Q2 2024 RXO Inc Earnings Call

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Operator: Welcome to the RxO Q2 2024 earnings conference call and webcast. My name is Sharon, and I will be your operator for today's call.

Speaker Change: Welcome to the RxO Q2 2024 earnings conference call and webcast.

Operator: Please note that this conference call is being recorded. 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 statement. 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.

Sharon: My name is Sharon, and I will be your operator for today's call. Please note that this conference is being recorded. 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.

Sharon: to differ materially from those in the forward-looking statements.

Sharon: A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings, as well as its earnings release.

Sharon: You should refer to a copy of the company's earnings release and the investor relations section on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures that the company uses when discussing its results.

Operator: You should refer to a copy of the company's earnings release in the Investor Relations section on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures that the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin.

Sharon: I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin.

Drew Wilkerson: Good morning, everyone, and thank you for joining me in Charlotte. I'm here with RxO's Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weisfeld. First, we delivered adjusted EBITDA, brokerage volume growth, both full truckload and LTL, and brokerage gross margin at the high end of our guidance range. Second, we have momentum in managed transportation and have one significant new business, and we have an impressive sales pipeline.

Drew Wilkerson: Good morning, everyone, and thank you for joining today. I'm here in Charlotte with RxO's Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weisfeld.

Drew Wilkerson: In the third and last mile, we achieved the fastest year-over-year growth rate and stops in nearly two years and have taken actions to significantly improve profitability. And lastly, we expect our actions to result in both sequential and year-over-year adjusted EBITDA growth in the third quarter. Now, let me walk you through our second quarter results.

Drew Wilkerson: There are four main takeaways I'd like you to walk away with today. First, we've delivered adjusted EBITDA, brokerage volume growth, both full truckload and LTL, and brokerage gross margin at the high end of our guidance ranges.

Drew Wilkerson: Second, we have momentum in managed transportation and have one significant new business and have an impressive sales pipeline.

Drew Wilkerson: Third, and last mile, we achieved the fastest year-over-year growth rate in stops in nearly two years and have taken actions to significantly improve profitability.

Drew Wilkerson: And lastly, we expect our actions to result in both sequential and year-over-year adjusted EBITDA growth in the third quarter.

Drew Wilkerson: Now, let me walk you through our second quarter results.

Drew Wilkerson: RxO executed well with adjusted EBITDA of $28 million in what continues to be a soft rate environment. Our brokerage business grew volume by 4% with a 40% increase in less-than-truckload volume. We continue to build scale in our LTL business, which now represents 20% of our brokerage volume and is contributing to profitable growth. However, full truckload volume was down 2% above the midpoint of our expectation. The decline was the result of the bid season strategy we walked you through last quarter and a tough comparison to the second quarter of 2023. Cross-border brokerage volume increased by 12% year over year.

Drew Wilkerson: RxO executed well with adjusted EBITDA of $28 million in what continues to be a soft rate market.

Drew Wilkerson: Our brokerage business grew volume by 4% with a 40% increase in less-than-truckload volume. We continue to build scale in our LTL business, which now represents 20% of our brokerage volume and is contributing to profitable growth.

Drew Wilkerson: Full truckload volume was down 2% above the midpoint of our expectations.

Drew Wilkerson: The decline was the result of the bid season strategy we walked you through last quarter and a tough comparison to the second quarter of 2023.

Drew Wilkerson: Cross-border brokerage volume increased by 12% year-over-year. We're hitting tough comparisons, but cross-border demand remains robust.

Drew Wilkerson: We're hitting tough comparisons, but cross-border demand remains robust. Full truckload contract business represented 78% of our mix in the quarter and positions us as well to earn spot volume and project loads when the market improves. Our strong relationships and service lead customers to choose RxO for spot loads and projects. Importantly, the bid season strategy we taught you about last quarter, combined with our effective management of purchase transportation, yielded a brokerage gross margin of 14.7%. Jared will discuss brokerage margin dynamics in more detail.

Drew Wilkerson: Full truckload contract business represented 78% of our mix in the quarter and positions as well to earn spot volume and project loads when the market improves.

Drew Wilkerson: Our strong relationships and service lead customers to choose RxO for spot loads and projects.

Drew Wilkerson: Importantly, the bid season strategy we taught with you about last quarter, combined with our effective management of purchase transportation, yielded brokerage gross margin of 14.7%. Jared will discuss brokerage margin dynamics in more detail.

Drew Wilkerson: Complimentary services were a major contributor to our results. In managed transportation, we again grew synergy loads provided to our brokerage business year over year, and customers awarded us more than $200 million in freight under management or FOM in the quarter. The total new FUM in our sales pipeline is substantial, greater than $1.6 billion. We have a long runway for growth in managed transportation, and converting that pipeline will fuel growth across RxO. In the second quarter, last mile stops grew by 7% year-over-year, the fastest rate in nearly two years.

Jared Weisfeld: Complimentary services were a major contributor to our results.

Jared Weisfeld: In managed transportation, we again grew synergy loads provided to our brokerage business year-over-year, and customers awarded us more than $200 million in freight under management, or FOM, in the quarter.

Jared Weisfeld: The total new FUM in our sales pipeline is substantial, greater than $1.6 billion. We have a long runway for growth in managed transportation, and converting that pipeline will fuel growth across RxO.

Jared Weisfeld: In the second quarter, last mile stops grew by 7% year-over-year, the fastest rate in nearly two years.

Drew Wilkerson: This is a result of our focus on building deep relationships with the top brands and providing those customers with the best service in the industry. The largest retailers of big and bulky goods are turning to large national last mile providers like RxO because of our scale, technology, financial stability, and exceptional service. We continue to bolster our position as the number one provider of big and bulky last mile delivery. Complimentary Services' gross margin of 23% was up 170 basis points year over year.

Jared Weisfeld: This was a result of our focus to build deep relationships with the top brands and provide those customers with the best service in the industry.

Jared Weisfeld: The largest retailers of big and bulky goods are turning to large, national last-mile providers like RxO because of our scale, technology, financial stability, and exceptional service.

Jared Weisfeld: We continue to bolster our position as the number one provider of big and bulky last mile deliveries.

Jared Weisfeld: Complimentary services gross margin of 23% was up 170 basis points year-over-year. The increase was primarily driven by last mile performance, which included stronger volume and the results of a profitability initiative.

Drew Wilkerson: The increase was primarily driven by last mile performance, which included stronger volume and the results of a profitability initiative. Jamie will talk more about this in a few minutes, but we expect this effort to generate more than $20 million in annualized adjusted EBITDA. RSO's company-wide gross margin was 19% in the quarter.

Jared Weisfeld: Jamie will talk more about this in a few minutes, but we expect this effort to generate more than $20 million in annualized adjusted EBITDA.

Jamie Harris: RxO's company-wide gross margin was 19% in the quarter.

Jamie Harris: Let's talk about the overall freight market.

Jamie Harris: While conditions remain soft, most key industry metrics improved since the first quarter.

Jamie Harris: On the supply side, peers continued to exit each month in the quarter. However, the rate of exit slowed when compared to the first quarter.

Jamie Harris: As we anticipated, the national load-to-truck ratio moved seasonally higher as the quarter progressed. This was a result of DOT road check, produce season, and continued capacity exits.

Drew Wilkerson: Carrier rates have started to increase, and while this puts short-term pressure on our gross margin, it's consistent with our view that rates are at an unsustainable level for many carriers. We remain focused on reliably serving our customers' needs and honoring our contractual rates. This strategy contributed to our second quarter results and will position us well to capture spot volume and project freight when the market recovers. Full truckload volume in the month was down approximately mid-single digits when compared to June and down high-single digits year-over-year.

Jamie Harris: Carrier rates have started to increase, and while this puts short-term pressure on our gross margin, it's consistent with our view that rates are at an unsustainable level for many carriers.

Jamie Harris: On demand side, indicators continue to be mixed. While inflation is moderated and retail inventory positions are healthy, the labor market, consumer confidence, and the Industrial ISM Index have all weakened.

Jamie Harris: It's too soon to tell whether the tightening we're seeing is sustainable, but we continue to make strategic decisions in anticipation of the market recovery.

Speaker Change: We remain focused on reliably serving our customers' needs and honoring our contractual rates. This strategy contributed to our second quarter results and will position us well to capture spot volume and project freight when the market recovers.

Speaker Change: Let's talk about what we saw in July and what our expectations are for the third quarter.

Speaker Change: July is typically the slowest month of the quarter, and we expect that to be the case this year. Full truckload volume in the month was down approximately mid-single digits when compared to June , and down high-single digits year-over-year. As July progressed, we did see an improvement in our gross margin.

Drew Wilkerson: As July progressed, we did see an improvement in our gross margin. We anticipate that growth in LTL will continue, but that full truckload volume will decline by a high single-digit to low double-digit percentage. In the second quarter, full truckload contract volume grew by more than 40% since the second quarter of 2021. While we're still operating in a prolonged soft freight environment, our strong margin performance and disciplined focus on cost give us confidence in our ability to grow adjusted EBITDA again sequentially and also year over year.

Speaker Change: For the third quarter, we anticipate that brokerage volume will decline by a low to mid-single-digit percentage on a year-over-year basis and will grow slightly quarter-over-quarter.

Speaker Change: We anticipate that growth in LTL will continue, but that full truckload volume will decline by a high single-digit to low double-digit percentage.

Speaker Change: This is primarily because of our bid season pricing strategy and the tough comparison to the third quarter of 2023. As you recall, in the third quarter of last year, our brokerage volume grew by 18% year-over-year.

Speaker Change: RHO will continue to take profitable market share over the long term, and those gains will be sticky. In the second quarter, full truckload contract volume grew by more than 40% since the second quarter of 2021.

Speaker Change: Even with the anticipated third quarter year-over-year volume decline, full truckload contract volume will be up approximately 30% on a three-year stack.

Speaker Change: While we're still operating in a prolonged soft freight environment, our strong margin performance and disciplined focus on cost give us confidence in our ability to grow adjusted EBITDA again sequentially and also year-over-year.

Speaker Change: Jamie and Jared will discuss our guidance in more detail in a few minutes.

Drew Wilkerson: This is the right point in the cycle to make strategic investments. I've had the opportunity to spend some time with a wide range of team members at Coyote, and I'm impressed by their energy, passion, and knowledge. You'll hear more about our progress in the coming weeks and months. But for now, we're focused on continuing to provide the best service and the most comprehensive set of solutions. RHO is well positioned to deliver earnings growth when the market inflects. Now, Jamie will discuss our financial results in more detail. Jamie?

Speaker Change: This is the right point in the cycle to make strategic investments, like our planned acquisition of Coyote Logistics.

Speaker Change: We're on track to close in the first half of the fourth quarter. As I mentioned on our call in June , we've had an integration mindset since we started the due diligence process and have made good progress.

Speaker Change: I've had the opportunity to spend some time with a wide range of team members at Coyote, and I'm impressed by their energy, passion, and knowledge.

Speaker Change: Many in key roles have been with Coyote since its early days and are excited about the significantly increased scale that RxO will have after the acquisition closes.

Speaker Change: This is the right deal at the right time.

Speaker Change: We're buying at a good point in the freight cycle, Coyote and RXO share few customers and carriers in common, and our large-scale business will be even more primed for profitable growth.

Speaker Change: I remain confident that this acquisition will create substantial value for our customers, carriers, employees, and investors.

Speaker Change: You'll hear more about our progress in the coming weeks and months, but for now, we're focused on continuing to provide the best service, the most comprehensive set of solutions, continuous innovation, and close customer relationships.

Speaker Change: will also remain disciplined when it comes to cost.

Jamie Harris: RHO is well-positioned to deliver earnings growth when the market inflects. Now, Jamie will discuss our financial results in more detail. Jamie? Thank you, Drew, and good morning, everyone. Let's review our second quarter performance in more detail.

Jamie Harris: Below the line, our interest expense was $8 million. The Brokerage Gross Margin expanded by 50 basis points sequentially and declined by 70 basis points year over year. Confirmary Services' gross margin of 23% increased by 240 basis points sequentially and by 170 basis points year over year. Last quarter, we updated our expectations for annualized cost reductions to at least $35 million in 2024, a strong return of just under 200%. Importantly, as with everything else we're discussing today, these cost savings and restructuring charges don't include any impact from synergies or charges resulting from the upcoming Coyote acquisition. Slide 14 includes our modeling assumptions for the full year, which remain unchanged. Net Interest Expense was between $31 and $33 million.

Jamie Harris: We generated $930 million in revenue compared to $963 million in the second quarter of 2023.

Jamie Harris: Gross margin was 19%, up 160 basis points sequentially and up 40 basis points year-over-year.

Jamie Harris: Our adjusted EBITDA was $28 million dollars above the bid point of the GABAX range we provided to you in May. This compares to $38 million dollars in the second quarter of 2023.

Jamie Harris: Our adjusted EBITDA margin was 3%, up 140 basis points sequentially and down 90 basis points year-over-year. Below the line, our interest expense was $8 million.

Jamie Harris: For the quarter, our adjusted earnings per share was $0.03. You can find a bridge to adjusted EPS on slide 7 of the earnings presentation.

Speaker Change: Now I'd like to give an overview of our performance within our lines of business.

Speaker Change: Brokers generated $543 million of revenue, down 4% sequentially and 3% year-over-year. The year-over-year decline was primarily due to slightly lower full truckload volume and lower freight rates.

Speaker Change: Brokerage gross margin remains solid at 14.7% towards the high end of our guidance.

Speaker Change: The margin performance in the quarter was primarily due to our bid season strategy that anticipated a market recovery while honoring customer rates, as well as our focus on procuring purchase transportation effectively.

Speaker Change: Brokerage Gross Margin expanded by 50 basis points sequentially and declined by 70 basis points year over year.

Speaker Change: Complimentary services revenue in the quarter of $421 million was up 10% sequentially and down 4% year over year.

Speaker Change: The sequential revenue increase was primarily due to seasonality within our last mile business driven by an increase in stops from new and existing customers.

Speaker Change: Last Mile Stops grew 7% year-over-year, the fastest growth in nearly two years.

Speaker Change: Similar to the first quarter, automotive expedite volume in our managed transportation business remained soft.

Speaker Change: Confirmary Services gross margin of 23% increased by 240 basis points sequentially and by 170 basis points year over year.

Speaker Change: All of our lines of business contributed to this performance.

Speaker Change: We're pleased with our complementary services gross margin performance, though we still have plenty of opportunities for future expansion.

Speaker Change: In Last Mile, we have several profitability initiatives that are underway, but one specifically I'd like to expand on.

Speaker Change: Earlier this year, we partnered with an outside consultant to accelerate the design and implementation of a strategy to significantly reduce last-mile purchase transportation costs.

Speaker Change: The initiative has already positively impacted Last Mile. In the second quarter, the annualized adjusted EBITDA impact of this initiative was approximately $11 million.

Speaker Change: We realized the associated benefits in a phased approach throughout the quarter resulted in an improvement in second quarter adjusted EBITDA of $2 million, which was more than offset in the quarter by one-time professional fees.

Speaker Change: Looking forward, and when fully implemented, we expect the annualized adjusted EBITDA impact to be more than $20 million, an impressive return on the dollars spent.

Speaker Change: As we discuss cash, please refer to slide 8.

Speaker Change: Additionally, this includes the impact of our semi-annual interest payment, the settlement of previously discussed legacy liability claims, and our strategic use of working capital, notably increased usage of our quick pay offering for carriers.

Speaker Change: Our adjusted free cash flow in the second quarter was negative $9 million, slightly better than our expectation of negative $10 million, which we shared with you in May.

Speaker Change: We ended the quarter with $7 million of cash on the balance sheet, flat with the prior quarter. Our revolving credit facility increased by $18 million sequentially, consistent with our estimate.

Speaker Change: The primary difference between adjusted pre-cash flow and cash uses in the quarter was $7 million of restructuring-related cash outflows.

Speaker Change: We continue to expect a conversion range of 40-60% through market cycles and remain excited about the cash flow generation that RxO will produce as the market inflects.

Speaker Change: As you can see on slide 9, our liquidity position remains strong with approximately $600 million of committed liquidity at the end of the quarter.

Speaker Change: Quarter end gross leverage was 3.3 times trailing 12 months adjusted EBITDA and net leverage was 3.2 times.

Speaker Change: This is higher than our first quarter leverage due to our siphon of last year's adjusted EBITDA.

Speaker Change: We remain comfortable with our current leverage ratio, and given the strong free cash flow characteristics of our business, we expect to delever rapidly as the market recovers.

Speaker Change: Moving to Costs.

Speaker Change: Last quarter, we updated our expectations for annualized cost reductions to at least $35 million in 2024.

Speaker Change: We now expect annualized cost reductions of approximately $35 to $40 million.

Speaker Change: Importantly, these cost outs are mostly structural in nature.

Speaker Change: Over the last 18 months, we've taken out more than $65 million of annualized costs while strategically investing in the business.

Speaker Change: RxO is well positioned for the market recovery.

Speaker Change: Importantly, as with everything else we're discussing today, these cost savings and restructuring charges don't include any impact from synergies or charges resulting from the upcoming Coyote acquisition.

Speaker Change: Now let's discuss our expectations for third quarter and the full year.

Speaker Change: While we're still operating in a prolonged, soft trade environment, our strong margin performance and cost discipline give us confidence in another quarter of sequential adjusted EBITDA growth.

Speaker Change: We expect to deliver between $28 and $34 million of adjusted EBITDA in Q3.

Speaker Change: We also expect a strong adjusted free cash flow quarter with an adjusted free cash flow conversion of more than 50%.

Speaker Change: Jared will provide more details on our Outlook shortly.

Jared Weisfeld: Slide 14 includes our modeling assumptions for the full year, which remain unchanged. As mentioned previously, these assumptions exclude the impact of the pending acquisition of Coyote Logistics.

Jared Weisfeld: We continue to expect the following.

Speaker Change: Catholic expenditures between $40 and $50 million.

Jared Weisfeld: Depreciation expense between $56 and $58 million.

Jared Weisfeld: Amortization of intangibles of approximately $12 million.

Jared Weisfeld: Restructuring transaction integration expenses, excluding Coyote acquisition-related costs between $20 and $25 million.

Jared Weisfeld: Net Interest Expense between $31 and $33 million

Jared Weisfeld: We expect our full year 2024 adjusted effective tax rate to be approximately 30%, which is above our long-term expectation of approximately 25%.

Jared Weisfeld: You should also model an average diluted share count of approximately 120 million shares.

Speaker Change: Overall, we're very pleased with our execution given the current phase of the freight cycle. Our brokerage business is generating solid gross margin despite the tightening market and we're seeing improved gross margin and pipeline opportunities across all complementary services.

Speaker Change: We're especially pleased with the improvement to date in Last Mile and the significant opportunities ahead to structurally improve our margins.

Jared Weisfeld: Now, I'd like to turn it over to our Chief Strategy Officer, Jared Weisfeld, who will talk more in detail about our results and our outlook.

Jared Weisfeld: Thanks, Jamie, and good morning, everyone. LTL represented 20% of brokerage volume in the second quarter, up 300 basis points sequentially and 500 basis points year over year. Full truckload volume was down 2% year-over-year, above the midpoint of the range we provided last quarter. However, we also maintained a favorable mix of contract and spot business in the quarter. Within our full truckload business, performance across our major verticals was largely consistent with our consolidated volume. At the largest retailers in the country, year-over-year revenue growth has exceeded inventory growth for the last six consecutive quarters. While this is encouraging, consumer confidence continues to fall, with many leading indicators sitting at multi-month lows.

Jared Weisfeld: Thanks, Jamie, and good morning, everyone.

Jared Weisfeld: We continue to outperform the market in the second quarter, growing brokerage volume by 4% year over year.

Speaker Change: LTL growth was robust with 40% year-over-year growth, exceeding our guidance of 30%.

Speaker Change: Our full truckload customers continue to award us LTL Freight because of our strong service and relationships.

Speaker Change: LTL represented 20% of brokerage volume in the second quarter, up 300 basis points sequentially, and 500 basis points year over year.

Speaker Change: Full truckload volume was down 2% year-over-year, above the midpoint of the range we provided last quarter.

Speaker Change: Full truckload volume represented 80% of brokerage volume in the quarter, down 300 basis points sequentially, and down 500 basis points year over year.

Speaker Change: We also maintained a favorable mix of contract and spot business in the quarter.

Speaker Change: With LTL growing so quickly and considering that a vast majority of our LTL freight is contractual in nature, starting this quarter and going forward, we'll communicate our spot and contract mix from a full truckload perspective.

Speaker Change: We believe this is a more accurate representation of our underlying volume mix.

Speaker Change: Contracts represented 78% of our full truckload volume in the quarter, approximately flat sequentially, and up 300 basis points when compared to the second quarter of 2023.

Speaker Change: In the second quarter, overall contract volume grew 9% year-over-year, and full truckload contract volume was up 2% year-over-year.

Speaker Change: Importantly, on a three-year SAC, our full truckload contract volume grew by over 40%, which speaks to our multi-year market share gains.

Speaker Change: Within our full truckload business, performance across our major verticals was largely consistent with our consolidated volume trends.

Speaker Change: Retail and e-commerce volume was approximately flat year over year.

Speaker Change: Inventory positions at our retail customers were made healthy.

Speaker Change: At the largest retailers in the country, year-over-year revenue growth has exceeded inventory growth for the last six consecutive quarters.

Jared Weisfeld: Automotive volume grew by 14% year-over-year, although at a slower pace than the last few quarters. On a rolling 12-month basis, productivity in our brokerage business, as measured by loads per person per day, improved by over 18% year-over-year. Revenue per load declined by 7% year over year, the fourth consecutive quarter of easing. However, that's an 800 basis point improvement when compared to the first quarter. Let's move to slide 11 and discuss RxO Brokerage Monthly Gross Margin and Industry Trends.

Speaker Change: Automotive volume grew by 14% year over year, although at a slower pace than the last few quarters.

Speaker Change: From a profitability perspective, brokerage gross margin of 14.7% was toward the high end of the 13-15% range we provided you in May.

Speaker Change: In the second quarter, we launched several new technology enhancements.

Speaker Change: We strengthened tracking and visibility for cross-border customers and rolled out enhanced AI pricing algorithms.

Speaker Change: We continue to expand our LTL automation capabilities and rolled out LTL enhancements to drive improved billing accuracy and time to bill.

Speaker Change: Seven-day carrier retention remains strong at 75% in the quarter, down slightly from 76% in the first quarter.

Speaker Change: Our technology enables our people to become even more productive.

Speaker Change: On a rolling 12-month basis, productivity in our brokerage business, as measured by loads per person per day, improved by over 18% year-over-year.

Speaker Change: I'd now like to review our brokerage financial performance and market conditions in more detail.

Speaker Change: You can find this information on slides 10 through 13 of the presentation.

Speaker Change: Revenue per load declined by 7% year over year, the fourth consecutive quarter of easing. That's an 800 basis point improvement when compared to the first quarter.

Speaker Change: When normalizing for those items, revenue per loan on a percentage basis was down just low single digits year-over-year, also moderating when compared to last quarter's year-over-year decline.

Speaker Change: While we have lapped the length of Hall headwinds, we expect mix to be a continued headwind given our robust LTL volume growth.

Speaker Change: As a reminder, LTL revenue per load is dilutive to consolidated revenue per load, but at scale, LTL runs at higher gross margin and EBITDA margin percentage when compared to full truck load.

Speaker Change: Full truckload revenue per load inflected positive year-over-year in the month of June , slightly ahead of our expectation of roughly flat year-over-year.

Speaker Change: Let's move to slide 11 and discuss RxO Brokerage Monthly Gross Margin and Industry Trends.

Jared Weisfeld: We entered the second quarter with a gross margin of approximately 16 percent. Thanks to our bid season strategy and our ability to leverage technology to effectively procure capacity, we were still able to post a gross margin toward the high end of guidance, despite tightening market conditions. However, the national average was heavily influenced by pockets of regional tightness due to the produce season.

Speaker Change: We entered the second quarter with a gross margin of approximately 16%.

Speaker Change: Thanks to our mid-season strategy and our ability to leverage technology to effectively procure capacity, we were still able to post a gross margin toward the high end of guidance, despite tightening market conditions.

Speaker Change: From an industry perspective, we're still operating in a prolonged soft freight environment, but there are some encouraging signs.

Speaker Change: The national load-to-truck ratio and tender rejections moved higher both sequentially and year-over-year in the second quarter, averaging approximately 4.2 and 4.5 percent respectively.

Speaker Change: However, the national average was heavily influenced by pockets of regional tightness due to produce season.

Speaker Change: On the demand side, while it has not yet translated into over-the-road volume strength, year-to-date port volume growth has been robust. This is also consistent with the improved inventory positions of our retail customers.

Operator: Turning to supply, there is still too much truckload capacity relative to current demand, and carrier unit economics remain challenging. For example, Rx's full truckload gross profit per load remains at a trough level. To give some more color, in the second quarter, RXO's full truckload gross profit per load was approximately 30% below our five-year average. At scale, LTL will be a key contributor to stable EBIT. I would now like to look forward and give you some more color on our third quarter outlook.

Speaker Change: Turning to supply, there is still too much truckload capacity relative to current demand, and carrier unit economics remain challenged.

Speaker Change: However, there have been monthly carrier authority exits for almost two years, and with the reduced supply, the environment is likely now more susceptible to being impacted by near-term changes in demand.

Speaker Change: While it's too early to determine if this is the beginning of the recovery, industry metrics are moving in the right direction.

Speaker Change: Let's go to slide 12.

Speaker Change: With our LTL brokerage volume growing so rapidly, we thought it would be helpful to break out our historical full truckload and LTL volume gross profit per load trends.

Speaker Change: As we just walked through, our profitability moved lower as the quarter progressed due to seasonal factors.

Speaker Change: But full truck load, gross profit per load in the second quarter improved modestly when compared to the first quarter.

Speaker Change: Rx's full truckload gross profit per load remains at trough levels.

Speaker Change: To give some more color, in the second quarter, RxO's full truckload gross profit per load was approximately 30% below our five-year average.

Speaker Change: When the cycle recovers, there will be strong flow-through to adjust the DBDA.

Speaker Change: Moving to slide 13. Our LTL business has grown rapidly over the past few years. Importantly, LTL brokerage operates with less cyclical gross profit per load. At scale, LTL will be a key contributor of stable EBITDA.

Speaker Change: I now like to look forward and give you some more color on our third quarter outlook.

Speaker Change: This outlook assumes no meaningful improvement in freight market conditions and limited spot opportunities.

Operator: Let's start with brokerage. We expect consolidated brokerage volume to decline by low to mid-single-digit percent year-over-year in the third quarter and to increase slightly sequentially. We grew volume by 12% in 2023, significantly outperforming the broader market, which declined by mid-single digit percent. We also continue to remain disciplined on costs, and the third quarter will benefit from the full run rate of our cost taken.

Speaker Change: Let's start with brokerage.

Speaker Change: We expect consolidated brokerage volume to decline by low to mid-single-digit percent year-over-year in the third quarter and to increase slightly sequentially.

Speaker Change: We expect LTL volume to grow again in the third quarter, the business is performing well as we scale, and we expect LTL volume to increase by 10 to 20% year over year.

Speaker Change: Turning to full truckload, we expect full truckload volume to decline by a high single-digit to low double-digit percent year-over-year, primarily due to our bid season strategy and more difficult comps.

Speaker Change: On a sequential basis, we expect full truckload volume to be approximately flat when compared to the second quarter.

Speaker Change: I want to expand on our historical volume growth.

Speaker Change: We grew volume by 12% in 2023, significantly outperforming the broader market, which declined by mid-single digits.

Speaker Change: As we mentioned last quarter, our comps get tougher as the year progresses, and we expect this dynamic to be most pronounced in the fourth quarter of this year.

Speaker Change: A high single-digit to low double-digit percent year-over-year decline in third-quarter full truckload volume would still result in full truckload contract volume growth of approximately 30 percent on a three-year stack, significantly ahead of the broader market.

Speaker Change: Moving to revenue per load, we expect consolidated year-over-year revenue per load declines to improve again in the third quarter, marking the fifth consecutive quarter of moderating declines.

Speaker Change: We expect full truckload revenue per load to be approximately flat year-over-year in the third quarter.

Speaker Change: We expect brokerage gross margin to be between 13 and 15 percent in the third quarter, similar to our outlook for the second quarter, despite tightening freight market conditions.

Speaker Change: We expect brokerage gross margin percentage and gross profit per load to seasonally improve throughout the third quarter, with July representing the low point of the quarter.

Speaker Change: Turning to complementary services, in managed transportation, we expect automotive volume to improve throughout the quarter as plants come back online. And in last mile, while we're expecting a seasonal decline from the second quarter, this will be largely offset by the profitability initiative that Jamie described earlier.

Jamie Harris: We also continue to remain disciplined on costs, and the third quarter will benefit from the full run rate of our cost takeouts.

Jamie Harris: Putting it all together, we expect RxO's third quarter adjusted EBITDA to grow again sequentially and be between $28 and $34 million.

Jamie Harris: In summary, we're continuing to execute well in the soft freight market.

Jamie Harris: We're entering the third quarter with continued momentum, sustained multi-year brokerage market share gains, a managed transportation pipeline of greater than $1.6 billion, and tangible progress on improving last mile profitability.

Jamie Harris: We expect to deliver strong earnings growth when the market inflects and look forward to closing the acquisition of Coyote in the first half of the fourth quarter.

Speaker Change: With that, I'll turn it over to the operator for Q&A.

Operator: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

Speaker Change: Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised.

Speaker Change: Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

Speaker Change: First question comes from Scott Schneeberger with Oppenheimer.

Scott Schneeberger: Understanding you expect volumes still down year over year and third quarter more so relative than it was second quarter.

Speaker Change: This is the slowest month of the year, but...

Speaker Change: That's expected seasonally. So can you speak, it sounds like...

Speaker Change: Speak to how you anticipate seasonal build.

Speaker Change: Sequentially, second quarter to third quarter to fourth quarter, maybe. I thought I heard Jared you say that it was going to be flattish, but just want to get a sense for that anticipation on volume, looking out over the balance of the year, maybe some consideration with the holiday season as well, thanks.

Speaker Change: and when you combine that with the tough comps from Q3 of last year where volume was up 18% year-over-year.

Speaker Change: In revenue per load year-over-year, four consecutive quarters now, year-over-year comps, relatively easy but becoming more challenging in coming periods now. When do you foresee potential inflection there and are you seeing any indications that that could potentially occur later this year or just too much of a challenging environment?

Unknown Speaker: Yeah, absolutely. I think it's important.

Speaker Change: Yeah, absolutely. I think, importantly, in the month of June , our full truckload revenue per load inflected positively, which was slightly ahead of our expectation of flat. So we did see that improvement, and I think that's a direct reflection of our bid season strategy that we talked to you about three months ago. As it relates to the back half of the year, I think it'll depend on how the freight market evolves, and we look forward to communicating that later this year. But I think we're really, really proud of the fact that the

Speaker Change: The third quarter will mark our fifth consecutive quarter of easing. We do have a mix shift, right, with LTL increasing as a percentage of the mix, but importantly on full truckload it did inflect positive in the month of June.

Operator: Your next question comes from Scott Group with Wolf Research.

Speaker Change: Thanks very much.

Speaker Change: Hey, thanks. Good morning. Maybe just starting just a little bit like color on the market, right? So you talked about load to truck and rejections in that four to five percent range

Speaker Change: from a load-to-truck ratio, Tinder Rejections is still in, call it.

Speaker Change: Low to mid single digits overall and you want to see those start itching closer to double digits

Speaker Change: Yes, Scott, this is Jamie. Look at Q2 to Q3, it's really a cost story. We see kind of flattish over the kind of the operational side that there's a some of the cost initiatives that that we've talked about previously are beginning to flow through the T&L in full.

Speaker Change: And so we feel good about our balance sheet, it's very strong, but yeah, we see that coming down.

Speaker Change: If I could just ask one more, any more color or clarity on financing for the Coyote Dew?

Speaker Change: As we talked about at the announcement, we've got committed financing in place for the deal in the form of a bridge.

Speaker Change: We are in the process of getting all of our financing pooled together. There will be more to come later. What we do want to emphasize, though, as we said back at the time of the announcement, we expect the financing to be such that our leverage, our credit profile, defined by our leverage, is at least credit neutral.

Speaker Change: And so we're very, we feel very good about that.

Operator: The next question comes from Stephanie Moore with Jeffreys.

Speaker Change: Thank you, guys.

Speaker Change: Next question comes from Stephanie Moore with Jeffreys.

Stephanie Moore: I was hoping you could touch on, good morning, I was hoping you could maybe elaborate a bit on your bid season pricing strategy, if this has changed at all as the cycle has progressed, kind of talk a little bit about, you know, what you might be seeing from a competitive standpoint as well. Thanks. Yeah, Stephanie.

Speaker Change: Yeah, Stephanie, this is Drew. When you look at what we said on the first quarter call, for us, it was important to put rates in place that we felt like we could service.

Speaker Change: through a bid. We communicated that to our customers. It was received well of the transparency that we were providing, and we took a position that we felt like the market would inflect at least at some point before the middle of next year when the next season's bids were being implemented.

Speaker Change: So for us, you know, we're happy with the execution that the team has delivered on that. The margins have been strong and it's put us in a position of strength with our customers by communicating where we believe the market is going to continue to receive spots, projects, and mini-bids.

Speaker Change: better than expected, about in line, maybe just if you wanted to touch on those a little bit more as it does seem like the progress has been very strong. Thank you.

Unknown Speaker: Yeah, I would.

Speaker Change: Yeah, I would say they're running as expected, in line with what we thought, both from an amount as well as a timing.

Speaker Change: As we talked about last course, Stephanie, those are phased in throughout the year, we're beginning to see the full impact of that hit Q3, Q4, but they're right in line with what we're expecting.

Stephanie Moore: I'm not sure if I understand what you're saying on the brokerage volume, the truckload brokerage volume in 3Q versus 2Q. Are you saying that's...

Jared Weisfeld: Hey, Tom. It's Jared.

Stephanie Moore: Hey Tom, it's Jared. So you're right, we are expecting typical seasonality from Q2 to Q3 with respect to our volume. We expect volume to improve throughout the quarter. I think one of the main drivers there also will come down to automotive with the plants coming back online impacting both.

Stephanie Moore: and Managed Transportation from a sequential perspective, right? Modest growth sequentially, Q3 versus Q2 on volumes.

Jared Weisfeld: So, you're right. We are expecting typical seasonality from Q2 to Q3 with respect to our volume. We expect volume to improve throughout the quarter. I think one of the main drivers there also will come down to automotive with the plants coming back online, impacting both brokerage and managed transportation from a sequential perspective, right? Modest growth sequentially, Q3 versus Q2 on volumes, but about flat sequentially with respect to full truckload. And to your point about comps, right, we grew volumes last year, Q3, up 18% year over year, and the volume strength continued throughout the year. So, you know, our comps do get a little bit tougher from Q3 to Q4.

Speaker Change: Okay, so kind of flat is normal truckload seasonality, 3q versus 2q.

Unknown Speaker: Okay, good. On the cost initiatives, if I look at the SG&A costs in the quarter, I think it was, if I've got the numbers in here right, it looks like it was like $9 million, I think, sequentially. What's the driver of that increase in SG&A, and is that something that potentially comes down as the cost initiatives go in place, or how do we think about that?

Tom: Yep, I think I think you're thinking about it right.

Speaker Change: Okay, good. On the cost initiatives, if I look at the...

Speaker Change: And is that something that potentially comes down as the cost initiatives go in place or how do we think about that?

Speaker Change: Yeah, this is Jamie, the primary driver we talked about in my remarks.

Speaker Change: Okay, and then, I guess related to that project,

Speaker Change: How do you, when you think about lowering PT costs, you know, so obviously you want to do that structurally for Last Mile.

Unknown Speaker: That's right. But I would think there would be a cyclical component too, right? And so, you know, if you lower PT costs in a kind of weak market, that's maybe easier to do. How do you think about, you know, kind of separating decoupling that from, you know, lowering PT costs structurally versus the cyclical benefit you might get?

Speaker Change: But I would think there'd be a cyclical component too, right? And so, you know, if you lower PT costs in a kind of a weak market, that's maybe easier to do. How do you think about, you know, kind of separating decoupling that from

Speaker Change: Yeah, so without getting into all the details of exactly what we did, we approached it, to your point, of a very structured manner of going to market, you know, how we pay, and more importantly, how we're aligned.

Speaker Change: We just started seeing small benefits of that in the second quarter. But it's really kind of an overall program that we can, I would call it repeatable amongst all of our sites. We think it applies in all the markets.

Operator: Your next question comes from Jason Seidl, with TD Cohen.

Jason Seidl: Thank you, operator. Drew, Jamie, Jared, good morning, guys. I wanted to chat a little bit about your guidance for the gross margin, so 13 to 15 percent. Can you talk about the assumed backdrops at both of the ends of the ranges, one at 13 and one at 15.

Speaker Change: Morning, it's Jared. I think the biggest factor there will be depending on what happens to overall freight market conditions in terms of our cost of PT. So I think at the midpoint,

Speaker Change: On both bookends, if we're able to buy a little bit better, you'll probably see it towards the higher end. If the market tightens a little bit more, you'll probably see it towards the lower end. I think, importantly,

Speaker Change: Encompassed in that guide is our expectation that freight markets remain relatively unchanged from Q2 to Q3 and it does not assume material improvement in spot opportunities.

Speaker Change: Okay, fair enough. You talked a little bit about the potential for project loads. I know some of the other asset-based carriers have mentioned that on their calls. What are customers telling you now, and sort of when will you know what to expect?

Speaker Change: So, the tighter a truckload market becomes, the more you see projects, spots, and many bids when people start rejecting loads. You see customers start to put out many bids of loads that have been rejected too many times so they can try to find a new core carrier.

Unknown Speaker: Okay, makes sense. Real quickly also, how should we think about head count going forward as we look into 25?

Unknown Speaker: Yes, that counts as correct.

Speaker Change: Headcount right now is in an overall good spot as we head into the acquisition of Coyote. When you look at where we are, there's going to be places that we're adding and some branches that are dealing with customers and carers. We'd like to be staffed for growth and being staffed for growth at around 15% is where we've always tried to keep the mark. So I feel like we've...

Unknown Speaker: Perfect. I appreciate the time, guys.

Operator: Your next question comes from Ken Hoexter with Bank of America.

Kenneth Hoexter: Great, thanks. Good morning. Um, just to follow up on that gross margin target down sequentially, is that just solely due to bid season, or is there anything else in there with where you think there's a little bit more pressure on that?

Speaker Change: Great, thanks. Good morning. Just to follow up on that gross margin target down sequentially, is that just solely from bid season or is there another, anything else in there where you think there's a little bit more pressure on that?

Speaker Change: Hey Ken, it's Jared. I think it's a result of the tightening market conditions that progressed as Q2 played out, right? So, I think as we mentioned, load-to-truck ratio and tender projections have moved higher. So, I think importantly, the guidance range that we provided, 13 to 15 percent, is the same range that we gave for Q2, despite the market tightening conditions, and I think that reflects

Unknown Speaker: So just to clarify that, Jared, if I can, and you're looking forward, and despite the macro and everything you said, kind of getting a little bit weaker on some of those stats, you're looking for a little bit of an improving truck load market, given the statistics that you ran through, right? Is that what you got?

Unknown Speaker: I think that's right. We are seeing some encouraging signs in terms of some of the freight KPIs that we're looking at, specifically the load-to-truck ratio and tender projections. I think it's too early to call in terms of how sustainable this is. I think it's important to recognize that in Q2, a lot of the tightness was heavily influenced by a few regional pockets throughout the produce season. But, as we talked about, there are definitely some encouraging signs, most notably port volume strength.

Speaker Change: throughout produce season. But as we, you know, as we talked about, there are definitely some encouraging signs, most notably port volume strength. But I think we want to also be cognizant of some of the recent developments in the macro as well.

Unknown Speaker: But I think we want to also be cognizant of some of the recent developments in the macro as well. All right, sticking with gross margin for a second consecutive upward move. Was there anything that drove that? Was it more the process you're doing on the last mile that Jamie talked about? Or is there anything? I don't know, Jamie, if you want to detail anything that was driving that if one, you know, outsized growth of the last mile versus forwarding or anything else?

Speaker Change: All right, sticking with gross margin for a second, complementary, the upward move, was there anything that drove that? Was it more the...

Speaker Change: What is the process you're doing on Last Mile that Jamie talked about? Or is there anything, I don't know, Jamie, if you want to detail anything that was driving that, you know, outsized growth of Last Mile versus forwarding or anything else?

Jamie Harris: So it was very broad-based. If I had to call out one, I think you hit it, Ken. Our last mile performed very well. We had a great quarter. We were up 7% year-over-year in terms of number of stops.

Unknown Speaker: We've got the profit initiative going on, on cost-to-purchase transit. Now, that did not contribute a lot to the bottom line this quarter because we just were implementing that program. But last month had a really nice quarter, and we're making really good progress on all of our initiatives there. But it was broad-based.

Speaker Change: But Last Mile had a really nice quarter and we're making really good progress on all of our initiatives there, but it was broad-based.

Unknown Speaker: Great and then for my follow-up I guess just I'm surprised how little we've talked about Coyote given that the scale of what you're acquiring and the near term kind of time frame here but can you talk a little bit about the preparation ahead of the integration I don't know if have you got any interim updates in terms of how they're performing given that the announced sale and and what what what is going on over at UPS now from their perspective or financial perspective thanks

Ken: Great. And then for my follow-up, I guess, just I'm surprised how little we've talked about Coyote given that the scale of what you're acquiring and the near-term kind of time frame here. But can you talk a little bit about the preparation ahead of the integration? I don't know if have you gotten any interim updates in terms of how they're performing given the announced...

Ken: sale and what what what is going on over at UPS now from their perspective or financial perspective. Thanks.

Unknown Speaker: Ken, I appreciate the question. We love talking about Coyote, so I'm happy to do that.

Unknown Speaker: There's no update in terms of the financials from what we shared with you. If you remember what we shared back in June, they started to see volume improvement to where their volume declines and their sequential growth were roughly in line with what was going on in the broader market. I don't think that with us not owning the business yet, I don't think that we're the ones who should comment on June results. I think that's best coming from UPS.

Speaker Change: We're the ones who should comment on June results. I think that's best coming from UPS. But there's still a lot of excitement. There's integration planning that is happening, you know, on a weekly basis. Things from back office to customers.

Unknown Speaker: But there's still a lot of excitement. There's integration planning that is happening on a weekly basis. Things from back office, to customers, to carriers, to operational initiatives, to what does day one look like? What are we hoping for for day 60? There's a lot of moving parts right now, but I would say that everything is progressing nicely and on track.

Speaker Change: To carriers, to operational initiatives, to what does day one look like, what are we hoping for, for day 60, there's a lot of moving parts right now and I would say that everything is progressing nicely and on track.

Unknown Speaker: That's right, and the full year numbers we gave, Ken, were exclusively related to RxO. We have not included anything from Cody yet.

Unknown Speaker: All right. Great. Appreciate the time, guys. Thanks.

Unknown Speaker: Hey, thanks for taking my question. Jamie, I know you did get asked about it. But if you could provide maybe just a little bit more color confirmation on the financing of Coyote, specifically with respect to, you know, anchor investors, any change in commitment or additional anchor investors, and just, you know, reconfirm your plan to use, potentially not use, the bridge financing. Yeah.

Speaker Change: Hey, thanks for taking my question.

Speaker Change: Jamie, I know you did get asked about it.

Speaker Change: But if you provide maybe just a little bit more color or confirmation on the financing of Coyote, specifically with respect to, you know, anchor investors, any change of commitment or additional anchor investors, and just, you know, reconfirm your plan to use, potentially not use the bridge financing.

Jamie Harris: First of all, at the time of the announcement, we said we had committed financing in the form of a bridge.

Speaker Change: Can't get into details of what that looks like now, but more details will come soon. I think the big takeaway that we talked about in June , we'll reiterate today, is our plan for permanent financing.

Unknown Speaker: And then maybe follow up a little on past investments. So in 2023, you made some capital and operational investments in the business to support growth, which seems like growth is going to be more of a 2025 story at this point. So what can we not see in the numbers right now about how that investment is paying off and how it sets you up for growth in the future?

Speaker Change: Thanks. And then if I could maybe follow up a little on past investments. So in 2023, you had, you know, made some capital and operational investments in the business to support growth.

Unknown Speaker: Yeah, I'll start that. We did make some investments last year. You know, we said back at the date of SPAN that we anticipated about a 1% revenue CapEx investment. We still believe that's the long-term number. Last year, we were a little higher than that. We made some strategic investments that we talked a lot about in real estate, which was really to give us the capacity for growth in terms of physical locations, if you will. We are also constantly making investments that run through CapEx but also run through our operating expenses in the form of technology spend.

Speaker Change: In terms of physical locations, if you will, we also are constantly making investments that run through CapEx, but also run through our operating expenses in the form of technology spend.

Speaker Change: If you were to look at our CapEx, the larger majority of that is tech spend. We're constantly trying to take our platform and keep it

Speaker Change: Fresh and updated and being leading edge with what we can offer to you to our customers

Speaker Change: As we look forward, we believe those will pay off in the form of efficiency, you know, internal efficiencies, productivity by, you know, from loads by employee.

Speaker Change: We intend for it to be better for our carriers to use our technology, for our shippers to be able to use technology.

Speaker Change: How many loads are created digitally, as an example of the technology usage. So we see that continuing to pay off, and I would kind of roll it into the...

Unknown Speaker: Thanks, Sam. We much appreciate the time.

Speaker Change: Thanks, everyone. We much appreciate the time.

Speaker Change: Your next question comes from Ravi Shanker with Morgan Stanley .

Ravi Shanker: I think you've mentioned that obviously you're being pretty disciplined on price, which is very understandable and good to hear at this point in the cycle, but does that kind of conversely mean that, you know, there are some others in the industry who are not obviously one of your large competitors?

Speaker Change: that seemed to be losing share for a long time is now kind of talking about potentially gaining share. And so how would you see the pricing share dynamics in the marketplace? And also, some of your peers have mentioned seeing a shipper switch from acid light to acid heavy carriers going into the upcycle. Are you guys seeing any of that as well?

Unknown Speaker: Yeah, so I'll take your question in three parts. One, you mentioned our largest competitor. I think that, as kudos to them, they had a great quarter. It's a large market, there's room for multiple winners. They did it with strong margins, so I think it's kudos to them for a great quarter. As far as are there irrational players in the market? Absolutely. I've been doing this for 18 years.

Speaker Change: They did it with strong margins, so I think it's kudos to them for a great quarter. As far as are there irrational players in the market, absolutely. I've been doing this for 18 years, and you've always had people who have used price as a way of getting business.

Unknown Speaker: And you've always had people who have used price as a way of getting business. For us, that's never the way that we've looked at doing business. We always look at it in terms of service, solutions, innovation, and relationship. And we think, over the long term, that our customers see significant value in what we're providing to them as a carrier. And then, Ravi, the last part of your question, I'm forgetting right now. So I apologize, assets.

Speaker Change: For us, that's never the way that we've looked at doing business. We always look at it on service, solutions, innovation, and relationship. And we think over the long term that our customers see significant value in what we're providing to them as a carrier.

Speaker Change: And then, Ravi, the last part of your question, I'm forgetting right now, so I apologize.

Ravi: Assets. Assets. Yeah.

Ravi: Look, you go back and look at what's happened over the last 10 years. So if you go from 2013 to 2021, you know, you saw

Unknown Speaker: understood really helpful. And so maybe kind of just to wrap all this up, obviously, it's been quite a tumultuous period since the spin, obviously, with the big up cycle and the big down cycle and the coyote acquisition, everything else. How do you think about where your normalized mid-cycle EPS lies here, especially post-Coyote? Obviously, the stock price is making a pretty big move. And so you were doing north of a dollar during the last half cycle. Is it back in that range? Is it 150? Is it 2? How What do you think of that earnings forecast?

Jared Weisfeld: Hey, Ravi, it's Jared. So yes, we are pleased that the market is as excited about the transaction as we are. When it comes to specific accretion, you know, what we said was that the transaction is immediately accretive to both adjusted earnings per share and adjusted free cash flow. I'm not going to get into specifics right now in terms of how to think about that accretion, but ultimately, the benefits of Coyote from a scale perspective are going to be significant to the enterprise in terms of how we think about the benefits in the market. And we're looking forward to closing that gap in the first half of the fourth quarter.

Jared Weisfeld: Hey, Ravi, it's Jared.

Speaker Change: All right, you guys. Thanks, guys.

Operator: Your next question comes from David Hicks with Raymond James.

Speaker Change: But we've seen kind of that mixed flight from one cue to two cues, so...

Speaker Change: We've obviously seen kind of seasonality return to the spot rate market.

Speaker Change: I'm just kind of curious if there's a lag to mix shifts between spotting contracts, or does the market need to get more kind of consistent gains rather than just the seasonality that we saw before you start getting kind of rewarded with more of those spot volumes?

Unknown Speaker: I think that the market has to tighten for the spot volumes to be there. It's really supply and demand that you're looking at.

Unknown Speaker: We talked earlier about the load to truck ratio in July being just over four to one. So it's inching closer to that six, seven to one whenever you start to see spot loads appear, but it's more of a supply and demand versus a point in time in the year when it's seasonal when you see the spots. You typically do see them more during a peak season or a produce season, but right now, there's still too many carriers in the market, so supply and demand have not put it in a position where there's any sort of significance to spot loads in the market.

Speaker Change: of a point in time in the year of it being seasonal of when you when you see the spots. You typically do see them more during

Speaker Change: a peak season.

Unknown Speaker: Okay, that's helpful. And then kind of throughout this earnings season, kind of everyone talks up Mexico and cross-border opportunities. Seems like there's a lot of kind of growing competition out there. I just was curious to kind of see how RxO is differentiating itself kind of in that kind of big growth opportunity.

Unknown Speaker: Yeah, if you remember last year, I think our cross-border growth was over 30%, and if you look at what we just did this year, it was over 12%, even with the tough comps. So for us, we definitely see near-shoring as a trend as customers continue to pull their distribution centers closer to them. We're positioning ourselves well with that. We've got a facility in Laredo that is right on the World Trade Bridge. It is easy access once you're crossing, and you're able to do trans-loads there through trailers. We think we're going to be a large player as we continue to see near-shoring and more cross-border freight there.

Speaker Change: Yeah, if you remember last year, I think our cross-border growth was over 30%.

Speaker Change: So for us, we definitely see near-shoring as a trend as customers continue to pull their distribution centers closer to them.

Unknown Speaker: Great, thank you guys. I appreciate the time.

Speaker Change: Great, thank you guys, appreciate the time.

Operator: Your next question comes from Daniel Imbro with Stevens.

Speaker Change: Your next question comes from Daniel Imbro with Stevens.

Daniel Imbro: Yep. Good morning, guys. Thanks for squeezing us in here at the end. Um, maybe starting on the complementary services side, just some clarifications. You called out, I think, 200 million afraid of management. Sure, I guess, what does that mean from the modeling standpoint in terms of annual operating income, and I think you have a billion six in the sales pipeline. Should that all start to flow through next year, I'd be curious if you could talk about the flowing through contributions of those business ones. Thanks.

Speaker Change: Maybe starting on the complimentary services side, just as some clarifiers, you called out, I think, 200 million freighter to management winds, Drew. I guess, what does that mean from the modeling standpoint in terms of annual op income? And I think you have a billion six in the sales pipeline. I guess, should that all start to flow through next year? Just kind of curious if you can talk about the flowing through contributions of those business winds. Thanks. Yeah, I'll start and then Jared can come in on the op income piece. I mean, what 200 million in FOM means is that as we onboard that freight, we've got a lot more data. We've got relationships with new customers that are coming on board. We've got our other lines of business, largely truck brokerage that...

Unknown Speaker: Yeah, I'll start, and then Jared can come in on the operational income piece. I mean, what $200 million in FOM means is that as we onboard that freight, we've got a lot more data. We've got relationships with new customers that are coming on board. We've got our other lines of business, largely truck brokerage, that have the ability, if they service the freight well, to be a provider, and you could continue to see synergy loads increase on a year-over-year basis.

Speaker Change: or have the ability, if they service the freight well, to be a provider and you could continue to see synergy loads increase on a year-over-year basis.

Unknown Speaker: On the $1.6 billion, I think we've got to win it first. We feel good. We've got ourselves in a good position, and the winds have been racking up for us in managed transportation, but we've got to convert it. We've got to get it over the finish line.

Unknown Speaker: And managed transportation growth in FOM is one of the four key things that we look at whenever we're looking at the longer-term guide numbers that we put out. There's brokerage volume, there's brokerage gross profit per load, there's managed transportation FOM, and there's improving last mile profitability. And if you look at where we are right now, three of the four are on track or ahead of the track within brokerage volume, managed transportation FOM growth, and last mile profitability. Gross profit per load is obviously below expectations for a long-term guide, but that's not unexpected at this point in the cycle.

Jared Weisfeld: And managed transportation growth and FUM is one of the four key things that we look at whenever we're looking at the longer-term guide numbers that we put out. There's brokerage volume, there's brokerage gross profit per load, there's managed transportation FUM, and there's improving last miles profitability. And if you look at where we are right now, three of the four are on track or ahead of the track within brokerage volume, managed transportation FUM growth.

Jared Weisfeld: Last mile profitability, gross profit per load is obviously below expectations for a long term gap, but that's not unexpected at this point in the cycle. In terms of, in terms of, to Drew's point, it's significant in terms of what we have, you know, I think it's

Speaker Change: When you think about the drop-through, it's going to vary clearly, customer by customer. So we're not going to get into specifics about that, but I think the way you should think about that is $200 million awarded in the quarter, $1.6 billion in our late-stage pipeline. That's significant relative to our approximate $3 billion of fund within our Managed Trans business. And ultimately, that's going to yield better results within Managed Trans, in addition to synergy volumes across the entire organization.

Speaker Change: Great. And then for my follow-up, Drew, maybe I just want to ask you about volume growth in a different way. If we look at this chart on slide 12, we're diverging on the choke load side a little bit more from that long-term volume trend line.

Speaker Change: Can we return to that trend without a big market improvement or should that trend line just flatten out a bit?

Speaker Change: at this point in your growth curve, just thinking about where RxO is on its maturity cycle. And then Jared, in the script, I think you said peak volume headwinds in 4Q. Does that mean TL volumes are down more in 4Q than 3Q? Just to level set expectations. Thanks.

Speaker Change: For the truckload volume growth, we expect to outperform the market over the long term. If you look at what we talked about right now, there's not a lot of spot loads and there hasn't been for for the last few years. So when we talk about growing our contractual volume,

Speaker Change: On a three-year stack at over 40% for the second quarter, and it'll still be at over 30% for the third quarter.

Daniel Ambrose: And on fourth quarter, Daniel, the way to think about it is, you know, we're not going to get into fourth quarter volume growth right now. That's going to be a function of what happens here into pre-staging for peak and how peak season develops in the fourth quarter. So stay tuned on that. But I think the point is that from Q3 to Q4, our comp does get tougher by, you know, call it a few hundred basis points.

Unknown Speaker: Helpful. I appreciate the call, guys.

Daniel Ambrose: Helpful. I appreciate the color, guys.

Daniel Ambrose: Thank you.

Speaker Change: Your next question comes from Bruce Chan with Stiefel.

Bruce Chan: Hey, thanks and good morning. Maybe just to touch again on last mile for a minute here, you know, good to see the acceleration and volume growth there. Can you just

Bruce Chan: you know, maybe break down what's driving the strains, how much of that, you know, is easy comes from last year versus an improvement in the core market versus, you know, maybe some winning of share. And, you know, how do you think about the top line as we move into the back half of the year in that in that segment?

Speaker Change: Yeah, I don't think that when you're looking at comps from last year I think that the end consumer was spending less and having less home deliveries last year by a lot And so what you're seeing this year, they're still doing the same thing. So the market shares gains that you're seeing are significant

Speaker Change: And what we are hearing from our customers is that they want to do business with large financially stable companies who have scale and a footprint, who give them good service, have great technology, have strong relationships, and have built trust over a period of time, and is the market leader in the last mile space. You know, we've been doing that for a long time. We've got a footprint in our last mile hubs that puts us, you know, roughly 125 million, 125 miles.

Unknown Speaker: Okay, that's helpful. And then maybe just a, you know, real big picture question here. Obviously, it's been a very challenging cycle. You know, when you think about what transpired this quarter with a lot of the, you know, moving parts and puts and takes, do you feel, you know, better or worse about, you know, some of the kind of midterm targets that you've laid out in the past? Yeah, I think so.

Speaker Change: and Drew Wilkerson. Thank you.

Speaker Change: Okay, that's helpful. And then maybe just a real big picture question here. Obviously, it's been a very challenging cycle. When you think about what transpired this quarter with a lot of the moving parts and puts and takes, do you feel better, worse, the same about some of the kind of midterm targets that you've laid out in the past?

Speaker Change: Yeah, I think that we just talked about that that there's four key things whenever you look at the numbers that we've put out for 2027 targets is brokerage volume growth and on brokerage volume growth. We're ahead of where we thought we would be at this point in time

Speaker Change: This brokerage grows profit per load, which is a big driver. We're behind where we thought we would be. We thought that there would be some sort of turn in the cycle by now. Managed transportation FUM growth.

Speaker Change: We're right on track with the potential to start running significantly ahead over the next couple of quarters if we convert some of this pipeline.

Speaker Change: and on last mile

Speaker Change: Profitability Improvement, we're a little bit ahead on that one. So when you look at the four key drivers, we feel good about where we are, and the one that we're behind on is one that is more market-driven than anything.

Speaker Change: Okay, very helpful, thank you.

Operator: We have no further questions at this time. Mr. Wilkerson, I will turn the call back over to you for closing comments.

Speaker Change: We have no further questions at this time. Mr. Wilkerson, I will turn the call back over to you for closing comments.

Drew Wilkerson: Thank you, Sharon. In the second quarter, RxO delivered brokerage volume growth, large customer wins in managed transportation, and a significant increase in last mile stops and underlying profitability. In the third quarter, we expect to grow EBITDA sequentially and year over year. We're effectively managing our costs, including the cost of purchase.

Mr. Wilkerson: Thank you, Sharon. In the second quarter, RxO delivered brokerage volume growth, large customer wins in managed transportation, and significant increase in last mile stops and underlying profitability.

Mr. Wilkerson: In the third quarter, we expect to grow EBITDA sequentially and year-over-year.