Bradley Jacobs - Chairman and CEO John Hardig - CFO Scott Malat - CSO.

Rob Salmon - Deutsche Bank Chris Wetherbee - Citigroup Alexander Vecchio - Morgan Stanley Scott Schneeberger - Oppenheimer Jason Seidl - Cowen Brandon Oglenski - Barclays Nate Brockman - William Blair Casey Deak - Wells Fargo Todd Fowler - KeyBanc Capital Markets Jack Atkins - Stephens.

Good morning. And welcome to the XPO Logistics Third Quarter 2015 Earnings Conference Call and Webcast. My name is Brandon and I will 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 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 security 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, including its outlook 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 of the Company's Web site at www.xpo.com. I will now turn the call over to Mr. Brad Jacobs. You may begin sir..

Thank you, operator, and good morning from and all the Michigan. Thanks everybody for joining our call. I’d also like to welcome you to call, all of our new employees from the former Con-way and the former member. With me here today are John Hardig, our CFO; Scott Malat, our Chief Strategy Officer; and Tavio Headley, our Director of Investor Relations.

As you saw last night we delivered third quarter results that far exceeded our targets. We achieved significant margin improvement across all our lines of business. We grew both net revenue and EBITDA by more than six times, we grew organic EBITDA by 77% on organic revenue growth ex-fuel of 3%.

We completed the Con-way acquisition last Friday and all of the acquired operations Con-way Freight, Menlo Logistics, Con-way Truckload and Con-way Multimodal are all now operating under the single global brand of XPO Logistics. The integration is off to an excellent start.

I’d like to particularly thank outgoing managements for their extremely helpful cooperation in the pre-integration planning it’s really paying dividends.

We’ve held catalyst town halls and group and individual meeting with the Con-way employees prior to closing, and challenge the whole organization to contribute their best ideas on how to take customer service to even higher level, while running the business more efficiently.

This week we held kick off events around the globe and if you have been following us on social media you know that team XPO is highly engaged. You will recall that at the time we announced the deal, we said we would improve profitability by at least $170 million to $210 million over two years.

I am happy to report that we've already taken out more than $30 million of cost, primarily through headcount reduction, adjustments in vendor contracts and the elimination of public company cost. We have a high level of confidence that we will hit our profit improvement targets.

Last night we announced that we've hired Tony Brooks as President of our LTL business in North America. Tony is a 30 year industry veteran who has run three of the largest transportation fleets in North America.

He is a high energy, high impact leader with 11 years in LTL with roadway and he has managed complex networks at Cisco Foods, [Indiscernible] Seers and Pepsico. I'm looking forward to working closely with Tony and executing our growth win in LTL. Welcomed to the board Tony.

Looking at the company overall the Con-way synergies are just one piece of our larger trends to drive our profitability over the next few years. Our business in Europe is going very-very well we beat budget on both top line and margin we increase the EBITDA in our European transportation business by 26% in the quarter.

We increase our logistics EBITDA in Europe in the quarter by 17%, and now on an annual basis were now at $1.1 billion of adjusted EBITDA companywide post Con-way. Next year we are targeting full year adjusted EBITDA of at least $1.25 billion and our target for 2018 is $1.7 billion of EBITDA.

That's 200 million more EBITDA in the year earlier than our previous long term target. The components of how we will get to that $1.7 billion of EBITDA are very clear.

In our LTL business there is $170 million to $210 million of profit improvement opportunities to start with we also have a host of our initiatives design to run the business more efficiently.

Around the world we are also addressing underperforming locations and unprofitable customers [are laying], we are redesigning our entire organization with one global sales force, one global IT organization, one global HR group, one global procurement team and one global back office.

And will continue to cross sale our multi mobile services towards more than 50,000 customers. This is a huge lever for growth it's right on our door step. Today at $15 billion of revenue we've established leading position in key areas of transformational logistics with a strong secular demand.

Now our leather pocket is optimizer of global franchise execute on opportunities to increase our profitability and create dramatic long term value for our customers and shareholders. And with that, I'll turn it over to John to review the quarter.

John?.

Thanks, Brad. We increased gross revenue in the quarter by $1.7 billion or 257% year-over-year. Adjusted EBITDA was $166 million in the quarter, up 586% from last year. The increase was due to a mix of acquisitions and margin improvement. By division, gross revenue for our Transportation segment was up 128%.

The increase in net revenue was even greater on a year-over-year basis up 152%. This was due mainly to the acquisition of Norbert and margin expansion. We increased net revenue margin in every single transportation business unit across the company. Transportation net revenue margin was 22.6% versus 20.4% in the prior year quarter.

The increase in margin was due mainly to the expansion of our North American truck brokerage margins, improvements we made in our Last Mile operated performance and the acquisition of Norbert. In our North American brokerage and intermodal business, we increased gross revenue by 21%.

We continue to generate strong volume and margin growth in truck brokerage. This was partially offset by weak volumes in the [Indiscernible] as we share on profitable accounts. The intermodal market was also generally slower due to lower fuel prices which now has the cost advantage of rail versus truck especially when truck capacity is loosed.

In Last Mile the demand for home delivery of heavy goods continues to gain momentum driven primarily by ecommerce sales. We increased gross revenue by 50% and net revenue margin increased 165 basis points over the last year, due to operational improvements in our field operations. In Europe our transportation business exceeded expectations.

Volumes were ahead of plan in our dedicated fleet LTL and brokerage businesses. The measures we are taking to approve pricing and cost management as well as some impressive wins in our UK business all contributed to improvements in both margins and earnings in Europe. Our logistic segment once again performed well in the quarter.

In North America we continue to grow earnings through strong operating management in the field. Our logistics business in Europe is performing significantly ahead of plans due primarily to new business wins especially in the UK.

We began to work on a wave of new contracts in the quarter representing over €100 million of annual new business and we won several large contract that will start up in the next few quarters. In addition we address some unprofitable contracts and are now serving these customers on a more equitable basis.

In corporate, second quarter SG&A expense was $22.8 million, essentially flat with year ago. Corporate expense included $4.7 million of one-time transaction expenses related to acquisitions $1.4 million of non-cash share based compensation expense, and $1.2 million of litigation costs.

To help you with your models, in the fourth quarter, we expect depreciation and amortization to be in the range of $145 million to $150 million based on our current estimate for Con-way intangible amortization.

Interest expense in the quarter will be in the range of $75 million to $80 million excluding the one-time commitment fees related to the Con-way financing.

Starting in 2016 when the acquisition of Con-way is fully reflected, we would expect D&A to be in the range of $165 million to $170 million per quarter, and interest expense to be in the range of $85 million to $90 million per quarter. Our expected tax rate was negative in the quarter. The valuation allowance in the U.S. limited our use of our U.S.

deferred tax assets, while our European operations generated pre-tax earnings resulting in a small tax expense despite a consolidated pre-tax loss. We expect our fourth quarter effective tax rate to be in the range of 18% to 22% as the Con-way acquisition will result in the release of valuation allowance.

We have a very strong liquidity position, following the closing of Con-way. As of November 3rd we had approximately $530 million of cash on our balance sheet. Concurrent with the acquisition, we increased our existing ABL revolver to $1 billion which is completely undrawn.

We ended the quarter with $5.8 billion of debt and capital leases pro forma for the Con-way acquisition. Before I hand the call up to Scott, I want to share some data from Con-way’s performance in the third quarter, prior to our ownership.

Con-way performed as we expected in the quarter with revenue coming in lower, but with a better improvement in pricing. Con-way’s consolidated revenue decreased 6.8% year-over-year to $1.4 billion, primarily due to lower fuel revenue and a decrease in transportation management revenue of Menlo.

This was partially offset by higher base freight rates and operating income excluding $6 million related to the sale of XPO, the sale to XPO was $84 million. Con-way Freight, which is the LTL business, had revenue of $906 million, a 4.3% decrease from last year.

While pricing improved, it wasn’t sufficient to offset the decline from lower fuel surcharge revenue and lower tonnage. Revenue per 100 weight, or yield excluding fuel surcharge, continue to be strong and was up 4.2% for the quarter. When you include fuel surcharge revenue, yields declined 1.4% in the quarter compared to last year.

Daily tonnage declined 3.1% reflecting softer demand and the impact of pricing initiatives. LTL operating income was $68 million in the quarter for an operating ratio of 92.5 in line with 92.4 last year. Con-way’s Logistics business Menlo reported third quarter gross revenue of $387 million, a 12.8% decrease from the prior year quarter.

This was primarily due to a 19.3% decrease in revenue from transportation management services or TMS. Menlo net revenue was $189 million in the third quarter or flat compared to last year and operating income increased 15.1% to $9 million mainly due to growth and operating performance improvement at warehouse management sites.

At Con-way Truckload, revenue in the quarter was $144 million, a 9.7% decrease from last year. The majority of the decline was due to 45.6% decrease in fuel surcharge revenue. Excluding the fuel impact, truckload revenue in the quarter was unchanged from the prior year period.

Truckload operating income was $9 million in the quarter for an operating ratio of 93.7 compared to 93.3 a year ago. Now I am going to turn the call over to Scott, and then we’ll go to Q&A..

Thanks John. From a macro standpoint, U.S. volumes continue to be sluggish, which is having a mix impact on our business. We’ve been able to drive lower transportation cost and higher margins that more than offset lower volumes. It’s a different picture in Europe where the macro trends have been improving, especially in Spain, in UK, and in France.

We see a clear path to significantly increase the profitability of our business without the need for much top line growth. Con-way is a good example of this. We’re executing on the $170 million to $210 million in savings that we originally identified with a clear line of sight on each item in the plan. A large piece of the savings is in procurement.

Our North America and European teams are running a global procurement summit in France this week. We plan on strategically sourcing everything from trucks, and equipment, to fuel, temporary labor, IT hardware and office supplies.

This is a large opportunity, we are attacking about $3.6 billion of addressable spend companywide, even a small percentage of savings would be meaningful.

We also have significant potential in LTL to improve pricing to better to balance liens and improve utilization and we are planning a number of initiatives to optimize pickup and delivery while maintaining our industry leading on time service record and mitigating damage.

We were having lots of calls and meetings with the sales force were holding a national sales summit next week to realign the combined sales force, plan our go to market strategies and identify cross selling opportunities. We have 1,600 sales people globally.

This is one of the largest most experienced and well rounded sales organizations in the industry and were charging them with operating customers our complete range of services with market leading position and many of the fastest growing areas we can add a lot of value to customers.

Our service range offers us cross selling opportunities to grow even if the market doesn’t. Our strategic accounts team is continuing to make significant in rose with new customers. We told you about a big way in last quarter in the U.S.

for our new logistics contract with a European customer right now we are in a advance stages with seven other large customers where we are cross selling our services across the pond. And one key it's a joint proposal to do work in both North America and in Europe.

These are customers where we already have strong relationships, we can help them expand internationally by supporting supply chain strategies that have worked for them on their home turf and we have a lot of additional opportunities bubbling up through the organization.

Another thing that's rising to the top of our priorities list is the synergy between LTL and Last Mile. These two networks are highly complementary. Our LTL platform in North America improves our national density to better reach the M-cut consumer. This is especially important to our ecommerce customers.

We now have a comprehensive network to move everything from palates to large format consumer goods. We've won over a $111 million in annualized new sales so far this year in Last Mile with accounts tied to ecommerce making up a significant portion of this new business.

We are in the start-up phase on a number of new contracts that will drive growth well in to next year. In Europe where we are also a leader [in less than] truck loads the two services are just as complementary.

We've made good progress towards developing our Last Mile business in Europe and are pursing several sizeable opportunities there which will be supported by our LTL network. With additional ways to increase the profitability of our business for example in Europe we've uncovered opportunities to address locations that are under earnings.

There are detailed plans in place to either turn these locations around or to close them. And we expect to continue to improve our North American transportation margins as we gain scale and as our sales revs increase in tenure. This is all in addition to the secular growth offered by our end markets.

So we have many avenues to grow our profits and we are in a strong position to drive that growth in any operating environment. We've met or exceeded every financial goal we've announced over the last four years. Were confident in our outlook for this year and our long term financial progress. With that operator will turn it over the questions..

Thank you. We will now begin the question-and-answer session [Operator Instructions] And from Deutsche Bank we have Rob Salmon online. Please go ahead..

With regard to the near and long-term targets I appreciate the additional visibility you guys are providing with us. They've strayed a little bit from your recent top and bottom line forecast and I'm curious if this is a strategic shift in that you guys are making a statement that there's EBITDA improvement independent of the economy.

That you guys see internally or is this more aligning your street targets with how people at XPO are compensated?.

Two things there -- one is, we are not impervious to the economy. The economy -- our business is certainly dependent on -- our business is dependent on the level of manufacturing activity in our business is certainly dependent on our regional activities and were very much part of the global economy no question about that. Course.

There are many things that we are doing and will continue to do in our planning to do that regardless of what the economy does will improve the cost structure of this is this very, very substantially. For example, procurement.

Now as a $15 billion Company with almost $14 billion of cost the opportunity to chip away at hundreds of millions of dollars of that $14 billion of cost is very concrete and procurement is one big look at that's independent of the economy.

So now we are one of the biggest purchasers of the world of truck -- trailers, fuel, tires, office supplies, we have $550 million of temporary label on it global basis and equipment that goes in warehouses, IT services and supplies.

So, there are many categories of products and services that we are buying independently around the globe that we'll consolidate into on a global sourcing basis that people save very, very substantial amounts of money on. That's one example of things were able to do regardless of the economy. But we will clearly be affected by the economy..

If I shift gears a little bit to the 2016 EBITDA guidance, can you give us a sense of the organic EBITDA improvement you’re looking at the XPO businesses, excluding Con-way? And then how much of the $170 million to $210 million of profit improvement you guys are expecting in 2016? It sounds like you’ve already achieved over $30 million with regard to those synergies.

And any other either puts or takes that we should be thinking about as we’re updating our models for next year?.

In terms of the long term, we’re looking for 15% mid-teens type of EBITDA growth over the next several years and $170 million to $210 million is included in the guidance to get to 2018.

We’re expecting about half of that to roll in through 2015, the other half to roll in through 2017, so that will be at the full run rate of $170 million to $210 million by the third quarter of 2017. So when you look at 2016, you will get a portion of that half of the savings that’s $170 million to $210 million..

From Citigroup, we have Chris Wetherbee. Please go ahead..

I wanted to touch on that 2016 guide again for a second trying to think about the business as it stands right now and maybe how it should grow going forward.

I think you're at about 1.1 billion EBITDA run rate and maybe seasonality has something to play into this because I think the performance in the third quarter would maybe suggest a little better than that but I guess as you think about the Con-way piece of it at least next year when you think about the $30 million you've got were at about eight 525 run rate based on the numbers, John, that you gave out.

Just curious how we should think about the growth there as we think about 2016..

I think that we will be -- today we’re on about $1.1 billion EBITDA run rate, you’re right in that third quarter is a little bit seasonally stronger than the fourth quarter, so all else being equal, you expect the third quarter to be stronger than the fourth quarter.

And as an aside, Con-way will only be included in our results for the fourth quarter in November and in December, December is one of the weakest months of the year. So, you’ll get a much lower number when you’re looking from third quarter to fourth quarter in that run rate.

But as you move into 2016 you start with that $1.1 billion which is an average type run rate of the year, and actually the recorded number would be below that, we’ve been increasing our profitability as we went through 2016 and you have growth on top of that because from $1.1 billion to $1.25 billion which includes some of the cost savings that we outlined plus organic growth..

So you are still looking for organic growth at Con-way in 2016?.

Yes, absolutely..

That's helpful. I wanted to get a sense -- the organic revenue growth versus the organic EBITDA growth at the businesses.

It seems like you're going for a bit of a calling process on the inter modal side and maybe the side as you give us in terms of how much of that impact the net revenue growth and maybe what's a bit more of a normalized number? Just tried to get a sense of how that is loan through the business right now..

Sure. One of the biggest areas is in inter modal. In inter modal there was one large customer and some other customers that were not making money. So, we decided to raise price or to let them go somewhere else. And then backfilled and with other customers that are more profitable.

So, in inter modal our revenue was down about 17% if you exclude inter modal from organic growth we have organic growth of about 10%. So, in that case there was a large percentage of the inter modal piece of was tied to customers that were called out.

If you look in North America and Europe there's been a significant numbers of opportunities to work with customers on the contractor to become more profitable if they were under earning before in some cases we have wound down some contracts in North America and Europe and a sizable percentage as well. .

And then final question just so you think about the 2018 targets and I know they’re exclusive of incremental M&A. But from a free cash perspective it seems particularly once you get past some of the deal cost in 2016, the free cash will ramp up pretty meaningfully.

I just want to get Brad your rough sense on conceptually how you think about a descent [amount with the chapter] in the short-term with Con-way but as we get out in ’17 and probably more likely ’18, what you’d do with the cash?.

Well, on the first [business] we’re going to pay down debt with cash and improve the leverage of the Company.

And not this year, maybe not the rest of this year or debt count to the year I don’t think those of you to time to be doing big acquisitions I think with much better use of our time just focus in on this beautiful business that we put together and improve the level of customer service, improve the profitability just make it all at hum as one coherent global organization.

We can revisit the acquisition trail after that but that's not our near term focus at this point. .

From Credit Suisse we have [Indiscernible] online. Please go ahead..

Congratulations on the quarter and closing the deal.

They can about the historical relationship with the UPN the inter modal the clients we're seeing there, maybe as well as some of the lingering service issues on the case ESM, can you talk about where you are with respect to your original goals to drive cross selling synergies and improve asset utilization? Maybe how you see each of those playing out over the next 12-24 months when you consider your strategy to increase inter modal for substituting for Con-Way freight.

.

Yes, thanks Allison. In inter modal we've improved profitability significantly from what we bought it and from a year ago while Bridget new -- revenues were down significantly. One is the way that we've been able to do that through participation rates. We been able to move more of the freight on the owner operators to work exclusively with us.

In terms of empty miles and other different pieces -- metrics -- it is not improved as much. Some of that has to do with volumes. Volumes in inter modal in addition to the fact that we did take out some of the larger customers in the business -- volumes have been relatively weak.

You noted to some of the reasons cross-border Mexico did have a tough quarter. And overall fuel prices being low and truck availability being high, it's not a positive driver of volumes in inter modal but despite that we're able to improve the EBITDA.

As we look forward we have a big opportunity to continue to add some business with the cross-selling to replace business that was lost. We still are a big believer in the inter modal trends. We think over the long period of time inter modal will absolutely be increasing because it's still cheaper than truck.

But, for right now that's an area of our business that the volumes been a little weak..

From a customer service perspective we're completely mode agnostic. So inter modal at one point in time better for our customers that great -- we have that for them. Truck is better for them at a certain point in time or in a certain situation that's fine, too.

And the beauty of having a very diversified multimodal model is that at any one point in time most our businesses are doing just fine some of them are doing not so great and some are doing really great.

So, if or in a certain part of the cycle where inter modal, for example, is a little bit soft that's okay because the truck and truck broker is doing much better different parts of the cycle..

Okay. That's very helpful, thanks.

And thinking about I guess how are you thinking about how are you thinking about net CapEx at Con-Way in 2016 relative to the 300 million they were expecting to spend this year in the event that US is headed for a broader recession is this one of the levers you think you can pull and maybe to what extent could you reduce that capital budget?.

Hey, Allison it's John Hardig. Thank you for that question. Yes, in terms of CapEx next year this year we are actually are going to come in a little under 300 million at Con-way in terms of total net CapEx.

We don’t expect that to grow a lot even if the economy were to stay consistent with where it is right now, in fact we'll be looking to drive more utilization out this network over time and that could actually reduce our total CapEx need as we go forward.

I think if the economy want to get soft and we wanted to manage that CapEx spend we've got a lot of flexibility to do that one of the great things about LTL assets is that you run them for 10 years and every year you are replacing [Indiscernible] fleet and that allows you really to defer CapEx for a good period of time when you have an economic downturn and so if you look at what Con-way did in 2009 to see that they cut back their CapEx dramatically and certainly we've got the flexibility to do that if we need to..

From Morgan Stanley we have Alexander Vecchio online. Please go ahead..

Brad or Scott it's been about two months since you signed the Con-way deal and presumably you've learned a lot more about the company. Then you had to during your diligence prior to announcing the agreement to acquire it.

So, then you talk a little bit too what the incremental think you may have learned about Con-way and specifically the expand -- extent to which there are more opportunities for improvement that may be even incremental to the goals you've established right now in this one 70-to 10 to the extent that there are more opportunities that you've learned about?.

Alex there is a ton of opportunities. There are so many initiatives that we have begun to improve the business. And it starts from the sales force. It starts in the sales organization. We're having 2 big sale summits this we can next weekend we are energizing the sales force and connecting the sales force through the rest of the organization.

We're studying the freight that we are taking and purging unattractive freight. We're making sure that we're charging for it appropriately. We are growing the business with small and medium-sized customers as well as the three to balance the network.

We're looking at rates on a Lane by Lane customer by customer bases and were optimizing those rates and raising the matter where they make sense and lowering them where it makes sense and we're not going to casually wave accessorial.

If a point to do residential deliveries and insight deliveries and correct bills if there is excessive -- we will collect on that. We will optimize on PNT with optimization of software with route planning and load planning. We're going to increase every possible way cross stock efficiency and old on the great ratios that we've got already.

We're going to install dimension ours which aren't installed yet in the cross stocks. We're going to decrease costs by bringing more of the line haul on to our own trucks and provide transportation more efficiently. We going to rollout -- accelerate the IT roadmap to support all these projects.

And then were going to continue to rationalize the back office and two to capitalize on the synergies with the rest of XPO and I mentioned before the procurement opportunity which is really, really a mess. Much larger than I originally expected. Then there's the cross-selling opportunity.

All the ways that we can take the customers here at the former Con-Way and former Menlo and over them services other than LTL and other than logistics that they've already been doing with the Company prior. This is a really, really big opportunity. And to offer all our customers service at LTL and the services that tran06/tran17 were offering before.

It's really a world of enormous amount of opportunity and now bringing Tony in next week were going to work closely and really execute on all these. The team is very, very invigorated here.

The team here in Ann Arbor and throughout the rest of the former Con-Way organization and the former Menlo organization -- the morale is very high and very united and to determined to increase the profitability of the business and increase customer satisfaction as well.

Already from the high level of customer satisfaction, but bring it up to another level I could keep going on for hours that these of the main things off the top of my head the were working on it the moment..

The next thing I wanted to ask about was on the deferred LTL offering that I think as you’re planning to roll out.

Could you maybe provide some more rationale behind that initiative and then maybe talk to what extent this is going to impact Con-way’s density and profitability going forward? And what kind of capital investments of costs would be required associated with the roll out of the deferred service offering?.

So I have given and have in [indiscernible] Con-way Freight ex-LTL we don’t use the names Con-way and Menlo we retired those names and everything is XPO Logistics now. So in our LTL division of XPO Logistics we offer more next day and two day LTL lanes than anybody but we are the premier provider of priority service in LTL.

What I want to do is build up on that terminal network, build up on that service organization to also offer an economy product a deferred product for longer shipments that has a very large market which Con-way really wasn’t going after very intensely at all.

So that’s something that we after we will roll out we will not roll that out in the next six months, that’s something that’s a one to two year project because it has to be done very carefully and has to be mapped out and engineered a big IT component to it and there is a compensation component to it and there is a route up and there is a lot of details to that at the cross, it has to be very carefully planned out and executed flawlessly so there is not a bit missed on customer service.

But we’re doing that. We have resources associated to that and dedicated to it and that’s going to take one or two years to open up. That’s not a top of list project right now, an important one, its one that's going on in the other side of the room.

But the things I mentioned before about sales and about purging unattractive freight and about doing more business with the small and medium size customers and the 3PLs and charging for the [indiscernible] optimization software and the cross dock efficiency and the [dimensions] all those things are procurement.

Those are the main things that are immediate that we’re jumping on like our hair is on fire..

From Oppenheimer, we have Scott Schneeberger on line. Please go ahead..

If we could focus on contract logistics it looks like a lot of happened in the quarter and a bunch of new contract win. Could you speak to what verticals that a little bit about that North American Europe opportunity and then follow up on that would be a little bit of your discussion on shedding of unprofitable business in logistics..

So in terms of the wins in Europe they were pretty broad based all across the board in terms of their customer base which is the broad industry verticals exposures.

And I wouldn’t say there was anyone particular vertical that was stronger than enable in terms of winds although that had a lot of retail and ecommerce winds of ways that's they are driving lot of their upside their increased activity level.

And in terms of sharing business the grew has been mainly in North American area where we've been sharing some accounts I would say that those were any particular vertical either..

And just setting to add to that also and the lot the winds in Europe were in the UK it's a big jump we actually have look at to [Indiscernible] and if you look at our mix of and we are looking at the mix of new customers and an existing customers we have no end market that' more than 15% of our total so retails are larger spend market at 15% and then food and beverage is at 12% again it starts to fall off after that so we are very well diversified across this and in terms of our new winds it's been very much a broad based new customers..

And on this subject of unprofitable customers and unprofitable winds we are not a nonprofit business we are four profit business.

And we have over 50,000 customers and I'm sorry to admit there is a fair chunk and that were losing money on and that's not fair we have cost and we have obligations to our shareholders and employees and we need to basically go to those customers and have discussions about pricing and or when contract expire not renewing because we are not in the business of doing unprofitable business that's not what we're here for so unprofitable locations, unprofitable customers, unprofitable lends this should not be in our vocabulary.

.

Thanks guys that's helpful. And if I can slide one more in the going over the transportation side Scott following up on your response on Allison's question in interim model it sounds like there is some maturations and calling of revenue right now.

When do you anticipate a swing a back to revenue growth in interim model imagine it will take some time to get some of these true but could you just elaborate a little bit there? Thanks..

I expect thing to go from here. We have contemplate, we have made links more profitable it will take another few quarters for us to lock that so in terms of the year-over-year growth sequentially we'd be growing but year-over-year growth let's start to see that in the beginning of next year second quarter of next year. .

The service levels have come back on the rails what all determine how much converts to intermodal or not is really the difference between the pricing on intermodal versus trucking and as I said before to Allison we are agnostic on that, we serve our customers intermodal, we serve our customers with truck whatever makes the most sense.

I think that will be the main determining factor..

From FBR Capital Markets we have John Mims online. Please go ahead..

Hi. This is actually [Indiscernible] in for John. Thanks for taking my questions guys. So I have a few questions around labor.

First can you talk about the [team search] strike in October and any impact that you guys think that might have on the fourth quarter?.

I believe the [team search] have wasted their time chasing the former Con-way and chasing [Indiscernible].

They've had not success and this year they had three [unization] attempt against roughly about 100 employees relocations at Con-way before we bought them and they were just feeding into them and actually was adhesive with another union and withdrew on a third because probably because it most no cases that people would draw unions would draw both when they think they are not going to win them.

The employee based here at XPO is happy to work for XPO they are not interested in having an intermediary between us and them. But I really don’t know the union that they [Indiscernible] I do view it as the distraction and as kind of the new thing..

Okay, great thanks.

And then more broadly can you discuss any warehousing and logistics labor issues any shortages there? And then what kind of weight factor you are seeing given the minimum weight hikes and lastly so that any geographical pockets of labor tidiness?.

On the labor it has been something that's been front page news we've done a very good job of planning, we've done a very good job of going back to some temporary labor that we used in other years and have had no issues in terms of getting temporarily labor to ramp up during seasonal periods so really hasn’t been an issue in North America and in Europe that hasn’t been as much of.

From Cowen we have Jason Seidl online. Please go ahead..

Hey, thank you. Good morning gentlemen. Couple of quick questions. Have you guys had any feedback from somebody other less than truck load carriers that are providing services to your brokers operations now that you've acquired Con-way. And any sort of back down from doing business with you guys..

Yes couple of that down it's not a material amount of all I consider that patty to be honest we deal in other three PLs all the times in most of our business since here and in Europe we have a great relationship with our competitors, sometimes we are providing capacities, sometimes using their capacity there is no reason in the world that 3PLs cant figure out and even capacity providers cant figure out how to do business with each other, in an ethical way, in a fair way, in a reasonable way, in a commercial way to make money for both sides.

We have no problem with that. Some companies have lot of solutions to that and so be it..

You mentioned Brad I think that you’re agnostic whether you ship something intermodal or broker something on truck for your Company. I get that. But how is intermodal going to increase its volume now and improving rail market.

Are they going to have to come back on price or just wait for fuel to eventually increase?.

Well, still cheaper to move by intermodal versus truck.

It’s very important to have good service levels we’ve been very focused on investing in technology in that area through the rail optimizer to improve our service levels and if service levels are approaching in very close to truckload levels and the price is less expensive we continually believe that just by the in hand of free markets business is going to migrate from truckload to intermodal and I don’t think that’s changed over the long term things.

When you do have service disruption and then prices of fuel are low and the amount of discount for intermodal versus truckload narrows between all those factors you’re not going to get a big driver of conversion. But over the long term we expect that to pick back up again..

And then Scott where would you say we are now, intermodal service versus trucking service, on a comparative basis? I know we’ve improved but where are we comparatively?.

It’s a 2 percentage points in general truckloads are in 97% range we have a little bit higher than that in our division. And intermodal is generally in the mid to lower 90s..

One follow up question, Europe's had a plan one of your competitors in Europe talked about seeing increased competition in France, is [nobare] gaining market share in its home market, and what’s the split [nobare] between France and non-France today?.

You mean XPO Logistics Europe..

Yes..

XPO Logistics Europe is just -- I will use baseball -- I almost [indiscernible] lever off the ball but I would use the [indiscernible] that’s the American kind of way of looking at Europe. XPO Europe is going great we beat EBITDA in Europe logistics 17%, we beat transports EBITDA by 26% these are great numbers.

And so are we taking market share, yes, we probably are we’re not doing that consciously we’re just focusing on ourselves, and on customer service and on sales and rewarding our sales people for going out doing a good job and just running the business very well..

And overall France is about 13% of our combined pro forma sales including Con-way, the UK is about 10% and Spain is about 4%..

We’ll say they’re kicking the leather off the football, i.e. soccer ball, how is that and there we go. All right guys. Appreciate the time as always..

From Barclays we have Brandon Oglenski on line. Please go ahead..

Scott or John did you guys walk through sorry because I joined the call a little bit late.

Did you talk about organic growth I heard at transportation if you back out intermodal business that you trim I think you said 10% growth? But what was the organic growth rate for logistics this quarter too?.

We didn’t own logistics last year for the full quarter the logistics business that did acquire was the former new [indiscernible] XPO Logistics supply chain that was in the middle of the third quarter of last year. In general EBITDA growth in that business is being the low double digits..

And was that consistent this quarter too?.

It was, yes it was very much in line. Its interesting, since we may not purchase our business and supply chain has beaten budget very consistently it’s been a very-very well run business in North America in supply chain and we've beaten budget almost every single month, if not every month.

It might have been one in there that I am not thinking of but almost in every single month we beaten budget..

In that context because last time you tried up the long term guidance you did I believe provide organic growth of I think it 7% to 9%.

Can you talk to what growth rates you’re assuming now for your 2018 targets that you put out there?.

We’re assuming mid-teens EBITDA growth in terms of top line we would have said that just slow as it has now that will be based on business that we are calling, business that we’re passing up for in favor of higher margin business, and it will depend on the economy.

But in general we’re looking for significant margin improvement over the next several years and the opportunity could be upwards of 200 basis points and 15 mid-teens percent EBITDA growth..

I think some of the concern that might have crept into the stock all the way here is that, you’ve done so much on the acquisition side that maybe the organization lost a little bit of focus around growth. But I guess it doesn’t appear to be that, that doesn’t appear to be the case…..

Absolutely not. We certainly have done a lot of acquisitions, we’ve done 16 acquisitions in four years.

At the same time the organization has been laser focused on operational excellence, on closing the book promptly every single month and having a variance analysis and operating of view of what the plan was taking any corrective actions that were needed, being very focused on customer service, having high customer service levels, the business has been run very-very well and as if it wasn’t highly acquisitive company.

It will run even more efficiently now that we've got time to step back and focus more of our management time swaps wholly on non acquisition activities. It's been processing on growth it's been processing on customers service from day one..

Okay, thanks for that Brad. And John when we think about EBITDA of about 1.25 billion next year how do we reconcile that what you expects free cash flow to be.

And I know we've talked about Con-way CapEx, but can you tell about overall CapEx expectations for next year?.

Sure. Overall CapEx for 2016 we think will still be slightly under $500 million for the year. And so when you think about cash flow were going to have near a $1.25 of EBITDA CapEx will be just under 500 million interest will be for the year of 340 million to 350 million or so and then we are really not going to be a Federal U.S.

tax payer next year but we will pay a little bit of European tax. So total income tax cash paid will be something under $20 million next year. Working capital is going to be something around 70 or so million next year and that will grow with revenues in the mid-teens percent as we look out beyond 2016. .

From William Blair we have Nate Brockman online. Please go ahead..

Thanks for taking the question.

Brad obviously you have a lot of opportunity had have you hear with and again like as the lot of people [Indiscernible] can you talk about like where you really see the challenges as you shifts from kind of more of the acquisitive story to more of your organic growth story and where you do obviously you pointed out all the opportunities but in terms of the process like whether it's a slow grind or whether it's a faster pace and what are the opportunities that are little bit quicker versus little bit longer?.

Is the fast growing it's not equivalent at a slower pace and is not a slow grind but it is being on top of the detail it's being very well organized and the very clear plan very clear time and responsibilities mapped out having a high level accountability making sure that all parts of the organization all the other parts of the organizations doing are doing and how everyone fits in so the main goals of the whole company and keeping everyone [Indiscernible] and were focused on the plans and results on this achievement.

And that's what we're doing it's sure meet pertinent execution which is the best part of the business as focusing on customers and customer satisfaction sale, sale, sales efficiencies at every level..

And then kind of so the extra process side how about the technology side in terms of going in there and over lapping everything under the one platform.

Obviously you guys have invested a lot there and talk a little bit more about the process with the technology integration and then what the opportunities are once you get that all in place?.

Technology is something that we are very good at, integration is something we are very good at, we have hundreds and millions of dollars a year invested in our IT organization, we are committed to continue doing that. There is ways to optimize the business at what we've required through applying technology.

We've had a lot of success in our prior acquisitions of bringing technology to them, if some of the acquisitions we gain from great technology and I'm extremely confident that the IT roadmap that's going to support the initiatives as I mentioned before for yearend the LTL business are running really solid.

And [Indiscernible] has a lot of accomplished even though we are the only company for less than a week transferring all the emails over, keeping the whole things stable, getting the website over getting all of the personal media over, getting the OpEx and CapEx plans till the IT rationalize, getting IT organization rationalize we've already been negotiated on the process of renegotiating from the IT contract and there is a lot going on and [Indiscernible] and his team are now fully to the formal Con-way IT organizations all part of the same IT organization this is not our organization or their IT organizations just one IT organization their busy way at growing out all the systems and prioritizing them to support all the strategic plan leverage that I mentioned earlier in the call..

And then just finally and thanks for that and but just finally then you've always been focused on people from day one and that been something that I know that you've always been laser focused on. How do you personally now as CEO and looking at this broader organization with fair amount of moving pieces to it.

How do you approach the business now differently as you have the pieces of puzzle that you want and about now putting them together.

How do you shift your role in terms of thinking about that and how you think about the people that you have in place in running a slightly more complex business?.

My role is exactly the same as its been, the I'm the CEO. The business stops here.

I get a lot of opinions from a lot of great people and a lot of people smarter than I am and a lot of people who know their part of the business better than I do and at the end of the day I and the board pulling on altogether and sign off on a strategic plan and then I'm in charge of making sure that the whole team stays unified in executing that plan and that's the same exact role I've had all along and it’s the same role I've had in all my companies.

.

From Wells Fargo, we have Casey Deak on line. Please go ahead..

Just wanted to ask in your prior targets that you had out there with the $23 billion in revenue embedded in there was $4 billion of organic growth, is that a number that we should still anticipate, is that changed at all with Con-way coming into mix? Just your thoughts around how that $4 billion organic over the next three years..

It does changed we’re likely at higher margins over the next several years because of the acquisition of Con-way.

So our opportunity set is to get North America potentially into the double digits margins from the 7.5% on a blended basis it is today and from an overall organization we have the opportunity to improve our margins around little over 200 basis points over the next several years.

So the organic EBITDA growth will be higher, and that’s why we raised the targets and brought them forward a year. The larger piece will come from margin improvement..

And one last one for you on the legacy what was Con-way manufacturing, don’t know how you are label in that today. But how does that fit into the overall plan? Do you view that as a strategic fit? Con-way had talked about it as a bit of a differentiator that they had access to that trailer capacity coming out of the yards.

Does that fit into your overall plans going forward?.

We haven’t made any decisions on that piece. I would say that it does give you an advantage especially if the 33 foot rules were to come into effect where you would have a dedicated facility that’s working on that transition from 28 foot to 33 foot. So it could give you an advantage. We haven’t made any decision on it but it is a well run business.

We’ve met them. We looked over the numbers it’s very efficient very well run but we haven’t been in any long term system..

From KeyBanc Capital Markets we have Todd Fowler on line. Please go ahead..

It’s not like this every November in the Midwest I hope you know that from a weather standpoint. But where I just wanted to start on a near term basis, if we adjust for the acquisition cost for Con-way here in the fourth quarter, would your expectation be that you’d be positive from an income standpoint in the fourth quarter/.

From a net income, let me address that. There is EBITDA, there is net income. We have a issue in that we’ve been very acquisitive Company and due to all those acquisitions we’re going to be amortizing intangibles non-cash intangibles for many years, for long time to come.

So from a GAAP basis, you’re going to be seeing losses for at least another year maybe longer because of the significant non-cash amortization that we’re going to have.

In addition you see in this quarter for example you seen a lot of non-cash accounting charges related to the equity offering that we did earlier, the [supplies] that we did it was about $42 million non-cash charge that's strictly an accounting rule that we have to hit it.

You saw $32 million of non-cash amortization of intangibles from previous deals that we did. And then what will go away, what will improve, is that the expenses that are cash expenses associated with deals will go away.

So for example in this quarter previous quarter we just reported that there were $25 million of one-time expenses for transaction and integration cost, lawyers, bankers, audit fees, third parties, the consultants, things that involve in integration.

And we also had $15 million of interest expense in the quarter where there was a negative audit [indiscernible] where we had pre-funded and raised that we’re paying interest on the $15 million of interest in the quarter before we closed on Con-way, so the money was sitting in the bank earning almost nothing and we’re paying interest on it.

Those kind of acquisition cash charges will go away. But the amortization of the non-cash amortization of intangibles they’re going to be there, people have problems with that they should talk with FASB and SEC….

We’re still finalizing the intangible valuation at Con-way so right now we’re working with just a very lose estimate and the accountants aren’t finished with that work yet so that’s a big question mark in terms of the fourth quarter..

And John you did have….

Like we’re saying the seasonality wise it can be lower than the third quarter if you’d expect the 166 to come down a bit and then in Con-way we’re only getting few months out of the year and we’re two months out of the quarter and three months and one those months is December which is a very slow month in general.

So maybe $65 million at it from the Con-way business that’s not indicative of a full quarter..

But we are free cash flow positive in the quarter and we will continue to increase the amount of free cash flow positivity going forward..

And I appreciate, I understand all that. And of course I think that most of the street is focused on the EBITDA growth but it is helpful to get your perspective on the context on what’s happening from a net income perspective because it is a question and a scenario that people look at. So all of that’s helpful.

Just my second question, it’s a little bit more longer term, But going back to the 2018 guidance on a fact that you don’t have acquisition in there, when I model out what the free cash could look like an some of the numbers that John gave I'm commenting up very easily under a three turns levered maybe under 2.5 turns levered as you get out to 2018 that seems well within your prior comfort range I guess just to be equivalent why not put acquisitions in a numbers is that because of where the capital markets are now and kind of the deal on leverage is there something out that you are thinking about as far as not including acquisitions in the 2018 targets at this point.

.

It's just not our focus right now our focus right now and the biggest we had lever we have to call to improve value to create shareholders value is to improve the businesses we have today to optimize our existing operations we have the major opportunity to increase margins to make the organization work better together but both book of procurement to cross selling to all the opportunities that are in front of us that's not something were focused on for at least the next 12 months if we have done that taking advantage of more of those opportunities and we look forward and have make sense to focused on acquisitions in future years will then talk about those.

We are focused on four things we are focused on bringing levels of customers progress to higher and higher and higher levels and being known and respected in the industry as the provider of world class customer service in each one of the service group we are focused on having a work place where employees were a magnet for talent where people don’t want to leave, they just want to come to us and really engaged work play.

We are thirdly, focused on shareholders returns and fourth we are focused on reducing our debt levels so for all four of those strategic goals, acquisition is not the right thing right now in our life cycle, now we can achieve all four of those things by slowing down our whole acquisition bandwagon and focusing in on operations..

And from Stephens we have Jack Atkins. Please go ahead, sir..

Hi. Good morning guys. Thanks for the time.

So Brad I know that several people have try to ask and get you guys to comment on the organic growth that's assumed in the guidance and I know that you hasn’t seen is to do that but could you maybe explain why organic growth is slowing in your outlook when periodically there is significant amount of revenue synergies to be had in this model you have all these different businesses time together..

So organic growth asked is very important and that counter availing forces helping in hurting organic growth.

On that health side we've got a very focused sales force worldwide and we intensifies them and with the new acquisition we are improving regarding improve being in centralization program for the people of motivating on selling particularly cross selling.

We had sold many thousands and thousands of customers they were only doing one or two service offerings to and they could do we can help them we have other service offerings that were very good at they were number one and two at and I'm going sell to that that's going to help organic growth what's going hurt organic growth is as the economy, the economy is sluggish it's still growing it's growing at well single digit but it's growing but it's not growing gain busters.

And the other factor that's going to hurt organic growth, and its going to be a negative factor and again the growth is we are going to shed lots of unprofitable business. There is no reason to continue business that's losing money or to double down on business that's growing money just for the sake of posting a revenue growth.

It makes much more sense to focus on profitable business. Now that all of being said, mid-single digit organic growth is a very reasonable and to some extent conservative assumption that we feel comfortable with. .

Okay. Thank you for that color there Brad. And then you've talked publicly Brad I think about selling the former Con-way truckload business, if a potential [Indiscernible] were to come along. I guess the rational that that you guys put out there for doing the Con-way transaction was it provided assets when capacity gets tight.

Could you maybe explain why selling the truck load business would make sense in that scenario?.

We might sell the Con-way's truckload business but we might not.

The business is actually performing better than most truckload companies right now even though you had a trade environment for truck load where tonnage is soft low count there has been holding flat and is positive on a sequential basis, we get a 20 day rolling report on various metrics and that's trailing 20 day report revenue is up year-over-year which is impressive especially with fuel going down and our revenue excluding fuel is above last year and the main reason that we are bucking the trends is that 35% of our truck load revenues cross border Mexico and that's got a different dynamic than the U.S.

market.

Rail promoted miles up over 2014 though slightly and our entry miles and truck load have improved versus 2014 is about 9% versus 9.5% last year so there are is some good things going on in Con-way truck load, with that being said we have received serious interest from a number of parties who were spending time and spending money on lawyers and hired bankers and so forth and as a public company we are going to take those very seriously.

And we have a little process going on and we are going to bring that to a head fairly soon and we’ll make it efficient..

Ladies and gentlemen this concludes today’s conference. Thank you for joining. You may now disconnect..

Thank you..

Thank you..