Presentation Script and Slides
The following script should be read in conjunction with the accompanying slide presentation, which contains, among other information, source data for certain information set forth in the script.
Thank you for joining us. We’ll start with an overview of XPO Logistics today, and our strategy for driving growth, competitive differentiation and financial returns. We’ll also bring you up to date on some recent developments, including the planned spin-off of our logistics business. And we’ll give you an overview of our record first quarter financial performance, which further increased our momentum after a dramatic rebound from the impact of COVID-19 in 2020.
XPO is one of the largest providers of supply chain services in the world, with over $16 billion in 2020 revenue and an integrated network of people, technology and physical assets. We have 1,621 locations in 30 countries and approximately 140,000 team members, comprised of 108,000 employees and 32,000 temporary workers. We use our network to help over 50,000 customers operate their supply chains most efficiently.
Our company has two reporting segments: transportation and logistics, each with leadership positions and robust growth prospects. In our transportation segment, we’re a top three less-than-truckload (LTL) provider in North America and the second largest freight brokerage provider globally. In our logistics segment, we’re the second largest contract logistics provider worldwide. Within each segment, our markets are highly diversified and we’re positioned to capitalize on fast-growing areas of demand. Approximately 62% of our 2020 revenue came from our transportation segment, and the remaining 38% came from our logistics segment.
In December, we announced that we plan to spin off our logistics segment later this year as a separate publicly traded company. The spin-off – named GXO Logistics – will create two, pure-play industry leaders: GXO will be the second largest contract logistics provider in the world, and the remaining company will be a global provider of less-than-truckload and truck brokerage transportation services. We expect to complete the transaction in the second half of 2021.
We’re confident that the spin-off, if completed as planned, will enhance the growth prospects of both businesses. Each company will have greater flexibility to tailor strategic decision-making and capital allocations to their end-markets, with the benefit of strong positioning as customer-focused innovators. Each will have its own investor base and pure-play equity currency it can use to attract and retain world-class talent and pursue M&A. We’re in discussions with the rating agencies about our plan to achieve an investment-grade rating for GXO from day one, with XPO to follow.
The spin-off transaction is subject to various conditions, and may or may not occur, or its terms or timing may be different than originally planned.
These are the key factors driving our growth and returns companywide:
|·||We’re a global leader in logistics and truck brokerage, and a North American leader in less-than-truckload (LTL) transportation, with outsized exposure in verticals that have a history of enduring demand.|
|·||Our value proposition is a combination of scale, density, expertise and technology that gives us expansive opportunities for organic growth and share gains through accretive M&A.|
|·||In logistics, we’re strongly positioned to benefit from the industry’s predominant tailwinds – e-commerce and omnichannel retail, the shift toward supply chain outsourcing and warehouse automation.|
|·||In transportation, we have a best-in-class digital brokerage platform that’s driving profitable growth, while in LTL, our technology is expanding our margin, while the start of the rebound in the industrial economy is stimulating demand for our services.|
|·||Our rapid pace of innovation differentiates our service offerings and makes the most of the talent and assets within our organization.|
|·||Our scale gives us significant operating leverage, purchasing power, the capacity to innovate and the ability to deliver consistent outcomes across multiple markets for large customers.|
|·||We’re nimble allocators of capital, with a disciplined focus on returns and an enviable record of creating substantial shareholder value.|
|·||We serve customers in diverse verticals with complementary demand patterns, and the majority of our revenue is generated under long-term contracts, making our performance more resilient in economic cycles.|
|·||Our business model is optimized for free cash flow generation in all parts of the cycle; about 70% of our revenue is asset-light, with low maintenance capex.|
|·||Our secret sauce has always been the world-class people we attract to XPO – not just our 35 most senior executives, but also the 2,500 professionals at the next level with blue-chip industry experience.|
One of the ways we strengthen our relationships with customers is by empowering our employees to deliver superior service through our technology. Our industry is evolving, and customers want to de-risk their supply chains with more automation and better visibility into the movement of their goods. We’re already well-positioned to meet this demand, because we prioritized digitization and visibility early in our technological development.
We’ve built a highly scalable platform on the cloud that speeds the deployment of new ways to increase efficiency, control costs and leverage our footprint. We can deploy innovations across multiple geographies in a relatively short time, and also take an innovation developed for one vertical and apply it to other verticals to differentiate the value we offer.
We believe that our investment in technology is among the highest in our industry at an annual average of about $500 million. We’re happy to make that commitment, because technology is a high-ROI investment for us, and one that drives our competitive advantage in both transportation and logistics. When our logistics segment spins off as GXO, it will continue to use the intellectual property we’ve developed for those operations through IP assignments and licensing agreements.
The supply chain industry is wide open for disruptive thinking and we’re driving positive change. The most significant impacts of our technology to date are in these four areas:
XPO Smart™ is our proprietary suite of workforce planning tools that improve productivity in our logistics sites and LTL docks. The tools help our site managers determine the best staffing levels by shift, day and week, with the optimal mix of full- and part-time labor. Our proprietary analytics ‘learn’ the operations of a specific site and can forecast how a labor management decision today could affect productivity in a future period.
We’re seeing an average 5% to 7% productivity improvement from XPO Smart™ as we optimize our labor management in a safe and disciplined manner. To date, the tools have been implemented in 100% of our LTL dock operations, over 85% of our North American logistics sites and about 60% of our European logistics sites, with further roll-outs underway. We expect to realize a significant upside from these implementations as we fully utilize XPO Smart™ in our operations.
Intelligent warehouse automation
Intelligent warehouse automation is a priority for our logistics segment. This includes autonomous robots and collaborative robots (cobots), automated sortation systems, automated guided vehicles, goods-to-person systems and wearable smart devices. We integrate these technologies into our operations and control them in-house with our proprietary warehouse management system.
Advanced automation, robotics and autonomous goods-to-person systems are particularly effective in delivering critical improvements in speed, accuracy and productivity. Importantly, automation also enhances safety and the overall quality of employment.
In mid-2020, we opened a fully automated Digital Distribution Warehouse of the Future in the UK, which we co-developed with Nestlé, the world’s largest food and beverage company. This site has the capacity to process more than a million pallets per year – the highest throughput of any facility in Nestlé’s global network. Our European innovation lab is based on the premises, where it functions as both a think tank and a test site for new technologies.
XPO Connect™ is our proprietary digital platform that fully automates transportation procurement – it encompasses our Freight Optimizer system, shipper interface, pricing engine, carrier interface and our carrier mobile app. When our customers have truckload freight to move, we use this powerful technology to find the optimal…