Operating Ratio Improvement
Q: Can you unpack the OR improvement outlook?
A: XPO expects strong OR improvement, projecting a 200 to 250 basis point sequential improvement from Q1 to Q2, reaching the low to mid-83% range in Q2. This implies more than 400 basis points of year-over-year margin improvement. If typical seasonality continues, the full-year OR would be at the high end of the outlook range.

Cost Reduction Initiatives
Q: Where could linehaul insourcing go beyond 2025?
A: XPO aims to cut third-party linehaul miles in half by 2027 relative to year-end 2021, reducing outsourced miles to the low-teens percent range. They are accelerating insourcing by adding team drivers and sleeper cab trucks, expecting a few hundred teams by end of 2024. This will drive cost efficiencies and improve service.

Pricing and Contract Renewals
Q: How much of your order book is repriced, and what's the opportunity?
A: XPO renewed about 25% of contracts in Q1 with pricing up in the high single digits. With the recent bankruptcy of Yellow, they have another quarter of contracts to renegotiate in the upcoming quarter, presenting further pricing opportunities.

Demand Outlook
Q: Are you seeing demand improve in the backdrop?
A: The freight market remains soft but stable, seeming to bounce along the bottom. Industrial customers expect muted growth in the back half, and retail inventories are largely normalized but consumer demand is still soft. XPO's sales efforts and service improvements are driving gains despite the market softness.

Macro Impact on Volume and OR
Q: How sensitive are volume and OR to the freight market?
A: While not immune to market conditions, XPO expects to outperform due to its strategy and service improvements. Even with modest tonnage growth, they delivered nearly 400 basis points of OR improvement. They focus on yield growth and cost efficiencies, controlling their own destiny even in a softer macro environment.

Terminal Expansion Costs
Q: Any costs associated with new terminals as you reopen them?
A: The new terminals are expected to be neutral this year and accretive in 2025 and beyond. In the near term, there may be a small cost impact of 10 to 20 basis points on OR. The expansion is prioritized in capacity-constrained markets, and the company doesn't expect macro conditions to alter their timeline.

Local Sales Growth Impact
Q: What's the impact of local accounts on yields?
A: Growing local accounts is a key strategy, leading to 10% shipment growth in Q1 and adding over 3,000 new buying accounts year-to-date. Local accounts are more sticky and support higher margins. The shift is expected to contribute 2 to 3 percentage points to closing the mid-teens yield gap.

European Operations Divestiture
Q: Is now an improved time to consider selling the European business?
A: Selling the European business remains a strategic priority to become a pure-play North American LTL carrier, but XPO will be patient to maximize returns. Meanwhile, the business is performing well, with Q1 EBITDA at its highest since the pandemic. Key geographies like France saw EBITDA up in the mid-teens, and the UK up in the high single digits.

Cash Flow and Capex Guidance
Q: What drove strong operating cash flow, and what's the outlook?
A: Despite higher CapEx in Q1 due to 1,600 tractor deliveries, XPO expects to generate over $100 million of cash flow in 2024, even with CapEx in the $700 million to $800 million range. The CapEx number will decline over the year, and the company feels very good about its cash generation ability.

Incremental Margins from Terminals
Q: What incremental margins do you expect from new facilities?
A: XPO expects strong incremental margins from new service centers. In Q1, incremental margins were strong, and in Q2, they expect margins north of 50%. As new terminals come online into 2025, they aim to maintain incremental margins comfortably above 40%.

Service Improvements and Growth
Q: Does XPO become a growth story with service improvements?
A: New service centers will enhance service by allowing more efficient loading and reducing rehandling. Initiatives like insourcing linehaul and technological advancements also improve service. While focused on yield over tonnage, XPO aims to take on more freight when the market recovers, ensuring it's accretive and at the right yield.

Long-Term Margin Targets
Q: Any updates on long-term margin improvement potential?
A: XPO initially targeted at least 600 basis points of OR improvement from 2021 through 2027 but aims to surpass that and achieve it faster. The goal is to reach OR in the 70s, eventually into the mid-70s and then the low 70s.