Q1 2025 XPO Logistics Inc Earnings Call

Operator: Welcome to the XPO First Quarter 2025 Earnings Conference Call and My name is Paul, and I will be your operator for today. At this time, all participants are on a listen-only. Later, we'll conduct a question and answer. If you have a question, please dial star 1 on your telephone. Please limit yourself to one question when you come on. 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.

Welcome to the X P O first quarter 2025 earnings conference call and webcast.

Paul: My name is Paul and I will be your operator for today's call. At this time all participants are in a listen only mode. Later, we'll conduct a question and answer session.

Paul: If you have a question please dial star one on your telephone keypad. Please.

Paul: Please limit yourself to one question when you called out in the queue.

Paul: If you have additional questions Youre welcome to get back in the queue and we'll take as many as we can.

Paul: Please note that this conference is being recorded.

Operator: 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... 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. 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. 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.

Paul: 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.

Paul: During this call the company will be making certain mob 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.

Paul: A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as visits the earnings release. The forward looking statements in the company's earnings release or made on this call are made only I'd lived today and the company has no obligation to update any of these forward looking statements except to the extent required by law.

Operator: During this call, the company also may refer to certain non-GAAP financial measures as defined under applicable SEC.

Paul: During this call. The company also may refer to certain non-GAAP financial measures as defined under applicable FTC rule.

Operator: 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 an You can find a copy of the company's earnings release, which contains additional information regarding forward-looking statements and non-GAAP financial measures, in the Investors section of the company website.

Paul: Conciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release, and the related financial tables or on its web site.

Paul: You can find a copy of the company's earnings release, which contains additional information.

Paul: <unk> forward looking statements and non-GAAP financial measures in the investors section of the company website.

Mario Harik: I will now turn the call over to XPO's Chief Executive Officer, Mario Harik. Mr. Harik, you may begin. Good morning everyone. Thanks for joining our call. I'm here with Kyle Wismans, our Chief Financial Officer, and Ali Faghri, our Chief Strategy Officer. This morning, we reported financial results that delivered on our outlook and a challenging freight market. Company-wide, we reported first quarter revenue of $2 billion and adjusted EBITDA of $278 billion. And our adjusted value to EPS was $0.73, exceeding expectations. Importantly, our LTL segment maintains the momentum we carry through year-end and outperform the industry. The highlight of the quarter was a sequential LTM margin improvement that was better than normal seasonality.

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

Speaker Change: Good morning, everyone. Thanks for joining I would call I'm here with Kawa Smith, our Chief Financial Officer.

Speaker Change: And Ali Pardon me, our Chief strategy Officer.

Speaker Change: This morning with reported financial results delivered on our outlook in a challenging freight market.

Speaker Change: Companywide, what do you for the first quarter revenue of $2 billion and adjusted EBITDA of $278 billion.

Speaker Change: And our adjusted diluted EPS was <unk> 73.

Speaker Change: <unk> expectations.

Speaker Change: Importantly, our MTS segment maintained the momentum we carried through year end and outperformed the industry.

Speaker Change: The highlight of the quarter was the sequential margin improvement it was better than normal seasonality.

Mario Harik: We've now improved our adjusted operating ratio by a cumulative 370 basis points over two years, keeping us on the industry's best trajectory for operating efficiency and profitability. In addition to strong margin performance, the accelerated yield growth operated more cost-efficiently with line haul and labor and enhanced service quality. At the same time, we continue to invest in our network to strengthen our competitive position and sustain high returns over time. I'll walk you through the levers driving our momentum in LTL, starting with customer service. In the first quarter, we delivered a damage claims ratio of 0.3%. Notably, we brought damages down to a record low in the quarter, which is a testament to the discipline built into our service culture.

Speaker Change: We've now improved our adjusted operating ratio by two minutes of 370 basis points over two years, keeping us on the industry's best trajectory for off anything efficiency and profitability.

Speaker Change: In addition to strong margin performance be accelerated yield growth.

Offered even more cost efficiently with line haul and labor and enhanced service quality.

Speaker Change: At the same time, we continue to invest in our network to strengthen our competitive position and sustained high returns over time.

Speaker Change: I'll walk you through the levers driving our momentum in it.

Starting with customer service.

Speaker Change: In the first quarter, we delivered a damage claims ratio of <unk>, 3%.

Speaker Change: Notably we brought damages down to a record low in the quarter, which is a testament to the discipline built into our service culture.

Mario Harik: We also continue to raise the bar with on-time performance, marking our 12th straight quarter of year-over-year improvement. The service centers we've opened over the past year are playing a critical role in improving service by reducing rehandles and transit miles. This helps ensure consistent outcomes for our customers. And for our company, it supports both margin expansion and the scalability of our network. Our larger footprint is also driving tangible gains in efficiency across dock operations, line haul, and pickup and delivery. We've now opened almost all of the service centers we acquired, and we're seeing the benefit across our network.

Speaker Change: We also continued to raise the bar with on time performance, marking our 20 <unk> straight quarter of year over year improvement.

Speaker Change: The service centers, we've opened over the past year are playing a critical role in improving service by using that he handles and transit miles.

Speaker Change: This helps ensure a consistent outcomes for our customers.

Speaker Change: And for our company it supports both margin expansion and the scalability of our network.

Speaker Change: Our luxury footprint, it's also driving tangible gains in efficiency across the dock operations line haul and pickup and delivery.

Speaker Change: We've now opened almost all of the service centers, we acquired and we're seeing the benefits across our network.

Mario Harik: We've also met our goal of 30% excess door capacity in the current environment. The success capacity positions us to capture market share in a straight upturn and unlock more operating leverage. In addition to real estate, we're committed to investing in our fleet with both tractors and traders. Since launching our LTL growth plan in 2021, we've added more than 5,000 tractors and 16,000 trailers to our network. This supports continued insourcing of LionHall and is helping us operate with greater flexibility for customers. The average age of our tractors is now down to four years at the low end of our targeted range.

Speaker Change: We've also met our goal of 30% access door capacity in Dakota and vitamin.

Speaker Change: This excess capacity positions us to capture market share and it stayed up there and unlock more operating leverage.

Speaker Change: In addition to real estate, we're committed to investing in our fleet with both tractors and trailers.

Speaker Change: Since launching our NGL growth plans in 2020, one we've added more than 5000 tractors and 16000 theaters thought with network.

Speaker Change: This supports continued in sourcing of flying hall, and its helping us operate with greater flexibility for customers.

Speaker Change: The average age of our tractors is now down to 40 years at the low end of our targeted range. This benefits both reliability and safety and it also reduces the cost of operating our fleet.

Mario Harik: This benefits both reliability and safety, and it also reduces the cost of operating our fleet. Turning to pricing, this remains a cornerstone of our plan, and we're seeing the impact of our pricing initiatives on yield growth. In the first quarter, we grew yield excluding fuel by 6.9% year over year, marking an acceleration from the prior quarter. This reflects the strength of our commercial strategy and the value we bring to customers. Our high quality service is earning pricing gains that outpace the market through contract renewals and UBIS. In addition, local customers and our premium services are becoming more meaningful parts of our revenue.

Speaker Change: Yeah.

Speaker Change: Turning to pricing remains the cornerstone of our plan and we're seeing the impact of our pricing initiatives on yield growth.

Speaker Change: In the first quarter, we grew yield excluding fuel by six 9% year over year, marking an acceleration from the prior quarter.

Speaker Change: This reflects the strength of our commercial strategy and the value we bring to customers.

Speaker Change: Our high quality services, earning pricing gains that outpaced the market through contract renewals and new business.

Speaker Change: In addition, local customers in our premium services are becoming more meaningful parts of our revenue mix and both channels carry a higher margin.

Mario Harik: And both channels carry a higher margin. We have a growing pipeline of customer demand for our premium offerings, including retail store rollouts and trade show transfers. We expect these initiatives to continue driving above market yield growth well into the future. Cost efficiency is another core part of our plan, and an area where we've made major progress this quarter, particularly with line haul and labor productivity. We lowered our purchase transportation costs by 53% year over year and reduced our outsourced line haul miles to just 8.8% of total miles, the best level in the company's history. This is a reduction of more than 900 basis points demonstrating that we're executing well ahead of plan.

Speaker Change: We have a growing pipeline of customer demand for our premium offerings, including retail store Rollouts and trade show transport.

Speaker Change: We expect these initiatives to continue driving above market growth well into the future.

Speaker Change: Cost efficiency is another core part of our plan and an area, where we made major progress this quarter, particularly with line haul and labor productivity.

Speaker Change: We lowered our purchase transportation cost by 53% year over year and reduce our outsourced line haul miles just eight 8% of total buys the best level in the company's history.

Speaker Change: This is a reduction of more than 900 basis points demonstrating its been executing well ahead of plan.

Mario Harik: By year-end, we expect to reduce outsourced miles even further into the mid-single digits, enhancing efficiency and customer service. And when demand returns, the insourcing we're doing now will protect our cost structure as truckload rates rise, enabling us to generate stronger incremental margins versus prior upsides. We also continue to improve labor productivity in the quarter with our proprietary technology. Our software anticipates volume shifts before they happen, allowing our managers to flex labor hours in real time and making our network more resilient. This technology is unique to XPO, and it's helping us outperform on margins and profitability in the current straight downturn.

Speaker Change: By year end, we expect to reduce outsource smiles, even further into the mid single digits enhancing efficiency and customer service.

Speaker Change: And when demand returns the insourcing, we're doing now would protect our cost structure as truckload rates rise, enabling us to generate stronger incremental margins versus prior up cycles.

Speaker Change: We also continue to improve labor productivity in the quarter with our proprietary technology.

Speaker Change: Our software it anticipates volume shifts before they happen, allowing our managers to flex labor hours in real time, and making our network more resilient.

Speaker Change: This technology is unique to X P O and it's helping us outperform on margins and profitability and Dakota upstream downturn.

Mario Harik: It will become an even greater advantage for us in the future.

Speaker Change: It would become an even greater advantage for us in the future.

Mario Harik: Before I close, I want to spend a minute on artificial intelligence. We've been investing in proprietary AI technology to realize its full potential across our business. We've already identified a number of high-impact applications initially with line haul optimization, labor planning, and pickup and delivery. These are areas where intelligent automation and better decision-making can directly enhance profitability. Recently, we deployed new AI-driven line haul models designed to improve freight flows across our network. These pilots are already delivering higher load averages and sensitive... In our pickup and delivery operations, we're beta testing AI to optimize trailer and route assignments at the shipment.

Before I close I want to spend a minute on artificial intelligence.

Speaker Change: We've been investing in proprietary AI technology to realize its full potential across our business.

Speaker Change: We've already identified a number of high impact application initially with line haul optimization labor planning and pickup and delivery.

Speaker Change: These are the areas, where intelligent automation and better decision, making can directly and has profitability.

Speaker Change: Recently, we deployed you AI that are in line haul models designed to improve freight flows across our network.

Speaker Change: These pilots are already delivering higher load averages and sensory deficiencies.

Speaker Change: And I would pick up and delivery operations would be divesting AI to optimize trailer and route assignments at the shipment level.

Mario Harik: These tools factor in appointment windows and other logistics to enhance on-time performance. We see AI playing a major role in how we operate, compete and create value over the long term.

Speaker Change: He used to inspect at an appointment windows and other logistics to enhance all type of formats.

Speaker Change: We see a I think a major role in how we operate compete and create value over the long term.

Mario Harik: In summary, our first quarter results reflected strong execution across the business. We deliver above-market yield growth, improved cost efficiency, and raised the bar on service quality, all of which strengthen our competitive position. And our investments in capacity and technology are making our network smarter and more agile while leveraging our scale. We built XPO to drive results in any environment. and we intend to keep outperforming the industry with sustained long-term margin expansion.

Speaker Change: In summary, our first quarter results reflected strong execution across the business.

Speaker Change: We delivered above market yield growth improved cost efficiency and raise the bar on service quality, all of which strengthened our competitive position.

Speaker Change: And our investments in capacity and technology are making our network smarter and more agile while leveraging our scale.

Speaker Change: We did feel it to drive results in any environment.

Speaker Change: Tend to keep outperforming the industry with sustained long term margin expansion.

Kyle Wismans: Now I'm going to hand the call over to Kyle to discuss the financial results. Kyle, over to you. Thank you Mario, and good morning everyone. I'll take you through our key financial results, balance sheet and liquidity. Revenue for the total company was $2 billion, down 3% year over year, but up 2% sequentially from the fourth quarter. In our LTL segment, revenue is down 4% year over year and up 1% sequentially. The majority of the decline was related to lower fuel surcharge revenue tied to the price of diesel. Excluding fuel, LTL revenue is down 2% year over year and up 1% sequentially.

Speaker Change: Now I'm going to hand, the call over to Kyle to discuss the financial results got it over.

Speaker Change: 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: Revenue for the total company was $2 million down 3% year over year, but up 2% sequentially from the fourth quarter.

Kyle: In our <unk> segment revenue was down 4% year over year and up 1% sequentially.

Kyle: The majority of the decline was related to lower fuel surcharge revenue tied to the price of diesel.

Kyle: Excluding fuel.

Kyle: <unk> revenue was down 2% year over year and up 1% sequentially.

Kyle Wismans: On the cost side in LTL, we drove another significant reduction in purchase transportation expense. Our expense for third-party carriers decreased by 53% compared with the prior year as we insourced more of our line haul runs. This equated to a reduction of $41 million in the quarter. We also utilize our labor more productively. resulting in a 1% improvement in hours per shipment in a quarter. Notably, we're able to hold our total costs, salary, wages, and benefits at a similar level to last year's first quarter, despite inflation. To do this, we've been utilizing the productivity tools in our proprietary technology.

Kyle: On the cost side LCL, we drove another significant reduction in purchased transportation expense.

Kyle: Our expense for third party carriers decreased by 53% compared with the prior year as we in source more of our line haul Ross.

Kyle: This equated to a reduction of $41 million in the quarter.

Kyle: We also utilize our labor more productively, resulting in a 1% improvement in hours per shipment in the quarter.

Kyle: Notably, we're able to hold our total costs salary wages and benefits at a similar level to last year's first quarter despite inflation.

Kyle: To do this we've been utilizing the productivity tools and our proprietary technology.

Kyle Wismans: These capabilities are unique to XPO and will be increasingly valuable as our network grows. On the equipment side, we achieved a 5% reduction in maintenance costs per mile, primarily due to our purchase of new tractors for our fleet. We expect this cost to track lower in the future as older units are retired.

Kyle: These capabilities are unique to <unk> and it'll be increasingly valuable as our network rose.

Kyle: On the equipment side, we achieved a 5% reduction in maintenance cost per mile primarily due to our purchase of new tractors fall asleep.

Kyle: We expect this cost track lower in the future at older units are retired.

Kyle Wismans: LTL depreciation expense increased by 10 percent, or $7 million, reflecting the priority we place on making ongoing investments in our network.

Kyle: Alteon depreciation expense increased by 10% or $7 million, reflecting the priority, we place I'm, making ongoing investments in our network.

Kyle Wismans: Next, I'll cover Just Adibita, starting with the company as a whole. We generated adjusted EBITDA of $278 million in the quarter, down 3% year over year. Within that number, adjusted EBITDA for the LTL segment was $250 million, down 2%. Our strong yield growth and cost efficiencies in the quarter were mitigated by the operating in the form of lower fuel surcharge revenue. But even with these constraints, the underlying trends in the business continue to gain momentum. In our European transportation segment, adjusted EBITDA was $32 million for the quarter, and adjusted EBITDA for the corporate segment was a loss of $4 million.

Kyle: Next I'll cover adjusted EBITDA, starting with the company as a whole.

Kyle: We generated adjusted EBITDA of $278 million in the quarter.

Kyle: One 3% year over year.

Kyle: Within that number adjusted EBITDA for the <unk> segment was $250 million down 2%.

Kyle: Our strong yield growth and cost efficiencies in the quarter were mitigated by the operating environment in the form of lower fuel surcharge revenue tonnage and pension income.

Kyle: Even with these constraints the underlying trends in our business continued to gain momentum.

Kyle: In our European Transportation segment, adjusted EBITDA was $32 million for the quarter and adjusted EBITDA for the corporate segment was a loss of $4 million.

Kyle Wismans: Returning to the company as a whole, we reported first quarter operating income of $151 million, up 9% year-over-year. and we grew net income by 3% to $69 million. representing diluted EPS of 58. On an adjusted basis, our EPS for the quarter was 73. compared with 81 signs a year ago. And lastly, we generated $142 million of cash flow from operating activities in a quarter and deployed $191 million of net capital.

Kyle: Returning to the company as a whole we reported first quarter operating income of $151 million up 9% year over year.

Kyle: And we grew net income by 3% to $69 million.

Kyle: Presenting diluted EPS of <unk> 58 cents.

Kyle: On an adjusted basis, our EPS for the quarter was 73.

Kyle: Compared with 81 times a year ago.

Kyle: And lastly, we generated $142 million of cash flow from operating activities in the quarter and deployed $191 million of net capex.

Kyle Wismans: Moving to the balance. We ended the quarter with $212 million of cash. combined with available capacity under our committed borrowing. This gave us $811 million of liquidity. And our net debt leverage ratio, at quarter end, is 2.5 times trailing 12 months adjusted EBIT. This is an improvement from 2.9 times in the first quarter of 2024. In February, we successfully repriced our $1.1 billion term loans and refinanced our AVL revolver into a new security cash flow position. This extended the maturity of our revolver to 2030 and stabilize our liquidity with a constant $600 million in availability while providing long-term capital structure flexibility.

Kyle: Moving to the balance sheet, we ended the quarter with $212 million of cash on hand.

Kyle: Combined with available capacity under our committed borrowing facility. This gave us $811 million of liquidity.

Kyle: And our net debt leverage ratio at quarter end was two five times trailing 12 months adjusted EBITDA.

Kyle: It was an improvement from two nine times in the first quarter of 2024.

Kyle: In February we successfully repriced, our $1 $1 billion term loans and refinanced our ABL revolver into a new secured cash flow facility.

Kyle: This extended the maturity of our revolver to 2030 and stabilize our liquidity with a constant $600 million availability, while providing long term capital structure flexibility.

Kyle Wismans: While we remain committed to investing in initiatives that support earnings We expect our lower capex profile to generate a higher level of free cash flow this year. This dynamic over time should provide us with greater flexibility to return capital to shareholders.

Kyle: While we remain committed to investing in initiatives that support earnings growth.

Kyle: We expect our lower capex profile to generate a higher level of free cash flow this year.

Kyle: This dynamic over time should provide us with greater flexibility to return capital to shareholders.

Kyle Wismans: Recently, we announced an authorization by our board of directors for the repurchase of up to $750 million of our common... We expect to begin opportunistically re-purchasing shares this year with our excess cash.

Kyle: Recently, we announced an authorization by our board of directors for the repurchase of up to $750 million of our common stock.

Kyle: We expect to begin Opportunistically repurchasing shares this year with our excess cash.

Ali Faghri: Now, I'll turn it over to Ali, who will cover our operative... Thank you, Kyle. I'll start with the review of the first quarter operating results for our LTL segment, where we executed well in a soft freight market. Our total shipments per day were down 5.8% in the quarter compared with a year ago, but with an important underlying trend. We generated volume growth in the mid to high single digits in our local channel, which is a key area of focus for us. We're accelerating our market share gains with these high-margin customers through targeted sales initiatives and a strong value proposition.

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

Ali: Thank you Kyle I'll start with a review of the first quarter operating results for L. T. L segment, where we executed well in a soft freight market.

Ali: Our total shipments per day were down five 8% in the quarter compared with a year ago, but with an important underlying trend.

Ali: We generated volume growth in the mid to high single digits in our local channel, which is a key area of focus for us.

Ali: We're accelerating our market share gains with these high margin customers do targeted sales initiatives and the strong value proposition.

Ali Faghri: With weight per shipment down 1.8% in the quarter, our tonnage per day was down 7.5%, which largely tracked the seasonality. This outperformed the industry as a whole. On a monthly basis, year-over-year, our January tonnage per day was down 8.5 percent, February was down 8.1 percent, and March was down 6 percent. Looking just at shipments per day, January was down 6%, February was down 6.1%, and March was down 5.4%. For April, we estimate that tonnage will be down 5.7% from the prior year. Our pricing was robust in the quarter, and again, we delivered above-market yield growth.

Ali: With weight per shipment down one 8% in the quarter, our tonnage per day was down seven 5%, which largely track the seasonality.

Ali: [noise] outperformed the industry as a whole.

Ali: Okay.

Ali: On a monthly basis year over year, our January tonnage per day was down eight 5% February was down eight 1% and March was down 6%.

Ali: Looking just at shipments per day January was down 6% February was down six 1% and March was down five 4%.

Ali: For April we estimate that tonnage will be down five 7% from the prior year.

Ali: Okay.

Ali: Our pricing was robust in the quarter and again, we delivered above market yield growth on.

Ali Faghri: On a year-over-year basis, we grew yield x fuel by 6.9% and revenue per shipment by 5.2%. Importantly, we accelerated our year-over-year yield growth from the fourth quarter, as well as on a two-year stack basis. Our revenue per shipment has improved sequentially for nine consecutive quarters. And we expect both revenue per shipment and yield to improve sequentially through the rest of this year with ongoing pricing momentum driven by our service quality and premium offerings. These are all key drivers of our margin expansion opportunity, and we're steadily enhancing them as part of our LTL growth plan. In the first quarter, we sequentially improved our adjusted operating ratio by 30 basis points to 85.9 percent, which outperformed normal seasonal trends.

Ali: On a year over year basis, we grew yield ex fuel by six 9% and revenue per shipment by five 2%.

Ali: Importantly, we accelerated our year over year yield growth from the fourth quarter as well as on a two year stack basis.

Ali: Our revenue per shipment has improved sequentially for nine consecutive quarters and.

Ali: And we expect both revenue per shipment and yield to improve sequentially through the rest of this year with ongoing pricing momentum driven by our service quality and premium offerings.

Ali: These are all key drivers of our margin expansion opportunity and we're steadily enhancing that as part of our L. T cell growth plan.

Ali: In the first quarter, we sequentially improved our adjusted operating ratio by 30 basis points to 85, 9%, which outperformed normal seasonal trend.

Ali Faghri: We outperformed on margin through a mix of yield growth, cost efficiencies, and productivity gains, and by leveraging our proprietary technology to enhance the contribution from each of these levers.

Ali: We outperformed on margin through a mix of yield growth cost efficiencies and productivity gains and by leveraging our proprietary technology to enhance the contribution from each of these levers.

Ali Faghri: Turning to our European business, we delivered solid progress despite a challenging macro environment. We increase revenue by 2% year over year on a constant currency basis for the fifth consecutive quarter of growth. We also grew Adjusted EBITDA by 19% sequentially from the fourth quarter, outpacing seasonality. And in some key geographies, like the UK, we increased adjusted EBITDA by double digits versus the prior year, showing continued strength. Another positive indicator is our sales pipeline in Europe, which grew by high single digits in the quarter. Customers are increasingly responding to our offerings, putting us in a strong position to continue outperforming the market in any macro environment.

Ali: Turning to our European business, we delivered solid progress despite a challenging macro environment.

Ali: We increased revenue by 2% year over year on a constant currency basis for the fifth consecutive quarter of growth.

Ali: We also grew adjusted EBITDA by 19% sequentially from the fourth quarter outpacing seasonality.

Ali: And in some key geographies like the U K, we increased adjusted EBITDA by double digits versus the prior year showing continued strength.

Ali: Another positive indicator is our sales pipeline in Europe, which grew by high single digits in the quarter.

Ali: Customers are increasingly responding to our offerings, putting us in a strong position to continue outperforming the market in any macro environment.

Ali Faghri: Before we go to Q&A, I'd like to summarize the major initiatives that powered our first quarter performance and the ongoing momentum in our LTL business. First, we're continuing to deliver above-market pricing growth underpinned by strong service quality. Our premium service offerings and our success with the local channel are also key to our results and these initiatives are in the early stages of their potential. At the same time, we're optimizing our cost structure by reducing third-party line haul costs and enhancing productivity. We see a long runway for further efficiency gains across our network. Together, these drivers have created a large margin expansion opportunity, and our execution gives us the ability to capture that opportunity, regardless of market condition.

Ali: Before we go to Q&A I'd like to summarize the major initiatives that powered our first quarter performance and the ongoing momentum in our L. T L business.

Ali: First we're continuing to deliver above market pricing growth underpinned by strong service quality.

Ali: Our premium service offerings and our success with the local channel are also key to our resolve and these initiatives are in the early stages of their potential.

Ali: At the same time, we're optimizing our cost structure by reducing third party line haul costs and enhancing productivity.

Ali: We see a long runway for further efficiency gains across our network.

Ali: Together. These drivers have created a large margin expansion opportunity and our execution gives us the ability to capture that opportunity regardless of market conditions.

Operator: Now, we'll take your questions.

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

Operator: Operator, please open the line for Q&A. Thank you. We'll now be conducting a question and answer session. 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 may press star 2 if you'd like to remove your question.

Ali: Yeah.

Speaker Change: Thank you well now be conducting a question and answer session.

Ali: If you would like to ask a question. Please press star one on your telephone keypad.

Ali: Confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start As a reminder, we are asking participants to limit themselves to one question and one follow-up and requeue for additional questions. One moment, please, while we poll for questions. Thank you.

Ali: For participants using speaker equipment, it might be necessary to pick up your handset before pressing the star keys.

Ali: As a reminder, we are asking participants to limit themselves to one question and one follow up and re queue for additional questions.

Ali: One moment, please while we poll for questions.

Speaker Change: Thank you. Our first question is from Jon Chapell with Evercore ISI.

Jonathan Chappell: Our first question is from John Chappell with Evercore IS. Thank you. Good morning, everyone.

Jon Chapell: Thank you good morning, everyone Ali just kind of the obvious first question in January or early February you gave a full year guide of flat tonnage and mm 150 basis points of margin improvement things have changed quite a bit. Since then so if you can just provide an update there if you're willing.

Mario Harik: Ollie, just kind of the obvious first question. In early February, you gave a full-year guide of flat tonnage and 150 basis points of margin improvement. Things have changed quite a bit since then, so if you can just provide an update there, if you're willing. And as part of that second quarter, I think typical seasonality, somewhere around 250 to 300 basis points of OR improvement, with the April tonnage down 5.7. What are you kind of anticipating for that sequential move this year?

Jon Chapell: And that's part of that second quarter, I think typical seasonality somewhere around 250 to 300 basis points of or improvement with the April tonnage down 5.7 mm. What do you. What are you kind of anticipating for that sequential move this year.

Mario Harik: Hey John, this is Mario. So when you look first at full year, this is the fluid environment and it's tough to predict what the macro is going to do and what the demand environment will do in the back half of the year. But based on our performance here today, we do expect to deliver 150 basis points of full-year margin improvement. And this is even with full-year plunge being negative on a year-on-year basis, relative to our initial assumption that volumes would be flattish this year. And there's a few reasons for that. One is yield performance has been excellent.

Mario Harris: Hey, John This is Mario so like when you look first at the full year.

Mario Harris: Fluids, and vitamins and it's tough to predict what the what the macro is going to do and what the demand in vitamins will do it in the back half of the year, but based on our performance year to date, we do expect to deliver 150 basis points full year margin improvement and this is even with full year policy being negative on a year on year basis.

Mario Harris: The solid initial assumption that volumes would be flattish. This year and is the issue of reasons for that one is yield performance has been excellent.

Mario Harik: Our pricing initiatives are gaining momentum. They're trying to get ahead of expectations. We'll talk about the Q2 yield outlook here. We're also managing costs very effectively. I mean, when you look at the line haul insourcing, we have accelerated that. We were down to 8.8% in the first quarter, 53% reduction in PQ costs. And we expect that to further be reduced in the back half of the year as we continue to drive that initiative. And we're managing our labor very effectively. I'm very proud of how the operating team executed in the first quarter against a soft backdrop where punnage was down.

Mario Harris: Pricing initiatives are gaining momentum it's trying to get ahead of expectations with talk about the Q2 yield outlook here that would also medicine cost very effectively I mean, when you look at the line haul in sourcing we have accelerated that we're down to eight 8% in the first quarter and 53% reduction in <unk> cost and we expect that the third of the beat it used in the back half of the year as well.

Mario Harris: Continue to drive this initiative and we are managing our labor very effectively I'm very proud of how the operating team executed in the first quarter against a soft back that off with tonnage was down we were able to improve productivity on a year on year basis by 1% now, let's say the macro gets more negative from here and things do soften and let's say the year is down a bit.

Mario Harik: We were able to improve productivity on a year-on-year basis by 1%.

Mario Harik: Now, let's say the macro gets more negative from here and things do soften. And let's say the year is down mid-single digit on punnage for the full year. We still expect to improve R by about the 100 basis points for the full year. And overall, that would be a really strong year for margin improvement. Because keep in mind that we have the toughest comp in the industry. We were the only carrier improving operating margins in 2024 as well.

Mario Harris: Single digit on tonnage for the full year, we still expect to improve by about 100 basis points for the full year and an overall that would be a really strong year for margin improvement because keep in mind that we had the toughest comps in the industry. We were the only carrier improving operating margins in 2020 for it as well now when you look at the second quarter. We also expected.

Mario Harik: Now, when you look at the second quarter, we also expect another strong quarter for margin performance in Q2. Typical seasonality for us is a sequential improvement of 250 to 300 basis points of OR improvements, sequentially Q1 to Q2. And again, it's a dynamic environment. So, based on what we have seen so far in April and our execution, we do expect to be at or above the high end of that range, outperforming seasonality. And that's also driven by our continued strength in yield and effective cost management as well. Great. That's super helpful, Mario. Just super quick follow-up.

Strong quarter for margin performance in Q2 typical seasonality for US is a sequential improvement of $2 50 to 300 basis points awful lot improvements sequentially Q1 to Q2 and again, it's a dynamic and vitamin so but based on what we have seen so far in April and our execution, we do expect to be at or above the high end.

Mario Harris: That range, all before mix seasonality and that's also driven by our continued strength in yield and effective cost management as well.

Maria: Great that's super helpful Maria.

Mario Harik: You mentioned the 30% excess door capacity, giving you the leverage to gain share in an upturn. In that scenario that you laid out where maybe tonnage is down mid-single digits, obviously, things get worse.

Mario Harris: Super quick follow up you mentioned that 30% excess door capacity.

Mario Harris: I'm, giving you the leverage to gain share in an upturn in that scenario that you laid out where maybe tonnage is down mid single digits, obviously things get worse are there other variable or semi variable cost levers you can pull to manage that and with capacity remained at that type of access level.

Mario Harik: Are there other variable or semi-variable cost levers you can pull to manage that and what capacity remains at that type of excess level? So high level, when you look at real estate capacity in our network, it does come at a low cost. So real estate is usually one of the lowest cost categories in LTL. It's actually low to mid-single-digit type percentage of revenue is what that cost structure would look like. So our goal is not necessarily to just go fill terminals with freight if they don't operate at a good OR. Our goal is to make sure we are onboarding profitable freight based on high quality of service, based on new offerings we're offering customers and being very disciplined in what we are getting into our network.

Mario Harris: Yes, so when you look at real estate capacity in our network. It doesn't come as a low cost. So real estate is usually one of the lowest cost categories and edits yeah. That's in the low to mid <unk> low to mid single digit type percentage of revenue is what that cost structure would look like so I would go to is not necessarily for just go film toward minerals.

Mario Harris: With freight if they don't operate that are good the water I would go to sue they shouldnt be at Onboarding profitable freight based on high quality of service based on new offerings with offering customers are being very disciplined and whats your on getting into our network. So the way we think about it even with and again. This is if the macro softens from here and demand does that helio rate keep in mind that two thirds.

Mario Harik: So the way we think about it, even with, and again, this is if the macro softens from here and demand does deteriorate, keep in mind that two-thirds of our costs are variable costs. And then we would manage that like we've done over the last year plus. We're going to flex labor. We're going to use our proprietary technology to execute and make sure that we are using a number of hours in the field commensurate with what we're seeing in the volume environment. And similarly, on the line haul side, as we insource more line haul, we are actually becoming more efficient and it's costing us less, even with truckload rates being depressed.

Mario Harris: If I would call sort of variable cost and that'll be with manage that like we've done over the last over the last year, plus we're going to flex flavor, where we're going to use our proprietary technology to execute and make sure that if you're already using a number of hours in the field commensurate with what we're seeing in the ballroom in vitamins and similarly on the line haul side as we in source more line haul.

Mario Harris: I would actually becoming more efficient and it's called it's called single plus even with truckload rates being depressed when we move freight with our road flex operation with being less per mile than it was with a third party carrier, we get about five 6% more physical space, because we're moving to 28 feet pumps as opposed to a 53 people. So that's gonna be also fair that accretive here.

Mario Harik: When we move freight with our road flex operation, we're paying less per mile than we would with a third-party carrier. We get about 5, 6 percent more physical space because we're moving 228-feet puffs as opposed to a 53-feet puff. So that's going to be also further accretive here as we head into the back half of the year. So we're controlling what we can control and we're doing it very effectively and we expect to do that regardless of what the environment throws our way.

Mario Harris: As we head into the back half of the year. So we're controlling what we can control and where we're doing it very effectively and we expect to do that regardless of what the environment throws our way.

Fadi Chamoun: Our next question is from Fadi Chamoun with BMO Capital Markets. Yeah, good morning. Just one clarification. Is the 100 basis point improvement in OR this year? Based on 5% decline in volume, I think I shared the exact number, if you can repeat.

Speaker Change: Our next question is from Fatima <unk> with BMO capital markets.

Fatima: Yeah good morning.

Speaker Change: Or just one clarification.

Speaker Change: Is 100 basis point improvement in all of this year.

Speaker Change:

Based on 5% decline in volume I haven't got the exact number if you can repeat and.

Fadi Chamoun: And my question, though, is I wanted to get your perspective on the volume story for kind of the LTL. We, you know, there's an estimate that we're down somewhere around mid-teens in volume versus where we were at the peak of the cycle. Has this all been a result of the underlying demand weakness from your customer base, or have you seen significant share losses to other modes, specifically truckloads?

Speaker Change: My My question, though is.

Speaker Change: I wanted to get your perspective on the volume story for kind of the L. P O.

Speaker Change: We you know this is an estimate that we're down somewhere around mid teens in volume versus where we were at the peak of the cycle.

Speaker Change: Has all been a result of the underlying demand weakness from your customer base or have you seen.

Speaker Change: A significant share losses to other modes quickly truckload.

Ali Faghri: Good morning, Fadi.

Speaker Change: Good morning 40. This is a this is al I'll take the first part about the full year margin outlook and then I'll pass. It tomorrow. He is talking about some of the industry volume dynamics as it relates to the full year margin outlook, we would expect to deliver 150 basis points, although our improvement this year with volumes down on a year over year basis.

Ali Faghri: This is Ali. I'll take the first part about the full-year margin outlook, and then I'll pass it to Mario to talk about some of the industry volume dynamics. As it relates to the full-year margin outlook, we would expect to deliver 150 basis points of OR improvement this year with volumes down on a year-over-year basis. To the extent that the macro worsens and volumes are sub-seasonal to a greater degree as we move through the year and are down somewhere in that mid-single-digit range for the full year, as Mario noted, we would still expect to improve OR in that scenario by about 100 basis points for the full year.

Speaker Change: To the extent that the macro worsens and volumes are sub seized it all to a greater degree as he move through the year and are down somewhere in that mid single digit range for the full year as Marty noted, we would still expect to improve our water in that scenario by about 100 basis points for the full year.

Mario Harik: And Fadi, when you look at the overall industry volume, so if you look at both public and private carriers, and you look at where volumes were at pre-COVID, to where they are now, they have declined and call it in that mid-teens range, we estimate it to be in the 15 to 16% range of decline in demand. And if you look post-COVID, actually, 2021 was the peak after that, and 2021 was slightly lower than 2018, 2019, right before COVID. Now, if you look at that trend from 2021 through 2024, there were a lot of supply chain changes and disruptions that happened over that period of time.

Speaker Change: And third when you look at the overall industry volume. So if you look at both public and private cat ears, and you look at where the volumes were at pre Covid to where they are now they have declined in call. It in that mid teens range, we estimate it to be in the 15% to 16% range of decline in demand and if you look at those schools.

Speaker Change: Actually 2021 was the peak after that in 2020, one was slightly lower than 2018 2019 right right before Covid now if you. If you look at the trend from 2021 through 2024, there were a lot of supply chain changes and disruptions that happened over that period of time, if you recall right. After the peak of Covid there was a shortage.

Mario Harik: If you recall, right after the peak of COVID, there was a shortage of ships that led industrial companies to ship less goods. After that, there was a glut of inventory with retailers where they have to work their way down through it. When you look at our average revenue per bill last quarter, it was $385. You're talking 4, 4x above that number, 4, 5x above that number is where the truckload rates are at, even in the depressed environment they are in. Now, sometimes I get the question, well, Mario, if you look at heavy LTL, what's the conversion point?

Speaker Change: Chips that led industrial companies to ship less goods. After that there was a glut of inventory with the theaters, where they have to work their way down through it and that's sort of whether that's where that there was a decline in industrial demand I mean, if you think about it is the highest and manufacturing index has there been any contraction type space below 50 put almost two and a half three years now and which.

Speaker Change: Is commensurate with what we have seen with the freight recession. So far now a lot of that decline has been driven by underlying demand being software specifically into the industrial sector here in the U S. Now if you look at.

Speaker Change: Where things go from here what was the other most of the transportation on the truckload side, we don't see a lot of direct conversion from LPL to truckload I always give the example of if you look at how much we how much did each for truckload at about two bucks a month give or take I would average length of haul is approximately 850 miles so it.

Speaker Change: The truckload shipment is about 1700 daughters to move to move that shipment. When you look at our average 70, who put a bill last quarter. That's what's the $185 you're talking four Ford X above above that number four or five extra bump that number is where we're the truckload rates are all that even into the precedent vitamin D and so sometimes I get the question.

Speaker Change: Well Marty if you look at a heavy LPL whats the conversion point to give you an example.

Mario Harik: To give you an example, in our case, we have a truckload of trucks that are moving to the U.S. usually when you go up on the weight scale, your rate per hundred weight comes down, it's about 15,700 pounds, and that's less than 0.5% of our shipments of 20 or 30 basis points of our total shipment count. So there is conversion, but it's a very small number, and whenever truckload rates recover, you will see that coming back through. Now, also sometimes I get the question, well, what about truckload consolidation? That has always happened. I mean, companies have used TMSs for decades now, and what TMSs do is that they look at if you don't have a service requirement and you can combine things into a truckload, you will combine it, and with truckload rates being lower, there might be more combinations into truckload happening.

Speaker Change: Usually when you go up on the wage scale your rates, but rather a pothole, but it's what it comes down it's about 15700 pounds and that's less than 0.5% of our shipments have been 20 or 30 basis points of our total shipment counts. So that is conversion, but its a very small number and whenever truckload rates recover you will see that coming back through now also sometimes I get the question.

Speaker Change: What about truckload consolidation that has always happens I mean companies have used T. M S. As Ford for decades, now and what CMS is due is that they look at if you. If you don't have the service requirement. Then you can combine things until truckload, you would combine it and with truckload rates being lower than it might be more combinations into truckload happening, but that's again well truckload rates goes up its going to come back to Lps.

Mario Harik: But that's, again, when truckload rates goes up, it's going to come back to LTL as well. So we don't see any structural changes in how LTL trade is being moved across the country.

Speaker Change: As well so we don't see any structural changes in how MTL phases being moved across the country.

Mario Harik: Okay, this is great. And so basically, because that 15-16% seem to have underperformed industrial production quite a bit over that timeframe, but you don't think this is a significant share loss. This is an opportunity potentially for the industry to see that volume come back when you know, things turn the corner from an industrial production perspective. Yeah, and I'll tell you, Fadi, we're excited about this outlook, because if you think about it, this industry has been capacity constrained for a long time, and you haven't had any meaningful amount of capacity being added. Even when you look at us and other carriers adding capacity, we are just recycling the capacity from yellow that used to be in operation a short two years ago.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: So basically because that's 15, 16% seem to have underperformed like industrial production quite a bit over that timeframe, but you don't think this is.

Speaker Change: Sure no significant share loss. This is they don't put can already.

Speaker Change: Potentially for the industry to see that volume come back when you know things don't turn the corner from an industrial production perspective.

Speaker Change: Yeah, and if anybody would excited about this outflow because if you think about it. This industry has been capacity constrained for a long time and you haven't had any meaningful amount of capacity being added even when you look at the us and other carriers, adding capacity. We are just recycling the capacity from yellow that used to be in operation is short two years ago, so whenever those cycles thoughts turning and.

Mario Harik: So whenever those cycles start turning, and you start seeing more freight going into LTL and truckload in every mode, you'll see truckload rates going higher, you're going to be the cycle of all cycles in terms of increases in volume, and you won't have enough industry capacity to handle that. So that's the piece that gets us excited in the future. Now, keep in mind, we're delivering the kind of numbers we are in a very soft freight market. Now imagine what's going to happen in the context of an upcycle, where you have 30% excess door capacity, you have an excellent service product, we have a team that is executing really well out there, and you couple that with customers who are happier and happier with the work that we are doing, we get really excited about the next upcycle.

Speaker Change: You start seeing more freight going into LPL in flux over then every mode, you'll see truckload rates going higher you'll kind of be the cycle of all cycles in terms of increases in volume and you won't have enough industry capacity to handle that so that's the piece that gets us excited in the future now keep in mind, where they don't need the kind of numbers. We are in a very soft freight market I would imagine what's going to happen in the context of an up cycle.

Speaker Change: You have 30% successful what capacity you have an excellent service product we have a team that is executing really well out there and you couple that with customers who are happier and happier with the work that we are doing we got really excited about the next up cycle, although its tough to see now with all the tariff noise that we're seeing.

Operator: Although it's tough to see now with all this tariff noise that we're seeing.

Speaker Change: Okay.

Kenneth Hoexter: Our next question is from Ken Hoexter with Bank of America. Hey, great. Good morning. Mario, I want to hit on the pricing side, right? Just the market doesn't occur in a vacuum and you've done well. But but, you know, we're hearing from from others that have reported some pretty aggressive kind of pricing story in the market. Can you talk a little bit about what's going on, particularly in the local SMB side? And then, Ali, just to clarify, I'm getting a lot of questions. Just if you're down seven and a half percent in tonnage in first quarter trending down, call it mid single digits in 2Q.

Hector: Our next question is from 10, Hector with Bank of America.

Hector: Hey, great good morning.

Hector: Mary I wanted to hit on the on the pricing side right. Just it. This the marked it doesn't occur in a vacuum and you've done well, but you know we're hearing from from others that have reported some pretty aggressive kind of pricing story in the market can you talk a little bit about what's going on particularly in the local SMB side, and then Ali just to <unk>.

Hector: Clarify that I'm getting a lot of questions just if you're down seven 5% in tonnage in first quarter trending down call. It mid single digits in two Q I think just it would be helpful to clarify that comment because does that mean you need just flat performance for the back half of the year to be better than mid single digits does it have to be up to get to I just want to understand that the your comments on getting to the one.

Ali Faghri: I think just it would be helpful to clarify that comment. Because does that mean you need just flat performance for the back half of the year to be better than mid single digits? Does it have to be up to get to? I just want to understand that your comment on getting to the 100 basis points of improvement versus the 150 you were reiterating. Thanks.

Hector: Hundred basis points of improvement versus the 150, you were reiterating thanks.

Mario Harik: Again, I'll first talk on the overall industry pricing side, and then I'll turn it over to Ali to talk about the volume expectations here and what we're seeing, what we saw in April and beyond. But if you look at the pricing side, we continue to see a very constructive pricing environment for LTLs. Now, for us specifically, if you look at our starting point, if you compare our pricing structure to best-in-class, we were approximately, when we started our plan a few years ago, about 15 points lower on price. And what we have, that delta, was driven by their better service product for a longer period of time.

Speaker Change: Again, I'll just first off on the overall industry pricing side, and then I'll turn it over to Ali.

Speaker Change: To talk about the volume expectations, you know what we're seeing what we saw in April and beyond.

Ali: If you if you look at the pricing side, we continue to see very constructive pricing environment for L. P. L and I'll put us specifically, we if you look at where do we our starting point if you compare our pricing structure to best in class.

Ali: Approximately when we started out plan a few years ago about 15 points lower on price.

Ali: And once we have that Delta was driven by a better service product for a longer period of time and the other half was needs out of a two thirds, what 5%, whereas the sort of your revenue or premium services, and then about two and a half points out of the 15, where from a mix dynamic of small to medium size a bit.

Mario Harik: And the other half was made out of two-thirds or 5% were accessorial revenue or premium services. And then about 2.5 points out of the 15 were from a mixed dynamic of small to medium-sized businesses having a more accretive margin. So if you think about it, over the last few years, we have been able to outperform the market by approximately, call it, two to three points on price. Now, one point of that is catching up on the seven, eight-point differential on service driving better price. And we have an eight-year runway to get there. So if you think about it, over the last year, this year as well, we're pricing, call it, a point above what we typically would price at.

Ali: This is having a more accretive accretive margin. So if you think about it over the last few years, we have been able to outperform the market by approximately you called it two to three points on price now one point of that is catching up on the seven to eight point differential on service driving better price and better.

Ali: The eight year run way to get there. So if you think about it over the last year this year as well with pricing call. It is a point above what specifically with price as we're getting dead. Because of then has most of the service product. The second category is that all these accessorial was what do we started our plan, 9% to 10% of revenue, whereas this ordeal revenue.

Mario Harik: And we're getting there because of the enhancements of the service product. The second category is around these accessorials. When we started our plan, 9% to 10% of revenue were accessorial revenue. Our goal is to get to 15 points. And now, as of this last quarter, we were at 11 points as a percent of total. So we got an incremental point in pricing driven by us onboarding higher value services that our customers are asking for. These are things like trade shows and retail store rollouts and must arrive by date. So these are all incremental services that the customer asks for, and obviously, we build them for it.

Ali: Our goal is to get the 15 points and now as of this last quarter. We were at 11 points as a percent of thoughts also we got an incremental point in pricing driven by us onboard think higher value services that our customers are asking for these are things like trade shows and retail so rollouts unless arrived by date. So these are all incremental services that because somebody has soared and obviously.

Mario Harik: And the third component is growing in the small to medium-sized business segment. In that segment, I'll tell you again, it's easier said than done. I mean, to grow in that segment, you need excellent service because these are smaller businesses. They might be shipping five shipments a week, ten shipments a week. The shipment represents their brand. They want it to be picked up on time, delivered on time, delivered damage-free every single time. And with the improvements in service we've had, we've had a tremendous amount of success in that channel. The second component as well is that we, if you take a step back, we've added 25% more local sellers to our team over the last few years.

Ali: Building for it and the third component is growing in the small to medium sized business segment and that's in that segment.

You can't it's easier said than done I mean to grow in that segment you need excellent service. Because these are smaller businesses they might be shifting five shipments of wheat and shipments a week. The shipments represents of their brands. They want it to be picked up on time delivered on time deliver damage free every single time and with the improvements in service. We've had we've had a tremendous amount of success in that channel.

Ali: The second component as well is that we are if you take a step back we've added 25% more local centers to our team over the last few years and it takes after you hired a local center. It takes you another full year to get them fully ramped to productivity as well. So this has been obviously in the worst for us for a number of years and our local sales force, it's truly doing a tremendous.

Mario Harik: And it takes, after you hire a local seller, it takes you another full year to get them fully ramped to productivity as well. So this has been obviously in the works for us for a number of years. And our local sales force is truly doing a tremendous job out there. Just to give you an example, in the first quarter, we grew that channel in the mid to high single digits from a tonnage perspective. And we accelerated that to double digits here in the month of April. So we're seeing tremendous progress in that segment of business.

Ali: Job out there just to give you. An example in the first quarter. We grew that channel in the mid to high single digits, probably punished perspectives and we accelerated that to double digit in the month of April. So we're seeing tremendous progress in that in that segment of the business and we expect that to be the case for the use of comfort us we get to the 30% as a percent of total being local accounts.

Mario Harik: And we expect that to be the case for the years to come for us to get to the 30% as a percent of total being local accounts. And then, Ken, when you think about the volume outlook for the year, if you just look at the first quarter specifically, Punish was down 7.5 points on a year-over-year basis. However, we did see the trend improve as we moved through the quarter. January was down 8.5 points year-over-year. And then March and April were down closer to that 5% to 6% range. Now, if you look to the second half of the year, Ken, we do have easier comps versus the first half of the year.

Ali: And then Ken when you think about the volume outlook for the year. If you just look at the first quarter, specifically tonnage was down seven five points on a year over year basis. However, we did see the trend improve as we move through the quarter January was down eight five points year over year and that March and April were down closer to that 5% to 6% range now if you look through the SEC.

Ali: Half of the year Cat, we do have easier comps versus the first half of the year. So volumes should gradually improve as he moves through the year given that comp dynamics and also following normal seasonality now to the extent that we see the macro soften in the back half of the year and volumes remained down mid single digits in the back half given against those easier comps.

Ali Faghri: So volume should gradually improve as we move through the year, given that comp dynamics and also following normal seasonality. Now, to the extent that we see the macro soften in the back half of the year and volumes remain down mid-single digits in the back half, even against those easier comps, that would be more reflective of a sub-seasonal demand environment in the back half of the year. We would still expect to deliver 100 basis points of OR improvement in that scenario. So regardless of how we look at it, we're going to deliver a very strong year of margin improvement this year, on top of being the only LPL carrier to improve margins in 2024 as well.

Ali: It would be more reflective of a sub seasonal demand environment in the back half of the year, we would still expect to deliver a 100 basis points of or improvement in that in that scenario. So regardless of how we looked at it we're going to deliver a very strong year of margin improvement this year on top of.

Ali: Being the only LPL carrier to improve margins in 2024 as well.

Mario Harik: Helpful clarification. And then just for a follow up real quick one on service, Mario, it claims went up a touch, I guess, 0.2 to 0.3. Is there anything, I guess, since you're mentioning service is so important, is there anything on that or led to that? And Ali, in that volume outlook, is that including the tariff kind of impact in that return to normality? Or do you do you see any kind of air pocket coming from that? Thanks.

Jon Chapell: Helpful Clarification, and then just for a follow up real quick one on service Mario what it claims went up a touch I guess the point to 0.3 is there anything I guess.

Speaker Change: Since you're you're mentioning services. So important is there anything on that or led to that.

Speaker Change: And Ali in and that volume outlook is that including the tariffs kind of impacting and that returned to normal normality or do you do you see any kind of air pocket coming from that thanks guys.

Mario Harik: On the damage claims ratio, so it's been relatively consistent with where we've been. We were in the 0.2% range for the quarter, but we just caught the round up to the 0.3%. Now, when you look at the underlying damages in the quarter, so that's the KPI, where when we deliver a pallet to a customer, they can take an exception of the damage. So it's a real-time KPI of how our damages are doing, and they have been the best of any other quarter in the company's history in the first quarter. And as you know, we've made tremendous progress in improving our quality of service, and it's not going to be linear.

Speaker Change: So I'll do it can't all the damage claims ratio. So it's been relatively consistent with where we've been we went into 0.2% range for the quarter, but we just called down to up to the 0.3% now when you look at the underlying damages in the quarter. So that's the key P. I would when we deliver a pallet to a customer they can think of an exception of a damage. So instead.

Speaker Change: Real time keeping.

Speaker Change: Images are doing and they had been the best of any other quarter in the company's history in the first quarter and as you know we've made tremendous progress in improving our quality of service and it's not going to be linear you know took best in class 10 years to go from a seven to eight 1% claims ratio and it took us a few years to go from a higher number two with where we are now what I would call just to get through having no claims in that one.

Mario Harik: You know, it took best-in-class 10 years to go from a 0.7% to a 0.1% claims ratio, and it took us a few years to go from a higher number to where we are now. And our goal is to get to having no claims in our network. That's the ultimate goal, and we're making tremendous progress on that.

Speaker Change: And that's what that's the ultimate goal and we're making tremendous progress on that front.

Ali Faghri: On the volume outlook for the second half, obviously there's a lot of uncertainty, and so it's difficult to predict the impact of the tariffs. But generally, the way you should think about it is the 150 reflects what we've been seeing through the first four months of the year, to the extent, again, the macro gets softer, tariffs start to have an impact on the broader economy, trends turn more sub-seasonal for us from a volume perspective. Again, that would be more supportive of the volumes being down in that mid-single digit range for the year, and closer to about 100 basis points from a margin improvement perspective.

Speaker Change: On the volume outlook for the second half obviously, there's a lot of uncertainty and so it's difficult to predict the impact of the tariffs, but generally the way you should think about it is the $1 50 reflects what we've been seeing through the first four four months of the year to the extent again, the macro get softer care start to have an impact on the broader economy trends turned more subs.

Speaker Change: Seasonal for us from us from a volume perspective, again that would be more supportive of the volumes being down in that mid single digit for the range for the year closer to about 100 basis points from a margin improvement perspective.

Scott Group: Our next question is from Scott Group with Wolf Research. Hey, thanks. Good morning. Mario, I think you just said you want to get local to 30% of the revenue. Where is it today? And is there any way to just think about like what the margin is on the margin premium on local versus national and how that gap's widening or shrinking today? Yes, so we are today, when we started our plan, Scott, we were at about 20% of total was the revenue of locals. We're now up to the low to mid 20% range. And our goal, obviously, to keep on making meaningful progress.

Speaker Change: Our next question is from Scott Group with Wolfe Research.

Speaker Change: Hey, Thanks, good morning.

Mario Harris: Mario I think you just said you Wanna get local to 30% of the revenue.

Speaker Change: Where is it today.

Speaker Change: And is there any way to just think about like what the the margin is on the.

Speaker Change: The margin premium on on local versus national and and and.

Speaker Change: In fact gaps widening or shrinking today.

Speaker Change: Yeah. So are we at today when we started our planned Scott we were at about 20% of total AR was what does the revenue off locals, we're now up to the low to mid 20% range.

Speaker Change: Our goal, obviously to keep on making meaningful progress as I mentioned earlier, we've added about 2500 with new local customers in the first quarter just to kind of give you an idea on the cadence and again would be accelerated tonnage growth in April and that channels to a double digit comp.

Scott Group: As I mentioned earlier, we've added about 2,500 new local customers in the first quarter, just to kind of give you an idea on the cadence. And again, we accelerated tonnage growth in April in that channel to double digit, compared to mid to high in the first quarter. Now, if you look at pricing differential, the margin differential between that channel and the larger accounts have been fairly consistent through the years. Typically, we price that channel based on a annual price that goes through a normal GRI process, so once a year, typically, and the margin spread has been relatively consistent.

Speaker Change: Compared to mid to high single digits in the first quarter now if you look at pricing differential the margin differential between that channel and the luxury accounts had been fairly consistent through the year typically we priced that channel based on a and we'll price. It goes to a normal July process I won't say it once a year typically.

Speaker Change: The marketing spend has been relatively consistent.

Ali Faghri: And then maybe just a quick one, Ali, the tonnage down 5.7% in April, how is that just on a seasonality, like versus seasonality? And then if there's any way you could say, you know, I think you said 300 base points of sequential improvement in margin for the quarter. What's the volume assumption for the quarter assumed in that?

Speaker Change: And then maybe just a quick one on the the tonnage down five 7% and in.

Speaker Change: In April I was back to Sun.

Speaker Change: Season out like versus seasonality and then if there's any way you could say you know I think you said 300 basis points of sequential improvement in margin for the quarter, what's the volume assumption for the quarter assumed in there.

Ali Faghri: Sure, Scott. So, again, April was down 5.7% on a year-over-year basis, and that was largely in line with normal seasonality relative to the month of March. And as I noted, we did see volume trends improve throughout Q1 on a year-over-year basis, and that momentum carried into the month of April. Now, when you think about Q2 as a whole, obviously, tough environment to predict, but if you look at how tonnage has historically played out throughout the second quarter and apply those trends through the rest of Q2, that would imply full quarter tonnage being down a similar range to the month of April on a year-over-year basis.

Speaker Change: Sure Scott. So again April was down five 7% on a year over year basis, and that was largely in line with normal seasonality relative to the month of March and as I noted, we did see volume trends improved throughout Q1 on a year over year basis and that momentum carried into our into the month of April now when you think about Q2 is a <unk>.

Speaker Change: Whole, obviously tough environment to predict but if you look at our tonnage has historically played out throughout the second quarter and apply those trends through the rest of Q2 that would imply full quarter tonnage being down a similar range to the month of April on a year over year basis.

Speaker Change: Our next question is from quip.

Speaker Change: Chris Wetherbee with Wells Fargo.

Operator: Hey, thanks. Good morning, guys. So maybe just to follow up on that, I know this is difficult, but as you sort of look and talk to the customers in the portfolio, to get a sense of maybe what the tariff impact could be, I guess, relative to what that normal seasonality is for 2Q, have you picked up anything meaningful that sort of tells you that you can perform close to that level? Or maybe there's going to be sort of expected underperformance in the month of May, potentially with a bounce back in June? If there's any kind of color or clarity you've gotten from customers, it'd be great to hear.

Chris Wetherbee: Yeah, Hey, Thanks, Good morning, guys. So maybe just to follow up on that I know this is difficult, but as you sort of look and talk to the customers in the portfolio did you get a sense of maybe what the tariff impact could be I guess relative to what that normal seasonality is for two Q have you picked up anything meaningful that sort of tells you that you can perform close to that level.

Chris Wetherbee: Or maybe there's going to be sort of expected under performance in the month of may potentially with a bounce back in June if theres any kind of color or clarity you have gotten from customers would be great to hear.

Operator: Thank you. Okay, that's helpful. I appreciate the color there.

Chris Wetherbee: Yeah, you got it Chris well, if you look at it it's tough to tell because these are unprecedented times and it's tough to tell but what those tariffs would have in terms of impact on what domestic freight moves would look like because he obviously has an LPL carrier, we're more exposed to in total moves within the country and not external.

Chris Wetherbee: Two in total of imports as they hold now as I said, when we do a survey with our customers every quarter to get their feedback on what they are what they are hearing and we just finished the.

Chris Wetherbee: End of Q1 survey and what we heard the word it's called at the end of April is that customers are not expecting a I said it was the majority of customers are expecting to see a flattish demand in the back half as opposed to what they were a quarter ago with the majority would expecting an acceleration of demand in the back half so with you.

Chris Wetherbee: You get more cautious tone from the from the customers. We did see both in Q1 and in April the industrials have slightly outperformed the retail segment and keep in mind, that's more than two thirds of our of our afraid there's industrial freight and that outperformed slightly the retail sector as well and I'm looking forward.

Chris Wetherbee: It's very tough to predict what's going to happen and I'll give you just some perspective, we haven't heard a lot of pull forward. So we haven't seen that in meaningful ways from customers, but customers generally are falling in three times. Some customers are in a wait and see type pattern. Some customers are still importing goods as they always have some customers that put.

Chris Wetherbee: Fort worth and then some customers are re designing the supply chain to get more product sourced or built locally I mean, just to give you. An example, we are I recently met with a large customer at an industrial company that produces product in the U S and Mexico, and Canada and now they are moving more of the manufacturing here to Texas in the U S.

Chris Wetherbee: And we used to only handle the outbound freight out of that distribution facility that wood handling both inbound and outbound freight with the inbound has four parts and raw materials and then the outbound to support the finished product all the way to the customer, but so we're seeing a wide variety of of behaviors from customers and it's tough to predict what what the next few months will do.

Chris Wetherbee: What about the back half will do based on these dynamics now if you look at the month of April as Ali said this was in line with seasonality. It put US a January was down eight four and February was down about eight March was down about six April he was down five seven and our comps do get easier as we head into the back half of the year. So we'll see what the what the market hasnt stored but were.

Chris Wetherbee: We're working with our customers closely and I would go to provide solutions for them whenever they need them.

Speaker Change: Okay. That's helpful. I appreciate the color there and a quick follow up you mentioned in the prepared remarks. The buyback. Obviously you guys have been focused I think also on deleveraging over time, but maybe with where the stock is this has become a bit more attractive can you talk a bit about what the opportunity you might see that capital available for buybacks as we go through 2025.

Operator: And quick follow up, you mentioned the prepared remarks to buyback. Obviously, you guys have been focused, I think, also on deleveraging over time, but maybe with where the stock is, this has become a bit more attractive. Can you talk a bit about what the opportunity you might see, kind of capital available for buybacks as we go through 2025? Yeah, Chris, when you think about the buyback, so we had the authorization come out at the end of the first quarter. You know, we had a $750 million authorization. And when you think about capital allocation for us, we're looking in three ways, right?

Speaker Change: Yeah, Chris when you think about the buyback so weird your observation come out at the end of the first quarter, we got $750 million authorization and when you think about capital allocation for US. We're looking in three ways right. Our focus is going to be continuing to invest organically in that as capex for the business and we're going to look to continue to delever and get to our long term goal of one to two times and then when you think.

Mario Harik: Our focus is going to be continuing to invest organically, and that's CapEx for the business. Then we're going to look to continue to delever and get to our long-term goal of one to two times. And then when you think about excess cash, that authorization gives us the flexibility to seek the highest return on capital for our shareholders. And that's really what we're looking at. So there's no specific timeframe on that repurchase or no specific amount, but we'll be opportunistic with what the market affords us.

Speaker Change: About excess cash that authorization gives us the flexibility to to seek the highest return on capital for our shareholders and that's really what we're looking at so there's no specific timeframe on that repurchase in a specific amount, but we'll be opportunistic with what the market affords us.

Speaker Change: Yeah.

Speaker Change: Is your line on mute.

Jason Seidl: Nope, I am here. Good morning, guys. I wanted to ask two quick questions. One, going back to the pricing side. If we removed the push into local and premium services, you know, how would the contractual renewals look on a sequential basis? And the second question, you know, we've heard a bunch about Amazon, maybe, you know, pushing back a little bit into the LTL space going back into their fulfillment centers. UPS has announced they're getting back in the ground with freight. You know, how much of a threat to the industry going forward is that, or is this just around the edges?

Speaker Change: No I am Harry good morning, guys.

Speaker Change: I wanted to ask two quick questions, one going back to the pricing side, if if we remove the push into local and premium services.

Speaker Change: The contractual renewals look on a sequential basis and the second question you know we've heard a bunch about Amazon, maybe pushing back a little bit into the <unk> space going back in their fulfillment centers Ups's announced they're getting back in the ground with freight you know how much of a threat to the industry going forward is that or is this just around the edges. Thanks.

Kyle Wismans: It's Kyle. I'll start then I'll hand it back to Mario. So I think to directly address your question, when you think about renewals for us, renewals were up mid to high single-digit range for the quarter. And that was an acceleration, you know, and it reflects the confidence we have in delivering above-market yield performance through the year. And when you think about renewals, you really have to look at the flow through from those renewals. And in the first quarter, yield was up 6.9%, again, reflecting those strong renewals, and rep per ship was up 5.2, with the delta being weight per shipment.

Speaker Change: Yeah, It's Carl I'll start then I'll hand, it back to Mario So so I think to directly address your question. When you think about renewals for US renewals were up mid to high single digit range for the quarter and that was an acceleration you know and it reflects the confidence we have in delivering above market yield performance through the year and when you think about renewals you really have to look at the flow through from those.

Speaker Change: And in the first quarter yield was up six 9% again, reflecting a strong renewals and Rev per ship was up $5 two with the delta being weight per shipment. So a very strong showing for us there and when you think about how those renewals will impact us here in the quarter. We think for Q2 yield ex fuels can improve sequentially from the first quarter and we expect to see that through the rest of the year. So on a year over year basis.

Kyle Wismans: So a very strong showing for us there. And when you think about how those renewals will impact us here in the quarter, we think for Q2, yield X fuels get improved sequentially from the first quarter. And we expect to see that through the rest of the year. So on a year-over-year basis, we expect Q2 yield X fuel to be up in a similar range year-over-year basis to Q1. And that assumes a similar weight per shipment dynamic on a year-over-year basis in Q2 versus Q1.

Speaker Change: We expect Q2 yield ex fuel to be up in a similar range of year over year basis for Q1 and that assumes a similar weight per shipment dynamic on a year over year basis in Q2 versus Q1.

Mario Harik: And on the threats, Jason, for potential threats with UPS and Amazon, we don't see them as being material threats, and for a few reasons. One, starting with UPS. And as you know, they are targeting very lightweight shipments with this service, typically a few hundred pounds. Compare that to our average weight per shipment, it's about 1350. They also are much more, it's more parcel-like, it's going into residences and inside deliveries, which are typically things we don't do a lot of in traditional LTL. And they also, it's not a new offering for them. I mean, they used to offer that for a long time, and usually, when you start getting into this heavy parcel-type shipping, it's not a conveyable product, so it doesn't operate well in a parcel sortation facility.

Speaker Change: And on the threats, Jason for a potential threats with our U P. S. At Amazon, we don't see them as being material threats and put a few reason one starting with with U P. S and as you know they are targeting very lightweight shipments with the service typically a few hundred pounds.

Speaker Change: That's what I would average weight per shipment is about $30 50, but they also are much more its more like its going into residences and inside deliveries, which are typically things. We don't do a lot of in traditional MTM and they they also something you offering for them I mean, they used will offer that for a long time and usually when you start getting into the heavy.

Speaker Change: Also type shipping.

Speaker Change: There's something available product so it doesn't operate well in a parcel sortation facility. So it's much harder for them to execute on it and I'll tell you. The last thing is that they exited the LTM business a few years ago. So I can see that as being a meaningful a meaningful impact on our industry and in any way.

Mario Harik: So it's much harder for them to execute on it. And I'll tell you, the last thing is that they exited the LTL business a few years ago. So I can't see that as being a meaningful impact on our industry in any way. For the large retailer you mentioned, it's a similar kind of feedback there. I mean, today they have a lower exposure to LTL than other modes of transportation. They move much more parcel, they move much more truckload, and that could be, if they were insourcing that, that could be a threat to these industries. But in LTLs, they're approximately 2% of the overall LTL industry spend.

Speaker Change: The largest retailer you mentioned, it's a similar kind of feedback there I mean do they have a lower exposure to LPL and other modes of transportation. They moved much more to parcel they moved much more truckload and that that could be if they were insourcing that that could be a threat to these industries, but then they'll tls.

Speaker Change: So with the 2% of the overall MTL industry spend put us specifically there are less than half a point of our overall volume and shipments. So we don't do a lot of business, there and you're seeing something similar from them that you saw from large retailers when whenever they have excess capacity between moves going between large distribution facilities that are going to try to put more fall short.

Mario Harik: For us specifically, they're less than half a point of our overall volume and shipments. We don't do a lot of business there. And you're seeing something similar from them that you saw from large retailers. Whenever they have excess capacity between moves going between large distribution facilities, they're going to try to put more partial truckload-type freight moving into that. So again, we don't expect that currently, based on what we're seeing, we don't expect them to be a threat either. But we're closely, obviously, monitoring as well. That makes sense. I appreciate the time and color as always.

Speaker Change: Close type type freight moving into that so again, we don't expect that's currently based on what we're seeing we don't expect them to be a threat to either but we'll closely obviously monitoring.

Speaker Change: I think as well.

Speaker Change: That makes sense I appreciate the time and color as always.

Speaker Change: You got it thanks.

Operator: You got it. Thanks, Jason.

Speaker Change: Yeah.

Yeah.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Jordan Alliger: Operator, can we please take the next question?

Speaker Change: Operator can we please take the next question.

Jordan Alliger: Our next question is from Jordan Alliger with Goldman Sachs. Sorry, it seems like, um, uh, pricing is... been the main or one of the main topics of conversation these past few weeks and months.

Speaker Change: Our next question is from Jordan Alger with Goldman Sachs.

Jordan Alger: Hi, good morning.

Speaker Change: More of a curiosity question.

Jordan Alger: It seems like.

Jordan Alger: Sorry, it seems like pricing has been the main or if one of the main topics of conversation. These past few weeks and months and I guess my question is in light of what you said about contractual renewals.

Mario Harik: And I guess my question is in light of what you said about contractual renewals, mid to high single digits, why would a shipper agree to price increases like that in the environment we're in? Thanks. A lot of it, Jordan, goes back to the quality of service that we are offering, because keep in mind with where our service is at, we are still, I mean, currently we're about 12 points or so lower on overall yield when you normalize for weight per shipment and length of haul to best-in-class. So, we still have a big differential there, but it's a combination of a few things.

Jordan Alger: Mid to high single digits.

Speaker Change: Why would a shipper agree to price increases like that in the environment. We're in thanks.

Speaker Change: Yeah, well, there's a lot of it the northern goes back to the quality of service that offering because keep in mind with where our service is that we are still I mean, when do we see what about called the 12 points or so lower on overall yields when you normalize for wafer shipment that length of haul so best in class. So we still have a big big differential there.

Speaker Change: But it's a combination of a few things one is when you deliver a better service you. Obviously can can get can get a higher because the customers do understand that we are investing in our network and it doesn't inflationary business, where you have higher wages.

Mario Harik: One is when you deliver better service, you obviously can get a higher, the customers do understand that we are investing in our network, and it is an inflationary business where you have higher wages, you're more expensive for equipment, but investing in service centers, and that obviously leads to, we need to price that in a capacity-constrained industry where for us to provide that level of service, they understand that these investments need to be made. The second component of that is also a component of mix, so when you go back to it, I mean, every customer has freight that has to move on time, has to move damage-free every single time, and they're willing to pay more for that freight to move, and we're seeing higher success in being able to onboard that type of freight.

Speaker Change: Ore expense, what equipment, but investing in service centers and that obviously leads to we need to price that then it capacity constrained industry, where but also provide that level of service. They understand that these investments need to be it needs to be made the.

Speaker Change: The second component of that is also a component of mix. So when you go back to it I mean every customer has phrased. It has to move on time has to move damage free every single time and theyre willing to pay more for that freight to move but were seeing higher success in being able to onboard that type of freight.

Mario Harik: Then you couple that with the local business that we are onboarding, they're very service-sensitive, these customers, and effectively we're able to provide a great service product for them as well. So, a lot of it ties back to that kind of dynamic, and we do have a network that covers obviously the entire country, and we have one of the fastest networks in the industry. I believe the only faster network is FedEx Premium, compared to, if you look at the average expense in time, and customers also want this coverage, they want capacity, they want speed, and we can provide all of these things for them.

Speaker Change: Then you couple that with the local business that'd be it with good Onboarding, a very service sensitive these customers and effectively we're able to provide a great service product for them as well so a lot of it ties back to that kind of dynamic and we don't have a network that covers obviously the entire country and we have one of the fastest networks in the industry I believe the only person that's where it gets that extreme.

Speaker Change: <unk> compare to that if you look at the average length of time and our customers also want this coverage they want capacity they want speeds and we can provide all of these things for them.

Operator: Okay, thanks.

Speaker Change: Okay. Thanks.

Speaker Change: You bet.

Brian Ossenbeck: Our next question is from Brian Ossenbeck with J.P. Morgan. Hey, good morning. Thanks for taking the questions.

Speaker Change: Our next question is from Brian Austin back with J P. Morgan.

Brian Austin: Hey, good morning, Thanks for taking the questions. So just come back to the pricing environment.

Brian Ossenbeck: So, just to come back to the pricing environment, Kyle, you gave a little bit of color on the second quarter, but maybe you can widen that out to the scenarios we've been talking about in the back half of the year. What do you expect? Yield X fuel or fragment revenue per shipment in the back half in the 150 and 100 basis point scenario, since you already gave the view on there for tonnage? Thank you. Thanks, Brian. So when you think about the broader yield, I mean, I think as we talk about, so we're seeing strong contract renewals, we talk about mid to high single digit range and our Q2 outlook being, you know, in line with Q1 up on a year over year basis.

Speaker Change: Give a little bit of color on the.

Speaker Change: The second quarter, but maybe if you can widen that out to the scenarios you've been talking about in the back half of the year. What do you expect your next door.

Speaker Change: Premium revenue per shipment in the back half and the 150 and 100 basis point scenario. Since you already gave them with you on their tonnage. Thank.

Speaker Change: Thank you.

Speaker Change: Thanks, Brian So when you think about the broader yield I mean, I think as we talk about so we're seeing strong contract renewals you talked about mid to high single digit range and our Q2 outlook being in line with Q1 up on a year over year basis. When you think about the rest of the year you know we're seeing some of these favorable trends. So far this year. We expect these to continue you got to keep in mind too.

Kyle Wismans: When you think about the rest of the year, you know, we're seeing some of these favorable trends so far this year, we expect these to continue. You got to keep in mind too, a fair amount of capacity has exited the market compared to where we were a few years ago. And for the broader industry, you know, we typically see pricing 100 to 200 basis points above cost inflation. And our expectation is to outperform the rest of the industry, driven by a lot of the levers Mario talked about, whether it's growing with small, medium businesses. are increasing our access to Oreos.

Speaker Change: Fair amount of capacity has exited the market compared to where we were a few years ago and for the broader industry. You know, we typically see pricing of 100 to 200 basis points above cost inflation and our expectation is to outperform the rest of the industry driven by a lot of levers might already talked about whether it's growing with small medium businesses.

Speaker Change: Our increasing our accessorial, so we expect a strong pricing and vibrant industry and we think we can we can deliver above market yield growth for our business.

Kyle Wismans: So we expect a strong pricing environment in the industry, and we think we can deliver above-market yield growth for our business.

Speaker Change: Thank you.

Stephanie Moore: Our next question is from Stephanie Moore with Jeffreys. Hi, good morning. Thank you.

Stephanie Moore: Our next question is from Stephanie Moore with Jefferies.

Stephanie Moore: Hi, good morning, Thank you.

Ali Faghri: Maybe you could, if you wanted to, provide an update on some of the recently opened, or very recent in the last year or so, of the new facilities that you've opened, how those are progressing, maybe from a volume standpoint, OR standpoint, any metrics you're willing to provide. Thanks. Good morning, Stephanie. This is Ali. So, the sites are all performing very well. And as we noted, they were accretive to OR in 2024, and we would expect them to be accretive this year as well. And that's going to contribute to the strong year of margin improvement that we expect to deliver.

Speaker Change: Maybe even if you wanted to provide an update on some of the recently opened are very recent in the last year or so of the.

Stephanie Moore: New facilities that you have opened how those are progressing maybe from a.

Stephanie Moore: Volume standpoint O R standpoint, any metrics you're willing to provide.

Stephanie Moore: Good morning, Stephanie This is Lee so the sites are all performing very well and as we noted they were accretive to award in 2024, and we would expect them to be accretive this year as well and that's going to contribute to the strong year of margin improvement that we expect to deliver just to put it in perspective, if you think about all of the sites that we've <unk>.

Mario Harik: Just to put it in perspective, if you think about all of the sites that we've opened up over the last 12 months, we've actually had less than 200 headcount additions across all of those sites, as most of these locations are in markets where we already have a strong presence. And in the markets where we have brought new locations online, we've seen meaningful improvements from a cost efficiency perspective across both pickup and delivery, as well as line haul density. And so, all of the openings are either meeting or exceeding our expectations, and everything we've seen so far confirms our confidence in the significant accretion potential we're going to see from these sites, both near-term and medium to long-term.

Stephanie Moore: And up over the last 12 months, we've actually had less than 200 that head count additions across all of those sites as most of these locations are in markets, where we're already have a strong presence in the markets, where we have brought new locations online we've seen meaningful improvements from a cost efficiency perspective across both pickup and delivery as well as <unk>.

Stephanie Moore: Mid haul density and so all of the openings are either meeting or exceeding our expectations and everything we've seen so far confirms our confidence in the significant accretion potential we're going to see from these sites, both both near term and medium to long term.

Mario Harik: And I guess just to follow up on that, in terms of the revenue that's being generated from those sites and kind of the customers you're pulling from, is it a good mix of existing customers that have just kind of shifted to these new sites? Or have you been able to kind of bring in new customers as well? So, Stephanie, for us in the new sites, as Ali said, because they operate in existing markets where we already had a presence, except for a handful of them, it's predominantly existing customers that are moving through those sites. But what we're seeing is we're seeing a lower cost to serve and a higher efficiency, and we're also seeing better service.

Speaker Change: And I guess just to follow up on that in terms of the revenue that's being generated from those sites are kind of the customers you are pulling from is it.

Speaker Change: Good mix of existing customers that have just kind of shifted to these new sites or have you been able to kind of bring a new new customers as well.

Speaker Change: So Stephanie put us and then use size as Alice said, because they operate in existing markets, where we already had a presence except for a handful of them.

Speaker Change: We are it's predominantly existing customers that are moving through those sites and that's what we're seeing is we're seeing a lower cost to serve and with higher efficiency and we're also seeing better service I mean to give you. An example, and I know we spoke about it than prior calls, but if you look at a market like Nashville, where we used to service north of Nashville and Goodlettsville.

Mario Harik: I mean, to give you an example, and I know we spoke about it in prior calls, but if you look at a market like Nashville, where we used to service north of Nashville in Goodlitsville from our site southeast of Nashville, we used to have to dispatch drivers in our north to get to our customer pickup and deliveries, then to be able to come back in our south to get to the terminal. Now we have a terminal in Goodlitsville where some of our drivers are driving 5, 10 minutes to get to the customer as opposed to the alternative.

Speaker Change: From our side South East of Nashville, we used up the dispatch drivers and I would north so it gets to our customer pickup and deliveries tend to be able to come back in our south to get to the terminal that we have a terminal goodlettsville, where some of our drivers are driving 510 minutes to get to the customer as opposed to the alternative and you look at a market like Brooklyn, New York, We just had a small service centers support of Brooks.

Mario Harik: You look at a market like Brooklyn, New York, we used to have a small service center, so part of Brooklyn were being serviced from Long Island. And now by having one of the largest, actually the largest service center in the Brooklyn market, now we can service all the zip codes that are close to the service center from the service center, improving pickup and delivery efficiency across the board. So what we have seen is predominantly existing to begin with, and then we have onboarded new customers that are now closer to our service center in some cases.

Speaker Change: And then what are being serviced from long island and now by having one of the largest section of your largest service center in the Brooklyn market that we can service a there's all the ZIP codes that are close to the service center from the sort of et cetera, improving pickup and delivery efficiency costs across the board. So what we have seen this predominantly existing to begin with and then we have onboard with new customers that are now closer to.

Speaker Change: Our service center in some cases, but in all of this but we're very disciplined in what will be on board. The way, we think about it ultimately theres a fixed amount of capacity in LTE M. If you want to improve marginally you would've improved profit you've kind of onboard profitable freight you've got to make sure that you are pricing the freight appropriately and working with your customers because they also customers. They know that when the market turns it won't be.

Mario Harik: But in all of that, we're very disciplined in what we onboard. The way we think about it, ultimately there's a fixed amount of capacity. In LTL, if you want to improve margin, you want to improve profits, you've got to onboard profitable freight. You've got to make sure that you are pricing the freight appropriately and working with your customers because they're also customers. They know that when the market turns, there won't be enough capacity. They want to have good relationships. They want to serve a great service. They want to make sure that you have coverage. They want to make sure that you have capacity.

Speaker Change: Enough capacity they want to have good relationships. They want a good sort of the great service. They want to make sure that you have coverage I want to make sure that you have capacity and we can provide all of these things so existing markets on having a similar dynamic that we see in the new service centers are having similar dynamic than what we see in existing markets and with the incremental benefits of higher efficiency.

Mario Harik: And we can provide all of these things. So existing markets are having a similar dynamic that we see in – or new service centers are having a similar dynamic than what we see in existing markets. With the incremental benefit of higher efficiency.

Speaker Change: Yeah.

Ravi Shanker: Our next question is from Ravi Shanker with Morgan Stanley. So just a couple of questions here. One is noted on your comments on CapEx, but you are seeing some of your peers kind of pull down their CapEx plans and pull back a little bit. Is that an opportunity or a risk for you guys? What are your thoughts on that?

Speaker Change: Our next question is from Ravi Shanker with Morgan Stanley.

Okay.

Speaker Change: Good afternoon, everyone. Just a couple of questions here one is noted.

Speaker Change: Noted on your comments on Capex, but yeah, you are seeing some of your peers pull down their capex plans are I had pulled back a little bad kind of is that an opportunity or a risk for you guys and kind of what are your thoughts on that and second Marty I think you said you have a software that tells you what volumes are going to do before it happens which sounds like the closest.

Mario Harik: And second, Mario, I think you said you have a software that tells you what volumes you're going to do before it happens, which sounds like the closest thing to a crystal ball to me. So can you just explain to us how exactly your crystal ball works, how much advance notice you have, et cetera? And just a little more detail there just would be helpful.

Speaker Change: Turning to our Crystal ball to me. So can you just explain to us how exactly you're a crystal ball works how much advanced notice you have etcetera.

Speaker Change: A little more detail there would be helpful. Thank you.

Kyle Wismans: Ravi, I'll start with CapEx. So when you think about CapEx for 2025, you know, we do expect LTL CapEx of percent of revenue to moderate a couple points when we saw in 2024. And that's contemplated in our overall guide for the year. So if you think about last year, we were 14.6% of revenue in 2024. But that contemplated a couple significant, you know, one time in nature expenditures. So obviously, there's a fair amount of investments tied to bringing the new service centers online, that was really a one time spend. And if you think about last year, we also had a significant amount of spend relative to the fleet.

Speaker Change: Ravi I'll start with Capex. So when you think about Capex for 2025, we do expect LCL capex as a percent of revenue to moderate a couple of points. When we saw in 2024 and that's contemplated in our overall guide for the year. So if you think about last year. We were 14, 6% of revenue in 2024, but that contemplated a couple of significant onetime in nature.

Speaker Change: Furniture. So obviously there was a fair amount of investments tied to bring in the new service centers online that was really a onetime spend and if you think about last year. We also had a significant amount of spend relative to the fleet and then obviously aided in the in sourcing of our line haul effort you can see the fleet age is down to four years now, but if you look to this year and beyond our expectations for <unk> as a percent of revenue to moderate.

Kyle Wismans: And that obviously aided in the insourcing our line haul effort, you can see the fleet age is down to four years now. But if you look to this year and beyond, you know, our expectations for LTL CapEx is percent of revenue to moderate. So this year, you're probably going to moderate a point or two from the 2024 levels. And that's contemplated in our current guide. And if you think beyond this year, you know, that CapEx is going to further moderate. So our long term guidance ranges in the 8 to 12% range, we're probably somewhere in the midpoint of that.

Speaker Change: So this year, you're probably going to moderate a point or two from the 2024 levels and that's contemplated in our current guide and if you think beyond this year you know that Capex is going to further moderate so our long term guidance ranges in the 8% to 12% range, we're probably somewhere in the midpoint of that.

Kyle Wismans: And look, if there is a severe contraction in the market, you know, we can always adjust and cut back in certain areas. But when we look at CapEx as a long term investment, we're buying a tractor, we're buying a 10 year asset. And we look at these as structural, really important long term investments.

Speaker Change: And look if there is a severe contraction in the market you know, we can always adjust that and cut back in certain areas, but we really look at capex as a long term investment were buying attractive or buying a 10 year asset and when you look at the structural really important long term investments for us.

Mario Harik: And Ravi, on the crystal ball, you know, I'll tell you with these tariffs, nobody in the crystal ball that can tell you what the impact of the tariffs are, but what our crystal ball does is effectively, in our tools where we manage headcount, we have a demand forecasting model that looks at both current volumes, looks at seasonal trends, and looks at what we have coming in from a sales pipeline perspective with the probability of conversion. And that leads into a demand forecast that looks not only for the current week and the month, but it also looks three months out, 90 days out, and we use AI in that demand forecasting model to be able to help us guide where we believe tonnage is going to be at the service center level and at the shift level.

Speaker Change: And then Ravi on the on the Crystal ball, but I'll tell you. What these tariffs nobody has a crystal ball that can tell you what the impact of the tariffs are but what I would crystal ball does is effectively and I were tools, where we manage head count we have a demand forecasting model that looks at both current volumes looks at seasonal trends and.

Speaker Change: What we have coming in from a sales pipeline perspective, with the probability of conversion and that leads into a demand forecast that looks not only for the code and tweak undercutting month, but it also looks three months out 90 days out and we use AI and that demand forecasting model to be able to help US guide. We believe furniture is going to be at the service center level.

Speaker Change: And at the shift level and then the tools do something similar where then they sell our service center managers or supervisors, how many drivers of you need and how many dock workers. The union are you overstaff or you're understaffed. So this way I would folks in the field can have better decision, making tools to know where to guide that labor and land the plane on labor hours and disappoint you looked at.

Mario Harik: And then the tools do something similar where then they tell our service center managers or the supervisors, how many drivers do you need, how many dock workers do you need, are you overstaffed, are you understaffed? So this way, our folks in the field can have better decision-making tools to know where to guide their labor and land the plane on labor hours. And case in point, you look at last summer when we saw a sub-seasonal drop in volume, if you recall, in the month of August, we were still able to improve margins, we were still able to improve efficiency.

Speaker Change: Last summer when we saw a sub seasonal drop in volume. If you recalled in the month of August we were still able to improve margins, we were still able to improve efficiency, you'll see that the first quarter punish was down seven and a half points, we still improved labor productivity by eight point in that in that environment as well. So it's a combination of demand forecasting and labor planning is what this is enabling us to do with it.

Ravi Shanker: You look here at the first quarter, tonnage was down 7.5 points. We still improved labor productivity by a point in that environment as well. So a combination of demand forecasting and labor planning is what is enabling us to do this, and we're only launching new capabilities and enhancements to those models to make it Great, thank you.

Speaker Change: We would only launching new capabilities and enhancements to those models to make it easier for our folks so but I would also leaders in the field to be able to use that data to drive the right outcomes on the cost side.

Speaker Change: Great. Thank you.

Yeah.

Scott Schneeberger: Our next question is from Scott Schneeberger with Oppenheimer and Company. Thanks very much. Good morning. I want to follow up on the operating metric and margin question in a different way.

Speaker Change: Our next question is from Scott Schneeberger with Oppenheimer and company.

Scott Schneeberger: Thanks, very much good morning, I wanted to follow up on the on the operating metric and in margin question in a different way the.

Kyle Wismans: I guess I'm not looking for guidance, necessarily, but Kyle, have you done the stress testing on a draconian measure where we heard all you mentioned, you know, probably mid-single digit down tonnage for the year, and we have the OR guide from that, but what if it were down, say, a double digit, is OR still capable of being positive as you stress test on the downside, or not positive, but an improvement year over year? Yeah, you know, we absolutely looked at multiple scenarios from a volume standpoint and thinking about what we can control. I think a lot of what we focus on is being disciplined and managing levers that we can control, certainly in a lower volume environment.

Scott Schneeberger: I guess I'm not looking for guidance, but how have you done the stress testing that on a draconian measure where we heard al you mentioned you know probably mid single digit downtime for the year end and we have the or guide from that but I wonder if it were down say a double digit is oh are still capable of being part.

Scott Schneeberger: It is in as you as you.

Scott Schneeberger: Stress test on the downside or I'm, not positive, but an improvement year over year. Thanks.

Speaker Change: Yeah, you know we.

Speaker Change: Absolutely looked at multiple scenarios from a volume standpoint, and thinking about what we can control I think a lot of what we focus on is being disciplined in managing levers that we can control certainly in a in a lower volume environment and I think on the yield side. You know we've demonstrated even with lower tonnage on a year over year basis last several quarters above market.

Kyle Wismans: And I think on the yield side, you know, we've demonstrated, even with, you know, lower tonnage on a year-over-year basis, last several quarters, above-market yield performance, and we expect that to continue. And on the cost side, when you think about a down cycle, we're going to focus on the metrics we can control. So, you know, two-thirds of our costs are variable. Much of that's labor, and we're going to work to continue to manage labor to the best of our ability. You know, that means when you think about dock, we're going to be looking at productivity measures, looking at motor moves per hour.

Performance and we'd expect that to continue and on the cost side. When you think about a down cycle, we're going to focus on the metrics you can control. So two thirds of our costs are variable and much of that is labor and we're going to work to continue to manage labor to best of our ability that means when you think about dock, we're gonna be looking at productivity measures looking at motor moves per hour, when you think about pickup and delivery ensuring our.

Kyle Wismans: When you think about pickup and delivery, ensuring our stops per hour are in the right place. And then we'll continue to look at our line hauling sourcing. You know, we got to 8.8% in the quarter. As Mario mentioned, there's still more runway there to continue to improve. So we have looked at a lot of these down volume cases, and we think we can still perform well, even with tonnage down. I mean, if you look at some broader benchmarks and think about decremental margins and down cycles, even going back to the global financial crisis, when revenues were down double digits, you know, decremental margins in the industry were in the 25% range, and we think we can do better than that based on the many levers we have at our disposal.

Speaker Change: Stops per hour right place and then we'll continue to look at our line hauling sourcing you know we got to eight 8% in the quarter as Marty mentioned Theres still more runway there to continue to improve so we have looked at a lot of these down volume cases, and we think we can still perform well even with tonnage down I mean, if you look at some broader benchmarks and think about decremental margins in down cycles.

Speaker Change: Even going back to the global financial crisis, when revenues were down double digits, you know decremental margin industry, where were in the 25% range and we think we can do better than that based on the many levers we have at our disposal.

Ali Faghri: Thanks, appreciate that. And just a quick follow-up, just an update on your, Olly, you mentioned sales pipeline up really nicely over there, but just kind of curious in the development of the recent months. Are you thinking about the geography any different here to the end of the year? Sure, Scott. So, our business in Europe continues to perform well and outperform it in a soft macro environment. We grew organic revenue for the fifth consecutive quarter. If you just think about adjusted EBITDA sequentially versus Q4 was up nearly 20% and that was much better than normal seasonality.

Speaker Change: Okay. Thanks, I appreciate that and just a quick follow up Bob.

Speaker Change: An update on your of all you mentioned in your hotel sales pipeline up really nicely over there, but just just kind of curious in the in the in the development of the recent months.

Speaker Change: And are you thinking about are the geography any different a year to the end of the year. Thanks.

Speaker Change: Sure Scott So our business in Europe continues to perform well and outperform in a soft macro environment. We grew organic revenue for the fifth consecutive quarter. If you just think about adjusted EBITDA sequentially versus Q4 was up nearly 20% and that that was much better than normal seasonality and overall the business is.

Ali Faghri: And overall, the business is very well positioned for an eventual improvement in the demand backdrop. You noted our sales pipeline was up high single digits on a year-over-year basis. And we've also done an excellent job of right-sizing the cost structure to support stronger operating leverage over time. So, as we think about the outlook for our European business, our expectation is we'll continue to outperform seasonality and outperform the market as a whole.

Speaker Change: Well positioned for an eventual improvement in the demand backdrop, you noted our sales pipeline was up high single digits on a year over year basis, and we've also done an excellent job of right sizing the cost structure to support stronger operating leverage over time. So as we think about the outlook for our European business. Our expectation is we will continue to outperform seasonality in <unk>.

Speaker Change: Outperformed the market as a whole.

Speaker Change: Okay.

Operator: Thank you.

Operator: There are no further questions at this time.

Speaker Change: Thank you there are no further questions at this time I'd like to hand, the floor back over to Mario Harris for any closing comments.

Mario Harik: I'd like to hand the floor back over to Mario Harik for any closing comments. Thank you, operator. And thanks, everyone, for joining us today. Listen, while there is uncertainty in the macro environment, we are executing on the levers that we can control and delivering on our outlook with results that are outpacing the industry. We have a long runway for margin improvement over the years to come. And we look forward to updating you on our next call.

Mario Harris: Thank you operator, and thanks, everyone for joining us today listen while there is uncertainty in the macro environment. We are executing on the levers that we can control and delivering on our outlook with the results that are outpacing the industry. We have a long runway for margin improvement over the years to come and we look forward to updating you on our next call. Operator, you can now end the call.

Operator: Operator, you can now end the call. Thank you.

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Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

Mario Harris: Okay.