Welcome to the XPO Logistics Fourth Quarter 2021 Earnings Conference Call and Webcast. My name is Rob, and I'll be your operator for today's call. (Operator Instructions) Please note, 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 as well as in its earnings release. The forward-looking statements in the company's earnings release or made on this call are made only as of today, and the company has no obligation to update any of these forward-looking statements, except to the extent required by law. During this call, the company 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 are on its website. 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 now begin.

Good morning, everybody. Thanks for joining our call. With me today in Greenwich are Ravi Tulsyan, our CFO; Matt Fassler, our Chief Strategy Officer; Mario Harik, our CIO and acting President of LTL; and Drew Wilkerson, President of North American Transportation. Yesterday, we reported a fourth quarter that delivered a number of record results. The company as a whole performed well. We grew revenue by 14% year-over-year to $3.4 billion, which was the highest revenue of any quarter in our history. We generated adjusted EBITDA that was a solid beat versus our fourth quarter guidance, and we beat on full year EBITDA as well. We also reported the highest adjusted diluted EPS of any quarter in our history, again, significantly higher than expectations. Our growth was led by our 2 largest businesses: North American LTL and truck brokerage. In LTL, we delivered record fourth quarter revenue and record year-over-year growth in yield. Our adjusted operating ratio in the quarter degraded year-over-year, which was expected, given some third quarter challenges within our network. But the negative trend bottomed out in October when we launched our LTL action plan with Mario at the helm. Our plan had an immediate impact on our year-over-year performance. We reduced the erosion in our operating ratio and improved our volume trend as the quarter progressed. Importantly, we expect our year-over-year adjusted operating ratio ex real estate to inflect positive midyear and generate over 100 basis points of improvement in 2022. In truck brokerage, we had another quarter of outstanding growth, with load count increasing to record levels for the third consecutive quarter. The biggest tailwind driving our volume is XPO Connect, our digital brokerage platform. Shipper and carrier adoption of Connect is growing extremely fast. In December, we exceeded 600,000 cumulative driver downloads of the platform's mobile app, which is good news for customers, because they want digital access to as many carriers as possible. In the fourth quarter, weekly carrier usage on XPO Connect was up year-over-year by 74%. So in sum, a good fourth quarter with great traction going into 2022. The full year guidance we issued yesterday reflects our expectation of strong earnings growth this year. The midpoint of our guidance range for 2022 adjusted EBITDA reflects 11% growth versus 2021, and the midpoint for adjusted diluted EPS reflects 22% growth. Our LTL action plan is moving our adjusted operating ratio in the right direction. We still expect to generate at least $1 billion of adjusted EBITDA in LTL this year. And our truck brokerage revenue is growing at a pace that's 3x faster than industry growth. Finally, we remain committed to deleveraging toward a net leverage ratio of 1 to 2x by the first half of next year. This will be a key milestone in achieving an investment-grade rating. We're intent on being best-in-class in every aspect of our business, and we're confident of continuing to deliver superior shareholder value. Now I'll hand it over to Ravi to discuss our results and our balance sheet. Ravi?

Thank you, Brad, and good morning, everyone. Today, I will discuss our fourth quarter and full year results, our balance sheet and liquidity and our outlook for 2022. I'll start with the fourth quarter, where we delivered strong year-over-year growth in revenue, adjusted EBITDA and adjusted diluted EPS. Revenue in the quarter was a record $3.4 billion, up 14% year-over-year. The net impact of fuel prices and FX contributed 3 points to this growth. Organic revenue growth for the quarter was 11%. We grew adjusted EBITDA by 12% to a Q4 record of $323 million. This reflects strong growth and execution in our brokerage and other services segment. Looking at a 2-year stack, adjusted EBITDA was up 25% on a pro forma basis. Our adjusted earnings per diluted share for the quarter was $1.34, which was up from $0.53 from a year ago, an increase of over 150%. This increase was primarily driven by higher adjusted EBITDA, lower interest expense and a lower tax rate. We generated $98 million of cash flow from continuing operations, spent $101 million on gross CapEx and received $60 million of proceeds from asset sales. As a result, our free cash flow was $57 million, which was at the high end of our expectations. For the full year 2021, we delivered revenue of $12.8 billion, a year-over-year increase of 26%. Adjusted EBITDA for the year was $1.24 billion, reflecting growth of 46%. We more than quadrupled our adjusted earnings per diluted share from continuing operations to $4.30 compared to $1.01 from a year ago. We generated free cash flow of $475 million, an increase of over $200 million year-over-year, representing a free cash conversion rate on net income of 97%. Our cash balance at December 31 was $260 million. This cash, combined with available debt capacity under committed borrowing facilities, gave us $1.3 billion of liquidity at year-end. We had no borrowings outstanding under our ABL facility. Maintaining strong liquidity remains a top priority for us. We reduced our gross debt by approximately $3 billion in the year, and we have no significant debt maturities until 2025. Our 2021 net leverage at year-end was 2.7x adjusted EBITDA. Our plan is to continue to delever our balance sheet through free cash flow generation and adjusted EBITDA growth. Our progress on deleveraging is important in the context of our commitment to achieve an investment-grade rating. Turning to the guidance we issued yesterday after market close. Our full year guidance for adjusted EBITDA is $1.36 billion to $1.4 billion. This guide assumes gains from real estate sales of approximately $50 million versus $62 million in 2021. Our current plan is to execute real estate sales in the second half of the year, and these sales will primarily consist of excess land that does not fit our long-term needs. On the cash flow front, our outlook is for full year free cash flow of $400 million to $450 million. We expect full year growth CapEx to be $500 million to $550 million and net CapEx to be $425 million to $475 million. This significant year-over-year increase in growth CapEx reflects our plan to make growth investments in our LTL business. Our full year guidance for depreciation and amortization expense is approximately $400 million, and we expect interest expense of $170 million to $180 million. We expect our full year tax rate to be 24% to 25%. Our average diluted common share count for the year is expected to be approximately 117 million, and our outlook for full year adjusted EPS is $5 to $5.45. For the first quarter, we expect our adjusted EBITDA to be $280 million to $285 million. This guidance assumes no real estate sales in the quarter versus $17 million in the same period a year ago. In conclusion, we are continuing to execute on our strategy of driving shareholder value as a pure-play transportation company, and we are excited about our prospects for 2022. I will now turn things over to Matt.

Thanks, Ravi. I'll review our fourth quarter operating results, starting with our North American LTL segment. We grew revenue by 10% year-over-year to a fourth quarter record of $1 billion. Excluding fuel, we grew revenue by 4% year-over-year. We had a 4.9% year-over-year decline in tonnage per day, reflecting the impact of the short-term embargoes we utilized to optimize network flow. When the embargoes were in place in October and November, our tonnage trends lagged typical seasonality, then with the embargoes lifted, we outperformed typical seasonality in December and January, despite headwinds from Omicron and weather. During the quarter, we saw evidence of industrial verticals regaining momentum. Given the amount of industrial and our LTL mix, this bodes well for demand for our services in 2022. Yield, excluding fuel, outperformed typical seasonality in each month of the quarter. And for the quarter as a whole, year-over-year, yield increased 11%. This was nearly twice our previous record increase set in the third quarter. Revenue per shipment for the quarter, excluding fuel, also grew 11%. The LTL pricing environment remains firm, and we're driving yield with our own company-specific pricing initiatives. Our LTL-adjusted operating ratio for the quarter was 84%. Excluding real estate gains, our adjusted operating ratio was 87.5%, which was 300 basis points higher than the fourth quarter a year ago. The biggest drivers of the OR degradation were the embargoes I mentioned earlier, which impacted volume, and the higher cost of purchased transportation. We expect to realize a favorable trend in our operating ratio as our network efficiency continues to improve and we bring new equipment and drivers into our organization. In our brokerage and other services segment, we grew revenue by 17% to a record $2.4 billion and increased adjusted EBITDA by 29% to a record $161 million. Adjusted EBITDA margin for the segment expanded by 70 basis points to 6.7% from 6% the prior year. The largest revenue and profit driver in this segment is our North American truck brokerage business, which had an outstanding fourth quarter. We increased our brokerage loads per day by 22% versus a year ago or 50% on a 2-year basis. Fourth quarter revenue rose 36% year-over-year or 136% on a 2-year basis. Margin dollars rose 10% against a tough comp and rose 86% on a 2-year basis. On a sequential basis, margin dollars in the fourth quarter were 29% higher than in Q3. Our truck brokerage growth reflects a strong market, our unique technology proposition and our close ties with key enterprise customers. Drew will speak more about these drivers in a minute. Finally, I want to share a couple of notable awards. XPO was named one of America's Best Employers for 2022 by Forbes and one of America's Most Responsible Companies by Newsweek. We were also a Best Place To Work on the Disability Equality Index and a Top Company for Women to Work For in Transportation by the Women in Trucking Association. Now I'll turn it over to Mario for his comments on North American LTL.

Thanks, Matt, and good morning, everyone. LTL has made a lot of progress since our third quarter call. I'll start with the 5 points of our action plan we began executing in October. One major objective was to achieve better network flow, and our plan had an immediate impact. We started with selective strategic embargoes to rebalance the network. By November, we had cleared out the third quarter backlog. This improved our on-time transit sharply from the end of the third quarter to the end of the fourth quarter, along with other service metrics. Second is pricing and yield. The record 11% year-over-year increase in yield, ex fuel, we reported is a result of multiple initiatives we have underway. We pulled our 5.9% general rate increase forward from the typical January timing to early November. We’re also making sure we get paid for services that give customers added value, like equipment in detention and freight that requires special handling. And then there's our pricing technology. This is our single biggest opportunity to drive yield. We've developed proprietary pricing tools that make sure we charge a fair price. The third part of our plan is our in-house driver schools. This is a huge advantage in the driver shortage. We graduated approximately 900 new drivers last year, which is more than twice the number of graduates we had in 2019. Our goal is to double that number again this year to about 1,800 drivers. Fourth, on the equipment side, we added a second production line to our trailer manufacturing facility in Arkansas. We're on track to double our trailer output this year. The fifth part of our plan has to do with expanding our footprint to drive growth and network efficiencies. We plan to add 900 net new doors to our network by year-end 2023. This equates to about 6% increase in doors from the start of the plan. So far, we've opened terminals in Chicago Heights in October and in Wisconsin and Arkansas in January. We're also opening 4 new fleet maintenance shops this quarter. Now I want to take a deeper dive into our LTL technology and the new developments we're rolling out. The pricing tools I mentioned are part of the new pricing platform we just deployed. This platform does the heavy lifting in analyzing shipping data so our LTL pricing experts can be much more productive with contract negotiations. These tools have reduced manual data processing by as much as 80%. And we now have the ability to mine historical RFP data as a seamless lead generation tool for sales. We'll continue to enhance this platform going forward. We've also made inroads in dynamic pricing, which allows us to update customer rates on certain loads in real time to incentivize them to give the business to us. And we launched an automated process that onboards customers immediately to dynamic pricing, which shortens the contract negotiation cycle. The other areas ripe for tech innovation in LTL are our linehaul and dock operations. Between now and midyear, we'll be launching new tools to help further optimize how we load our trailers. These tools are designed to increase direct trips, which utilize our trucks and drivers more efficiently, and they’ll improve dock productivity. In other recent tech launches, we completed the rollout of new planning software on our pickup and delivery platform, and we'll complete a rollout of new dispatch tools by midyear. And we'll start deploying new digital tools for customer self-service and new visibility into multi-pallet shipments. We're continuing to make it easy for our customers to do business with XPO. So as you can see, we have a lot happening on the technology front and a lot more opportunity going forward, as well as the tangible goals we set for 2022. We expect to generate at least $1 billion of adjusted EBITDA in LTL this year. Our entire team is committed to delivering on this goal. We also expect to deliver more than 100 basis points of full year improvement in our adjusted operating ratio, excluding real estate gains. Here's how the dots will connect between where we are today and our goal this year. In the first quarter, we project about 200 basis points of degradation in our adjusted operating ratio, ex real estate, year-over-year. From there, we'll continue to reduce the erosion and reach the inflection point midyear. We'll improve our adjusted operating ratio in the second half, putting us on track for more than 100 basis points of improvement for the full year. We know exactly what it takes to hit these marks. The comprehensive action plan we're executing should unlock more LTL revenue and margin growth going forward. In 2021, when our company-wide return on invested capital was 32%, our ROIC from LTL was even higher. We're on track to nearly triple our adjusted EBITDA this year since acquiring this business in 2015. And it's a cash engine. Over the last 6 years, we've generated more than $3 billion of net cash from LTL alone. Now we're going to invest more of our LTL operating cash flow into the business to accelerate its growth. This year, our LTL growth CapEx will be 8% to 9% of revenue, covering investments in fleet, facilities and technology. That compares to 5% of revenue last year. That gives you a high-level view of the many tactical actions we're taking to drive revenue and margin growth and return to year-over-year improvement in our operating ratio. We're off to a strong start. We generated sequential operating ratio improvement through the fourth quarter, with December being the strongest month. In January, tonnage remained stronger than typical seasonality. We're seeing major improvements in our service metrics, along with improvements in customer satisfaction and employee satisfaction. We believe strongly in this business. We are on the right track, and our plan is working. Now Drew is going to cover truck brokerage, and then we'll go to Q&A. Drew?

Thanks, Mario. North American truck brokerage had another phenomenal quarter, the latest in a long history of outperforming the market. Over the last 9 years, from 2013 through 2021, we delivered a revenue CAGR of 27%, which is 3x the industry CAGR of 9%. There were some compelling trends underpinning our growth in 2021. For the full year, the number of customers who generated over $1 million of revenue with us increased by 48% versus the prior year. We grew volume with our top 20 customers by 35%. These large, sticky relationships are the bedrock of our customer base. And overall, we served over 2,200 customers who were not in our customer base a year earlier. Another reason we're getting outsized growth is our XPO Connect digital platform. We have first-mover advantage with proprietary brokerage automation dating back to the inception of XPO in 2011. That's when we first envisioned industry demand for a fully automated service for transportation procurement. XPO Connect is continuing to grow super fast. In the fourth quarter, the number of customers registered on the platform was up 41% year-over-year, and registered carriers were up 38%. This technology is a great lever to attract and retain customers and also carriers, which is critical when the market is tight. 79% of the carriers who do business with us on XPO Connect returned to the platform within 30 days. XPO Connect is a powerful growth engine, but it's not the only advantage we have with our proprietary technology. We also created dynamic pricing algorithms that we use with customers and carriers. The algorithms leverage automation and machine learning to generate real-time pricing for every transportation lane at any given day and time. Customers of all sizes increasingly want access to our pricing tools. In the fourth quarter, the number of transactions driven by APIs and other integrations was 2.7x higher year-over-year, and 70% of our loads in the quarter were created or covered digitally. The bottom line is we have a lot of runway to continue to take market share, and we're doing it profitably. The $440 billion total addressable truckload market in North America is shifting towards brokers, in part because companies are rethinking their supply chains and want flexible capacity with lower risk. We’ve positioned our business to capture this opportunity at any point in the cycle. In the current environment, truckload demand is strong and capacity is constrained, primarily due to equipment shortages and driver shortages. We offer a best-in-class combination of lane density, technology, experience and scale, with access to over 1 million trucks, and the headcount we added during the pandemic increases our capacity for growth. These are significant advantages in expanding our business. That was true in 2021, and we saw it again in January, when we realized strong year-over-year volume growth again in January. We expect to generate double-digit volume growth in 2022 and going forward. With that, we'll go to Q&A and take your questions. Operator?

(Operator Instructions) Our first question comes from the line of Chris Wetherbee with Citigroup.

Maybe we could start on the LTL side. Was curious about the operating ratio progression as we think about 2022. So I know down 200 in the first quarter and positive in the back half. How do you think about 2Q and maybe sort of how that cadence kind of plays out? Clearly, the comps are a little easier in the back half of the year. So getting to that 100 on a full year basis will be supported by improvement then. But I guess I wanted to again get a sense of what you think the shape of the first half will be.

Yes. Sure thing, Chris. This is Mario. So when we think about the cadence, so first starting with the first quarter. We expect a 200 basis point OR degradation in that quarter, which is sequentially better by 100 basis points from the 300 points degradation we had in the fourth quarter. And we'll drive that OR improvement starting with volume. So we had 4.9% volume decline in the fourth quarter, and we expect a low single-digit decline in the first quarter. And both, when we think about the exit run rate from the fourth quarter, both in December and January, we outpaced typical seasonality on volume despite the Omicron and weather in the first part of the quarter here. Now the next step from there would be on the cost side. So we already have seen improvement in labor efficiencies as we cleared the backlogs with the embargoes, and we're going to expect that to continue through the course of the year. And however, that was offset in the first quarter, at least, with higher purchased transportation costs that will carry through the first half of the year, because we typically reset our PT costs in the spring time frame. Now from a yield standpoint, we continue to expect yield to be very strong for the year, starting with the first quarter. So for the first quarter, we expect yield to be up in the high single digits, which is still reflecting obviously the strong underlying environment, but also the actions we are taking, offset by weight per shipment being higher for us typically in the first quarter. So that's the dynamic of Q1 of the 200 point deterioration. Now as we go through the year, we expect to get to an inflection by midyear on OR and then get back to positive improvement on a full quarter basis in the back half for a total OR improvement of more than 100 basis points for the full year. But net-net, if you think how we get there, one, volume, we keep on increasing, yield would remain strong for the course of the year in the high single digits, obviously, with Q4 being slightly softer given where we were in Q4 of last year. And then costs would normalize, where some of the cost headwinds will turn into tailwinds as we get into the back half of the year.

Okay. So it sounds like 2Q is kind of in that flattish type of range. Is that reasonable to assume? Or is that sort of part of how you think about the cadence?

Yes. So that's in the ZIP code, Chris.

The next question comes from the line of Scott Group with Wolfe Research.

I want to ask another on the LTL margin. I just want to think more sequentially. So the guidance implies that you outperform seasonality pretty meaningfully in second quarter and the rest of the year. I guess, why didn't we see any of this in the fourth quarter when pricing was accelerating so sharply? And I guess, what change is starting in 2Q to get there? And maybe just along those lines, you mentioned something about cost headwinds turning into tailwinds. Are you thinking that purchased transportation becomes a tailwind in the back half?

Yes. I'll start with the fourth quarter. There were two drivers for the Q4 decline beyond the numbers we discussed last time. One was that we implemented strategic embargoes and metered the volume entering the network to improve network flow. We extended these embargoes through November because they substantially improved network flow. That increased costs and lowered volume in the short term, but it was intended to deliver long-term benefits from better network flow. In the back half of the quarter, third-party linehaul rates rose and have since stabilized. The benefits from improved network flow include reducing the backlog, which we brought down to target levels, and service has improved sharply versus the third quarter. Customer satisfaction has jumped in both internal and third-party surveys, and typically network improvements are the precursor for OR improvements. For the fourth quarter, October was the low point of OR degradation and December was the best month of the quarter. We expect that trend to inflect as we get to midyear. There are three main drivers for OR: volume, which is typically backed by capacity; pricing; and operational efficiency tied to cost. On volume, we’ve seen acceleration that outpaced typical seasonality in both December and January, and we expect volume to continue accelerating through the year. As outlined in our five-point action plan, we’re adding capacity to handle more volume. We’re graduating and hiring more drivers from our schools, we’ve doubled trailer production capacity in our in-house manufacturing facility, we’re adding more tractors starting in the first quarter and having productive discussions with our OEMs, and we’re progressively adding more doors over the year. We’re also investing in our sales force, dedicating some strategic centers to LTL, and seeing more business either enter or return to our network. Volume should accelerate as we move forward. On pricing, we expect strength to persist for the full year, with pricing in the high single-digit range. We are also contemplating a potential additional GRI for local accounts in the first half, depending on the pricing environment. Finally, on costs, the current headwinds should flip into tailwinds as we cycle through purchased transportation costs in the back half and build efficiency in labor and other cost categories, which will reduce cost increases later in the year. Net-net, we expect more than a 100 basis point improvement for the full year, resulting in a record OR for the year.

Okay, just a quick second question. The brokerage and other operating margins were really strong in Q4, but the guidance doesn't seem to imply that will continue. Could you share your thoughts on brokerage and other operating margins for this year? And while we're on this segment, Brad, do you have any update on potential asset sales?

So I'll kick it off. As we said, we saw extremely strong trends in January of taking volume. If you look back to the fourth quarter, volume was up 22% on a year-over-year basis. But we also saw over the last 2 years, our loads per day was up 50%. Our net revenue per load was up 50%, and our net revenue more than doubled. So we're continuing to take share, and we're confident that we'll still be able to do that for 3 main reasons. One is our technology. If you look at our technology, it's focused on customers, the carriers we work with and our people. The customers that we work with, our technology helps them make transportation decisions on what mode they should be shipping, when they should be shipping. It even does little things of give them updates if there's an alert on any sort of delay. It also helps, on the carrier side that we're working with, it's very sticky. And we see that because 79% of the carriers returned to us on XPO Connect within 30 days. And then we're continuing to see it within our employees. As you look over the last 5 years, our headcount is up 38%, and our loads are up 66%. The second piece is our customers. We have strong relationships with a lot of the top companies in the country. And this has helped drive growth. If you look at our volume growth with our top customers, our top 20 customers, it’s up 35%. Those same customers serve as a reference point. And you see that, for us, as our customers who do $1 million in business with us is up 48%, and we brought on 2,200 new customers. We've got a strong sales force and a lot of momentum. The last piece is our people. Our people have their ear to the ground. We've got some of the best operators in the business. They've got a proven track record. Director level and above has been with us for 8 years on average. That allows us to create strong, sticky relationships with our customers. So because of those 3 things, I'm confident that we're going to continue to take market share, and we're going to do it profitably.

Scott, on the asset sale question you had, we're not going to comment on any possible strategic initiatives we have going on. But thank you for the question.

Next question is from the line of Brandon Oglenski with Barclays.

So I wanted to talk about the ability to grow in LTL. When I look historically, the focus has been on margin improvement by, for better or worse, shrinking the business, getting a better mix, and focusing on price and customers that fit the network better. I understand that. Can you talk to us in the context of what seems to be a much larger CapEx budget? I'm showing growth CapEx in recent years of about $300 million to $330 million, and it’s stepping up to roughly $500 million to $550 million this year.

Sure, Brandon. Yes, we are going to ramp up LTL CapEx substantially. We're going to be going from roughly 5% of revenue in 2021 to 8% to 9% of revenue in 2022. Some of that is, in fact, for new facilities. We spoke about opening 900 doors over the next 2 years by the end of 2023. Some of it is for equipment as we continue to replenish our fleet. We generate exceptional returns on capital in LTL. Our company-wide return on capital was 32%. LTL is higher than that. We know that we can get a strong return on that level of investment, hence the decision to allocate more capital to this business. So we're confident, we have line of sight on all of the spending areas, both real estate and equipment.

Well, I guess, Matt, maybe if I can rephrase the question, and be more direct. Was it a lack of capital reinvestment in the past few years that limited growth in the segment?

Overall, it was more of a strategy. Since we bought Con-way in 2015, our focus has been on expanding margins and profits, which allowed us to reach a higher ROIC. In that business we nearly tripled EBITDA to $1 billion this year since the acquisition and improved OR by 910 basis points. Now that we are shifting toward a growth strategy, part of that means adding more doors to the network, the 900 doors Matt mentioned, expanding our fleet by doubling trailer production at our manufacturing facility, adding more tractors, and hiring more people to move freight, both drivers and dock workers. We are therefore leaning more toward adding capacity to the network so we can grow volume and top-line revenue.

Your next question comes from the line of Hamzah Mazari with Jefferies.

Brad, I just wanted to ask 2 questions, and then I'll turn it over. Just questions we've been hearing more frequently from investors given your recent stock sale. One, I guess, are you planning to exit XPO? And then two, should we expect to see you sell more shares in the future? And I'll leave it there.

They're fair questions. Let me be very clear about it. I have no plans to leave XPO. I'm extremely proud of what we're accomplishing here, and I'm super excited about the many, many opportunities that we have to create significant shareholder value, both tactically and strategically. And regarding the stock sales, I still own about 11% of the company, and I'm very bullish about the company's prospects. But that said, I've owned these shares for over a decade, and I probably will sell some more shares at some time in the future. But I have no plans to leave the company in the foreseeable future. To the contrary, I'm very much all in and highly focused. Does that answer what you're asking?

Yes, perfect. Appreciate it. I'll turn it over.

Our next question comes from the line of Allison Poliniak with Wells Fargo.

First on brokerage, you seem pretty confident that double-digit growth will persist after '22. Could you help us maybe think of that growth algorithm for that going forward? Is it mainly the market share that you were trying to articulate before?

Yes, it's market share. The trucking market is $440 billion, and brokerage represents about $80 billion of that, with brokers continuing to take share. Our customers want to use brokers because they offer flexible capacity that can be scaled up or down based on market conditions. Over the last nine years the industry CAGR has been 9% while our growth rate has been 27%, showing our proven ability to deliver those results. As I mentioned earlier, we have a strong sales team and a great pipeline going forward.

Great. And then just on the technology for LTL, a lot of initiatives being put in place there. Is there a way to think of the contribution from those initiatives, whether it's price or customer share or productivity and efficiencies that you're expecting to drive from some of these initiatives? Just any color there?

You got it, Allison. It's a combination of all of the above. When we think about pricing technology, it's about improving yield. As I said in my prepared remarks, the new platform allows us to reduce manual data processing by 80%, enabling our pricing experts to spend more time analyzing account performance and negotiating with sales. It also enables us to use historical RFPs as a lead generation tool for sales, which ties to adding more volume to the network by driving more leads. Similarly, dynamic pricing gives us a mix of yield and volume and lets us flex that lever depending on whether we need volume or want yield. On the efficiency side, I mentioned linehaul and dock operations, which all relate to efficiency. That efficiency comes from building more direct trailers to destination, technically called head hauls. It reduced rehandle for better dock productivity across our docks and also improves our linehaul operation. All the technology also improves customer experience. We have a new web experience for customers and better visibility down to the piece level, so for a multi-skid shipment customers can see visibility down to the pallet level, which ties back to customer satisfaction. So it's a combination of improvements in yield, volume, efficiency and customer satisfaction.

The next question is from the line of Brian Ossenbeck with JPMorgan.

Just wanted to come back to the cadence of the OR throughout the year. And is there any way you can kind of split that between contributions you would think they're coming from the market and pricing and things you just mentioned in terms of that are more XPO specific, that you got more visibility and line of sight. And within that, can you just give some context in terms of how pulling forward the GRI was handled in the market?

I'll do the first part, Brian. And I'll just harken back to the color that Mario gave. We expect the OR improvement to progress through the year due to a combination of volume improvement and, over the course of the year, improvement on the cost front, with pricing being a relatively constant positive. To the extent that we're looking at volume at cost, those are idiosyncratic opportunities for XPO, both to improve from where we are, going forward and also as we're cycling some of the issues that we experienced in the second half of last year. And I'll give it to Mario for a discussion of the GRI.

Overall, on the GRI side, it's a firm pricing environment when it comes to LTL. The feedback we've gotten from customers hasn't shown any pushback in the market. We pulled back our GRI from the typical January timeframe to November, and overall the feedback has been good from customers. This year we are contemplating a second GRI for our local accounts in the first half of the year, depending on how the market progresses. Usually, GRIs for us impact our local account business, not all customers, and that represents roughly 20% to 25% of the business.

The next question is from the line of Jack Atkins with Stephens.

I guess this one is for Mario. I guess I'm a little surprised that you're not expecting a bit more than the 100 basis points or so of OR improvement in 2022, given that's probably going to lag your peers' performance this year. And your comps are arguably much easier given the underperformance over the last 2 years. So I guess, Mario, a bigger picture question. Do you feel like maybe there's something more structural going on within your LTL assets? Why can't you see a more substantial improvement in operating ratio this year? And do you feel like that 5-point plan you outlined 3 months ago was really going to be enough to get the business back on track?

Thanks, Jeff. Let me first address the structural side of our LTL business. We have more than 290 terminals and 21,000 great people covering 99% of all ZIP codes. That team moved 18 billion pounds of freight for 25,000 customers in 2021. There is nothing structurally wrong with the business. Since we acquired the LTL business from Con-way, we are nearly on track to triple EBITDA this year and improve our operating ratio by 910 basis points, while generating $3 billion of net cash. We did make a mistake in the third quarter of last year when we insourced third-party linehaul, which temporarily deteriorated network flows and increased costs. We implemented a five-point action plan beginning with strategic embargoes, which allowed us to lower tonnage, tier backlogs in the network, and restore much better network flow. We believe this is a temporary issue that will not recur. We are focused on customer service, pricing, tonnage and operations execution, and we plan to deliver $1 billion of EBITDA this year. Overall, it is a strong plan that involves adding capacity, investing in the business, pivoting toward growth, and continuing to service our 25,000, and hopefully more in the future, fantastic customers.

Okay. Got it. And then for my follow-up question, I would love to kind of get your thoughts on the intermodal market. It's not a business that we hear you talk much about, but we're seeing a number of your IMC competitors making some interesting moves in terms of shifting rail partners and adding additional containers and investing in their businesses with intermodal. How are you thinking about the intermodal market and XPO's position within that as we look forward?

The intermodal market was strong. We continued our recovery there. If you look at the congestions and the equipment shortage, our organic revenue was up 38% year over year. You saw our GM per load skyrocket. We are investing in containers as you look into 2022, and we expect to be able to continue to grow in intermodal as well as on our drayage side. Our drayage business complements intermodal, and one reason they work so well together is that we have a presence at every major U.S. port. We are very excited about the intermodal market, and it was a strong performer for us in the fourth quarter.

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

Mario, I just want to go back to the first couple of questions on the cadence of the operating ratio. I just want to make sure we are on the same page in terms of the numbers because there are a lot of operating ratios, adjusted and unadjusted. If I look at the first quarter, it looks like you are guiding to an 86.3% operating ratio for the first quarter. And if you are kind of flattish in the second quarter, that implies an improvement in the operating ratio to 81.1%. So first, are those numbers correct? Second, that implies an over 500 basis point improvement in the operating ratio in the second quarter, which is a huge number and would support many of the initiatives you are talking about, but I just want to make sure that expectation is well calibrated.

So overall, Amit, when we think about the OR cadence for the year, so for the first quarter, we expect a 200 points deterioration, and that would take us from the 84.3% to 86.3%. Now in terms of the second quarter, we're expecting the inflection to be OR positive by midyear. Now obviously, we haven't given specific guidance for the second quarter, but it would be in the ZIP code of what you mentioned. But that's kind of how we think about the cadence and then going over to improvement in the back half of the year.

Okay. So regarding the full-year guidance, just on 100 basis points, it is against an 84.3%. So you're really forecasting an 83.3% or better OR for the full year, which is obviously a great outcome given the starting point of 86.3%, but I just want to make sure that we're on the same page in terms of the numbers.

That's correct for the full year, which is more than 100 basis points of OR improvement with the sequential improvement going obviously from the 200 deterioration in the first quarter, inflection midpoint, to a full year of more than 100 basis points.

Okay. That's very helpful. And then the other question I had, I think it goes back to Brandon's question on capacity. So I guess, very simply, why do you guys need more capacity? Because if I look at the operating metrics in 2021, XPO LTL did 9,000 fewer shipments per day than it did back in 2012, with basically the same footprint. So I'm just wondering why you need more doors, why more doors are part of the problem and why they're part of the solution. Maybe it's as simple as more targeted doors to relieve some of the pressure. But give us a sense of why you need more capacity in the context of how shipments have trended over the last decade or so.

Thanks for the question, Amit. It's Brad. It's really simple. We've got a very high ROIC in this business. We've been running it for OR improvement. We've succeeded at that overall. We improved OR by 910 basis points. We're now going to continue to focus on OR. But in addition to that, grow the top line. In order to grow the top line, we're going to invest in more trucks. We're going to invest in more doors. We're going to invest in more people.

Yes. I understand that. But like the question is you have 9,000 fewer shipments per day than you did back in 2012. So doors and capacity is not the issue. It's maybe something else, unless I'm mistaken.

Amit, it's Matt. There are two additional points to make. One of them is that while we do have coverage across the entire country, as Mario said earlier, we cover 99% of the country, there are selected markets where we know we have the opportunity for additional volume by putting in incremental doors. The second point is that we have an ongoing opportunity to optimize our linehaul network. When we think about where we put those doors, we're thinking not only about the P&D side and that opportunity for incremental business, but also the opportunity to smooth out our linehaul network. Mario, I think, has an additional comment on that.

And also, Amit, I'll tell you, a lot of it goes back to customer feedback. I've spent a lot of time with customers since I've taken over this role. With my time with customers, for example, one of the markets we want to expand the number of doors in is Southern California, where I recently met with one of our large customers. Their immediate feedback was, sign us up; as soon as you open up the new terminal there, we want to be first in line to tap into that capacity. So although across the network we have 15% extra capacity, we're seeing more demand in certain markets where there are pinch points for us, where we don't have enough doors to support all the customer demand we're seeing there. By expanding the network in those specific markets, we can better service our customers and get more volume in those markets. As Matt said, on the linehaul side, take, for example, Atlanta, which is one of the major areas of the South and is also the gateway into the Florida region from a linehaul standpoint. Expanding in that market gives us both the linehaul capacity and the local steady operation capacity.

Got it. And I know I'm asking more here with one additional question, but hopefully you allow me to. Brad, last quarter, in the third quarter transcript, you used the word "non-core" to describe some businesses with XPO. I don't think I've ever heard you use the word "non-core" when describing any business at XPO over the last 10 years, and so I don't know if that was a deliberate distinction. Can you expand on what businesses you think are noncore and why you think they're noncore? Obviously, the company spun off GXO, and that's been a huge success. I'm just trying to understand if you're happy with the way XPO is today, or if we should read into something in terms of calling or characterizing some businesses as actually noncore?

I'm very happy with what XPO is today, but I'm also always looking for ways to create more shareholder value, and that's our mission in life, and we'll always be open-minded about that. As for the stock, we're accomplishing a lot of great stuff, but it is trading at 7-point-something times EBITDA and 12-point-something times on a PE basis, which are quite significant discounts to the market. So we've heard suggestions for various strategic alternatives and asset sales, and we're not going to comment on any of that publicly. There is a rationale for keeping all of our lines of business because they're good businesses and the numbers are up and to the right. There is also a rationale for divesting some of our lines of business: we could take the proceeds, pay down debt, and make this investment grade faster. We would become more of a pure-play, which, as you've seen with the spin, investors like. So I'm very happy that we have multiple, numerous alternatives to create shareholder value.

The next question is from the line of Tom Wadewitz with UBS.

I know you've had a lot on LTL, but I guess that's an important topic. So I wanted to ask a little more about the path. Do you think, in terms of network efficiency, that capacity additions are a key factor that drive improvement? I know you talked about drivers, trailers and some additional doors. Are those a key driver for improving fluidity and productivity, or is that the wrong way to look at it?

It's a combination of both. But for the most part, it's positioning capacity to gain more market share or volume. So overall, if you think about it, let's talk about capacity from a real estate perspective. Today we have excess capacity of roughly 15% across the network. However, some markets have pinch points where we don't have enough capacity or enough doors. I mentioned earlier, for example, the Southern California market, where we see both high demand on imports and high consumer demand. From a doors perspective, it's about adding more doors to handle more freight and to increase fluidity in the linehaul network and to address breaking points where we need more capacity moving forward. On the equipment and people side, it's mostly focused on getting more volume. The more trailers, trucks, and people you have, the more freight you can move for customers. Also, on the real estate side, you have to factor in a six-month ramp for any real estate or any set of doors we add in terms of ramping into the volume. So many of the benefits will be in 2023 and beyond as we add those doors over the course of the year, and we'll get margin benefit through the year from the ones we add this year.

You've talked a fair bit about tonnage growth, that that's become more important lever for you. I don't think I've heard a comment on the call of what the right ballpark is for how much tonnage growth you would expect this year. So I don't know if you have a thought on that. And then I guess, just shifting gears to tonnage growth, is tonnage growth a key lever for the margin improvement? Or is that really more just shift to another gear, and that helps on top line growth? Because I guess if you look at some LTL models, it does seem tonnage growth is key to the margin. But obviously, it could be a stronger top line or it could be that and a margin driver.

It's a combination of both. When we think about delivering on margin improvements, it's driven by volume, pricing and operational efficiency or cost. Our plan includes volume growth through the course of the year. However, we assume low single-digit volume growth for the full year, starting with a low single-digit decline in the first quarter, which is seasonally better than the fourth quarter, and then ramping through the year to achieve a full-year low single-digit improvement in volume. Also, not only is there a flow-through of EBITDA from the volume itself, but there is fixed cost leverage from adding more volume to the network. So when you think about margin improvement, it's a combination of volume, pricing and operational efficiency that will drive it.

Thank you. The hour went by fast, but it's over. So let me conclude by saying we have a ton of momentum in LTL. The year is off to a very good start. Our action plan is working. We expect to generate at least $1 billion of LTL EBITDA this year and more than 100 basis points OR improvement. In truck brokerage, we continue to perform at best-in-class levels. In Q4, we grew loads at 22%. And over the last 8 years, our truck brokerage growth rate has been 3x the industry’s, and we expect to continue to significantly outperform going forward. On the balance sheet, we're on track to reduce leverage to 1 to 2x by the first half of next year, and we're determined to close the significant valuation gap of our stock versus our peers. So thank you, and we look forward to seeing you at the upcoming conferences. Have a great day.

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