Q3 2022 XPO Logistics Inc Earnings Call
Welcome to the X P. O Q3, 2022 earnings conference call and webcast. My name is Rob and I will be your operator for today's call.
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During this call the company will make certain forward looking statements within the meaning.
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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 X.
That 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 or on its website.
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 begin.
Good morning, everybody and happy Halloween, Thanks for joining our earnings call.
With me today in Greenwich are Mario Herrick.
Andrew Wilkerson are two incoming Ceos of X P O and our XO and.
And Ravi choked, Ian our CFO of X P O.
We'll be joined during Q&A by X P O as Chief strategy Officer, Matt Fassler and from Rx. So we have Jared Weisfeld, Chief strategy Officer, and Jamie Harris, Chief Financial Officer.
This morning, we reported another strong quarter with over $3 billion of revenue and record third quarter operating income up year over year by 65%.
Notably, we generated $142 million of free cash flow, while more than doubling the historical gross capex, we invested in our North American LCL network.
Under Mario's leadership, our plan for L. T L to point out is gaining momentum.
This morning, we reported third quarter records for LTM revenue and adjusted EBITDA.
And one of the most telling L T L metrics as our accelerating year over year tonnage trend.
Which improved every month through the quarter and inflected positive in September .
Our third quarter tonnage outperformed typical seasonality, which is the opposite of what we're hearing in the industry.
Importantly, our tonnage remained strong in October and we expect positive year over year tonnage for the fourth quarter.
We're getting more freight from customers for two good reasons.
One is the investments we've been making in capacity and the other is our improved quality of service.
Our truck brokerage business under Jewish leadership continued to outperform in the third quarter.
The team grew volume year over year by an impressive 9%.
They also delivered a very strong gross profit margin of 19%.
I'm pleased that both companies will be strongly positioned for growth when Rx showed spins off tomorrow.
We've been working towards separating our asset based and asset light businesses since we announced our strategic plan in March and this is a watershed moment for <unk> shareholders.
The final piece of the plan is the divestiture of our European business.
We will not be providing any updates on that sales process today.
Before I close I wanted to thank Ravi for his many contributions X T O success over the last six years.
Ravi was instrumental to our G X O spend last year and he has led our finance organization through the spin process and the sale of intermodal.
We wish Robbie the very best and we're pleased that he'll assist in the transition to Carl Anderson, our incoming CFO , who joins US next week.
Okay.
I look forward to working with Mario and drew in my role as executive Chairman of X P. L and nonexecutive chairman of Rx. So.
And now Ravi will cover the quarter Ravi.
Thank you Brad and good morning, everyone.
They have to get stuff out.
Sorry.
And our balance sheet and liquidity.
In the third quarter, we generated revenue of three.
$3 billion.
Excluding the impact of the intermodal business.
Paul in March revenue increased 3% year over year.
Currency had a negative impact on our reported revenue of $86 million or 3%.
We grew adjusted EBITDA.
$2 million, reflecting strong earnings growth across the businesses.
The year over year increase.
Increase in a difficult EBITDA was 15%.
Our ending up 25%, excluding intermodal and gained somebody has to be a chance.
FX negatively impacted EBITDA by $8 million in the quarter.
Adjusted EBITDA margin was at third quarter record up 11, 6%, representing a year over year improvement of 220 basis points.
The fundraising environment continued this quarter and helped offset inflationary pressures.
Oh, you don't win business also continued its strong performance with organic revenue growth of six 8%, which was driven by volume growth and price.
Our corporate cost for the third quarter, excluding one time expenses was down year over year by 37%.
This reflects continued destination.
Corporate cost structure.
Preparation for the upcoming article.
Our interest expense for the quarter was $35 million.
Back to $53 million in the year.
Got it.
They picked gift tax rate Jeff.
EPS for the quarter was one.
Perfect.
Oh it gifted earnings per diluted share was $1 45, which was up from 94 cents a year ago, but an increase of 54%.
This increase was primarily driven by higher adjusted EBITDA and lower interest expense.
We generated $265 million of cash flow from continuing operations.
$127 million in growth Capex and received $4 million of proceeds from asset sales.
Gross capex was $50 million year over year, primarily allocated to investments in our network capacity.
Our free cash flow was $142 million. This includes $50 million of cash so they let it go transition costs that were not included in our free cash flow guidance.
Excluding these transaction costs, our free cash flow was $195 million for the quarter.
Moving on to the balance sheet.
We ended the quarter with $544 million of cash this gas combined with available borrowing capacity under our committed borrowing facilities gave us over $115 billion of liquidity at quarter end.
We had no borrowings outstanding under our ABL facility and our net leverage at quarter end was one seven times EBITDA.
I think so the dividend the net brokerage to ex fuel.
But then you'll you'll pay down debt.
Lastly on a personal note.
I'm very thankful to you and Brad for the opportunity to be part of the leadership team and the incredible transformation, we have achieved over the last few years.
Companies are well positioned to continue the growth path and I wish both gave me head is and.
Thank God Anderson, that's sitting in their new roles.
I will now turn things over to Mario.
Thanks, Robbie and good morning, everyone.
As you saw from our earnings report, we achieved a second straight quarter of tangible results from our growth strategy, which we called LPL to point out.
Our investments in capacity and dominant anthem, we have with surface quality on accelerating our top and bottom lines.
We reported revenue of $1 $2 billion and adjusted EBITDA of two <unk>.
Third and $58 million, which excluding real estate gains was 19% higher than a year.
Both our revenue and adjusted EBT Pal, our third quarter Records.
And we continue to expect to deliver at least $1 billion adjusted EBITDA here based on no more than $50 million of real estate gains in the fourth quarter.
As Brad mentioned, we spent our tonnage through the quarter.
We think typical seasonality.
A key inflection point came in September when we flip punish positive year over year.
Our tonnage trend continues to surpass typical seasonality in October .
I'm pleased that our results are strengthening relative to our peers.
Our operating ratio in the quarter was 85% and our adjusted operating ratio was 82, 8%.
The year over year, an improvement of 160 basis points.
The full year targets, we put out with our preliminary third quarter result is for 50 to 100 basis points of adjusted operating ratio improvement year over year.
We expect at least 120 basis points of year over year improvement in Q4.
In the third quarter, we improved yield ex fuel by 7% and we continue to see rational industry pricing.
Now I want to double click on LCL to point out and talk about what's driving our results.
We are focused on two critical areas to drive long term performance.
The first is providing world class service to our customers.
And the second is investing in capacity ahead of demand.
Our objective is to gain market share optimize pricing and improve operational efficiency.
It starts with our investment in capacity.
Oh Capex spend this year will end up at 9% to 10% of revenue, which is about double our historical capex budget.
In August we opened in Houston, and New Jersey to manage volume coming through the northeast corridor.
This replaces the smallest tournament and added 24, new doors with network.
This expansion in addition to the other five terminals we've opened over the last year puts us at 369 doors I guess I would talk with 900 net new doors opened by year end 2023.
On the theater side I would've thought.
You can manufacture I would all trailers at scale is unique in the industry.
Our zero production rate is the highest its ever been.
We added a second production line in the first quarter.
And we'll be adding a third line in the fourth quarter.
We're tracking to expand our line haul trailer fleet by more than 10% by year end 2022.
I would go to this increased silver production by another 50% next year, which will allow us to further expand our line haul and I would pick up and delivery fleet.
On the tractor side, we're working with the Oems to bring on more trucks in 2023.
And what I would drivers we've expanded our training footprint. So what we believe is the largest in the industry with 135 at school locations.
This is another company specific advantage and we expect to train 700 drivers this year.
In 2023, and what at least the next several years our plan calls for Capex at 8% to 12% of revenue they expand our capacity.
You can say, yes to customers more often.
The other two goals of Atlanta, optimizing pricing and improving operational efficiency.
The function of our people and our technology delivering great service.
Damage frequency, it's one of the metrics customers cared most of it.
In September we delivered our best damage frequency since 2016 and improve again in October .
We improved damage frequency year over year in the third quarter by 58% and the numbers are up and to the right with.
With 76% improvement in September and 86% in October .
That didn't happen in a vacuum.
We changed our incentive comp to focus on reducing damages and improving shipping quality, all the way down to the supervisor level.
We also launched a program our terminal called glad gaither recognized quality loading.
It's a quality targets is exceeded the entire team at that terminal is rewarded.
And we launched new technology in the field, but allows us to rate the 30000 trailers each day.
We can now pinpoint trailers that falls short of our quality loading standards, and identify which supervisors and bulk workers eat more coaching.
These are just some of the internal initiatives that are energizing the team to elevate our customer service metrics and the impact has been dramatic.
Another important investment we're making is in our sales force, we're taking a layered approach to sales with teams dedicated to strategic accounts national accounts and also the base of 24000 smaller accounts.
Red and butter.
All three customer segments had their own and growing the business.
In the third quarter, we on boarded some major accounts with the potential to become top 10 customers for us.
The feedback we hear from these customers said that at least with the Onboarding experience and with the service we provide.
And the rest correlation between our success in winning this business and the fact that you've been willing to invest in capacity and service to back up our problems.
This is where our technology comes in as well.
I spent a lot of time in the field talking to our managers and also our team members on the frontline.
With equipped them with new tools to make them more successful and we put in strong feedback loops to capture them.
The results have been really exciting.
The most recent employee survey conducted last month, which includes our dock workers and drivers.
The highest engagement and highest job satisfaction since we acquired con way in 2015.
What we're doing now is building the culture, so that our entire team has the void and how do we get the world class.
So in summary, with investing in every lever of growth, including network capacity and.
Quality of service and the satisfaction of our team to deliver that service.
This is LTE is two point, though and we believe that this plan focused solely on north American it can move up to the top of the industry at a pizza outperforms our peers over time now.
Now I'll hand, it over to drew to cover truck brokerage on Arctic So true.
Thanks Mario.
Like to thank Brad and the entire X P O team.
It's been an absolute privilege to work with this top tier group over the past decade.
North American transportation soon to be our XO had another strong quarter.
We continue to harness our massive capacity and cutting edge technology to grow volume.
Expand gross profit margin and drive adoption of our proprietary brokerage platform.
I'll start by discussing some key metrics from the quarter.
Then talk about our strong position heading into tomorrows launch of Rx up.
In the third quarter, we delivered more loads than in any other quarter in our history.
Our volume was up year over year by 9%.
Our September average loads per day was also an all time record and this was not an anomaly.
Over the last three years, we grew volume at a 15% CAGR and.
And we grew gross profit dollars at a 35% CAGR.
Our consistent outperformance proves that we can take share in any market.
And importantly, our growth is profitable.
Our gross profit margin was a strong 19%.
Year over year by nearly 500 basis points.
And our year over year gross profit dollars were up 31%.
In the third quarter, we generated operating income of $52 million in.
And adjusted EBITDA of $78 million.
Our technology is the engine behind our financial outperformance over the last decade, we built this platform from scratch and now our strategic investments are continuing to drive adoption among customers and carriers.
Another 10000 carriers have registered an Rx so connect.
And our mobile App has been downloaded 850000 times.
That's up 53% year over year.
And 75% of carriers returning to the platform within one week.
Carriers Love, how easy it is to use our technology, which gives them access to an enormous amount of volume from the largest shippers in the world.
They also love our strong carrier rewards program.
In the third quarter, we created our covered 81% of truck brokerage loads digitally.
While we anticipate a muted peak season, we're still seeing very strong contractual bid activity and we expect year over year load growth in the quarter.
In the fourth quarter, we expect to generate adjusted EBITDA similar to the third quarter, excluding incremental corporate cost as a standalone company.
With robust data powering our business and a team with deep understanding of the transportation sector, we're poised to outperform regardless of the fluctuating market conditions.
The spin off of <unk> marks a new chapter, but some things will remain the same.
For example, our commitment to rapid growth and strong profitability.
We operate in our 750 billion dollar industry led by $400 billion for hire truckload market with $88 billion in brokerage alone.
We're an industry leader, yet we only have about 4% share of this growing and underpenetrated market, which gives us an enormous opportunity for growth.
Brokers are taking share from asset based carriers and we're leading the charge.
Our customers and carriers are excited about the added value. We can provide as a standalone company focused solely on our asset light services.
The Rx O brand stands for massive capacity and cutting edge technology.
And we have the right people to leverage both advantages.
We expect to continue to take share and outperform for employees.
Customers carriers and our shareholders.
That concludes our prepared remarks, I'll now turn it over to the operator for Q&A.
Okay.
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Our first question today comes from Ravi Shanker with Morgan Stanley . Please proceed with your question.
Hi, Thanks, Good morning, everyone. A couple of questions for you the accelerating relative tonnage and L. T. I was gonna have you you went through some of the kind of.
Service changes you've made are they kind of help you with that.
But do you see that as are you taking share from your peers or is it more of you being exposed to kind of better parts of the market and kind of taking more advantage of that.
We are driving taking market share, but also Ravi when you look at the investments we have made in capacity for <unk>.
Adding terminals in markets, where we were short on capacity you were able to gain more business from customers in those markets. As an example, we opened up.
Six months ago, and the month of September we've seen punishing yesterday and tomorrow could go up 38% on a year on year basis, and we're also investing in more fleet and more drivers as well and the sales forces very energized with the improvement in both the service products as well as the investments we're making in our sales force. So we had record business wins in the second.
Quarter, and the third quarter record pipeline and we're on a very very strong trend.
Winning business and winning market share now sequentially would be our acute Q3 was better than typical seasonality when compared to Q2, and we flipped to positive positive punished in the month of September and we also continue to see that in the month of October where we came in better than typical seasonality and we expect tonnage to be up.
On a year on year basis for the fourth quarter as well.
Got it and maybe as a follow up to that kind of gave you also unpack the treat you to for Q work, especially on the or and maybe any puts and takes that would be able to keep in mind as we think about that where the seasonality. Thank you.
Yeah sure sure thing so I mentioned tonnage, obviously going up going for it in the fourth quarter on the yield side are we the pricing backdrop remains good but we expect yields to be up low to mid single digits in the fourth quarter, which is driven in part by a tough comp and lapping at Cri that they won't take till early next year this year, but.
The momentum is strong on both tonnage and yield from that perspective on the ore side, it's at least 120 basis points of improvement in the fourth quarter and obviously as we as we execute through through the rest of the quarter here and I would call us too.
So exceed that as well.
Great and congrats to each one of you for the career, so far and the their careers to come so a good thanks for all the time.
Thanks Robyn.
Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks, Good morning, just wanted to clarify the <unk>.
Fourth quarter or guidance I think it's the worst sequential <unk> to <unk>, we've seen them in the model. So is this just is that is the incremental tonnage coming on at lower yields or margins.
Any thoughts on what that means for for next year's <unk> or and then Joe I just wanted to clarify when you said similar EBITDA I think for the Rx. So when are we going to get the pro forma Rx. So numbers for Q3 I'm just wondering we haven't seen those.
It's called out I'll start first on the NPL side and so it can be said at least 120 basis points for the fourth quarter now that all our degradation is slightly higher than typical seasonality from the third to the fourth quarter and that's driven predominantly by cost pressure associated with a persistent inflation that we expected that to abate.
More in the back half of the year, that's specifically coming from wages as the first category.
Our labor is up mid single digits in part to be able to accommodate the additional demand and punished we're getting and also we're seeing higher inflation and some other cost categories, including maintenance and parts to keep our feet up yourself to date and also some of our facilities expenses are higher due to inflation as well.
Scott This is true you'll get.
Astoria calls through June next week, and I believe December 1st is the day for Q3.
Okay, Yeah, I mean, if there's any way to get it the sooner the better I think for all of US trying to build models for a R. XL. Thank you understood. Thanks Scott.
Our next question is from the line of Chris Wetherbee with Citigroup. Please proceed with your question.
Hey, Thanks, good morning.
I wanted to ask Mary to comment on sort of the strategy in the oilfield business. So growing tonnage in an environment, where we're actually seeing maybe decelerating tonnage at some of your competitors wanted to get a sense of whether you feel like there are going to ultimately be tradeoffs a yield for tonnage in the corner over there.
So the next couple of quarters, particularly for in a more challenging macro environment and then I know you mentioned there was some incremental door capacity coming online, which can help sort of boost that but but how do you think about the competitive environment and maybe how that influences yields in 2023, and then maybe sort of just following up on that comment around how you think the operating ratio may sort of trend out as you think about the next.
Several quarters and into 'twenty three.
Sure thing, Chris So first starting with the overall strategy. So our strategy is focused on keeping to improve our service product to our customers and delivering best in class service as well as investing in capacity in areas and markets, where we had the need for that capacity based on what we're hearing from our customers and the demand is good.
Seeing from our customers and that in turn is leading to us gaining market share through investments in the sales force. That's we are doing and going in gaining new business. This includes for example, incentivising, our salespeople to onboard new business, including new logos as we as we grow the business moving forward in terms of appeal dynamic I mean, obviously he has always been.
Very strong.
Finally in our industry and this is mainly driven by the fact that if you look over the long time period and that has less capacity in the LTM figure today than there was 10 years ago, and we continue to see that play out so any in a softer market. If the market gets softer it would see yields in the low single digit territory and in strong markets, we see that being.
A high single digit low double digit territory, and we expect that to play out next year, depending on what happens with the macroeconomic conditions and then finally for US one of the set of company specific initiatives.
Operational cost reduction on auto if at all operational excellence and that's a combination of using our technology to keep on refining our line haul pickup and delivery and dock costs as well as in sourcing third party line haul so I would own assets do they third party line haul is roughly 10% to 11% of our revenue and when you think about <unk>.
I think we see 30 to 40 per cent per mine and so we can see that also obviously being a tailwind to put us for me from a cost perspective, not only next year, but over the years to come for 2023, obviously, we'll talk more about 2023 as we as we report next quarter, depending on what we're seeing in the market, but a good modeling for different scenarios, depending on what the what the macro is doing.
Okay, and just and just to clarify so you think tonnage growth is possible with maintenance of yield growth being still being positive. So you can keep the two of those policies together.
That's correct Chris.
I appreciate it.
The next question is from the line of Allison <unk> with Wells Fargo. Please proceed with your question.
Hi, Good morning, I, just wanted to see Chris's question, I'm afraid, they're saying the pricing dynamics in the algorithm that you guys and the analytics that you're pushing forward.
You know I know you mentioned low single digit do you think that's pricing above sort of the market. At this point is that you need to keep ability or better cost management, just any thoughts there and then drew and any color on how we should think about the contract versus spot mix that as you exit 2022 at this point thanks.
And I'll start first with a yield question. So again for the fourth quarter, we expect yields to be up low to mid single digit which is in line with typical seasonality. When you play out Q3 going into Q4 now keep in mind that in the fourth quarter of last year, we had a tough comp with yields haven't been up 11% on a year on year basis. We also last year, if you recall in the month.
Last November we took an early G R I, which we typically take early in the year as opposed to in the month of November . So we're gonna be lapping that you're right and in terms of new customers versus existing customers that is a bit of a mix impact specifically on length of haul and that also with EBIT drag on yield, but generally we continue to see very rational pricing in vitamin our contact center.
For example in the third quarter, we're still up high single digits. So we are going to be see a rational environment, but this is what the what the trend looks like as we head into Q4.
And I also contract with spot for brokerage was up 73% again contracts and 27% on the spot that's exactly where we want it to be during this market. It allowed us to operate at strong margins continuing to take market share and do it profitably.
We head into next year, we're in a strong bid cycle right now bids are up significantly on a year over year basis right now.
Perfect. Thanks.
Yeah.
The next question is from the line of Tom out of it with UBS. Please proceed with your question.
Yeah. Good morning drew had a couple for you wanted to see if you could just offer some thoughts on how we ought to think about revenue per load. When we look at like our fourth quarter and gross margin percent.
Are you thinking that it'll be kind of stable sequentially or do you expect further pressure in the market and you know in some pressure on those metrics and then I guess, if I look you know beyond fourth quarter as the truckload markets weaker as contract rates come down.
That drive pressure on your gross margin eventually I know, there's you know the transition where it's favorable but maybe just how you think about gross margin in brokerage are out a couple of quarters as well. Thank you.
Yeah. Thanks, Tom.
With respect to grow volume on a year over year basis in the fourth quarter and we expected to operate at strong margins. We were at 19% this quarter it could be a hair behind that as we're into Q4, we've got volume tailwind to your point on gross margin per load you could see that come down but right now we're operating.
In line with our three year average and ahead of our five year average so it doesn't matter what happens in the market. There's a lot of unknowns in 'twenty to 'twenty three we're confident that we will outperform the market as a whole next year.
Yeah.
Okay. Thank you.
The next question comes from the line of Jordan Alger with Goldman Sachs. Please proceed with your question.
Yeah, Hi morning, I'm sort of curious I know it may be early for 2023.
Guidance per se, but maybe sort of a big picture.
Can you talk to a little bit two things one your thoughts on Rx. So EBITDA will they be growth next year, and then secondarily and L. T. L operating ratio no. The long term targets, but do you expect an improvement in 2023.
Yes, Jordan as I've just said.
Tom There's a lot of unknowns as we head into 2023, we're in a very strong bid cycle right now bids are up significantly for us year over year customers are coming back to us we're growing with our existing customer base and we're also growing with new customers coming in so I'm confident that we will go out and take market share for 2023, but don't want to go.
Much beyond that.
Yeah.
Yeah for the ex vivo side on the NPL side I mean, obviously, we've talked a lot about 'twenty 'twenty three as we get closer to the beginning of the year, but generally we are modeling different scenarios and in one scenario if the macro does get softer and that's in fact the volumes obviously, we're not immune to the macro although we're planning an hour before me in terms of.
Gaining market share.
But that said, obviously with flex our variable costs were today, 75% of our cost is variable and tied to volume and we also have a few potential tailwind from a P&L perspective, which includes in sourcing our third party line haul miles pass through and the fact that we have hired exposure or exposure to purchase transportation.
That would be a good guy and a softer in vitamins with truckload rates coming down.
That's kind of how we look at the year overall, but obviously I would intend to continue to gain market share with modeling for different scenarios.
Okay. Thanks.
Thank you. Our next question is from the line of Ken <unk> with Bank of America. Please proceed with your question.
Hey, great good morning, and good luck with the spin process.
Maybe Mario if we could just kind of follow up on that last kind of debating and Scott's earlier questions about that or youre talking about inflationary costs rising you're pushing out your your G. R. I, which you had last year in November to the beginning of the year you were talking about the worst or improvement in the fourth quarter I guess on a sequential basis. She mentioned is there anything you can do given the.
The environment to move some of those costs Quaker is there the potential that you benefit as you mentioned on purchase transportation, maybe faster given those rates are coming down I'm, just trying to wonder what what you can do self help maybe even faster given the environment.
And the exposure you just talked about on those those few items.
Purchase transportation is definitely one of those areas again, because when you look at purchase transportation to the contractual rates are still up on a year on year basis, although they obviously moderated significantly from where they were or they get into the ear and a continued soft market you would see the contractual rates continue to come down, which obviously would be a tailwind for us.
From a PT perspective, similarly for in sourcing third party line haul miles or cutting schedules. So if the volume is more challenged going into 2023, and obviously that's an area. We can move on first sort of with cutting schedules as well and we are also accelerating some of our rollouts on the technology side in terms of how we run our Tau.
<unk> I would pick up and delivery operation and our line haul operation to improve operational efficiencies in those areas as well.
Is it becoming a tailwind in 2023, if there is a softer in vitamins funding tonnage standpoint.
And then I guess just my my follow up but then beyond on the will you adjust the timing of the rollout in capex on the doors and maybe you could talk a bit about each of you the corporate costs, what what scale should we target for each of the groups going forward into the fourth quarter and next year.
I'll start with the capital deployment. So we are not planning on slowing down our capital deployments. When we think about the capsule reinvest in the business as being a long term investment that goes through the cycle. So it doesn't matter what the markets are doing on the short term. These would give us capacity whenever the markets go go back up again being able to handle that capacity.
This includes on the door side a lot of the projects. We've done so far we've opened up six minerals, that's where predominantly opening up in youth terminal versus a lot of the projects that we were.
Going through now our expansion projects for existing terminals. So we have a half a dozen or so projects that already are already underway.
The Dallas market, Houston, Salt Lake Atlanta, and a few other markets as well.
Spending the terminal base in terms of fleet, we do need obviously the fleet Ford for two reasons. One is we in source third party line haul what are going to deploy some of that capex for both trucks and trailers to be able to move some of these miles on top would own assets as well as positioning the fleet, where we can bring the fleet age down which would help with maintenance expenses as well. So we continue to.
Spec to deploy that Capex are.
Through through the cycle here as we head into 2023.
And then Ken you asked about the incremental cost that will come over to Rx. So it's around $45 million on an annual basis that would be incremental to us.
Corporate costs for the C O, which would be roughly the unallocated corporate costs went into yellow roughly another $80 million.
Great. Thank you.
Yeah.
The next question comes from the line of Jon Chapell with Evercore ISI. Please proceed with your question.
Thank you good morning, Mario simple one for me you're talking about the positive trends in tonnage I was hoping you could break that down for US where were you in July on a year over year basis, where are you in September I thought was the inflection point and turn positive.
Over 31st so I understand you have a day left but maybe give us a sense to where October does as well just as you talk about doing better than the peers in the positive direction.
The the magnitude on that.
Yeah, you got it.
You look at the third quarter. So we've improved every month in the quarter and then flipping positive in the month of September and the fourth at as a whole and the monthly trend was better than typical seasonality in terms of sequential volume improvements and that continues in the month of October where we're seeing strong volume trends as well.
Both outpaced typical seasonality and with with positive punished for the for the full month as well.
I understand that is there any way you can give a number was July down for August was down one in September was up two in October is up three I mean, just any quantitative way to kind of manage you know that that positive direction.
John It's Matt.
July was the softest months in.
In the quarter August obviously better.
Better than that closer to the quarterly average September obviously, a much much better in October to your 0.1 day less is a good month for us and again outpaced typical seasonality for the quarter for the month of September and for the month of October as well.
Okay. Thanks, Matt Thanks, Matt.
You got it.
Our next question comes from the line of friend into Kalinsky with Barclays. Please proceed with your question.
Hey, good morning, everyone and thanks for taking my question.
So drew just a couple of points for you I think you mentioned that you're going through a bid cycle right now prices are actually coming to a positive was that a comment on.
Contract rates and should we be thinking that double digit volume is attainable here in the near term like for Q and looking into next year.
Yeah, Brennan I don't think that I said the pricing on contract was positive in the bid cycle Hum.
Pricing was slightly down of what were seeing on contract spot is down more than that and on double digit volume growth.
Going forward, we expect that we can do that over the long run, but don't look for it on a quarter by quarter basis for for where we're at we're confident that.
We will outperform the market in 2023 and beyond.
And we're confident in the five year job that we put out there that has a midpoint of $500 million of EBITDA, roughly 70% growth from where we are today.
Okay. Thank you.
Our next question is from the line of Scott Schneeberger with Oppenheimer. Please proceed with your question.
Thanks, Good morning, Mario could you touch upon I think you mentioned three new and clarify if that's accurate or not a new customers in the third quarter that could become top 10 customers could you just touch upon how that may be impacting our metrics here for the next few quarters and any additional commentary.
On developments in the AR and the sales force and the strategy there with regard to our customers.
Yeah, I'll do a large customer as we onboard the C. So we on boarded seven of our large customers are in the third quarter, but have the potential to become a top 10 customers and it's a combination of both the industrial large industrials as well as the largest retail as well that'd be onboard it through through the quarter now what we would do.
Additionally from a sales perspective, one is that we expanded our sales force since the beginning of the year, we have roughly about 7% more salespeople in that sales force. We also also established and used to teach account selling team, which is focused on the largest 200 to 250, a strategic accounts across North America, where we saw.
That team between Rx. So in next few at the beginning of the year or do you still teach et cetera.
Unfortunately, the strategic centers are focused on our S. T L business and that's paying dividends in the second quarter, we had record business wins in the third quarter, we had another quarter of record business wins, our pipeline is the highest it's been and we're trending in the right direction. We've also incentivize our salespeople to get a new logos and expand.
With existing logos and that is also paying dividends as well and when when when you fast forward to the years to come with our investments in capacity, where we are getting capacity ahead of demand as well as the focus on keep on improving service significantly overtime as well all of these will lead to more wins as a as we had over the years.
And so the five year plan.
Great. Thanks, and then for a follow up just a brat or someone else. If you could provide an update on how the European business is performing trend youre seeing in the macro and how that's holding up thanks.
Hi, This is Ravi here, so our European business.
And you have to perform very well.
Last quarter, we had a very strong organic revenue growth of six 8%, which was driven by both volume and price.
For the full year, our business is performing exactly in line with our expectation.
And the macro they definitely are getting tough, but we continue to outperform our Brooklyn, the macro and able to pay a price.
Pricing and inflation.
Great. Thanks, Ravi Thanks, everyone.
Thank you.
Thank you. Our next question is from the line of Ryan <unk> with J P. Morgan. Please proceed with your question.
Hey, good morning, I'm going to come back to drew first you can maybe clarify the comment about the strongest.
Strong bid cycle was was that more on a volume perspective, because it does sound like you know right.
Volume number of bids that we're seeing Brian .
The number of bids that we're participating goes up significantly that's existing customers, but it's also new customers, who are coming to us for the first time as well.
Okay got it and I'd love to get your thoughts on just where you think the before and isn't coming for spot rates as well, but a second one for for for Mario.
Some concern about the market share wins, the divergence in <unk> and <unk>.
From a tonnage perspective, and just the level of competition in L. T. O. So maybe you can put some context around that how much how much of a different service. His mattered you know what are the claim trends are trending towards for the quarter, where the year over year, and perhaps where do you where do you want them to beam is that a significant driver of some of these wins you're getting cause I think.
What are you hearing is there's just more concerned about is competition and how that would affect the yields in the industry. There's typically been known for having good pricing power and discipline.
Brian I'll kick it off with your question on those thoughts and then turn it over to Mario as far as calling the floor on spots, we're not going to call. The floor on spot rates just like we didn't call. The peak on spot rates over over the last couple of years I will tell you that our data is showing us over the last few weeks, but rates have leveled off.
And then Baghdad.
On your question on the survey so that won't be service has been a great friends put us with dramatic improvement over the course of the last year I mean, I mentioned in my opening remarks, I would damage frequency, which is a measure of when we deliver skids solid customer what what's the how many of them out effectively damage and it's the best it's been since 2016.
But for the full of course I didn't put by 58% for the month of October it improved by 76% September for 76% in October by 86% on a year on year basis, and we've implemented many programs to delight, our customers and how we service them and we're hearing that feedback from the customers, which helps with a with obviously onboarding water business.
Our customer satisfaction, we do weekly surveys with our customers as a threat to the highs in the third quarter and that's going to allow us to onboard more and more customers over time.
In terms of gaining market share a lot of that goes back to obviously the improvements in service, but at the same time the investments in capacity, what we're being able to say, yes, more often to customers and markets, whether it be odd adding that additional capacity as well on the yield side Youll continues to be irrational.
Look at our contract renewals, even through what is a softer macro we're seeing continuing to see strong contract renewals associated with that and you know again any softer macro you would see yield come down a bit but you would still see it in positive territory and then obviously in a strong macro you would see you'll be in that high single digit territory. So we continue.
We continue to expect rational pricing in our industry over the years to come.
Okay.
Alright, thank you.
Thank you. Our next question comes from the line of Jason Seidl with Cowen. Please proceed with your question.
Thanks, operator, Thank you gentlemen for taking my question Mary I wanted to stick on yields a bit would you say that the yields for the recent contract wins and in through Q were above your cost inflation and then what's the level of confidence of getting yield above cost inflation in this big bigger than average bid season that you've been.
Talking about.
Yeah, we are seeing going into the fourth quarter a quarter, what do we think about the cost inflation remains a persistent higher than what we expected it to be which is putting pressure on the overall large shows which was what was discussed earlier, however for the new wins.
Obviously yield is also a factor of snakes as well so some of the new wins and it's a combination of all of them are obviously profitable above cost and all of them operate really well, but at the same time. It is they could have some mix change associated with them depending on the customers, but generally it's in the ballpark of what I would overall mix is were seeing some pressure on length of haul where some of these.
Shipments are shorter in nature.
Some of these wins, but that's about the only dynamic that we're seeing that that's different than I would existing next but he was up sequentially going from Q3 to Q4 than they are in line with typical seasonality as well.
Okay. That's great color a follow up here for Doug Doug you know there was some questions about the overall market and spot I know you answered some of that but can you talk a little bit about your carrier base and what you're seeing in terms of attrition has been higher than normal over the last quarter.
Yeah. Thanks this.
This is true when you look at what we're seeing on the overall from our carrier base. We grew our carrier count at Arctic sort of conduct about 10000 carriers for the quarter. So we're continuing to see carriers, who want to come back and do business with us it's easy to hop onto our platform and book alone negotiated do that with no human interaction.
Theres a great rewards program that they've got access to and you can see that you are a registered cares and Arctic So tonight year over year or up 48% our weekly carrier usage is up 60%.
Our drop RSO has been downloaded 850000 times. So theres a lot of momentum procure is to continue to come over and do business with Rx. So we've got the volume they need an operating system that they love to use.
I appreciate it gentlemen.
Got it.
Our next question comes from the line of Jeff Kauffman with vertical research. Please proceed with your question.
Thank you very much question for Mario Mario The fleet age on the L. T. L sides kind of bumped up from about 5.1 years to five 9%. So almost a full year higher than it was two years ago.
With this capex spend that you're going to have when do you expect that fleet age to get back down towards five where do you want that fleet age to be and can you quantify some of the savings whether it's maintenance costs, whether it's fuel efficiency.
That you might generate from some of this capex spend over the next couple of years.
Yeah, you got it yes, so first of all the Peach ate side typically we want to be between four to six years of age on our fleet, obviously, usually the younger the truck they put them on our line haul network to gain the benefit of fuel efficiency associated with that in the order of guests we put it in the city.
The defeat age with Covid use of the constraints that we have seen with the Oems have caused the fleet's age should go up with a with less with getting less trucks effectively now coming this year, we're going to get slightly less trucks than what do we expect it to be but generally it's trending in the right direction. Now for 2023 are we do you Wanna add significantly.
Higher number of trucks, and we're working with the Oems to get to get that wood allocation is locked in for 2023 and see what where do we get there now there is a that is a the Oems are still capacity constrained, but obviously the softness in the truckload market could be a potential tailwind as we as we head into 2023.
Also remember Capex for this year is gonna be nearly double what it has been historically and for next year, we expect that to even go slightly higher than where we are this year and in terms of the benefits we get from the younger fleet age as you said maintenance is a component of that I mean, you can estimate anywhere between low double digits up to 20, 25% reduction in.
Maintenance costs as we as we pulled back the fleet H, where we want it to be and similarly on the fuel MTG as that is the benefit you get from the from the younger trucks as well. So we're again, we're working every lever for 2020 three to get more trucks and pull that each have slipped back a portal for the full year.
Just a follow up on the answer is the goal to get the fleet age back toward five in and how long do you think that would take.
And so that's the goal to even essentially subtype as well, but it will depend on what the Oems do for next year in 2023, and now we see again the availability of truck easing as we head into 'twenty 'twenty four I personally meet with all the heads of the Oems.
With my team as well and what we're hearing from them is that they're seeing signs that 2023 could improve but at the same time, we won't know till we get closer to the beginning of the year and then we'll go from there to to assess how many trucks, we can get into 2020 three but that would be the case, but we see it easing up further in 2024 to be able to get more of these.
And then pull the fleet HVAC.
Thank you.
Thank you our last question comes from Todd Fowler with Keybanc. Please proceed with your question.
Hey, great Thanks, and good morning.
So mark I'm not sure. If you have any information that shows you know with the improvement in the service metrics is your sense that you're you're pricing. Your core pricing is maybe below that appears and so do you have an opportunity to move yields up maybe stronger than where the industry is going forward or do you think you're relatively you know kind of in line with where the <unk>.
Sri is.
And then secondly, I think you addressed this a little bit but weight per shipment came down in the quarter that probably had some some positive impact on yields it sounds like that that's something maybe with some of the mix changes that we should we should expect going forward.
Yes, so first I'll address the second half of the question then come back to the first one so when we look at the third quarter. They were two dynamics so weight per shipment helped a bit in terms of the wafer shipments coming down impacting positively. However length of haul also went down it's predominantly a mix change where last year, we saw more shipments outbound, California.
For example, and these are typically longer length of haul type shipments that impact that I would like the pulp coming down which has a direct correlation to yields yields as well so on that basis. It was a slight drag on yield as opposed to a benefits for 40 yield going back to your question on our price versus peers, our price is competitive versus some.
Years, and it's behind other peers and we are we do believe that with the continuous improvements in service and getting to our goal is to be best in class. When it comes to our service metrics and that would help with us accelerating our yield improvement as well.
Okay. Thanks for the time, congratulations drew congratulations Mario.
Thank you.
Thank you we have a nice tender a question and answer session I'll hand, the floor back to management for closing remarks.
Thank you operator.
It's been an amazing journey.
It's been an amazing decade, I feel lucky I feel privileged and very gratified I want to thank the shareholders, particularly those who have.
Lots of shares when it was a fraction of where it is now and stuck with it held onto it and made a lot of money. Thank you very much for your support and I also want to thank the hundreds of thousands of team members, who have created well now as of tomorrow will be three great companies and I want to especially thank Mario and true.
For your commitment to bring the companies to a new level and achieve even greater heights than we've accomplished over the last decade and to prove our supporters rice and our detractors wrong. Thanks.
Everyone have a great day.
This will conclude today's conference. Thank you for your participation you may now disconnect your lines at this time.