Q1 2023 RXO Inc Earnings Call

Speaker 1: Welcome to the RXO Q1 2023 Earnings Conference call and webcast. My name is Lara and I will be your operator for today's call.

Speaker 1: Please note that this conference is being recorded.

Speaker 1: During this call, the company will make certain forward-looking statements within the meaning of federal securities laws, which by their nature involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements. A discussion of factors that could cause actual results to differ materially from those in

Speaker 1: and disclosures and reconciliations of non-GAAP financial measures that the company uses when discussing its results.

Speaker 1: I will now turn the call over to Drew Wilkerson. You may begin.

Speaker 2: Good morning, everyone. Thanks for joining today's earnings call. Joining me today in Charlotte are Chief Financial Officer Jamie Harris and Chief Strategy Officer Jared Weisfeld.

Speaker 2: RXO delivered solid results in the first quarter of 2023, despite the tough economic backdrop.

Speaker 2: The Q1 results were driven by another quarter of year-over-year brokerage volume growth and best-in-class brokerage profitability.

Speaker 2: Overall, our company-wide adjusted gross margin remains strong at 18.8%, up 80 basis points year over year.

Speaker 2: Overall, our company-wide adjusted gross margin remains strong at 18.8%, up 80 basis points year over year. Our tech-enabled brokerage business is a

Speaker 2: continued to significantly outperform the industry.

Speaker 2: We took share and achieved best in class gross margin.

Speaker 2: Brokerage volume was up 6% year-over-year.

Speaker 2: The most important driver of our growth was contractual volume.

Speaker 2: We also grew synergy loads from our managed transportation business, cross-border loads, and other modes in the quarter, including LTL.

Speaker 2: Brokerage gross margin was 16.3% flat year over year.

Speaker 2: To give some more color, year every year volume growth was consistent throughout the border.

Speaker 2: From a vertical perspective, there have been some improvements in the inventory positions at our retail and e-commerce customers.

Speaker 2: We have seen increased brokerage volumes from home furnishing, building products, and technology customers.

Speaker 2: Last quarter, we highlighted our robust sales pipeline, and we're pleased with our conversion in the first quarter. Our pipeline conversion resulted in our contractual volume growing 19% year-to-year. As a result, our contract business now represents...

Speaker 2: 77% of our birthage volume. We also saw continued momentum with this.

Speaker 2: And in the first quarter, annual bids were up 11% sequentially, as measured in revenue.

Speaker 2: This is the hardest part of the cycle to grow the loyalties.

Speaker 2: And we were able to do so because of our customer relationships, service, technology, and scale.

Speaker 2: We are confident that when the market flex, we are in a great position to win.

Speaker 2: Our complementary services also continued to execute well in the quarter.

Speaker 2: and complimentary services adjusted gross margin expanded by 160 basis points year-over-year.

Speaker 2: Managed transportation significantly increased the number of synergy loads it provided to our truck brokerage business. Managed transportation continues to benefit from the outsourcing trend. The world's largest companies are turning to RXO to handle their freight transportation speed.

Speaker 2: In fact, for the fifth straight year, General Motors named RXO Supplier the Year.

Speaker 2: It's an honor to work with global powerhouses like GM and to help provide consistent reliable solutions for their shipping needs.

Speaker 2: We're also capitalizing on the near-shore trip.

Speaker 2: Turning to our last mile business, RXO is the largest provider of big and bulky services in the U.S. Our customers tell us we offer the best service in the industry. Our recent pricing actions reflect the premium service that we provide, and we now expect to grow EBITDA within last mile year-to-year for full year 2023. We also had a very good cash flow for converting 100% of adjusted EBITDA to adjusted free cash flow.

Speaker 2: I'm also pleased to announce that our Board of Directors has authorized a $125 million share repurchase program.

Speaker 2: This program vits into our balanced capital deployment approach, which Jamie will expand on later.

Speaker 2: Our business results were underpinned by adoption of our best in-class technology, which helps customers and carriers make sound decisions and improve productivity. In the first quarter, 96% of loads were created or covered digitally. And we also hit a milestone for the RXO drive-out, which surpassed 1 million downloads in the quarter. As RXO continues to grow, we remain focused on developing our people.

Speaker 2: We have a strong bench of talent and I wanted to highlight two leadership changes we made in the quarter.

Speaker 2: Paul Booth, who has led our man-ass transportation business for the last three years, has been named the President of our last mile business.

Speaker 2: Under Paul's leadership, we successfully onboarded several high profile customers.

Speaker 2: and freight under management more than doubled to $4 billion.

Speaker 2: Paul brings operational expertise that will help us improve the structural profitability of last mile. I'd like to thank Fernando Rebell, who served as Interom last mile president.

Speaker 2: Fernando will work closely with Paul to ensure a smooth transition and will continue to deliver results for our largest customers.

Speaker 2: Brian Dean has been promoted to lead RXO's Manus Transportation Business. Brian has been with RXO for more than 20 years.

Speaker 2: and most recently served as Vice President of Operations for Man of Transportation.

Speaker 2: Brian has been a key driver in designing and delivering solutions for our customers that help them optimize their transportation spend.

Speaker 2: I'm thrilled that we have been able to fill these roles internally and I'm looking forward to continuing to work closely with Paul and Brian on my leadership team.

Speaker 2: Looking ahead, we still anticipate a top macro environment in the second quarter, similar to what we saw in the first quarter.

Speaker 2: We again expect to grow brokerage volumes on a year-to-year basis.

Speaker 2: but continue to anticipate further moderation and gross profit for love.

Speaker 2: While April started off slow, in the last two weeks, we have seen volumes improved.

Speaker 2: Jared will provide more detail about our expectations and a few months.

Speaker 2: We are executing our playwork and remain focused on profitable growth.

Speaker 2: Our Playbook proves this value in time.

Speaker 2: this value in terms of chaos and disruption.

Speaker 2: Customers continue to consolidate the number of carriers they work with, and our service, best-in-class technology, and financial stability have led many to choose RXO as a strategic partner. As a standalone company, there's more fit for purpose, everyone at RXO is focused on delivering results for our customers and shareholders. With our accelerating market share gains and best-in-class profitability, we are positioning the business to deliver significant returns when the market influx.

Speaker 3: In the first quarter we generated $1 billion in revenue compared to $1.3 billion in the first quarter of 2022. The revenue decline was primarily due to lower freight rates year-to-year. Profibility remains strong with an adjusted gross margin of 18.8% of 80 basis points year-to-year. Primarily driven by our ability to bring down the cost of purchase transportation as the market softens. Additionally, adjusted gross margin within complimentary services expanded by 160 basis points year-to-year.

Speaker 3: And our just debit on margin the 3.7% down 200 basis points from the prior year. These declines were primarily due to the lower year-over-year freight rates, the resulting moderation brokerage growth progress for low and the incremental corporate cost of being a standalone public company. Below the line are Enter's expense for the quarter with $8 million. Our income taxes were favorable for the quarter given by the street non-recurring tax items.

Speaker 3: You can find a bridge to the adjusted EPS on slide 8 of the earnings presentation. Importantly, we continue to outperform the industry. Despite the difficult macro economy, we grew brokerage volume at 6% year-to-year. Prophebility and brokerage remain best in class with gross margins of 16.3% flat year-to-year. It was a very strong cash board. Please refer to slide 9 which has a walk from the adjusted EBITDA to adjusted pre-cash load. We have to put the quarter with a hundred and twenty-one million dollars of cash.

Speaker 3: versus 98 million dollars at the end of the fourth quarter. Our Justice Evidov converted to just a pre-cash-low at 100% in the quarter of great results. Please note that the quarters of Justice Cash-low results included the payment of 2022 in a compensation."

Speaker 3: The core also included several timing related items that had positive interaction during the core.

Speaker 3: These items included.

Speaker 3: Earlier then ecstatic collection of some accounts receivable Zero interest payments are a bond during the quarter we pay interest on a semi-anual basis in the second and fourth quarters

Speaker 3: We incurred minimal cast taxes in the first quarter based on normal regulatory time.

Speaker 3: Most of our cast taxes for Q1 and Q2 will be paid in the second quarter.

Speaker 3: As we look to the second quarter, these items will normalize and we expect our cast conversion for the first half of 2023 to be approximately 50%.

Speaker 3: Over the long term, across market cycles will remain comfortable with our cast conversion at a rate between 40 and 60%.

Speaker 3: Also, when spent some time with custom span related and restructuring, it's all false.

Speaker 3: Last quarter, we communicated approximately 10 to 15 million dollars for the four year 2023 of which 10 million dollars were expected cast outflows. We continue to optimize our call structure as a standalone entity.

Speaker 3: As a result, we now expect 2023's then-related and restortion calls to be closer to $30 million with approximately $30 million of expected cash outflows. On slide again, we have provided an update on our balance sheet. We have $621 million in liquidity, including our $500 million revolver, which remains undrawn. We have a strong balance sheet, and our net leverage, a quarter-end, was approximately 1.2 times, trailing 12 months adjusted to the EBITDA. This remains at the low end of our stated range of 1-2 times.

Speaker 3: Given our strong balance sheet and free cash flow generation, we're pleased to have this authorization of the formal part of our capital allocation framework. We will opportunistically repurchase shares through a balanced approach that will include relative market value, leverage, free cash flow, and the overall micro economic conditions. At a minimum, we plan to buy enough shares to cover dilution from restricted stock grants on an annual basis.

Speaker 3: Additionally, as you saw this quarter, we will continue to settle tax with holding out obligations for the best and the best of pre-stand RSU grants in cash.

Speaker 3: Using cash and Lewis selling shares to sell these tax-reporting obligations will help minimize deletion.

Speaker 3: So the first quarter, this was a $7 million cash outflow.

Speaker 3: You can find an update to our 2023 modeling assumptions on page 13 of the presentation. We now expect capital expenditures between $60,000 and $65 million. This includes $15 million of strategic investments and real estate to accommodate growth in our brokerage business. We remain committed to spending approximately 1% of revenue on capital expenditures over the long term in line with our Goddance and Investur Bakes.

Speaker 3: Stock-based compensation of cents is expected to be between $20 and $22 million. Appreciation and advertising is expected to be between $70 and $75 million.

Speaker 3: Interest expense will be between $32 and $34 million.

Speaker 3: $1 billion lower than our prior forecast. And we expect our effective tax rate will be approximately 25%. $1 billion lower than our prior forecast.

Speaker 3: You said also model and averaged a looted chair count of approximately 120 million chairs.

Speaker 3: Please note that this does not include any impact associated with potential share repurchases. Overall, given the current macroeconomic backdrop, we are pleased with our financial results. We are operating well, have solid cash flow generation and a strong balance sheet.

Speaker 3: Now, I'd like to turn over to Chief Stragy Elves Jared Whitecell, who would talk more about our outlook.

Speaker 4: Thanks, Jamie, and good morning, everyone.

Speaker 4: I'd like to start with the structural crop ability of our business.

Speaker 4: We again outperform the market this quarter with best-in-class brokerage volume and profitability enabled by our technology.

Speaker 4: brokerage gross margin of 16.3% was flat year on year despite the difficult pre-cycle dynamics. A testament to our technology and pricing all of those.

Speaker 4: Average weekly users increased 25% year-over-year in Q1, and importantly, seven-day carrier retention was a strong 79%. Q1 active network carriers declined to 3% sequentially as carriers began to exit the market during the quarter, which will ultimately lead to a more balanced supply and demand. In the first quarter, 96% of our loads were created or covered digitally, versus 87% last quarter, and 74% in the first quarter of 2022. This was the result of continued adoption of our technology, in addition to the full-quarter impact.

Speaker 4: of the platform capability within our so-called F that was discussed last quarter. Over the next few quarters, while we expect the percentage of loads created or covered digitally to stabilize around the current level, we are not stopping there.

Speaker 4: Increasing the number of fully digital loads on the platform is a top strategic priority for the business.

Speaker 4: We've done an excellent job on the customer side with digital integration, but there's still plenty of white space ahead of us on the carrier side. The value proposition of RxO Drive and Connect is clear and helps drive engagement and stickiness with our customers and carriers, as evidenced by our seven-day carrier retention rate.

Speaker 4: Last quarter, I told you that our fourth quarter bloated gross profit per load was roughly in line with our three-year average. I thought it would be helpful to share current trends relative to fire freight cycles and offer you this like 12, which detailed our historical volumes and gross profit per load trends. We are now approaching our five-year gross profit per load volume. More specifically, we are within 10% of our trop-gloved profit per load over the last five years, excluding the low of the COVID-19 pandemic.

Speaker 4: Spins that trough, our brokerage volume has grown by more than 55%. This is our playbook for this very important part of the break cycle. Increasing share with best-in-class profitability while we strategically invest in the business positions us well for the next inflection and the road to $500 million in Editha.

Speaker 4: I now like to look forward to giving you some more color on what we are expecting in the second quarter. We do not anticipate any major changes in the state of the economy or the Fritz Egl.

Speaker 4: Both will remain challenging. We do continue to expect the moderation and gross profit for those as the second quarter will reflect the full run rate impact of new contract rates.

Speaker 4: However, our brokerage sales pipeline remains robust, up 50% and 84% on a two- and three-year stack, respectively.

Speaker 4: Re-cal and e-commerce volume declines are moderating, and our non-retell verticals are still growing year over year.

Speaker 4: We ended in April with strong, brokerage volume momentum giving us confidence that we will again, brokerage volume on a year over your basis in the second quarter.

Speaker 4: Putting it all together, we expect company-wide second quarter adjusted either doubt to grow sequentially when compared to the first quarter.

Speaker 4: Turning to the full year. Our brokerage business continues to have momentum supported by year over year volume growth in the first quarter and our expectation for second quarter year over year volume growth significantly outperforming the industry.

Speaker 4: I mentioned that the inventory position of some customers within the retail and e-commerce sectors has improved. This may lead to restocking the activity in the second half.

Speaker 4: However, visibility remains limited. Within last mile, we continue to work on operational improvements, execution, service, and pricing. Given the success of our strategic pricing actions, we are confident that 2023 last mile EBITDA will grow versus 2022 levels.

Speaker 4: helping to partially mitigate brokerages moderating first profit per load. Our asset light business model generates significant free cash flow. Prospectively, we remain confident that we will continue to achieve a strong adjusted free cash flow conversion relative to adjusted even though.

Speaker 4: We will thought to lead deployed capital to a balanced capital allocation approach, including the $125 million share reproaches program that we announced this morning. We believe that growth of free cash flow on a per share basis is a primary driver of long-term value creation.

Speaker 4: We will thoughtfully deploy capital to a balanced capital allocation approach, including the $125 million share repurchase program that we announced this morning. We believe that growth of free cash flow on a per share basis is a primary driver of long-term value creation. I'll leave you with why we remain so excited about our business.

Speaker 4: Despite the challenges of the current freight cycle and the economy. We operate in a $750 billion market with plenty of room to grow. Our financial profile can generate meaningful free cash flow.

Speaker 4: and our strong balance sheet and new share repurchase authorization provide us with flexibility to deliver returns to our shareholders. We have a small share of an enormous market, a proven team, a winning strategy, and a long runway for profitable growth. With that I'll turn it over to the operator for Q&A. Thank you. Ladies and gentlemen we will now begin the question and answer session. Should you have a question please press star followed by the number one on your.

Speaker 5: Jared, Jamie, let me just dig into the outlook a little bit. You're solid performance in terms of the 6% volume growth. Maybe thoughts on that thought of continued volume growth within the face of softening margins that you talked about. You're still outpacing your peers on margins. You noted the last two weeks showed some improvement.

Speaker 5: the turn around you're seeing the last few weeks.

Speaker 2: Yeah, absolutely. Good morning, Ken. This is Drew. I'll start with the second quarter outlook. When you look at what we saw as April started off, April started off fairly slow, coming off of quarter end, coming out of Easter holiday. The first two weeks were a lot slower than what we had hoped.

Speaker 2: But the back two week, half, back half of April in the last two weeks, picked up fairly well. And we saw good returns, enough returns that we were comfortable enough to be able to endorse volume growth for the full year. As you look a little bit farther out, we've got...

Speaker 2: signs of some things that we like that we're seeing overall in the market. Retail, e-commerce, inventory levels are much better than what they were last year. Growth in technology, health care, and home furnishing has been really strong force and we expect that to be able to continue.

Speaker 2: through the back half of the year and we started to see for the first time in the first quarter we started to see more capacity exit the market than was entering the market and that's the first thing that you see before tender rejection start to increase

Speaker 2: And so for us, that's something that's got us excited looking as we look forward. But with that, there's a lot unknown in the overall macro for the rest of the year. So very happy with where we sit right now and the playbook that we've got to be able to continue to build the foundation, take market share and do it profitably. And Ken, this is Jared. Just building on what Drew was saying, with respect to volume growth, you know, we feel comfortable with respect to Q2 volume.

Speaker 5: in the quarter. We'll also have the full run rate impact of the cost takeouts that we talked about in Q1, benefiting Q2, giving us comfort that company-wide. Adjust the diva doll will grow sequentially from Q1 to Q2. Just to clarify before I get to my second question, Drew, you said so you're confident in endorsing volume growth for the full year and then Jared jumped in with volume growth or two QA. Just don't make sure.

Speaker 2: You're talking to where you I was I was talking Q2 Q2 on a year of a year basis and said full year with that said I like with where I like where we're sitting for the full year Just as I said there's still some unknowns with the overall macro I don't think that anybody is there's no crystal ball for when the market influx if it's Q3

Speaker 3: and maybe dig into the thoughts on your EBITDA growth comment. Can you put parameters on that? Yeah, Ken. It's Jamie. Yes, a restructuring and the STEM related cause. We came into the quarter, first of all, as a standalone public company, we wanted to take a look at everything of costs we had in the company.

Speaker 3: We did a ground up, zero-based budgeting process, looked at every vendor, every contract, all of our org structures. And as you saw, we were able to take out about a run rate of about a $20 million savings on a go-forward basis. And so that restructure costs us about $8 million. That was not included in that 10 to 15, because we really went after that aggressive...

Speaker 3: and we also expect to have some additional savings to come out of a run rate basis. And so, you know, for us, $8 million more of the quarter than we had communicated in the 15, but we were able to produce a $20 million annualized run rate savings. And that's a return that, you know, for the work we did and an outlook, we very likely like the return, but also it positions us very well.

Speaker 3: to be ready to leverage our call structure with a very efficient back office and share service functions to take advantage of the market when it in blacks.

Speaker 1: Thanks for the time, I appreciate it. Thanks, come. Your next question comes from the line of Stephanie Moore from Jeffries. Please go ahead.

Speaker 6: Hi, good morning Drew and Jerry and then team, this is that's a chill happen on for Stephanie to take into question. My first question, that's a Drew, you mentioned capacity exiting and that's kind of the first sign you see before 10 of rejection start to pop up. And so I was kind of curious what your view kind of where we are on the cycle is today. I think most have talked about the one to maybe being weaker than expected and things kind of. Some you mentioned you're doing a little thing, but I'm sorry, I'm sorry

Speaker 6: playing out a little bit of stabilization. Do you feel at this point that things kind of seasonally move normally, albeit off of a lower base on the one cue, or what's kind of your view on the cycle right now?

Speaker 2: Yeah, I think for seasonality, when you look at it for the last three years, there's been a lot of puts and takes. It's hard to peg exactly what happens from a seasonality perspective. But typically you see volumes increase from Q1 to Q2 because that's when you've got the full run rate of implementing the bids that you complete it in Q4 and Q1. You know, when you look at this market cycle that we've seen, I talked about capacity.

Speaker 2: signs that are pointing towards a more positive direction from a capacity standpoint which will benefit the difference and when you look at the compare it to previous cycles you know we're not in something that is similar to oh eight no nine what we're seeing from a load to truck ratio and a tender rejection ratio runs more in line with what we saw in 2018 and 2019

Speaker 6: Thanks, that's helpful. And then on the final mile piece, I was hoping, is there anything you guys can give in terms of metrics on quantifying sort of what the repricing is looking like or how things are going? I know you mentioned that you guys were okay walking away with some business if it meant it was going to be more profitable, but I was hoping you guys could maybe peel back the onion a little bit on what's going on in final mile.

Speaker 2: Yeah, so, I mean, we were in pricing conversations with our customers for really the last, you know, three to six months. And what we found is that because of our service, because of our scale, our customers wanted to continue to partner with us and value the business that we were doing. So despite the tough macroeconomics, we are confident that we'll grow.

Speaker 4: kind of similar to Ken's question on volumes on pricing and cadence. How did how did spot pricing look throughout first quarter and into the first and second half of April ? Just on an on an industry basis and through on the last on the last response you were you were talking about potentially a bottoming on the on the on the low to truck ratio. How would that when will we see that in pricing on a on a on a spot in bank contract basis. Thanks.

Speaker 2: Yeah, so on the spot pricing, what little bit of spot loads that are out there is down significantly. Spot pricing as a two to one load truck ratio is well below what your contract pricing is. And that's one of the things that we talk about as you see the capacity exiting the market and you start to see that load the truck ratio shift. That's a positive thing because it creates spots at that point they'll go higher than what you see on the contractual loads.

Speaker 2: As far as the overall bottoming of the market, again, we're not going to call the bottom, but there are signs of optimism that we've got as we look ahead. Retail e-commerce is a big part of our business, and you look that those inventory levels are in a lot better position than what they were a year ago. That's a positive...

Speaker 2: We're up, our volume's up like 55% from that time period. So our foundation is much bigger than in what it was during the last downturn. So for spot loads, projects, mini-bids, we're gonna be the place the customers turn and we'll be in a position to win.

Speaker 4: question is how meaningful is this cross-border business, the new Arado facility to these bid opportunities and Jamie maybe this new real estate development you're talking about is that as a border as well or is that something else? Thank you.

Speaker 2: Yeah, so when you look at share gains, you know, we're not picky on where we take share gains. We're taking it from everybody. We don't walk into a bid looking to target one competitor or one asset based company where share gains come from. We look at it, how can we match our services to bet the line with what the customer needs? And because of that, we're winning big. I mean, you mentioned our customers. If you look at our top 20 customers.

Speaker 2: we actually grew volume by 13% on a year-over-year basis. So our largest customers are recognizing our service and they're not just coming back to do business with us. They're coming back to us and say, hey, we want to give you more business because of the service and solutions that you're able to offer. On the cross-border side, we think nearshoring is something that's going to continue, and U.S. and Mexico will benefit from that. We've been doing cross-border freight for a decade now and very happy with the service.

Speaker 2: the investment that we've made into Laredo, that's helped us grow our brokerage volume about 30% on a year-over-year basis, and we think that that will continue for the long run. We do a array of things out of Laredo. It's not just your truckload moves that are going cross-border, which we do a lot of. We're also...

Speaker 4: bunch of leave at dog growth you expect from Q1 to Q2? There's a decent range of expectations. Are we thinking mid singles, doubles? Any color would be helpful. Hey Scott, it's Jared. Good morning. So, you know, I'll give you some puts and takes as we think about it for for the quarter Q2 versus Q1. As we mentioned, we expect year-on-year volume growth. Again, Q2 versus Q1 offset partially by the continued gross profit per load reduction that we expected. As we talked about in the script, April started off slow but we had strong momentum in the back half of the month to endorse volume growth for Q2 versus Q1 both on a year-on-year basis.

Speaker 4: As it relates to seasonality, seasonally it's a better quarter for RxO as a whole across all aspects of the business. We'll benefit that and it'll benefit from brokerage that'll benefit in last mile. We'll have the pricing benefits that we talked about and then lastly we'll have the full run rate impact of the cost actions that we took. As it relates to...

Speaker 4: You know, specific guidance on even dust, sequentially, you know, that we don't, we don't provide guidance at the consolidated level, but hopefully that's helpful in terms of the puts and takes. Okay, and then just wanted to get your perspective. Do you think that second quarter is the bottom for gross profit per load? And then, I mean, maybe in this context, I'll ask you like, when you go back, is it that the chart of historical gross profit per load was helpful? When you look at that prior trough,

Speaker 4: Does that trough, is that coincident with spot rates bottoming or does the trough in profit per load tend to lag spot rates by a quarter or two? I'm just trying to understand, you know, are we at this, you know, trough in profit per load yet or if it needs to take a few more quarters?

Speaker 4: Yeah, the couple of things I would offer up is, you know, when you think about the profitability trough, I think that's also going to come down to when the load to truck ratio really starts moving higher. You know, when we do get that sustained move higher, you obviously, you'll see the spot loads start come back and we'll have nice spot growth profit per load, which will, you know, certainly be offset from a contract standpoint when you think about the

Speaker 4: ensure that we leverage our technology, leveraging our pricing algorithms to go ahead and maintain best in class profitability as you saw this quarter with gross margins flat year on year within brokerage. Hopefully that's a little bit, that gives you color what you're looking for. As you look back to the chart that we provided on slide 12, I think the...

Speaker 4: The message that we wanted to relay was, you know, certainly to look back over the last five years, give you a sense of the different freight cycle dynamics. And, you know, I think as Drew just said in one of the earlier questions, this is more like 18-19 from a freight recession standpoint. And as we're approaching that gross profit per load cycle bottom, you know, we are just in a much stronger position with our volume growth and excess of 55%. So...

Speaker 4: As that second derivative moderates on gross profit per load, you'll see a pretty significant impact from an EBITDA contribution standpoint. Okay. Thank you, guys. Thanks, Scott. Thanks, Scott. Thank you. Your next question comes from the line of Ravi Shankar from Morgan Stanley . Please come ahead.

Speaker 7: Thanks more again. So the tone and content of this call is very different than what you've heard on the OneQ call so far which have been pretty dull. So.

Speaker 7: I'm trying to understand how much of this is idiosyncratic to you and you guys just doing incredibly good job with execution versus how much of this is genuinely the cycle of the market picking up especially in the last couple of weeks of April like you mentioned and the fact that you guys are reporting a little bit later than peers. Maybe Drew I'm just seeing you up to give you 30 seconds to tell us how awesome you guys are.

Speaker 2: But you're starting to figure out how much of this is cycling versus execution. Well, thank you for that, Robbie. And we definitely have a lot of things to our business that are idiosyncratic. The play ends on our favor. If you look at our technology a second to none, it allows us to operate at best in class margins. And it also helps us become more integrated with our customers to where we're able to continue to...

Speaker 2: to start to see that in flexion you're going to have to see low detruck ratio start to move. For us this is the part of the cycle to what Jared just said earlier is about building that foundation and being much bigger than we were at the last market in flexion. Much more integrated with our customers to prepare to go on a really good run for that.

Speaker 7: Got it understood. Maybe two very quick follow-ups. One maybe for Jared. The outlook slide, in the last quarter you had the reiteration of the five-year guide in there. This time you didn't. I'm assuming it was just a formatting thing and nothing has changed with your outlook for the five-year guidance. And also on the restructuring costs, kind of understood on you guys going for the ROIC there. How long do you think, is this going to 2024 or how long do you think these restructuring actions will continue? Thank you. Hey, Ravi. Good morning. It's Jared. I'll start and then I'll hand it over to Jamie. Nothing has changed with respect to our confidence in the $500 million of EBITDA. I referenced it in our script.

Speaker 3: position ourselves to be cost efficient at the same time being and have capacity for growth. So we don't have any plans for a restructure in 24, but if the market dynamics say we need to we're going to look at it but we're always going to be a company looking to find a way to be better cost wise. And so but you'll see these calls go down materially by the end of the year.

Speaker 3: at the same time be and have capacity for growth. So we don't have any plans for a restructure in 24, but if the market dynamics say we need to, we're going to look at it, but we're always going to be a company looking to find a way to be better cost-wise. But you'll see these calls go down materially by the end of the year. Understood. Thank you.

Speaker 1: Thanks Robert. Thank you. Your next question comes from the line of Tom Wettwicks from UBS. Please go ahead.

Speaker 4: Hi, good morning. This is Michael D. Matia on for Tom. I was wondering if you could provide any additional commentary regarding ship or feedback on the inventory cycle and what's providing confidence in a turn.

Speaker 4: And then also for spot markets, when do you think spot bottoms versus where we are currently? Thank you.

Speaker 2: Yeah, so as far as what we're hearing back from our customers on inventory levels, inventory levels specifically in retail e-commerce are a lot better than what they were a year ago and we think that's got the potential to be a tailwind for us. That's a decent piece of our business and one that we look to continue to be able to go out and grow.

Speaker 2: As you look into other verticals, inventory levels, I would call stable right now overall and specifically in technology and healthcare and food and beverage, everything is running extremely efficient and smooth. As far as calling the bottom of the spot.

Speaker 2: You know, we said earlier we're not going to call the bottom. I don't think there's a crystal ball out there that tells you exactly what the market is going to do. I am confident that we will be able to go out and take market share and do it at best in class, gross profit in the industry. But you know, we're not going to be the ones who call the bottom. There are signals that we see out there that we like that.

Speaker 8: Go ahead. Hi, this is Ryan on for Allison. I just want to talk a little bit about the supply leaving the market. You mentioned it was doing so. I was wondering how long that process will take or how long you think it will be, and do you think that's going to be a longer process than the 2018 cycle given the run up here?

Speaker 2: Yeah, you know, I don't think that we know how long it's going to take yet. We are seeing capacity exit the market faster than what it's entering at, but it hasn't exited a fast enough rate to be able to cause load-to-truck ratio to shift in any sort of dramatic levels at this point.

Speaker 2: We're prepared for when the market influx and we continue to grow our base of business with our customers and we're prepared to go on a really good run whenever the market influx. But we don't know exactly when that will happen. From one thing that you've seen recently is class eight orders have been down and they're down significantly. And I think that's another sign that...

Speaker 1: Thank you. Your next question comes from the line of Jack Atkins from Stevens. Please go ahead.

Speaker 4: Okay, great. Good morning. Thanks for taking my questions. So I guess, you know, Jamie, or not Jamie, Drew, I'd love to get your thoughts here on sort of how you're positioning the business through the bid cycle here, because if I look at your revenue per load and brokerage down about 30...

Speaker 4: 3% or so in the first quarter. It certainly feels like you guys are using price as a lever to take share. But at the same time, the market is potentially bottoming here. So are you structuring the contracts in a way that give you an opportunity to come back and take that price higher once the spot market moves up? How are you thinking about that? Because it feels like with some

Speaker 2: there is in the industry right now. As far as you know being able to see spots impacting net revenue per load, spots coming on will actually be a positive thing for us on net revenue per load because you'll see spot rates just higher than what contractual rates are today which would naturally be at a higher gross profit.

Speaker 2: per load. So, you know, we view that when the market and flex, that'll be a good thing. You've seen us shift our mix of business as much as a thousand basis points quarter to quarter. So, we're an agile group, we're ready to react with whatever the market throws at us and we're prepared for when it's in flex. And that will be a positive thing for us from a pricing standpoint. And, Jack and Jared, also be mindful of the dynamics from Q4 to Q4.

Speaker 4: You know, profitable growth is in our DNA. That's how we run this company. But I think it's mindful to think about that comp and also remember that length of haul was also ahead when you're on your basis, which stepped up relative to P4 level. Okay, okay, Jared, I appreciate that. And Drew, thanks for that comment as well. And then I guess maybe kind of Drew getting back to your point on being able to capture a spot market activity when it materializes, hopefully later this year or sometime in early next year.

Speaker 9: forward here over the next.

Speaker 2: year or two to drive additional productivity opportunity. Yeah, so two things to break down there. One's just the overall productivity. We did see an increase in productivity from our team quarter over quarter. That was a positive thing. But really, we look at the productivity gains that we've got over the long term, because there will be times that you see us invest in headcount.

Speaker 2: and we look at the productivity gains more on a three to five year basis from what we're doing. And as we've said in the past, that trend continues to be up and to the right. As far as the opportunity that we've got on the carrier side, we've got a ton of white space, as Jared mentioned in his prepared remarks, to be able to continue to grow on the carrier side from an integration standpoint. Today through the previous Kai lens, they launched a new us- crisis support plan which is controlled by 100 people in the Control IRSna timeframe. And then they launched a new others meta connected model from the expert blessing and by me having the capability to design that program but also teams are s offers

Speaker 2: great job on the customer side and integrating with large customers is a little bit easier than integrating with some of these smaller carriers as We continue to be able to show them our XO connect and the power of what our XO connect can do Whether it's being able to keep them on continuous moves whether it's being able to give them discounts on fuel and tires and maintenance Continuing to pull them back to the app

Speaker 2: once we get them on, we've got a high retention rate. And one of the things that you saw is that when carriers come on to do business with RXO Connect, they come back 79% of the time. We've just got to continue to increase the adoption rate there.

Speaker 9: Okay, guys, thanks again for the time. Really appreciate it. Thanks, Jackson.

Speaker 5: Thank you. Your next question comes from the Lion of Jason Sadle from TD Securities. Please go ahead. Thank you, our reporter. Good morning, gentlemen. I wanted to talk a little bit first about the comment you made about managed transport in terms of the synergy revenues that I think are one of the reasons that you guys are out performing your peers in load groups. Can we dig into that a little bit?

Speaker 2: sort of what's going on there? Has there been a shift in some of the customers? Has there just been a better job done internally about pushing some of that freight from one side to the other? Yeah, there hasn't been a shift. So one, we've continued to bring on new customers in maintenance transportation. And any time there is a new customer that's brought on, one of the first places that the customer wants us to look at, as far as how we're doling out freight, is to ourselves, because we are known as a reliable.

Speaker 2: at us overall, 62% of our revenue comes from customers who do business with more than one line of business. So we're very integrated across the company. Okay, that's good color there. I also wanted to sort of circle back to Jack's question a little bit on the technology side. He asked, and I think you sort of talked around it a bit.

Speaker 4: When do you guys expect to start breaking out that number for us and investors? Hey Jason, it's Jared, good morning. So what we talked about was 96% of loads created or covered digitally. From a created and covered perspective, that is a significant percentage of our loads, and that is growing. As we talked about a little bit, we've done a really great job on the customer side. I think we've got a ton of white space ahead of us.

Speaker 4: On the carrier side, the value proposition is clear. It's very sticky with our carriers in terms of our exode drive and our exode connect. So it really is about increasingly adoption rate with them. And then once we go ahead and increase that adoption rate, the carrier retention rate is very strong. This quarter was up nicely Q&Q to 79%. So we're certainly having those conversations in terms of when we're going to go ahead and disclose to you, the percentage of loads that are created and covered.

Speaker 5: A lot of my questions have been answered, so I'd like to delve into two expense line items if I can. I think one of the surprises for me, given the revenue was down, was the direct operating expense line was up about $6 million year on year. So I guess question one is can we dig a little bit into what drove that.

Speaker 5: Is that something that sustains at this level or is there something in one queue that drove that higher and that cost comes down? And then, secondly, I want to follow up on 10 Hexters call. I think I understand the restructuring charge of things. But why the six million in transition and integration costs at this point? Can you help us understand what those...

Speaker 3: Number specifically, what runs through there is generally our expenses related to our managed trans business and our last mile business. So when you see a direct op-ax, it's things like the cost of the facilities on the last mile hub, it's the direct labor to get the product ready for staging for the transportation. So we did see an uptick and some of those costs.

Speaker 3: very little of our direct OPEX runs through our brokers because it's you know most of that cost to purchase trans and so nothing significant there that stands out other than you know there's kind of cost to support last mile and OPEX or last mile managed trans. In terms of the

Speaker 3: the cost as relates to restructuring. Some of the things in our spin related category, if you will, you mentioned rebranding, that's actually one of the biggies. As we transitioned from being a division of XPO into a standalone public company, we did go out and rebrand a lot of our facilities. That was a cost that we started at the time.

Speaker 3: So the talk earlier, we do expect the span related cost to diminish materially as the year concludes in late 23. We'll have a few carry over items, but very little.

Speaker 1: Okay, great. Thank you for that answer. Thank you. And that will be for our last question. I would like to turn the call back over to Mr. Wilkerson for any closing remarks.

Okay, great. Thank you for that answer. Thank you. And that will be for our last question. I would like to turn the call back over to Mr. Wilkerson for any closing remarks. Thank you, Larry.

Despite the weak macro environment, RXO took market share and maintained best in class brokerage margins. RXO is a differentiated business model with best in class technology and massive capacity, along with a deeply experienced leadership team. We're navigating the current economic climate well and we're going to remain focused on delivering results.

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