Q3 2024 RXO Inc Earnings Call
Joelle: Welcome to the RxO Q3 2024 earnings conference call and webcast. My name is Joelle and I will be your operator for today's call. Please note that this conference is being recorded.
Speaker Change: 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 and uncertainties and other factors that could cause actual results to differ materially from those in forward-looking statements.
Joelle: A discussion of today's factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in the earnings release.
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.
Joelle: 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 your conference.
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.
There are three main points I want to convey this morning.
Drew Wilkerson: First, we completed our transformative acquisition of Coyote Logistics in the quarter.
Drew Wilkerson: The acquisition significantly increases RxO's earning power over the long term.
Drew Wilkerson: The integration is ahead of schedule and we're already seeing early wins from the combined business.
Drew Wilkerson: As a result, we're raising our estimate for cost synergies and now expect at least $40 million.
Drew Wilkerson: In addition, we expect to achieve significant benefits within cost of purchase transportation once our tech platforms are integrated.
Our balance sheet is even stronger than it was pre-acquisition.
Drew Wilkerson: Our leverage decreased by more than 40% as a result of our successful equity financing.
Drew Wilkerson: Second, while the market remains soft, RxO continued to deliver on our financial commitments for adjusted EBITDA, adjusted free cash flow, and brokerage gross margin.
Drew Wilkerson: Importantly, we achieved these solid results while completing a transformative acquisition.
Drew Wilkerson: Third, we continued our momentum in complimentary services in the quarter, with significant new customer wins and a massive pipeline in managed transportation.
And last mile, we grew stops by an impressive 11%.
Drew Wilkerson: I'll start by giving you an update on our transformative acquisition of Coyote Logistics, which closed in mid-September.
I'm extremely pleased that we're ahead of schedule on fostering employee engagement, taking care of our customers, integrating our tech, and synergy opportunities.
Let me cover each of those elements in more detail.
I continue to be impressed by our people.
Drew Wilkerson: The acquisition brought a deep bench of seasoned leaders to RxO.
Drew Wilkerson: Everyone across the organization has stepped up to quickly advance the integration and deliver results for the business.
Morale across the whole company is high. We recently conducted our quarterly all-employee survey, and the comments I received through it showed me that our people are hungry and excited about our prospects for growth.
Drew Wilkerson: Our people remain focused on ensuring we take care of our customers through the integration.
We have a structured process that ensures we're effectively communicating across the organization about customer needs, pricing, and growth opportunities.
Joelle: Since acquisition, we've consistently been in front of our customers to ensure that bid season runs smoothly.
Our customers' candid feedback is helping us quickly decide where to focus during integration and bid season.
Joelle: I've personally met with dozens of customers since the acquisition, and the customer feedback I've received has been overwhelmingly positive.
Joelle: Many of those conversations have yielded opportunities for growth and cross selling that neither RxO nor Coyote would have seen as a stand-alone company.
Joelle: Specifically, since closing the acquisition, there have been more than 200 distinct cross-selling opportunities where Legacy Coyote has offered RxO's additional services and solution.
Joelle: Also, we're using legacy Coyote capacity for some of the special projects and spot loads that were awarded to RxO. We're starting to realize the benefits of our increased scale.
Joelle: When it comes to our technology, our teams have worked closely together over the last month and a half to do deep dives on all the tech that both teams are using.
Joelle: We've identified best practices from both Legacy Coyote and Legacy RXO and now have a roadmap to integrate our technology for our customers, our contract carrier network, and our employees in the next year.
Joelle: As a result of the smooth integration so far, we now expect at least $40 million of cost synergies, more than our initial estimate of at least $25 million. Jamie will talk more about this later in the call.
Joelle: Just as the acquisition is strengthening our bench of talent, customer relationships, and technology, it has also strengthened our balance sheet, leverage decreased by more than 40% after the successful equity financing to fund the Coyote acquisition.
Joelle: Next, we're going to walk you through our third quarter results, which came in line with our expectations.
RHO delivered adjusted EBITDA of $33 million.
Joelle: Legacy RXO delivered 31 million dollars of adjusted E-Pedide at the midpoint of our guidance range.
Joelle: Volume and legacy RxO's brokerage business declined by 5% year over year. Full truckload volume decreased by 9% and was partially offset by a 13% increase in less than truckload volume.
This performance was in line in what we had forecasted last quarter and similar to what Legacy Coyote saw in their business as well. Jared will talk more about that later in the call.
Joelle: Last quarter, we highlighted that we're building scale within our LTL business, and we did so rapidly in the third quarter. Our LTL volume has more than doubled with the acquisition of Coyote.
Drew Wilkerson: We're pleased that our bid season strategy, along with our effective management of purchase transportation, yielded a brokerage gross margin of 13.7%.
We've continued to see momentum within complimentary services.
Drew Wilkerson: In managed transportation, customers awarded us more than $300 million in freight under management, or FUM, in the quarter.
Drew Wilkerson: In the fourth quarter, we expect to onboard another $400 million in new business. That's more than 10% of Managed Transportation's current annualized FOM.
Drew Wilkerson: The total new foam in our sales pipeline remains substantial, greater than $1.3 billion.
Drew Wilkerson: We have a long runway for growth in managed transportation, and converting that pipeline will fuel growth across RxO.
Drew Wilkerson: In the third quarter, last milestops grew by 11% year-over-year, an acceleration from the 7% growth we delivered in the second quarter.
Drew Wilkerson: We remain the industry leader of big and bulky last mile deliveries because of our focus on building deep relationships and providing customers with the best service in the industry.
Drew Wilkerson: Top brands trust RxO because of our scale, technology, financial stability, and exceptional service.
Drew Wilkerson: Complementary services gross margin of 21.5% was up 150 basis points year-over-year.
RxO's company-wide gross margin was 17.3% in the quarter.
Drew Wilkerson: I'd like to give you an update on the overall freight market.
Drew Wilkerson: We didn't see many changes in the freight market conditions when compared to the previous quarter. The national load-to-truck ratio declined, while industry tender rejections increased slightly.
Drew Wilkerson: On the demand side, conditions remain soft. Port volumes remain strong, but they have not yet translated into over-the-road volume strength.
Drew Wilkerson: On the supply side, carriers continue to exit each month in the quarter. However, the rate of exits continue to slow. Freight rates continue to be challenging for many carriers.
Drew Wilkerson: In October, we did see acute tightness in the market due to Hurricanes Helene and Milton, as well as the brief port strike. The tightness has continued in recent weeks.
Drew Wilkerson: Heading into the holiday season, we're closely monitoring the macroeconomic environment but anticipate another muted peak season this year.
Drew Wilkerson: On the positive side, inflation is moderated, retail inventory positions are healthy, and consumer confidence has recently rebounded. However, the labor market and the industrial sector of the economy have weakened.
Drew Wilkerson: We continue to lean into our playbook to ensure RxO is properly positioned no matter the market conditions.
Drew Wilkerson: We remain focused on reliably servicing our customers' needs and honoring our contractual rates. This strategy contributed to our third quarter results and will position us well to capture spot volume and project rate.
Drew Wilkerson: Recently, several customers came to us for assistance as they worked to serve their customers that were affected by Hurricanes Helene and Milton.
Drew Wilkerson: I'm proud that the deep relationships that we've built with our customers are enabling us to serve both them and our communities during crisis and other times of stress.
Drew Wilkerson: Jamie and Jared will discuss our outlook in more detail, but we expect combined brokerage volume to be up sequentially in the fourth quarter, with tightening market conditions impacting our buy rates in the short term.
Drew Wilkerson: While no one knows when the freight market will turn, I believe that RxO is uniquely positioned to capitalize on opportunities as they arise.
Drew Wilkerson: With larger scale, we can provide our customers with a broader array of services and buy transportation even more cost-effectively.
Drew Wilkerson: Our differentiated portfolio of complementary services will drive organic growth across RxO.
Drew Wilkerson: Our exceptional proprietary technology includes pricing algorithms that leverage AI and machine learning to continuously improve, and employee-facing software that drives ongoing increases in productivity.
Drew Wilkerson: Our strong balance sheet positions us well for future M&A, and we expect all of this to lead to greater earnings, free cash flow, and conversion.
Speaker Change: Now I'll turn it over to Jamie to discuss our financial results in more detail. Jamie?
Jamie Harris: Thank you, Drew, and good morning, everyone. Let's review our third quarter performance in more detail.
Drew Wilkerson: We completed the acquisition of Cody Logistics on September 16th, and our financial results therefore include two weeks of contribution from Cody. My comments will refer to the combined company, unless specifically referring to either a legacy RxO or a legacy Cody.
Drew Wilkerson: We generated 1.04 billion dollars in revenue. Gross margin was 17.3 percent. Our adjusted EBITDA was 33 million dollars. Our adjusted EBITDA margin was 3.2 percent.
Drew Wilkerson: Let me give you some detail about Legacy RXO's performance in the quarter.
Drew Wilkerson: Legacy RxO revenue was $935 million, down 4% year-over-year. Adjusted EBITDA was $31 million at the midpoint of the range we provided to you in August. This compares to $26 million in the third quarter of 2023.
Adjusted EBITDA margin was 3.3%, up 60 basis points year-over-year.
Drew Wilkerson: Below the line, our interest expense was $6 million. For the quarter, our adjusted earnings per share was $0.05.
Drew Wilkerson: You can find a bridge to adjusted EPS on slide 7 of the earnings presentation.
Drew Wilkerson: One item of note on the bridge is an accounting charge associated with the private placement of equity as part of our acquisition financing.
Drew Wilkerson: We recorded a $216 million non-cash charge, which represents the difference between the issuance price and the closing market price of RxO's common stock on the effective date of the profit placement.
Drew Wilkerson: Now I'd like to give you an overview of our performance within our lines of business.
Drew Wilkerson: Combined brokerage revenue was $655 million and represented 61% of our total revenue in the quarter.
Drew Wilkerson: Please note that all of Legacy Cody's revenue has been classified into brokerage.
Drew Wilkerson: From a profitability perspective, brokerage gross margin remained solid at 13.7%.
Drew Wilkerson: Legacy RxO's brokerage revenue was $550 million, down 7% year-over-year, primarily due to lower full truckload volume.
Drew Wilkerson: Legacy ARCSO brokerage gross margin was 13.8%, slightly below the midpoint of our guidance range, and was down 130 basis points year over year.
Drew Wilkerson: Complementary services revenue in the quarter of 419 million dollars was flat year-over-year and represented 39% of total revenue.
Drew Wilkerson: In managed transportation, while automotive plants came back online later in the quarter, overall auto demand in managed expedite volumes remained soft.
Drew Wilkerson: Last mile continues to perform well and stops grew by 11% year over year, accelerating from last quarter's growth rate.
Drew Wilkerson: Complimentary services gross margin of 21.5% increased 150 basis points year over year. Both managed transportation and last mile contributed to this performance.
As we discuss cash, please refer to slide 8.
Drew Wilkerson: Legacy RxO adjusted free cash flow in the third quarter was very strong at $27 million.
Drew Wilkerson: This represents an 87% conversion from adjusted EBITDA, better than our expectation, which was to exceed 50%.
This was mostly attributable to better-than-expected collections in the quarter.
Drew Wilkerson: Over the trail in six months, Legacy RxO adjusted free cash flow with $18 million, which represents a 31% conversion from adjusted EBITDA.
Drew Wilkerson: Trailing six-month cash flow was impacted by lower profitability levels at the bottom of the freight cycle and includes a semi-annual interest payment associated with our outstanding senior notes.
Drew Wilkerson: Including the two weeks of coding, adjusted free cash flow over the quarter was $9 million.
For the six-month period, it was zero.
This was in line with our internal expectations.
Drew Wilkerson: Pre-cash flow is impacted by working capital timing differences on the legacy coyote business. Much of cash associated with this working capital headwind has already been collected in the fourth quarter.
Drew Wilkerson: We ended the quarter with $55 million of cash on the balance sheet. The increase from the prior quarter was primarily a function of the equity financing associated with the acquisition of COTI.
Drew Wilkerson: However, it's important to note that this is mainly the result of timing as most of the current cash balance will be used for previously incurred expenses, transaction costs, and future restructuring charges.
Drew Wilkerson: We expect our fourth quarter cash balance to be approximately five to ten million dollars.
Drew Wilkerson: As you can see on slide nine, our liquidity position is the strongest it's been in our company's history.
Drew Wilkerson: Our $600 million revolver was undrawn at the end of the third quarter.
Drew Wilkerson: Quarter-end gross leverage was 1.6 times trailing 12-month pro forma adjusted EVIDA.
Drew Wilkerson: Last 12 months, leverage decreased significantly from the prior quarter after the successful execution of the equity financing associated with the acquisition of Coyote Logistics.
Drew Wilkerson: The benefits of increased scale and associated free cash flow conversion was one of the strategic merits of the acquisition. With our current capital structure, the free cash flow generation potential of the combined company is significant.
Let's talk more about the CODI integration.
Drew Wilkerson: We now expect at least $40 million of annualized cost synergies, 60% higher than our initial estimate of at least $25 million.
Drew Wilkerson: By the end of the fourth quarter, we will have at least $15 million of annualized synergies completed. Most of the P&L benefit associated with these synergies will be realized in the first quarter of 2025.
Drew Wilkerson: Consistent with our expectations from a few months ago, we expect a total of $25 million of annualized synergies completed within the first 12 months of close.
Drew Wilkerson: The incremental $15 million of synergies associated with today's increased estimate will likely occur in late 2025 as our technology integration is completed.
Drew Wilkerson: RxO Connect will be our primary operational system and moving to one unified platform will result in significant savings.
Drew Wilkerson: To give some additional context, Legacy Coyote was spending approximately $50 million per year in technology.
Drew Wilkerson: Importantly, these synergies do not include opportunities for the cost of purchased transportation, which we believe have the potential to be significant.
Drew Wilkerson: To put this into context, the combined annual cost of purchased transportation across brokerage is now more than $4 billion.
Drew Wilkerson: We're very pleased with our progress, and we're ahead of schedule.
Now let's discuss our expectations for the fourth quarter.
Drew Wilkerson: Overall, the macroeconomic environment remains reasonably healthy. GDP continues to grow and consumer confidence has recently increased, although the industrial sector and the labor market have weakened.
Drew Wilkerson: I'd like to give you some additional insights regarding our fourth quarter outlook. We're assuming a muted peak season and continued soft freight market conditions.
Drew Wilkerson: In both brokerage and managed transportation, we're assuming softness in the automotive market. In brokerage, our gross margin outlook reflects tightening market conditions and the impact from legacy Coyote customer mix.
Drew Wilkerson: We're not expecting our typical seasonal increase in last mile even better than expected stops in the third quarter.
Drew Wilkerson: For the combined company, we expect to generate between $40 and $45 million of adjusted EBITDA in the fourth quarter. Jared will provide more details on our outlook shortly.
Drew Wilkerson: Slide 15 includes our modeling assumptions for the fourth quarter, which reflect the results of the combined company.
We expect the following.
Capital expenditures between $16 and $18 million.
Depreciation expense between $20 and $22 million.
Amortization of intangibles of approximately 18 million dollars
stock-based compensation expense of six and seven million dollars.
Drew Wilkerson: Restructuring, transaction, and integration expenses between 15 and 17 million dollars.
Net interest expense of approximately $8 million.
and an adjusted effective tax rate of approximately 25 percent.
Drew Wilkerson: You should also model an average fully diluted share cap of approximately 167 million shares.
Drew Wilkerson: Year-end fully diluted share count is expected to be approximately a hundred and seventy million shares.
Drew Wilkerson: We will provide additional 2025 modeling assumptions in February during our fourth quarter earnings call, but there are a few assumptions I can give you now.
Drew Wilkerson: We expect 2025 amortization of intangible expense of approximately $50 million. The increase is driven by the CODI acquisition.
Drew Wilkerson: Interest expense should be unchanged at approximately 32 million dollars and we expect our adjusted effective tax rate to be between 27 and 29 percent.
Drew Wilkerson: We continue to be very pleased with our execution given the current phase of the freight cycle.
Drew Wilkerson: The integration of CODI is ahead of schedule, the teams are working well together, and we've received positive feedback from customers.
Drew Wilkerson: While we're still operating in a prolonged soft freight environment, we're positioning RxO for the long term and are excited about the earnings power and the free cash flow generation of the combined company.
Drew Wilkerson: Now, I'd like to turn it over to Chief Strategy Officer Jared Weisfeld, who will talk in more detail about our results and our outlook.
Jared Weisfeld: Thanks, Jamie, and good morning, everyone. As I typically do, I'll start with an overview of our brokerage performance in the quarter.
Jared Weisfeld: For this quarter only, I'll give perspective on both Legacy RXO and Legacy Coyote.
Drew Wilkerson: With the integration ahead of schedule, starting next quarter, we'll talk about results on a combined basis.
Drew Wilkerson: Legacy RxO brokerage volume in the quarter was in line with our expectations, down 5% year-over-year.
Legacy RxO LTL volume growth was solid at 13% year-over-year.
Drew Wilkerson: LTL represented 20% of brokerage volume in the quarter, flat sequentially, and up 300 basis points year over year.
Drew Wilkerson: Legacy RXO full truckload volume was down 9% year-over-year, consistent with our expectations of down high single digits to low double digits.
Drew Wilkerson: Full truckload volume improved every month in the quarter and represented 80% of our brokerage volume.
Drew Wilkerson: The mix was flat sequentially and down 300 basis points year-over-year.
Drew Wilkerson: We also maintained a favorable mix of contract and spot business in the quarter.
Drew Wilkerson: Contracts represented 77% of our full truckload volume in the quarter, down 100 basis points sequentially, and up 100 basis points year over year.
Drew Wilkerson: Spot volume represented 23% of our full truckload volume in the quarter and increased by 100 basis points sequentially.
Drew Wilkerson: While it was only a modest improvement, Legacy RxO benefited from some project opportunities at the end of the quarter, and this is the first time that full truckload spot volume increased as a percentage of our mix in over three years.
Drew Wilkerson: This is consistent with our view that we are at the bottom of the freight cycle.
Drew Wilkerson: In the third quarter, our full truckload contract volume grew by over 30% on a three-year stack, which speaks to our multi-year market share gains.
Drew Wilkerson: Let's now move to Legacy Coyote Brokerage Trends in the Quarter.
Drew Wilkerson: LTL represented 22% of volume and full truckload, including intermodal, was 78% of Legacy Coyote's mix.
Legacy Coyote's full truck loan volume continues to improve.
Drew Wilkerson: Volume has increased since we announced the acquisition, and year-over-year volume declines are moderating.
Drew Wilkerson: Specifically, Legacy Coyote volume was down approximately 11.5% year-over-year, but full truckload volume trends have improved for the third consecutive quarter.
Drew Wilkerson: Before reviewing our financial performance and market conditions in more detail, I'd like to talk about several new technology enhancements that Legacy RxO implemented in the third quarter, which are detailed on slide 10.
Drew Wilkerson: We strengthened tracking and visibility for RxO FlexFleet, our drop trailer solution, and we introduced a prepay option for the RxO Extra Fuel Cart in RxO Connect.
Drew Wilkerson: We also improved contract pricing algorithms within our flatbed mode, and we rolled out enhanced security features across our platform.
Drew Wilkerson: Seven-day carrier retention remains strong at 72% in the quarter, down from 75% in the second quarter.
Drew Wilkerson: Our technology enables our people to become even more productive. On a rolling 12-month basis, productivity in our legacy RxO brokerage business, as measured by loads per person per day, improved by 15%.
Drew Wilkerson: From a technology integration standpoint, RxOConnect will be our primary operational system. We're integrating unique capabilities from Coyote, and this best-of-both-worlds strategy will drive improved profitability and productivity.
Drew Wilkerson: We anticipate the technology integration to be substantially complete within the first 12 months of close.
Drew Wilkerson: I'd now like to review our legacy RxO brokerage financial performance and market conditions in more detail.
Drew Wilkerson: You can find this information on slides 11 through 14 of the presentation.
Drew Wilkerson: Revenue per load declined by 3% year-over-year, the fifth consecutive quarter of easing.
Drew Wilkerson: Truckload revenue per load declined by less than 1% year-over-year in the quarter.
Drew Wilkerson: To get a better view of our year-over-year price declines on a per-load basis, it's important to consider the impacts of length of haul, mix, and changes in fuel prices.
Drew Wilkerson: When normalizing for those items, revenue per load was flat year over year.
Drew Wilkerson: Let's move to slide 12 and discuss Legacy RxO Portfolio Monthly Gross Margin Performance and Industry Trends.
Drew Wilkerson: Market conditions were relatively unchanged throughout the third quarter and industry KPIs continue to reflect a soft freight market.
Drew Wilkerson: Gross margin was consistent throughout the quarter at approximately 14 percent and gross profit per load improved in September when compared to July.
Drew Wilkerson: While we're still in a soft market, there have recently been some encouraging signs.
Drew Wilkerson: The market began to tighten in October with the national load-to-truck ratio and tender rejections moving higher.
Drew Wilkerson: Specifically, the national load-to-truck ratio increased to 4 to 1 and tender rejections have increased to five and a half percent.
With the market tightening, buy rates have also moved higher.
Drew Wilkerson: 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, growing more than 20% year-to-date at the big three West Coast ports.
Drew Wilkerson: This is also consistent with the improved inventory positions of our retail customers.
Drew Wilkerson: Turning to supply, there is still too much truckload capacity relative to current demand, and carrier unit economics remain challenged.
Drew Wilkerson: Carrier exits continued, but at an even slower pace when compared to the second quarter. However, we believe the environment is still more susceptible to being impacted by near-term changes in demand.
Drew Wilkerson: While it's too early to determine if this is the beginning of the recovery, industry metrics are moving in the right direction.
Drew Wilkerson: Let's go to slide 13 and look at Legacy RxO's quarterly full truckload gross profit per load trends.
Drew Wilkerson: As we just walked through, while our gross profit per load improved in September when compared to July, recall that market conditions tightened as the second quarter progressed, so we entered the third quarter with a lower starting point.
Drew Wilkerson: Moving to slide 14, Legacy RxO's LTL brokerage volume continues to outperform the broader LTL market with stable gross profit per load.
Drew Wilkerson: We've more than doubled the size of our LTL business with the acquisition of Coyote, and have significant opportunities with our customers to grow that business even faster.
Drew Wilkerson: I'd now like to look forward and give you some more color on our fourth quarter outlook.
Drew Wilkerson: The combined business now has a more pronounced seasonality into the fourth quarter, primarily driven by Legacy Coyote's mix of business.
Drew Wilkerson: We expect both Legacy RxO and Legacy Coyote brokerage volume to grow on a sequential basis in the fourth quarter.
Drew Wilkerson: We expect combined brokerage volume to increase by 5-10% sequentially, which represents a 5-10% year-over-year decline.
Drew Wilkerson: We expect brokerage gross margin to be between 12 and 14 percent in the fourth quarter due to tightening freight market conditions and legacy Coyote customer mix.
Drew Wilkerson: While Legacy RxO and Legacy Coyote are both experiencing an increase in buy rates with tightening market conditions, Legacy RxO benefited from some spot opportunities and special projects during the month of October, helping to partially offset. We are not assuming that these special projects continue through the rest of the quarter.
Drew Wilkerson: Coyote has not yet seen similar opportunities, but we think there is a significant runway ahead of us to re-accelerate legacy Coyote volume growth and win similar type of project work.
turn it to complimentary services.
Drew Wilkerson: In managed transportation, the business has tremendous momentum with more than $300 million of freight under management awarded in the quarter, and we expect to onboard more than $400 million in the fourth quarter.
Drew Wilkerson: Last mile continues to execute well, and we expect another quarter of year-over-year stop growth, although at a slower rate when compared to the third quarter.
Drew Wilkerson: Putting it all together, we expect RxO's fourth quarter adjusted EBITDA to be in the range of $40 and $45 million.
Drew Wilkerson: This assumes no meaningful improvement in freight market conditions, a muted peak season, and limited spot opportunities in the months of November and December.
Drew Wilkerson: Historically, our adjusted EBITDA declines from the seasonally strong fourth quarter into the first quarter, which is seasonally the weakest for the combined company.
Speaker Change: To close, I'd like to build on Drew's earlier commentary that our acquisition of Coyote significantly increases RXO's long-term earnings power.
Speaker Change: While we are still operating in a prolonged soft freight environment, we believe that RxO's normalized earnings power is materially higher from current levels.
Let me expand on this.
Speaker Change: From a cyclical perspective, Legacy RXO's full truckload gross profit per load remains at trough levels.
Speaker Change: In the third quarter, full truckload gross profit per load was over 30% below our five-year average.
Speaker Change: Excluding the COVID peak, our full truckload gross profit per load was still over 20% below our five-year average.
Drew Wilkerson: When the cycle recovers, there will be strong flow-through to adjust the divida.
Drew Wilkerson: We just closed the acquisition of Coyote, and we're seeing immediate cross-selling opportunities across the combined organization.
Drew Wilkerson: The for hire trucking market is massive and the opportunity to accelerate the brokerage volume growth of the combined company is significant.
Drew Wilkerson: Our integration of Coyote is ahead of schedule, and we've raised our annualized cost synergy estimate to at least $40 million. This does not include opportunities associated with cost of purchase transportation, which should also be significant.
Drew Wilkerson: We'll begin to see those benefits once the technology integration is substantially complete.
Drew Wilkerson: We have also built a scaled platform and have the balance sheet capacity for future M&A, which can contribute to additional earnings growth.
Drew Wilkerson: With that, I'll turn it over to the operator for Q&A.
Speaker Change: 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 one on your touchtone phone. You will hear a prompt that your hand has been raised.
Drew Wilkerson: Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys.
Speaker Change: One moment please for your first question. Your first question comes from Ari Rosa with Citigroup. Your line is now open.
Ari Rosa: Hi, good morning. Congratulations on the Coyote acquisition. Certainly sounds like a lot of positive momentum there. I wanted to talk about the higher Synergy target of $40 million. It's just, you know, it's only been a little over a month since you closed the acquisition. I'm curious to hear just kind of more detail on what you're seeing that gives you the confidence to raise that target. And then how do we get comfortable with the notion that
Drew Wilkerson: You know obviously big integrations like this can be very complicated. How do we get confident that you're not going to see customer or employee attrition through the process? Thanks.
Drew Wilkerson: Hey, thanks. This is Jamie. Good morning. Hey, I'll take the first part of that So we did raise to at least 40 million dollars as we've been able to close the transaction on September 16th really two big areas as this increase came from
Drew Wilkerson: The first one is technology, and as you know, this is a key to the integration.
We're way ahead of schedule on
Drew Wilkerson: The plan and the execution of putting two platforms together. We have made the decision firmly to go to the RxO Connect platform. We'll bring in a lot of features from the old CODI platform. But we view this as ahead of schedule and as a matter of reference.
Drew Wilkerson: Cody has historically spent about $50 million a year on tech, and so as we have seen integration moving more rapidly than originally anticipated.
Drew Wilkerson: We believe there's additional savings to happen there. I'd say the second bucket is we have now closed the transaction and have better visibility of what our vendor spend is.
Drew Wilkerson: You know, we have more overlap with vendors than we probably initially thought. We have also, you know, very similar...
Drew Wilkerson: services and we can put vendors together and get more purchase in scale. So when you put those two together, we just see kind of a significant increase in synergies that we think is available. And as a reminder, that does not include
Drew Wilkerson: The cost to purchase transportation, which also can be significant, if you just give you some context there, it's a combined spend of about $4 billion a year.
Drew Wilkerson: And while we haven't given a specific number and it's not included in that number We think it could be the largest could actually could surpass our synergy targets so far Think about if we can save 1% of 4 billion dollars annually that could be 40 million dollars now that we're not naming That is the number would just give you context of the the population set that we have to work with the transportation efficiency and buying
Drew Wilkerson: So we're very pleased with the synergies so far, and I think Drew's going to take the other part. Hey Ari, and welcome back to Covering Transportation. When you look at the second part of your question, it was about difficult integration, and then it was on employee and customer retention.
Drew Wilkerson: So if you go back to the early days of XPO, we did a lot of M&A, and there was always three things.
Drew Wilkerson: that I found that we focused on that helped us have successful acquisitions. The first one was on employees, and making sure that you're retaining the top talent, and that they want to be there, they're excited to be there. And from an employee engagement standpoint, we talked about morale being up. Our survey scores on a quarter-over-quarter basis were actually up.
here.
Drew Wilkerson: retaining these employees is important. If you look at every key operational leader as well as every sales leader as well as every enterprise sales rep
Drew Wilkerson: have already agreed to stay on by signing a retention agreement for VP level and above. So keeping the core team together to service the customers is important.
Drew Wilkerson: The second piece is the customer retention, and you do that by spending a lot of time with customers. And we've already had several customer events.
Drew Wilkerson: You know, I mentioned on the call that I personally already met with dozens. The same holds true for all of my direct reports and the feedback that we're getting from customers is extremely positive.
Drew Wilkerson: And then the last thing that we would focus on is the tech integration, and we've spent a lot of time together between the two teams of bringing together the best of both worlds.
Drew Wilkerson: As we go on to the RxO Connect platform, you know, there are several things that we've learned from Coyote that we want to make sure that are integrated into our system, whether it is how we deal with carriers, whether it's carrier RFPs, there are some tools that employees that use that would make us more efficient. So we think we've got a lot of opportunity there. I would say, you know, we're in the very early stages of integrating the acquisition, but there's a lot of excitement around the organization and a lot of hunger to get back into growth mode.
Speaker Change: That's exciting, certainly. We're excited to see what you guys can do with Coyote under your umbrella. If I could just, for my follow-up, maybe hone in on the fourth quarter outlook. So, the $40 to $45 million of adjusted EBITDA,
Speaker Change: It sounded like RxO did stand-alone EBUV, about $31 million in third quarter. And then if I think back to your June presentation when you announced the acquisition, or when you kind of were detailing some of the...
Drew Wilkerson: Synergies around the acquisition. I think Coyote was doing 86 million dollars annualized
Drew Wilkerson: and Ibra, which would be kind of run rate, call it $20 million a quarter. So just help me with kind of the component pieces there of, you know, as we think about fourth quarter, what's the contribution from Coyote? What's the contribution from RXO? And then how impactful is this kind of seasonal?
Drew Wilkerson: component or maybe the seasonal headwind that would suggest kind of the two businesses combined or maybe coming in a little bit below where they were for 2023. Thanks.
Speaker Change: Yeah, so when you look at the fourth quarter, Ari, you know, really there's three things that I would focus on for what we're seeing.
as both Jared and I highlighted in our prepared commentary.
Drew Wilkerson: You saw purchase transportation go up during the month of October.
Drew Wilkerson: and while Legacy RxO had some spot loads and some projects that came in.
Drew Wilkerson: Legacy Coyote did not have those same opportunities that came through. And, you know, for us, we're actually viewing that as a great thing. That's another opportunity to talk about building synergies within the acquisition is to be able to get Coyote into growth mode to where they're not just serving the contract business well, but that as a group, we're creating solutions. We've got great service. We're building on the relationships that were the first call that customers make on spot loads and project in times of stress.
Drew Wilkerson: The second thing is the last mile in the third quarter performed seasonally well for us.
Drew Wilkerson: and we told you that we were expecting a muted peak season. So for that piece, we expect last mile's EVADOT to go down quarter over quarter.
Drew Wilkerson: And then the last thing is, both our managed transportation and brokerage business have a lot of automotive business, and the automotive industry is down. So that is impacting the guide.
Drew Wilkerson: For us, as we look towards of what we're doing in the future of being able to build off of the synergies, capitalize on purchase transportation and looking out at this business for the long term, we're in a very good position.
Got it. That's very helpful. Thank you for the time.
Speaker Change: Your next question comes from Scott Schneeberger with Oppenheimer. Your line is now open.
Scott Schneeberger: Thanks very much and good morning. Just staying on that topic of the fourth quarter
Could you all discuss a little bit more of what...
Scott Schneeberger: what normal seasonality is expected in fourth quarter and how this year may compare to that as an aggregate company or as the two pieces, Coyote and RXO.
Drew Wilkerson: in isolation. And then as kind of a part two to the question, could you speak more to some of those special projects that occurred in October, the magnitude? You mentioned that you don't expect them to repeat. I assume they were associated with weather report strikes or something. Just very unique, just some quantification and what occurred behind there. Thanks.
Drew Wilkerson: Hey, Scott. Good morning. It's Jared. I'll start with the first question and then hand it over to Drew for the second. So from Q3 to Q4, you know, the concept of seasonality, you know, it's been a unique one over the last three to five years, right? No real such thing as seasonality. So I think, you know, what I would think about is what Drew was talking about in the prior question with respect to just overall market conditions have really tightened here in the month of October. So you're seeing the impact of the buy rates.
Drew Wilkerson: compressed gross margin from Q3 to Q4. As we said earlier, and we'll dovetail this into the second part, Legacy RXO saw some special projects and opportunities that helped offset that, but Legacy Coyote definitely felt the squeeze a little bit harder. So when we think about that bridge from Q3 to Q4 with respect to the brokerage piece, it really is that aspect of increased cost of purchase transportation which, you know, really doesn't, which really makes it difficult to tie from a seasonal standpoint from Q3 to Q4, and I'll hand it to Drew to the second piece.
Good morning, Scott. On the special projects, you know...
Drew Wilkerson: The first thing that I want to say is we've talked about for two years.
that
Scott Schneeberger: At RxO, we built relationships with our customers that whenever there were spot loads and special projects that our base of contract business would put us into a position to receive those.
This is a small sample size.
Scott Schneeberger: of seeing what the power of that is whenever the market does turn. So I think that's something that I want to make clear is that there were times of stress and RxO was the customer's first call.
Scott Schneeberger: You're right that some of this did relate to Hurricane Helene and Milton on the special projects as well as the port tightness for a few days. But there were also some special retail projects that were out there for a couple of weeks that we were the customer's choice of being able to call and build on those. So while spots are certainly not abundant, whenever they are there, we're picking up more than our fair share.
David Zazula, David Zazula, David Zazula, David Zazula
David Zazula: Thanks guys. I'll keep my follow-up thematically consistent and go over to last mile. The stops up 11% year-over-year in the in the third quarter sounds very strong. It sounds like a pull forward and that you're anticipating that to go down a good bit in the fourth quarter. Just curious how that looks with your historical seasonality there and then also maybe some commentary in last mile. You've had some pricing initiatives over the past year. Just want maybe an update on the on the pricing front there. Thanks.
Scott Schneeberger: Sure. Hey Scott, it's Jared. I'll take the first part and then hand it over to Jamie for the second part of the question. So you're right, Last Mile had an excellent quarter in Q3. It stops accelerated in terms of year-on-year volume growth to 11% year-over-year.
Scott Schneeberger: So, for the overall business, we are assuming a muted peak season, given what we're seeing. But we are expecting last-mile stops to grow again year over year in Q4.
Scott Schneeberger: but at a slower growth rate when compared to Q3. So that will translate into last mile EBITDA being down sequentially from Q3 to Q4 given those dynamics. And then I'll hand it to Jamie for the other question.
Jamie Harris: Yeah, so regarding price, and I think you're referring to carrier stops and the cost of purchase trans in our last mile business, that project continues to go well.
Jamie Harris: I think we mentioned last quarter we had identified about an $11 million annualized number that we believed we could take out of the cost of purchase trans in our carriers there. That continues to go well. You'll see a small incremental roll into the P&L.
Jamie Harris: We saw a little bit in the third quarter. We'll see additional in the fourth quarter. But that project continues to go well, and we're very excited about it.
Great. Thanks very much.
Speaker Change: Your next question comes from David Zazula with Barclays. Your line is now open.
Hey, thanks for squeezing me in here.
David Zazula: Could you talk a little bit about cash needs for integration, especially with the increased synergy costs? What do you think about the cash needs next year in terms of costs of getting those out?
Jamie Harris: Yeah, so this is Jamie. So we raised our guide to about $40 million. We see a cash outflow associated with getting that $40 million to be approximately a $25 million spend.
Jamie Harris: You'll see, call it 12 to 15 of that, go out in the fourth quarter with the balance being spent next year.
Off to bed.
Speaker Change: With the, you know, relatively lower volume during the quarter, you know, it seems like on the contract side, where do you view yourself in the position to capture that spot business that, you know, it seems like you're expecting to come in 2025?
Yeah, well, one, I think that, you know...
Speaker Change: We don't know when the market will turn. I think the thing that we can do is put ourselves to be in the best position that we will be the customer's call whenever it does come. As we sit here today, you know, we talked about in the month of October that there wasn't a lot of spot loads and projects, but where they were, we were picking them up and we were...
Speaker Change: in the rooms with the customers helping make decisions about how to get product to the end consumers faster. We've got a history of being able to go out there and when the cycle turns to be able to take market share. The things that you're watching for to see what the cycle turns are some of what Jared highlighted in his prepared commentary. You're watching what the load-to-truck ratio is, what tender rejections are, how much capacity is exiting the market, and how much demand is going up in the overall industry. And while we're sitting here and Jared highlighted that we're at the bottom of the cycle.
Speaker Change: We think that there's a lot of room for us to be able to go up in the future and we're in a good position to be there to service the customers whenever that happens.
Great. Thanks, Drew. Appreciate it.
Speaker Change: Your next question comes from Stephanie Moore with Jefferies. Your line is now open.
Speaker Change: Hi, good morning everybody. This is Joe Halfling on for Stephanie Moore. I wanted to ask a little bit about your peak season expectations and maybe, you know, how you see the range of potential outcomes here coming into peak season.
Speaker Change: When you mentioned the mixed headwind, I'm just curious, is the UPS business a drag on margin in fourth quarters, or is it still a pretty normal gross margin for you in the quarter?
Speaker Change: Yeah, I'm not going to break down any customer specific level profitability I mean the UPS business force is profitable and obviously they are significant customer, and I think it's well known that that business
Speaker Change: is running at a high for the year, typically in the fourth quarter.
Speaker Change: For us, we view that as a great partnership, that we think the additional services that we have at RxO, we're in a position to be able to grow our position with that customer, just like all of our other customers within the network. But you are right that when you look at quarter over quarter, looking at margins coming down, there is a customer mix impact.
Speaker Change: will cause that to go down from a gross margin percentage.
Speaker Change: Got it. And then obviously we're in a pretty dynamic environment and macro environment right now. Curious what you're hearing from customers on both the retail and industrial front in terms of expectations going forward. There's maybe a lot of
Speaker Change: increasing pull forward of imports and maybe if interest rates come down, housing and industrial looks better. So curious what your conversation with your customers has been.
Jared Weisfeld: Hey Joe, it's Jared. So on the retail side, you know, I think encouragingly
Speaker Change: positions for a lot of our large customers are the healthiest they've been in a long time.
Great, thanks so much for the time guys. Thank you.
Speaker Change: Your next question comes from Ken Hoxter with Bank of America. Your line is now open.
Hey, great. Good morning.
Ken Hoxter: So, I want to follow on Ari's question because it seemed like a significant cut to EBITDA on a combined basis, but it sounds like PT is climbing at Coyote. Was that the only or main driver of the gross margin?
Speaker Change: falling 100 basis points, or is there something else in there? And then you're seeing final mile pressure at RxO. So I get that in terms of the EBITDA impact. But I want to hit on the buy rates, right? Is that kind of the indication of the turn of the market if we're getting squeezed?
Speaker Change: because the buy is going up or was that one time from the ports pre-shipping strikes or all the other things you mentioned?
Speaker Change: The buy has absolutely gone up, and you saw that in the month of October. Legacy RxO was able to see some spot loads and projects, so it did not impact.
Speaker Change: gross profit per load as much as what it did at Legacy Coyote. It was actually positive for Legacy RXO. Legacy Coyote saw the same thing of purchase transportation go up, but did not see the correlation.
Speaker Change: with Spot Loads and Projects. Like I told Ari, this is something that has got us extremely excited. We know that we can put ourselves in a position.
Speaker Change: to be able to go out there and serve customers and take these spot loads of projects and mini-bids as we position ourselves. And the early conversations I'm having with customers is they're anxious to see us get back into that spot. So for us, you know, while I realize that it has an impact on Q4's numbers,
Speaker Change: For the long term of the business, it is extremely positive. And it's a more bullish case than what we went into the diligence with. And on the second part of your question, Ken, I wouldn't say last mile is being pressured. I'd say that in Q4 we're still expecting year-over-year stop growth again, just at a slower rate relative to Q3, given that we are expecting a muted peak season.
Speaker Change: Yeah, let me follow up on that because Drew, you kind of said the muted 4Q peak. You know, a lot of asset-based carriers sounded more optimistic and some of them kind of talked about shifts from
Speaker Change: brokers to asset-based carriers. Is that something you're seeing at all? And then I get in the same question, Jamie, you gave that 40 to 45. What's the high and low end?
Speaker Change: in terms of not seeing a meaningful improvement, but through that limited peak.
Sorry, Drew. Yeah.
Speaker Change: So when you look at what we hear from our customers is, they use this time to go with the folks that they depend on and that have had great service. And you've seen for the last year and a half that customers have been shrinking the number of carers that they're working with.
Speaker Change: For us, you know, we've seen that with some of our largest customers. It's actually been an opportunity to grow with them. We're seeing the same thing as we're starting to have some of those 2025 conversations right now with customers who are in the early stages of bid season. But the feedback that we're receiving is very positive so far.
Speaker Change: Yeah, Ken, on the second part of your question, I mean, the range we gave, 40 to 45, it built in some assumptions about what we were seeing in the market that Drew called out.
Speaker Change: We are seeing softer automotive volume of brokerage and and managed trans
Speaker Change: we talked about last mile. If you think about where peak season on a low end, high end, you know, we're halfway through the quarter right now. And so have fairly decent visibility about what might happen over the next, you know, four to six weeks.
Speaker Change: So I think you could look at that 40 to 45 as kind of the low and the high.
Speaker Change: Could there be something that caused it to go up? Absolutely, but at this point our visibility kind of says that's our bookend.
Speaker Change: If there's a peak season, Ken, then we'll be there to service the customers and we'll participate in it. Right now, we're expecting to be muted, but if there's one, then it'll be a great surprise for us. And we've got the capacity and the bandwidth to cover it.
Speaker Change: Awesome. Drew, Jared, Jamie, thank you for the time. Appreciate it. Thank you.
Speaker Change: Your next question comes from Bruce Chan with People. Your line is now open.
Hey, good morning, gents.
Bruce Chan: Jared, you talked about some of the improvement in productivity. Just wondering if you can give us a sense of where headcount sits today. Does that number move lower? Is it stable at this point? And when you think about productivity, whether that's in terms of net revenue per head or loads per person per day, what did that metric look like pre-deal versus now? And ultimately, where do you expect that to kind of settle out once the integration wraps up?
Jared Weisfeld: Yeah, thanks Bruce. So we're making significant advances with respect to our technology suite and continue to benefit from from a productivity standpoint. I'm not going to get into the breakdown of the components across across headcount, but what I can give you some additional color, you know, you think about productivity up 15% over the last 12 months on a rolling basis. And we've been punching at about mid double digits for the last few quarters here, as we go ahead and continue to see benefits of
just increased innovation with respect to the product suite.
Getting both groups
Speaker Change: on to the one unified platform, RxO Connect, not only bringing legacy Coyote productivity up in line with where RxO is, but then going ahead and advancing the ball even further and increasing productivity. I think there's significant opportunity for incremental productivity improvements and therefore incremental adjusted EBITDA as well as it relates to operating margin leverage.
Speaker Change: Okay, great. So it's fair to say then that that number kind of accelerates sequentially?
Speaker Change: We're not going to give a productivity outlook, if you will, but certainly to assume, to think about, you know, we don't see productivity initiatives stopping in the near future at all. There is a significant runway ahead with where we think optimal state is in terms of loads per person per day.
Speaker Change: When you look at what our top reps are doing, we know there's a lot of opportunity for us to continue to improve productivity. And this is, with what we're doing on the technology side, being able to pull tools from both systems, we're in the early stages of continuing to increase productivity.
Speaker Change: Okay, fair enough. And then just to follow up, I want to make sure I understand it properly. Drew, you talked about some of the benefit to legacy RxO from the spot-and-project business. Is that continuing in the fourth quarter?
Drew Wilkerson: It was it was in the month of October. As we said in the prepared commentary, we have not seen that carry over into November. If there was upside into November and December, it would come largely from a peak season being stronger than expected.
Okay, thank you.
Speaker Change: Your next question comes from Scott Group with Wolf. Your line is now open.
Scott Group: Hey thanks, good morning guys. Can you just start with the, can you share the pro forma EBITDA for Q3?
On a Caban Company Proforma
Yeah.
Scott Group: We won't get into the specifics for the whole quarter because we didn't own the business. But if you look at the $2 million incremental for Cody in the last two weeks, if you think about that and then you go back and look at, I think on page 22 of the slide deck, it gives you kind of a trailing 12 of about $66 million.
Scott Group: I think if you were to kind of extrapolate, it would be not fair to extrapolate two weeks of ownership into a full year. We don't think that would be the appropriate amount. But if you look somewhere in between those numbers, you probably get kind of where the run rate might be.
Scott Group: But, you know, $31 million for RxO, $2 million for Cody. It's kind of where we were for the quarter. We don't want to get into the specifics because we didn't own the business.
Scott Group: Okay, and then Jared, you had a comment about Q1 is typically decently lower than Q4. Just given the synergy ramp that you're talking about, sounds like there's some squeeze in Q4, right? Would you expect
that normal seasonality to play out, or...
Scott Group: Do you think you can do better than that and see sequential EBITDA improvement? Ultimately, and then maybe just if I could broaden out a little beyond just Q1, like any thoughts of...
Scott Group: how to think about just like the combined earnings power of this business.
going forward and on a full-year basis.
Speaker Change: Yeah, sure, so I'll start, Scott. So when you think about Q4 to Q1, as you know, Q1 is...
Speaker Change: Typically the season or historically the seasonally weakest quarter for RxO and that is certainly still the case with with Coyote You know, there's really you know, we've looked at the data a lot of different ways. There's really no Typical decline it is seasonally down right generally. It's been down anywhere between 30 and 35 percent over the last
Scott Group: I would certainly caution that it heavily depends on how Q4 shapes out and what happens here over the next few months from a peak season standpoint. Because we're not expecting a muted peak season, all is equal, it certainly should be a lower decline relative to the last three to five years. And then ultimately, to your point, we just increased the synergy number by 60% to at least $40 million. When you look at the impact in Q4, there's very minimal contribution from a synergy standpoint in terms of realization of P&L, it's about a million bucks, right? So all of the actions that we're taking here in Q4, you'll see the full run rate benefit certainly in Q1. So hopefully that gives some perspective. And then in terms of long-term earnings power, that was the last section of my prepared commentary where we have even more confidence.
Scott Group: now in terms of increased long-term earnings power about the combined organization. You look at the full run rate of Synergies, which is now at least $40 million. You look at the cost of purchase transportation Synergies that Jamie hit on in his prepared remarks and during the Q&A with that $4 billion pool of cost of purchase transportation, buying better by just 1% would yield another $40 million potentially as an example. And the cross-selling opportunities that we've seen in just the last six weeks.
Speaker Change: gives us even more confidence in terms of what the long-term earnings power of the business looks like. And just to add, I agree with everything that Jared just said, but I think there's one important fact that I want to make sure that was highlighted in Jared's prepared commentary, but that you're looking at on a normalized earnings basis.
Speaker Change: One of the biggest factors in our profitability is where gross profit per load sits.
Speaker Change: And if you look at where it is today, it's over 30% below our five-year average. And if you take out the COVID highs, it's still over 20% above our five-year average. So with that, that's one of the biggest factors of being able to drive back towards normalized earnings, and there's a lot of runway there.
Bye.
Thank you guys, appreciate it.
Speaker Change: Your next question comes from David Hicks with Raymond James. Your line is now open.
David Hicks: Hi guys, thanks for taking the question. See, outside volume growth has always been a hallmark for you guys, which slowed down here as of late, albeit against really tough tough comps versus the market. Can you maybe go over the timing of volume acceleration and how accelerating volumes at Coyote kind of fits into that equation?
Speaker Change: We said that Coyote's volume trends had gotten better over the year, but if you looked at Q3, their volume declines were similar to what RXO's were. You're right, we look at this business on a long-term basis, and over the long term, we know that we've taken market share. If you go all the way back to 2013 through 2021, we were growing three times faster than what the brokerage industry was growing.
22 and 23 were phenomenal volume growth years for us.
as we came into 2024.
David Hicks: We were very transparent and put out there that we had a different bid strategy and that we wanted to put ourselves in a position to make sure that we could honor the contractual rates.
Scott Group: that we put in with our customers so that we could continue to build on the relationship.
Scott Group: to be there in service for spot loads projects and many bids. The market obviously hasn't turned and there haven't been a lot of spot loads, but the position with the customers is stronger than what it's ever been. So I'm confident over the long term we'll continue to outperform the market from a volume growth perspective.
Speaker Change: Okay, that's extremely helpful. And then moving to gross margin per load, or gross profit per load, is there a sizable difference between RxL legacy and Coyote legacy and kind of what you're doing there to kind of bring convergence to the higher end between the two?
Scott Group: puts it to where there's some point-and-click and efficient business out there, but it runs at a lower gross profit per load. You know, the second thing is, you know, we talked about being able to realize some of these large projects.
Speaker Change: Over time, we think that both groups have an opportunity to be able to improve gross profit per load, especially as the cycle unlocks.
Great. Thanks, Drew. Appreciate the time.
Speaker Change: There are no further questions at this time. I will now turn the call over to management for closing remarks.
Speaker Change: Thank you, Joelle. We completed the Coyote acquisition and decreased our leverage ratio by more than 40 percent. The integration is ahead of schedule and we now anticipate at least 40 million dollars in annualized call synergies.
Speaker Change: We've delivered on our commitments in the third quarter with continued momentum in both managed transportation and last mile.
Speaker Change: As we work to fully integrate the Coyote business and navigate the prolonged soft rate cycle, we remain focused on providing the best service, the most comprehensive set of solutions, continuous innovation and close customer relationships. Thank you all for your time this morning.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Speaker Change: Frank Zappa, Daniel Rodriguez Dr. prosecuted in nonprecedented ways unpublished yet in an entire system processo conformity