Q1 2022 XPO Logistics Inc Earnings Call
Welcome to the X P O logistics Q1, 2022 earnings conference call and webcast. My name is Laura and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you have a question. Please dial.
Star one on your telephone keypad. Please limit yourself to one question when you come up in the queue. If you have additional questions you're welcome to get back in the queue and we'll take as many as we can please note that this conference is being recorded before the call begins let me read a brief statement on behalf of the company regarding forward looking.
Shipments 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 security laws, which by their nature involve a number of risks uncertainties and other factors that could cause actual results to differ materially from those projected in the forward looking statements.
A discussion of the factors that could cause actual results to differ materially is contained in the company's S. E SEC filings as well as in its earnings release. The forward looking statements in the company's earnings release or made on this call are only made 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 the applicable S. E. C rules reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial.
Tables or on its website you can find a copy of the company's earnings release, which contains additional important information regarding forward looking statements and non-GAAP financial measures in the Investor section of the company's website.
I will now turn the call over to Brad Jacobs, Mr. Jacobs you may begin.
Good morning, everybody, thanks for joining our call.
With me today in Greenwich are Ravi <unk>, our CFO , Matt Fassler, our Chief strategy Officer, Mike Hart, our CIO and acting President of LCL and drew Wilkerson President of North American transportation.
As you saw we delivered a quarter of record results with solid beats across revenue net income adjusted EBITDA and adjusted EPS, including our eighth straight quarterly beat on adjusted EBITDA.
We grew revenue by 16% over last year's first quarter generating the highest revenue of any quarter in our history.
We also had first quarter records for net income adjusted EBITDA, and adjusted EPS, which was up year over year by 58%.
To reflect their momentum we raised our full year financial outlook by more than the first quarter beat we're now guiding at the midpoint to adjusted diluted EPS growth of 26%.
Both of our core North American businesses LCL in truck brokerage delivered double digit revenue growth in the quarter.
Our LTE network today is a very different business than it was just six months ago.
Many of the network improvements we're driving are ahead of plan.
We expect our adjusted operating ratio to improve sequentially by more than 400 basis points for the second quarter.
And we continue to expect our adjusted operating ratio, excluding real estate gains to inflect year over year improvement later in the quarter and for the full year to be at least 100 basis points better than 2021.
Our goal is to create a world class L. T O carrier that delights, our customers and our shareholders.
Turning to North American truck brokerage, we're continuing to fire on all cylinders, there are volume growth exceeded 20% for the sixth consecutive quarter.
This best in class brokerage business is continuing to take share and do it profitably.
First quarter margin dollars were up 21% year over year, and rose, 5% sequentially outperform a typical seasonality in large part due to the effectiveness of our digital platform X P O connect.
I'm pleased that we have a brokerage veteran lined up to lead the spin off through wilkerson.
[noise] drove the CEO and he has been the main architect of our brokerage growth since joining us in 2012, most recently as president of North American Transportation.
And I have a long runway to grow the business as a pure play brokerage company.
The spin off process is on track as is the planned divestiture of our European operations, which had an excellent first quarter.
And finally, we're pleased with the deleveraging we achieved in the first quarter in three months, we brought our net leverage ratio down from two seven times to two times, which is at the top edge of our target range.
So in sum, we produced an excellent quarter and raised our outlook, we have multiple companies specific avenues for value creation, including the spin off of our tech enabled brokerage platform.
The ongoing transformation number LCL business.
The divestiture of our European operations and are continuing to deleveraging.
Now I'll ask Ravi to cover our results and our balance sheet Robby.
Thank you Brad and good morning, everyone. Today, I will discuss our first quarter results, our balance sheet and liquidity and our outlook for the balance of 2022.
For the first quarter, we delivered strong year over year growth in revenue.
EBITDA.
And adjusted diluted EPS.
Revenue in the quarter was a record $3 $5 billion up 16% year over year.
The net impact of fuel prices and FX accounted for two points.
Organic revenue growth for the quarter was 14%.
We grew adjusted EBITDA by 15% to a Q1 record of $321 million adjusting for gains from real estate sales.
Year over year growth in adjusted EBITDA was 25%.
This reflects particularly strong growth in our brokerage and other services segment looking at it to get a stack adjusted EBITDA was up 55%.
For the quarter, our adjusted EBITDA margin was nine 2% excluding gains from real estate sales. This was an improvement of 60 basis points year over year.
Operating conditions in the quarter were favorable and the pricing environment stayed phone.
This was partially offset by inflationary pressures on labor and purchased transportation.
Corporate costs in the quarter was down 19% year over year.
Continuing to optimize our corporate cost structure following the spin off of EXL.
Our interest expense during the quarter was $37 million compared to $65 million in the year ago period. This reflects.
Next the Paydown of approximately $3 billion of debt last year they've.
The effective tax rate for adjusted EPS during the quarter was 23%.
Our adjusted earnings per diluted share for the quarter was $1 25 fence, which was up from 79 cents a year ago, an increase of 58%. This increase was primarily driven by higher adjusted EBITDA and lower interest expense.
We generated $200 million of cash flow from continuing operations spent $137 million on gross capex and received $3 million of proceeds from Essex is.
Gross capex was up $63 million year over year with the majority of the additional spend going towards equipment purchases, but north American apparel business.
As a result, our free cash flow was $66 million, which was above our expectation.
This includes the impact of $15 million of cash outflows related to transaction costs that were not contemplated in our free cash flow guidance.
We are making significant progress on our strategy to create two pure play transportation powerhouses and we remain on track to complete the spin off of our tech enabled brokerage platform in Q4 of this year.
As part of our strategy plan, we took an important step last quarter. When we completed the sale of our intermodal business for cash proceeds of $710 million, which represented a multiple of approximately 10 times. When do you when do you want to be done.
Including the proceeds from the sale of the intermodal business. We ended the quarter with $1 billion of cash on the balance sheet discuss combined with the available debt capacity under our committed borrowing facilities.
$2 billion of liquidity at quarter end.
We had no borrowings outstanding under our ABL facility.
After quarter end, we repaid $630 million of particularly five nodes. This was another significant step in our plan to reduce our debt and deleverage our balance sheet.
Our net leverage at quarter end was two times adjusted EBITDA.
Head of schedule on our deleveraging plan and we now expect to be below two times leverage before he got it.
In light of our strong first quarter results and ongoing earnings visibility, we updated our full year guidance after market close yesterday.
New full year guidance for adjusted EBITDA is 1.35 billion to $139 billion. The update reflects our first quarter outperformance the sale of the intermodal business.
Strong outlook for the remainder of the year.
Did you guys get assumptions, we gave you in February remains the same.
For the second quarter, we expect our adjusted EBITDA to be $360 million to $370 million.
Pro forma for the intermodal sale the midpoint of our second quarter EBITDA guidance implies a year over year growth rate of 15%.
We have raised our outlook for full year adjusted EPS to a range of $5 20 offense to $5.60. This increase reflects our new EBITDA guidance and the reduction in interest expense, resulting from our paydown of debt.
The midpoint of our adjusted EPS guide implies year over year growth of 26%.
On the cash flow front, our outlook for full year free cash flow remains 400 million to $450 million as a reminder, our outlook excludes all transaction related cash outflows.
Full year guidance for depreciation and amortization expense is approximately $385 million down from $400 million.
The sale of the intermodal business.
We expect interest expense of $150 million $260 million down from 170 million $280 million previously.
There's no change to our previous guidance for Capex and the tax rate.
In conclusion, we are continuing to execute on our strategic plan and we remain excited about our prospects for the balance of 2022.
I will now turn things over to Matt.
Thanks, Robby I'll review, our first quarter operating results, starting with our North American L. T L segment.
We grew LTR revenue by 15% year over year to $1 $1 billion, the highest revenue of any quarter in our history. Excluding fuel we grew revenue by 9% year over year.
We had a 0.8% decline in tonnage per day, which represented four one percentage points of acceleration from our fourth quarter growth rate as our network flow improved.
The 4% increase in the level of weight per day from the fourth quarter nicely outpaced typical seasonality.
Yield excluding fuel increased 9% year over year, our weight per shipment growth of 2% increased from flat in the fourth quarter and our length of haul increased 0.2% versus a 1% increase from the fourth quarter adjusting for these factors underlying pricing trends were stronger.
The L T L pricing environment remains firm and we're driving yield with our own company specific pricing initiatives, our yield growth is even stronger this quarter to date.
Our L T L. Adjusted operating ratio was 85, 7%.
That's 140 basis points higher than the first quarter, a year ago and significantly better than the 200 basis point year over year increase we guided to in February both numbers exclude gains from real estate and note that consistent with our guidance, we booked no such gains in the first quarter.
And sequentially, our adjusted or improved by 180 basis points from the fourth quarter, which was notably better than our typical seasonality.
The single biggest driver of the year over year increase in our adjusted operating ratio was the higher cost of purchased transportation.
Third party line haul miles as a proportion of total line haul miles increased in the quarter to 24, 5% from 23, 9% a year ago. This aligns with our plan to use more third party line haul in the near term as volume recovered prior to our Onboarding new capacity.
In addition, most of our purchased transportation is subject to contractual pricing headwinds from this pricing are starting to abate as we cycle big truckload price increases from a year ago and as new line haul contract cycle in.
So those are the highlights for North American L T L and.
In our brokerage and other services segment, we grew revenue by 17% to a record $2 $4 billion and adjusted EBITDA by 31% to a record $164 million adjusted EBITDA margin for the segment expanded by 60 basis points to six points.
7% from six 1% a year ago.
The largest revenue and profit driver in this segment as our North American truck brokerage business, which had another outstanding quarter. This will be the core business of our planned spin off later this year.
We increased our brokerage loads per day by 23% versus a year ago and up 52% from two years ago.
First quarter truck brokerage revenue rose, 38% year over year margin dollars rose, 21% against another tough comp and nearly tripled from the first quarter of 2020.
On a sequential basis margin dollars in the first quarter were 5% higher than in Q4.
Our truck brokerage growth reflects our strong execution in a dynamic market.
Drew will speak more about the specific drivers in a minute.
Organic revenue in Europe grew 5% accelerating by two percentage points from the fourth quarter, we saw acceleration in organic revenue growth in both the UK and in France, Our two largest European geographies and were pleased with our resilience in the context of uncertainty in the European environment.
We expect to continue to build on our position as a leading provider of truck brokerage and L. T out in the U K, France, and Iberia within our broader Pan European platform.
We're grateful for some external recognition we received during the quarter.
General Motors named the supplier of the year for the fourth straight year.
In addition, we were recently given that indices employer status for our strong record of hiring members of the military community.
Last week, we published our fourth annual sustainability report, which details our progress on ESG initiatives and our materiality index for 2021, you can download this report online.
Finally, I want to mention that we plan to hold separate investor event. Later this year for both our brokerage spent co and our LTR remain co prior to completing the spin.
We'll use those events to give you a deep dive into our longer term vision and key financial targets for each Standalone company now I'll turn it over to Mario for his comments on North American L. T O.
Thanks, Matt and good morning, everyone as Brett said, yeah. There is a very different business than it was six months ago. Our network is much more fluid and balanced.
But realizing significantly stronger service metrics in key areas, such as on time transit and freight handling.
The sharp rebound has brought our network efficiency back to pre pandemic levels.
Our investment in capacity are on track and we are rolling out new proprietary technology to improve pricing and drive further productivity.
Most importantly that is widespread excitement across the NPL team I don't do many new initiatives, we've launched optimized the network.
Give you. An example, this month, we kicked off a national initiative to further improve the quality of our tailored clothing and on time delivery, but also engaging with customers on best practices and how they package that freight.
When we announced this initiative it triggered a tidal wave of enthusiasm in the field and just.
A few weeks, we've seen great momentum building in the organization.
Our goal is to create a world class MTL carrier that delights, our customers and our investors it won't happen tomorrow, but the commitment is there and we are already moving in that direction.
I wanted to give you the backdrop first because the transformation. We are undertaking an LPL helped us beat our guidance for adjusted operating ratio in the first quarter.
In February we guided to 200 basis points of year over year degradation, reflecting our continuous progress in moving the operating ratio back towards year over year improvement.
In reality, we did better than the Guy you want degradation was just 140 basis points.
This gave us an adjusted operating ratio ex real estate of 85, 7% for the quarter.
We expect to inflect to year over year improvement in adjusted operating ratio at some point later this quarter as we said we would.
And we're on target for the year over year improvement of more than 100 basis points and adjusted operating ratio X three the state for the full year.
We plan to drive hundreds of additional basis points of improvement in the coming years to get the ratio went into the seventies.
And importantly, the underlying trends are favorable.
We reported record first quarter revenue of $1 $1 billion, which is 15% higher than last year.
I would even over here yield improvement was the first quarter record at 9%.
Tonnage was down slightly year over year within the range. We told you to expect.
When you look one step deeper the sequential trends are also positive.
Growth in revenue per shipment accelerated every month in the quarter.
I would heal also accelerated throughout the quarter with the strongest gains coming in March.
Operating in a very robust pricing environment.
Our tonnage in the quarter was up 4% sequentially, which is better than typical seasonality usually our tonnage is flat from Q4 to Q1.
And as I mentioned the momentum in our operating ratio is building ahead of plan.
We expect our second quarter adjusted operating ratio improved by more than 400 basis points from Q1 to Q2.
So the business is very much on track.
Hello, I want to cover some of the first quarter actions, we took to expand our capacity and deploy technology.
These are the two main areas, where we're investing in growth.
We recently opened new terminals in California, and Georgia.
These sites, bringing our net new doors to 345 since October against a target of 900 net new doors added by year end 2023.
So we have more than a third of the way there.
The San Bernardino terminal will serve growing demand for manufacturing and retail in southern California, and the Atlanta terminal extend our capacity in one of the largest LCL regions in the south.
It also gives us a larger gateway into Florida.
These two sites will be growth levers for us in 2023 and going forward.
We're also making great progress in expanding our fleet of trailers.
In the first quarter, our manufacturing facility in Arkansas produce more trailers than any other quarter in our history.
We also opened you fleet maintenance shops in Florida, Ohio, Nevada, and New York, which would help us manage maintenance costs.
We continue to budget for gross Capex at 8% to 9% of revenue this year and again we're on plan.
On the technology front recent developments include the ongoing application of our proprietary pricing platform, which is driven by advanced automated analytics around customer shipment data.
This means our pricing experts are now able to focus more time on analyzing account performance and.
And we can negotiate with better results.
In Q1, our price increases on contract renewals accelerated to 11%.
In April we brought onboard David failing as senior Vice president of pricing for MTM Dave.
<unk> includes decades of success in optimizing pricing for transportation sectors, including the airline industry, where he specialized in pricing and yield management.
In other developments, we launched automated billing foot accessorial to make sure we captured those revenue dollars and we rolled out digital dashboards with self service tools to enhance the customer experience.
This quarter, we'll be introducing proprietary cost models to enhance visibility into cost management leathers as well as new piece level tracking functionality for our network.
So to sum it up I would comprehensive growth and optimization strategy for LCL comes down to one gold.
We are creating a world class LDL carrier.
And we have every confidence that he will succeed at the school.
Just as we succeeded in dramatically increasing LDL returns over the first six years, we owned the business.
We continue to expect to generate at least $1 billion of adjusted EBITDA, an LTM in 2022.
This is nearly triple the adjusted EBITA generated by the LTE network in 2015, when we acquired it from Conway.
What youre seeing from US in 2022 is that we're full steam ahead laser focus on efficiency and superb customer service.
And our momentum will continue to grow because we have the support of our people who are some of the best MTN operators in the industry.
Now through a covered truck brokerage through.
Thanks, Mario North American truck brokerage had another very strong quarter. We continued to do what we do best outpaced the industry on volume growth.
Operated at a strong margin and use our experience and technology to make sure our customers freight gets where it needs to be.
In the first quarter, our loads were up year over year about 23% driving a 38% increase in revenue.
It was our sixth consecutive quarter of load growth over 20%.
And margin dollars were up year over year of about 21% that's more than double the increase in the fourth quarter gross margin per load increased sequentially from the fourth quarter and our margin percentage was a very healthy 16%.
So a strong start of the year and we continued with the same strong trends in April with both volume and margin percentage.
We built our model as a growth engine because it's working exactly as we intended there are five compelling advantage is specific to our platform.
68% of our business is contract base and about 75% of that contract revenue is locked up on an annual basis. This gives us good visibility into the future revenue performance.
Second we have many long term customer relationships with blue chip market leaders across diverse verticals. These customers think of us as a strategic partner are top tier in brokerage customers have an average tenure with us of 15 years and our top 20 customers have a tenure of 13 years.
Third we're continuing to expand our pool of independent carriers, who provide our customers with truck capacity. This massive capacity is at the heart of our value proposition.
As of March we have relationships with 88000 carriers in North America, and access to more than a million and a half trucks.
Fourth is our X P O conduct technology, which continues to attract customers and carriers to our business. Our first mover advantage with brokerage technology is one of the main drivers behind our rapid growth.
You cannot let us capitalize on two interrelated secular trends that worked in our favor.
More shippers are outsourcing truckload transportation to brokers and increasingly these shippers won't digital brokerage capabilities.
At the same time more carriers are realizing that we can give them access to thousands of loads on a daily basis.
Carriers and customers love to do business with us because we have a state of the art digital platform.
In the first quarter the number of registered carriers on ex fuel conduct year over year was up 39%.
Registered customers were up 41%.
And weekly carrier usage was up 59%. We also surpassed 700000 cumulative downloads of our mobile app.
And 74% of our loads were created our cover digitally in the quarter, which was up four points sequentially that number is already trending higher in the second quarter.
The fifth compelling advantage is our exceptional truck brokerage management team all of whom will be joining the spinoff as a privilege to work with these great operators and technologists since the early days of X P O.
Together, we built a best in class brokerage platform that delivers outsized results and puts us in a strong position to spin off as a pure play.
As a new company will manage about seven and a half billion of transportation spend and continue to innovate the business to grow it from there.
From day, one it will be easier for investors to appreciate our flexible asset light business model, our economic resilience and are very high return on invested capital. We're excited to take this business to the next level as a separate public company when the spin off is complete.
With that I'll turn it over to the operator, and we'll go to Q&A.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick.
Up your handset before pressing the star keys, please limit yourself to one question when you come in the queue. If you have additional questions you're welcome to get back in the queue and we'll take as many as we can one moment, while we poll for questions.
First question comes from the line of Kenn Hoekstra with Bank of America. You May proceed with your question.
Great. Thanks, and good morning, Brad and team nice job on the quarter and an outlook and drew congrats.
So if I can start out Brad you made some comments during the quarter you noted some weakness in the trucking market. Matt you noted that some of the line haul contracts are cycling and at a lower rate. So I just want to understand are you seeing contract rates down already and I guess, how does that contrast, with your your target for hundreds of basis points going forward in LTE on margin is that.
More than on the cost side or is that still on the pricing strength in the industry to continue.
Thanks for the App.
Yeah, I think just on the on the line haul confection what rates. So we just completed our yearly bid.
For our third party line haul would it be outsourced line haul miles to third parties here last week is when we had the new rates come in and contractual rates have actually gone up slightly versus where they used to be but nowhere near the level of increases that we've seen obviously last year and through Q1 as well on a year on year basis. So this autumn.
The rating, but the contractual rates are still up and it was a competitive bid obviously across multiple carriers there, but this is what we're seeing on the line haul the outsourcing side with the with MTO.
Okay.
And your thoughts on the the L. T on margin and is that due to pricing gains solely that when you're talking about hundreds going a basis points going forward.
Yeah, when we look at the AR and the or improvement and then looking at the second quarter and moving forward.
So it is driven by three three categories. One is pricing one is volume and one is operational excellence and cost.
On the pricing side, we continue to see very robust pricing. So we are we ended the first quarter with a four.
The year, an improvement of 9% year on year and heading into the second quarter here, we crossed into double digit territory.
And on the volume side, we are for the second quarter, we expect to be down low to mid single digit and then accelerate in the back half of the year and then finally on the cost side. The third component is at all to solve the cost headwinds that we had last year, such as Bush's transportation would end up being a much.
Not sure what headwind as we head through the units starting here with the second quarter in the month of May and also our network is much more efficient so that now that our network. Fluidity is has improved substantially also are at all of our cost footprint is down which which needs to the order improvement.
Of more than 400 basis points in the second quarter.
So the question I understood.
Thank you.
Our next question comes from the line of Scott Group with Wolfe Research You May proceed with your question.
Hey, Thanks. Good morning, guys can you talk about the contractual pricing environment and L. T L and I think last quarter, you talked about the potential for another L. T. L. G. R. I. If you can give an update there and then just separately Brad can you give any update on the process in Europe .
So as the macro environment in Europe put this at risk or timing of this at risk at all thank you.
I'll start with the last part Scott.
The European process is going well.
A vibrant process.
And to date, the Russia, Ukraine thing, it's not affected it.
And I'll do and Scott on the pricing and vitamins in Seattle continues to be to be very strong and when we look at the first quarter put us we are our contract renewals et cetera, typically 11% and our yield in the second quarter accelerated from from 9% in the first quarter and cross doubled it.
Sure so far quarter to date, so it remains a very strong and vitamins.
Okay.
Great. Good do you think that at this point of sale or a separate listing is more likely.
I think a sale is.
Okay. Thank you guys.
Thank you.
Our next question comes on line of Chris Wetherbee with Citigroup. You May proceed with your question.
Yeah. Thanks, Good morning, sticky one L. T. L. I was wondering if you could you give us a little sense of sort of maybe the volume progression and how maybe things are looking at April I know, you're looking for I think low single digit tonnage declines in the second quarter, just want to get a sense of how April is trending and then Mary or maybe a little bit bigger picture. When you think about where you are in terms of cost.
Take out so we've gone through some contracting on the truckload line all side I think you've been trying to improve network efficiency. I think you actually said, it's back to where it was before you had some issues. So wanted to get a sense of sort of when we can start to expect that to generate a positive margin progression from here right. So the guidance is good from a sequential standpoint, and I know you.
For the back half to improve I'm trying to get a sense of maybe what the what the costs that are still needs to be wrung out of the system are and how we should think about that happening over the rest of the year.
Okay. Thanks, Thanks, Chris So first of all Q2 with tonnage should we expect tonnage to be down low to mid single digits. As I just mentioned in April was within that range and well.
However, when it comes to revenue when we look so far in April our revenue growth per day in the month of April has accelerated versus the Q1 revenue growth per day and now when we look at the punished momentum as a whole we still expect solid momentum to build through the course of the year because they have great sales momentum and the team is very energized and.
That team has driven given the month of April the best win rate, we've had in sales and over the past 40 years, we have dozens of multimillion dollar opportunities that has either close in the month of April or early may what about to close in the month of may including in your top 10 customer and so when we think about the momentum building through the course of the year, we expect to build that momentum.
In the in the back half and on the balance there is still a very healthy and vitamins, we expect and that's why we expect more than 400 basis points of our improvement from Q1 going into Q2, and the full year Oh for at least 100 basis points of order improvement now when we look at the cost side of it. So obviously, a big component of our costs as purchase transportation in these calls.
Because when I.
Starting to normalize now as we finalize the bid for line haul this past week and the new rates into effect. So that's going to be an improvement in the back half of the year and similarly, when you think about our adult cost or our PND cost and when we are running a much more efficient network and a lot of these metrics are trending up into the right in terms of how youre inefficiency of ER Doc Eh.
Labor and and P&G labor as well.
So when we head into the back half of the year are these would be somewhat and also reducing the handling cost as well and all of these will lead to the back half of the year I think a lot of these call specials are based on a year on year basis. Obviously, there are still inflationary costs with wages and other portions but all of these with again the pressure on cost is going to be in the back half.
That's helpful. One point of clarification on the purchase trans when you're thinking about these contract renewals those contracts are renewing at higher levels correct.
Hospital higher going forward or were you just it'll actually be net lower because you're just relying less on the spot market I just want make sure I understand how that plays out.
The costs are a little bit higher but the increases are abating as you go through the year, we had big increases in Q1 those increases diminishes you go through the year. Consequently, the headwinds from P. T diminishes and flips to a favorable factor for our as you move to the back half okay. Thanks for the time.
Thank you you are adequate.
Our next question comes from the line of.
Brandon <unk> with Barclays. You May proceed with your question.
Hey, good morning, everyone. So I don't mean to belabor this point, but with the volume trends down low single to mid single digits. This quarter do you think that's where the market is and they have you guys fully recovered from a service perspective with your customers and I guess longer term I think in the release and you guys have talked about before you're going to have like six.
Or 7% door growth in the network between now and next year. You know do you think that's coming on at the right time.
Yeah.
Yeah, let me try to cover all of them. So it's Hawaii. That's the first one is on the tonnage. So it's fair to say that that all cross winds in the freight environment now I tell you we think with the engagement with a group of salespeople in the company when we get that feedback on what's happening what feedback you're getting from customers and we just had the last review here yesterday, and we're still getting a lot of optimism.
The man from customers, but it can also hearing that the lockdowns in China and limited some of the inflows of goods into the country and some of the shortages either the chip shortages or raw material shortages are also impacting some of our industrial customers now when we see overall as these dynamics they are and they will these will become natural tailwind for us in the back.
Half of the year and as I mentioned earlier, we are excited about this I wouldnt momentum from a sales perspective, but we have an energized sales team, but it's driving great results as we head into into the back half.
In terms of the adding capacity in the door plan. So obviously, we don't look at adding doors as being a short term lever a L. T. L is a very attractive industry that has great vitality through the cycles. So they were the top three a pure play provided when the spin is completed and our companywide auto IC is 38% and NPL is higher.
Auto IC than that so when we think about adding doors equipment in head count and supporting our long term vision of the network, where we have gained market share and get back to growing our top line both from a volume perspective, and obviously from a catalyzing on the yield as well as the industry.
Yeah.
Thank you.
Our next question comes from the line of Tom <unk> with UBS. You May proceed with your question.
Good morning. This is Michael Davis here for Tom.
You mentioned, a new contract renewals were up 11% in the quarter, which was greater than the revenue per hundredweight growth ex fuel does that imply that you expect yields to improve or accelerate in the second quarter.
And also how should we think about new contract wins impacting tonnage per day going forward.
I'll take the first part of that first of all.
I think I alluded to this in my prepared remarks, we saw weight per day, I'd, rather wait per shipment move higher and length of haul growth moderate a bit so that dampens reported yields a bit relative to underlying pricing trends. We are currently tracking double digits in yields quarter to date. So you are seeing.
Our yield trap much closer to our price increases on contract renewals and Mario will take the second part under contract.
It's been getting from customers continues to be a very robust pricing environment. If you think of our industry. You have top 10 players in the business that did they manage roughly 76% of the 51 billion daughter, MTL industry and when do you think about those dynamics the pricing in vitamins as some firm in MTL and as I said earlier from a sales perspective.
<unk> landed about 10 customer and because they need to have great momentum in terms of opportunities in the pipeline as well as pricing things should give us.
That sounds great. Thank you.
You bet.
Our next question comes from the line of Jonathan Chappell with Evercore ISI. You May proceed with your question. Thank you good morning.
Look at the guidance that you gave for the enterprise as a whole and then L. T O and try to back into what that means for brokerage and other there's obviously a deceleration from the first quarter on the adjusted EBITDA clearly most of that is intermodal, but as youre thinking about you know the the margin for the brokerage and other business overall, what was the impact.
That the pro forma intermodal is going to have is that margin going to go down you know tens of basis points more substantially and how should we think about that run rate EBITDA going forward.
It's Matt I'll speak about the impact that the divestiture of intermodal had on our guidance for the second for the rest of the year and hopefully that will help you get an answer to your question. So if you look at the Delta from the guidance that we issued at the end of the fourth quarter entering the year and the guidance that we just gave you today, but we had about <unk> <unk>.
$60 million of adjusted EBITDA models for intermodal for quarters, two through four that's obviously out there.
The guidance change reflects that coming out.
Plus the first quarter Butte, which versus the midpoint of the range was about $38 million down at the mid point of about $12 million of additional EBITDA from new trends of Grays. After the rest of the business are four quarters for quarters two through four obviously the increase in EPS range reflects all those factors as well as the lower interest expense.
Reflecting the debt paydown from the proceeds of the intermodal transaction.
That's that's helpful. Matt and then obviously intermodal is a better margin business, but it is there any just guide you can give it all 2050 70 basis points, what that May mean to the pro forma operating adjusted operating ratio in brokerage going forward or is it too early to say.
I don't think the difference between intermodal and the rest of the business in terms of adjusted EBITDA margin is sufficiently difference really moved the needle for segment level margins. Okay. Thanks, Matt.
Our next question comes from the line of Allison <unk> with Wells Fargo. You May proceed with your question.
Hi, Good morning, maybe you you continue to highlight the technology around pricing and I think you have to somehow trying to as you mentioned is there a way to disaggregate for us the contribution I'm you know what those I would say this pricing tools has given you this quarter and then second with brokerage I E. You highlighted market share gains and it's been consistent.
Story, there is there any way to think about how youre viewing market share gains in the context of your growth expectations for this year. Thanks.
Thanks, Ed Thanks, Allison I'll touch on the pricing platform. So we're very excited about the new pricing platform. We launched in Q1 with continuous enhancements through the course of the year, because it's driven by advanced analytics and it allows us customer shipment data will be analyzed customer data more efficiently and has really helped our pricing experts instead uses manual tasks and then it will.
Data processing by as much as 80% what it enables the pricing experts to spend more time negotiating with our customers and supporting our sales team to do so it also enables us to analyze RFP data of audit fees be submitted in the past, which feeds into lead generation tools and similarly would also this coming quarter be launching you keep it.
He is very proprietary costing model that allows us to to improve how we look at costing and I wouldn't that's what across the board and we're also improve dynamic pricing, where we can adjust pricing based on market conditions and customer demand as well now when you look at the overall results, obviously, we accelerated our yield from 9% in the first quarter two.
The double digits, because the double digit mark in the second quarter with 11% pulse vaccine yours in the first quarter that was tough to be able to get to how much of that was the word that the technology is doing versus the people are doing but technology is definitely having a big contribution as part of that.
Good morning, Allison. This is drew on the second part of your question. We're in the early innings of continuing to go out and take market share within our truck brokerage team, obviously, we've grown our volume by 20% for six consecutive quarters, but overall. This is the trucking industry is a 400 billion dollar for hire trucking markets of that brokers have about 88 billion.
And where our brokerage was roughly $3 billion. So when you look at it we've only got about 3% share of the market. Our technology has given US first mover advantage and is allowing us to continue to go out and take share.
Great. Thank you.
Yeah.
Our next question comes from the line of Scott Schneeberger with Oppenheimer. You May proceed with your question.
Thanks, very much first one it's kind of a two partner for you drew and congratulations on the announcement of a new role. Thank you.
Rich.
Uh huh.
Where would you say are we in the truck brokerage cycle from what you've seen in the past and where you feel we are right now and then.
The follow up there is the are you seeing great penetration on on digitally covered orders up 74% from 70 last quarter.
How high do we anticipate that to go and any thought on what type of financial contribution.
And point basis point moved actually actually contributes.
Yeah. So thank you for the question so on the cycle.
If you look at it right now and rates are up on a year over year basis overall as we start heading into the back half of the year. There are a few indicators that show you that capacity could actually tightened as the year goes on first you got beverage season, which is coming to an investment grade bond 100, 120 days, where your major beverage distributors pick up their volume during that.
You also have D O two checkpoint that comes in over the summer, which typically causes a little bit of chaos in the market.
Third thing is you have a lot of built up demand that's sitting on the ports of China, that's going to come over is that the U S. Ports. So all of that tells you that it could tighten up a little bit as we head into the back half of the year on our digital orders is something that youre going to continue to see you go up into the right. You know I don't think that there's a limit to what we can do obviously, we've invested in technology from day.
<unk> has been an 11 year of investment for us and it's something that has allowed us to become sticky with both the customers and the carriers that we're working with so we would expect that continues to grow and it's one of the things that.
Our technology is you hit on is one of the things that allows us to come in and have best in class EBITDA margins and it will.
We will continue to see gains off of that.
Great. Thanks, I appreciate that and then and then Brad.
As you know with our founder and enlarge shareholder you had in April a another transaction in the in the shares could you just update us and remind us kind of your strategy with regard to your ownership in the company going forward. Thanks.
Well, we discussed my can be five one plan at length on the last earnings call.
Do you have anything more to add to that in terms of my future with the company I do plan to be with <unk> for a very long time, I'm nonexecutive chairman of Gx, So I'll be nonexecutive chairman of the new spin I would like to remain executive chairman of <unk> or as long as investors Whammy and I will remain CEO until someone comes along who.
I think it is better than me.
Great. Thanks, Brad.
Thank you.
As a reminder, please limit yourself to one question one coming up in the queue.
No questions Youre welcome to get back in the queue and we'll take as many as we can.
Our next question comes from the line of that's called majors with Susquehanna. You May proceed with your question.
Yeah. Thanks for taking my questions. Brad can you update us on the L. T. L. President search is kind of a corollary to the last question there and you know where do you stand and what's the timeline look like and what's the balance of internal versus external candidates that you're still looking at thank you.
Well, our search and the management lineup is still ongoing we don't have anything new to add to that in terms of timing.
As soon as it makes sense, we're not going to rush. It we're not going to delay it as soon as it makes sense that they will do it.
In terms of the other question you had about internal versus external we're considering all possibilities. So long story short we're staying flexible as we always are.
Okay. Thank you.
Our next question comes from the line of Christopher Glynn with Benchmark Company. You May proceed with your question.
Yeah, Hi, good morning, guys. Thanks for taking my question here just with.
Digital orders are going up into the right and I was just wondering what the margin profile of that will be as the price transparency. It gets it gets better and better.
Thank you. Thanks for the question Christopher our digital orders trended in line with our overall orders as far as margin percentage goes.
Okay. It does allow us to leverage the SG&A leverage that Christopher.
So the EBITDA margins can be higher.
Right right. So is it possible that that gross margins could trend down, but EBITDA could be higher than your leverage loans over employees or revenue over fewer employees.
Yeah, that's absolutely possible.
Okay. Thanks appreciate it thank.
Thank you.
Our next question comes from the line of Brian I'll come back with J P. Morgan you May proceed with your question.
Hey, good morning, Thanks for taking the question. So maybe a two parter for you drew can you just talk about big picture what else do you think you'd be investing and are focused on you know as a separate entity and maybe the answer is just more of the same but would still like to hear your thoughts on that and how you're thinking of that going forward.
Secondarily on the head count side, if you can just give us a sense in terms of what's the head count you're being.
How much you have in the pipeline.
If there was there's no growth targets you've been generating here in the last couple of quarters.
Yeah, absolutely. Thank you for the question on Big Picture, We've got a model that is proven that is working so we want to continue to execute the model. It has allowed us to go out and grow volume by over 20% for the last six quarters and it's allowed us for the last eight years to outperform the industry revenue growth by more than three times. So we're.
To continue to execute on the model, where there's three things that I'm focused on right now. The first is continuing to build out an exceptional management team that complements the great operators and technologists that we'd have in the business. The second piece is to go out and continue to delight, our customers and service to our customers extremely well and go out and continue to outperform and take market share.
And the third is to continue to evolve <unk> our goal for ex vivo Tonight is to have that to be the go to tool for shippers as they are using that to make their transportation decisions whether it's.
What motor transportation that they're using whether it's what they are a week, they're shipping something or if they should consolidate something we want that to be their go to tool on the third third on yourself on your last point on head count we are continuing to add head count as we go forward and.
As you look at it over a five year trend volume still significantly outpaces head count, but we thought we would.
Got it.
Yeah.
And on the point on <unk> connect small apparel, because anything you're thinking of adding.
More step change in terms of capabilities or are you just adding more.
You know a little bit more bells, and whistles of them more functionality rather in terms of what youre rolling out here in the next couple of quarters and years.
We're constantly adding the bells and whistles are something that we continue to do and we do that on a biweekly basis and we're excited to share more with you as we get closer to the Investor day on the spinoff.
Yes.
Alright, Thank you Jim.
Thank you.
Our next question comes from the line of Bruce Chan with Stifel. You May proceed with your question.
Yes.
Hey, guys, it's K C D and for Bruce.
Yes. This might go to a to Brad there's just been a there's been a lot of talk about consumer services rotation in space.
Some peers have been saying probably already happened, which when you look across your book of business across your business lines, and especially we're talking about like final mile. Here you see evidence that that shift is already taking place or is occurring right now.
If you if you think about the consumer to services, obviously, we're in the goods business. So.
We're moving both consumer goods and and industrial goods, obviously, the industrial economy is still on its way back Mario spoke about the opportunity for loosening of supply chains.
As we see more raw goods not finished good make their way into the I'll make their way into the base.
Their way into our customer supply chains, how youre going to see better revenue momentum.
From industrial customers and never been signs of that continuously and L. T. O. The consumer has obviously had a couple of very good years consumer has a very strong balance sheet is very strong shape and if you think about our brokerage business, where our loan growth was up 23% consumer customers are consumer companies comprised the majority of our.
Customer base and revenue.
That business. So that's some indication of what we're seeing from the consumer.
Got you I guess my only follow up there would be.
The way the economy is shaking out right now this is Ed.
Any of the current demand apparent cycle change how you think about this spin when you kind of talk with the brokerage on the consumer side.
Industrial the L T outside do.
You know the spin was announced a little while ago does any.
Anything in the current environment change, how you guys thought as a management team think about how you move forward.
Not really no we're going full speed ahead with the spin because regardless of what happens in the macro economy. The rationale for the spin still stands the rationale for the spin is when we have separate companies that are pure plays and the management team is focused on one thing and one thing alone.
They're going to do better there just going to do better job they'll be more focused there'll be more fit for purpose.
And from an Investor point of view investors will be able to evaluate those companies on a standalone basis on a more comparable basis to the peers and there'll be a wider universe of investors, who only want an <unk> company or only one of a truck brokerage company. So no. We're going full speed ahead on the spin.
Well. Thank you. Thank you guys.
Thank you.
Ladies and gentlemen, we have reached the end of today's question answer session I'd like to turn this call back over to Brad Jacobs for closing remarks.
Well. Thank you operator, I'd like to leave everyone with the following points number one we're executing on multiple avenues to create outsized shareholder value.
And Alex Yao, we're ahead of plan and we have enormous momentum. If you look at April the growth in revenue per day in April exceeds the first quarter's growth.
Year over year, Oh, our comparisons should flip favorable in the back half of Q2.
And we firmly expect to generate more than 100 basis points of improvement in or for the full year.
In truck brokerage, we continue to perform at best in class levels in the first quarter, we grew loads on a year over year basis at 23%.
And April was our best month ever for margin dollars in truck brokerage and we expect to continue to significantly outperform the market.
On the balance sheet side I'm very pleased that we brought leverage down from two seven to two point O in the first quarter and we remain on track to reduce leverage below two times by the end of this year, which is ahead of plan.
On the spin, we're progressing nicely and we expect to turn one great company into two great companies in the fourth quarter.
So with that I'd like to thank everyone and we look forward to seeing you at upcoming conferences have a great day.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and enjoy the rest of your day.
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