Brad Jacobs - Chairman, Chief Executive Officer David Wyshner - Chief Financial Officer Matt Fassler - Chief Strategy Officer Tavio Headley - Senior Director of Investor Relations Meghan Henson - Chief Human Resources Officer Ravi Tulsyan - Treasurer Kyle Wismans - Senior Vice President of FP&A

Welcome to the XPO Logistics, Second Quarter 2020 Earnings Conference Call and webcast. My name is Rob and I’ll 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. [Operator Instructions] 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 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 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 everyone. In addition to my remarks today, you will hear from David Wyshner, our Chief Financial Officer; Matt Fassler, our Chief Strategy Officer and also, for the Q&A portion of the call, we have Tavio Headley, our Senior Director of Investor Relations; Meghan Henson, our Chief Human Resources Officer; Ravi Tulsyan, our Treasurer and Kyle Wismans, SVP of FP&A. The second quarter was dominated by the severe challenges of COVID-19. Nevertheless, we did deliver better-than-expected revenue, adjusted-EPS, adjusted EBITDA and, notably, free cash flow. For us, the trough was in April in both North America and Europe. Since then, we've seen a recovery in Europe with a more recent rebound in North America, and all of our sites are open. Each month in the quarter showed sequential improvement across our operating regions. Organic revenue for the company as a whole has gone from being down 21% in April year-over-year to down just 10% in June, and we’ve continued to gain ground in July. The improvement has been broad-based in both transportation and logistics. In North American LTL for example, our tonnage per day was down 24% in April year-over-year, but down only 13% in June. We continue to regain tonnage in July. In Europe our LTL pallet count per day at the end of June was up from the trough in France by 49% and in Iberia by 44%. The U.K. was up 25% from the trough. And our European logistics business came back strong in the quarter, with a 7% increase in year-over-year revenue per day in the month of June. These are all positive trends going into the back half of the year. I also want to mention the three executive appointments we made this week. Eduardo Pelleissone is our new Chief Transformation…

Thanks Brad and good morning everyone. Today I'd like to discuss our second quarter results, our balance sheet and liquidity and our outlook. In the second quarter we generated revenue of $3.5 billion, adjusted EBITDA of $172 million and an adjusted loss per share of $0.63. All three figures reflect year-over-year declines due to COVID, but they are all better than we expected at the beginning of the quarter. Matt will review the segment detail in a few minutes. We generated $214 million of cash flow from operations in Q2, spent $116 million on CapEx and received $23 million of proceeds from asset sales. As a result, we generated positive free cash flow of $121 million in the quarter. This brings our year-to-date free cash flow to $216 million, which represents a year-over-year increase of $66 million, despite our having $75 million of cash outflows this year related to our exploration of strategic alternatives. We've been able to generate positive free cash flow during the pandemic by managing working capital aggressively, turning our receivables into cash. We became even more disciplined about collections in the COVID environment, working with our customers to reduce our receivables and staying disciplined with respect to payment terms. We continue to use trade receivables programs, including our European Securitization, to manage our working capital. We didn't repurchase any shares in the second quarter, so we continue to have $500 million of authorized share buyback capacity. We throttled back our planned capital expenditures dramatically at the start of the quarter, but have begun to reopen the spigot a bit as demand and new business opportunities have rebounded. We currently estimate that our gross CapEx will be $450 million to $475 million this year, which is up from our May estimate of around $400 million, but down…

Thanks David. I’ll review the second quarter income statement and shed some more light on the trends we've seen in July. Starting with our transportation segment; segment revenue was down 22.6% in the quarter year-over-year and organic revenue was down 19.3%. Adjusted EBITDA declined by 60%. This included $27 million of costs related to COVID, primarily in our North American LTL unit. LTL tonnage per day declined by 19% in Q2 versus the prior year, primarily due to weak activity levels in industrial, manufacturing and automotive. April was the trough and the business gained momentum as we moved through the quarter. While we did well in consumer staples, this vertical was not enough to offset the shut down in the industrial economy. As industrial sectors reopened, our trends improved. LTL tonnage was down year-over-year by 23.5% in April, 20.8% in May and 12.8% in June. Improvement continued in July. Yield, excluding the impact of fuel improved 1.9% year-over-year. Yield growth in July is in line with Q2. Our LTL price increases on contract renewals remain solid, up 3.7%, which kept us on pace with the Q1 increase. Our adjusted operating ratio in LTL was 90.1% for the quarter, compared with 88.3% a year ago. The biggest driver of the change was lower tonnage, and we also had a negative impact of about 250 basis points from $20 million of COVID costs. These drags were offset in part by the improvement in yield. We are also effective at controlling key variable costs, including P&D, dock operations and line haul. Our XPO Smart productivity tools are proving valuable in this environment. Bear in mind that this was just the second full quarter since XPO Smart was rolled out nationally in our LTL network. The analytics are driving up dock productivity by 6.5%…

Thank you. [Operator Instructions] Thank you and our first question is coming from the line of Ravi Shankar with Morgan Stanley.

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

Good morning, Allison. I wouldn't guide to 3.7% yield, because that contract renewal rate is part of our business, but not all of our business. But we are seeing positive yield. So, 1.9% positive yields in the quarter was helpful and the yield trends were positive every month. It wasn't enough though, even with a couple of points of yield, to overcome a tonnage decline of 19%. When you have tonnage decline of 19% — you can do all kinds of great stuff, but you’re going to have to be able to overcome that, given the fixed-cost nature of the LTL business and the operating leverage. But Q2 tonnage also shows an improving trend. Tonnage was down in April 24% year-over-year; it was down 21% year-over-year in May. It was down only 13% in June, and here in July it’s down single digits. So, there's a decent trend there. And there were some bright spots in LTL ,despite the poor OR. Load factor was up 3.9%. It was the highest load factor we’ve had in eight years. Empty miles improved 24% year-over-year versus shipments being down 15%. Dock productivity was up 6.5%. And I would point you to our guidance for Q3. One of the reasons why we're going to generate at least $350 million of EBITDA in the third quarter is that we fully expect our OR in Q3 in LTL to be substantially better than it was in Q2. I feel that we're fully on track to achieve at least $1 billion of EBITDA. We have pushed that out from 2021 to 2022, and you'll see steady progress between now and there, getting to that level.

Okay, so there was this one whale in Europe and there were two whales here in the United States. In the U.K., we signed a $250 million contract that starts October 1. It's a 5-year contract in transportation, it’s delivery of chilled dairy products to stores and it’s with Arla Foods. In the United States, we had two big e-comm wins and these will be some of the most automated warehouses in the world. So, we have one new e-comm fulfillment center on the west coast for a global branded apparel company. It is our largest site in the United States —1.2 million square feet. It's a five-year contract. It started this month and it's on its way to ramp up to 400 robots. And then we also have another large e-comm fulfillment center on the west coast for a global fashion retailer. That starts in September. It's also over 1 million square feet, also highly automated and that will be ramping up to 500 robots. So, we have some good momentum in the backlog on commercial wins.

Thank you.

Our next question is from the line of Chris Wetherbee with Citi. Please proceed with your question.

A – Matt Fassler: Chris, its Matt. A couple of points on that. First of all, as you start off by looking at the third quarter and you look at the EBITDA guidance and you think about the kind of revenue trend that we generated in July, you'll see that the decremental margins that are embedded in that are better than the decremental margins that we generated in Q2, and better than the decremental margins implied by that 77/23 math that we spoke about last call and that David mentioned earlier today. Secondly, as you emerge from the downturn, obviously we have flexed our variable costs. We are starting to make more headway with fixed costs. Fixed is probably a slightly higher percentage of your cost structure after a down year than it would have been going into a down year. So that implies the potential for more operating leverage to the upside, particularly, obviously, when you cycle a very unusual quarter like the one that we had in Q2, which obviously will be a big part of the ‘21 story. We’re not going to talk much about ‘21 yet, but obviously that's the way the arithmetic works. So, to reiterate, the third quarter will be a substantially better performance on that front than the second quarter and then, emerging from a down revenue year, you have the opportunity to generate better incrementals than you’d have in an average year. Plus, we have the 10 levers and the progress that those are likely to bring us above and beyond that.

We are hugely excited about the 10 levers. This is a massive potential to literally transform the business. You’re already seeing some benefits, but you'll see continuous quarter-after-quarter, year-after-year benefits from the 10 levers and, in 2023, we will have achieved a substantial part of that profit pool. We had a quarterly operating review a couple of weeks ago for three days, and a good part of that was going over the 10 levers and crowd sourcing everyone on each lever. What do you think? What do you think is the highest? What do you think is the lowest? What do you think is the likely? And, collectively we're feeling very good about each one of those levers. If you look at Smart, this has already helped us variablilize and manage labor costs nimbly. The labor productivity that improved 6.5% year-over-year in the second quarter, we would not have been able to do that without Smart. Smart improved the labor productivity in our contract logistics facilities by about 5% already and we’re looking to improve on that going forward. So, I think the benefits will just keep compounding going forward. In truck brokerage, Connect helped us handle the same number of loads this quarter year-over-year, but with 14% lower headcount. So, that's an important lever. When you can get that kind of productivity from a sales force, that's really, really helpful. Look at procurement. In procurement, we've got about $8 billion or so of non-labor expenses. Adding Eduardo and Alex, they are going to be a big help with that. They’ve got a lot of experience with that. On pricing, we're in the early innings of what we can deliver. We used pricing within Connect this quarter to buy 7.5% better than DAT. So, we bought 7.5% better than the market, due to the technology we're using on Connect. There is a big opportunity on pricing and LTL as well, for pricing elasticity and more automation on that. And in LTL, you have the process improvements in terms of optimizing line-haul and P&D spend, so we’re very excited about the levers. The core of our strategy is to deliver substantial, long-term shareholder value, as we have. And our focus is on allocating capital in ways that achieve the best risk-adjusted returns. These 10 levers are a very, very, very important part of that strategy.

Thank you. The next question is from Brandon Oglenski with Barclays.

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

Our next question is from the line of Scott Schneeberger with Oppenheimer.

Our next question is from the line of Brian Ossenbeck with J.P. Morgan.

Our next question comes from the line of Ari Rosa with Bank of America.

The next question coming from a line of Jordan Alliger with Goldman Sachs.

Our next question is from the line of Jason Seidl with Cowen.

I see its 9:30. We apologise to those who didn’t get a chance to ask a question, but we look forward to speaking to you off-line later today. Thank you very much. Talk to you again in three months. Have a great day!

Thank you everyone. This concludes today’s conference. You may disconnect your lines at this time and we thank you for your participation.