for our customers.

There are still a lot of unknowns with Kogut, what our positioning is strong.

For years, we've been investing in our vision for the future of supply chains, including our ecommerce capabilities intelligent automation or warehouses and customer solutions that are in high demand for outsourcing.

These industry trends have been accelerated by the pandemic.

Finally, I want to say again, how grateful I am to our employees for their intense dedication in such unusual times, it's a privilege to lead Teaneck yeah.

And with that I'll turn the presentation over to David David.

Thanks, Brad and good morning, everyone today, I'd like to discuss our second quarter results, our balance sheet and liquidity and our outlook.

In the second quarter, we generated revenue of $3.5 billion, adjusted EBITDA of $172 million and in adjusted loss per share of 63 cents.

All three figures reflect year over year declines due to coated but they're all better than we expected at the beginning of the quarter, Matt will review the segment detail in a few minutes.

We generated $214 million of cash flow from operations in Q2 spent $116 million on Capex and received $23 million of proceeds from asset sales.

As a result, we generated positive free cash flow of $121 million in the quarter.

This brings our year to date free cash flow to $216 million, which represents a year over year increase of $66 million. Despite our having $75 million of cash outflows this year related to our exploration of strategic alternatives.

We've been able to generate positive free cash flow during the pandemic by managing working capital aggressively turning our receivables into cash.

We became even more disciplined about collections in the cobot environment working with our customers to reduce our receivables and staying disciplined with respect to payment terms.

We continue to use trade receivables programs, including our European securitization to manage our working capital.

We didn't repurchase any shares in the second quarter. So we continue to have $500 million of authorized share buyback capacity.

We throttled back our planned capital expenditures dramatically at that started the quarter, but had begun to reopen the spigot a bit as demand and new business opportunities have rebounded.

We currently estimate that our gross Capex will be 452 $475 million. This year, which is up from our may estimate of around $400 million, but down about 26% from our pre pandemic plant.

And we estimate that as a result of our regular course asset sales or net capital expenditures will be $250 million to $300 million. This year.

Even though financial markets have normalized significantly over the last four month.

Maintaining strong liquidity continues to be a top priority for us as an organization.

We issued $1.15 billion of six new quarter percent five years senior notes in April and May.

The proceeds are part of our 2.3 billion dollar cash balance at June 30.

This cash combined with available debt capacity under committed borrowing facility gives us total liquidity of $2.8 billion at quarter end.

Our net leverage at June 30 was three and a half times adjusted EBITDA, which is in the middle of our targeted range of three to four times.

We have no significant debt maturities until mid 2022, our liquidity position is strong.

In this second quarter, our adjusted EBITDA was right in line with what you would expect based on the combination of our second quarter 2019 results.

A 17% year over year reduction in revenue due to the pandemic.

The 77% variable, 23% fixed breakdown of our expenses and the nearly $50 million of coated related costs, we incurred.

We've been seeing sequential improvement from month to month since April with that favorable trend continuing in July revenues in the first half of the month were down high single digits year over year.

And we estimate that our kogut related costs will be $10 million to $25 million in Q3.

Based on these conditions, we expect to generate at least $350 million of adjusted EBITDA, including coated related costs in the third quarter.

This means we are positioned to outperform the results that would be implied by a high single digit year over year revenue decline and our mix of variable and fixed costs.

This is because of benefits that we expect to realize in Q3 from operating initiatives restructuring programs and other cost saving actions that we've implemented.

On the cash flow front with us having generated more than $200 million of free cash flow in the first half we continue to be confident in our ability to deliver hundreds of millions of dollars of free cash flow this year.

Lastly, cobot 19, clearly dominated the second quarter of 2020.

Revenues bottomed in April and have been recovering ever since.

Throughout the quarter, we protected our employees kept serving our customers and adjusted our variable costs to align with dramatic declines in demand.

We also solidified our liquidity continued to generate significant positive free cash flow implemented cost saving actions that will benefit future quarters and invested in technology.

As a result, we expect the third and fourth quarters to be much stronger than Q2, and we are enthusiastic about our longer term prospects as a leader in the markets we serve.

With that I'll turn things over to Matt.

Thanks, David I'll review, the second quarter income statement and shed some more light on the trends we've seen in July starting with our transportation segment.

Segment revenue was down 22.6% in the quarter year over year and organic revenue was down 19.3%.

Adjusted EBITDA declined by 60%. This included $27 million of costs related to coded primarily in our North American LTL.

LTL tonnage per day declined by 19% in Q2 versus the prior year, primarily due to weak activity levels and industrial manufacturing and other motive.

And pull up the trough and the business gained momentum as we moved through the quarter, while we did well in consumer Staples. This vertical was not enough to offset the shutdown in the industrial economy.

As industrial sectors reopened our trends improved LTL tonnage was down year over year by 23.5% at April 20.8% in May and 12.8% in June improvement continued in July.

Excluding the impact of fuel improved 1.9% year over year.

Real growth in July is in line with Q2.

Our LTL price increases on contract renewals remain solid up 3.7%, which kept us on pace with the Q1 increase.

Our adjusted operating ratio in LTL was 90.1% for the quarter compared with 88.3% a year ago. The biggest driver of the change was lower tonnage and we also had a negative impact of about 250 basis points from $20 million of covered costs. These days.

Hi, guys were offset in part by the improvement in yield were also affected a controlling key variable costs, including PND dock operations and line haul.

Our xps smart productivity tools are proving valuable in this environment.

Bear in mind that this was just the second full quarter since Xps smart was rolled out nationally in our LTL network. The analytics are driving up dock productivity by 6.5% on average year over year. We're encouraged by the early results and we expect the improvements to compound.

Going forward.

We also grew load factor by 3.9% and improved empty miles by 24% better than the 15% decline in shipments we expect the combination of a better revenue outlook and strong expense management in LTL to produce a significant sequential improvement in adjusted operating.

Ratio in Q3 with much more modest year over year version.

Within our freight brokerage business truck brokerage delivered a strong performance in a volatile market revenue fell 8%, but net revenue rose 3% growth.

Brokered volumes Troughed in May and rebounded strongly in June and we posted solid year over year increases in net revenue margin each month in the quarter.

We procure capacity exceptionally well buying at a 7.5% discount to the market aided by the pricing tools within our Expo connect platform.

Expo connect continues to drive significant efficiencies and our truck brokerage service in the second quarter. The load count was essentially flat with Q2 last year and we handled it with 14% less head count.

Intermodal revenue was down sharply reflecting the shutdown in automotive production intermodal revenue trends began to recover in June and have improved significantly in July as truckload capacity tight.

Last mile was a real highlight for us in the quarter.

Revenue increased 3% year over year, while net revenue dollars rose, 11% net revenue margin rate in last mile increased by 270 basis points to a record 37% and here again revenue trends accelerated as the quarter progressed, our last mile space.

Rationalization in heavy goods continues to benefit from the growth of E Commerce, and we saw strong demand for home improvement goods and exercise equipment.

This was partially offset by slower appliance installations due to kogut restrictions.

Turning to Europe in our transportation business Q2 revenue declined by 29% versus the prior year organic revenue, which excludes the impact of FX and fuel was down 23% for the quarter as a whole importantly, the year over year trend in organic revenue growth.

Became more positive throughout the quarter, we were down 37% in April when the government Lockdowns in Europe sharply curtailed, our automotive industrial and chemical customers, we rebounded to a 20% decline in may and a 14% decline in June.

The theme for the quarter in European Transportation was first in first out among our larger countries, France, and Spain locked down first and recovered onest. The UK locked down several weeks later the timing of the UK truck recovery are tracking later as well and the curve of the recovery there.

It has been more subdued.

Overall July market conditions have continued to improve for European transportation.

Moving onto our logistics segment, the contractual nature of this mid at this business mitigated the impact of coded as did our vertical mix and the embedded relationships. We have with key customers logistics segment revenue was down 8% year over year for the quarter and organic revenue declined 6.5%.

Again, improving each month, adjusted EBITDA declined 39%, including the impact of $19 million of cobot costs.

In North American logistics revenue declined 11% versus Q2 last year.

We had solid growth and E commerce, and Omnichannel retail along with good results and consumer packaged goods and consumer technology. This was offset by the elimination of lower margin business and by temporary shutdown requests from a number of our customers at the peak of the pandemic, 8% of our sites were impacted by closures.

And now all of our sites are up and running.

In logistics as an LTL, our proprietary xps smart tools are driving productivity and cost efficiency.

Nearly two thirds of our warehouses utilize xps smart and we're seeing an average labor productivity improvement of 5%. Some individual sites are much higher this tax it's still in the early innings with the value. It can bring to the business also I'm pleased to report that Expo direct our shared space.

Distribution network operated solidly in the black for the second consecutive quarter.

The secular growth of ecommerce is driving more opportunities with omnichannel retailers.

In Europe.

Just six revenue declined by 6% year over year FX had a negative impact of about 2.6 percentage points on revenue importantly, organic revenue for European logistics turned positive in the month of June.

Consumer verticals represent about 85% of our European contract logistics revenue with the vast majority related to either ecommerce or food and beverage consumers lead into these verticals during the pandemic and we were happy to keep those goods flowing.

We're encouraged by how well this business is performing and we see additional opportunities to grow the top and bottom lines. We're rolling out xps smart across Europe to drive labor productivity and our logistics warehouses, we had a soft opening for our warehouse of the future in the UK last month, which kicked off a 15 year contract with net.

Flea and the trend toward near shoring creates additional potential business for us.

Our acquisition of logistics operations from couldn't nago in the UK is on track to close this fall.

Thats, an overview of the operating trends that underlie our Q2 results moving down the income statement interest expense was $82 million in the quarter versus $72 million a year ago, our GAAP effective tax rate rose to 35% from 24% a year ago.

Our weighted average diluted share count was 91 million.

In a loss making quarter diluted shares outstanding don't include common stock equivalents, our basic share count was down slightly from Q1 and from the year ago number reflecting the impact of our first quarter share repurchase activity.

Our diluted loss per share was $1.45 for Q2 versus earnings per share of $1.19 a year ago and our adjusted diluted loss per share was 63 cents versus EPS of $1.28 a year ago.

I want to note two items in a reconciliation of GAAP to non-GAAP metrics, we incurred a $50 million in pre tax restructuring costs in the quarter, primarily for severance that pandemic led us to take a deeper dive into our cost structure and significantly reduce our overhead costs, particularly in.

Europe. This will drive approximately $100 million of annualized cost improvement, we expect to achieve this run rate by the middle of 2021.

The other item is the $46 million, we booked in transaction and integration expenses in the quarter, primarily associated with our exploration of strategic alternatives. The largest piece of this relates to employee retention.

To summarize the second quarter, we responded to the pandemic by taking care of our employees looking after our customers protecting our liquidity and cash flow and right sizing our variable costs to market conditions as David mentioned, the adjusted EBITDA, We delivered was inline with our mix of fixed and variable.

Costs in Q3, we remain focused on focused on all of these critical efforts at the same time, our operating environment is becoming increasingly stable and we're directing more of our attention to our strategic profit initiatives, particularly Expo connect and other technologies that can leverage the return.

End of demand.

We now have more than 62000 truckload carriers registered on Expo connect globally.

Downloads of our drive Expo App grew 87% in the three months of Q2 versus Q1.

And now exceed 150000 downloads in total and we've more than doubled the number of customers on the platform in the same period in LTL, we continue to make headway with our pricing initiatives, particularly as we gauge price elasticity digging deeper into the full cost profile of each RFP.

And we're expanding the data we used to optimize the line haul portion of LTL in terms of visibility compliance and routing.

Opportunities within contract logistics are also compelling our capabilities with advanced automation are both a driver of new business and a competitive advantage customers, who explore in house robotics options Austin come to the conclusion that the cost of entry is high and the solutions can be tough.

To implement our first mover advantage with goods to person systems and collaborative robots is leading companies to outsource these projects to us.

Another tailwind in contract logistics is that retailers are coming to us for more ecommerce capacity.

In the short run customers need interim capacity to manage peaks in demand, especially since the pandemic has made buying patterns less predictable for the mid term they're interested in arranging additional distribution centers for supplemental capacity on a regional basis and longer term.

Retailers and brands are assessing transformational changes that de risk their logistics networks. We can meet all of these needs I'll close by mentioning a few other highlights of the quarter.

Expo was once again recognized by Gartner, which named US a worldwide leader in their magic quadrant of Threepl providers. This was the third straight year that we were designated a leader by Gartner also in the corridor. We were proud to provide critical support to the city of New York's office of it.

Urgency services during the peak of the pandemic and the tour de France race is scheduled to start on August 29 in Europe 2020 March the Fortyth anniversary of our partnership with its celebrated event, we're proud to help bring some much needed to support to the world stage not own.

Only will our trucks and drivers cover every kilometer of course for the first time two of our eco friendly natural gas powered trucks will be asked to finish line when the competitors arrive in Paris.

With that I'll turn the call back over to the operator, and we look forward to your questions.

Thank you at this time will be conducting a question and answer session.

As a reminder to ask a question today you May press star one from your telephone keypad and a confirmation total indicate your line is in the question Q.

You mean press star tools, usually to remove your question from the Q.

For participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys.

One moment, please when we pull for questions.

Thank you and our first question is coming from the line of Ravi Shankar with Morgan Stanley.

Thanks, very much good morning, everyone abroad, I think you probably have more insight into global supply chains, then just about anybody else out there.

So would love your thoughts on how you see the award changing as we emerge from the pandemic.

Especially with respect to near shoring and.

Running supply chains as died and quickly as we have the last couple of years.

Well good morning Robby.

Economy, obviously is way better than it was a few months ago and better than we thought it would be but it is certainly not back to where it was a pre pandemic. The good news is that every month has been better than the previous month and little by little business is trending back towards normal.

If you look at it Geox geographically Europe is much ahead of the United States, that's not surprising the cobot started there earlier and the government mandated complete nationwide lockdowns right away. So we're seeing parts of our business in France almost back to pre kobin.

Levels in Spain. Despite recent.

Searches in the infections transportation revenue is actually up year over year in July.

In our UK transportation business is recovering, but little more subdued then than a constant.

If you look at the organic revenue growth in European supply chain.

Was positive in June was partly was plus 7%. So there are some encouraging signs, but we're certainly not out of the woods. Yet if you look over here in North America, I think the rebounds real but it's in an earlier stage and not as uniform as Europe.

You and use our business improved in July versus June, even though cobot cases were going up and I guess, the best example that would be LTL shipments LTL shipments grew meaningfully from April where they were down 22% to July where they're down single digits. So it's a big contrast between.

April down 22, and slide down single digits.

I think also to answer your question you have to look at the.

Different verticals, because there are definitely different industry trends by vertical transit E com have not only been great, but they have accelerated and we believe that permanent.

And the.

Because we're the largest last mile or logistics for heavy goods provided the United States. We have a good insights what's going on there and is as big upticks in the E com activity in big and bulky Primark, primarily in home improvements because people were at home and exercise equipment because.

We're at home so people going out less.

But there is still shopping for goods increasingly online we move goods. So if consumers are not going to theaters in to two sports into restaurants, let's not great food This society and for overall economy, but it's more germane to us what's going on with purchasing of goods as positive.

I mean, it's negative what to what it was pre pandemic, but it's getting more positive each month I guess to sum it up I would say short term.

We are encouraged for realistic.

And the full recovery is his insight, but not in short sites. So kogas recoveries going to take little time longer term I'm still a mega bull because the recovery past very clear you got the therapeutics coming on people, who get the disease don't die as much which is fantastic vaccines seem to be around the corner.

And most of the factors that we're driving the worldwide synchronized growth just a few months ago pre pandemic.

For the most part they're going to still be present post pandemic and with technology now so it varies advancing in advancing advancing faster and faster information global information is so much more voluminous and its share near instantaneously and that's got to be a good thing for the economy, So technology automation.

And outsourcing are the three things that I'm seeing that are the big trends and Fortunately, we're well positioned to capitalize on all three of them does that answer your second you wanted.

I I didn't know those excellent color on the on the demand side of the bad or recovery, a I'd love some color on the supply side as well do you sure corporations talking about changing their global supply chain. Then there is not to talk about near shoring and bringing more manufacturing back the U.S. or to North America. Even are you hearing that do you think that.

Happens anytime soon or do you think that's a that's a thematic discussion and takes a long time to payout.

Rob Rob it's not I'll take that one of two points to make their what we're seeing this really play out in two different ways first of all you mentioned near shoring. There was obviously a great deal of talk about this early in the pandemic Interestingly, we're now hearing about it a bit from our salesforce as they engage with some of our customers who are considered.

Hang over the long run a moving their means of production up closer to their end consumers. This is not just at North American phenomenon, but also our European phenomenon. So we expect to see business opportunities emanate from that secondly, as I discussed in our prepared remarks, a couple of moments ago the surge any.

Commerce has really pull forward demand that we expected to move online by a number of years upward, we're helping our customers really in two ways number one we're helping them manage that today, because they're coping with unanticipated changes in flows of demand that we're helping them get those goods to consumers and secondly.

Okay, they're considering more structural transformational changes to their supply chains.

Larger larger distribution centers more ecommerce distribution centers and they're working with us to build those out we're going to benefit from both of these trends as as a consultant to these companies and as far as a deliver as our deliver of commercial solutions as they implement these changes to their supply chains.

Great if I going to sneak one more and I didn't be they'd be appointments of Eduardo and Alex I really interesting a Brad can you give us a little more color on going toward their mandate as.

What they're going to work on and how we judge that results.

I've always last part you said running how they want.

Well, what they're going to work on what their mandate is and how do we judge their results.

Oh, Okay. So first of all they both rock stars. These are harder to find talent like that people. These are Diana will operating people with long frackers of year after year after year doing profit improvement there like Swiss Army knife. They have had commercial background that good operating amid retrograde very talented operate.

Leaders, if you look into Gerardo.

Gerardo when he was COO of Kraft Heinz it's about $3 billion of cost I mean, we've been pretty good a cost cutting but $3 billion will cost as a standout accomplishment look at Alex Alex when he was a CEO of popeye's.

Doubled EBITDA on three years and he was the main architect of the famous Popeye's Chicken Sandwich. Jeremy This is a very creative sharp.

Highly experienced got and they both have a lot of experience in transportation and logistics. So it's really a perfect fit and they blend in with our corporate cultures is perfectly now in terms of.

They're going to do Theyre going to do that Saitek help execute the same strategy. This the working for US which is to grow the business topline and more importantly, bottomline and long way generate dolls and gobbled of free cash flow. So in particular, they're going to help work on the 10 levers the proper cool opportunity of 700 million.

The $1 billion of profit improvement possibility over next few years and that's just right up the rally they've done very similar things that multiple companies with threeg over the years and there's there's no shortage of opportunities to find ways to improve productivity and efficiencies and ultimately profit of the company and they're going to play a big role in that.

Awesome. Thank you.

Thank you.

The next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your questions.

Hi, good morning.

In terms of the they LTL yield ex fuel looks like decelerated, a little bit from Q1, and then I think the weight per shipment, but lower than some other mix impact to to be aware of and then just in terms of the renewal rate I think you said.

3.7, which I believe is in line with Q1 so.

Moving forward should we expect that the growth in yield to start to converge with renewal rate.

Right, if you cannot walk through that.

Good morning, Allison I wouldn't guide to 3.7% yield because that contract new rated part of our business not all of our business.

But we are seeing positive yield so 1.9% positive yield in the quarter was helpful and the yield trends were positive every month.

It wasn't enough, though even with a couple of points of yield to overcome a tonnage declined 19%. When you have tonnage decline of 19%. It's you can do all kinds of great stuff, you're not will overcome that given the fixed costs nature of the LTL business and the operating leverage but Q2 tonnage.

Also showed an improving trend you had tonnage was down in April 24% year over year was down 21% year over year in May was down only 13% in June and here in July is down single digits. So there's a there's a decent trend there and.

There were some bright spots in LTL. Despite the the poor Omar load factor was up 3.9% was the highest low fact, we hadn't eight years.

Empty miles improved 24% year over year versus shipments being down 15% dock productivity was up 6.5% and I would point you to our guidance for Q3 and one of the reasons why we're going to generate at least $350 million of EBITDA in the.

Third quarter is that we fully expect are all are in Q3 in LTL to be substantially better than it was in Q2. So I feel that were fully on track to achieve at least a $1 billion of EBITDA.

We have pushed that out from 2021 to 2022, and you will see steady progress between now and they're getting to that level.

Okay.

That's helpful. Thank you and I think you guys. One a few new contracts during the quarter. So hopefully, hoping you can maybe walk us through the nature of those.

The size in duration and when we should think about the revenue starting to the matriculate.

Okay. So there was doing one one whale in Europe, and there were two wells here in United States in UK, we signed a $250 million contract that starts October 1st.

Its five year contracts, it's towards its transportation is its delivery of chilled dairy products to stores and its with Arla foods.

In the United States, We had two big E Com wins and these will be some of the most automated warehouses in the world. So we have one new E Com fulfillment center on the West Coast from a global branded apparel company. It will it is.

Our largest site in the United States is 1.2 million square feet. It's a five year contract. It started this month and it's on its way to ramp up to 400 robots and then we also have another large econ fulfillment center on the West coast for a a global fast fashion retailers that starts in September.

Sure. It's also over 1 million square feet also highly automated and that will be ramping up to 500 robot. So we have some good momentum in the in the backlog on on commercial wins.

Okay excellent. Thank you.

Thank you.

Our next question is from the line of Chris Wetherbee with Citi. Please proceed with your question.

Hey, thanks to the money yet.

Yes, you've seen all the businesses performed on the downside in terms of decremental margin.

No I do you look out and hopefully this is in 2021 story, where we see potential for revenue opportunities growth coming back to the business your new way to think about sort of the incremental margins on the upside I know traditionally I think we thought margins the problem that sort of mid teen dish or so come up a margins.

Yes, as you think about LTL and potential lapse in Milwaukee, if some of the weaker performance. This year, maybe some of the operating leverage as you move towards billion dollar profit there and some of the cost cutting taking out new paradigm to think an optimal clinical margin perspective in a growth market.

Chris It's Matt a couple of points on that first of all as you start off by looking at third quarter and you look at the EBITDA guidance and you think about the kind of revenue trend that we generated in July you'll see that the decremental margins that are embedded in that are better.

Then the decremental margins that we generated in Q2 and better than the deck remark decremental margins implied.

By the 70 723 math that we spoke about last call last call last call and that David mentioned earlier today Secondly, as you emerge from a downturn, obviously, we have flexed our variable cost we are starting to make more headway with fixed costs are fixed is probably a slightly higher per.

Ascent of your cost structure after a down year on then it would have been going into a down year. So that implies the potential offer more operating leverage to the upside, particularly obviously when you cycle, a very unusual quarter I'd like to one that we had in Q2, which obviously will be a big part of the 21 story, we're not going to talk much about 21, yet, but obviously that's the way.

The arithmetic works. So you know to reiterate our third quarter substantially better performance on that front that second quarter, and then emerging from the down revenue year, you have the opportunity to generate better incrementals and you'd have and an average year plus we have the 10 levers in the progress that those are likely to bring us above and beyond that.

Okay. Okay. I appreciate if that's helpful. And then and then thinking about the cost take out the 700 billion.

When can we certainly see show incremental progress and getting more meaningful progress along those along those lines in a very difficult doing disrupted mark we've got over the course of the last several months.

We need due to weak next year to start to see some meaningful impact of patterns, Eduardo and Alex really kind of get the began to find opportunities or is it something that maybe you could start to show up at a more stable market in later threeq or Fourq you.

We are hugely excited about the 10 levers. This is a massive potential to literally transformed the business and you will see continued you're already seeing some benefits, but you'll see continuous quarter after quarter year after year benefits from the 10 levers and 22.

The three we will have achieved.

That that substantial part of that profit pool, we had a quarterly operating a view couple of weeks ago on for three days and a good part of that was going over the 10 levers and crowd sourcing.

Hi, everyone on each lever, where do you think where do you think the highest what is the lowest which makes the likely and eat we collectively we're feeling very good about each one of those levers if you look at smart.

This is this has already helped us variabilizing manage labor costs nimbly.

The dock craft labor productivity that improved 6.5% year over year in the second quarter, we would not have been able to do that went out smart smart improve the labor productivity in our contract logistics facilities by about 5% already and we're looking to improve on that going forward. So I think the benefits, we'll just keep compounding goes.

Fourth.

On connect in truck brokerage connect help us handle that the same number of loans this quarter year over year, but with 40% lower headcount.

So that's a that's an important lever when you can get that kind of productivity from from a sales force. That's really really helpful look at procurement procurement, we've got about $8 billion or so of non labor expenses added water and Alex is going to be a big help with that because a lot of experience with that on pricing.

We're at the early innings of what we can deliver a we used pricing within connect this quarter to by 7.5% better than DHS. So we bought 75% better than the market due to the technology, we're using on snacks as it is a big opportunity on pricing in LTL as well for pricing elasticity and more.

Automation on that.

And then on LTL the other process improvements in terms of optimizing line haul and PND spend so.

We're very excited about about the levers this strategy at the core of our strategy is to deliver substantial long term shareholder value as we have and our focus is on allocating capital in ways that achieved the best risk adjusted returns. This these 10 levers are.

Very very very important part of that strategy.

Got it thanks, very much sort of color I appreciate it.

Q and a further questioners if you could limit your questions to just one that'd be great.

Next question please.

Thank you. The next question is from Brandon Oglenski with Barclays.

Yeah, Hey, Brad and thanks for taking my question I'll just leave it to one.

No I think you talked about how the Tam dynamic is accelerating its outsourcing trend, especially in logistics and E. Commerce. I mean can you talk about your longer term pipeline in some of the opportunity that you see.

Coming there and maybe you know changing direction. The organization are shifting direction, how are you going to capture those opportunities.

I didn't quite catch last part about shifting direction something Brendan.

Yeah, just like are you, making any changes on the capital side or personnel side that would help you capture this shift in direction in the market.

Oh in the market got it.

Well, we're always adding talent when we find great talent, if we can find in place for them and they can get a good we take it can achieve for us a great ROI on their compensation, we iron we find a place to put them to work and you've seen that done this quarter to in more than one instance, up the main ways that we're positioning for that.

Future growth is the big exposure, we've got on E com throughout the company, particularly in supply chain.

The advanced sophisticated technology that we've got as result of the half a billion dollars plus in your investment we've been making.

In technology and the outsourcing trend that's the main driver of growth in the whole industry is more and more companies and particularly during the pandemic, putting their hands up and say you know what led to outsource more even all of our supply chain needs to people do this for living full time and who have technology.

That is more sophisticated and their technology, and who have information and data and real time infant what's going on in the market have their finger on the pulse, what's going on the market and no what's going on in the involved how supply chain situation for other companies in their same a vertical in their same industry. So I.

Turning to benefit from all that.

Thank you.

Thank you.

Our next question is from the line of Amit Malhotra with Deutsche Bank.

Thanks, Operator, hi, guys, Brad the performance in the LTL business.

There's over 70% of the profits of the total company in the quarter was very weak relative to competitors tonnage was down way more than peers decremental margins were more than double that of peers. Even when you add back to 20 million of corporate costs, which arguably other people have corporate costs as well.

Can you explain that I would've expected the opposite given the cost opportunity and could one explanation.

Be that it's hard to focus the business. When you are still diversified you in the management team are sitting in Greenwich, The LTL businesses in Michigan, the supply chain businesses Charlotte the European businesses Embarrass isn't there are tremendous value to focus and you guys just want to be able to do that so naturally.

It was actually make the breakup story that you guys outlined in junior even that more valuable from an equity value maximization perspective, you can just address those two points I'd appreciate it.

Well first of all like complement you on getting four questions and in one in one sense offend test on LTL for sure you are.

Was deteriorated significantly during the quarter there were two big factors.

Tonnage being down so much and an intense focus on employee safety.

So the tonnage being down 19% was due to our long term business strategy, which worked very well for us over the years. This particular quarter. It did so we've been very high highly selective on the freight we take on we've had a strong biased towards yield over market share and with the tonnage that with that making.

So much time, making tonnage go down so much with the operating leverage in the fixed cost it translates into the Omar.

Now employee safety has always been our number one priority, but this greatly intensified during the pandemic and some of those kobin costs are visible in the numbers $20 million or 250 basis points of or deterioration from PE from appreciation pay from sites cleaning, but the.

Larger harder to quantify impacts are from the network inefficiencies during the shutdown. This was offset a little bit by the about 2% yield improvement, but clearly not enough to offset the 19% decrease in tonnage. The good news is that each month in the quarter was better than the.

Previous month in LTL and that improvement continued in July.

As I said before tonnage was down 24% in April.

It was down only single digits in July so nice trajectory, there and Q3 Omar will improve sharply from the Q2 levels and much closer to where it was about a year ago I can't answer your question about comparing ourselves to competitors for a particular quarter because I'm not.

Fully knowledgeable about what's going on at competitors were fully knowledgeable what's going on in our company and it's what I. Just explained to you now with respect to your other question about was our LTL outperformance in the second quarter results of being a large diversified companies. There's no we've got tremendous operating talent.

Running our LTL business, they've doubled EBITDA over the last four years so don't.

Looking at them on a longer trajectory, they're doing a fantastic job. This was that this was a very unusual quarter within our goal wasn't to make a whole bunch of money in this quarter when the quarter started and the pandemic was there we didn't know what was going to happen here. Our goal was to make sure our people didn't get sick and didn't die and.

That was really where we put our effort and we succeeded there. So from that point of view was a good quarter from a financial perspective, it was not a good quarter for LTL in this quarter.

Our next question is from the line of Scott Schneeberger with Oppenheimer.

Oh, Thanks, very much news a a a good mining with cash on the balance sheet now I'm, just curious where where are your focus is with regard to allocating capital is M&A reentering. The picture, if so how where valuations looking versus recent years passed in.

And then and then just an update kind of playing off of these question of thoughts on renegotiating strategic review. Thanks.

So nothing new to talk about there we've done no acquisitions.

The strategic review process, we terminated a months ago, and we're just not focusing on that and our strategy of.

Allocating capital, where we can get the greatest returns on that capital is still the same has always been.

No nothing new on that front.

Our next questions from the line of Brian Ossenbeck with JP Morgan.

Hey, good morning, Thanks for thanks for taking the question.

One area just want to talk about in logistics and related to E. Com is reverse logistics, how do you feel about the opportunities and capabilities specific in that space. I think you had well go in largest contracts ever booked was in that how is that ramping up do you feel like young for capacity and capabilities to keep growing there, especially if we think that b to C. You takes.

Step change up and most likely drives a lot more returns with it.

Reverse logistics is very active and very dynamic E. Com was our fastest growing part of the business and were within E. Com reverse logistics was at the top list. So we had about 75% year over year growth in volumes for reverse in fair.

Great very active but returns from bricks and mortar stores are down because bricks and mortar stores are down so that countervail that a little bit we have what I would describe as unmatched automation and process controls inferred reverse logistics, we handle returns because of the degree of very very well.

Because of impart the historical data that we got on the sales in our ability to very accurately predict the returns and customer very much appreciate that and we do more than just the traditional rich reverse we do reprocessing, we do the repricing we do the warranty management program, we do the quality control and specs.

Once we we do a lot of things for our customers in reverse that is a highly valued and growing partner fastest growing part of our business.

Our next question comes from Atlanta, Ari Rosa with Bank of America.

Hey, good morning, guys. So Brad eat the EBITDA margins in contract logistics I think they were at the lowest level that we've seen since since you guys essentially entered that business.

I was hoping you could talk about in terms of the outlook.

What costs go away.

In third quarter or even into 2021, and what can you give us confidence that those margins can kind of get back to where they have been historically, particularly in the context of you know E com or I'm, sorry on contract logistics traditionally being seen as kind of the more resilient piece of the business.

Are there are two elements to think about here first of all our there were significant direct to covert related costs that impacted the business in the second quarter. There will still be some covert cost we expect in Q3, but as David indicated in his prepared remarks, those are likely to be in that $10 million to $25 million range for the company.

Overall, which is much lower than the $48 million, we had last quarter and that contributed obviously to the margin degradation in contract logistics. Secondly, Q2 marked a series of shutdowns much more so than a slow down and that's particularly true in contract logistics, we have customers.

In very resilient verticals that are typically recession proof, but they're not shutdown proof and that was a set of circumstances that I think none of us would have contemplated prior to the advent of the pandemic their circumstances that we don't expect to repeat themselves. When we commented on the tone of business improving.

In July from where we were in and the second quarter, that's true for contract logistics as well. So again, we viewed second quarter's operational performance in that business to offer all the reasons I just did.

And with respect to your question sorry about that the growth drivers for the second half it three things.

The Nestle warehouse the future partnerships you started open now and it will ramp up to full strength over the next two three months and that's a 15 year contract the.

Two novel purchase in the UK, the regulatory approvals on that are progressing well and we anticipate closing in October or November and their business has been performing well because of the the verticals that they are intact food and beverage and E com and a significant synergies with our existing UK biz and Waitrose and that was a.

Three year contracts that we signed off earlier in started this month and that's an $85 million year revenue per year contract.

Your next question is coming from the line of Jordan Alger with Goldman Sachs.

Yeah, Hi, good morning, I, just wanted to follow up on the LTL side second and again going back sort of the tonnage.

I'm just curious.

Given the differences across the LTL guys are your LTL operations, guys, saying that perhaps competitively from a price standpoint, maybe things got a little bit more challenging make could that explains some of the tonnage difference is there more going after share wouldn't you say in them LPL market.

[noise], we don't see aggressive pricing by and large in the competition, we see a rational pricing environment in LTL, that's not surprising since there's just a handful of LTL carriers that represent the majority of the capacity.

And so we will see a favorable yield environment right now in each company has got its own strategy that they've selected and worked for them, but for US and we haven't strategy has worked very well for us long term worked well for us this quarter, but it's worked very very well for us long term will start kicking in working well for us in the third quarter again and that.

It's too highly favorable yield over tonnage, we're not looking for market share in of itself. We're looking for profit share improvement.

[noise]. Our next question is from the line of Jason Seidl with Cowen.

Thank you operator, Ah Hey, guys I'll keep it to just one here I'm looking at X fuel directed it sounds like you guys had a pretty good quarter. You mentioned that the margins were profitable I was wondering if you can give us a little more color on that and also as you look sort of to that long term margin target that you gave us a short while back has any.

We have that changed either for the better or for the worse.

The next PEO direct continues to be on track the shutdown for the vast majority of the U.S. bricks and mortar retail network caused a surge in ex fuel direct E com opportunities a exzeo direct is clearly beyond the proof concept stage, it's been profitable now for the second.

Quarter in a row, and we expected to be profitable the entire years that turned out to work out quite well I see its 930, we apologize to those who didn't get chance asked a question, but we look forward to speaking to you offline. Later today. Thank you very much talked again, if we run a great day.

Thank you everyone. This concludes today's conference you may disconnect. Your lines at this time, we thank you for your participation.

[music].

[music].

Welcome to the ex fuel logistics second quarter 2020 earnings conference call and webcast. My name is Robyn I'll be your operator for today's call.

At this time, all participants are in listen only mode.

Sure well conduct question answer session. If you ever question, Steve style Star one on your telephone keypad.

This conference is being recorded.

Before the call begins let me read a brief Steven on behalf of the company regarding forward looking statements and 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 could differ materially from those projected in the forward looking statements.

A discussion of factors that could cause actual results could differ materially is contained in the company's FCC filings.

The forward looking statements in the company's earnings release or made on this call are made only as of today. 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 FCC rules.

Conciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial table.

You'll find a copy of the company's earnings release, which contains additional important information regarding forward looking statements Nongaap financial measures in the Investor section on the company's website.

I will now turn the call over to Brad Jacobs, Mr. Jacobs you may begin.

Thank you operator, good morning, everybody.

In addition to my remarks today, you'll hear from David Weisner, Our Chief Financial Officer, Matt Fassler, Our Chief strategy Officer, and also for the Q in a portion of the call. We have topical Hadley or senior director of Investor Relations. Megan has seen our chief Human Resources Officer, Robbie Chelsea, and our Treasurer, and Kyle Wissmann Senior Vice President.

Your name.

The second quarter was dominated by the severe challenges of cobot 19.

Nevertheless, we did deliver better than was expected revenue adjusted EPS, adjusted EBITDA, and notably free cash flow.

For us the trough was in April in both North America and Europe.

Since then we've seen a recovery in Europe with a more recent rebound in North America and all of our sites are open.

Each month in the quarter showed sequential improvement.

Across our operating regions.

Organic revenue for the company as a whole.

Has gone from being down 21% in April year over year to down just 10% in June.

And we've continued to gain ground in July.

The improvement has been broad based in both transportation and logistics.

In North American LTL for example, our tonnage per day was down 24% in April year over year, but down only 13% in June.

We continue to regain tonnage in July.

In Europe, our LTL, how what counts per day at the end of June was off from the trough in France by 49%.

And in Iberia by 44%.

The UK was up 25% from the trough.

And our European logistics business came back strong in the quarter.

With a 7% increase in year over year revenue per day in the month of June.

These are all positive trends going into the back half of the year.

I also want to mention the three executive appointments, we made this week.

Eduardo pellet soda is our new chief transformation officer, and Alex and through his executive Vice President of operations.

These are two rare talented operators.

Work with our business leaders to turbocharge, our profit improvement initiatives, we're excited to have them bolt on board.

I'm also extremely pleased we have our first she diversity officer illiquid to Jacobs.

La-quinta has a in impressive record as a champion of diversity at Blue chip companies.

She'll be leading initiatives that are high priorities for us reporting directly to me.

So to wrap it up.

I'm proud of the extraordinary focus our organization has placed on keeping our employees safe throughout the pin debit, while keeping supply chains movie for our customers.

There are still lot of unknowns with cobot, what our positioning is strong.

For years, we've been investing in our vision for the future of supply chains.

Putting our ecommerce capabilities intelligent automation or warehouses and customer solutions that are in high demand for outsourcing.

These industry trends have been accelerated by the pandemic.

Finally, I want to say again, how grateful I am to our employees for their intense dedication in such unusual times, it's a privilege to lead TMX yeah.

With that I'll turn the presentation over to David David.

Thanks, Brad and good morning, everyone today, I'd like to discuss our second quarter results, our balance sheet and liquidity and our outlook.

In the second quarter, we generated revenue of $3.5 billion, adjusted EBITDA of $172 million and an adjusted loss per share of 63 cents.

All three figures reflect year over year declines due to covert but they are all better than we expected at the beginning of the quarter, Matt will review the segment detail in a few minutes.

We generated $214 million of cash flow from operations in Q2 spent $116 million on Capex and received $23 million of proceeds from asset sales.

As a result, we generated positive free cash flow of $121 million in the quarter.

This brings our year to date free cash flow to $216 million, which represents a year over year increase of $66 million. Despite are having $75 million of cash outflows. This year related to our exploration of strategic alternatives.

We've been able to generate positive free cash flow during the pandemic by managing working capital aggressively turning our receivables into cash.

We became even more disciplined about collections in the cobot environment working with our customers to reduce our receivables and staying disciplined with respect to payment terms.

We continue to use trade receivables programs, including our European securitization to manage our working capital.

We didn't repurchase any shares in the second quarter. So we continue to have $500 million of authorized share buyback capacity.

We throttled back our planned capital expenditures dramatically at the started the quarter, but have begun to reopen the spigot a bit as demand and new business opportunities have rebounded.

We currently estimate that our gross capex will be $450 million to $475 million. This year, which is up from our may estimate of around $400 million, but down about 26% from our pre pandemic plant.

And we estimate that as a result of our regular course asset sales or net capital expenditures will be $250 million to $300 million. This year.

Even though financial markets have normalized significantly over the last four month.

Maintaining strong liquidity continues to be a top priority for us as an organization.

We issued $1.15 billion of six in the quarter percent five year senior notes in April and May.

The proceeds are part of our 2.3 billion dollar cash balance at June 30.

This cash combined with available debt capacity under committed borrowing facilities gives us total liquidity of $2.8 billion at quarter end.

Our net leverage at June 33, and a half times adjusted EBITDA, which is in the middle of our targeted range of three to four times.

We have no significant debt maturities until mid 2022, our liquidity position is strong.

In this second quarter, our adjusted EBITDA was right in line with what you would expect they've done the combination of our second quarter 2019 results I.

A 17% year over year reduction in revenue due to the pandemic.

The 77% variable, 23% fixed breakdown of our expenses and the nearly $50 million of kogut related costs, we incurred.

We've been seeing sequential improvement from month to month since April with that favorable trend continuing in July revenues in the first half of the month were down high single digits year over year.

And we estimate that our kogut related costs will be $10 million to $25 million in Q3.

Based on these conditions, we expect to generate at least $350 million of adjusted EBITDA, including coded related costs in the third quarter.

This means we're positioned to outperform the results that would be implied by a high single digit year over year revenue decline and our mix of variable and fixed costs.

This is because of benefits that we expect to realize in Q3 from operating initiatives restructuring programs and other cost saving actions that we've implemented.

On the cash flow front with us having generated more than $200 million of free cash flow in the first half we continue to be confident in our ability to deliver hundreds of millions of dollars of free cash flow this year.

Lastly, cobot 19, clearly dominated the second quarter of 2020 revenues bottomed in April and have been recovering ever since.

Throughout the quarter, we protected our employees kept serving our customers and adjusted our variable costs to align with dramatic declines in demand.

We also solidified our liquidity continued to generate significant positive free cash flow implemented cost saving actions that will benefit future quarters and invested in technology.

As a result, we expect the third and fourth quarters to be much stronger than Q2, and we are enthusiastic about our longer term prospects as a leader in the markets we serve.

With that I'll turn things over to Matt.

Thanks, Dave I'll review, the second quarter income statement and shed some more light on the trends we've seen in July.

And with our transportation segment.

Segment revenue was down 22.6% in the quarter year over year and organic revenue was down 19.3%.

Adjusted EBITDA declined by 60%. This included $27 million of costs related to coated primarily in our North American LTL.

LTL tonnage per day declined by 19% in Q2 versus the prior year, primarily due to weak activity levels in industrial manufacturing and other motive.

April if the trial and the business gained momentum as we moved through the quarter, while we did well in consumer Staples. This vertical was not enough to offset the shutdown in the industrial economy.

As industrial sectors reopened our trends improved LTL tonnage was down year over year by 23.5% in April 20.8% in May and 12.8% in June improvement continued in July.

Excluding the impact of fuel improved 1.9% year over year.

Growth in July is in line with Q2.

Our LTL price increases on contract renewals remain solid.

Up 3.7%, which kept us on pace with the Q1 increase.

Our adjusted operating ratio in LTL with 90.1% for the quarter compared with 88.3% a year ago.

The biggest driver of the change was lower tonnage and we also had a negative impact of about 250 basis points from $20 million of covert costs. These drags were offset in part by the improvement in yield.

Were also affected the controlling key variable costs, including PND dock operations and line haul.

Our xps smart productivity tools are proving valuable in this environment.

In mind that this was just the second full quarter since Fps smart was rolled out nationally in our LTL network. The analytics are driving up dock productivity by 6.5% on average year over year.

Encouraged by the early results and we expect the improvements to compound going forward.

We also grew load factor by 3.9% and improved empty miles by 24% better than the 15% decline in shipments we expect the combination of a better revenue outlook and strong expense management in LTL to produce a significant sequential improvement in adjusted operating Roe.

Ratio in Q3 with much more modest year over year version.

Within our freight brokerage business truck brokers delivered a strong performance in a volatile market.

Revenue fell 8%, but net revenue rose 3%.

Brokered volumes trough in May and rebounded strongly in June.

And we posted solid year over year increases in net revenue margin each month in the quarter.

We procured capacity exceptionally well buying at a 7.5% discount to the market.

David by the pricing tools within our Expo connect platform.

Thats PEO connect continues to drive significant efficiencies and our truck brokerage service in the second quarter. The load count was essentially flat with Q2 last year and we handled it with 14% less headcount.

Intermodal revenue was down sharply reflecting the shutdown in automotive production intermodal revenue trends began to recover in June and have improved significantly in July as truckload capacity tight.

Last mile was a real highlight for us in the quarter.

Revenue increased 3% year over year, while net revenue dollars rose 11%.

Net revenue margin rate in last mile increased by 270 basis points to a record 37%.

And here again revenue trends accelerated as the quarter progress our last mile specialization in heavy goods continues to benefit from the growth of E Commerce, and we saw strong demand for home improvement goods and exercise equipment.

This was partially offset by slower appliance installations due to kogut restrictions.

Turning to Europe, and our transportation business Q2 revenue declined by 29% versus the prior year organic revenue, which excludes the impact of FX and fuel was down 23% for the quarter as a whole importantly, the year over year trend in organic revenue growth.

Became more positive throughout the quarter, we were down 37% in April when the government Lockdowns in Europe sharply curtailed our automotive industrial and chemical customers, we rebounded to a 20% decline in may at a 14% decline in June.

The theme for the quarter in European Transportation was first in first out among our larger countries, France, and Spain, Lockdown curves and recovered first the UK locked down several weeks later the timing of the UK truck recovery are tracking later as well and the curve of the recovery there.

It has been more subdued.

Overall July market conditions have continued to improve for European transportation.

Moving onto our logistics segment, the contractual nature of this nature of this business mitigated the impact of coded as did our vertical mix and the embedded relationships. We have with key customers logistic segment revenue was down 8% year over year for the quarter and organic revenue declined 6.5%.

Again, improving each month, adjusted EBITDA declined 39%, including the impact of $19 million of corporate costs.

In North American logistics revenue declined 11% versus Q2 last year.

We had solid growth in E commerce, and Omnichannel retail along with good results in consumer packaged goods and consumer technology. This was offset by the elimination of lower margin business and by temporary shutdown requests from the number of our customers at the peak of the pandemic, 8% of our sites were impacted by closures.

And now all of our sites are up and running.

Logistics as an LTL, our proprietary xps smart tools are driving productivity and cost efficiency.

The two thirds of our warehouses utilize xps smart and we're seeing an average labor productivity improvement of 5%.

Some individual sites are much higher this test it's still in the early innings with the value of it can bring to the business also I'm pleased to report that ex PEO direct our shared space distribution network.

Created solidly in the black for the second consecutive quarter, the secular growth of ecommerce is driving more opportunities with omnichannel retailers.

In Europe.

Logistics revenue declined by 6% year over year FX had a negative impact of about 2.6 percentage points on revenue importantly, organic revenue for European logistics turned positive in the month of June consumer verticals represent about 85% of our European contract with just.

Six revenue with the vast majority related to either E commerce or food and beverage consumers leaned into these verticals during the pandemic and we were happy to keep those goods flowing.

We're encouraged by how well this business is performing and we see additional opportunities to grow the top and bottom lines. We're rolling out XP of smart across Europe to drive labor productivity in our logistics warehouses, we had a soft opening for our warehouse of the future in the UK last month, which kicked up a 15 year contract with nest.

And the trend towards near shoring creates additional potential business for us.

Our acquisition of logistics operations, we couldn't nago in the UK is on track to close this fall.

That's an overview of the operating trends that underlie our Q2 results moving down the income statement interest expense was $82 million in the quarter versus $72 million a year ago, our GAAP effective tax rate rose to 35% from 24% a year ago.

Our weighted average diluted share count was $91 million.

In a loss making quarter diluted shares outstanding don't include common stock equivalents, our basic share count was down slightly from Q1 and from the year ago number reflecting the impact of our first quarter share repurchase activity.

Our diluted loss per share was $1.45 for Q2 versus earnings per share of $1.19 a year ago and our adjusted diluted loss per share was 63 cents versus EPS of $1.28 a year ago.

I want to note two items in a reconciliation of GAAP to non-GAAP metrics, we incurred a $50 million in pre tax restructuring costs in the quarter, primarily for severance that pandemic, let us to take a deeper dive into our cost structure and significantly reduce our overhead costs, particularly in.

Europe. This will drive approximately $100 million of annualized cost improvement, we expect to achieve this run rate by the middle of 2021.

The other item is the $46 million, we booked in transaction and integration expenses and the quarter, primarily associated with our exploration of strategic alternatives. The largest piece of this relates to employee retention.

To summarize the second quarter, we responded to the pandemic by taking care of our employees looking after our customers protecting our liquidity and cash flow and rightsizing, our variable cost to market conditions as David mentioned, the adjusted EBITDA, We delivered was inline with our mix of fixed and variable.

Costs in Q3, we remain focused on focused on all of these critical efforts at the same time, our operating environment is becoming increasingly stable and we're directing more of our attention to our strategic profit initiatives, particularly Expo connect and other technologies that can leverage the return.

One of the Matt.

We now have more than 62000 truckload carriers registered on Expo connect globally.

Downloads of our drive Expo App grew 87% in the three months of Q2 versus Q1, and now exceed 150000 downloads in total and we more than doubled the number of customers on the platform in the same period in LTL, we continue to make headway with our pricing initiatives.

Particularly as we gauge price elasticity digging deeper into the full cost profile of each RFP.

And we're expanding the data we used to optimize the line haul portion of LTL in terms of visibility compliance and routing.

Opportunities within contract logistics are also compelling our capabilities with advanced automation are both a driver of new business and a competitive advantage customers, who explore in house robotics options often come to the conclusion that the cost of entry is high and the solutions can be tough.

To implement our first mover advantage with goods to personal systems and collaborative robots is leading companies to outsource these projects to us.

Another tailwind in contract logistics is that retailers are coming to us for more ecommerce capacity.

In the short run customers need interim capacity to manage peaks in demand, especially since the pandemic has made buying patterns less predictable for the mid term they're interested in arranging additional distribution centers for supplemental capacity on a regional basis and longer term.

Retailers and brands are assessing transformational changes that de risk their logistics networks. We can meet all of these needs I'll close by mentioning a few other highlights of the quarter.

Expo was once again recognized by Gartner, which named US a worldwide leader in their magic quadrant of Threepl providers. This was a third straight year that we were designated a theater by Gartner also in the corridor. We were proud to provide critical support to the city of New York's office of him.

Currency services during the peak of the pandemic and the tour de France race is scheduled to start on August 29 in Europe 2020 marks the fourth anniversary of our partnership with this celebrated event, we're proud to help bring some much needed support to the world stage not on.

Only well our trucks and drivers cover every kilometer of course for the first time two of our eco friendly natural gas powered trucks will be asked to finish line when the competitors arrive in Paris.

With that I'll turn the call back over to the operator, and we look forward to your questions.

Thank you at this time will be conducting the question and answer session.

As a reminder to ask a question today you May press star one from your telephone keypad and a confirmation total indicate your line is in the question Q.

You mean press star tools, usually to remove your question from the Q.

Since using speaker equipment, and maybe necessary to pick up your handset before pressing the star keys.

One moment, please when we pull for questions.

Thank you and our first question is coming from the line of Ravi Shankar with Morgan Stanley.

Thanks, very much good morning, everyone. A bride I think you probably have more insight into global supply chains, then just where anybody else out there.

So would love your thoughts on how you see the word changing as we emerge from the pandemic.

Especially with respect to a near shoring and.

Running supply chains as died and quickly as we have the last couple of years.

Well good morning Robby.

Economy, obviously is way better than it was a few months ago and better than we thought it would be but it is certainly not back to where it was a pre pandemic. The good news is that every month has been better than the previous months and little by little business is trending back towards normal.

If you look at it Geox geographically Europe is much ahead of the United States, that's not surprising the cobot started there earlier and the government mandated complete nationwide lockdowns right away. So we're seeing parts of our business in France almost back to pre covert.

Levels in Spain. Despite recent.

Searches in the infections transportation revenue is actually up year over year in July.

In our UK transportation business is recovering, but little more subdued then than a constant.

If you look at the organic revenue growth in European supply chain.

Was positive in June was partly with plus 7%. So there are some encouraging signs, but we're certainly not out of the woods. Yes. If you look over here in North America, I think the rebounds real but it's an earlier stage and not as uniform as Europe.

You have in us our business improved in July versus June, even though cobot cases were going up and I guess, the best example that would be LTL shipments LTL shipments grew meaningfully from April where they were down 22% to July where they're down single digits.

Big contrast between April down 22, and slide down single digits.

I think also to answer your question you have to look at the.

Different verticals, because there are definitely different industry trends by vertical trends and E. Com have not only been great, but they have accelerated and we believe that permanent.

And the.

Because we're the largest last mile or logistics for heavy goods provided the United States. We have a good insights what's going on there and this is big upticks in the E com activity in big and bulky.

From my are primarily in home improvements because people were at home and exercise equipment, because we're at home. So people are going out less.

But theres still shopping for good increasingly online we move goods. So if consumers are not going to theaters in to two sports into restaurants, that's not great through this society and for overall economy, but it's more germane to us what's going on with purchasing of goods.

Causative I mean, it's negative what to what it was pre pandemic, but it's getting more positive each month I guess to sum it up I would say short term.

We are encouraged for realistic.

And the full recovery is insight, but not in short sites. So covert recoveries going to take little time longer term I'm still a mega both because the recovery past very clear you got the therapeutics coming on people, who get the the disease don't die as much which has been tactic vaccines seem to be around the corner.

In most of the factors that we're driving the worldwide synchronized growth just a few months ago pre pandemic.

For the most part they're going to still be present post pandemic and with technology now so it varies advancing in advancing advancing faster and faster information global information is so much more voluminous and its share near instantaneously and that's got to be a good thing for the economy, So technology automation.

And outsourcing are the three things that I'm seeing that are the big trends and Fortunately, we're well positioned to capitalize on all three of them does that answer your that you wanted.

I I didn't know those excellent color on the on the demand side of the bad or recovery, a I'd love some color on the supply side as well do you sure Corporation is talking about changing their global supply chain and then there's got to talk about near shoring and bringing more manufacturing back to the U.S. or to North America even.

Are you hearing that do thing that happens anytime soon or do you think that's a that's a thematic discussion and takes a long time to payout.

Rob Rob, it's Matt I'll take that one of two points to make there. We're seeing this really play out in two different ways first of all you mentioned near shoring. There was obviously a great deal of talk about this early in the pandemic Interestingly, we're now hearing about at a bit from our salesforce as they engage although some of our customers who are considering.

Over the long run a moving their means of production are closer to their end consumers. This is not just at north American phenomena, but also our your Ken.

Phenomenon. So we expect to see business opportunities emanate from that secondly, as I discussed in our prepared remarks, a couple of moments ago.

The surge in E. Commerce has really pull forward demand that we expected to move online by a number of years. We're we're helping our customers really in two ways number one we're helping them manage that today, because they're coping with unanticipated changes inflows of demand and we're helping them get those goods to consumers.

And secondly, there considering more structural transformational changes to their supply chains.

Larger larger distribution centers more ecommerce distribution centers and they're working with us to build those out we're going to benefit from both of these trends as as a consultant to these companies and as a as a deliver has that deliver of commercial solutions as they implement these changes to their supply chains.

Great if I going to sneak one more and I think the appointments of Eduardo and Alex I really interesting a Brad can you give us a little more color I'm going to what their mandate as.

What they're going to work on and how we judge that results.

I've always last part you said Robbins, how they want.

Oh, well, they're going to work on what their mandate is and how do we judge their results.

Oh, Okay. So first of all they both rock stars. These are hard to find talent like that people these or die in the will operating people with long frackers of year after year after year doing profit improvement there like Swiss Army knife. They they have had commercial background that good operating retrograde very talented operator.

If you look at Wardell Eduardo when he was COO Kraft Heinz it's about $3 billion of cost I mean, we've been pretty good a cost cutting but $3 billion of cost as a standout accomplishment, we'll get Alex Alex when he was Oh popeye's.

Doubled EBITDA on three years and he was the main architect of the payments Popeye's chicken sandwich semi is a very creative sharp.

Highly experienced got and they both have a lot of experience in transportation and logistics. So it's really a perfect fit and they blend in with our corporate cultures is perfectly now in terms of what they're going to do theyre going to do that Saitek help execute the same strategy is working for us which is to grow the business topline and more importantly bottomline.

Line, and long way generate dolls, and gobs of free cash flow. So in particular theyre going to help work on the 10 levers the proper cool opportunity of 700 million $2 billion of profit improvement possibility over next few years and that's just right up the rally they've done very similar things that multiple companies with threeg over.

The years and there's there's no shortage of opportunities to find ways to improve productivity and efficiencies and ultimately profit of the company and they're going to play a big rolling that.

Awesome. Thank you.

Thank you.

The next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your questions.

Good morning.

In terms of the LTL yield ex fuel looks like decelerated, a little bit from Q1.

The weight per shipment, but lower than some other mix impact to to be aware of and then.

Turns out the renewal rate I think you've had a 3.7, which I believe is in line with Q1 idea. So.

Moving forward should we expect that growth in yield to start to converge with a renewal rate.

All right if you cannot walk through that.

Good morning, Allison I wouldn't guide to 3.7% yield because that contract new rated part of our business not all of our business, but we are seeing positive yield so 1.9% positive yield in the quarter was helpful and the yield trends were positive.

Every month.

It wasn't enough, though even with a couple of points of yield to overcome a tonnage declined 19%. When you have tonnage decline of 19%. It you can do all kinds of great stuff, you're not going to overcome that given the fixed costs nature of LTL business and the operating leverage but Q2 tonnage.

Also showed an improving trend you had tonnage was down in April 24% year over year was down 21% year over year in May was down only 13% in June and here in July is down single digits. So there's a there's a decent trend there and.

There were some bright spots in LTL despite the.

The poor Omar load factor was up 3.9% was the highest low fact, we hadn't eight years.

Empty miles improved 24% year over year versus shipments being down 15% dock productivity was up 6.5% and I would point you too.

Our guidance for Q3, and one of the reasons why we're going to generate at least $350 million of EBITDA in the third quarter is that we fully expect are all are in Q3 in LTL to be substantially better than it was in Q2.

I feel that were fully on track to achieve at least a $1 billion of EBITDA.

We have pushed that out from 2021 to 2022, and you'll see steady progress between now and they're getting to that level.

Okay.

That's helpful. Thank you and I think you guys won a few new contracts during the quarter. So hopefully, hoping you can maybe walk us through the nature of those.

On the size in duration and when we should think about the revenue starting to mature.

Okay. So there was one one whale in Europe, and there were two wells here in United States in UK, we signed a $250 million contract that starts October 1st.

Its five year contracts, it's towards its transportation is its delivery of chilled dairy products to stores and its with Arla foods.

In the United States, We had two big E Com wins and these will be some of the most automated warehouses in the world. So we have one new E Com fulfillment center on the West Coast for a global branded apparel company. It will it is.

Our largest site in the United States is 1.2 million square feet. It's a five year contract and started this month and it's on its way to ramp up to 400 robots and then we also have another large E com fulfillment center on the West coast for a global fast fashion retailers that starts in September.

It's also over million square feet also highly automated and that will be ramping up to 500 robot. So we have some good momentum in the in the backlog on on commercial wins.

Okay excellent. Thank you.

Thank you.

Our next question is from the line if Chris Wetherbee with Citi. Please proceed with your question.

Hey, thanks to the money yet.

Yes, you've seen what the businesses performed on the downside in terms of decremental margin.

As you look out and hopefully this is in 2021 story, where we see potential for revenue opportunities hip growth coming back to the business your new way to think about sort of incremental margins on the upside I know traditionally I think we thought margins the problems that sort of mid teen dish or so come up a margins.

As you think about LTL and the potential lapse in Milwaukee or some of the weaker performance. This year, maybe some of the operating leverage as you move towards building walls and profit there and some of the cost cutting kicking out major new paradigm to think an optimal across the margin perspective in a growth market.

Chris It's Matt a couple of points on that first of all as you start off by looking at third quarter and you look at the EBITDA guidance and you think about the kind of revenue trend that we generated in July you'll see that the decremental margins that are embedded in that are better.

Then the decremental margins that we generated in Q2 and better than the deck remark decremental margins implied.

By the 70 723 math that we spoke about last call last call last call and that David mentioned earlier today Secondly, as you emerge from a downturn, obviously, we have flexed our variable cost we are starting to make more headway with fixed costs are fixed is probably a slightly higher for.

Sense of your cost structure after a down year on then it would have been going into a down year. So that implies the potential offer more operating leverage to the upside, particularly obviously when you cycle, a very unusual quarter I like the one that we had in Q2, which obviously will be a big part of the 21 stores, we're not going to talk much about 21, yet, but obviously that's the way.

The arithmetic works. So you know to reiterate our third quarter substantially better performance on that front than second quarter, and then emerging from the down revenue year, you have the opportunity to generate better incrementals and you'd have and an average year plus we have the 10 levers and the progress that those are likely to bring us above and beyond that.

Okay. Okay. I appreciate if that's helpful. And then and then thinking about the cost take out the 700 to 1 billion.

When can we certainly see show.

Clinical progress and maybe more meaningful progress along those along those lines very difficult doing disrupted mark we've got over the course of the last several months.

We need to wait to next year to start to see some meaningful impact that patterns, Eduardo and Alex really kind of get begin to find opportunities or is it something that maybe you can start to show up in a more stable market in later through Q4 Q.

We are hugely excited about the 10 levers. This is a massive potential to literally transformed the business and you will see continued you're already seeing some benefits, but you'll see continuous quarter after quarter year after year benefits from the 10 levers.

And 2023, we will have achieved.

That's substantial part of that profit pool, we had a quarterly operating a view couple of weeks ago.

For three days and a good part of that was going over the 10 levers and crowd sourcing.

Hi, everyone on each lever, where do you think where do you think the highest what is the lowest which I think the likely and.

Collectively we're feeling very good about each one of those levers if you look at smart.

This is this has already helped us variabilizing manage labor costs nimbly, the dock craft labor productivity that improves 6.5% year over year in the second quarter, we would not have been able to do that without smart smart improve the labor productivity in our contract logistics facilities by about 5% or.

Already and we're looking to improve on that going forward. So I think the benefits, we'll just keep compounding going forward.

I connect in truck brokerage connect to help us handled in the same number of low this quarter year over year, but with 14% lower headcount.

So that's a that's an important lever when you can get that kind of productivity from from a a sales force. That's really really helpful look at procurement procurement, we've got about $8 billion or so of non labor expenses added water and Alex is going to be a big help with that because a lot of experience with that on pricing.

At the early innings of what we can deliver a we used pricing within connect this quarter to by 7.5% better than DHS. So we bought 75% better than the market due to the technology, we're using on snack, there's a big opportunity on pricing in LTL as well for pricing elasticity and more autumn.

Question on that.

And then on LTL the other process improvements in terms of optimizing line haul and PND span so.

We're very excited about about the leverage this strategy at the core of our strategy is to deliver substantial long term shareholder value as we have and our focus is on allocating capital in ways that achieved the best risk adjusted returns. This these 10 levers.

Very very very important part of that strategy.

Got it thanks very much for color I appreciate it.

In Q and a further questioners if you could limit your questions to just one that'd be great.

Next question please.

Thank you. The next question is from brand and Uklanski with Barclays.

Yeah, Hey, Brad and thanks for taking my question I'll just leave it to one I think you talked about how the Tam dynamic is accelerating its outsourcing trends, especially in logistics and E. Commerce. I mean can you talk about your longer term pipeline in some of the opportunity that you see.

Coming there and maybe.

Changing direction. The organization are shifting directions to how are you going to capture those opportunities.

I didn't quite catch last part about shifting direction something Brendan.

Yeah, just like are you, making any changes on the capital side or personnel side that would help you capture this shift in direction or the market.

Oh in the market got it.

Well, we're always adding talent, we find great talent, if we can find a place for them and they can get a good we take it can achieve for us a great ROI on their compensation. We are we find a place to put them to working you've seen that done this quarter to in more than one instance, up the main ways that we're positioning for that.

Future growth is a big exposure, we've got on E com throughout the company, particularly in supply chain.

The advanced sophisticated technology that we've got as a result of the half a billion dollars plus in your investment we've been making.

In technology and the outsourcing trend that's the main driver of growth in the whole industry is more and more companies and particularly during the pandemic, putting their hands up and say you know what led to outsource more even all of our supply chain needs to people, who do this for living full time and who have technology.

That is more sophisticated and their technology, and who have information and data and real time info, what's going on in the market have their finger on the pulse, what's going on the market and no what's going on in the involved how supply chain situation for other companies in their same a vertical in their same industry. So I think were wealth as.

Listen to benefit from all that.

Thank you.

Thank you.

Our next question this from the line of Amit Malhotra with Deutsche Bank.

Thanks, Operator, hi, guys, Brad the performance in the LTL business.

There is over 70% of the profits of the total company in the quarter was very weak relative to competitors.

Tonnage was down way more than peers decremental margins were more than double that of peers. Even when you add back to 20 million of corporate costs, which arguably other people have corporate costs as well.

Can you explain that I would've expected the opposite given the cost opportunity and could one explanation.

The that it's hard to focus the business. When you are still diversified you in the management team are sitting in Greenwich. The LTL business is in Michigan, the supply chain business in Charlotte the European businesses Embarrass isn't there are tremendous value to focus and you guys just aren't able to do that so naturally.

It was actually make the breakup story that you guys outlined in junior even that more valuable from an equity value maximization perspective, you can just address those two points I'd appreciate it.

First of all I complement you on getting four questions and in one and one cents a fantastic on LTL for sure you are.

That was deteriorated significantly during the quarter they were too big factors.

Tonnage being down so much and an intense focus on employee safety.

So the tonnage being down 19% was due to our long term business strategy, what's worked very well for us over the years. This particular quarter. It did so we've been very high highly selective on the freight we take on we've had a strong biased towards yield over market share and with the tonnage that with that making.

So much time, making tonnage go down so much with the operating leverage in the fixed costs it translates into the Omar.

Now employee safety has always been our number one priority, but this greatly intensified during the pandemic and some of those kobin costs are visible in the numbers $20 million or 250 basis points of or deterioration from p. from appreciation pay from site cleaning, but the.

Larger harder to quantify impacts are from the network inefficiencies during the shutdown. This was offset a little bit by the about 2% yield improvement, but clearly not enough to offset the 19% decrease in tonnage. The good news is that each month in the quarter was better than the.

Previous month in LTL and that improvement continued in July.

As I said before tonnage was down 24% in April.

It was down only single digits in July so nice trajectory, there and Q3 or will improve sharply from the Q2 levels and much closer to where it was about a year ago I can't answer your question about.

Comparing ourselves to competitors for a particular quarter, because I'm not fully knowledgeable about what's going on at competitors were fully knowledgeable what's going on in our company and it's what I just explain to you now with respect to your other question about.

<unk> was our LTL performance in the second quarter results of being a large diversified companies. There's no. We've got tremendous operating talent running our LTL business they've doubled EBITDA over the last four years. So.

Looking at them on a longer trajectory there isn't a fantastic job. This was this was a very unusual quarter within our goal wasn't to make a whole bunch of money in this quarter when the quarter started and.

Pandemic was there we didn't know what was going to happen here. Our goal was to make sure people didn't get sick and didn't die and that was really where we put our effort and we succeeded there. So from that point of view was a good quarter from a financial perspective, it was not a good quarter for LTL in this quarter.

Our next question is from the line of Scott Schneeberger with Oppenheimer.

Thanks, very much <unk> news, a a a good night and with cash on the balance sheet now I'm, just curious where where are your focus is with regard to allocating capital as M&A reentering. The picture, if so how where valuations looking versus recent years past and.

And then just an update kind of playing off on these question of of thoughts on re initiating strategic review. Thanks.

So nothing new to talk about their we've done no acquisitions.

The strategic review process was terminated a month ago, and we're just not focusing on that and our strategy of.

Allocating capital, where we get the greatest returns on that capital is still the same it's always them.

No nothing new on that front.

Our next questions from the line of Brian Ossenbeck with JP Morgan.

Hey, good morning, Thanks for thanks for taking the question.

One area just want to talk about in logistics related to E. Com is reverse logistics, how do you feel about the opportunities and capabilities specific in that space. I think you had little I'll go in largest contracts every booked was in that how is that ramping up do you feel like you know for capacity and capabilities to keep growing there, especially if we think that b to C. You takes.

A step change up and most likely drives a lot more returns with it.

Reverse logistics is very active and very dynamic.

E Com was our fastest growing part of the business and were within E. Com reverse logistics was at the top of the lift so we had about 75% year over year growth in volumes for reverse is very very very active well returns from bricks and mortar stores are down because bricks and mortar stores are down so that.

Countervail that a little bit we have what I would describe as unmatched automation and process controls in for our reverse logistics, we handle returns because of the very very well because of impart the historical data that we've got on the sales in our ability to very accurately.

Dick the returns and customer very much appreciate that and we do more than just the traditional rich reverse we do reprocessing, we do the repricing we do the warranty management program, we do the quality control inspections, we we do a lot of things for our customers in reverse that is a highly valued and.

Growing partner fastest growing part of our business.

Our next question comes from Atlanta, Ari Rosa with Bank of America.

Hey, good morning, guys. So Brad eat the EBITDA margins in contract logistics I I think they were at the lowest level that we've seen since since you guys essentially entered that business I was hoping you could talk about in terms of the outlook.

What costs go away.

In third quarter or even into 2021, and what can you give us confidence that those margins can kind of get back to where they have been historically, particularly in the context of you know E com or I'm, sorry, our contract logistics traditionally being seen as kind of the more resilient piece of the business.

Are there two elements to think about here first of all our there were significant direct to covert related costs that impacted the business in the second quarter. There will still be some could cost we expect in Q3, but as David indicated in his prepared remarks, those are likely to be in that $10 million to $25 million range for the company.

Overall, which is much lower than the $48 million, we had last quarter and that contributed obviously to the margin degradation in contract logistics. Secondly, Q2 marked a series of shutdowns much more so than a slow down and that's particularly true in contract logistics, we have customers.

In very resilient verticals that are typically recession proof, but they're not shutdown proof and that was a set of circumstances that I think none of us would have contemplated prior to the advent of the pandemic their circumstances that we don't expect to repeat themselves. When we commented on the tone of business improving.

In July from where we were in a in the second quarter, that's true for contract logistics as well. So again, we viewed second quarter's operational performance in that business to offer all the reasons I just it.

And with respect to your question sorry about that the growth drivers for the second half three things.

The Nestle warehouse the future partnership you started open now and it will ramp up to full strength over the next two three months and that's a 15 year contract the.

Two novel purchase in the UK, the regulatory approvals on that are progressing well and we anticipate closing in October or November and their business has been performing well because of the the verticals that are intact, food and beverage and E com and a significant synergies with our existing UK biz and Waitrose that was a.

Three year contracts that we signed off earlier in started this month and that's an $85 million year revenue per year contract.

Your next question is coming from the line of Jordan Alger with Goldman Sachs.

Yeah, Hi, good morning, I, just wanted to follow up on the LTL side second again going back sort of the tonnage.

I'm just curious given.

Given the differences across the LTL guys are your LTL operations, guys, saying that perhaps competitively from a price standpoint, maybe things got a little bit more challenging make could that explains some of the tonnage difference there more going after share wouldn't you say in LTL market.

We don't see aggressive pricing by and large in the competition, we see a rational pricing environment in LTL, that's not surprising since there's just a handful of LTL carriers that represent the majority of the capacity.

So we will see a favorable yield environment right now it's companies got its own strategy that they've selected and worked for them, but for us and we have a strategy has worked very well for us long term worked well for us this quarter, but it's worked very very well for us long term will start kicking in working well for us in the third quarter again and that.

It's too highly favorable yield over tonnage, we're not looking for market share in of itself. We're looking for profit share improvement.

[noise]. Our next question is from the line of Jason Seidl with Cowen.

Thank you operator, Ah Hey, guys I'll keep it to just one here I'm looking at X fuel directors that sounds like you guys had a pretty good quarter. You mentioned that the margins were profitable I was wondering if you can give us a little more color on that and also as you look sort of to that long term margin target that you gave us a short while back has any.

Of that changed either for the better or for the worse.

That's PEO direct continues to be on track the shutdown for the vast majority of the U.S. bricks and mortar retail network caused a surge and ex fuel direct E com opportunities a exzeo direct is clearly beyond the proof concept stage, it's been profitable now for the second.

Quarter in a row, and we expect it to be profitable the entire years that turned out to work out quite well I see its 930, we apologize to those who didn't get chance asked a question, but we look forward to speaking to you offline. Later today. Thank you very much talked again, if we run a great day.

Thank you everyone. This concludes todays conference you may disconnect your lines at this time and we thank you for your participation.