Q4 2024 RXO Inc Earnings Call
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Speaker Change: I'll now turn the call over to Joe Wilkinson, Mr. Wilson, you may begin.
Speaker Change: Good morning, everyone and thank you for joining us today with me here in Charlotte, Our Auryxia as Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weisfeld.
Speaker Change: There are four main points I want to convey this morning first the integration of Coyote logistics remains ahead of schedule and we continue to see the benefits of our increased scale and our larger portfolio of service offerings.
Speaker Change: As a result, we're again raising our estimate for cost synergies, which we now expect to be at least $50 million.
Speaker Change: As a reminder, this number does not include the significant cost of purchased transportation and cross selling benefits, we expect to see.
Second while the market remains soft or so continued to deliver on our financial commitments importantly, we achieved these solid results, while making significant progress on the Coyote integration.
Speaker Change: Third momentum continued within complementary services are.
Speaker Change: Sales pipeline Tomatoes transportation is now nearly $2 billion and we achieved another acceleration in last mile stops, which grew by 15% year over year.
Speaker Change: And fourth the structural improvements, we're making to our business will increase our earnings power and free cash flow over the long term and across market cycles.
Speaker Change: I'll start by giving you an update about the integration of Coyote.
Speaker Change: Last quarter I mentioned that we're ahead of schedule and that's still the case.
We're focused on our people our customers our carrier partners, our technology and synergies.
Speaker Change: When it comes to people, we're continuing to retain our top talent.
Speaker Change: Since the acquisition closed voluntary turnover of director level and above employees was only about 2% across the company.
Speaker Change: I've been impressed with the engagement I've seen within the workforce.
Speaker Change: We're operating as one cohesive team and employees have been reaching out to me regularly to share the wins, they've had with customers and carriers.
Speaker Change: Our larger size and scale are resonating with our employees and with our key external stakeholders.
Speaker Change: Thanks to the dedication of our people, we were able to deliver on both our financial commitments and the integration.
Speaker Change: Our people remain focused on taking care of our customers, including executing our bid season strategy and reliably servicing the freight we've been awarded.
Speaker Change: We had one unified strategy for the vast majority of the bids we participated in.
Speaker Change: This was made possible by the effective collaboration we have across the team.
Speaker Change: I mentioned that the integration is ahead of schedule and one of the key areas that are showing up as in cross selling.
Speaker Change: Cross selling opportunities have exceeded the lofty internal goals, we set for ourselves.
Speaker Change: Customers have been eager to leverage our broad portfolio of services beyond truck brokerage and we've had several wins with large shippers who are now using more services from Rx, so including managed transportation and last mile.
Speaker Change: We've made significant progress on integrating our technology in the fourth quarter we.
Speaker Change: We migrated critical components of our tech platform to the cloud to achieve greater scalability and flexibility, we won't see unified tracking experience for shippers as well as a new website that provides customers with air quotes.
Speaker Change: We continue to anticipate that the bulk of our tech integration will be complete by the end of the third quarter.
Speaker Change: The smooth integration so far has enabled us to identify additional synergy opportunities.
Speaker Change: We now expect to achieve at least $50 million of annualized cost synergies double our initial estimate.
Speaker Change: These numbers exclude the significant opportunities for improving our cost of purchased transportation.
Speaker Change: The impact of our cross selling efforts.
Speaker Change: Jamie will talk in more detail about synergies later in the call.
Speaker Change: The Coyote acquisition positions us well for future organic growth.
Speaker Change: Now I'd like to talk about our fourth quarter results, which were in line with our expectations.
Speaker Change: Alright, so delivered adjusted EBITDA of $42 million within the guidance range, we provided to you last quarter.
Speaker Change: Brokerage volume for our combined business declined by 6% year over year within the expected range less than truckload volume increased by 1%, but was offset by 8% decline in full truckload volume.
Speaker Change: Importantly, brokerage volume increased by 10% sequentially from the third quarter as a result of our continued focus on providing the best service solutions innovation and relationships in the industry broker.
Speaker Change: Brokerage gross margin was 13, 2% in the quarter.
Speaker Change: Momentum continued within complementary services.
Speaker Change: Our managed transportation sales pipeline continues to grow and is now nearly $2 billion up almost 50% from last quarter.
Speaker Change: Converting that pipeline will provide significant cross selling opportunities with enterprise customers across all right. So.
Speaker Change: And last mile stops grew by 15% year over year, another acceleration from the third quarter growth rate of 11%.
Speaker Change: The most well known retailers, a big and bulky goods continue to turn to Rx. So for last mile delivery services because of our scale technology financial stability and exceptional service.
Speaker Change: Complementary services gross margin was 21, 1% and our so it's company wide gross margin was 15, 5% in the quarter.
Speaker Change: Turning to the overall freight market, we continue to operate in a soft freight environment and it was a muted peak season as we had anticipated.
Speaker Change: However, during the fourth quarter conditions tightened significantly impacting by rates and gross profit per load the.
Speaker Change: The national load to truck ratio and industry tender rejections reached their highest levels in more than two years.
Speaker Change: While there's still too much capacity in the market compared to the demand we're seeing from shippers.
Speaker Change: Industry is making progress towards reaching a more balanced state.
In the first quarter, so far we've seen a continuation of these dynamics, while we typically see softer market conditions. This time of year in January we also saw impacts from severe weather sustaining the market tightness.
Speaker Change: We have seen some project opportunities, but not enough to offset the increase in carrier rates.
Speaker Change: Clearly the freight environment is still soft.
Speaker Change: However for the first time in two and a half years contract rates are increasing year over year.
Speaker Change: Start rates are also starting to catch up.
Speaker Change: The market's still isn't at equilibrium, but we're moving into an inflationary rate environment.
Speaker Change: The data is telling us that we're coming off the bottom of the cycle, but we don't know what the shape or pace of the recovery will be.
Speaker Change: We remain focused on executing our bid season strategy and reliably serving our customers freight.
Speaker Change: Jamie and Jerry will discuss our outlook in more detail, but we expect the first quarter combined brokerage volume to decline by mid to high single digit percentage year over year with tightening market conditions, continuing to impact our bar rates.
Speaker Change: Importantly, given the strong execution by the team and feedback from our customers.
Speaker Change: Expect our combined brokerage volume to grow on a year over year basis for the full year.
Speaker Change: I'm confident that <unk> is well positioned for the future.
Speaker Change: We've made significant structural changes to our business over the last few quarters.
Speaker Change: We increased our truckload volume by 125% as a result of the Coyote acquisition, which has provided us with better lane density and more freight to award our carrier network.
Speaker Change: Ultimately, our additional volume combined with our cutting edge technology will enable us to achieve significant benefits when it comes to the cost of purchased transportation.
Speaker Change: We've improved our go to market strategy to focus on cross selling our wide array of services to customers, which is fueling new wins across the company.
Speaker Change: We enhanced our already best in class technology platform, which includes pricing algorithms that leverage AI and machine learning our employee facing sulfur is continuously improving productivity and is a significant competitive advantage.
Speaker Change: The synergy actions, we're taking today will improve the efficiency and operating leverage of our business.
Speaker Change: And lastly, we improved our already strong balance sheet, which provides a solid foundation for future organic and inorganic growth.
Speaker Change: You are not currently seeing the benefits of the structural changes due to the persistent soft market conditions that have decreased gross profit per load. However.
Speaker Change: However, the steps we've taken have significantly increased the long term earnings power of Rx. So.
Speaker Change: We're building this business for the long term and I'm more confident than ever in our future.
Speaker Change: Now Jamie will discuss our financial results in more detail Jamie.
Jamie Harris: Thank you drew and good morning, Let's review, our fourth quarter performance in more detail.
Jamie Harris: We're presenting our financials on an as reported basis, which includes the acquisition of Coty as of September 16th 2024.
Jamie Harris: Unless otherwise noted my comments, referring to periods prior to the closing of the acquisition excludes the impact of the acquisition.
Jamie Harris: Our brokerage business is now a significantly larger portion of our overall company.
Jamie Harris: You can see that our revenue and gross profit was significantly higher year over year in the fourth quarter because of the acquisition.
Jamie Harris: Additionally, <unk> historical gross margin and EBITDA margin.
Jamie Harris: Lower than our XO with also.
Jamie Harris: The comparisons to prior periods.
Jamie Harris: During the fourth quarter, we generated $1 $7 billion in total revenue.
Jamie Harris: Gross margin was 15, 5% our adjusted EBITDA was $42 million in line with our guidance range. Our adjusted EBITDA margin was two 5%.
Jamie Harris: Below the line our interest expense was $8 million for the quarter, our adjusted earnings per share was <unk>.
Jamie Harris: You can find a breeze to adjusted EPS on slide seven of the earnings presentation.
Jamie Harris: Now I'd like to give an overview of the performance within our lines of business.
Jamie Harris: Brokerage revenue was $1 $3 billion and represented 75% of total revenue in the quarter.
Jamie Harris: From a profitability perspective brokerage gross margin was 13, 2%.
Jamie Harris: Slightly above the midpoint of our outlook and consistent with our expectations.
Jamie Harris: Given this is the first full quarter of combined results and because the legacy businesses have different gross margin profiles. We wanted to note that legacy oxo brokerage gross margin. It was approximately 14, 5% in the quarter.
Jamie Harris: This was a strong result, given tightening market conditions.
Jamie Harris: Complementary services revenue in the quarter of $431 million increased by 5% year over year.
Jamie Harris: And it was 25% of our total revenue.
Complementary services gross margin of 21, 1% remained strong and increased by 20 basis points year over year.
Jamie Harris: Our last mile business generated $290 million in the quarter and performed better than our expectations.
Jamie Harris: We are gaining share within the big bulky category stops grew.
Jamie Harris: About 15% year over year accelerating from last quarter's growth rate.
Jamie Harris: Managed transportation generated $141 million of revenue in the quarter down 8% year over year.
Jamie Harris: The decline was primarily attributable to lower automotive volume and our managed expedite business, which was softer than we expected.
Jamie Harris: Let's now discuss cash.
Jamie Harris: Please refer to slide eight.
Jamie Harris: Adjusted free cash flow in the fourth quarter was $6 million.
Jamie Harris: This represents a 14% conversion from adjusted EBITDA.
Jamie Harris: The conversion rate was impacted by our semi annual interest payment.
Jamie Harris: Lower profitability at the bottom of the freight cycle.
Jamie Harris: And timing of certain working capital cash flows.
Jamie Harris: Longer term, we remain confident in a 40% to 60% conversion through market cycles, given the strong free cash flow characteristics of the business.
Jamie Harris: We ended the quarter with $35 million of cash on the balance sheet.
Jamie Harris: Higher than the range of $5 million to $10 million that we shared with you last quarter.
Jamie Harris: With higher cash balance was solely due to the timing of transaction payments and other costs related to the <unk> acquisition.
Jamie Harris: These payments will be made at the end of the first quarter. So youll see a lower cash balance and our first quarter earnings report.
Jamie Harris: As you can see on slide nine our liquidity position continues to be the strongest it's been in our company's history.
Jamie Harris: Our $600 million revolver was undrawn at the end of the fourth quarter.
Jamie Harris: Quarter end gross leverage was one seven times trailing 12 months pro forma adjusted EBITDA.
Jamie Harris: We have significant capacity to deploy our balance sheet in line with our balanced capital allocation philosophy across organic investments share repurchases and opportunistic M&A.
Jamie Harris: Let's move to the <unk> integration.
Jamie Harris: As drew mentioned the integration is progressing well and we are again, increasing our cost synergy estimate.
We now expect at least $50 million of annualized cost synergies.
Jamie Harris: $10 million higher than last quarter's estimate.
Jamie Harris: We've moved quickly and by the end of the fourth quarter, we completed approximately $25 million of annualized cost synergies.
Jamie Harris: We expect to complete the remaining $25 million this year.
Jamie Harris: As a reminder included in that number is $15 million related to the integration of our technology platforms.
Jamie Harris: All synergies tied to the technology integration will be realized in 2026.
Jamie Harris: Putting it all together based on actions taken we expect incremental realized operating expense savings of $25 million to $30 million in 2025.
Jamie Harris: Importantly, these synergies exclude opportunities for cost of purchase transportation and the benefits we will receive from the cross selling that drew mentioned, which we believe will be significant.
Jamie Harris: Now, let's discuss our expectations for the first quarter.
Jamie Harris: The first quarter is typically our softest quarter of the year.
Jamie Harris: Within brokerage, we expect seasonally lower volume.
Jamie Harris: In addition, tightened market conditions impacted our buy rates to start the quarter.
Jamie Harris: Moving to complementary services, we expect continued weak automotive volumes and manage to expedite.
Jamie Harris: And last now given the better than expected fourth quarter performance, we are anticipating a larger than normal seasonal decline into the first quarter.
Jamie Harris: So as a combined company, we expect to generate between 20 and $30 million of adjusted EBITDA in the first quarter.
Jamie Harris: Jerry will provide more details on our outlook shortly.
Speaker Change: Slide 14 includes our 2025 modeling assumptions, which fully reflect the acquisition of Coyote.
Speaker Change: We expect the following.
Speaker Change: Capital expenditures between 75 and $85 million.
Speaker Change: This includes approximately $15 million of strategic real estate spend associated with the expansion of our brokerage operations and headquarters in Charlotte.
Speaker Change: For 2026, the real estate costs will not recur.
Speaker Change: In addition, we expect a reduction in capex of approximately $10 million. Following the integration of our tech platforms. This implies that 2026, capex spend of approximately $50 million to $60 million materially lower than 2025.
Speaker Change: We expect depreciation expense between 70 and $80 million.
Speaker Change: Amortization between 45 and $50 million.
Speaker Change: <unk> based compensation expense between 30 and $35 million.
Speaker Change: Restructuring transaction and integration expenses between 40% and $50 million.
Speaker Change: Cash outflow associated with the restructuring transaction and integration activities of approximately $50 million to $60 million, which includes actions from prior periods.
Speaker Change: Net interest expense between 32, and $36 million and an adjusted effective tax rate between 27% and 29%.
Speaker Change: You should also model an average fully diluted share count of approximately 170 million shares.
Speaker Change: As we look at the upcoming year, the macro economy remains reasonably healthy.
Speaker Change: Unemployment remains low core inflation has moderated and many key indicators, including the manufacturing index are moving higher.
We will continue to monitor any changes to trade policy, including tariffs.
Speaker Change: While recent freight market developments have been encouraging we're still operating in a prolonged soft freight environment.
Speaker Change: Gross profit per load has moved lower which is impacting our near term results.
Speaker Change: That said, we're making structural improvements, which will increase the earnings power of the business.
Speaker Change: The team is executing well the integration of Coty is ahead of schedule and we're positioning ourselves for the long term.
Speaker Change: Now I'd like to turn it over to Chief strategy Officer, Jared Weisfeld.
Jared Weisfeld: We'll talk in more detail about our results and our outlook. Thanks, Jamie and good morning, everyone. As I typically do I will start with an overview of our brokerage performance in the quarter.
Jared Weisfeld: To make the comparisons more useful for you ill give you a pro forma numbers for our combined brokerage business, which includes coyotes results in prior periods.
Jared Weisfeld: Brokerage volume in the quarter was at the high end of our expectations up 10% sequentially and down 6% year over year LVL volume increased by 1% year over year.
Jared Weisfeld: Contractual LPL volume was up double digit percentage year over year, while transactional LPL volume declined by a high single digit percentage.
Jared Weisfeld: L. P. L represented 18% of our brokerage volume in the fourth quarter down 300 basis points sequentially and up 100 basis points year over year.
Jared Weisfeld: Full truckload volume was down 8% year over year and represented 82% of our brokerage volume.
Jared Weisfeld: We also maintained a favorable mix of contract and spot business in the quarter.
Jared Weisfeld: Contract business represented 76% of our full truckload volume an increase of 300 basis points sequentially and 100 basis points year over year.
Jared Weisfeld: Our customer mix typically drive stronger contract volume in the fourth quarter.
Jared Weisfeld: Spot business was 24% of our full truckload volume in the quarter and decreased by 300 basis points sequentially. It was another muted peak season and spot and special project opportunities decreased after the disruptions from Hurricane Helene and Milton eased.
Jared Weisfeld: This was in line with the expectations, we communicated last quarter.
Jared Weisfeld: Before reviewing our financial performance and market conditions in more detail I'd like to talk more about our technology integration.
Jared Weisfeld: Last quarter, we confirm that Oracle connect will be our primary operational system as.
Jared Weisfeld: As drew mentioned, we've made great progress with our best of both World strategy that is integrating coyote a unique capabilities into Arco's best in class Tech platform.
Jared Weisfeld: Our OXXO connect was built with a micro services architecture, allowing for efficient updates and enhancements, we've already scaled critical capabilities and components and migrated them to the cloud as part of our consolidation efforts.
Jared Weisfeld: Strategically we're planning to integrate our coverage technology first and bring all our carrier reps onto one unified system. This will enable us to leverage our proprietary pricing algorithms more effectively and achieve benefits within cost of purchase transportation.
Jared Weisfeld: As we've said before we believe that cost of purchase transportation synergies will be among our largest opportunities.
Jared Weisfeld: Importantly, while we're making excellent progress with arc. So connect we're also moving quickly to integrate our core corporate systems, including our CRM and ERP.
Jared Weisfeld: We continue to anticipate that our technology integration will be substantially complete by the end of the third quarter.
Jared Weisfeld: Our technology also enables our people to become even more productive on a rolling 12 month basis productivity as measured by loads per person per day improved by over 16%.
Jared Weisfeld: I'd now like to review, our brokerage financial performance and market conditions in more detail.
Jared Weisfeld: You can find this information on slides 10 through 13 of the presentation.
Starting with revenue per load on slide 10.
Jared Weisfeld: Please note that starting this quarter and going forward, we will discuss full truckload revenue per load trends.
Jared Weisfeld: <unk> revenue per load trends are more stable when compared to full truckload. So we thought this would be helpful.
Jared Weisfeld: We have also excluded the impacts of changes in fuel prices and length of haul on the chart to give you a better view of underlying year over year price changes.
Jared Weisfeld: This has been recast for all historical periods and prior to the third quarter of 2024 refers to legacy <unk> and starting with the fourth quarter of 2024 includes Coyote.
In the fourth quarter full truckload revenue per load was flat year over year.
Jared Weisfeld: January trends were encouraging and full truckload revenue per load further improved up by a low single digit percentage year over year.
Jared Weisfeld: As drew mentioned, we're transitioning from the bottom of the freight cycle to an inflationary rate environment. We expect 2025 contract rates to be up low to mid single digits year over year.
Jared Weisfeld: Let's move to slide 11, and discuss brokerage monthly gross margin performance and industry trends.
Jared Weisfeld: Market conditions tightened significantly as the fourth quarter progressed specifically.
Jared Weisfeld: Specifically the load to truck ratio increased by a full point to approximately four 5% to one for the quarter and intra quarter hit a high of seven to one.
Jared Weisfeld: Industry tender rejection has also increased to above 6% and briefly hit 10%.
Jared Weisfeld: These metrics are the highest since the beginning of 2022.
Jared Weisfeld: The move higher in industry Kpis with capacity driven as opposed to an improvement in demand.
Jared Weisfeld: Impacts from Hurricanes, Helene and Milton repositioning of supply typical seasonality and continued carrier exits all contributed to the tightening.
Jared Weisfeld: While there is still too much capacity in the truckload market carrier exiting the fourth quarter increased significantly when compared to the third quarter. Some weeks in the fourth quarter exhibited the highest number of carrier exits throughout all of 2024, which speaks to the unsustainable unit economics for most carriers.
Jared Weisfeld: While the market is still soft we believe it's more balanced than it has been relative to the last few years. We continue to believe that for a robust recovery capacity will need to continue to exit and demand will need to improve from current levels.
Jared Weisfeld: Tightening market conditions resulted in higher buy rate as the fourth quarter progressed. Additionally, as Jimmy talked about earlier and consistent with our expectations Coyote has a lower gross margin profile.
Jared Weisfeld: Brokerage gross margin was 13, 2% in the quarter.
Jared Weisfeld: Of note legacy <unk> brokerage gross margin was approximately 14, 5%.
Jared Weisfeld: The tightness I. Just described continued in early January exacerbated by severe weather across the country, resulting in higher buy rates.
Jared Weisfeld: Encouragingly those rates have eased in recent weeks and we expect gross profit per load to improve throughout the rest of the first quarter.
Jared Weisfeld: Let's go to slide 12, and look at the quarterly full truckload gross profit per load trends.
Jared Weisfeld: As you can see on the chart with the acquisition of Coyote, our full truckload volume increased by more than 125% significantly increasing our scale.
Jared Weisfeld: Our truckload gross profit per load was lower sequentially due to the tightening market conditions that we just discussed combined with customer mix.
Jared Weisfeld: Moving to slide 13, our XO as LPL brokerage volume continues to outperform the broader <unk> market with stable gross profit per load.
Jared Weisfeld: We've more than doubled the size of our <unk> business with the acquisition of Coyote and have significant opportunities with our customers to continue to grow.
Jared Weisfeld: <unk> gross profit per load is accretive to our <unk> business.
Jared Weisfeld: I would now like to look forward and give you some more color on our first quarter outlook star.
Jared Weisfeld: Starting with brokerage we.
Jared Weisfeld: We expect year over year volume to decline by mid to high single digits. As a reminder, with Coyote. The brokerage business has additional volume seasonality leading to a greater volume decrease from the fourth quarter to the first quarter.
Jared Weisfeld: We expect brokerage gross margins to be between 12% and 14% in the first quarter due to the sustained tightening of the freight market.
Jared Weisfeld: Let's now talk about complementary services.
Jared Weisfeld: In managed transportation business continues to have tremendous momentum with a sales pipeline that is now approaching $2 billion.
Jared Weisfeld: In the near term managed expedite automotive headwinds continued to impact us.
Jared Weisfeld: And last mile we're expecting another quarter of year over year sub growth, although at a slower rate when compared to the fourth quarter.
Jared Weisfeld: Given the last miles better than expected fourth quarter results, we are anticipating a more than seasonal decline in the first quarter.
Jared Weisfeld: More than half of the sequential decline we expected adjusted EBITDA in the first quarter is attributable to last mile.
Jared Weisfeld: Putting it all together, we expect Arco's first quarter adjusted EBITDA to be in the range of $20 million to $30 million.
Jared Weisfeld: This outlook assumes similar freight market conditions and limited spot opportunities.
Jared Weisfeld: Historically, our adjusted EBITDA increases from the seasonally slow first quarter into the second quarter.
Jared Weisfeld: Looking to the full year, given strong execution by the team and feedback from our customers. We expect combined brokerage volume to grow on a year over year basis.
Jared Weisfeld: To close while we are still operating in a prolonged soft freight environment. Our integration of Coyote is progressing well and remains ahead of schedule.
Jared Weisfeld: While we don't know the shape of the recovery, we're transitioning from the bottom of the cycle to an inflationary rate environment and are confident in structurally higher cross cycle earnings power.
Jared Weisfeld: Our balance sheet remains strong with a robust liquidity profile and we have the capacity for future M&A, which can contribute to additional earnings growth. We are focused on delivering returns for our key stakeholders over the long term.
Jared Weisfeld: With that I'll turn it over to the operator for Q&A.
Jared Weisfeld: Thanks <unk>.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session.
Speaker Change: So do you have a question. Please press the star followed by the one any stockpiling.
Speaker Change: <unk> will be taken into Oregon with speed.
Speaker Change: Should you wish to cancel your request. Please press the star followed by the two.
Speaker Change: We are using a speaker phone. Please connect your handset before pressing any case once again that is star one should you wish to ask a question.
Speaker Change: Your first question is from Kenn Hoekstra from Bank of America. Your line is now open.
Speaker Change: Hey, great good morning.
Speaker Change: Maybe to drew and.
Jared Weisfeld: And I guess, it Jamie and Jared if you wanted to jump in but maybe define the core Rx so EBITDA shifts over the past year. So we can understand.
Jared Weisfeld: How much has gone on seasonally and what's going on with the market backdrop.
Jared Weisfeld: And then secondly, with with Coyote contribution maybe talk about the shifts from your original expectations to today.
Jared Weisfeld: And then just real quick on the current market you've noted.
Jared Weisfeld: We started off with higher PT costs, but it looks like spot rates have really pulled back have you noticed any inflection or anything changed really I guess more recently in terms of maybe shifting that outlook.
Jared Weisfeld: Hey, Ken Good morning, it's Jared so all I can do.
Speaker Change: Give you some seasonality comments as it relates to the combined business as we talked about from Q1 to Q2, we typically see a seasonality uplift and that really is across all lines of business from a brokerage standpoint, we typically see seasonally better volumes will have the benefit on the newer contracts that we're talking about we talked about moving to.
Speaker Change: An inflationary rate environment with contract rates, probably up low to mid single digits year on year for 2025, when compared to 2020 for the new books of business that we're winning will also ramp across complementary services, you'll see our managed transportation, we expect better automotive volumes Q2 versus Q1, and then last mile Q2 was one of the seasonally.
Speaker Change: The quarters as weather warms up so on a combined basis Q2, and Q4 are typically there.
Speaker Change: Seasonally strongest quarters, when you think about what the combined business looks like on your second question in terms of.
Speaker Change: The higher buy rate environment, Youre exactly right and over the last few weeks, we have seen an improvement in buy rates and that has been a tailwind for gross profit per load and we expect gross profit per load for the brokerage business to increase throughout the first quarter.
Speaker Change: If I could squeeze a follow up then what what do you see the broker market growing its if youre seeing a.
Speaker Change: Kind of down mid single digits in fourth quarter, and maybe accelerating to mid to high single digits, what well how do you think the markets compared to that.
Speaker Change: I think one when you good morning, Ken This is true when you look at the brokerage market I mean brokerage has been taken share in the in the for hire trucking for a long time I mean, if you go back to the <unk>.
Speaker Change: 2010, it was less than 10% of the overall market now is in the low Twenty's and we look at the business on through a cycle. When you looked at what strong brokers, who have financial stability hu.
Speaker Change: Who bring solutions to customers, who are able to operate like an asset light carrier and pull trailers together and bring flexible capacity to customers. I think we're just getting started on brokers taking share I think.
Speaker Change: Look out over the next five years brokers will have roughly 30% of the overall for hire trucking market will continue to move higher from there.
Speaker Change: Thank you I appreciate that.
Speaker Change: Yeah.
Speaker Change: Thanks, Paul.
Speaker Change: Your next question is from Scott Schneeberger from Oppenheimer. Your line is now open.
Speaker Change: Thanks, Good morning, guys.
Speaker Change: Just curious what your thoughts as you look out over 2025, and you anticipate that that volume does grow.
Speaker Change: Just wanted to get a sense of your confidence level on that and degree of magnitude potentially there and then I'll follow up.
Speaker Change: Good morning, Scott.
Scott Schneeberger: We're confident.
Scott Schneeberger: The reason that we were putting it out this quarter is because we are right now in the middle of bid season, then we can say with a degree of confidence based off of the early returns and early results that we're getting from customers and when you look at the feedback that we're getting from customers that were still in bed with but we're confident that we're going to be able to grow volume on a year over year.
Scott Schneeberger: Basis.
Speaker Change: Alright, Thanks, just to follow up on that and then I have another.
Speaker Change: The obviously tariffs have big issue you guys do a bit of business.
Speaker Change: Ross border.
Speaker Change: With our neighbors just curious on your initial thoughts on what Youre seeing there how that may affect automotive another.
Speaker Change: Something that we're watching closely I think if you see tariffs implemented on.
Speaker Change: The short term you will see inventory pull forward in protocol cross the border and that'll be a short term tailwind to the business.
Speaker Change: If you look at it in tariffs or something that extend out for the intermediate term it would be a headwind.
Speaker Change: You would see volumes start to slow down and if tariffs are something that are implemented in held for the long term.
Speaker Change: We're extremely bullish on the tailwind that that would create for our business because you would see more business. It would be north shore near short and to the U S, which is the vast majority of our business.
Speaker Change: Thanks, and just as somewhat of a housekeeping for Jamie on the Capex spend 75 to $85 $15 million related to expanding headquarters could you elaborate on.
Speaker Change: The Charlotte and then just kind of discuss what's maintenance what's growth capex for this year of that number a big number. Thank you.
Speaker Change: Yeah. So.
The guide we gave 75 to 85 Youre right 15 is a strategic real estate yes.
Speaker Change: Charlotte has really three big operations that we have a nice SaaS brokerage operations here a lot of back office services are located here and it does how's our corporate headquarters as well.
Speaker Change: But yeah, we're extending the lease has been home for these.
Speaker Change: These operations for over a decade.
Speaker Change: Got it as a one time 2025 spend.
Speaker Change: Look beyond there is about we believe that another 10 million included in 'twenty five.
Speaker Change: That will come out as cap ex synergies now that's in addition to the $50 million of Opex synergies, we call. It out, but we think we will drop $10 million approximately and going into 'twenty six and the way we think about more of a long term capex is kind of a 50 to 60 million dollar type number heading into <unk>.
Speaker Change: Six and beyond which keeps in line with that 1% of revenue that we talked about back at spin.
Speaker Change: Great. Thanks Al.
Speaker Change: Okay.
Speaker Change: Our next question is from Stephanie Miller from Jefferies. Your line is now open.
Speaker Change: Great. Good morning, everybody. This is Joe happen on for Stephanie more at Jefferies I wanted to ask a little bit about the incremental synergies as well as.
Speaker Change: What's kind of going on in the integration front could you may be provide us.
Speaker Change: Kind of a historical work over the last couple of months of what has changed from the $25 million to the $40 million to the $50 million. What have you found in terms of incremental cost saves and maybe on the integration front I know that sometimes it's integrating brokerages.
Speaker Change: There can often be kind of a head count or attrition.
Speaker Change: Issue you guys called out really strong on that front can you talk about maybe what's different with the RF, So coyote combination and how you've been able to kind of keep.
Speaker Change: The key talent together.
Jamie Harris: Yes. This is Jamie.
Speaker Change: So start with the synergies first of all the integration. We believe is going very well, it's been a great cultural fit.
Speaker Change: People are working very well together, we have upped our synergy target from original 25 to now <unk>. So we've been able to double that.
Speaker Change: Last quarter, we raised it to 40, we had seen a lot more opportunity in the technology synergy space.
Speaker Change: Most of that is we called out last quarter will be back half actually late in the year 2025, So youll see that benefit really began to flow through the P&L more in 'twenty six.
Speaker Change: Yes raise from 40 to 50 really came from two primary areas.
Speaker Change: Estate consolidation, we took a hard look at our footprint and been able to.
Speaker Change: Put some real estate together.
Speaker Change: And then secondly, our sourcing or procurement activities and if you look at these two companies historically a lot of the same type services often the same type vendors are getting some scale out of our contract span we've been able to work through that and we believe there is more synergies there because of that so if you think about it we're actually very happy with the synergy.
Speaker Change: <unk>.
Speaker Change: Outlook right now and again that does not include any synergies from the cost of improved transportation spend nor does it include any synergies that we believe can come from cross sell.
Joe: On the integration piece Joe.
Joe: I think it starts with building trust with the employees and building relationships you hear us talk about relationships, all the time and being able to build relationships with them and build trust and show the vision for where we're going there is a lot of excitement now working for what's the third largest broker in North America, and one that we'll gain share over the long.
Joe: Long term through a cycle there is excitement about being able to serve our customers and offer them more services than what we were able to offer them before you heard us how I am prepared commentary that we've got customers that were doing business with legacy Coyote that are now and managed trans but are now talking to last mile and doing.
Joe: Business, there, so I think the being able to sell a wider array of services and the excitement of going to work for somebody who you know who values. The work that youre doing that has built strong relationships and trust and has a vision for continuing to grow the business. There is a lot of excitement morale or across the company is extremely high right now.
Speaker Change: Got it. Thanks, so much Jerry if I can squeeze one and was 24 kind of wrapped up on something you kind of have given in the past is kind of <unk> volumes on a two and three year stack I was just kind of curious where for 2024 landed.
Speaker Change: Yeah, we're moving really quickly in the integration as a as you just talked about so we're really viewing this as one combined business right now Joe and I think when we look at 2025 were pretty happy to be able to go ahead and endorsed full year volume growth relative to 2024, given the strong execution of the team.
Speaker Change: Throughout the bid season with one unified strategy so.
Speaker Change: Bank or to that metrics because at this point, we're giving this as one combined business.
Speaker Change: Okay got it thanks, so much guys.
Speaker Change: Thanks for your next question is from Brandon <unk> from Barclays. Your line is now open.
Brandon: Hey, good morning, everyone and thanks for taking the question.
Speaker Change: Drew maybe if I can just come back to Ken's question, because I think it's pretty important here.
Speaker Change: Theres, so many numbers being tossed around this call. So it's a little hard to keep up but I think at the end of the day, what a lot of investors are trying to figure out here is that your EBITDA your operating earnings.
Speaker Change: Pretty well here on a consolidated basis, especially going into the first quarter and I guess, it's just maybe a lot longer than we thought at integration of Coyote. So there's a fear that there has been a deterioration in the core business and I wanted to anchor off with something you just said that youll get back to taking share in the marketplace. So has there been an issue in the last.
Speaker Change: Six to nine months at either <unk> or Coyote and is this something that you think you can rectify get back on a much better earnings pace looking forward.
Speaker Change: Well I would start by reminding me, Brian If you go back to what we told you our bid season strategy for 2024, what was legacy RSO. We told you that we were pricing in some sort of recovery and if that did not happen that we would sacrifice a little bit of volume and potentially a little bit of EBITDA as well.
Speaker Change: That is what played out the position that we're in with our customers is extremely strong as I said earlier the feedback that we're getting on the early returns of the bids that we've got is positive.
Speaker Change: A lot of momentum there we don't look at this business on a six to nine month basis, we never have we view this business for the long term and what it looks like through a cycle and if you go back and you look at the history of what we've got are being able to take share through a market cycle.
Speaker Change: I don't think there is many others that have done so very proud of what the team has done and confident in what the team is going to be able to continue to do when you look at the overall earnings which was the first piece of your question.
Speaker Change: As I said in my prepared commentary the biggest thing is a deterioration in gross profit per load that is what that is what has happened with cost of purchase transportation going up and the sell rates had come down over the last year and a half. We've now told you that we're entering into a period where rates are going up for the first time in two five.
Speaker Change: Five years on a year over year basis, so were hitting an inflationary rate environment confident with what's happening there and when the market turns I think that you've seen that we are going to be the provider that people turn to for spots projects in many beds.
Speaker Change: The last piece of your question was the overall health of the Coyote business. When you look at what we acquired.
Speaker Change: Last year very happy with how they performed versus the market and I think brokerages in general there's been a compression on gross profit per load Coyote is no different than that but the opportunity is far bigger than I think what we even realized at the time of acquisition, which is why we've again raised our synergy estimates we've talked about the cost of purchase transportation we talk.
Speaker Change: Cross selling so as the market turns we are better positioned than what we have ever been since since we did the spin.
Speaker Change: I appreciate that you and I guess can you put in the context moving to I think a higher contractual mix in the fourth quarter. Maybe this is one for Jared, but if you see rates moving up don't you want to be moving less contracts at the moment or maybe I have that confused and thank you.
Speaker Change: Yes, Brandon I think the part that you are for getting those if you remember that whenever we announced the Coyote acquisition. We said that there was a large customer that had a heavy contractual mix.
Speaker Change: <unk> was seasonally weighted to the fourth quarter. So I think that's the biggest piece.
Speaker Change: The large driver for the contractual piece, we talked about in the month of October, but we did see some spot load some projects and so many beds as you saw some market tightening.
Speaker Change: Okay. Thank you Jeremy.
Speaker Change: Thank you. Your next question is from Tom <unk> from UBS. Your line is now open.
Speaker Change: Yeah. Thanks, good morning.
Speaker Change: Wanted to see.
Speaker Change: Jared you may.
Speaker Change: I'm trying to recall I think you might have in the past talked about like for first quarter as a percent of full year or something like that.
Speaker Change: I wanted to get a sense of.
Speaker Change: If theres any perspective, you can offer on that just to help us think about what does the full year end up looking like.
Speaker Change: Off the base of what Youre talking about for <unk> I guess another way you could look at it would just be like.
Is there a point, where you'd see a bigger than normal seasonal step up you know if you look at <unk>. So.
Speaker Change: I guess just to start with any thoughts on that for <unk> versus full year.
Speaker Change: Okay.
Speaker Change: Thanks. Good morning, So when you think about Q1, it's typically our softest quarter, so lowest as a percentage of full year contribution to EBITDA.
Speaker Change: I'll go back to Ken's question from earlier, if you think about that ramp from Q1 to Q2, we have positive seasonality across all lines of business. What we do know is that we're bouncing off the bottom and we're now in an environment, where we're talking about rates moving higher on the contractual side.
Speaker Change: Confidence is high in terms of being able to grow year on year volumes for the combined business year over year, but when you think about what that shape of the year could look like it really depends on what the recovery is going to look like right. So at this point I think there are just too many variables to.
Speaker Change: Start hypothesizing on how second half looks versus first half when you think about just the nature of the recovery.
Speaker Change: A sharp recovery Youll see us pivot pretty quickly to the spot board and get them.
Speaker Change: Be able to go ahead and benefit from all of the strong relationships relationships that we have with our customers that trust us with their spot freight and the special projects and in that case Youll see a nice sharp move higher and gross profit per load. If it's more of a stair step youll see a little bit of a squeeze on the contractual book of business until we get to a healthier market conditions.
Speaker Change: Right Okay.
Speaker Change: So it sounds like maybe from where we are today.
Speaker Change: You would think that if we just one can you might be kind of a lower than normal.
Speaker Change: <unk> of the full year do you think that's right. If we're assuming I guess, where that makes sense. If we're assuming some improvement in cycle through the year.
Speaker Change: Yes, I mean, I think it's also important to realize that this is a new combined business right. So when you look at.
Speaker Change: The Rx so plus Coyote. This is the first year that we're obviously operating as a combined entity right. So I don't want to start getting into how to think about Q1 as a percentage of the full year and that basis, especially as we're coming off the bottom right. So to the extent that you have a different shape of recovery, whether it's a V or a W or an al right I think it all it all is going to go into that notion of how to think.
Speaker Change: Spot versus contract mix behaves what we do feel comfortable about saying is that Q1 should be the low point in terms of percent contribution in the business should move higher as we get into Q2 across all lines of business.
Speaker Change: Okay, Yes fair enough.
Speaker Change: Hi.
Speaker Change: Second question.
Speaker Change: I think looking at you mentioned and you know I think trade.
Speaker Change: Straightforward, so coyotes gross margin percent is lower than legacy Rx so and.
Speaker Change: Are you talking about the technology implementation I.
Speaker Change: I guess, maybe to keep <unk> that the carrier focused brokers wood.
Speaker Change: We get the new technology do you think that that technology of art. So we'll allow a fairly quick step up in Coyote gross margin percent.
Speaker Change: And that's kind of the key lever.
Speaker Change: Assuming that the Coyote gross margin percent could move towards legacy RF, So or do you think there's like a difference in business mix.
Speaker Change: That that spread might be more kind of.
Speaker Change: Structural or more okay.
Speaker Change: Longer term.
Speaker Change: Thank you.
Speaker Change: Thank you Tom.
Speaker Change: When you look at the Coyote business there is a structural difference in the <unk>.
Speaker Change: Margin percent, there's really three pieces to the Coyote business. One is large enterprise customer who there is deep relationships with long term contracts with that runs at a lower gross margin percentage. It is it is a good chunk of the business is a good piece of it.
Speaker Change: This profitable business as steady volume, we're able to keep our carrier network moving through its business that we like and appreciate and want to continue to be able to grow but it's lower gross margin percentage.
Speaker Change: The second piece of the business as their SMB business and on the SMB business that runs at a strong gross profit per load, but you will see us be able to improve that with the power purchase transportation. We told you very early on when we did the diligence one of the things that got US excited was we knew there were length at Coyote bought better and we knew that they were.
Speaker Change: So that were legacy Rx, so bought better so we would be able to improve margins.
Speaker Change: The last pieces, there middle market and enterprise business.
Speaker Change: Similar to the SMB I think that there is the opportunity to improve those margins as well over time.
Speaker Change: The last caveat that I would add in as we can improve legacy <unk> gross profit per load versus a market cycle because again the airlines. The coyote was buying better that we'll be able to tap into that capacity as we come onto one platform.
Speaker Change: Okay. That's helpful. What what just you mentioned the mix can you give a sense of the pro forma mix between enterprise and SMB in brokerage volume and any rough sense on that.
Speaker Change: Tom a spin we talked about SMB being roughly 40% of the overall business and we talked about one large customer being around 10% of the overall gross margin.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Okay. So a combined 40% is F&B with arc looked at Coyote.
Speaker Change: Yes.
Speaker Change: A little bit higher than that now if I move to Auryxia was not heavy on the SMB, but the 40% SMB was legacy Coyote.
Speaker Change: Legacy kind of the okay, so not that profile.
Speaker Change: Okay. Thanks for the time.
Speaker Change: Yes. Thank you.
Speaker Change: Thanks, Laura.
Speaker Change: Your next question is from Chris Wetherbee from Wells Fargo. Your line is now open.
Chris Wetherbee: Yeah, Hey, thanks, good morning, guys.
Speaker Change: Maybe wanted to pick up on.
Speaker Change: Gross profit per load trends and thinking about some of the moving pieces. There. So I know theres some differences between the two businesses, but I guess as you think about balancing volume growth I know it was up sequentially gross profit per load was down sequentially. I guess as you think about the market and maybe a return to growth on a year over year basis, how I guess how.
Speaker Change: Should we think about that sequential progress in gross profit per load as we move through the rest of 2025 do you see a step up in the first quarter or is that maybe the low watermark and then we start to see some improvement beyond that.
Fared: Hey, Chris it's fared so if you look at the progression from Q3 to Q4 gross profit per load moved a bit lower sequentially I'd say part of that was attributable to the inclusion of Coyote, which runs at lower gross profit per load and part of that also is some of the seasonality within that Coyote business driven by customer mix in particular for Q4, and then the market tight.
Fared: And we had some benefits on a legacy <unk> side to start the quarter with some special project and spot opportunities, but as expected that moved lower so that really drove the move lower throughout Q4 on gross profit per load relative to Q3. When you think about that bridge from Q4 to Q1, we are expecting a little bit move lower from Q4 to Q1, I'd say a modest decrease on <unk>.
Fared: Profit per load because the market really did start pretty tight here to start the year, given the inclement weather across the country, but.
Fared: But we do expect gross profit per load.
Fared: To improve as Q1 progresses with January marking the low point, so that's sort of the progression through Q1, and then from Q1 I would think about two factors from Q1 to Q2 seasonally Q2 is a is a tighter market with with produce season in a row check. So I think when you have to really combine that with where we are from a recovery standpoint.
Fared: To get the shape of that gross profit per load and to go back to the prior question, where when you think about that shape of the recovery. If it's a V shaped recovery I think youll see a strong recovery in gross profit per load youll see the spot opportunities.
Fared: And if it's a more modest recovery it will be a little bit of a squeeze.
Fared: Okay, Alright, that's helpful color I appreciate it and then I guess when you think about the cost synergies as you play that out through the rest of the year any way to think about the cadence of that contribution kind of by quarter or maybe by half as you think about the sort of progress towards that 50 plus.
Jamie Harris: Yes. This is Jamie.
Jamie Harris: $25 million had been completed by the end of the year of that amount think about over the course of 'twenty five into $25 million to $30 million range.
Jamie Harris: It can be realized as we head into this year incrementally that would include some impact from the 25 synergies, but most of the other.
Jamie Harris: Reyes.
Jamie Harris: Especially around technology is going to be.
Jamie Harris: <unk> implemented in the fourth quarter, and so you really see that progression more than our Q again in Q1 'twenty six.
Jamie Harris: And so.
Jamie Harris: The dollars that we have completed thus far youll begin to see that roll into 'twenty five but the predominance of the the majority of the 25 additional 25 will be in the 26 timeframe.
Speaker Change: Okay. That's helpful. Thank you very much I appreciate it.
Speaker Change: Thank you. Your next question is from Ravi Shanker from Morgan Stanley. Your line is now open.
Speaker Change: Great. Thanks, Good morning, guys. Jerry I, just wanted to follow up on your commentary on the shape of the recovery I think you said in your prepared remarks, you're looking for a low to mid single digit contract rates and 25, I think some of the asset based carriers I've hinted that maybe they are already getting and looking for more than that.
Speaker Change: Do you think Thats just yet.
Speaker Change: Ambitious on their part do you think that that opportunity to get maybe a high single digit pushing double digits is available for you as well if the cycle is sharper or do you think theres a little bit of a gap between asset based and asset light pricing cycle.
Speaker Change: Yes, I can only speak to what we're seeing so far Ravi and what we're seeing and what we're hearing from customers gives us confidence that we're talking about low to mid single digit increases for 2025, but to your point to the extent that the cycle develops here and we start seeing a stronger recovery and it is that type of V shape, we will absolutely be able to go ahead and.
Speaker Change: See those kind of price increases that you are talking about.
Speaker Change: How our model works and I would just reemphasize that the deep relationships that we have with our customers is what's driven that strong spot volumes over the last 10 plus years. So when you think about the cycle getting to an inflationary type rate environment and starting to really recover with tend to projections approaching 10% plus in sharp recoveries, our spot volume as <unk>.
Speaker Change: <unk> by almost 1000 basis points, and 90 days, because our customers come to US is the first call.
Speaker Change: Understood and maybe as a follow up I'm, sorry, if I missed this but can you unpack a little bit as to why Coyote seasonality is so skewed relative to.
Speaker Change: Based Rx so is it a mix of customers do they kind of have more kind of project business or kind of what the reason for that.
Speaker Change: Perfect.
Jamie Harris: Yeah. This is Jamie.
Speaker Change: The big the Big factor, we have one large customer they provide some seasonal uptick in the fourth quarter.
Speaker Change: Good piece of business strong partnership, but it's really driven by one particular customer has got a lot of contract business in the fourth quarter.
Speaker Change: Okay.
Speaker Change: Understood. Thank you.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Our next question is from Jordan <unk> from Goldman Sachs. Your line is now open.
Jordan: Yeah, Hi morning, I'm wondering if you could talk about Coyote is operating performance.
Jordan: Since you bought it not talking about integration and I'm talking about the operating performance better or worse than you thought and I don't know if you could frame. It in terms of stand alone EBITDA profitability from a trajectory standpoint has it come in under generally on your expectations and then the second question is the transaction integration and restructuring charges.
Jordan: $40 million to $50 million for the year can you talk to whats in those buckets and does that diminish through the year or is it stay evenly paced. Thanks.
Jordan: Thanks, Jordan I'll start.
Speaker Change: Jamie as Eric will take the second person. So when you look at how it performed versus expectations.
Speaker Change: When we bought Coyote, we knew exactly what the market was going to do over the next six months I would say when you look at how Coyote has performed versus what's going on in the market.
Speaker Change: We're pleased.
Speaker Change: We're excited when you look at the opportunity to take our.
Speaker Change: Our overall volume and grow it by 125% and spread that cost across spread our overall fixed cost across more loads. We're excited about what that looks like when you look about getting on one platform and being able to reduced purchase transportation, we're excited about being able to do that.
Speaker Change: So you look at cross selling there is a lot going on within the business that.
Speaker Change: You may not see right now with the gross profit per load being compressed at the bottom of the cycle, but the actions that we're taking right now we're confident in what they're going to do for the long term piece of the business.
Yes, so Jamie on the second part of your question around transaction costs restructuring costs. The majority of the calls both for 2024 and going into 'twenty five are going to be related obviously to Cody.
Speaker Change: The big items are going to be we got technology spend that we can.
Speaker Change: It will be.
Speaker Change: Eliminating as we put the systems together. So we'll have some transaction cost it gives us some contracts there'll be like in the fourth quarter. We the biggest spend charge. We had was related to some real estate consolidation, where we impaired the leases because we were moving out of some space.
Speaker Change: And then just general just general restructure.
Speaker Change: Nine out of contract of a vendor as an example, a bit tight spend.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Your next question would be Jason Seidl Cowen JD Cowen Your line is now open.
Jamie Harris: Thank you operator drew Jarrod Jamie good morning.
Jamie Harris: Can you talk a little bit about the tender rejection rates I think you said it was about 6% in the quarter hitting a high I think that the hurricanes of about 10% where are we.
Jamie Harris: Currently in the market and where do you think <unk> is going to shape out and then I guess.
Jamie Harris: Something that really Hasnt been discussion you guys have a bit of a freight forwarding business, maybe how should we think about the trends in that business as we progress throughout 'twenty five.
Speaker Change: I'll start with the good morning, Jason I'll start with the first.
Speaker Change: As it relates to tenant rejections, so you're right tend to rejections in the fourth quarter moved up to about six 3% and for a couple of weeks got as high as as high as 10% heading into Q1, what we see now over the last four weeks. Despite typical seasonal softness we're still at over 6% were between six and six 5%.
Speaker Change: So we're sustaining given tightening market conditions and even though it has come down from that 10. If you look at it on a year over year basis to normalized seasonality. It's still up 100 150 basis points. So I think this dovetails with our commentary that we're coming off the bottom we're moving to an inflationary rate environment. The question now is the rate of recovery.
Speaker Change: Jason on the freight forwarding piece of the business has performed well.
Speaker Change: We have seen some inventory get pulled forward from.
Speaker Change: And that business.
Speaker Change: It's a smaller piece of the business, but for what it's done is punched above its weight class for the last couple of quarters and contribution the one thing that they have done as a business and they really did this in 2019 and 2020 as they started diversifying a lot of what they did and there was more domestic pieces, which is why we combine that business was managed.
Speaker Change: Trends and if you look at what we've been able to do and what's going through our facility in Laredo.
Speaker Change: That has picked up if you look at what we've been able to do from a customs brokerage that has picked up so overall in forwarding, we're very happy with what the team has done in <unk>.
Speaker Change: To see nice growth out of the business.
Speaker Change: I appreciate the time gentlemen.
Speaker Change: Thanks.
Speaker Change: Next question is from Scott Group from Wolfe Research. Your line is now.
Speaker Change: Hey, Thanks, good morning, guys.
Speaker Change: We're at the hour so I'll keep it quick.
Speaker Change: You talk about the managed trends pipeline keep growing we think managed trans revenue starts to grow again, and then drew can you just remind us on coyote, how big is E U.
Speaker Change: And is that big drop in Amazon volume does that have any impact do you think on coyote and some of the seasonality around Q4 in any way.
Speaker Change: The way that we've described the EPS business was that it was around 10% of the overall margin with Coyote business, just like with any customer Scott, we're not going to breakdown the ins and outs of the puts and takes of what could drive volume going forward and what could cause declines.
Speaker Change: We will continue to do with UBS like we do with all of our other customers to show them Great service.
Speaker Change: To build solutions Forum look for other ways that we can grow with a grow with them.
Speaker Change: Them with our technology and build strong relationships. If you look at the managed trans and the decline in revenue a lot of that is driven by the automotive volume of automotive expedite volume has been down dramatically because.
Scott Schneeberger: <unk> changed at all automotive have been running fairly smooth. So that's the biggest driver but the pipeline is robust if you remember last last quarter, we highlighted of how much freight we were onboarding in the managed transportation and the reason that's so important Scott is because that allows us to drive synergy to the rest of the overall business.
Scott Schneeberger: Jamie and I were on with the potential managed transportation customer yesterday, we're talking to big customers with a lot of them that we're looking at onboarding over the next several quarters.
Scott Schneeberger: So when do you think that the overall managed trans revenue starts to grow again.
Scott Schneeberger: I think as we onboard these customers we've got a lot of Onboarding that we did late last year into Q1 of this year.
Scott Schneeberger: And it takes time to get the full kind of power of that transportation model built in but we think.
Scott Schneeberger: Late first half going into second half, we will see the impact of that begin to flow through the managed trans model and then the opportunity to get those synergy lift over into the brokerage side of the business.
Scott Schneeberger: Thank you guys.
Speaker Change: Thank you and your last question will be from Daniel <unk> from Stephens. Your line is now open.
Scott Schneeberger: Hey, good morning, everybody. Thanks for taking our questions squeezing me in here.
Speaker Change: I'll be brief just maybe.
Maybe starting on the near term can you help put some guardrails around the <unk> guidance Jared I think when we think about the $20 million to $30 million Goalposts I guess, what are the variables to get to the higher low end I'm guessing January was tight and so is it if the truck market loosens, we come in at the high end and in gross margin to swing factor what are the puts and takes we should be watching as maybe they won't you.
Speaker Change: Yes, good morning, Daniel I'd say the biggest variable for Q1 in terms of that $20 million to $30 million guidance range that we put out is really gross profit per load and more specifically cost of purchase transportation. So we have seen over the last couple of weeks by rates come down a little bit and we will have some of the newer contracts implemented as the quarter progresses, but if you think about.
Speaker Change: What will delineate between the bottom half in the upper half of its really going to depend on the cost of purchased transportation and our ability to continue to bring down the bi we do think that gross profit per load will improve as the first quarter progresses.
Speaker Change: Helpful and then Jim maybe a follow up on cash flow I think working capital was a drag here in the fourth quarter as the market tightened it probably with a further drag here in January just given the move in truckload rates I guess with the higher Capex Guide should we think about cash burn may be stepping up in the near term and then related to that I know there are adjusted out of the transaction cost. This year they are coming in higher than.
Speaker Change: I expect that those cash costs like how should we think about that impacting cash flow. This year. So maybe two questions on cash flow there yes.
Speaker Change: Yes.
Speaker Change: Okay, let's call it operating cash flow first hit and we.
Speaker Change: We did have some timing it's late in the year as we look into next year, we are at the bottom of the cycle and so.
Speaker Change: If you think about the structure of our comp we've got about $30 million interest spend annually in cash as we've committed $75 million to $85 million of Capex, you kind of think about $105 million to $110 million kind of breakeven operating EBITDA to breakeven, but once you get above that one <unk>.
Speaker Change: And you've got opportunity for about 75% flow through contribution flow through from EBITDA to free cash flow.
Speaker Change: And so if you think about that and then go to your question about restructuring will use some of that free cash flow to do you do restructuring charges.
Coming in at about $50 million to $60 million for the year keep in mind a portion of that is the cash portion of some of the restructuring charges. We took in 24 for P&L purposes deferred payments.
Speaker Change: But overall I mean, if you think about the money we spent whether legacy Rx. So now Coty integration. The return on investment is very nice and so it's a good use of cash but long term, we remain confident in the 40% to 60% through the market cycles and the last point on cash if you think about you get back to spend.
Speaker Change: We've been in a down cycle for most of that period of time, we've actually generated about 43% free cash flow conversion from EBITDA to free cash flow switch is a great number at the bottom of the cycle. So if you take that and think about the power of cash flow generation in the up cycle. It can be very significant for the business and we think.
Speaker Change: Thats a value creator for us.
Speaker Change: Thanks, so much.
Speaker Change: Thank you.
Speaker Change: The question and answer session I will now hand, the call back to Mr. Robertson for any closing remarks.
Speaker Change: Thank you Ginny or integration of Coyote is ahead of schedule and we have increased our estimate for annualized cost synergies to at least $50 million, we're delivering on our commitments in the fourth quarter in brokerage, we achieved 10% sequential volume growth.
Speaker Change: Our complementary services momentum continued in managed transportation in the sales pipeline is now nearly $2 billion in freight under management and then last mile. The stops grew by 15% in the quarter.
Speaker Change: We remain focused on providing the best service.
Speaker Change: The most comprehensive set of solutions continuous innovation and close customer relationships.
Speaker Change: We continue to be in a soft rate market, but our disciplined execution and the structural changes we've made in our business are positioning Rx, so well to deliver significant earnings growth and free cash flow across market cycles and over the long term. Thank you all for your time this morning.
Speaker Change: Okay.
Speaker Change: Sure.
Speaker Change: Thanks, Paul.
Speaker Change: Ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect your lines.