Q2 2021 XPO Logistics Inc Earnings Call
[music].
Welcome to the X P O logistics second quarter 2021 earnings conference call and webcast My name is Rob.
And I'll be your operator for today's call at.
At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session.
You have a question. Please dial star 1 on your telephone keypad. Please note. This conference is being recorded.
Before the call me and let me read a brief statement on behalf of the company regarding forward looking statements and the use of non-GAAP financial measures.
During this call the company will be making certain forward looking statements within the meaning of applicable securities laws, which by their nature involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those projected and the forward looking statements.
A discussion of factors that could cause actual results to differ materially is contained and the company's SEC filings.
The forward looking statements and the company's earnings release or made on this call are made only as of today and the company has no obligation to update any of these forward looking statements except to the extent required by law.
During this call. The company also may refer to certain non-GAAP financial measures as defined under applicable SEC rules reconciliations.
Reconciliations of such non-GAAP financial measures.
As to the most comparable GAAP measures are contained in the company's earnings release and related financial tables or on its web site.
You can find a copy of the company's earnings release, which contains additional important information regarding forward looking statements and non-GAAP financial measures and the investors section on the company's webcast.
I will now turn the call over to Brad Jacobs, Mr. Jacobs you may.
Again.
Thank you operator, good morning, everybody thanks for joining our call.
With me today, and Greenwich, or David why Stewart, our CFO.
Fassler, our chief strategy Officer, and Mark Viduka, the Chief investment Officer, Jack So our plan and logistics spin off.
As you saw.
And yesterday, we delivered the highest revenue and adjusted EBITDA and our history.
It was the highest companywide and in each of our transportation and logistics segments.
We generated over $5 billion of revenue and over half a billion dollars of adjusted EBITDA.
It was the third consecutive quarter, we reported record revenue and adjusted EBITDA.
Not only did we solidly beat all expectations, we surpassed a great first quarter with and even better second quarter.
And it gives both our segments a powerful springboard for profit.
Growth and as separate public companies.
Customer activity is more than come back from 'twenty, and 'twenty, and we're executing extremely well across the business.
Yesterday, we raised the midpoint of our 2020, 1 EBITDA guidance for the combined company by more than the second quarter beat.
And.
And we raised the pro forma EBITDA guidance for both X P O and GSO.
Every area of the business is showing strength.
And North American L. T L. We're continuing to expand our operating margin primarily through company specific technology initiatives.
As a result.
Result, our second quarter adjusted operating ratio ex real estate gains was our best operating ratio yet.
And truck brokerage, we're continuing to outperform the industry.
This is due in no small part to the rapid adoption of on X P O connect digital platform by customer.
Customers and carriers.
Our logistics segment delivered the second consecutive quarter of double digit organic revenue growth.
The new contracts and we talked about on our last earnings call had been followed by more wins and the second quarter and a constant flow of new opportunity.
<unk>.
I'm confident that the spin off of this business will unlock the full potential of both <unk> and X P F.
And.
After we rang the opening bell at the New York Stock Exchange on Monday, Gx old store trading as the largest pure play contract logistics company.
And in the World.
This is a business with a rare combination of attributes.
<unk> is an industry leader with massive revenue tailwind.
Double digit EBITDA growth.
Long term contractual relationships with blue chip customers.
And importantly.
A 28% return on invested capital.
X P O will be a pure play transportation company with an L. T. L business is on track to generate at least $1 billion of adjusted EBITDA in 2022 and.
And a booming truck brokerage business with a fast growing digital platform.
I want to take this opportunity to thank David for his service as Chief Financial Officer.
As we announced yesterday, David will be leaving and September after a seamless handoff to Ravi tools here and our deputy CFO.
David has made many significant contributions to <unk> success.
As a member of our executive team.
I, particularly want and thank him for his strong leadership during COVID-19 and throughout the spin off process.
I have no doubt David will continue to be successful and this next step of his career.
And now he'll take you through the numbers David.
Thank you for those comments, Brad and good morning, everyone today I'd like to discuss our second quarter results, our balance sheet and liquidity and our updated outlook for 2020, 1 I'll be presenting most numbers on a status quo pre spin basis with post spin breakouts between X P O and Chi X.
So where appropriate as we anticipate the completion of the spin off on Monday.
And the second quarter, we generated revenue of $5 billion and adjusted EBITDA of $507 million.
The revenue number reflects a year over year increase of more than 40 per cent.
Adjusted.
And nearly tripled compared to our Q2 results last year when Covid was at its worst and both revenue and adjusted EBITDA are higher than we expected at the beginning of the quarter.
Our record adjusted EBITDA reflects strong growth and continued execution across our business.
And even in this case, it's also useful to compare our results to the second quarter of 2019, which takes COVID-19 out of the base period on a 2 year stacked basis, our revenue and our adjusted EBITDA are both up double digits.
Breaking down our 44% year over year revenue growth and the quarter.
And our U K logistics acquisition and January contributed 4 points of growth Foreign exchange contributed 5 points and fuel prices contributed 4 points.
As a result, our organic revenue growth and the quarter was 31%.
This top line growth translated into even stronger adjusted.
<unk> EBITDA growth of 195 per cent and our EBITDA margin rebounded to 10 per cent.
Covid had a much more limited impact this year compared to last.
As a consequence, our second quarter results this year with half a billion dollars of adjusted EBITDA and the quarter are much more.
Preventative of our earnings power.
As Brad mentioned, both of our segments made a strong contribution to our growth and achieved record levels of quarterly adjusted EBITDA.
And our logistics segment adjusted EBITDA doubled in the second quarter and in our transportation segment adjusted EBITDA.
<unk> was up year over year by 168%.
Operating conditions and the quarter were favorable with robust consumer demand and a rebound in industrial activity.
The global Microchip shortage did impact our transportation operations, we estimate that it reduced our EBITDA by.
More reps $10 million in the second quarter.
On the other hand, our results benefited from the operating leverage inherent in our business and the cost reduction actions, we took last year.
Matt and Mark will review our segment detail in a few minutes.
Okay.
Our.
Around <unk> earnings were $1.86 per diluted share, which is a quarterly record for us.
We generated $366 million of cash flow from operations and the second quarter spent a $110 million on gross capex and received $26 million and proceeds from asset sales.
As a result, we generate.
Generated free cash flow of $282 million.
This exceeded our expectations for the quarter driven by our strong earnings as well as some capex and working capital timing that worked in our favor.
Maintaining strong liquidity continues to be a top priority for us as an organization.
Nation, our cash balance at June 30 was $801 million.
This cash combined with available debt capacity.
And under committed borrowing facilities gave us nearly $2 billion of liquidity at quarter and we.
We had no borrowings outstanding under our ABL facility.
We used $128 million of cash and the quarter to repurchase the remaining 3% of our European operations held by public shareholders.
While this transaction wasn't required for the <unk> spin off.
And economical simplifying cost saving cleanup of our capital structure that we've wanted to do for some time.
Time.
Our net leverage at June 30 was 2.4 times LTM adjusted EBITDA down from 3.1 times in March.
Our free cash flow and our EBITDA growth are helping us achieve meaningful deleveraging on.
Our steady progress on this metric is important and the context.
And a commitment to move X P O towards an investment grade rating following the spin off of <unk> zone.
We've stood up Jack so with an investment grade capital structure.
Earlier this month <unk> completed an offering of $800 million of long term debt with a weighted average interest rate of 2.2%.
Next up on have also put in place and Undrawn $800 million revolving credit facility for <unk>.
Most of the proceeds from the GSO debt offering will be sent to X P O and GSO will retain about $100 million of cash post spin.
Shortly after the spin X P O we'll use.
And the cash it receives from GSO as well as the nearly $400 million from our recent equity offering and cash on hand to repay all of our outstanding 6 and when the 8% notes due 2023, and the 6 and 3 quarters per cent notes due 2024.
A total.
Total redemption of $1.5 billion that should reduce our annual interest expense by $100 million.
Following the spin X P. O's net leverage will be roughly 2.8 times 2021 pro forma adjusted EBITDA and we will have no significant debt maturities.
And until 2025.
We believe our debt Paydown will move X P O closer to investment grade.
From a housekeeping perspective, let me clarify the financial information that is and will be available about GSO and post spin X P O.
<unk> historical and pro forma results.
Results are available in the form 10.
In addition in August and <unk> will file its own 10-Q and will also provide supplementary detail on its historical pro forma EBITDA by quarter.
X P O will pile and 8-K next week with pro forma financial information, reflecting this spin.
As required.
In addition, and the third quarter, we intend to provide additional details about <unk> historical results with logistics and classified as a discontinued operation.
And for modeling purposes since the spin off is on the logistics segment, a high level way to understand.
And then off historical results adjusted for the spin is to look at the combination of our transportation segment and corporate results.
Okay.
Turning to the outlook, we issued yesterday, we updated our full year guidance in light of our strong second quarter results and the favorable economic trends, we see today.
Today, our outlook assumes these trends will continue and the market impacts of Covid will remain muted.
On a combined basis, we've increased our full year adjusted EBITDA guidance by $45 million at the midpoint since early may.
We now expect that we would generate 1.87 and 5 to $1.91.
$5 billion of adjusted EBITDA. This year, if there was no spin with year over year growth revised upward to <unk>, 29% to 33% and our logistics segment and 35% to 37 per cent and transportation.
On a pro forma basis as if the spin had happened.
And on January 1 and our outlook translates into $605 million to $635 million of pro forma 2021 EBITDA for GSO.
And 1.1.95 to 1 to $3.5 billion of pro forma EBITDA per X P F.
These figures take into account the separate corporate.
Corporate costs of each company.
And the third quarter, our year over year growth metrics will normalize compared to the outsized growth we reported for Q2.
We expect that <unk> and <unk> adjusted EBITDA in the third quarter will both be and the mid twenty's as a percentage of their respective full.
Pro forma EBITDA outlooks.
We expect about $5 million of gains from L. T L real estate sales in Q3 versus $26 million and last year's third quarter.
L T L real estate gains and Q4 will be higher than they were last year. So our back half seasonality will look a little different this.
A year compared to last.
In total we expect a $55 million to $60 million of gains from L. T. L. Real estate sales this year versus $77 million last year.
On the cash flow front on a combined basis, our outlook is for full year free cash flow of 652.
This year and your $25 million, excluding spin related outlays.
We also continue to target approximately $675 million of gross capital expenditures and $525 million of net capex for the combined company.
Of these amounts we estimate the GSO.
7 roughly $245 million of Capex and.
And Standalone X P O, we'll have about $430 million of gross capex and $280 million of net capex.
Our depreciation and amortization interest expense and tax expense will be split among GSO and <unk>.
We will have low as a result of the spin we provided the details in our earnings release.
And as a result of our recent primary equity offering of 2.9 million shares we now forecast, having roughly 114 million diluted common shares outstanding on average this year and roughly a 116 million.
<unk> common shares on average and the second half.
We said in May that we were preceding towards the spinoff of our logistics business with the wind at our back our record second quarter results have borne that out and we've continued to grow our revenue and execute.
And to lose our business plan, while we've readied our businesses for the spin transaction and we've continued to serve our customers without missing a beat and.
As a result, <unk> and X P O remains strategically well positioned to meet customer needs and capture profitable growth opportunities and logistics.
L T L and brokerage.
We remain enthusiastic about our prospects as a leader in the markets, we serve and we look forward to completing the <unk> spin off on Monday.
Lastly on a personal note I'm incredibly grateful to have had the opportunity to work with Brad and everyone.
Against P O as a member of the company's senior leadership team.
<unk>, New Shepherd X P O through the pandemic and prepare for the gx their spin off has been very gratifying.
I know that Ravi bearish and their finance teams are well positioned to drive X P O's and gx those future progress and.
And at Ash them every success I'll now turn things over to Matt.
Thanks, David I'll review, the second quarter operating results for our transportation segment, and then Mark will cover logistics the strength, we saw and LTI and reflects the backdrop of improving demand and healthy pricing environment and importantly.
And I wish he impact of our own operating initiatives all of which has significant runway ahead.
<unk> revenue growth accelerated sharply we grew revenue by 37% year over year, if we exclude fuel we grew revenue by 31% year over year, it's true that we cycled the worst of the Covid impact and 2.
And from 'twenty, but we also gained ground on an underlying basis as revenue per day ex fuel grew 10% from Q1 outpacing typical seasonality.
All told these were our strongest growth rates and <unk> since we acquired the business in 2015.
We grew tonnage per day by 2.
23% year over year or sequential increase and weight per day also outpaced typical seasonality.
Shipments per day rose, 17% here too we outpaced typical seasonality.
And it's notable that the acceleration and growth for our largest vertical industrial and manufacturing output.
The pickup and retail and ecommerce based on comparisons to the period prior to the pandemic Theres still room for our industrial customers to regain ground as production continues to gear up.
At the same time, <unk> is becoming more central to the consumer ecosystem as the growth of E Commerce creates.
And demand for the staging of smaller quantities of goods closer to consumers.
Our weight per shipment increased 6%. This compares to a 1.3% increase and the first quarter or 1.4% sequential increase and weight per shipment exceeded the typical seasonal trend and the pickup was broad base.
Rates more cross verticals.
Yield excluding fuel rose 4.5% year over year.
Increases on contract renewals were 8% and accelerated from Q1 with the underlying impact of the increase offset in part by higher weight per shipment.
Revenue per shipment excluding fuel.
Based on grew 10, 7% accelerating sharply from the 5.5% growth we had in Q1.
This reflected the acceleration, we saw and both yield and weight per shipment and help create the operating leverage we realized this quarter.
Our LTM adjusted operating ratio was 86%.
Excluding real estate gains, our adjusted or improved to 81, 1%, which was 1030 basis points better than the second quarter, a year ago, our adjusted or ex real estate gains also improved sequentially and this case by 320 basis points and we tripled our adjusted.
Trading income dollars ex real estate with a year over year increase of 201 percentage.
The strong demand environment comes with some industry wide challenges labor remains constrained across the service economy and the U S. We're addressing this with a series of initiatives for example, our commercial driver training.
<unk> are set to yield a record number of graduates totaling nearly 1000 driver candidates for X P. O. We were successful and accelerating our truck driver recruitment and Q2 with net hires for the 4 weeks and June at double the number and the prior 8 weeks.
Higher truckload rates drove a meaningful increase.
Kris and our purchase transportation costs year over year, both in dollars and as a percentage of revenue.
We mitigated the rate impact by using our in house capacity to manage the increase in activity with our own fleet, which in turn increased trailer utilization.
We're also using our tech to optimize routes to the lowest cost mode.
And as a result, we reduced our reliance on third party and line haul and even though we drove substantially more tonnage through the network.
Pricing remains our biggest opportunity and I'll tale, we automated 90% of local rfps and the second quarter and we are beginning to add more variable variables to our.
Our pricing algorithms, which we'll be refining further over the next 12 months.
We also remain focused on route optimization and pickup and delivery pounds per hour improved by 7.4% year over year and on the line haul front, we launched new control tower solutions to all terminals and we remain on track.
Track to deliver at least $1 billion of adjusted EBITDA and L. T. L. Next year, driven by both revenue growth and continued improvement and our adjusted or.
Turning to our truck brokerage business, we continued to gain share and a dynamic marketplace, our loads and the quarter increased by 38%.
As a year ago accelerating from 23% growth and the first quarter.
And once again, we sharply outpaced the market on a year over year basis, we generated a 101% increase and revenue and increased net revenue by 47% as gross margin per load increased year on year.
Our digital brokerage platform X P. O connect is helping us drive tremendous volume and excellent margins.
Carrier and customer adoption of X P. O connect continues to surge we reached 475000 cumulative downloads of our drive X P on mobile App and Q2, representing 20.
[noise] percent growth quarter over quarter, and tripling the cumulative number of downloads year over year and Q2, we topped 85000 registered carrier accounts on the platform up over 40% year over year average weekly usage by carriers nearly doubled in the quarter up 87%.
And the number of customer accounts on the platform is up by more than 6 times from Q2 last year.
We're also securing brokerage volumes through API technology at a profitable clip.
Transactions, driven by API and similar interfaces increased by more than 8 times and Q2 versus the prior year.
And <unk> connect talk directly to our customers' systems.
Our brokerage profitability was very strong and we leveraged our 47% net revenue growth into stronger adjusted EBITDA growth and brokerage.
The combined impact from these lines of business is a very strong performance overall.
Our transportation segment and the second quarter year over year, we increased transportation revenue by 50% and increased adjusted EBITDA by 168% to a new quarterly record.
And our adjusted EBITDA margin for the Transportation segment was a robust 12, 3%.
And the spend X P O will be a transportation pure play and as David said, we raised our full year pro forma guidance for <unk> adjusted EBITDA to a range of 1.19 and $5 billion to 1.2, and $3.5 billion. This increases our 2021EBITDA target.
Pro forma for the spend by $20 million at the midpoint from our June 9th trading update. This includes adjusted EBITDA of $574 million $614 million for the second half of this year.
I want to mention a couple of recognitions that are particularly meaningful.
We recently received Intel's 2021 supplier Achievement award for our Covid response last year, which speaks to our culture as much as our operations and Gartner named <unk>, a worldwide leader and their magic quadrant for 3 PL providers in 2021, that's based on our vision.
And the Lady to execute across both transportation and logistics now I'll turn it over to Mark to discuss our logistics segment and the outlook for its spinoff SPX, though.
Thanks, Matt.
As the largest pure play contract logistics company.
On a scale puts us at the forefront of the burgeoning demand for logistics services.
This is due to 3 circular megatrends outsourcing e-commerce and warehouse automation.
These 3 robust tailwinds continued to drive on double digit growth.
And the runway remain significant with a potential addressable market of $430 billion of which $300 billion is yet to be outsourced.
And the second quarter.
We increased logistics revenue by 34% compared with a year ago, including the Coen and on the acquisition, which contributed $151 million of revenue and the second quarter.
Moreover.
Yeah, Overgear organic revenue growth rose to 16% accelerating from 13 per cent and the first quarter.
We saw exceptionally strong growth from our customers and E com omnichannel retail and consumer technology.
From 2016 through the end of the second quarter, we have delivered and organic revenue kangaroo of over 7%, reflecting the high growth and make sure of this business.
Moving to profit for the quarter, our adjusted EBITDA of $169 million for logistics was 104% higher than and the second quarter of last year, and 24% higher than and the second quarter of 2019.
Our adjusted EBITDA margin increased 310 basis points to 9%.
This was an increase of 10 basis points compared to the second quarter of 2019.
On the cost side.
We continue to do an excellent job further strengthening on margin expansion by showing costs discipline and implementing our productivity initiatives.
And while the labor market remains tight.
We're managing it well due to the pass through nature of our contracts.
And the last 3 months, we've announced the appointment from an experienced and diverse board of directors for Gx. So.
Among other initiatives on new directors will help us solidify R E S G leadership.
Which is important and not only to jerk, so but also our blue chip customers.
I don't invest per day, we highlighted a number of key environmental goals, including.
A 30% reduction and greenhouse gas emissions by 2030 vs 2019.
Carbon and you're trying to see by 2040.
And led D lights used by at least 80% of our operations by 2025.
Looking forward on.
Pipeline remains very strong at $2 billion of opportunity and is skewed toward high growth consumer vehicles.
We announced a number of new contract wins and the first quarter.
And all momentum with new business wins persisted into the second quarter with the likes of Dixon's coughing, a large technology retread retailer and the U K and Nike among others.
The second quarter wins alone represents.
Annualized revenue of over $300 million and 2022.
These contract wins demonstrate how blue chip customers trust on reliability and.
And value our ability to deliver innovation.
And they are great examples of the tremendous potential for profitable growth was saying and the logistics landscape across Europe and North America.
Based on current exchange rates the gx, so pro forma guidance, we provided yesterday for the full year 2021 set a target revenue range now of $7.5 billion to $7.8 billion.
And also raises our adjusted EBITDA range to $605 million to $635 million.
We expect this to accelerate on performance going into 2022, resulting in a higher adjusted EBITDA target of $705 million to $740 million on 8% to 12% year over year organic revenue growth.
As broad mentioned.
This business is growing the top line at multiples of GDP.
And compounding at double digit EBITDA growth.
While at the same time, producing 28% per ton on invested capital.
And all of US are absolutely delighted to start trading on Monday.
Now I will hand back to the operator, and we will take your questions.
Thank you at this time will be conducting a question and answer session and.
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[noise]. Thank you. Our first question comes from the line of on me now I tried with Deutsche Bank Places you with your questions.
Oh, Thanks, operator hide good morning, everybody.
Matt I wanted to ask about the.
The the the free cash flow guidance Ah 4 to 450 million pro forma for the spin just seems a little bit low you know given what's implied.
For free cash flow to EBITDA conversion and there's just some conservatism. There can you help us with that walk and just what the right way to think about the conversion is and and remain calm and thank you.
So I mean.
The foundation of that free cash flow guidance consistent with the numbers that we gave you and the form 10 supplement that we put out on June 9th we give you numbers at that point for cash taxes, capex cash interests and and we have a reiteration to some of those numbers and the press release and went out the other night a couple of other numbers to.
Keep in mind to bridge to that we have the real estate, Kansas associated with L. T. L and those are both on the profit line and and the net Capex lines and you want to eliminate that to the extent that we raised our EBITDA guidance from June 9th there's a little bit of incremental cash tax and not enough to change the number.
And the release, but still something incremental from free cash perspective, and then obviously when we're in revenue growth mode. As we are and have been this year, there's some working capital drag and we're happy to take that as that accompanies the EBITDA growth that we say and above that there's probably a bit of conservatism put into that number we continue to expect.
Free cash conversion.
4 remain co typical with what you saw for Xbo previously, if not slightly and north of that over time and.
Got it okay. That's helpful. So high 30 per Sanish range of EBITDA, Brad if I could ask a little bit more of a bigger picture question for you. So if I look at X P O today on.
When issued or extra submission basis and flying at $76 per share that's like under 9 times EBITDA I know, it's a very thin market and and not a true representation of maybe what the what the real value is when when does and the distribution actually happens, but just a scenario question for you if X P.
Oh, where to just absorb the conglomerate discount Ah debt.
That the whole company had prior to Monday spin and what what further actions are available to you you know you you have.
And incredibly attractive brokerage business and I, just think you guys have done and amazing job there and it doesn't really get a lot of attention. Obviously you have a very attractive last mile business that would be attractive to a lot of other players and the space and it just social seems that investors I think based on my conversations really like or prefer a pure play L. T. L comes.
Penny without all the distractions of many other businesses and so I guess the question is is there a potential path for X P O to become a pure play L. T O company. It remained co or the business doesn't get you know the valuation that you deem appropriate or or or.
And for the whole company or from the remain calm and thank you.
When we were raising our kids.
My wife repeatedly told him the 3 PS pleasant polite and patient and I heard the 3 piece like thousands of times over over a long period of time patience I don't think we're going to get the conglomerate discount I don't know about the first week or 2 of trading but in terms of the fullest of time I don't think we're going to get sick and <unk>.
<unk> discount I think that investors understand that about 90% of X P. O remain codes EBIT is going to be coming from <unk> and truck brokerage and investors nowhere old Dominion and sire and Robinson trade in the mid mid teens, EBITDA multiples and the market will look.
At us compared to them and decide what kind of a relationship or multiple should be so on the patient and we haven't even and we haven't even launched at that when issued market as no volume that and.
The Index fund the long only funds can't trade and it so let's see how trades next week I'm optimistic.
Okay very good. Thank you guys. Good luck with everything appreciate it.
Thank you.
And next question is from the line of course, where they're being with city. Please proceed with your questions.
Hey, Thanks for warning guidance.
Wanted to touch on L T L and and think about sort of the life posted and 4 remained co.
How do you think about sort of the growth opportunities for L. P. S. Specifically would seem to transport company and you have a lot of growth potential, particularly from a brokerage side of the house, but how do you think about yesterday and your approach to the market on L. P. L. He took a growing market above what this from abroad, a free market might be over the course of the next couple of years and that's something you want to lead and 2 words, it's more about me.
Large and then and sort of profit growth without necessarily that tonnage growth.
We are leaning into it and we're leading into at first and foremost.
Are there too most prominent strategic initiatives. The FERC first is focus on price and optimizing yields and really doing that primarily a few proprietary technology that enhances our pricing algorithms and enables us to get the best price from our customers, while delivering the best volume and to continue on to engineer that secondly.
We were going at it to optimize efficiency and we do and so on the dock for doing so and pick up the delivery. We're doing so that line hall. Those are intense strategic tech efforts that have been delivering results and you're going to continue to do so we have a 1 billion dollar EBITDA target.
And more EBITDA target and 2022, so those are the primary tools for us to get there.
Above and beyond that obviously to your point, it's a very attractive space and becoming a more central to the consumer sectors I spoke about earlier and and in fact, the industrial economy has not yet and return to peak. So we think there's going to be good cyclical Tailwinds. In addition to our secular initiatives, we feel very good about debt industry, and our growth opportunity or perhaps.
Total growth opportunity within it.
Okay, Alright, that's helpful and and maybe if I could switch gears over to <unk> for a moment, Mark and talk about the business loans and the corner and you guys are obviously and it posted a number of relatively high profile customer acquisition. During the course of the last couple of quarters and I.
Guess, when we think about the pipeline of what's in store.
Do we think what we're seeing over the course of the last couple of months is indicative of the type of tasted growth that can be sustained over a period of time or are we seeing the confluence of what is and earn some free market.
Significant disruptions and the supply chain.
And maybe some of the second and work with all coming together and and sort of.
Posts from the outside outsized growth I, I definitely need somebody and get a sense of your confidence level about maintaining this type of from a customer acquisition drink over the course of the foreseeable future.
Great question, Chris. Thank you for a couple of things. So first they were very confident about the 8% to 12% that we talked about for next year 2022 and tons of revenue growth Guy to remember that some organic growth number remember it is the.
The mix of 2 things, it's the 5% to 8% of new business wins, alongside 3% to 4% of growth and existing facilities and clearly I would say that we're seeing strength and both buckets at the moment, obviously, given all income exposure as you referred to let me touch on a couple of things in regards to your question about persistence, what we're seeing on the ground at the moment.
The contract level as.
As a business model clearly, we're driving a few things that are different and the market I really think that we're going to create the category here.
Level.
If you think about what we're seeing we're seeing customers demand scale, we're seeing customers demand bargaining power and tons of regional pools of labor, we're seeing our customers demand bargaining powers and the bargaining power in regards to regional pools of real estate as well and that obviously helps us with all per foot preferred providers were obviously seeing customers talking about all robust and.
Mystics prowess as well on ESG backbone and a balance sheet as David mentioned and his comments and.
And first and foremost on technology advancement. So this is pervading through all of the contracts that were signing at the moment, we're clearly no longer seeing a market and this hasn't been the case for now many years, we're not seeing and market any more that prioritizes price. The market has moved on for that we've seen a secular shift taking place. So we're very confident on long term guidance, we with you.
And next year is very much a northern yeah and long may the winds continue as we've seen across H 1.
Okay. Okay. That's helpful. I appreciate the call. Thank you very much much and.
And cute.
Our next question comes from the line of Homestead and I'm, sorry, with Jeffries closest you with your questions.
Egg and morning sexually Ryan gunning filling in for the other day could you just kind of following up and the last question could you talk about the pathway to getting the double digit margins and TX Oh and do you have like a timeframe for that.
So in terms of in terms of and margin expansion, it's definitely and output of all the good business that we're we're writing at the moment clearly we run the business from return standpoint, as any concession business would but naturally when you have the tenants that I talked about and particularly in regards to scale. Obviously this business given the fact that we're writing.
In regards to 28% Raton invested capital R. Cash paybacks are 3 years that day, 1 profitability business is getting longer and longer as well in regards to a contract value. So logically all of the things that I wanted and Christmas question would naturally lead to margin expansion and this business in fact with guidance emotion expansion next year and.
Politically within on 8 and 12, and 14 and 20 guide and the numbers that we've given you today. So that's about 50 basis points and and of itself within that operational gearing with pointing towards so he margin expansion is and natural output of what this business is offering primarily give them the tenants that I mentioned and Christmas question.
Great. Thank you and then just from my follow up could you just talk about maybe what you're seeing geographic geographically on the logistics side.
I know I know, you mentioned and new contract wins, but maybe like in Europe vs North America relative to expectations.
Yeah. Good good question. So a couple of things we seen in the last couple of quarters, if you'd go back over the last quarter, we've signed roughly around 2 billion of contract value and 1 single Coltrane and there's been a really good mix of countries across across on 27 countries.
If you put that into context that means that we signed around $5 billion worth of contract value over the course of H..1 like I said, we don't manage this business from a country to country perspective, you'll seeing if anything a trend right now where 1 contract is turning into 3 contracts 1 country contract is turning into a.
Multi contract multi country basis, and therefore, we didn't think about it in and country turns so to speak but the contract mixes and we talked about it if you look across the top 20 and tons of new and it's a very good mix across on 2 biggest jurisdictions 2 thirds Europe, 1 said North America. So all regions are doing well right now seeing very strong top.
Line growth and also margin expansion.
Great very helpful. Thank you.
And next questions from the line or Jason side on account and accompany places and with your question.
Well. Thank you operator, good morning, Brad and and team and.
I'll start out with the more high level question bread, you talked about getting back beyond prepandemic levels and your and your different business lines earlier and the call I was wondering if you could talk about I'm, assuming that wasn't totality.
Some of the areas that maybe aren't back and where we can expect them to sort of and you can add more as they get back to the prepandemic levels, whether it be on the back half of this year or and 2022.
Yes, Hi, Jason.
With that I mean, and kept customers are back and volumes of there. We just came off of the second quarter, where we had the best O R and a quarter, we've ever had and our history and any 1.1%. We just came off a quarter and our LDL business, where our EBITDA X real estate at 253 million.
And an all time record for any quarter and and we're outpacing the typical seasonality on revenue on tonnage and on shipments and then if you look at the truck brokerage side of the house, we just had a phenomenal quarter year over year revenue doubled up 101% low count was up 38% net.
Revenue without up 47%. So we're outperforming the market and we're taking share positive trends are continuing as we came into into and to July and.
And exhale connected on fire.
Massive adoption and exhaled connect continued and the second quarter, we had year over year carrier usage up 87 per cent, we had customer usage up 99%. So I feel it's back and can only get better from here now we have to watch this low delta virus thing see how that and see how that affects the world, but the time.
Being it's back it's rip Roaring back.
Okay fair enough I'm I'm gonna actually.
A dive down a little bit more on the <unk> side with my follow up you sort of mentioned.
On the season, Natalie being sort of above normal levels for the quarter wanted to sort of see where that started out and the third quarter in terms of the seasonal trends from June July and then maybe die of a little bit into the freight network of Xbo afraid because it's interesting you have 2 competitors.
Out there and 1 looking to add 9 terminals opened on new terminals and the back half of the year, another and maybe look into potentially scaled down and operation, but they just purchase because there's too many terminals. They felt so just curious where you stand right now with your terminal network and how you feel about you know maybe potential expansion or contraction.
Jason It's Matt I'll take both of those and L. T L.
Business and July is good yield growth is continuing revenue per shipment looks very good way per shipment still holding up nicely in terms of our coverage. We like our coverage. We have 291 terminals and we have good coverage for the U S were able to do anything our customers need us to do we're very.
Happy with the results that we're delivering obviously, we continue to aspire from aura, hence our target of a billion dollars or more of adjusted EBITDA and L. T out and 2022, but we fell on network serves us well for our business strategy and for our customers.
And just to clarify on the July trend and would you call that normal seasonality.
Yeah.
Okay perfect I appreciate the time is always gentleman and nice quarter.
Thank you.
Our next question comes from the line of Todd Salad, with Cuba, and capital markets, Let's see what's your question Hey.
Great. Thanks, and good morning, and so just on the brokerage side. Your net revenue margins have held in relatively well compared to your peers. I'm curious you kind of what your expectations are for net revenue margins into the back half of the year and then with the strong volume growth and a quarter, how how do you view that as being sticky and a lot of that more transactional.
Business or would your expectation be there and a lot of that business stays with you if the market normalizes.
Net revenue margins are holding up well net and we really look at net revenue pillows or gross margin preload, which is really the key economic metric and that number was very good for us and the second quarter and it remains very good for us as we start the third quarter.
We spoke with our brokerage people a lot about the market and about our customer position and that business.
If sticky our customer relationships have never been stronger and cleaning our relationships with our key customers are low count as an exceptionally high levels, it's holding and exceptional high levels and we expect that to be the case through the remainder of this year. We've made massive investments as you know and and Spo connect our digital.
Marketplace, that's helping us drive share it is helping us optimized price is helping us drive productivity and that's really central to our winning business and retain business.
Okay, Okay that makes sense mat and and and Brad just for a follow up when you think about remain co post the spin and we just had the gx. So analysts day and so there was some clarity on kind of the focus there what do you see as kind of the main areas for focus per remain co. After the spin as we look out into 2022 and beyond.
Well, we're going to build on the leading physicians, we've got in LDL and truck brokerage, we're going to continue to focus on innovative technologies.
From a financial perspective, clearly on number 1 priority to deleverage and to meet our target of investment grade rating.
We're going to continue to execute on the <unk> side to achieve at least 1 billion.
Adjusted EBITDA next year, and we're going to continue on truck brokerage ship outperformed the market, primarily due to X still connect so and in.
And the future looks bright.
Okay got it so it's it's really the focus on the growth and brokerage and margin improvement and L. T L.
Correct right.
Great. Thanks for the time this morning.
Thank you.
Our next question comes from the line of Scott Schneeberger with Oppenheimer and with your question.
Thanks, Good morning, Congratulations and David and Robbie and I, I bread or Madam and they go to you guys first on sharp brokerage very impressive margins and growth and being covered pretty well on the call, but we've seen some M&A and the and the industry recently and just.
Kind of curious where you think the the industry books and a few years from now for the consolidation and where X b O place and that thanks.
Well, there's definitely been some interesting consolidation recently I think that's a good thing and plays right into how we have envision and industry to evolve over time.
Some of the transactions were at.
Healthy multiples and serve to validate what.
What assets and this industry or worse and maybe shows that were even more undervalued and then we thought in terms of our role and at our Prime goal is to Delever and that's going to be our most important use of cash, but we don't rule out M&A, it's a tool and our toolkit, but I can't conflict with our goal to Delever.
Excellent and tanks and and following up Mark on over to you curious how should we be tracking X B O direct G X O director, we're we're going forward and just a progress report on that and and and and.
Maybe I should get some guidance on where that should be and and 2021, but just thinking about 2022 and beyond thank you.
And and thanks for the question. So checks are direct continues to be as you say on track, it's growing incredibly fast as we talked about and the the.
The Investor Day, it's got round about $200 million of revenue at the moment, it's an important place to to grow customers, particularly for a longer term plans of moving and towards dedicated facilities. So it is a high growth engine for us it's a great place to find and your customers and work with them going forwards. So it's an important part of our business.
But it's by no means the major part of our business we are very much.
Like service, providing dedicated facilities across all 850 or so warehouses.
Understood. Thanks.
Thank you.
And next question is from the line of Ravi Shankar with Morgan Stanley. Please see with your question.
That's 1 day, everyone, Brian just to follow up on your last response, it's been awhile since we got and updated on your strategic on a long term view of the brokerage business with everything that's going on and the space, where do you think that business goes over time kind of water longterm and sustainable growth and net margins like a water all day you see.
And you digital entrance plain and kind of do you think the business looks the way it has been lost and yours and the next 10 years.
I think the difference and distinctions between the the digital players and the whenever you call. The non digital players has become.
Almost non existent I think the technology that has been embraced by CH Robinson and some of the other truck brokers and of course ourselves.
Where digital we're as digital more digital than the so called digital and I think over time with respect to margins I think more just to come down and having said that I think profit will go up because any volume will go up because I think the amount of transactions that philosophy transactions is going to increase.
I think there is going is going to evolve very much like you see commodity market, particularly like the oil market for example, where more from purely physical markets and then derivative markets and Wall Street got involved I think I think the players will be difference and I think the connectivity between shippers and and and the care.
2 years and the brokers and between will become seamless I think it will be much more digital and much less human base.
On the physical truck side, it's a question of time and when it will be autonomous I think that autonomous evolution has slowed down a little bit because of the way that the political Windsor blowing where there's.
It's more of a heavy focus then and autonomous focus.
But the compelling economics of autonomous trucking.
Are extreme and Adam Smith's hidden hand of capitalism will not allow autonomous trucking to be delayed forever. So and then I'll take cost out and take a huge amount of cost out since the costs coming out and the actual brokerage side and you'll see costs coming out on the purchase transportation side and.
And it will just be more efficient and brokerages, who are like ourselves who are all in on technology will have a great role to play there and and but margins should come down with volume going up and therefore profit growing up.
That's a that's a very very helpful color and thanks for that Brad and maybe it's a follow up on either to you or from Matt you guys have given US 2022 guidance on the G X O aside but does it really helpful and how do you think about that on the X B O side kind of just you know maybe your views on hold on the cycle and with a lot the last and also maybe idiosyncratically.
Irrespective of the cycle, how much margin growth can you drive there.
We're likely to give you guidance for X P. I remain cope at the end of the year as we typically would and that is to your point there are and there is more cyclicality, there's economic cyclicality, but more so Ah trek cycle, cyclicality and and other things related to that and I think the best time to give guidance for this.
Business is going to be at your and obviously gx. So I had a fantastic visibility too it's business based on the contractual nature of that business and they've given you 21 guidance on 2 guidance 21 revenue guidance and twenty-two organic revenue guidance. So obviously, a tremendous basis for evaluating that business as well.
[noise] understood and thanks man.
Thank you. My next question is from the line of Stephanie Mormons Truest. Please proceed with your questions.
Hank and running thank you for the question.
And wanted to touch on net remain catalogs and X P. L technology investment strategy and single up to neck and the remainder of this year and next year and I think kick that was just a little bit more apparent and.
And a broken out during the day and and and then towards automation robotic, but I'd love to hear what remain co kind of had that had planned. It that historically has also been a pretty large and besner behind you and technology. So any color that would be helpful. Thank you.
Stephanie that's right and we're going to continue to be so obviously xbo connect as our primary technology platform and brokerage, it's our digital phrase marketplace.
How it's helped drive our success and brokerage over the past number of quarters and it's going to continue to do so it's less about dollar investments there we book to $11 investment there it's about it's not enhancing.
That technology and we're on path to do that we continue to rollout xps smart within LPL to optimize labor on the dock that it's rolled up and continue to harvest the benefits and that's b, a smart and there's the opportunity to continue to enhance that platform as well and and finally within algae out as I mentioned and my prepared remarks from a very focused on enhancing.
Pricing algorithms, we're really just beginning to appears to surface and there's an awful lot of enhancement opportunity and for us and there and then around optimization efforts and PND on line Hall I have very high potential those are the highest highest priority technology investments for us here and makeup.
Great. Thank you so much.
Okay, well I think 930 and.
And that concludes our earnings call and we're very happy that we reported as such a strong quarter and we raise the outlook for both spo and GSL and I want to take this opportunity to give a big thanks to all of the employees around the country and around Europe and around Asia, but worked so hard over the last 8 or 9 months to create.
2 industry powerhouses launching next week. So thank you I'll talk to you soon.
This concludes today's call. Thank you for your participation and you may have disconnect your lines at this time.