XPO, Inc. 2026 Q3 Earnings Call

Good morning, everyone. Thank you for joining us. I'm here with Kyle Wismans, our Chief Financial Officer, and Ali Faghri, our Chief Strategy Officer. In the third quarter, we delivered strong growth and margin expansion as we continue to convert more business into higher earnings company-wide. Revenue increased by 12% year-over-year to $2.4 billion. Adjusted EBITDA grew by 27% to $433 million. And adjusted diluted EPS increased by 59% to $1.70. In our North American LTL segment, we reported 17% revenue growth and 35% growth in adjusted operating income to $293 million. This is the highest level of adjusted operating income in our history. Our adjusted operating ratio improved by 260 basis points year-over-year, significantly outperforming normal seasonality. We're executing a powerful strategy focused on service, investments in capacity, pricing, and cost efficiency.

Each component reinforces the others, and together, they are driving an acceleration in our results. We can see these connections most clearly at the core of our strategy, which is world-class service. In the third quarter, we again delivered a damage claims ratio below 0.2%. For the shipper, damage-free delivery means fewer business disruptions, less time resolving claims, and greater confidence that that freight will arrive as expected. This is especially important to customers with time-sensitive or high-value shipments who place a premium on working with a trusted provider. Our service record positions us to earn more of this freight and further improve our mix. We view every customer interaction as being central to our success. Service quality earns us the next shipment, and continuous improvement maintains our advantage. There is a strong connection between our network capacity and our ability to support customer relationships as they grow.

We are continuing to expand our presence in high-growth freight markets, most recently in Phoenix and Kansas City, where we opened two new locations this quarter. Strategically, we have positioned our network to handle significantly more volume with more than 30% excess door capacity to support growth. We have also expanded and modernized our fleet, and we continually invest in our workforce. Together, these investments strengthen our network and allow us to move freight more efficiently, benefiting both our customers and our bottom line. We are achieving a better balance of network density, utilizing more direct routes, and reducing unnecessary freight handling. Importantly, these investments lower our cost to serve and build significant operating leverage into the business. The same strategy informs our commercial initiatives, including pricing. We want to make sure the price we secure reflects both the quality of our service and the resources required to provide a world-class customer experience.

Our service quality puts our team in a stronger position to have these conversations. It also opens the door with customers whose freight requires greater reliability, careful handling, or specialized support. This is through our sales pipeline as well as with existing accounts. When customers see how consistently we deliver, we have an opportunity to serve more locations and handle more of their freight. Local accounts and premium services remain important drivers to improve our revenue quality. These are areas where we continue to build lasting relationships and earn attractive margins by meeting specific customer needs. As an example, in the local channel this quarter, we increased the number of new customers we onboarded by 30% versus last year. The result is a strategic approach that connects pricing, mix, and share gains to the value we provide to shippers and the value we create for our shareholders.

We have a large opportunity to build on this momentum over time. The final component of our strategy is cost efficiency, driven by our proprietary technology. Our company has always had a technology focus, and now AI is accelerating that advantage. We are rolling out intelligent tools across our operations and seeing tangible results in how we route, handle, and deliver freight. Even in the early stages of these applications, we are moving more freight at lower cost and with improved service. In line haul, that means improving how we route freight and utilize trailer capacity. We are also running the network with fewer empty miles and freight rehandles. Since we rolled out a planning model that leverages AI, we have reduced rehandles by mid-single digits to the lowest level in over a decade.

In our pickup and delivery operations, our proprietary AI-based route optimization tools are now being used on nearly two-thirds of routes. This tech factors in customer appointment windows, distance, and trailer capacity to arrive at the optimal route. Our drivers are making more stops per hour while reducing miles per shipment. Our workforce planning technology provided valuable support in the quarter, helping our service centers handle nearly 6% growth in shipment count with only a low single-digit increase in headcount. We're also using AI to give our dock workers real-time feedback on their trailer loading techniques before freight leaves the dock. This contributed to a 20% reduction in damages in the quarter versus last year. Overall, we see AI as having a long runway for ongoing efficiencies and margin improvement.

Lastly, our insourcing initiative is working exactly as planned, reducing our exposure to rapidly rising rates from third-party carriers. We also have greater control over our line haul operations when we move this freight within our network. In summary, our third quarter results highlight the earnings power of our business, supported by a highly disciplined approach to both growth and margin expansion. We're building a business that can grow profitably, and we expect to achieve an annual LTL operating ratio in the low 70s or better over the long term. We expect our free cash flow to accelerate going forward, allowing us to continue repurchasing shares and reducing debt. These actions strengthen our balance sheet while further compounding our growth in earnings per share and enhancing shareholder value. Now I'll turn the call over to Kyle for the financial results.

Thank you, Mario, and good morning, everyone. I'll walk through our financial results followed by our balance sheet, liquidity, and capital allocation. For the third quarter, we grew total company revenue 12% year over year to $2.4 billion. In our LTL segment, revenue improved to $1.5 billion, reflecting a 9% increase in revenue ex fuel, with meaningful growth in both yield and volume. Turning to cost in LTL, we continue to drive efficiencies across our operations, helping to mitigate the impact of higher freight volumes, wage inflation, and increased incentive compensation tied to our strong performance. Our expense for salary, wage, and benefits increased 11% year over year or $72 million. Our cost for fuel, operating expense, and supplies increased 29%, or $66 million, primarily due to higher fuel prices. Our purchased transportation cost increased by just $10 million despite higher volume and rising truckload rates.

Our insourcing strategy has significantly reduced our reliance on third-party carriers, mitigating this cost. Depreciation expense increased 3%, or $3 million, reflecting our ongoing investments to expand network capacity and support long-term growth. Moving to profitability company-wide, we grew adjusted EBITDA 27% year over year to $433 million. Our LTL segment generated $389 million of adjusted EBITDA, up 26%, and we improved margin by 190 basis points to 26.4%. LTL adjusted operating income was up 35% to $293 million. Our European transportation segment increased adjusted EBITDA to $48 million. In our corporate segment, adjusted EBITDA was unchanged from the prior year at a $4 million loss. Returning to our consolidated results, operating income increased 76% year over year to $288 million. Net income was $181 million, representing diluted earnings per share of $1.53. On an adjusted basis, diluted EPS increased 59% year over year to $1.70.

Turning to our third quarter cash performance, we generated $291 million of free cash flow. We ended the quarter with $260 million of cash on hand after completing $123 million of net capital expenditures, accelerating our common stock repurchases to $150 million, and making $100 million of debt repayments. Combined with available capacity under our committed borrowing facility, our total liquidity at quarter end was approximately $860 million. Our net leverage ratio improved to 1.9 times trailing 12 months adjusted EBITDA compared with 2.1 times in the second quarter. We continue to drive meaningful growth in free cash flow through strong earnings performance and moderate capital expenditures. We are on track to more than double our free cash flow this year compared to 2025, and we expect to continue increasing it in the years ahead. This gives us significant flexibility to return capital to shareholders while strengthening our balance sheet.

In October, we paid down another $75 million on our term loan to start the fourth quarter, bringing our year-to-date debt paydown to $275 million. With that, I will hand it over to Ali to walk through our operating results.