Q4 2023 XPO Logistics Inc Earnings Call

Operator: Welcome to the XPO Q4 2020 Pay Earnings Conference Call and Webinar. My name is Sherry, and I will be your operator for today's call. At this time, all participants are in a listen-only mode.

Welcome to the X P. O Q4, 2020 earnings conference call and webcast. My name is Sherry and I will be your operator for today's call.

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

Operator: Later, we will conduct a question and answer session. If you have a question, please dial star 1 on your telephone keypad. Please limit yourself to one question when you participate in the Q&A.

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.

Operator: 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 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 in the forward-looking statements. The discussion of factors that could cause actual results to differ materially is contained in the company's 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 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 may also refer to certain non-GAAP financial measures as defined under 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.

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.

Speaker Change: Before the call begins let me read a brief statement on behalf of the company regarding forward looking statements and the use of non-GAAP financial measures.

Speaker Change: 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 in the forward looking statements.

Speaker Change: A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release.

Speaker Change: The forward looking statements in the company's earnings release or made on this call are made only as of today and the company has no obligation to update any of these forward looking statements except to the extent required by law.

Speaker Change: During this call. The company May also refer to certain non-GAAP financial measures as defined under applicable SEC rules reconciliations of such non-GAAP financial measures. The most comparable GAAP measures are contained in the company's earnings release, and the related financial tables or on its website.

Speaker Change: 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 investors section of the company's website.

Mario Herrick: 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 Investors section of the company's website. I will now turn the call over to XPO's Chief Executive Officer, Mario Herrick. Mr. Herrick, you may begin. Good morning, everyone.

Speaker Change: I will now turn the call over to <unk>, Chief Executive Officer, Mario Herrick, Mr. Harris, you may begin.

Mario Herrick: Good morning, everyone.

Mario Herrick: Thanks for joining our call. I'm here in Greenwich with Kyle Wisman, our Chief Financial Officer, and Ali Faghri, our Chief Strategy Officer. I'm pleased to report that we capped a strong year with a quarter that exceeded expectations, and we've carried that momentum into 2024. Company-wide, we reported fourth-quarter revenue of $1.9 billion, which is 6% higher year over year, and we grew Adjusted EB TAP to $264 billion, for an increase of 28%, excluding real estate gains in 2020.

Mario Herrick: Thanks for joining our call.

Mario Herrick: I'm getting granted with catalyst Smith, our chief Financial Officer.

Mario Herrick: And I leave I agree our chief strategy Officer.

Mario Herrick: I'm pleased to report that we kept a strong year with a quarter that exceeded expectations.

Mario Herrick: And we carried that momentum into 2024.

Mario Herrick: Companywide when he bought the fourth quarter revenue.

Mario Herrick: One $9 billion, which is 6% higher year over year.

Mario Herrick: And we grew adjusted EBITDA to $264 million.

Mario Herrick: With an increase of 28% excluding real estate gains in 2022.

Mario Herrick: Our adjusted diluted EPS for the company was 77 cents, which was also better than expected.

Mario Herrick: I would adjust the diluted EPS for the company to 77 cents, which was also better than expected. I want to thank our team for delivering these great results in a soft freight environment. Looking at our North American LTL segment, we reported our strongest progress since we launched our LTL 2.0 plan in 2021. We grew adjusted operating income year over year by 51% and improved our adjusted operating ratio by 380 basis points. Additionally, we delivered the best damage claims ratio in our history at 0.3%, as well as a record level of employee satisfaction.

Speaker Change: I want to thank our team for delivering these great results and a soft freight environment.

Speaker Change: Looking at our North American <unk> segment.

Speaker Change: When he posted our strongest progress since we launched our MTL to point open in 2021.

Speaker Change: We grew adjusted operating income year over year by 51% and improved our adjusted operating ratio by 280 basis points.

Speaker Change: We delivered the best damage claims ratio in our history at 0.3% as well as the record level of employee satisfaction.

Speaker Change: How do we significantly accelerated our year over year yield growth, excluding fuel to 10, 3%.

Mario Herrick: And we significantly accelerated our year-over-year yield growth, excluding fuel, to 10.3%. We also improved cost efficiency for the fourth consecutive quarter with further increases in labor productivity and line haul in sources. And we continue to deploy capital efficiently as we reinvest back into the business. All of these are proof points that our plan has strong traction.

Speaker Change: We also improved cost efficiency for the fourth consecutive quarter.

Speaker Change: With further increases in labor productivity and line haul in sourcing.

Speaker Change: And we continue to deploy capital efficiently as we reinvest back into the business.

Speaker Change: All of these are proof points that our plan has strong traction.

Mario Herrick: And the 28 service centers we recently acquired from the Yellow Network will build on this momentum. This acquisition is a once-in-a-generation opportunity to integrate prime locations into our network to support yield growth and margin expansion. When the market recovers and industry capacity tightens, we'll be in a stronger position to serve our customers and drive profitable growth for years to come. Now, I want to share some details about the quarter.

Speaker Change: And the 28 service centers, we recently acquired from the Yellow network will build on this momentum.

Speaker Change: Yeah.

Speaker Change: This acquisition is a once in a generation opportunity to integrate prime locations into our network to support <unk> growth and margin expansion.

Speaker Change: When the market recovers and industry capacity tightens would it be in a stronger position to serve our customers and drive profitable growth for years to come.

Speaker Change: Now I want to share some details of the quarter, starting with the first pillar of our LTE at a 2.0 plan service improvements.

Mario Herrick: Starting with the first pillar of our LTL 2.0 plan, service improvements. We improved every major component of customer service quality in the quarter, including our customer satisfaction rating, which has risen by more than 40 percent since 2021. Our on-time performance was three percentage points better than in the prior fourth quarter. And I mentioned that our damage claims ratio of 0.3% is a new record for us.

Speaker Change: We improved every major component of customer service quality in the quarter.

Speaker Change: Including our customer satisfaction rating, which has risen by more than 40% since 2021.

Speaker Change: Our on time performance was three percentage points better than in the prior year fourth quarter.

Speaker Change: And I mentioned that I would damage claims ratio of 0.3% is a new record for us to put that in context, it's a vast improvement from 1.2% when we lost our plan.

Mario Herrick: To put that in context, it's a vast improvement from 1.2% when we launched our plan. These are metrics that our customers watch closely as an indicator of service quality. Our top priority is to become the customer service leader in our industry, and we're continuing to equip our team with the tools to make this a reality. One example is the new freight airbags I spoke about on our last call. The rollout has been going well, and this solution is now installed at over 50% of our doors. The airbags have reduced damages by more than 20% at those locations, and the benefit will spread across our network.

Speaker Change: These are the metrics our customers watch closely as an indicator of service quality.

Speaker Change: Our top priority is to become D customer service leader in our industry.

Speaker Change: And we're continuing to equip our team with the tools to make this a reality.

Speaker Change: One example is the new fleet airbags I spoke about on our last call.

Speaker Change: The rollout has been going well and this solution is now installed at over 50% of our doors.

Speaker Change: The airbags have reduced damages by more than 20% at those locations.

Speaker Change: And the benefits will spread across our network.

Speaker Change: We expect to finish the installations by the middle of this year.

Mario Herrick: We expect to finish the installations by the middle of this year. The second pillar of LTL 2.0 is to invest in our network to drive long-term growth. We added more tractors and trailers in 2023 than any year in XPO's history, to both grow and refresh our fleet. This resulted in record network fluidity and supported our strategy to insource more line-haul nile. On the tractor side, we purchased more than 1,400 units in 2023. This reduced our average fleet age to 5 years at year end, compared with 5.9 years in 2022.

Speaker Change: The second pillar of LDL to point, though.

Speaker Change: Investing in our network to drive long term growth.

Speaker Change: We added more tractors and trailers in 2023 than any year and ex deal with history.

Speaker Change: To both grow and refresh our fleet.

Speaker Change: This resulted in record network fluidity and supported our strategy to in source more line haul miles.

Speaker Change: On the tractor side, we booked more than 1400 units in 2023.

Speaker Change: This reduced our average fleet age to five years at year end compared with $5 nine years in 2022.

Speaker Change: On the theater side, we've manufactured over 6400 units at our in house facility in Arkansas.

Mario Herrick: On the trailer side, we manufactured over 6,400 units at our in-house facility in Arkansas, exceeding our production target. For 2024, we expect our LTL capex level to be in the low teens as a percent of revenue, and again, primarily allocated to our fleet. In terms of the 28 service centers we acquired from Yellow, the largest impact on our capital strategy is timing. We've pulled forward dozens of real estate investments that we plan to make over the next several years.

Speaker Change: Exceeding our production target.

Speaker Change: For 'twenty 'twenty four we expect our LTM capex level to be in the low teens as a percent of revenue and again, primarily allocated to our fleet.

Speaker Change: In terms of the 28 service centers, we acquired from yellow the largest impact on our capital strategy is timing.

Speaker Change: With both Ford, where it doesn't appeal estate investments, let's be planned to make over the next several years.

Speaker Change: I'll add some strategic color to my earlier comments on the acquisition.

Mario Herrick: I'll add some strategic color to my earlier comments on the acquisition. These service centers will deliver important benefits to the business for years to come. First, they'll get us closer to customers and give us larger facilities in major metro areas. This should drive substantial cost efficiencies across our line haul, pickup and delivery, and dock operations. Second, they'll enhance yield growth by further improving our service with fewer freight rehandles, reduced damages, and better on-time performance. And third, they'll give us more capacity in key metros like Indianapolis, Columbus, and Las Vegas. These are markets where we're currently turning away profitable customers because we don't have enough door capacity. We plan to start bringing these locations online in April and have all of them operational within the next 12 to 18 months. We expect the transaction to be accretive to EPS and our LTL operating ratio in 2025, although this assumes no underlying recovery in industry volume.

Speaker Change: These service centers will deliver important benefits to the business for years to come.

Speaker Change: First that'll get us closer to customers and give us larger facilities in major metro areas.

Speaker Change: It will drive substantial cost efficiencies across our line haul pickup and delivery and dock operations.

Speaker Change: Second that enhance our yield growth by further improving our service with fewer free three handles did use damages and better on time performance.

Speaker Change: And third they'll give us more capacity in key metros like Indianapolis, Columbus, and Las Vegas. These are markets, where we have currently turning away profitable customers, because we don't have enough door capacity.

Speaker Change: We plan to start bringing these locations online in April and have all of them operational within the next 12 to 18 months.

Speaker Change: We expect the transaction to be accretive to EPS and operating ratio in 2025.

Speaker Change: This assumes no underlying any company and industry volumes any markets rebound with represents an upside to our baseline forecast.

Mario Herrick: Any market rebound would represent an upside to our baseline 4K. The third pillar of our plan is to drive above-market yield growth, which is our single biggest lever for margin improvement. You can see this dynamic in the fourth quarter when we drove yield excluding fuel higher year over year by 10.3%. This helped us deliver nearly 400 basis points of adjusted operating ratio improvement. We got there by executing on service improvements, accessorials, and volume growth within our local customer base. These are the three levers for our long-term pricing opportunity. The exciting trends in our service metrics translate to value for our customers, with a direct correlation to the price we earn. Increasingly, our customers see XPO as a high-value business partner, with the resources to help them succeed.

Speaker Change: Yeah.

Speaker Change: The third pillar of our plan is to drive above market growth, which is our single biggest leather for margin improvement.

Speaker Change: You can see this dynamic in the fourth quarter, when we drove yield excluding fuel higher year over year by 10, 3%.

Speaker Change: Just help us deliver nearly 400 basis points of adjusted operating ratio improvement.

Speaker Change: We got there by executing our service improvements at the Saudi Oleds and volume growth within our local customer base.

Speaker Change: These are the three levers, but I would long term pricing opportunity.

Speaker Change: The exciting trends in our service metrics translate to value for our customers with a direct correlation to the price we earn.

Speaker Change: Increasingly our customer see X P. O is the high value business partner with the resources to help them succeed.

Speaker Change: This was reflected in our contract renewal pricing, which was up year over year by 9% for the second consecutive quarter.

Mario Herrick: This was reflected in our contract renewal pricing, which was up year over year by 9% for the second consecutive quarter. Accessorials are another opportunity to grow our yield by delivering more value through premium services. We plan to expand our range of offerings this year, and we saw an early impact in the fourth quarter with the introduction of our retail store rollout offer. We already have over a dozen customers using this service to distribute critical product launches for retailers.

Speaker Change: As the Saudi Oleds are another opportunity to grow our yield by delivering more value through premium services.

Speaker Change: We plan to extend our range of offerings this year.

Speaker Change: We saw annuity impact in the fourth quarter with the introduction of our retail store rollout offering.

Speaker Change: We already have over a dozen customers using the service to distribute critical product launches for retailers.

Mario Herrick: And with the third lever, our local channel, we grew shipment counts by double digits for the third consecutive quarter. Our local sales team at year-end was over 20% larger than in 2022, reflecting the importance we place on this high-yielding, margin-accretive business. So we have a lot of avenues leading to yield growth, and each step forward helps to align our pricing with the value we deliver. The fourth and final pillar of LTL 2.0 is cost efficiency.

Speaker Change: With the third lever our local channel.

Speaker Change: Shipment counts by double digits for the third consecutive quarter.

Speaker Change: Our local sales team at year end was over 20% larger than in 2020 two.

Speaker Change: The importance we place on this high yielding margin accretive business.

Speaker Change: So we have a lot of avenues, leading to yield growth.

Speaker Change: And each step forward helps align our pricing with the value we deliver.

Speaker Change: The fourth and final pillar of LTE, a 2.0, it's called sufficiency.

Mario Herrick: The main opportunities here are with purchased transportation, variable costs, and overhead. In the fourth quarter, we reduced our purchased transportation costs by 22% year-over-year by insourcing more miles and paying lower contract rates to third-party providers. We ended the quarter with less than 20% of line haul miles outsourced for a year-over-year reduction of 290 basis points. On a sequential basis, we reduced our reliance on outsourcing by 190 basis points.

Speaker Change: The main opportunities here are with purchase transportation.

Speaker Change: Variable costs and overhead.

Speaker Change: In the fourth quarter, we did use our purchase transportation costs by 22% year over year.

Speaker Change: By in sourcing more miles and paying lower contract rates to third party providers.

Speaker Change: We ended the quarter with less than 20% of line haul miles outsource, but a year over year reduction of 290 basis points.

Speaker Change: On a sequential basis would reduce our reliance on outsourcing by 190 basis points.

Mario Herrick: We've come a long way since the beginning of 2022, when we were outsourcing about 25% of our line haul miles. Today, we're well on the way to bringing that percentage down to the low teens by 2027. Lastly, a quick update on our initiative to add driver teams and sleeper cab trucks for long hauls. The goal here is to increase the efficiency and flexibility of our line haul network. We started putting these teams in place last quarter, and we currently have over 50 teams in operation.

Speaker Change: We've come a long way since the beginning of 2022, what are we about outsourcing of about 25% of our line haul miles.

Speaker Change: They are well underway to bringing down that percentage to the low teens by 2027.

Speaker Change: Lastly, a quick update on our initiative to add driver teams and sleeper cab trucks for long hauls.

Speaker Change: The goal here is to increase the efficiency and flexibility of our line haul network.

Speaker Change: We started putting these teams in place last quarter and we currently have over 50 teams and operation.

Mario Herrick: We expect to have a few hundred long-haul teams on the road by the end of this year, and this should help to accelerate our outsourcing. We're also continuing to manage our variable labor costs effectively, growing our volume by more than our headcount year over year for the fourth consecutive quarter, and the spread in the quarter was substantial. Our shipment count was up 5.7%, while our headcount was up just 1.7%. This is a credit to the team's operational discipline, supported by our proprietary technology for labor planning.

Speaker Change: We expect to have a few hundred long haul teams on the road by the end of this year.

Speaker Change: This should help to accelerate our in sourcing plan.

Speaker Change: We're also continuing to manage our variable labor costs effectively.

Speaker Change: Growing our volume by more than I would have head count year over year for the fourth consecutive quarter.

Speaker Change: And the spreads in the quarter was substantial.

Speaker Change: Our shipment count was up five 7%, while I would head count was up just one 7%.

This is a credit to the teams operational discipline supported by our proprietary technology for labor planning.

Speaker Change: In summary in 2023, we made significant progress on our plan across the board.

Mario Herrick: In summary, in 2023, we made significant progress on our plan across the board while laying a solid foundation for the future. We improved our operations in all four quarters of the year by generating record service levels, making strategic investments in the network, further accelerating yield growth, and operating more cost-efficiently. As a result, the business performed above expectations with robust margin expansion and earnings growth and strong forward momentum. Now, I'm going to hand the call over to Kyle to discuss the fourth quarter financial results. Kyle, over to you. Thank you, Mario, and good morning, everyone.

Speaker Change: While laying a solid foundation for the future.

Speaker Change: We improved operations in all four quarters of the year I generating record service levels.

Speaker Change: Making strategic investments in the network.

Speaker Change: Further accelerating yield growth and operating more cost efficiently.

Speaker Change: As a result, the business performed above expectations with robust margin expansion and earnings growth and strong forward momentum.

Speaker Change: Now I'm going to hand, the call over to Kyle to discuss the fourth quarter financial results I'll over to you.

Kyle: Thank you Mario and good morning, everyone I'll take you through our key financial results balance sheet and liquidity.

Kyle: I'll take you through our key financial results, balance sheet, and liquidity. It was a strong fourth quarter overall. Revenue for the total company was $1.9 billion, up 6% year over year. This included a 9% increase in our LTL revenue, excluding fuel. LTL revenue was up 14% year over year. Salary, wages, and benefits for LTL were 10% higher in the quarter than a year ago. This increase primarily reflects wage and benefit inflation, as well as incentive compensation aligned with our strong fourth quarter performance. These impacts were mitigated by our productivity.

Kyle: It was a strong fourth quarter overall.

Revenue for the total company was $1 $9 billion up 6% year over year.

Kyle: This includes a 9% increase in our wholesale segment.

Kyle: Excluding fuel LDL revenue was up 14% year over year.

Kyle: Salary wages and benefits for LTE, all were 10% higher in the quarter than a year ago.

Kyle: This increase primarily reflects wage and benefit inflation as well as incentive compensation aligned with our strong fourth quarter performance.

Kyle: These impacts were mitigated by our productivity gains.

Kyle: We've now improved our labor hours per shipment on a year-over-year basis for four straight quarters throughout 2023. We were also more cost efficient with purchase transportation through a combination of insourcing and rate negotiation. Our expense for third-party carriers was $83 million in the quarter, which was down year-over-year by 22%. Depreciation expense increased year-over-year by 23%, or $13 million, as we continue to reinvest in the business.

Kyle: We've now improved our labor hours per shipment on a year over year basis for four straight quarters throughout 2023.

Kyle: We were also more cost efficient with purchased transportation.

Kyle: Through a combination of in sourcing and rate negotiation.

Kyle: Our expense for third party carriers was $83 million in the quarter.

Kyle: Which was down year over year by 22%.

Kyle: Depreciation expense increased year over year by 23% or $13 million as we continued to reinvest in the business.

Kyle: This remains our top priority for capital allocation in LTL. In the fourth quarter, our CapEx was primarily allocated to our fleet, as we purchased new tractors from manufacturers and built more trailers in-house. Next, I'll add some detail to adjust it even more, starting with the company as a whole. We generated adjusted EBITDA of $264 million in the quarter, up 28% from a year ago, and improved our adjusted EBITDA margin by 230 basis points. These metrics exclude the impact of real estate gains in the fourth quarter of 2022 to give you a like-for-like comparison. We had no real estate gains in the fourth quarter of 2023.

Kyle: This remains our top priority for capital allocation and L. T O.

Kyle: In the fourth quarter, our Capex was primarily allocated to our fleet.

Kyle: As we purchased new tractors from the manufacturers and build more trailers in house.

Kyle: Next I'll add some detail to adjusted EBITDA, starting with the company as a whole.

Kyle: We generated adjusted EBITDA of $264 million in the quarter.

Kyle: Up 28% from a year ago.

Kyle: And improved our adjusted EBITDA margin by 230 basis points.

Kyle: These metrics exclude the impact of real estate gains in the fourth quarter of 2022 to give you a like to like comparison.

Kyle: We had no real estate gains in the fourth quarter of 2023.

Kyle: Yeah.

Kyle: Our fourth-quarter corporate expense was $5 million, for a year-over-year savings of 44%, or $4 million. We're continuing to rationalize our corporate structure for the standalone business and expect to report further reductions this. Looking solely at the LTL segment, we grew our adjusted operating income by 51% year-over-year to $160 million, and we grew adjusted EBITDA to $233 million. The gains we achieve through revenue growth and cost efficiencies more than offset the non-operating headwinds from lower fuel surcharge revenue and pension income. And our European transportation segment adjusted EBITDA with $36 million for the quarter. Company-wide, we reported operating income of $119 million for the quarter, compared to $4 million in the prior year. Our net income from continuing operations was $58 million for diluted earnings per share of 49 cents, compared with a loss of $36 million, or 31 cents, a year ago.

Kyle: Our fourth quarter corporate expense was $5 million.

Kyle: For a year over year savings of 44% or $4 million.

We're continuing to rationalize our corporate structure for the Standalone business and expect to report further reductions this year.

Kyle: Looking solely at the L. T. L segment, we grew our adjusted operating income by 51% year over year to $160 million.

Kyle: And we grew adjusted EBITDA to $233 million.

Kyle: The gains we achieve through revenue growth and cost efficiencies more than offset the nonoperational headwinds from lower fuel surcharge revenue and pension income.

Kyle: In our European Transportation segment, adjusted EBITDA was $36 million for the quarter.

Kyle: Companywide, we reported operating income of $119 million for the quarter compared to $4 million in the prior year.

Kyle: Our net income from continuing operations was $58 million for diluted earnings per share of 49 cents.

Kyle: Compared with a loss of $36 million or 31 cents a year ago.

Kyle: This represents an improvement of 80 cents in diluted EPS from continuing operations.

Kyle: This represents an improvement of $0.80 in diluted EPS from continuing operations, driven by significant year-over-year reductions in transaction and integration costs and restructuring. On an adjusted basis, our EPS for the quarter was 77 cents, which is down 21% from a year ago. This primarily reflects the impact of real estate gains in 2022, as well as lower pension income and higher interest expense in 2023. Our acquisition of the 28 service centers closed on December 20th and did not have a material impact on our operating results and the income statement.

Kyle: Driven by significant year over year reductions in transaction and integration costs and.

Kyle: And restructuring charges.

Kyle: On an adjusted basis, our EPS for the quarter was 77 cents.

Kyle: Which is down 21% from a year ago.

This primarily reflects the impact of real estate gains in 2020, two as well as lower pension income and higher interest expense in 2023.

Kyle: Our acquisition of the 28 service centers closed on December 20th and did not have a material impact on our operating results in the income statement.

Kyle: And lastly, we generated $251 million of cash flow from continuing operations in the and deployed $151 million of net CapEx, excluding spend related to the acquisition. Moving to the balance sheet, we ended the quarter with $412 million of cash on hand, combined with available capacity under committed lending facilities. This gave us $920 million of liquidity. We had no borrowings outstanding under our ABL facility at quarter end.

Kyle: And lastly, we generated $251 million of cash flow from continuing operations in the quarter and deployed $151 million of net capex, excluding spend related to the acquisition.

Kyle: Moving to the balance sheet.

Kyle: In December, we raised $985 million through a combination of $585 million of senior notes and $400,000,000 of term loans. We used $870 million of proceeds to complete our acquisition of 28 LTL service centers, and we refinanced our existing senior notes due in 2025. We now have no funded debt maturities until 2028.

Kyle: We ended the quarter with $412 million of cash on hand.

Kyle: Combined with available capacity under our committed borrowing facilities. This gave us $920 million of liquidity.

Kyle: We had no borrowings outstanding under our ABL facility at quarter end.

Kyle: In December we raised $985 million through a combination of $585 million of senior notes and $400 million of term loans.

Kyle: We also maintain all corporate and issue-level credit. Our net debt leverage at year-end was three times trailing 12 months adjusted EBITDA. The investments we're making in the business will enhance our earnings trajectory for a high return on capital, consistent with our long-term goal of achieving an investment-grade profile. Before I close, I'll summarize the full year 2024 assumptions we provided in our investor presentation to help you with your models. They are as follows: gross capex of $700 to $800 million; interest expense of $240 to $260 million; pension income of approximately $25 million; an adjusted effective tax rate of 23 to 25 percent; and a diluted share count of 121 million shares. Now, I'll turn it over to Ali, who will cover our operations. Thank you, Kyle.

Kyle: We used $870 million of proceeds to complete our acquisition of 28 L. T. L service centers and we refinance our existing senior notes due in 2025.

We now have no funded debt maturities until 2028.

We also maintained all corporate and issue level credit ratings.

Kyle: Our net debt leverage at year end was three times trailing 12 months adjusted EBITDA.

Kyle: The investments, we're making the business will enhance our earnings trajectory for high return on capital consistent with our long term goal of achieving an investment grade profile.

Kyle: Before I close I'll summarize the full year 'twenty 'twenty four assumptions, we provided in our investor presentation to help you with your models. They are as follows.

Ali: I'll start with our LTL segment, which reported another quarter of profitable growth. On a year-over-year basis, we increased our shipments per day by 5.7 percent in the quarter, led by 12 percent growth in our local sales channel. This resulted in growth in tonnage per day of 2%. However, our weight per shipment was down 3.4% year over year, which was notably less of a decline for the second consecutive quarter. On a monthly basis, our October tonnage per day was up 2.5% year over year; November was down 0.5%, and December was up 3.6%.

Kyle: Gross capex of $700 million to $800 million.

Kyle: Interest expense of $240 million to $260 million.

Kyle: Pension income of approximately $25 million.

Kyle: And adjusted effective tax rate of 23% to 25%.

Kyle: And then diluted share count of 121 million shares.

Kyle: Now I'll turn it over to Ali who will cover our operating results.

Ali: Thank you Kyle I'll start with our L. T L segment, which reported another quarter of profitable growth.

Ali: On a year over year basis, we increased our shipments per day by five 7% in the quarter led by 12% growth in our local sales channel.

Ali: Looking just at shipments per day, October was up 6.2% year over year. November was up 3.7 percent, and December was up 6.6%. In January, our tonnage per day was down 1.1% year over year, while our shipment count was up 1.4%.

Ali: This resulted in growth in tonnage per day was 2%.

Ali: Our weight per shipment was down three 4% year over year.

Ali: The transportation industry was disrupted by weather events in January, but we saw a rebound more recently and ended the month with stronger volume. And sequentially, both our tonnage and shipment count increased from December to January, outperforming seasonality. We also outperformed on yield in the fourth quarter, delivering a second consecutive quarter of acceleration; we grew yield excluding fuel by a strong 10.3% compared with the prior year. Importantly, our underlying pricing trends are strong, as we continue to align our pricing with the better service we're providing. Our contract renewal pricing was up 9% in the quarter compared with a year ago.

Ali: Which was notably less of a decline for the second consecutive quarter.

Ali: Yeah.

Ali: On a monthly basis, our October tonnage per day was up two 5% year over year.

November was down 5%.

Ali: And December was up three 6%.

Ali: Looking just at shipments per day October was up six 2% year over year.

Ali: November was up three 7%.

Ali: And December was up six 6%.

Ali: In January our tonnage per day was down 1.1% year over year, while shipment count was up one 4%.

Ali: The transportation industry was disrupted by weather events in January but we saw a rebound more recently and ended the month with stronger volumes.

Ali: Turning to margin, our fourth-quarter adjusted operating ratio was 86.5%, which was an improvement of 380 basis points year-over-year. Our strong margin performance was primarily driven by yield growth and underpinned by our cost initiatives and productivity gains. sequentially, our adjusted OR increased by 30 basis points, which outperformed seasonality by 280 basis points. Moving to our European business, we delivered revenue growth of 2% year-over-year despite ongoing challenges in the macro environment. This growth was supported by strong pricing, which outpaced inflation.

Ali: And sequentially, both our tonnage and shipment count increased from December to January outperforming seasonality.

Ali: We also outperformed on yield in the fourth quarter, delivering a second consecutive quarter of acceleration.

Ali: We grew yield excluding fuel by a strong 10, 3% compared with the prior year.

Ali: Importantly, our underlying pricing trends are strong.

Ali: As we continue to align our pricing with the better service we're providing.

Ali: Our contract renewal pricing was up 9% in the quarter compared with a year ago.

Ali: And in some regions, like the UK, we grew adjusted EBITDA versus the prior year, reflecting disciplined cost control. While our volume declined slightly year over year, we outperformed the industry, and we mitigated the decline with new customer wins as the quarter progressed, and this trend improved in January. The team is executing well and earning new business from high-caliber customers. This momentum, together with the growth of our sales pipeline, should continue to strengthen our position in key European regions. I'll close with a summary of the three main achievements you heard from us this morning as they relate to our expectations for a strong 2024. First,

Ali: Yeah.

Ali: Turning to margin our fourth quarter adjusted operating ratio was 86, 5%.

Ali: Which was an improvement of 380 basis points year over year.

Ali: Our strong margin performance was primarily driven by yield growth and underpinned by our cost initiatives and productivity gains.

Ali: Sequentially, our adjusted <unk> increased by 30 basis points, which outperformed seasonality by 280 basis points.

Ali: Moving to our European business.

Ali: We delivered revenue growth of 2% year over year, despite ongoing challenges in the macro environment.

Ali: We're continuing to deliver more value for customers in the form of service quality, with our metrics at record levels, and we're on an excellent trajectory. Second, we accelerated yield growth to double digits as we exited 2023, and we expect to deliver another robust yield performance this year with a direct benefit to profitability. And third, we're showing that we can operate more productively by leveraging our technology and improving our cost to serve. In short, we've made major strides with our network operations, and we're still in the early innings of significantly improving our operating ratio. Now, we'll take your questions. Operator, please open the line for Q&A. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You must press star 2 to remove your question from the queue.

Ali: This growth was supported by strong pricing, which outpaced inflation.

Ali: And in some regions like the U K, we grew adjusted EBITDA versus the prior year, reflecting disciplined cost control.

Ali: While our volume declined slightly year over year, we outperformed the industry and we mitigated the decline with new customer wins as the quarter progressed.

Ali: And this trend improved in January.

Ali: The team is executing well and earning new business from high caliber customers.

Ali: This momentum together with the growth of our sales pipeline should continue to strengthen our position in key European regions.

Ali: I'll close with the summary of the three main achievements you heard from US This morning.

Ali: They relate to our expectations for a strong 2024.

Ali: First.

Ali: We're continuing to deliver more value for our customers in the form of service quality with our metrics at record levels and.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. 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. We will take as many as we can. One moment while we poll for questions. Our first question is from Scott Group with Wolf Research. Please proceed. Hey, thanks. Good morning.

Ali: And we are on an excellent trajectory.

Ali: Second we accelerated yield growth to double digits as we exited 2023.

Ali: And we expect to deliver another robust yield performance this year with a direct benefit to profitability.

Ali: And third we're showing that we can operate more productively by leveraging our technology and improving our cost to serve.

Ali: In short we've taken major strides with our network operations and we're still in the early innings of significantly improving our operating ratio.

Scott H. Group: Any thoughts on how to think about the OR from Q4 to Q1 and maybe full year margin improvement? And then, I don't know, bigger picture. Mario, you made a comment that all this terminal growth is additive to yield and margin. I understand why it should be good for volume, but maybe some thoughts on how it actually helps yield and margin as well. Sure thing, Scott.

Speaker Change: Now we'll take your questions operator, please open the line for Q&A.

Speaker Change: Thank you yeah, if he 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 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.

Mario Herrick: First, starting with the first quarter outlook, we typically give tonnage yield and what OR would look like. Starting with tonnage, following the gains we had in the fourth quarter, we do expect to outperform seasonality in Q1. Typically, a normal seasonality for us is called flattish tonnage sequentially from Q4 to Q1, and we expect to do better than that. So we expect Q1 tonnage to be up a low single digit, somewhat in the same zip code as where we were in the fourth quarter on a year-on-year basis. Now, when you look at January tonnage specifically, it did better, as Ari mentioned earlier, compared to seasonality when you roll forward December into January. And we had a strong end to the month as well, despite the weather earlier in the month.

Speaker Change: I mean 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 will take as many as we can one moment, while we poll for questions.

Speaker Change: Our first question is from Scott Group with Wolfe Research. Please proceed.

Scott H. Group: Hey, Thanks, good morning.

Scott H. Group: Any thoughts on how to think about the the ore from Q4 to Q1, and maybe full year margin improvement and then I don't know bigger picture Mario you made a comment that all this terminal growth is additive to yields and margin I guess why it should be good for volume, but maybe some thoughts on how it actually helps.

Mario Herrick: On the yield front, we expect a strong performance for yield across the board this year. We do expect yield to be up on a year-on-year basis in the first quarter, somewhere in the same zip code as we were in the fourth quarter year-on-year. And ultimately, from an OR standpoint, usually typical seasonality for us, Q4 to Q1, we see OR deteriorate by about 40 basis points, and we expect to do better than that. Now, how much better will depend on how the rest of the quarter plays out.

Scott H. Group: Yield and margin as well.

Mario Herrick: Sure thing Scott first starting with the first quarter outlook, we typically give tonnage yield and what we'd look like starting with tonnage. Following the gains we had in the fourth quarter. We do expect to outperform seasonality in Q1 are typically notable seasonality for us is call it flattish tonnage sequentially from.

Speaker Change: Q4 to Q1, and we expect to do better than that so we expect Q1 tonnage to be up low single digits somewhere in the same ZIP code, that's where we were in the fourth quarter on a year on year basis now when you look at January tonnage specifically it didn't do better as Eddie mentioned earlier compared to seasonality. When you rolled forward the center into into January and we had a strong end of the month.

Mario Herrick: Usually, Q1, as you know, March is the big month of the quarter, but that implies roughly 300 basis points of OR improvement year-on-year. For the full year 2024, we also expect a strong year for us in terms of OR improvement, given all the things we're doing in yield and tonnage and cost and efficiency improvement and service improvement. We expect OR to be up in the 150 to 250 basis points range for the full year, and there's a path for us to do better than the top end of the range, depending on how the year plays out. Now, taking a step back on your question on the service centers and how they impact yield. So, we see a big cost benefit first, and that cost benefit comes from higher efficiency and having bigger break boxes that lead to cost savings and line haul, having service centers closer to the customer that leads to lower T&D costs, and also lowering dock re-handling costs associated with that.

Speaker Change: As well despite the weather earlier in the month on the yield front, we expect a strong performance for the yield across our across the board this year we.

Speaker Change: We do expect yields to be up on a year on year basis in the first quarter somewhere in the same ZIP code as we went into the fourth quarter a year on year.

Speaker Change: And ultimately from an or standpoint, usually typical seasonality for US Q4 to Q1, we see or hear you read about 40 basis points and we expect to do better than that now how much better it will depend on how good the quarter plays out. It's usually Q1 as you know March is a big month of the quarter, but that implies roughly 300 basis points of order.

Mario Herrick: Now, the way they help yield is because larger service centers help improve your service product, and a service product can provide yield. But also, we mentioned premium services, and when you think about premium services in some markets like Las Vegas, we're tapping into capacity, and by having now the largest service center in the Vegas market, we're going to be able to launch new offerings like trade shows, as an example, and these come also at a higher yield and higher margin as well. Thank you, guys.

Speaker Change: Year on year for the full year of 2024, we also expect a strong year for us in terms of or improvement given all the things we're doing in yield and tonnage and cost efficiency improvement of service improvement, we expect to be up into $1 52 to 50 basis points range for the full year and that's the path for us to do better than the top.

Speaker Change: End of the range dependent on how the year, how the year plays out but.

Speaker Change: So I'm, taking a step back on your question on the service centers and how they impact healed. So we see a big cost benefit first and that cost benefit comes from higher efficiency and having bigger break bulks that leap two cost savings that lighthall, having service centers closer to the customer it at least sort of what he calls and also lowering thoughtfully.

Kenneth Scott Hoexter: Our next question is from Ken Hoexter with Bank of America. Please proceed. Hey, great. Good morning.

Kenneth Scott Hoexter: Congratulations on some solid performance here on the OR. Maybe just digging into that, though, you know, talk about the ramp up of the 28 facilities. How should we anticipate the drag versus your forecast? And I guess, with that, you know, it seems like you're bumping up against your kind of long-term targets now of the 600 basis point improvement. You know, how does that shift or the speed with which you can get there start changing in your thought process?

Speaker Change: Handling costs associated with that that was the way they help heal because larger service centers has improved your service product and service product can fight healed, but also we mentioned premium services and when you think about premium services in some markets like Las Vegas, where staff on capacity and by having the largest sort of et cetera in the Vegas market, we're gonna be.

Speaker Change: Able to launch new offerings like trade shows as an example, and he's come also had a higher yield and highest margin as well.

Mario Herrick: Thanks, Ken. Well, starting with the ramp-up of the service centers, well, in terms of getting them up and running, we do expect to get them up and running in the first, call it, dozen or so service centers over the next three to six months, the next dozen over the next six to 12 months, and then the remaining four or five will go live next year, you know, call it 12 to 18 months. Now, we don't anticipate an OR drag from them that would be material to our numbers, and the reason why is because the majority of these service centers are in markets where we already operate. So, if you think about it, this is one case where we move our team, our existing team, from a smaller service center to a larger service center. The carrying cost of real estate is fairly low on a per-door basis, but we get the immediate benefit of cost efficiencies and cost savings associated with having a larger facility to operate from.

Speaker Change: Yeah.

Speaker Change: Thank you guys.

Speaker Change: Thank you.

Speaker Change: Our next question is from Ken Alex turret with Bank of America. Please proceed.

Speaker Change: Hey, great. Good morning, Congrats on some solid performance here on the or maybe just digging into that though you know talk about the ramp of the 28 facilities, how do how should we anticipate that the drag versus your forecast and I guess with that you know it seems like you're bumping up against your your kind of long term.

Speaker Change: Targets now of the 600 basis point improvement you know, how does that shift or the speed with which you can get there start changing in your thought process.

Speaker Change: Thanks, Ken well, starting with the ramp of the service centers.

Speaker Change: Terms of getting them up and running we do expect to get them up and running in the first call the dozen or so service centers over the next three to six month. The next dozen over the next six to 12 months and then the remaining four or five will go live next here you know call. It 12 to 18 months that we don't anticipate a oh are a drag from them that would be.

Mario Herrick: In markets where we are adding a service center and keeping the existing one, in that particular case, we split the team between the two service centers based on volume, and we only step up if there is an inflection in volume and we have incremental volumes. So, we don't anticipate these service centers will have a drag on OR this year. We do expect them to be accretive to EBITDA. We do expect a drag on EPS driven by the incremental debt there, and we expect them to be accretive on all these KPIs in 2025 and beyond. In terms of the long-term targets, we've always set 600 basis points. I mean, at least 600 basis points, and there's nothing magical about 600 basis points. There's nothing magical about 2027.

Speaker Change: And material to our numbers and the reason why because the majority of these service centers are in markets, where we already operate. So if you think about it that is one case, where do we move our team I would existing team from a smaller service center to a larger service center the getting past a feat of state is fairly low on a per door basis, but you get the immediate benefits of cost efficiencies and cost.

Speaker Change: Savings associated with having a larger facility to operate from in markets, where we are adding a service center and keeping the existing one in that particular case, we split the team between the two service centers based on volume and we only step up if there is an inflection involved even if you have incremental volumes. So we don't anticipate these service centers still have a drag on the <unk>.

Mario Herrick: With all the momentum that we have here and with the new service centers, the pricing, and the service improvements, we do expect to outperform, and our goal is to get to the 70s and well into the 70s over time from an OR perspective. Thanks, Mary. Our next question is from John Chappell with Evercore ISI. Please proceed. Thank you. Good morning.

Speaker Change: This year, we do expect them to be accretive for <unk>. So we do expect them. We do expect a drag on EPS driven by the incremental debt there and we expect them to be accretive on all of these kpis in 2025 and beyond in terms of the long term targets. We've always said 600 basis points I mean at least 600 basis points and the.

Jonathan B. Chappell: I'm not sure if Mario or Ali wants to take this, but this is the second straight quarter now with contract renewal pricing up 9%. Where do you stand on the book of business as it relates to the kind of marking to market for the new service? Do you still have a couple more quarters?

Speaker Change: This is nothing magical about 600 basis point, there's nothing magical about 'twenty 'twenty seven with all the momentum that we have here and with old with new service centers. The pricing. The service improvements, we do expect to to outperform and I would've oldest to get to the seventies and well into the seventy's over time from an order perspective.

Kyle: Where do you think that kind of high single-digit contract renewal is on the agenda? Or are you kind of close to kind of marking it to market, and you think maybe that moderates a little bit to maybe mid single-digits, kind of in line more with the GRI levels? Hey, John, it's Kyle.

Speaker Change: Thanks Mary.

Speaker Change: Okay.

Speaker Change: Our next question is from Jon Chapell with Evercore ISI. Please proceed.

Jonathan B. Chappell: Thank you good morning, I'm not sure if Mario or however, you want to take this but this is the second.

Jonathan B. Chappell: <unk> Street corridor now with contract renewal pricing up 9%, where do you stand on the book of business as it relates to kind of marking to market for the new service do you still have a couple more quarters.

Kyle: So if you think about contract renewals right now, we did accelerate heavily in the back half from five to 9%. And so far this year, or in the back half, we renegotiated 50% of the book. So there's still some more to work through. I still think we're in a favorable market for renewals, and we should expect a pot of momentum to carry forward here in 2024. Just to be clear, though, it's kind of like if you're done with 50%, is this the first half higher under that range, reacceleration similar to the back half of 23, and then kind of more of a normalized level in the back half?

Jonathan B. Chappell: Where do you think that kind of high single digit contract renewal is is on the AR on the agenda or are you kind of close to kind of marking it to market and you think maybe that moderates a little bit to maybe mid single digits kind of in line more with the right levels.

Jonathan B. Chappell: Hey, John its Kyle So do you think about contract renewals right now we did accelerate heavily in the back half from <unk>.

Kyle: To 9% and so far in the year or in the back half, we renegotiate 50% of the book So there's still some more to work through I still think we're in a favorable market for renewables and we should expect Pablo mentioned the carry forward here in 2024.

Kyle: Or do you think that what you've done over the last six months as you continue to improve service kind of leads you more towards what you've done in the last six months or so as a percentage? I think renewals are probably going to follow where we see yield for the first half. So we're expecting strong yield to continue. If you think about our Q1 yield guide, we think Q1 yield is going to be up high single digits in line with what we saw in Q4.

Speaker Change: And just to be clear, though is it's kind of like if you're done with 50% is this the first half.

Speaker Change: Higher end of that range Reacceleration similar to the back half of 'twenty, three and then kind of more of a normalized level in the back half or do you think that what you've done over the last six six months as you continue to improve service kind of leaves you more towards what you've done in the in the in the last six months or so as a percentage basis.

Chris Wetherbee: That should carry forward into our contract renewal to start the year. Our next question is from Chris Wetherbee with Citigroup. Please proceed. Yeah, hey, thanks. Good morning, guys.

Speaker Change: I think renewals are probably going to follow where we see yields for the first half. So we're expecting strong yields continue I think our Q1 yield guide, we think Q1 yield is going to be up high.

Mario Herrick: I guess I want to talk a little bit about some of the initiatives that maybe you guys are thinking about for 2024. So we've talked about sort of the team drivers; you've talked about sort of the outsourcing of line haul. I'm curious, kind of as you start to think about adding those up in the context of the 150 to 250 basis points of OR improvement, how much you get from that versus maybe what would be kind of core pricing above cost inflation and maybe a little bit of leverage on the volume. I don't know if you can unpack that, but any details you can give us, I'll start on the initiatives.

Speaker Change: High single digit in line with what we saw in Q4 that should carry forward into our contract renewals to start the year.

Speaker Change: Our next question is from Chris Wetherbee with Citigroup. Please proceed.

Yeah. He thinks it would be my guidance I guess I wanted to talk a little bit about some of the initiatives that maybe you guys are thinking about for 2024. So we've talked about sort of the team drivers you've talked about sort of the in sourcing of line haul I'm curious kind of as you start to think about adding those up in the context of the 150 to 250 basis points of or improvement how much you'd get from that versus maybe.

Speaker Change: What would be kind of core pricing above cost inflation that you'd be a little bit of leverage on the volume I don't know if you can unpack that but any details you can give us would be great.

Speaker Change: I'll talk on the all the initiatives and Chris would be the way we look at it I mean I would plan involves substantial yield improvement. It does involve continuing our great service momentum of service product to implement them.

Mario Herrick: And Chris, the way we look at it, I mean, our plan involves substantial yield improvement. It does involve continuing our great service momentum or service product improvement momentum. Tonnage improvement, we do see tonnage going up for the full year, but we do expect it to be up, you know, call it in the same zip code of where we were in the fourth quarter, so a low single digit because our goal is to drive more yield than it is to drive volume. Similarly, our goal is to drive cost efficiencies, as you mentioned. So I'll give a quick update on the initiatives. We, as part of our plan, are to insource more third-party line haul miles because that comes both at a cost benefit and also comes as a service benefit. When we go from using a third-party carrier with a 53-foot trailer versus having 228-feet pups, which gives us more space, gives us safe stacking in the trailers where we can separate the freight physically, and our drivers show up on time 100% of the time, we can continue to improve that service product.

Speaker Change: Tonnage improvements, we do see tonnage going up for the full year, but we do expect it to be up call. It in the same ZIP code of where we went into fourth quarter or so so low single digit because I would call it to drive more yield than it is to drive volume.

Speaker Change: Similarly, our goal is to drive cost efficiencies as you mentioned, so I'll give a quick update on the initiatives. We as part of our plan is to in source more of a third party line haul lives because that comes both at a cost benefit but it also comes as a service benefit and when we go from using a third party carrier with if its three feet a trailer versus having to 'twenty.

Speaker Change: Eight feet pumps, which gives us more space gives us safe stack into into the theaters would we can separate the straight physically and our drivers show up on time 100 per cent of the time, we can continue to improve that service product that will come with cost savings he had in 2020 poor, but the longer term cost savings also come when you think of an inflection in truckload rates.

Mario Herrick: Now, that will come with cost savings here in 2024, but the longer-term cost savings also come when you think of an inflection in truckload rates at some point. That's going to be, obviously, material savings for us from what we would be spending internally on a per-mile basis versus what we're spending on third-party carriers. So our expectation is to continue to – we insource to 90 basis points here in the fourth quarter year-on-year. We are sub-20% at this point.

Speaker Change: At some point, that's going to be obviously material savings what else from that must be would be spending internally on a per mile basis versus what we're spending for third party carriers. So I would expectation is to continue to work in stores to 90 basis points here in the fourth quarter year on year. Your sub 20% at this point, we're at 19 and change now we're going to drive that and of course.

Mario Herrick: We're at 19% and change. Now, we're going to drive that in the first phase down to the low teens, and beyond that, as we pump those teens as well. Okay, that's helpful. I appreciate it.

Speaker Change: Phase down to the low to the low teens and beyond that as we ramp up those are those teams as well.

Speaker Change: Yeah.

Speaker Change: Okay. That's helpful. Appreciate it thank you.

Speaker Change: Thanks, Brett.

Fadi Shimon: Thank you. Thank you. Our next question is from Fadi Shimon with BMO Capital Markets. Please proceed. Yeah, good morning, team.

Fatty Shimon: Our next question is from fatty Shimon with BMO capital markets. Please proceed.

Fatty Shimon: Yeah, good morning team.

Fadi Shimon: So my question is, you mentioned the double-digit growth that you're seeing in the local account. I think this has obviously been a pretty decent tailwind for density and... Cost per Shipment and ultimately Yield. Where are you on this kind of trajectory of improving local account penetration? Are we in the first innings of that?

Fatty Shimon: So my question is you mentioned the double digit growth that youre seeing in the local account I guess.

Fatty Shimon: I'm I'm thinking this is obviously been a pretty.

Shimon: Pretty decent tailwind for density and.

Shimon: Cost per shipment then ultimately the yield what where are you in this kind of trajectory of improving local account penetration or are we in the first innings of that is there an opportunity that is of significant size still in front of you.

Mario Herrick: Is there an opportunity that is of significant size still in front of you? When we look at the local account strategy, it is a segment that we are planning on growing over the years to come. Now, if you look back at 2023, we were running a rating at roughly 20% of our volume, and revenue is generated from that channel. Now, what we have done through the course of the year is that we increased the size of our local account.

Speaker Change: We when we look at that I don't look at that kind of a strategy.

Speaker Change: It is a segment that would be outstanding on growing over over the years to come here now if you look back at 2023, we were run rating, that's roughly 20% of I would've volume and revenue is generated from that channel now what we have done through the course of the year is if we increase the size of our local accounts.

Mario Herrick: We hired more than 20% more local sellers through the course of 2023, and the goal here through 2024 is to add roughly another 10%, so all in all, to be 30% higher on the overall salesforce size that is selling to that channel. Now, as you can imagine, whenever we onboard new people, it does take a ramp, usually about six months for them to be fully productive and fully up and running.

Speaker Change: We've hired more than 20% more local sellers through the course of 'twenty 23, and the goal here through 'twenty 'twenty four or so adds roughly another 10%. So all in to be 30% higher on the overall sales force size, if it's selling through that channel, whereas you can imagine whenever we onboard new people it does take a ramp.

Speaker Change: About six months for them to be fully productive and fully up and running now if you look at the full year, we did improve our local accounts higher on a higher run rate than the rest of our book here in the fourth quarter because of our local shipments and that channel by 12% on a year on year basis, and we do expect to continue to see those those.

Mario Herrick: Now, if you look at the full year, we did improve our local accounts on a higher run rate than the rest of our book. We grew our local shipments in that channel by 12% on a year-on-year basis, and we do expect to continue to see those really strong gains in that channel since we onboarded 20% more sellers. Now, in terms of the innings, I would say we're still in the early innings in terms of results, but we are very well underway in terms of having the team and having them see a couple of quarters of ramp here and being pretty productive in 2024 and beyond. Appreciate that, thank you, and congratulations on the strong result. Thank you, Fanny.

Speaker Change: Really strong great games and that channel since we on boarded 20 per cent motive or centers now in terms of the innings I would say we're still in the early innings in terms of results, but we are very well underway in terms of having the team and having them see in a couple of quarters I'll Frans here being pretty productive in 'twenty 'twenty four and beyond.

Speaker Change: Yeah.

I appreciate that thank you and congrats on the strong results.

Speaker Change: Thank you Betty.

Stephanie More: Our next question is from Stephanie more with Jefferies. Please proceed.

Stephanie Moore: Our next question is from Stephanie Moore with Jeffries. Please proceed. Hi, good morning.

Stephanie Moore: Hi, good morning, Thank you.

Stephanie: I wanted to maybe touch a bit on the I guess continue on the pricing discussion here I think I, probably think salary that's over 10% here in the quarter I think you've guided to it you know more and more high single digits can you maybe walk through the drivers of the upside what you're seeing and kind of your thoughts as we think about 'twenty 'twenty four for further.

Stephanie Moore: Thank you. I wanted to maybe touch on the, I guess, continue the pricing discussion here. I think pricing accelerated, you know, over 10% here in the quarter. I think you guided to, you know, more high-field digits. Can you maybe walk through the drivers of the upside, what you're seeing, and kind of your thoughts as we think about 2024 for further pricing acceleration, especially your view of, you know, what could happen if the macro does actually turn things? Sure, Stephanie. This is Ali.

Stephanie: Pricing acceleration, especially your view you know what can happen if the background, that's actually turn things.

Speaker Change: Sure. Stephanie. This is this is all <unk>. So we're seeing very strong pricing trends as we enter 2024 for the first quarter in particular, we would expect our yield on an ex fuel basis to be up somewhere in the similar range as we just delivered here in the fourth quarter. So call it roughly about 10% growth now on a full year basis.

Ali: So, we're seeing very strong pricing trends as we enter 2024. For the first quarter in particular, we would expect our yield on an XFUEL basis to be up somewhere in a similar range as we just delivered here in the fourth quarter. So, call it roughly about 10% growth. Now, on a full-year basis, we would expect yield to be up somewhere in that mid to high single-digit range. I would add that there's certainly a path to do better than that. It's still very early in the year, so we'll update you as the year progresses.

Speaker Change: We would expect yields to be up somewhere in that mid to high single digit range I would add that there's certainly a path to do better than that it's still very early in the year or so we'll update you as the year progresses, a lot of that yield growth in the outperformance versus the industry is being driven by our internal initiatives. If you think about our service improvement were at record levels here in the fourth.

Ali: A lot of that yield growth and that outperformance versus the industry is being driven by our internal initiatives. If you think about our service improvement, we're at record levels here in the fourth quarter. We're continuing to lean more into premium services. We rolled out retail store rollouts in the fourth quarter.

Speaker Change: We're continuing to lean more into premium services, we rolled out retail store rollout here in the fourth quarter, we have a lot of traction there and as Mario just noted a lot of momentum on the local side as well too and this is higher yielding a margin accretive business. So overall, we feel very good about the yield outlook here in 2020 for it and expect it to be a strong year for us overall.

Ali: We have a lot of traction there, and as Mario just noted, a lot of momentum on the local side as well, and this is higher yielding and margin-accretive business. So, overall, we feel very good about the yield outlook here in 2024 and expect it to be a strong year for us overall. Great, thank you.

Speaker Change: Great. Thank you and maybe just as a follow up to that but a little bit bigger picture as you think about incentive comp across the organization and you know maybe talk a little bit about what metrics that have been possibly realign just to align interest across the organization yield margin EBIT.

Mario Herrick: Maybe just as a follow-up to that, but this is a little bit bigger picture. And as you think about incentive comp across the organization, you know, maybe talk a little bit about what metrics that have possibly been realigned just to align interest across the organization, yield, margins, EBIT, what are the major metrics we should be focused on based on incentive comp changes in 2024? Thanks. This is Mario.

Speaker Change: The major metrics, we should be focused on basically on incentive comp changes 'twenty 'twenty four.

Speaker Change: This is Mario I'll take that so in 'twenty, and 2020 'twenty three for <unk> and 2022 we used to compensate predominantly our field base.

Mario Herrick: I'll take that. So in 2023, first and 2022, we used to compensate our field predominantly based on EBITDA growth and EBITDA performance, but we have added a good portion of the comp plan to focus on service quality. So as service centers and group service quality and on-time service, they effectively have a good chunk of their incentive comp based on that. Now, 2024 will be the first year where we are switching from compensating our field from EBITDA and EBITDA growth to have it be focused on OR improvement. So it's now focused on how we can expand our margins over time because, as you know, we want to incentivize effectively driving that better service product that yields a higher yield while managing cost effectively, which would be OR expansion at the service center level and ultimately at the network level as well. Our next question is from Tom Widewood. UBS, please.

Mario Herrick: On EBITDA growth and EBITDA performance, but we have added a good portion of the comp plans to before to focus on service quality. So as service centers and groups sort of a squad to tee in on time service. They effectively they they had a good chunk of their incentive comp is based on its based on that now in 2020 forward will be the first year, where we are switching.

From compensating I would feel from E town, and EBITA growth and have it be focus on all the improvement. So it sound focus on how can we expand our margins over time, because as you know we want to incentivize effectively driving that better service product that he also higher yield while managing cost effectively which would be toward our expansion at the <unk>.

Mario Herrick: If a center level and ultimately at the network level as well.

Our next question is from Tom White with with UBS. Please proceed.

Tom Widewood: Yeah, I just said, I guess one kind of quick one on the DNA and maybe how we think about the ramp up in that given, you know, you are spending a good level of CapEx on that. But I guess a broader question would be how you think about the terminal network. And I guess, you know, what's your access capacity from a door and a terminal perspective, and as you bring on more terminal capacity, kind of where do you want to get to right now? Like, you know, I think we've seen that, you know, a high service model, you do have some decent amount of access capacity, but kind of wanted to see where you're at today, where you'd like to get to on access capacity And then this specific one just on a kind of DNA modeling.

Mario Herrick: Yeah.

Tom White: Yeah, I just had a I guess, one kind of quick one on the DNA and maybe how we think about the ramp up in that given you know you are spending at a good level of capex. So on that but I guess the broader question would be on how you think about the terminal network.

Tom White: And I guess you know what's as you bring on terminals you know like where you sit today, what's your excess capacity from a you know a door in a terminal perspective, and as you bring on more terminal capacity kind of where do you want to get too right.

Tom White: I think we've seen that you know a high service model you do have some diesel out of excess capacity, but kind of wanted to see where you're at today, where you'd like to get to an excess capacity and then this specific one just on kind of DNA modeling. Thank you.

Mario Herrick: Thank you, Tom. I'll start with the network and the capacity side and turn it over to Kyle for DNA. When you look at our network today, before the 28 service center acquisition, we were running a rating, you know, call it in the mid to high teens in terms of excess capacity in the current environment. And if we roll forward, we are adding 28 service centers. Out of these, roughly half of them would be additive, and the other half would be ones where we are relocating from a smaller service center to a larger service center. And we have roughly acquired about 3,000 doors, and we would be adding a net after we're all said and done with the integration, a net 2,000 doors, which is called a 10-15% expansion in capacity.

Speaker Change: Okay. Thanks, Tom I'll start with the network and the capacity side I'm turning it over to Kyle for Ford E. N E. And then when you look at that wouldn't network today before the 28 sort of a set of acquisition. We were run rating you know call. It in the mid to high teens in terms of excess capacity in Dakota, and vitamin and if we if we rolled forward without adding too.

Kyle: 88 service centers out of these roughly half of them would be additive and the other half would be ones that would be also relocating from a smaller service center to a launch of our service Center and we wrote off the acquired about 3000 doors and we would be adding in that after we'd all set and done with the integration and it's 2000 doors, which is call. It 10, 15%.

Kyle: And capacity so once we get these service centers online, we would be in that 25% to 30% excess capacity in our network and that's a great place to be as an LTE network, especially in a softer freight market. So this way whenever there's a freight market recovery and you see higher demand historically, our industry has been capacity constrained real estate comes with it.

Kyle: So once we get these service centers online, we will be in the 25-30% excess capacity in our network. And that's a great place to be as an LTL network, especially in a soft freight market. So this way, whenever there's a freight market recovery and you see higher demand, historically, our industry has been capacity constrained. Real estate comes with a very low carrying cost, and this would enable us to flex up whenever that demand comes back.

Kyle: Though our carrying cost and this will enable us to flex up whatever that that demand comes back. So this is how we look at how do you see where we are and as they open up those service centers would be at any capacity perspective.

Mario Herrick: So this is how we look at where we are currently and, as we open up those service centers, where we'll be at in a capacity perspective. Yeah, Tom, and if you think about the DNA ramp, we are going to see increased CapEx within the LTL segment. So we'd expect about $74 to $75 million a quarter for LTL, reflecting the increased CapEx spend. Okay, great.

Speaker Change: Yeah, Tom and if you think about the DNA ramps. So we are going to see increased capex within the <unk> segment. So we'd expect about $74 million to $75 million a quarter for LCL, reflecting the increased capex spend.

Speaker Change: Okay, great. Thank you.

Bruce Chan: Thank you. Our next question is from Bruce Chan with Stiefel. Please proceed. Yeah, thanks, operator. And good morning, everyone.

Speaker Change: Okay.

Speaker Change: Our next question is from Bruce Chan with Stifel. Please proceed.

Speaker Change: Yeah.

Bruce Chan: Yeah, Thanks, operator, and good morning, everyone.

Kyle: Maybe just to start, Kyle, can you remind us of what your target leverage range is? And then, you know, I know, in previous quarters, you'd pull back on some of the commentary around the sale of the European business. But you know, with the need for more debt paydown, potentially, with these new facilities, is there, you know, any more urgency to sell that business now? Hey, Bruce, it's Kyle.

Bruce Chan: Maybe just to start Kyle can you remind us of what your target leverage ranges and then.

Bruce Chan: I know in previous quarters, you'd pull back on some of the commentary around the sale of the European business, but you know with the need for more debt pay down potentially with these new facilities is there any more urgency to sell that business now.

Bruce Chan: Hey, Bruce as Kyle I'm going to start and then I'll hand, it over to Mario So when you think about our long term leverage outlook. Our intention is one to two to one to two times trailing 12 months EBITDA and we think we're in a great spot with the investments we've made and even though we can generate is really make a lot of progress on that here in the next couple of years.

Kyle: I'm going to start and then I'll hand it over to Mario. So when you think about our long-term leverage outlook, our intention is one to two times trailing 12 months EBITDA. And we think we're in a great spot with the investments we made and the EBITDA we can generate to really make a lot of progress on that in the next couple years. And on the European scale, Bruce, our long-term plan remains to be a pure-play North American LTL carrier, and selling the European business is one of our strategic priorities, but we're going to be patient. Our goal is to maximize the return we get on that business. It is a business that has scarcity value to it, with either number one, two, or three, and less than truckload, truckload, as supplied brokerage, and many geographies in Western Europe, think UK, France, Spain, Portugal, and it's not a matter of if but a matter of when.

Mario Herrick: And all the other European sale, Bruce I would love to have them planned remains to be a pure play North American LTM carrier and sending that European business is one of our strategic priorities.

Mario Herrick: We're going to be patient I would go to maximize that Heathrow and if he gets on that business. If there's a business that has it.

Mario Herrick: The value to us with either one two or three in less than truckload truckload.

Mario Herrick: Brokerage in many geographies in western Europe, Thank U K, France, Spain, Portugal, and a it's not a matter of if but a matter of when and if you know what if you take a step back the visits performing well despite a soft economy in Europe with outperforming the peers. Our revenue was up in the quarter. We've been pulled volume every month of the quarter and further improve in the month.

Kyle: On the other hand, if you take a step back, the business is performing well, despite a soft economy in Europe and not performing as well as peers, our revenue was up in the quarter, we've improved volume every month of the quarter, and further improved in the month of January, and it's a credit to the team's strong execution. So again, if we take a step back, it's a matter of time, Okay, I appreciate it. Our next question is from Jason Seidl with TD Cowen. Please proceed.

Mario Herrick: Of January and so credit to the teams strong execution. So again, if you take a step back and say, it's a matter of time in the south.

Mario Herrick: 0.2 together.

Speaker Change: Okay I appreciate it.

Speaker Change: Our next question is from Jason Seidl with TD Cowen. Please proceed.

Jason H. Seidl: Thank you, operator. Mary, I think you talked about accessorials and that there were about 12 different things that XPO was doing to sort of drive them higher. Can you help us understand the timing and sort of the ability, your ability, to implement these accessorials and the impact we should expect? So when you take a step back on these accessorials, they are predominantly what we call premium services. So these are services that our customers are asking for that go beyond your typical pick up a few skids of freight and get them delivered to a destination. So examples are Kyle mentioned earlier the retail store rollouts offering, where in that particular case, you can imagine if you have some sort of holiday or a new product launch, a customer needs us to ship many, many shipments. Typically, it could be hundreds of shipments in a short time window, and they need somebody to coordinate all of those offerings. And that leads, obviously, to a higher price, and the customer is happier because they're getting a service that they need. We do have a number of other offerings. Trade shows are a good example of that.

Jason H. Seidl: Thank you operator, Marriott I think he talked about accessorial isn't that theres about 12 different things that X P. O was doing to sort of drive them higher can you help us understand the timing and sort of the ability your ability to implement these accessorial and the impact we should expect.

Jason Seidl: Yeah.

Jason Seidl: So when you when you take a step back on these accessorial. They are predominantly what we called premium services. So these are services that our customers are asking for that go beyond your typical pick up a few schizophrenia and get them delivered to the destination. So examples are Todd mentioned earlier.

Jason Seidl: Do you have sort of rollouts offering what in that particular case, you can imagine if you have some sort of a holiday or the new product launch it got somebody needs us to ship. Many many shipments typically could be hundreds of shipments in a short time window and they need somebody to coordinate all of those offerings and that is obviously the highest price and the customers happier because they are getting a service that they need.

Jason Seidl: We do have a number of other offerings. Our trade shows is a good example of that and working with retailers. They must have arrived by day type offering and many others launching through the course of the year here, we do expect to get them launch a they won't all be launched within within a few quarters. Some of them will take a bit longer like an expedited service as an example, and as we launch do you use we expect them to be.

Mario Herrick: And working with retailers, they must arrive by date type offering and many others that we are launching through the course of the year here. We do expect to get them launched. But they won't all be launched within a few quarters. Some of them will take a bit longer, like an expedited service, as an example.

Mario Herrick: As we launch these, we expect them to be accretive, to yield over time. In terms of magnitude, roughly today, our assessorial as a percent of revenue is roughly, you know, call it in the low double digits. And our goal is to grow that to the mid-teens as we launch these programs over the years to come. Wow, that's great, Keller.

Jason Seidl: The two yield overtime in terms of magnitude roughly today, our accessorial as a percent of revenue is roughly I don't get caught up in the low double digits and I would go to grow with that to the mid teens as we launch these programs over over the years to come.

Speaker Change: That's great color I wanted to also follow up on the overall pricing discussion you know alcohol pricing this quarter. Its been very strong your renewals are at 9% Psi is almost at nine you know Ark best is the best they've reported since our quarter in 'twenty two and this is all in a very sluggish demand backdrop and Super cheap T O pricing you know hows it going.

Mario Herrick: I wanted to also follow up on the overall pricing discussion. You know, LTL pricing this quarter has been very strong. You know, your renewals are at 9%. SIA is almost at 9%. You know, ARCBEST is the best they've reported since quarter 22.

Mario Herrick: And this is all against a very sluggish demand backdrop and super cheap TL pricing. You know, as the economy recovers and capacity tightens overall, is it crazy to think about double-digit pricing going forward for you guys? I mean, we had double-digit pricing up here in the fourth quarter, and we do expect a very strong first half of the year as well. I mean, there is an environment if you look at our industry; it's historically capacity constrained. When you go back to before the Yellow Sea's operations, we didn't have enough capacity versus the demand that was out there.

Speaker Change: The economy recovers and capacity tightens overall is it crazy to think about double digit pricing going forward for you guys.

Speaker Change: We we had double digit pricing are up here in the fourth quarter that'd be do expect a very strong first half of the year as well I mean, there isn't inside of it if you look at our industry. It's been historically capacity constrained when you go back before the yellow ceased operations, we didn't have enough capacity versus the demand that was out there and we all.

Mario Herrick: We are currently in a sluggish freight environment where demand is down, you know, roughly call it double-digit low teens, and this is when that capacity went away from the market. So whenever there's any sort of, even with some of that capacity coming back into LTL, whenever there's any form of inflection in demand, there wouldn't be enough doors and service centers in our industry. So you would see pricing accelerate accordingly. Now, for us specifically, we also have all the company-specific initiatives we're driving between driving better service, which comes at a premium, driving premium services, and driving also the expansion of our local channel, and all of these would be accretive to yield as well. So double-digit pricing is out of the question. Fantastic.

Speaker Change: Couldn't be in a sluggish freight and vitamins, where demand is down roughly call. It double digit low teens and this was when that capacity went away from the market. So whenever there is any sort of even with some of that capacity coming back into NTL whenever there's any falloff inflection in demand.

Speaker Change: It'll be enough doors and service centers in our industry. So you would see pricing accelerate accordingly.

Specifically, we also have all the company specific initiatives, we're driving between driving better service, which comes at a premium between driving premium services between driving also expansion of our local channels. All of these would be equity just to yield as well too.

Speaker Change: Just pricing yourself out of the question.

Speaker Change: Fantastic I appreciate the time.

Mario Herrick: Appreciate your time. Thank you. Our next question is from Bascome Majors with Susquehanna; please proceed. Thanks for taking my questions.

Speaker Change: Thank you.

Basketball Majors: Our next question is from basketball majors with Susquehanna. Please proceed.

Basketball Majors: Thanks for taking my questions. So I wanted to go back to the incentives focus from earlier can you talk more specifically about how your tactically incentivising. Your salespeople are specifically and if that has changed at all as the business has evolved in your priorities have evolved over the last 10 months.

Bascome Majors: I wanted to go back to the incentives focus from earlier. Can you talk more specifically about how you're tactically incentivizing your salespeople specifically, and if that has changed at all as the business has evolved and your priorities have evolved over the last 10 months? And, you know, separately from a long-term senior executive management incentive. Thank you.

Basketball Majors: Separately from a long term senior executive management incentive approach you know how might those look different this year than they have over the last few years. Thank you.

Mario Herrick: So, first, starting with sales compensation. It depends on what type of seller you are in the organization. We change the comp plan accordingly. So, if you're in the local channel, the goal is to grow your book as opposed to, for example, if you're in different types of accounts, you're going to have to focus on profitability more. But generally, the theme is that if you look at a service center, they are compensated based on the OR improvement for that specific service center. If you're a local account executive, you're incentivized to grow your book, and a component of your compensation is driven by operating ratio as well.

Speaker Change: Thanks best of them, So first starting with our with the sales compensation. So it depends on what type of etcetera. You are in the organization, we changed the comp plan. Accordingly, so if you're in the local channels. The goal is to grow your book as opposed to for example, if you're in Vanessa into different types of accounts youre going to have to focus on.

Speaker Change: On profitability more but generally the theme is that if you look at our service center. They are compensated based on the old improvement for that specific service center, if you're a local account executives get incentivized to grow your book and the components of your compensation is driven by operating ratio as well, if you're handling larger accounts and the ligand.

Mario Herrick: If you're handling larger accounts, then the lion's share of your compensation is around OR and profit improvement as well associated with that. So, this is how typically sales are compensated, but it is more driven by your book of business as opposed to your region or the network as a whole. Now, in terms of senior executive compensation, that's typically part of our proxy, but we incentivize our senior executives based on a combination of OR growth, EBTA growth, and TSR, so shareholder value creation as well. And you don't expect the long-term incentive formula to really change other than the targets for this three-year period. The framework would be very similar to what we have had in the past. Our next question is from Jordan Alliger with Goldman Sachs. Please proceed. Yeah, hi, morning.

Speaker Change: <expletive> of your compensation is at out order and profit improvement as well associated with that so this is how it typically sales compensate compensated but it is more driven by your book of business as opposed to your region or the other that's work as he has he as a whole.

Speaker Change: In terms of senior exec compensation, that's typically part of our proxy that must be incentivize, our our senior executives based on a combination of auto growth EBITDA growth and a T S. Our associate holder of value creation as well.

Speaker Change: And you don't expect the long term incentive formula to really change other than the targets are for this three year period.

Speaker Change: The framework would be very similar to what we had in the past.

Speaker Change: Our next question is from Jordan <unk> with Goldman Sachs. Please proceed.

Jordan: Yeah, Hi morning, just sort of curious I mean, you know thanks for the lay out in terms of the door opening timing et cetera.

Jordan Alliger: Just sort of curious, you know, thanks for the layout in terms of the door opening timing, et cetera. In the context of your thoughts on the economy and the new door openings, is there a way to think about tonnage or volume trajectory as we go through the year? Sort of like year-over-year growth potential or how you, you know, expect it to sort of ramp up? That would be the first question, thanks. Sure, Jordan. This is Ali.

Jordan: Now in the context of your thoughts on the economy and the new door openings is there a way to think about tonnage or or volume trajectory. As we go through the year, you sort of like year over year growth potential or how are you.

Speaker Change: Yeah, I expect it to sort of ramp up that'd be the first question facts.

al: Sure Jordan. This is a this is al I'll I'll start that and then pass it to tomorrow, yeah. So for the full year as we noted we expect a much higher contribution from yield and volume, where we're being very disciplined on the type of volume, where we're onboarding onto the network and you should expect that to continue through this year. So overall for the full year metrics.

Ali: I'll start, then pass it to Mario. So, for the full year, as we noted, we expect a much higher contribution from yield than volume. We're being very disciplined on the type of volume we're onboarding onto the network, and you should expect that to continue through this year. So, overall, for the full year, we'd expect tonnage to be up somewhere in that low single-digit range for the full year and then yield somewhere in that mid to high single digits or better. Now, keep in mind; we do have tougher comps in the second half of the year.

al: Spec tonnage to be up somewhere in that low single digit range for the full year that yield somewhere in that mid to high single digits or better now keep in mind, we do have tougher comps in the second half of the year. It is still early in the year and obviously the macro can be a swing factor in terms of the new service centers, we don't expect any sort of meaningful contribution from <unk>.

Mario Herrick: It is still early in the year, and obviously, macro can be a swing factor. In terms of the new service centers, we don't expect any sort of meaningful contribution from volume this year. We would expect contribution from volume to be sub-a percent of incremental volume, so not a meaningful number overall. But when we think about service centers in the near term, ahead of any type of macro inflection whenever it comes, there is a big benefit we're going to get from cost savings, as I mentioned earlier, by having larger facilities. If you think about what we bought from the yellow network, we bought some of the largest service centers. You look at a site like Carlisle; you can't get any more than 120 acres of land right off I-76 and I-81, where we have a 300-door service center now in that market. Same thing with Nashville.

al: Volume this year, we would expect contribution from volume to be stopped the percent of incremental volumes, so not a meaningful number overall.

al: Sort of what do we think about the service centers in the near term ahead of any type of macro inflection whenever whenever it comes there is a big benefits, we're going to get some cost savings as I mentioned earlier on by having larger facilities. I mean, if you think about what we bought from the yellow network. We bought some of the largest service centers and you look at a site like core lives.

al: I guess any more of 120 acres of land right off 76 on I 81, where we have a 300 door service center now in that market same thing with Nashville, We got at 40 50 acre facility West of Nashville, with more than 200 doors and so when you think about those larger facilities that you need to use it on more efficiency. Your line haul D. N D. You talk also.

Mario Herrick: We got a 40, 50-acre facility west of Nashville with more than 200 doors in it. So when you think about those larger facilities that enable you to run more efficiently, your line haul, your P&D, your dock operations, that's going to lead to cost savings as soon as we start moving into them. The other benefit is some markets; when you look at a market like Brooklyn, New York, or Columbus, or Indianapolis, or Las Vegas, we're tapped out on capacity today, so we don't have enough doors in those markets. By having this incremental capacity, we already have customers that are ready to go where we can onboard them as we open up those service centers. We have two small service centers. One is in Eau Claire, Wisconsin, and one is in Nogales, Arizona, where these are net ads or new markets, but these are small service centers where we already have demand lined up based on existing customer relationships we have as well. Got it. And then just sort of, um...

al: Patients that's going to lead to cost savings as soon as we start the movie moving into them. The other benefit is some markets. When you look at a market like Brooklyn, New York, or Columbus, or the Annapolis or Las Vegas, we're tapped out on capacity today. So we don't have enough doors in those markets and by having this incremental capacity whatever you have customers that are ready to go for it became <unk>.

al: With them as we as we open up those service centers and we have two small service centers what is in Eau Claire, Wisconsin, One is Nogales, Arizona, where we they are these on net adds or new markets. But these are small service centers would it be already have demand like up based on existing customer relationships, we have as well.

Speaker Change: Got it and then just sort of.

Mario Herrick: I'm just curious, how are you going to manage the terminal openings? So in other words, is there some economic dependency on it, how good the economy is, or is there going to be a certain amount that you're just going to open no matter what, strategically or otherwise? When we think about the rollout timing, we prioritize those service centers, those markets where we are capacity constrained today. So in a software freight environment, where we see that we don't have enough capacity. And the second priority is based on cost efficiency.

Speaker Change: Curious how are you going to manage the terminal openings. So in other words is there some economic dependency on it how good the economy is or is there going to be a certain amount that you're just gonna open no matter, what strategically or otherwise.

Speaker Change: Yes, we what do we think about the rollout timing, we prioritize those service centers those markets, where we are capacity constrained today. So in itself the faith in vitamins, where do we see that we don't have enough capacity and the second priority is based on cost efficiencies. So the service centers that will create the most amount of cost efficiency and when we think about the opening schedule.

Mario Herrick: So the service centers that will create the most amount of cost efficiency. And when we think about the opening schedule, I'll call it over the next three to 18 months, it will be we're going to drive through it regardless of what the freight markets are doing. This would be a reasonable time frame in terms of bringing those terminals up to our standards and doing the rebranding and these kinds of things to get them up and running. And then we, for us, if you, I mentioned this earlier, if you think about the head count, there's no need for us to hire people ahead of volume.

Speaker Change: I'll call. It over the next three to 18 months it will be we're gonna drive through at 30 Cordless will put the freight markets are doing this would be a reasonable timeframe.

Speaker Change: Linking those terminals up to our standards and doing the rebranding in these kind of things to get them up and running and then we put us if you'd mentioned this earlier on if you think about the head count there is no need for us to hire people ahead of volume. So what we do is we either relocate the existing team into a larger facility or do we add a facility to an existing markets would be split it team from.

Mario Herrick: So what we do is either relocate the existing team into a larger facility, or we add a facility to an existing market where we split a team from an existing facility into two different service centers, so there's no incremental cost associated with that. If we do see an inflection in volume where the markets are getting better, then we step up to be able to support that volume. And importantly, Jordan, if you look at our year in 2023, we were able to improve efficiency in every single quarter of the year.

Speaker Change: An existing facility into two different service centers, and so theres no incremental costs associated with that if we do see an infection in volume where the markets are getting better that we step up to be able to support that volume and importantly, Jordan. If you look at our year in 2023, it was able to improve efficiency every single quarter of the year. So we had a great ability between operational discipline.

Mario Herrick: So we have a great ability between operational discipline that Dave and the team are bringing to the table supported by our proprietary technology to be able to run our network very efficiently from a labor standpoint. Our next question is from Brandon Oglenski with Barclays, please. Hey, thanks for taking my question, Mario. Maybe we can follow up on that one there.

Speaker Change: Dave and the team are bringing to the table.

Speaker Change: Posted by our taking a proprietary technology to be able to put on our network better efficiency from a labor standpoint.

Speaker Change: Our next question is from Brandon <unk> with Barclays. Please proceed.

Brandon: Hey, Thanks for taking my question Mario maybe we can follow up on that one there I know you were talking about cost efficiencies of opening new terminals in the network and it sounds like potentially you know you're going to move staff from one to the other but I guess, just you know covering transports for 20 years now when you open new you know nodes in our network, especially you know.

Brandon Robert Oglenski: I know you're talking about cost efficiencies of opening, you know, new terminals on the network, and it sounds like, potentially, you're going to move staff from one to the other. But I guess just, you know, covering transport for 20 years now, when you open new, you know, nodes in the network, especially, you know, a scheduled network, isn't there like a spool-up time on capacity efficiency, especially on line haul and local pickup and delivery that we should be anticipating? Because it sounds like what you're guiding to that you can instantly match efficiency, if not even get better with these new facilities.

Brandon: Network isn't there like a spool up time.

Brandon: Cassie efficiencies, especially on like Whitehall and local pickup and delivery that we should be anticipating because it sounds like what you're guiding to that you can instantly match efficiency, if not even get better with these new facilities.

Mario Herrick: I mean, whenever you open up those sites, you do have a small headwind in cost, but that, for us, would be very short-lived. I mean, you're talking 30 to 90 days of cost headwind as you move into a larger facility. And predominantly, it comes from the carrying cost of the incremental doors.

Mario Herrick: I mean whenever you open up those sites you do have a small headwind in cost, but that's for us would be very short lived I mean, you're talking 30 to 90 days of cost headwind as you move into a larger facility and predominantly it comes from the carrying cost of the incremental doors, but Brandon keep in mind that the cost of the door.

Mario Herrick: But Brandon, keep in mind that the cost of a door in our P&L is sub-5 percent as a percent of total. So it's a small incremental cost associated with that. But when you think about the immediate efficiency you gain in pickup and delivery and line haul and all of those pieces, this is where we see that this, again, drag that is short-lived doesn't have a meaningful impact on the network as a whole. And to give you an example, over the last couple of years here, we've opened up a dozen service centers, and each one of them was profitable within 30 to 60 days. Each one of them is exceeding our return hurdles as well, so we feel very good about our ability to get those onboarded with very, very minimal drag. And that's the reason why we don't expect any drag from an OR perspective from the service center. I'd also say having Dave on the team, he has an incredible amount of experience in terms of adding capacity to a network and making sure it's accretive pretty quickly. I appreciate it. Congratulations on the Corps.

With P&L, it's sub 5% as a percent of total so let's say, it's a small incremental costs associated with that that's when you think about the immediate efficiency gains and pickup and delivery and line haul, but all of those pieces. This is where do we see that this again drag that it's short lived it doesn't have a meaningful impact on the network as he has a hold and to give you. An example over the last.

Mario Herrick: Couple of years here, we've opened up it doesn't service centers in each one of them was accretive within within 30 to 60 days each one of them is exceeding our return hurdles as well. So we feel very good about it but if you forget those onboard this with very very minimal drag and that's the reason why we don't expect any drag from an order perspective from the service Center and finally, I'd say also with what they have.

Mario Herrick: Dave on the team he has an incredible amount of experience in terms of adding capacity to it and that's work and making sure it's accretive pretty pretty quickly.

I appreciate it congrats on the court.

Mario Herrick: Thank you. Our next question is from James Bonnigan with Wells Fargo. Please proceed.

Speaker Change: Thank you.

Speaker Change: Our next question is from James span again with Wells Fargo. Please proceed.

James Allen: Hey, guys. Thanks, just wanted to come back to pricing a little bit.

James Allen: Hey, guys, thanks. Um, just wanted to come back to pricing a little bit. And of the pricing gap to peers, how much of that pricing gap is sort of attributable to service level differences and improved service a good bit here? So of that gap, how much is accessible to you given where service is today? Sure, James. This is Ali.

James: Of the pricing gap to peers, how much of that pricing got to sort of attributable to service level differences and.

James: Proved service a good bit here so of that gap, how much sort of is accessible to us given where services today.

Speaker Change: Sure. James This is always so overall, we see roughly about a mid teens pricing upside opportunity in the years to come and it's primarily driven by three levers first and foremost it's driven by service. So as we continue to improve our service quality, we're going to be able to better align the price with the value we're delivering we've quantified that.

Ali: So, overall, we see roughly about a mid-teens pricing upside opportunity in the years to come, and it's primarily driven by three levers. First and foremost, it's driven by service. So, as we continue to improve our service quality, we're going to be able to better align the price with the value we're delivering. We quantify that about half of that mid-teens pricing gap, so call it about 700, 800 basis points of pricing opportunity as we continue to improve service. And we're realizing that right now. In the third quarter, we delivered a company record damage claims ratio, and our yield growth accelerated to double digits. So, we're in the early innings of realizing that opportunity.

Speaker Change: About half of that mid teens pricing gaps so call it about seven or 800 basis points of pricing opportunity as we continue to improve service and we're realizing that right now in the third quarter, we delivered a company record damage claims ratio and our yield growth accelerated to double digits. So we're in the early innings of realizing that opportunity then you have another about.

Speaker Change: 500 basis points or 5% of pricing upside that's tied to accessorial and more specifically premium services as Mario noted earlier, we want to grow our after soils as a percentage of overall revenue from roughly that 10% range right now to 15 plus percent over time, and that's about five points of pricing upside and then laugh.

Ali: Then you have another about 500 basis points or 5% of pricing upside that's tied to accessorials and more specifically premium services. As Mario noted earlier, we want to grow our accessorials as a percentage of overall revenue from roughly that 10% range right now to 15% plus percent over time, and that's about five points of pricing upside. And then lastly, the local channel is also an opportunity for us from a pricing perspective.

Speaker Change: Lee the local channel is also an opportunity for us from a pricing perspective, that's higher yielding and higher margin business for us.

Speaker Change: That's roughly about 20% of our revenue and we want to grow that to 30 plus percent overtime and that's roughly about another two to 300 basis points of pricing upside. So overall, there's multiple different levers, we can pull to grow pricing and as we move through 2024, we would expect those to translate to very strong yield growth for us.

Ali: That's higher yielding and higher margin business for us. Currently, that's roughly about 20% of our revenue, and we want to grow that to 30 plus percent over time, and that's roughly about another 200 to 300 basis points of pricing upside. So, overall, there are multiple different levers we can pull to grow pricing. And as we move through 2024, we would expect those to translate to very strong yield growth for us.

Speaker Change: Got it but given where services today is full.

Speaker Change: 708 hundred of price that is tied to services that like fully accessible to you or to service need to improve further in order for you to get that seven to 800 basis points. So as you move through the contract repricing.

James Allen: But given where service is today, the full $700 to $800 price that is tied to service, is that fully accessible to you, or does service need to improve further in order for you to get that $700? Pointing says you go move through the contract reprice. It does take time. I mean, it's not like a switch where as you improve your service product, your customers will give you that premium immediately. But we have already been seeing it play out here in the course of 2023.

Speaker Change: So it does take time I mean, it sounds like a switch where as you improve your service product your customers will give you that premium immediately but we're seeing good whether you have been seeing it play out here in the course of 2023. When you look at the improvement we've seen in yield both at quarter after quarter and having those very strong contract renewals. So.

Speaker Change: If you look at it I mean, you go back two years ago, we would've had a damage claims ratio of one 2%, we're down to 0.3%, which is a company record, but I would call. It continues to keep on improving debt when it got some loving organization, we wanted to get our customers pick up the freight on time deliveries on time.

Mario Herrick: When you look at the improvement we've seen in yield, quarter after quarter, and have those very strong contract renewals. So currently, if you look at it, I mean, if you go back to years ago, we had a damage claims ratio of 1.2 percent. We're down to 0.3 percent, which is a company record, but our goal continues to be to keep on improving that. We're a customer-loving organization. We want to take care of our customers, pick up the freight on time, deliver it on time, and deliver it damage-free every single time. And if you think about it from that perspective, that could earn you a premium over time.

Speaker Change: The liver damage free every single time, and if you think about it from that perspective, that's overtime premium. So when we think of that seven to eight point differential it's going to take us a number of years to claw through it but that's why when we look forward, we think of our ability to get this above market pricing is going to be driven by just continuous improvement and continued focus on taking care of our customers.

Speaker Change: I sent back with J P. Morgan. Please proceed.

Hey, good morning, Thanks for taking the questions here, So Mario just to come back to the additional terminals in door counts can you give us a sense of what incremental margins you know overall youre assuming in this it sounds like they're reasonably high for not expecting any real or dilution and you know on that point as well, it's obviously a big purchase price.

Mario Herrick: So when we think of that seven to eight point differential, it's going to take us a number of years to claw our way through it. But that's why when we look forward, we think of our ability to get this above market pricing. It's going to be driven by this continued improvement and continued focus on taking care of our customers. Welcome back with J.P. Morgan. Hey, good morning.

Speaker Change: This purchase price accounting takes a while to settle out but isn't there a big DNA component from this as well I know Karl talked about flu can put them before but it sounded like that was primarily for capex. So it would be helpful to hear a little bit about that and if you could maybe just finish up with what you're seeing on the demand environment. How would you talk too much about that seem a little bit.

Mario Herrick: Thanks for taking the questions here. So Mario, just to come back to the additional terminals and door counts, can you give us a sense of what incremental margins, you know, overall you're assuming in this? It sounds like they're reasonably high if you're not expecting any real OR dilution.

Speaker Change: N P minds, maybe some restocking ahead, but would be curious to see what you're hearing from your customers to start the year.

Speaker Change: Thanks.

Speaker Change: Thanks, Brian.

Speaker Change: I'll start I'll start first with the return of the service centers and we expect that to be in the on the long run to be in the 30% to 40% range and I'll turn it over to Kyle shortly here.

Mario Herrick: And, you know, on that point as well, it's obviously a big purchase price for this presentation, please. Thanks, Brian. So, I'll start first with the return on the service centers, and we expect that to be, in the long run, to be in the 30% to 40% range. And I'll turn it over to Kyle shortly here to discuss the details of that.

Speaker Change: To discuss the details of that when you think about the customer that asked the demand in vitamins and flu within vitamins, it's tougher to call what the macro is going to do it through the balance of the year from one perspective, you see the rates where they are from me from a pet perspective, we're seeing different mixed signals that we do a survey of our customers on a regular basis and for the first half of the.

Kyle: Now, when you think about the customer demand environment, it is a fluid environment. It is tough to call what the macro is going to do through the balance of the year. From one perspective, you see the rates where they are from a tech perspective, and we're seeing different mixed signals. Now, we do survey our customers on a regular basis, and for the first half of the year, roughly two-thirds of the customers are expecting either flat or slightly improving demand. So, there is a bit more optimism in the first half than we've seen in the back half of last year.

Speaker Change: Year, roughly two thirds of the customer's unexpected either flat or slightly improving demand. So there's a bit more optimism in the first half than what we've seen in the back half of last year, but there's even more optimism for the back half for the majority of the customers say that they expect it to pick up in demand in the back half of 'twenty 'twenty four or so so we're cautiously optimistic but it.

Speaker Change: Tough to call the macro at this point, but when you look at it more near term.

Speaker Change: A look at we do watch the ISN manufacturing index, given two thirds of our customers at industrial companies and when you look through the course of the fourth quarter. The trough was in October and November if we saw it get better in in December and here in January even further improved by the ice and posted 49 and change which is very close to 50, which is typically your point when you start seeing it.

Mario Herrick: But there is even more optimism for the back half, where the majority of the customers did say that they expected a pickup in demand in the back half of 2024. So, we're cautiously optimistic, but it's tough to call the macro at this point. Now, when you look at it more near term, we do watch the ISM manufacturing index, given two-thirds of our customers are industrial companies. And when you look through the course of this fourth quarter, the trough was in October and November. We saw it get better in December, and here in January, it even further improved. The ISM posted a 49 and change, which is very close to 50, which is typically the point when you start seeing an inflationary environment.

Speaker Change: Inflationary environment. So I think we're seeing demand hold we're seeing <unk> like to improve and with more optimism towards the back half of the year.

And then just to address the Capex question, especially with yellow when you think about the 28 service centers, we're expecting incremental capex about one to 2 million per site, so about $50 million to $60 million in total now that's not spread evenly across all 28 service centers and that's really largely tied to refreshing and refurbishing the sites I'll break them up to standard so it's gonna cover construction.

Mario Herrick: So, again, we're seeing demand hold. We're seeing demand slightly improve, and with more optimism towards the back half of the year. And then just to address the CapEx question associated with the yellow, when you think about the 28 service centers, we're expecting incremental CapEx of about 1 to 2 million per site, so about 50 to 60 million in total. Now, that's not spread evenly across all 28 service centers, and that's really largely tied to refreshing and refurbishing the sites, bringing them up to standard. So it's going to cover construction, paving, painting, rebranding, and that CapEx for those sites is included in our overall guide for the year. You know, and some of these sites have already started to work on some of the locations. So, going back to Mara's earlier comments, we expect some of these to come online here in Q2.

Speaker Change: Painting painting rebranding and that Capex for those sites is included in our overall guide for the year you know in some of these somebody say, it's already started to work on some of the locations. So going back tomorrow. His earlier comments, we expect somebody to come online here in Q2.

Speaker Change: We have reached the end of our question and answer session I would like to turn the call back over to Marianne Harris for closing remarks.

Thank you operator, and thanks, all for joining our call today as you can see from our results. Our spend is working and our service improvements are delivering revenue growth margin expansion and earnings growth. So what we're gonna start integrating acquired service centers and thought with network, which is now more productive and more cost efficient.

Speaker Change: Lot of strong momentum here and as we saw 2024 and we look forward to updating you on the next quarter. Operator, you can now end the call. Thank you.

Kyle: We have reached the end of our question and answer session. I would like to turn the call back over to Mario Herrick for closing remarks. Thank you, Operator, and thanks to all for joining our call today. As you can see from our results, our plan is working, and our service improvements are delivering revenue growth, margin expansion, and earnings growth. Soon, we're going to start integrating the acquired service centers into our network, which is now more productive and more cost efficient.

Speaker Change: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.

Speaker Change: Yeah.

Speaker Change: Yeah.

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Mario Herrick: We have a lot of strong momentum here as we start 2024, and we look forward to updating you on the next quarter. Operator, you can now end the call. Thank you. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. Copyright 2020, New Thinking Allowed Foundation. Thank you for watching.

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