Welcome to the XPO Logistics Second Quarter 2018 Earnings Conference Call and Webcast. My name is Robin and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. Before the call begins, let me read a brief statement on behalf of the company regarding forward-looking statements and the use of non-GAAP financial measures. During this call, the company will be making certain forward-looking statements within the meaning of applicable securities laws, which by their nature involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those projected in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings. The forward-looking statements in the company's earnings release or made on this call are made only as of today and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. During this call, the company also may refer to certain non-GAAP financial measures as defined under the applicable SEC rules. Reconciliations of such non-GAAP financial measures to the most comparable GAAP measures are contained in the company's earnings release and the related financial tables. You can find a copy of the company's earnings release, which contains additional important information regarding forward-looking statements and non-GAAP financial measures in the Investors section on the company's website. I will now turn the call over to Brad Jacobs, Mr. Jacobs, you may begin.

Thank you, operator. Good morning, everybody. Thanks for joining our earnings call. With me in Greenwich are John Hardig, our CFO; Scott Malat, our Chief Strategy Officer; and Tavio Headley, our Head of Investor Relations. I'm pleased to report that we had an outstanding quarter. Revenue, operating income, and earnings were all strong and, in fact, all were company records for a second quarter. We generated higher than expected organic revenue growth of 11%, and we continued to grow adjusted EBITDA at a faster rate than revenue. On a year-over-year basis, our EBITDA in the quarter was up 18%, underscoring the broad-based growth that we delivered across our operations. In our transportation segment, we increased freight brokerage revenue by 27%, and increased brokerage net revenue by 46%. In North American LTL, we achieved an adjusted operating ratio of 84.3%, which was our best operating ratio in 30 years. In last mile, we grew revenue in the quarter by 17%. And, once again, the big driver of last mile performance was e-commerce. We opened another 16 last mile hubs in the second quarter, bringing our last mile network to 71 hubs across North America, on track for a total of 85, ahead of the holiday peak. The growth in e-commerce is a global phenomenon. In our logistics segment, e-commerce fueled an acceleration of our organic revenue growth to 14%. We implemented a record 37 contract logistics start-ups in the quarter, bringing our year-to-date start-ups through June to 64. We expect this strong growth to continue due to our $1.8 billion logistics sales pipeline, which is up 48% from $1.2 billion a year ago. Company-wide, we're benefiting from positive macro conditions across all our markets, and we're also generating our own company-specific momentum. Through June, we signed $2.1 billion of new business,…

Thank you for the kind words, Brad. Being XPO's CFO has been the highlight of my career. I'm sad to be leaving my friends and colleagues, but I'm very proud of the work we did together to build XPO into such a strong company. I'm certain that XPO's best years are still ahead. Now let me walk you through the numbers. We had very strong results in the second quarter. Starting with our transportation segment, we increased revenue 15% to $2.9 billion. We grew operating income by 25% to $205 million, and grew adjusted EBITDA by 14% to $355 million. Freight brokerage was the star of the quarter. The tight freight market that started in the second half of last year continued to drive a significant amount of spot business at higher margins. On a year-over-year basis, we improved net revenue margin by 220 basis points. Within freight brokerage, our truck brokerage business continued to achieve extraordinary year-over-year revenue growth and margin expansion with a steady upward trend, increasing revenue, net revenue, and net revenue margin sequentially through the quarter. Our intermodal business achieved double-digit revenue growth and net revenue increased over 30% as capacity remained tight, and we've renewed annual contracts at higher rates. Similarly, our expedite operation continued exceptional year-over-year revenue and profit growth as the truckload market tightness drove more demand for expedited shipments. In last mile, we continue to fire on all cylinders and delivered another quarter of strong mid-teens revenue growth, while improving net margins. This growth was led by the strength of e-commerce demand and the expansion of our last mile footprint, making it a more attractive alternative for customers in terms of geographic coverage and cost per delivery. In North American less-than-truckload, we made significant investments in sales, training and technology and still…

Thanks, John. Starting with the macro, global transportation markets remain tight through the quarter and into July. In North America, on a year-over-year basis, our average cost of truckload capacity in the quarter was up 20%. While July is typically a seasonally slower month, it turned out to be our best month for brokerage so far this year, the best revenue, net revenue, and EBITDA. The European transportation market is experiencing similar tightness, especially in the UK and Spain. That's leading more companies to ask about dedicated truckload services to guarantee access to capacity. We grew dedicated truckload revenue in the quarter by over 20%. We're also seeing more demand for brokered capacity in Europe as shippers increasingly tap into this channel. The current tight global labor market plays to our core strengths. We use our scale to share resources across customers to better support spikes in volumes. In technology, we're in the middle of accelerating several new automation projects ahead of the holidays. For instance, we're currently rolling out a significant number of cobots to some of our biggest e-tail and retail sites, which, working in tandem with our people, deliver 35% to 50% greater efficiency and reduce error rates by approximately 40%. And our recruiting expertise is one of our key competitive advantages. We have a strong brand in the labor marketplace. We attracted 600,000 job applicants last year, and we're on pace to process about 900,000 job applications this year. While no one can predict the macro with certainty, our conversations with customers has been positive. In general, they expect growth to continue, and they plan to invest more in their supply chains. Our strategy is to invest in areas that will keep us growing faster than the market through all points in the cycle. A good…

Thank you. We'll now be conducting a question-and-answer session. Our first question comes from the line of Chris Wetherbee with Citi. Please proceed with your questions.

Hey. Thanks. Good morning, guys. And, John, best of luck in the next phase of your life and career.

Thanks, Chris.

I wanted to start on the LTL side if I could. I wanted to get a sense, I guess, of the costs that were in the first half of the year that you see sort of dropping away. If you can kind of run through some of them to give us a better sense of the operating leverage in the business. There's obviously a good tailwind from the freight market. Kind of curious sort of what's been holding back the leverage and sort of what's the catalyst for getting that better operating ration improvement in back half?

Hi, Chris. It's Brad. Good morning to you. So the investments we put in the LTL business were as follows. We added about 200 sales and sales support people since October. And obviously that's an expense right away but it takes a while, the ramp-up, but they are ramping up. And we hired 2,500 new dock workers. Again, they take time to ramp up but they are ramping up. We rolled out training programs across the board, which we think is a really good long-term investment and even a short-term pay-off as well. And we ramped up the driver schools as well. And the driver schools, we've graduated more drivers in the first half of the year than we did all of last year. And, finally, we had technology investments in many different places throughout LTL. So, lots of investments into the business. And despite that, we were still able to generate our best operating ratio in 30 years. It might be more than 30 years, but we can't get records from the old Con-way files past 30 years.

Okay. Fair enough. That's helpful. When you think about that acceleration, how much does volume play a part in that? So volume, from a tonnage perspective, has been a little bit on the light side? Do we have a pivot towards a little bit more growth as we move into the back half? Scott, I know you said July was looking better. Just kind of get a sense of how that looks.

Well, our focus is not on tonnage growth. Our focus is on selecting the right tonnage that matches our network and deselecting freight that doesn't match our network and to get the right price, the right yield for the premium service that we provide. So, I would not guide you to expecting some big tonnage increase because it's not what we're trying to do. We're trying to get the right mix of tonnage.

Okay. All right. That's helpful. And then just a follow-up, thinking about the revenue outlook, so organic revenue growth at 11% the last couple of quarters. How do we think about the back half in the context of the environment we're in right now? And then assuming we continue to have pretty decent backdrop here, is it fair to say that excess profit gets invested, so the EBITDA look remains roughly the same despite the fact that we're in a pretty strong freight environment?

That's absolutely correct. Nothing's changed on our strategy in that respect. All of our excess profit over and above $1.6 billion of EBITDA, we're going to plow back into the business for planting seeds for next year and the year after that. We've got some amazing sales growth in the company in every part of the company, everywhere, whether it's here, whether it's in Europe, whether it's in transportation, whether it's in supply chain. And we're going to keep capitalizing on that. And to the extent that we've got excess profits, we're going to invest in the future.

In terms of the revenue, does this feel like a decent run rate to think about for the back half, just to kind of sense of how that looks?

Yeah, in this range. We've always been saying for the last few months high-single-digits, low-double-digits, and nothing's slowed down at all in terms of that guidance.

Perfect. Thanks for the time this morning. Appreciate it.

Thank you, sir.

Our next question is from the line of Amit Mehrotra with Deutsche Bank. Please proceed with your question.

Hey, guys. Thanks for taking the question. So just want to follow-up quickly on that, on the organic growth in terms of drop-through to EBITDA and free cash flow. You're obviously investing a significant amount in the business accelerating projects, things like that. I just want to understand is kind of the 17% or mid-teens type EBITDA growth that you're focusing this year sustainable in your view as you look out through 2019 and 2020 given the book of business? And then does the CapEx intensity change at all? I think you're running about 2.8% of sales this year. Does that actually go down as the sales grow? Or should we expect that to move up given some of the initiatives that you're accelerating? Thank you.

Sure. So, let's do all three lines. Let's do organic revenue growth, let's do EBITDA growth, let's go free cash flow/CapEx as they're related to each other. On the sales side, on the revenue growth side, very buoyant. That's partly because it's a good economy. It's a good market. It's probably because we're doing a lot of company-specific things in terms of operational excellence, in terms of hitting on all eight cylinders, that customers are rewarding us with maybe a greater than fair share of their wallet. So I expect that organic revenue growth is going to stay in this high level, high-single-digits, low-double-digits for the foreseeable future. I don't see any slowing down on that. EBITDA, we haven't done a bottoms-up budget yet at all. That process is just starting. But on a preliminary basis, yeah, I think, something in the 15% to 18% range is very reasonable to assume for continued EBITDA growth for the foreseeable future. In terms of free cash flow, we will generate more free cash flow next year than we did this year, even though we generated a very substantial amount of free cash flow this year. And this year we'll have about 70-something-percent more free cash flow than last year. I don't think it's going to be 70% more, because I think there's going to be more opportunities for deploying CapEx, but it's way too early in this year to be giving specific guidance for CapEx for next year. But I can tell you this. Last week we had about 45 of our top executives in for three days for quarterly operating review. People are confident in their business. People's customers are confident in their business. There's a lot of opportunities to invest in the same things that we've been investing so far in. Like in contract logistics start-ups where we were so proud and happy that we were then doing two contract logistic installations a week last quarter. We're now up to three a week, so, there's a really, really big growth there. The last mile hubs we'll probably tap out this year. I don't know that we'll go past the 85 hubs that we'll have done by September of this year. I think that will get us close enough to all of our last mile customers that we won't have to put more CapEx into that. Technology, we have so many projects on the drawing board to delight our customers with and to run our business more efficiently. I don't know what we'll spend on technology. I hope we'll spend more on technology next year. We want to remain being the industry leader in terms of our commitment to innovation, and technology is a big part of that. Sales growth...

Okay.

...if this top-line growth continues, we will invest more in salespeople, so that we don't miss sales opportunities.

Right. That's helpful. And then just one follow-up for me, specifically on XPO Direct. Scott, you mentioned 75 sites going to 100 sites. It's my understanding that the vast majority of those sites are actually existing sites that were already there. So, when we think about the revenue opportunity around XPO Direct, I was wondering if you guys could provide a little bit more meat around that. I think it could be $1 billion plus business at some point in the relative near future. And then just given the fact that you're leveraging the existing structural cost base of the company, what is the right contribution margin relative – kind of that 10% to 15% that you've highlighted for the overall company on a blended basis? How should we think about that?

Hey, it's Scott. Thanks. On XPO Direct, you're exactly right. It is ramping up. This is roughly $1 billion business opportunity annually to report $1 billion in revenue from this over the next three to four years. What we're seeing is a lot of demand, not only from the retailers and the e-tailers. We talked about that, where they're signing up for time-definite fast order fulfillment, for store replenishment, but we're also seeing a lot of demand from manufacturers, from suppliers. They're looking at this as a one-stop shop where they can pool their inventory. They can fulfill for all their selling channels. Things like their own websites, when they're selling goods. Things like partner retailers that they work with. This is an opportunity that will likely have higher margins than our average margin in contract logistics. Right now it's in investment stage.

Got it. Okay. That's it. I'll let someone else ask about M&A. I appreciate the time. Thank you.

Thanks, Amit.

Next question comes from the line of Scott Schneeberger with Oppenheimer. Please proceed with your questions. Scott Schneeberger - Oppenheimer & Co., Inc.: Thanks. Good morning. Hey, John, congratulations. I really enjoyed working with you. Best wishes.

Thank you, Scott. Scott Schneeberger - Oppenheimer & Co., Inc.: You bet. I guess I'll jump in with that lead-off prior and ask the M&A question. Could you guys just speak to the size of the ripe pipeline (28:42)? What you're seeing as far as valuation trends of what your targets are looking for and just any other thoughts of timing related or otherwise? Thanks very much.

Good morning, Scott. So, as you know, we started off about a year ago with a universe of about 250 targets. And we've contacted almost all of them, not every single one, but almost all of them. We pared it down to a few dozen as of earlier this year, and we are now concentrating mainly on about a dozen ones, and we're in different levels of discussions with them. We are patient. We are disciplined. We are only going to do a deal when we have a deal that will likely create immense shareholder value. And the reason that we feel that patience is that if we continue to grow EBITDA in the 15%, 16%, 17%, 18% range, with the leverage we have on the balance sheet, and then taking free cash flow and paying down debt, each $1 we pay down creates a $1 of equity value. We'll have share appreciation in the mid-20s, even without multiple expansion. So, we don't feel any pressure to do M&A. We like the business prospects we've got right now. We do want to do M&A. We want to do the right M&A. And if that's next month, great. If that's later in the year, that's great. If it slips past the end of the year, it's not the end of the world. Scott Schneeberger - Oppenheimer & Co., Inc.: All right. Great. Thanks for that, Brad. I guess, following up, the truck brokerage, really impressive growth. It sounds like automation is a big driver. Could you guys please speak to how much of it was productivity of your reps? How much of it was the automation of the process and kind of what you see as the progression in future years there? Thanks.

So, in freight brokerage, it was an amazing quarter. Revenue grew 27%. Net revenue grew 46%. Net revenue margins were up to 16.2%, which is a 220 basis point improvement from a year ago. The brokerage market is obviously hot. It's very favorable but we're also clearly outperforming. Why are we outperforming? We are outperforming in large part because of our powerful proprietary technology. We're also outperforming because, for the last seven years, we've been developing relationships with about 38,000 core carriers that we give freight to every day. And the shippers that we have really appreciate that we performed on contracts last year, even when we were underwater. So that's why we were able to generate a 1.5 times more net revenue than we did a year ago with 3% fewer people. So, the 3% fewer people is partly because our people are more seasoned and longer tenured, but it's also because we have more technology. If you look at XPO Connect, we rolled out XPO Connect in April. 90 days later, we had gone from zero carriers on the platform to 6,000. I mean the momentum we have with the technology products that we're rolling out, that's just one example. They're designed well. They're resonating with customers. And they're being adopted with great excitement. Scott Schneeberger - Oppenheimer & Co., Inc.: Great. Thanks very much.

Thank you.

Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your questions. Ravi Shanker - Morgan Stanley & Co. LLC: Thanks. Good morning, everyone. Brad or Scott, if I can ask you to just elaborate a little bit more on XPO Direct. What's the initial roll-out been like? You gave us some numbers on the facilities, but what's the customer reaction been like? And who are the ideal customers you've gotten so far? And how does that compare to the kind of people you thought would sign up for that?

Hey, Ravi, it's Scott. It has been very strong. It's been what I would call hitting above its weight. So, if you go into any of our customer conversations, it's one of the main topics of conversation. We definitely expected that from the retailers and e-tailers. This is right down the fairway for retailers and e-tailers. The manufacturers and suppliers' interest has been significant, though. The fact that they can use it to get fast delivery of their goods into things like marketplaces, so they can be preferred in the marketplace, the fact that they can use it to do store-based distribution to their partners has really been something that they're interested in. We allow them to reach 95% of the country within one and two days, and that's been very appealing. Ravi Shanker - Morgan Stanley & Co. LLC: Understood. Just shifting gears to brokerage, it was pretty impressive to see you guys do a 46% revenue growth with lower head count. Can you just talk about what you guys are doing there in terms of automation or how you're able to achieve this? Do you have a number of what percentage of your transactions at this point are automated? And kind of where do you see that revenue growth versus head count, those two trajectories going over time?

Hey, Ravi, it's Scott. So, there's different parts of the transaction, and some are more and less automated. We have gone to automated track and trace, which is great for our customers. It adds visibility. They can see where a shipment is at any time. We used to have rooms full of people and our carrier reps calling the trucking companies, checking where that freight is. That track and trace has become automated. With the XPO connect platform adding 6,000 carriers to the network, they're going on and doing things like looking at loads, bidding on those loads. We have a buy it now feature where they can actually bid on that load and procure it right in that moment. So, more and more of that is becoming automated. But that's been the rapid growth even over the last three months. We still work with the customer quite a bit. While we have increased the amount of volume on the sales side, we still have a lot of customer service reps that are working with our customers. Now that we have capacity on the network, we are differentiated in the marketplace, and we expect more and more shippers to ramp up and start to directly contact those carriers that are in our network, those 6,000 carriers and growing in our network. And more and more of it'll become automated, but our reps will be able to help on the 15% of freight that needs the most help, that has something that we can do differentiated for the customer, there was some issue, some problem, and we're doing problem resolution. Ravi Shanker - Morgan Stanley & Co. LLC: Got it. And just lastly, Brad, I don't think any investor can complain about a management team being disciplined on pursuing M&A. But to the extent that the timing or the likelihood of a deal kind of does get pushed out, that leaves you with another high quality problem of having a balance sheet with a decent amount of cash on it. So, what is the level of leverage you are comfortable with? I think in the past you may have indicated that 3 turns is probably too low, even. So, kind of, what's the long-term level of leverage here?

Well, we're about 2.6 times 2018 projected EBITDA. That's too low. Our base range should be between 3 and 4 times by our estimate in order to create the most amount of return for our common shareholders without putting any risk to the business if we went into a downturn or even a deep downturn. So, we are underleveraged right now, but I don't want to stay here for a long period of time. We'd like to use our leverage ability to do a real good deal, but it's got to be a real good deal. Ravi Shanker - Morgan Stanley & Co. LLC: Great. Thank you. And, John, again, best wishes from team Morgan Stanley.

Thank you, Ravi.

The next question is from the line of Bruce Chan with Stifel. Please proceed with your questions. Jizong Bruce Chan - Stifel, Nicolaus & Co., Inc.: Yes. Good morning. And, gentlemen, I just want to echo the congratulations to John for a very successful career and wish you the best of luck. A couple questions here around peak season. Wondering if you can share any expectations you have for us in terms of the peak this year given maybe some of the conversations that you've had with customers, especially on the contract logistics side. Do you have any indication of early ordering or inventory stocking in light of some of the recent tariff discussions, any commentary there?

Our customers are telling us to be prepared for big peak. Do they know there's going to be a big peak? They don't. They're speculating. They're inferring. They're hoping. They believe that will happen. But that is what our big customers are telling us that they expect to have a big peak. And they want us to be prepared to support them. And that's what we're doing. We've geared up with all our technology and our recruiting and got a big recruiting machine. And I think Scott mentioned before, we're getting 80,000 applicants a month now, job applicants around the world. So, we've really invested in our talent acquisition organization. And we're ready to support our customers for a substantial peak. Jizong Bruce Chan - Stifel, Nicolaus & Co., Inc.: Great. And then as far as the tariff discussions, any indication of early ordering or stocking there?

We have not seen that, but it's early days in the trade wars. If trade wars go on for a long period of time, it's going to be bad for everybody. If they resolve themselves in a short period of time, I don't think we'll have noticed any difference from it. Jizong Bruce Chan - Stifel, Nicolaus & Co., Inc.: Great. Thanks. And then just one last one from me, Scott. You mentioned some of the cobots and the benefits you're seeing there, definitely some pretty cool stuff. How many facilities have you implemented those insofar? And is that a customer-driven decision? Or is that an XPO-driven decision? Do you have a timeline for roll-out in maybe some of the other facilities out there?

Sure. It is depending on the contract, whether or not it's an XPO decision or a customer decision, especially depending on the contract type of fixed variable versus cost plus. On fixed variable contracts we're generally making the decision ourselves. We'll work with the customer, making the decision ourselves to drive as much productivity as possible. On a cost plus contract, we'll work a lot more with the customer. We have some type of automation in almost all of our facilities. In terms of the cobot, the specific round of cobots, it's several of our largest e-commerce, e-tailers, retailer-type companies that we're going out as we speak over several of those large facilities over the next few months.

Cobots are one type of automation that we're rolling out. We're rolling out smart glasses. We're rolling out swarm-bots. We're rolling out semiautonomous-guided picking robots. We're rolling out robotic arms. We're rolling out drones for inventory counts. We're rolling out all kinds of artificial intelligence and machine learning models, doing all kinds of predictive analytics. And the goal is for every single one of our 800 plus contract logistics facilities to be state-of-the art automated. That's the goal. That's the program. And that's a major investment and endeavor that we're doing. Jizong Bruce Chan - Stifel, Nicolaus & Co., Inc.: Great. Thank you.

Thank you.

The next question is from the line of Bascome Majors with Susquehanna. Please proceed with your question.

Yeah. Good morning. The 8-K you filed this morning gave some color on Sarah's restricted stock award as interim CFO. The disclosure was basically the stock needs to double again to $200 over the next 5 years, which would be a compound equity holder return of about 15% over that period. Brad, can you share you and the board's thought process behind that incentive and what it says about your longer-term expectations for XPO and its shareholders?

Yes. We are fervent believers that management should not get paid a lot of money if we don't deliver a lot of shareholder value for our owners. And we are equally fervent believers that if our management team delivers superior value to our shareowners, then they should get paid really well. That is what allows us to attract great talent, and that's our philosophy in compensation. In terms of how we calculated the number, it goes back to the earlier question on the call, which is if we continue to grow EBITDA in the mid to high teens percent, and then you look at the leverage that we have, and you take the free cash flow we generate and then pay down debt, it's just math. If we keep the same multiple, the stock should go up in the mid-20s per year. And if we get multiple expansion then every turn of multiple expansion is about $13, $14 a share. So, with Sarah, we made it so that she gets a grant of about $2.5 million that, at today's price, obviously would be worth twice that at $200. And it's dependent on that and there's other conditions as well, but we're all in it for the shareholders. So we want our compensation plan to be geared towards shareholder appreciation. It's as simple as that.

Thanks, Brad. I appreciate that thoughtful response there. And kind of maybe extending that discussion, I think we're about 2.5 years into the current long-term incentive plan for senior management, which I believe is tied pretty squarely to improving free cash flow per share of the company. Now it sounds like we're about to add some business at the portfolio before the not-too-distant future here. How do you expect that long-term incentive to maybe change as we get through the next round of acquisitions here? Thank you.

Well, we have many different compensation plans throughout the company. And as you go down in the organization and closer into the field and closer to customers, we like to tie the compensation to what that person or that group of people can do to contribute towards that $1.6 billion EBITDA this year and the higher amounts of EBITDA next year, and the following, and the following year. But we don't just usually tie it to EBITDA. We tie it to EBITDA minus CapEx minus other charges that get us to free cash flow. And at the end of the day, cash is king. And tying compensation to free cash flow makes a lot of sense. But the people in the field don't have a whole lot of control over that. So we try to have their compensation tied to their KPIs. At the senior level, we do feel that compensation should be primarily tied towards things that create shareholder value. And from financial perspective, it's cash.

Great. So, it sounds like the focus on free cash flow at the senior management level is unlikely to change?

It's unlikely to change. You could see variations of it as we adopt best practices, and we fine-tune it with shareholder input, which we always take. But the basic concept of tying senior management equity incentives to long-term shareholder value is a core part of our culture. We pay our people well, but if and only if they deliver superior value to our shareholders. Otherwise, they get a reasonable, but not great base salary.

Thank you.

Thank you.

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

Thanks. Good morning.

Good morning.

I also wanted to ask a couple of follow-up questions on XPO Direct. First, when you talk about B2C fulfillment, are we talking about parcel or freight, or maybe both? And then, is XPO exclusively handling the transportation, whether it's LTL, brokerage, or the last mile contract carriers? And will you need to meaningfully expand capacity in any of these modes longer-term in order to support that $1 billion of growth longer-term?

Okay. Great questions. The network is primarily for heavy goods, but it's also competitive for small parcel solutions, but that's through arrangements with the parcel carriers. We had an RFP, and we selected one partner for that, and that's who we're using. Customers want predictable, fast, integrated end-to-end solutions for all their transportation needs. That is where the world is going towards. People don't want to have five different vendors to get their goods from where they are to the end customer. So, that's what we're giving them. We're giving them an opportunity to have an integrated one-stop shop. Will we have to add more capacity as the business grows? Yes, because we expect this to be $1 billion revenue business within a few years. And each part of the business that we have, whether it's the warehouse component, whether it's the LTL component, or this last mile component, we'll grow the business with that. But there will be great returns from it.

Okay. Okay. That was helpful. And then it was either, Brad or Scott, I'm not sure which one. But earlier, you mentioned being selective about picking the right freight in LTL, which I think has been heavy freight, given the growth in weight per shipment that we've seen. And I know at least prior to the second quarter, Old Dominion was following a similar strategy, but it sounds like more recently it's been pricing itself out of that market, to some extent. So curious, have you guys also seen a shift in the profit profile of some portion of the heavier weight shipments or should we continue to expect negative mix from increasing weight per shipment?

Hey, Allison. We don't necessarily target heavier weight shipments. We target shipments that make the most sense in our network. We do not have the heaviest weight per shipment in the industry. If you note that, ours is around 1,450. In certain parts of the industry, it's well over 1,600 pounds per shipment. We have found that some of the heavier shipments than what is in our existing portfolio are more attractively priced and fit within the network right now. So, it's not necessarily a plan to go after heavier weight shipments. It's a plan to go after things that make the most sense in our network. That could change over time, and it has changed in certain instances where there's some heavier weight shipments on the Southeast that we found last year that we found were not as profitable as some other things that are less heavy. But we are seeing increased weights, and we expect that for some time.

Okay. That's definitely helpful. Thanks, guys.

Thank you, Allison.

The next question is from the line of Ari Rosa with Bank of America. Please proceed with your questions.

Hey. Good morning, guys, and congrats on the retirement, John. So, first question I want to ask was obviously we're seeing a really tight brokerage market. There have been a lot of calls throughout the second quarter earnings about concerns about peak. And I won't ask you specifically about peak, but with regard to kind of the sustainability of margins, where they are in brokerage, maybe you could talk about what you expect going forward, if you expect you can continue to make this kind of progress on the margin front.

Brokerage is the hardest one to predict, because it's so volatile, and it's so specific to what the market's doing in that particular month and that particular quarter. But I can tell you that the market's real hot, and that we're getting really good receptivity from our customers. And that customers are definitely more focused on having guaranteed, reputable suppliers who are going to perform as opposed to getting the very, very best possible price. So, I think margins are going to continue to be pretty good. With respect to the part of your question about the peak, we don't know that we're at a peak. We don't know whether we are or whether we're not. We hear a lot of people talking about that we might be at a peak. And the main reason seems to be that we've had it so good for so many years, so we have to take seriously that chorus of voices who are predicting we're at a peak. But if we took out all the external voices and just paid attention to what's going on inside our business and what the trends are and what customers are telling us, we would not be thinking this is a peak. Or if it were a peak, it's going to be a long, plateaued peak. In other words, we don't see any indication inside the company from how business is going and from what customers are telling us, saying it's going to decelerate and get worse. That we don't see. But we do have to take into strong consideration what the wise folks on Wall Street and elsewhere are saying.

Got it. Thank you. And then just to touch on XPO Direct, again, I know a lot of people have asked questions about this, but maybe if you could talk about why you thought this was a useful solution for customers, or if it was kind of filling in a gap that customers are asking for. And then it seems like it creates an opportunity to expand your addressable market maybe towards mid-sized clients. Maybe you could talk about whether or not that's true and what kind of receptivity you've gotten from customers.

Oh, yeah, absolutely. As all our major endeavors, we don't invent them here. We invent them by getting input from customers, trying to understand what customers want, what they value, how we can help them, how we can be of service to them, what they're willing to pay money for. And one of the things that customers want is for us to rent out our scale to them. We have scale. We have 800 plus warehouse facilities. We have 400 plus cross-dock facilities. We've got a last mile hub network that's going to be 85 by September. We have lots and lots of assets that represent capacity to move goods through the supply chain, and customers don't just want a little of it. They want to crowdsource the whole network. So, we're renting out our scale to our customers. And that allows them to reach about 95% of U.S. consumers in one to two days. And XPO Direct reduces their inventory costs, because instead of having their inventory in a large volume in one or just a few places in the country, we can use our predictive analytics and work with them to suggest where it makes sense to place their inventory all across the country in smaller volumes that's closer to the customer, we think, based on previous history, customers are going to make orders. So, that has a couple advantages to them, to our customers. One is, it allows for quicker delivery, which is big these days. And it allows them to reduce the amount of inventory they have in aggregate around the country.

Okay. Great. I appreciate that color. Thanks for the time, guys.

Thank you, Ari.

The next question is coming from the line of Matt Reustle with Goldman Sachs. Please proceed with your questions. Matthew Reustle - Goldman Sachs & Co. LLC: Hey. Morning. Thanks for taking my question. Just wanted to touch a bit more on the logistics business and the acceleration you have in implementations there. Is that three per week a pace that you see continuing into the back half of the year? Any guidance in terms of how that trends into 2019? And then a related question, Brad, as you've referenced the solid top-line outlook that you have into 2019 right now, is there any inherent shift in mix of where that revenue growth is coming from that you would guide to?

Well, the revenue growth is very much across the board. You have 11% organic revenue growth company-wide, and you break it out by our two business segments. Logistics is growing at 14%, and transportation is growing at 8.5%. Now, are the markets growing 14% and 8.5%? No, they're not. We're obviously taking share and we're growing our business faster than the market. No question about that. But we still expect both of those conditions to persist, good markets and us to outperform the market. Now, specifically to your question about our logistics business, supply chain business, in Europe, we had 13% organic revenue growth. And, in July, we've seen continuing strong sales in new business growth in fashion, in general retail, and, of course, in e-com, and in food and beverage as well. So July was actually up 20% versus last year, booming organic revenue growth in fashion, low unemployment in almost every country. In the Netherlands, there's almost 0% unemployment. You see the GDP in France is about 1.2%, UK about 1.6%, in Spain about 2.7%, so lower than here in the States, but still positive growth. And then if you look at the supply chain business here in North America, 16% growth in North America. So, globally, supply chain business is growing 14%, much faster than the market. Now, we added 21 million square feet of warehouse space year-over-year. That's up 13%. So, the amount we grew in our logistics business year-over-year is about the size of many of our smaller competitors. So that's really fast paced, and we're getting high marks from customers for operational excellence. We added 4,000 new jobs in our logistics business, and just lots of momentum there. If you look at the logistics pipeline, our logistics pipeline globally is $1.8 billion, which is about 1.5 times what it was a year ago. It's just – absorb that for a second. We had a $1.2 billion logistics pipeline a year ago. We have a $1.8 billion logistics backlog today. So the short answer to your question is I see a lot of growth here. I see that that's going to be one of our stronger growing businesses. Last mile is also going to grow very fast. That's another place we just have a good positioning in the market. That grew about 16.5% in the quarter. I don't know whether it'll be 16%, or 14%, or 15%, or 17%, but that mid-teens percent feels like it's going to continue to grow. Matthew Reustle - Goldman Sachs & Co. LLC: Okay. That's very helpful. Thanks for that detail. And then one follow-up on your CapEx point. You mentioned there's going to be vast opportunities out there again in 2019. When you think about differentiating what those opportunities are, giving more context around technology versus assets, how would you reference that outlook for 2019 and where you see the biggest opportunities?

Hey. This is Scott. It's growth CapEx. The two biggest areas of growth CapEx are setting up new contract logistics facilities to support that very rapid growth and also technology investments. Technology investments in customer service, visibility, enabling our customers to get more information about where their freight is at any given time, more automation, more robotics, more on the digital freight marketplace, so matching up supply versus demand more automatically. Matthew Reustle - Goldman Sachs & Co. LLC: Great. Thanks.

Thank you.

The next question is from the line of Brian Ossenbeck with JPMorgan. Please go ahead with your questions.

Hey. Good morning. Thanks for taking my question.

Morning, Brian.

Morning. So just on your comment, Brad, on the real estate, you're adding sounds like a small competitor in size on a regular basis. So we heard earlier about labor automation, how you're building out the pipeline for inside the warehouses, but how do you approach the market to get the right space in the right place when it seems like it's getting increasingly harder to do that? Do you have a commercial real estate team in-house or is this something that you outsource?

We do do that in-house. Obviously we use brokers as well because they have listings. But we have direct relationships with all the major landlords and owners of warehouse space. I think we're Prologis's fourth biggest customer. And we're very close to our landlords because we're a good credit and long-term tenant. So we will continue to capitalize on those relationships and the savvy that we have within our organization, the professional expertise in procuring real estate leases. And I don't think that's the big gating factor. A bigger gating factor is high quality labor, and the price of that labor, and making sure we're protecting ourselves in our contracts with our customers in the case of increased labor inflation globally.

Okay. So, on the real estate side, it sounds like if the market were to get tight in some areas, that's something you could probably pass along to the customer through the contract negotiations?

Yes. And actually, it's in the present tense, not the future tense. Real estate market for the kind of real estate that we use is tight. It has been tight for a while. And I don't expect it to get untight any time soon, because there's a lot of demand.

Okay. One quick follow-up on leverage in the balance sheet. So, you used the equity revolver to help pay down the $400 million of debt a few days ago. So, if you could just update us where the leverage stands right now, John? And what sort of cash and interest savings you expect to get from that? And is this something you continue to use free cash for, as you evaluate the M&A pipeline? Or are you going to be geared more towards organic growth and investments across the business?

Well, when we did the equity forward arrangement last year, that cash is and still is earmarked for M&A. So that's the ultimate purpose of that cash that we raised. On a short-term basis, we did pay down some debt, because it's just a smart thing to do from a cash management perspective, from a treasury perspective. If that debt were paid down for a whole year, which is not the intent – obviously we plan to do acquisitions with that capital – you'd save about north of $20 million a year in interest savings.

Okay. Appreciate the context there. Thanks.

Thank you.

The next question comes from the line of Kevin Sterling with Seaport Global. Please proceed with your questions.

Thank you. Good morning, gentlemen.

Good morning.

Good morning. How are you?

Yeah, hey. John, let me just echo my congratulations to you. I've really enjoyed working with you for all these years and best of luck in your future endeavors. And if I can give you just a little bit of advice, find a hobby. You don't want to drive your wife too crazy being at home more.

Thanks, Kevin. That's good advice. I'll take it.

I've learned from experience. So, Brad, you've answered most of my questions. I just really have one. As you continue to build out your last mile offering, dive deeper into the world of e-commerce, and I think you said you'll be at 85 last mile hubs by the end of this year. Longer-term, say the next three to five years, how many more last mile hubs do you need? Is it 150, 200? Is there kind of an end game there to really give you penetration across the country?

I don't know yet. We want to get to 85 and then take a pause and see if that does the trick and see if our customers and, more importantly, their end customers are happy with that delivery time. And if they are, then that's good enough. If it's not, then we'll do what is necessary to please the customer. After 85, we're going to pause and see how that looks.

Got you. Okay. And, Scott, I think last quarter you'd mentioned Europe, the road freight market over there actually being stronger than North America. Do you still think that's the case or has maybe North America caught up a little bit with Europe as the quarter's progressed?

It's the case in some places and not in others. So, in the UK, it's been very tight and very strong. Spain has been strong as well. France, not as much as the other two. Those are our three big transportation markets.

Kevin, if you look at our European transport business, 80% of EBITDA is from three things. It's from dedicated, brokerage, and LTL. And in Europe, you're seeing, being a more conservative continent than North America, in my opinion at least, you're seeing a bigger migration towards dedicated as opposed to spot. So, our dedicated business is growing gangbusters over there. We had the best growth ever in the history of XPO and the former Norbert Dentressangle in the second quarter. It was 5% organic growth. That may not sound like a lot, but for European transport, that's pretty good. We had record quarterly EBITDA. So, capacity is tight over there and you have a strong pricing environment.

Got you. Yep. Well, that's all I had. I really appreciate all the time this morning, and, John, best of luck to you.

Thanks, Kevin.

Thank you. I will now turn the floor back to management for closing remarks.

Thank you all for giving us the hour. We appreciate the opportunity and look forward to seeing you soon. Have a good day.

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