Q1 2025 RXO Inc Earnings Call
Joelle: Welcome to the RXOQ-1 2025 Earnings Conference call and webcast. My name is Joelle and I will be your conference operator for today's call.
Joelle: Please note that this conference has been recorded. During this call, the company will make certain forward-looking statements within the meaning of federal securities laws, which by their nature involve a number of risks and uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements.
Joelle: A discussion of factors that could cause actual results a different materially is contained in the company's SEC filings as well as in its earnings release.
Speaker Change: You should refer to a copy of the company's earnings release in the Investor Relations section on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures that the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin. Thank you very much.
Speaker Change: Good morning, everyone. Thank you for joining today. There are four main points I want to convey this morning.
Drew Wilkerson: First, we completed the most significant technology milestone of the coyote integration and our carrier network along with RxO carrier representatives are now covering free out of one transportation management system.
Drew Wilkerson: We're again raising our estimate for acquisition synergies. We now expect more than $70 million of cast synergies, which includes both operating expenses and capital expenditures. [inaudible]
Drew Wilkerson: As a reminder, this does not include the significant cost of purchase transportation and cross-selling benefits we expect to see.
Drew Wilkerson: Third, Embroker, we achieved 26% less than truckload volume growth. We also continue to see productivity increases through our investments in technology, including AI and machine learning.
Drew Wilkerson: Fourth, we maintain the momentum that we achieved over the last several quarters in complimentary services. Manage transportation increased the synergy loads, it provides brokerage, and we grew last mile stops by an impressive 24% year over year.
Drew Wilkerson: Putting it all together, our strong and growing business has significantly more scale and is powered by cutting edge technology that is driving continuous productivity improvements.
Drew Wilkerson: This uniquely positions are also for increased earnings power and free cash flow conversion over the long term and across market cycles.
Drew Wilkerson: I'll start by giving you an update about the integration of coyote
Drew Wilkerson: I mentioned earlier that our carrier and coverage operations are now working out of one platform,
Drew Wilkerson: Our CARE Network now has access to significantly more freight, and our reps now have access to an even larger network of carriers to cover that rate.
Drew Wilkerson: The increased capacity is helping us to find the best truck for each load enabling us to better serve our customers.
Drew Wilkerson: The early results from the migration have been encouraging. First, we prove the scalability of our tech, which remains stable during the migration process.
Drew Wilkerson: Second, our carrier operations team is working together as one network much faster than it's expected.
Drew Wilkerson: As an example, about 20% of Legacy's Coyote Spray was covered by Legacy R&O reps, and about 20% of Legacy R&O's Coyote Spray was covered by Legacy Coyote reps.
Drew Wilkerson: This exceeded our expectations and we're already seeing signs of buying better when it comes to purchase transportation.
Drew Wilkerson: We're now turning our attention to migrating legacy Coyote customers. In fact, we've already migrated all the master customer data, and we're already managing several legacy Coyote customers within our platform.
Drew Wilkerson: We continue to expect the bulk of our tech integration will be complete by the end of the third quarter.
Drew Wilkerson: Our technology and coverage teams have been working around the clock since the acquisition to ensure a smooth and successful transition. I'm extremely proud of what they've been able to accomplish in such a short amount of time.
Drew Wilkerson: As the integration has progressed, we found additional opportunities for synergies, and now expect to achieve more than $70 million of total past synergies, including more than $60 million of annualized operating expense synergies.
Drew Wilkerson: This excludes the significant opportunities for improving our cost of purchase transportation and the impact of our cross selling efforts.
Drew Wilkerson: Jamie will talk in more detail about the synergies later in the call.
Drew Wilkerson: Now I might discuss our first quarter results, which were in line with our expectations.
Drew Wilkerson: RXO delivered adjusted even up 22 million dollars within the Gannins range we provided the last quarter. RXO's company was 16% before.
Drew Wilkerson: brokerage volume for a combined business decline by 1% year-to-year. We outro the market as measured by the cast rate index, despite a significant auto-vote of headwind.
Drew Wilkerson: Our volume performance was better than anticipated due to a substantial 26% year-to-year increase in LTL volume. Full
brokerage gross margin was 13.3% in quarter
We continue to achieve road-boss productivity gains and progress.
Drew Wilkerson: Driven by enhancements to our tech platform, productivity over the last 12 months increased by about 17% and over the last two years by almost 40%.
Drew Wilkerson: Our significant investments in technology, including AI and machine learning, have a strong return on investment. While we've made substantial productivity gains, we're still in the early innings and have lots of runway for further improvement.
Drew Wilkerson: Momentum continued within complementary services. Manage transportation increased the number of synergy loads it provided the brokerage in the quarter. And last mile, stop screw about 24% year over year, accelerating from the fourth quarter growth rate of 15%. [inaudible]
Drew Wilkerson: We're also seeing the benefits from the productivity initiatives we've completed over the last few years.
Drew Wilkerson: The best known brands in the big and bulky space are increasingly turning to RITSA for last mile delivery because of our exceptional service, scale, technology and financial stability.
Drew Wilkerson: I've now let talk about overall market conditions [inaudible]
Drew Wilkerson: The weather-related tightness we saw in January , and discussed on last quarter's call, eased as the quarter progress.
Drew Wilkerson: We quickly reduced our call to purchase transportation, resulting in an approved gross profit
Drew Wilkerson: We also made significant progress improving legacy coyotes profitability. Legacy coyote grows profit for load, improved by approximately 20% from January to March. We made further progress in April , and will continue to drive improvements.
Drew Wilkerson: The current environment remains highly fluid. In response to changing trade policy, our customers are employing a variety of different strategies. Some have staged inventory in advance of increased tariffs and others are taking more of a wait and see approach. [inaudible]
This uncertainty is impacting near-term truck load demand. [inaudible]
Drew Wilkerson: Specifically in April , Arthur's truckload volume was down by mid-signal digit percentage when compared to March.
Drew Wilkerson: RxO has several company-specific drivers that we anticipate will yield a sequential improvement for a profit per load in the second quarter. We also expect to grow EBITDA significantly when compared to the first quarter.
Drew Wilkerson: The flexibility of RX's asset light model will continue to drive our performance in all market conditions.
Speaker Change: Jamie and Jared will discuss our outlook in more detail later in the call.
Speaker Change: RSO remains well-presistant to drop increased earnings over the long term.
Speaker Change: Our technology migration will enable us to realize the benefits of our increased scale, including the cost of purchase transportation opportunity.
Speaker Change: As a reminder, we more than double our truckload volume as a result of the Coyote acquisition, which has provided us with better length density.
We're continually improving our type platform.
even as we complete the integration.
Speaker Change: Our powerful pricing algorithms leverage AI and machine learning, and our employee facing software continues to help improve productivity. When those algorithms are on lease on our much larger set of carrier customer data, we expect massive benefits.
Our cross-selling initiatives are fueling new wins across the company.
Speaker Change: We're growing stable sources of evena, including an LTL and Mayas transportation, and our last mile business has tremendous momentum.
Speaker Change: We have even more tenure talent within the organization, and our people are energized and dedicated to the success of our customers and our career network.
Speaker Change: We've been proactive when it comes to reducing costs, which has helped us mitigate the effects of a difficult freight market and will provide us with significant operating leverage once the market improves.
Speaker Change: We have a strong balance sheet and a unique platform that provides us with opportunities to drive both organic and inorganic groups. Now Jamie will discuss our financial results in more detail, Jamie.
Jamie: Thank you Drew and good morning. Let's review our first quarter performance in more detail. Our results were in line with our expectations in the first quarter.
Jamie: We generated $1.4 billion in total revenue. Gross margin was 16%. We delivered adjusted EBITDA of $22 million. Our adjusted EBITDA margins was 1.5%.
Jamie: One item to note regarding our EBITDA results was the impact of our automotive business.
Jamie: The slowdown and automotive volume represented a company wide of gross profit headwind of approximately $10 million year-of-year. This volume, because of its time-critical nature and higher service requirements, typically cares a higher gross margin with strong flow-fruits to evadont.
Below the line, our interest expense was $9 million. $10 million.
Jamie: For the quarter, our adjusted earnings per share was negative three cents.
Jamie: You can find a bridge to adjusted EPS on slide 9 of the earnest presentation.
Jamie: Now I'd like to give an overview of our performance within our lines of business [inaudible]
Jamie: Roku's revenue was $1.1 billion and represented 72% of our total revenue.
Jamie: Please note, we have a small piece of business within Legacy Cody Brobridge that is fee-based in nature, similar to our managed transportation business. [inaudible]
Jamie: We made a decision to account for this on a net revenue basis which reduced reporting revenue by approximately $35 million. This change had no impact to gross profit or adjusted EBITDA.
Jamie: Turning to volume, we are strong LTO growth driven by new customer wins, offset by decline in truck load volume given contingent self-freak market conditions.
Berkis-Grust-Margent was 13.3% [inaudible]
Jamie: Confirmary service is revenue in the quarter of $415 million, increased by 8% year-to-year and was 28% of our total revenue.
Jamie: Conference Services, Gross Margin of 21% remains strong and increased by 40 basis points year-to-year.
Jamie: Now let's move to each line of business within complimentary services.
Jamie: Manage Transportation generated 137 million dollar revenue in the quarter, down 10% year to year. Manage Transportation continues to be impacted by lower automobile volumes and are managed expedite business.
Jamie: Our last mile business generated $278 million in revenue in the quarter, about 20% year-to-year, better than our expectations. Last mile stops, through about 24%, accelerating from last quarter's growth rate.
Jamie: We continue to gain share within the big and bulky category and are winning in a profitable business about existing and new customers.
Jamie: We also continue to seek benefits from the Productivity Initiatives we lost last year.
Fist Now Discuss Cash, and please refer to Slide 10. [inaudible]
Jamie: Adjusted pre-catch flow in the first quarter was $6 million, a 27% conversion from adjusted EBITDA. The conversion rate was intact about lower profitability at the bottom of the freight cycle.
Jamie: Longer term, given our asset light business model, we remain confident in the 40 to 60 percent conversion through market cycles.
Jamie: We ended the quarter with $16 million of cash from the balance sheet, consistent with our expectations. As we discussed in February , our fourth quarter cash balance was higher than anticipated due to the timing of transaction payments related to the CODI acquisition which was paid in the first quarter.
Jamie: We also had a cash usage of $17 million for tax foretoldings, which was the final tax payment related to pre-spam our issues.
Jamie: As you can see on slide 11, our liquidity position continues to be strong with more than $575 million of total committed liquidity at the end of the first quarter.
Jamie: Courier End, net leverage was 1.9 times Trailing 12 months, Bank of Justice, EBITDA, but slightly when compared to the prior quarter, we continue to have significant capacity to deploy our balance sheet and line with our balance capital allocation philosophy.
Let's move to the Cody integration. [inaudible]
Jamie: We're again increasing our synergy estimates. We now expect more than $70 million of cash synergies.
We expect more than 60 million dollars of annualized operating synergies.
10 million dollars higher than last quarter assessment. [inaudible]
Jamie: We also expect at least $10 million in capital synergies, which will benefit $2,026.
Jamie: It's important to note that the cash outlay required to generate these savings is approximately $50 million, which would generate a strong return of almost 150% [inaudible]
Jamie: These synergies exclude opportunities for optimism or calls to purchase transportation spend.
Jamie: with Carrier and Covers Migration Complete, there's a significant opportunity to purchase transportation more effectively.
Jamie: As a reminder, we had a combined brokerage transportation span of about $4 billion in 2024.
Jamie: A 1% improvement in by-rates would represent a $40 million opportunity.
These synergies also include revenue, [inaudible]
Jamie: and cross-selling opportunities across the company, which have already begun to materialize.
Now let's discuss our expectations for the second quarter.
Jamie: The current macroeconomic environment is creating a significant shipper uncertainty, which we've incorporated into our outlook.
Jamie: So the combined company in the second quarter, we expect to generate between 30 and 40 million dollars of adjusted eva dot [inaudible]
Jamie: For the second quarter, you should model depreciation expense of approximately $17 to $19 million, and the adjusted effective tax rate of approximately 30 percent.
Jared will provide more details on our secret corridor outlet shortly.
Glad 16, includes our 2025 modeling assumptions. [inaudible]
There are a few things I like to highlight. [inaudible]
Jamie: We're reducing our $2,025 Catholic expenditure estimate by $10 million to approximately $65 to $75 million.
Jamie: We're also lowering our depreciation expense estimate accordingly and now expect depreciation to be in the range of $65 to $75 million.
Jamie: We're also lowering our 2026 Capitol Expenditure Estimate, which will benefit from the previously-discussed
Jamie: We anticipate 2026 caps to be between $45 and $55 million down materially from 2025.
Jamie: You'll also notice this year's estimated adjusted effective tax rate moves higher and is expected to be between 30 and 33 percent. This is solely a function of lower pre-tax income given the current state of the freight market. Our long-term target of 25 percent remains unchanged.
Jamie: Before handing it over to Jared, I want to highlight the benefits or asset-like operating model, which is a key strategic benefit, especially in periods of volatility. [inaudible]
Jamie: We have minimal maintenance cap-ex requirements and can move quickly on cost [inaudible]
Jamie: While we continue to operate in a soft environment, we're investing for the long term, making significant progress with the integration of Cody.
Jamie: in scaling the business to position us for when the market recovers. [inaudible]
Jamie: We've taken out significant calls, executed aggressively on our synergy targets, and successfully migrated carrier and coverage operations, enabling opportunities for calls to purchase transportation
Jamie: These actions position as well to be the strong results of the long term.
Jamie: Now, I'd like to turn it over to Chief Strategy Officer Jared Weisfeld, who will talk in more detail about our results and their outlook.
Jared Weisfeld: Thanks, Jimmy, and good morning, everyone. As I typically do, I'll start with an overview of our appropriate performance in the quarter.
Jared Weisfeld: To make the comparisons more useful for you, I'll give you combined numbers for our brokerage business, which include kind of these results in prior periods.
Jared Weisfeld: Brookridge volume in the quarter was down 1% year-over-year ahead of our expectations [inaudible]
The better-than-expected performance was driven entirely by LTL strength.
Jared Weisfeld: LPL volume increased by a strong 26% year over year, the result of successfully onboarding
Jared Weisfeld: LTO represented 25% of the upper volume in the first quarter of 500 basis points year over year.
Jared Weisfeld: Full truck load volume was now 8% year-over-year, impacted by continued soft freight market conditions.
Jared Weisfeld: Automotive weakness was the biggest driver, and automotive value was down more than 25% year over year.
Truffle represented 75% of our corporate volume. [inaudible]
Jared Weisfeld: We also maintained a favorable mix of contract and spot business in the quarter.
Jared Weisfeld: Contract represented 73% of our full truck with volume, down 100 basis points sequentially, and up 100 basis points year over year.
Scott was 27% of full truckload volume of a quarter. [inaudible]
Jared Weisfeld: We continue to operate in a prolonged, self-environment with minimal stop opportunities.
Jared Weisfeld: Before reviewing our financial performance and market conditions in more detail, I'd like to talk more about the progress we've made to integrate Coyote's technology into RxO's platform.
Jared Weisfeld: As you can see by the milestones noted on slide six, we've taken a phase approach and we've moved quickly.
We launched a unified company website that enables instant coding.
We've successfully integrated our payments networks.
Jared Weisfeld: We've migrated to one CRM platform, which is helping our cell teams see opportunities across RSO.
Jared Weisfeld: We completed the most significant technology milestone at the Toyota integration and our carriers and operations teams are now covering freight on one coming platform.
Jared Weisfeld: And we're now leveraging a unified data set for pricing and network decision making.
This last point is an important one. [inaudible]
Arto led the industry in adopting AI and machine learning.
Jared Weisfeld: Pre-apposition. We had 10 years of data on which our algorithms could learn and optimize.
Jared Weisfeld: Following the successful data migration, our next generation models are already running on our larger combined data sets, including legacy coyotes pricing models.
Speaker Change: Let's now review our brokerage financial performance and market conditions in more detail. You can find this information on slides 12 through 15 of the presentation.
Starting with Revenue Promote on Slide 12. [inaudible]
Speaker Change: In the first quarter, full truckload revenue per load trends continue to improve [inaudible]
Speaker Change: Radio for Load, excluding the impact of changes in fuel prices and length of haul was up 4% year over year.
Speaker Change: After a successful bid season, we continue to expect 20-25 contract breaks to be up low to mid-single digits year-over-year [inaudible]
Speaker Change: Let's move to slide 13 and discuss focus performance and current multi-conditions
Speaker Change: Following difficult weather conditions in the month of January , the market loosens in line with our expectations
Speaker Change: Specifically, the loads of truck ratio is decreased from 7 to 1 to less than 5 to 1, and tender rejection is decreased from 7 to 1.5% to 5% [inaudible]
Speaker Change: Importantly, while the market softens, industry KPIs were higher zero earlier, consistent with our review that capacity has exited the market, which brought the industry to a more balanced state in the quarter.
Speaker Change: Supporting this view, class eight net orders have declined materially to start the year, and the April decline was one of the largest sequential declines on record. [inaudible]
Speaker Change: Mr. Loser Market Conditions, we quickly brought down our cost of purchase transportation in the quarter.
Speaker Change: This resulted in lower bi rates and higher growth profit per load as the first quarter progress.
Speaker Change: Turning to the second quarter, shippers are highly uncertain, given current environment and we saw that in our April results.
Speaker Change: With an aeroblopers business, the second quarter started off with continued soft-value trends led by automotive weakness.
Speaker Change: Abel Truckler-Bine was down at mid single digit percentage with compared to March and was down a high single digit percent year over year.
Speaker Change: However, LPL continues to grow strongly and total volume was up slightly year over year
Speaker Change: Despite the fluid environment, Araco has multiple levers for margin improvement and we anticipate gross profit promote to improve in the second quarter.
Speaker Change: Our contract rate increases are continuing to phase in and we remain laser focused on purchase transportation costs [inaudible]
Speaker Change: With last week's successful carrier and coverage migration, there are additional opportunities to procure capacity even more effectively. [inaudible]
Speaker Change: Let's put aside 14 and look at quarterly full truck load first profit per load trends.
Speaker Change: We were able to improve breast-profit promotes significantly throughout the quarter, resulting in a relatively stable breast-profit promote when compared to the fourth quarter.
Speaker Change: Specifically, truck load risk profit per load improved by approximately 20% from January to March.
Speaker Change: Moving to slide 15, Arko's LTL work advice continues to outperform the LTL market.
with Stable Gross Profit Prologue. [inaudible]
Speaker Change: We have significant opportunities to continue to grow our LTL business.
Speaker Change: I now like to look forward and give you some more color on our second quarter outlook that Jamie provided.
Speaker Change: Starting with Berkridge, we expect overall buying to decline a low single digit percentage year over year with continued soft truck road buying trends mostly offset by strong LPL growth.
Speaker Change: We Excess Burkage Rose Project Parload to Move Higher Into The Second Quarter, resulting in a Burkage Rose margin of between 13% and 15% [inaudible]
Let's now talk about complementary services.
Speaker Change: In Managed Transportation, while the business has significant sales momentum, Managed Expedite Automotive Headwinds continue to impact us in the near term.
Speaker Change: As a reminder, the third quarter is seasonally weaker for last mile, like it goes to the second quarter [inaudible]
Speaker Change: Putting it all together, we expect Eric's second quarter adjusted EBITDA to be in the range of $30 million and $40 million.
Speaker Change: We thought it would also be helpful to give you some more color on the assumptions underlying our outlook.
Speaker Change: Typically, truckload volume ramps throughout the second quarter. We have not incorporated that assumption into our guidance range.
Speaker Change: The high-end of our outlook assumes truckload volume and burst type of payload remains consistent with evil levels.
Speaker Change: The low end of our outlook assumes that Trufford volume declines materially from April , with lower gross profit per load.
Speaker Change: Additionally, our Outlook does not assume any material, purchase transportation benefits associated with the carrier and coverage migration that was completed on May 1st.
Speaker Change: To close, while we're operating in a more uncertain environment, Arxo has multiple idiosyncratic levers that position us well for long-term earnings and pre-cashable books.
Speaker Change: Coyote Carrier and Coverage Migration is now complete, which will enable significant cost approaches transportation savings opportunities. We again raise our cost energy estimate.
Speaker Change: We are staying close to our customers and will catch our spot opportunities when the market recovers.
Speaker Change: Our LTO volume is growing quickly, and there's a long runway for sustainable and profitable growth.
Speaker Change: Last mile continues to gain significant share and we have a strong balance sheet and a position well to capitalize on additional organic and inorganic growth opportunities.
Speaker Change: 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 touch-tone phone. You will hear prompt that your hand has been raised.
Speaker Change: She's a wish to decline from the polling process, police press star followed by the two. If you are using a speaker phone, please have the hands up before pressing any keys.
One moment, please hear first question.
Speaker Change: Your first question comes from Stephanie Moore with Jeffries. Your line is now open.
Hi, good morning. Thank you
Good morning, Stephanie. Good morning.
Speaker Change: Yeah, I think, Stephanie, when you look at the business, we took what was a really strong business and legacy RxO, and we've dramatically improved the long-term earnings power of the business.
Speaker Change: You focus on purchase transportation and Jamie framed it up if we're if we're only able to improve that by 1%.
Speaker Change: Well, it'll be around $40 million of how well we buy versus what's going on the market.
Speaker Change: You look at doubling our volume and being able to spread our cost out across more loads, which essentially lowers our cost to serve.
Speaker Change: for our customers makes us more profitable. When you look at the productivity improvements that we're really just getting started on right now.
17% on a year-over-year basis. [inaudible]
Speaker Change: For us, there is so much runway and continuing to improve the long-term profitability of the business and being able to have higher lows, higher midpoints and higher highs.
David Zazula, David Zazula, David Zazula, David Zazula
Speaker Change: Great, appreciate the color, and then maybe just taking a more linear term view, appreciate the color, don't you already just highlight it on terms of the two cute guidance. [inaudible]
Speaker Change: You know, given how uncertain the macro backdrop is, if you could touch a little bit about what you're underlying freight market assumptions are for QQ, and then is April kind of the right run rate just based on the conversations that you're hearing. So, meaning do you feel like it April customers were a little bit more negative and then got and then improved as the year is I'm sorry as the month progressed or do you feel like April is a good starting point. Thanks.
Jared Weisfeld: Sure, hey Stephanie, it's Jared. So when you look at the month of April , we talked about full truckload volume being down roughly mid single digits when compared to the month of March. If you actually look historically for Legacy RXO, that number is actually usually up slightly. So we saw that softness materialized into April and then as Q2 seasonally progresses.
We usually see volume ramp from April . [inaudible]
Intermay, Interjun [inaudible]
Jared Weisfeld: Given the uncertain environment that we're in, none of those assumptions are incorporated into our outlook so off of that lower basis of April we are not assuming any improvement. Let's get started.
Jared Weisfeld: in freight market conditions across that outlook range, even at the high end, that does not assume that market conditions continue to improve and at the very low end what we did was we assume that we take another step.
Jared Weisfeld: Lower in volume, Relative to that April base, which is already below seasonal, and lower gross profit for loads. So we tried to go ahead and give a framework that goes ahead and encompasses a lot of different scenarios that could occur within Q2 and I think importantly two things to add on that.
Jared Weisfeld: None of the scenarios include any significant benefit associated with purchase transportation where we're seeing from early wins and gross profit per load will improve for the business sequentially across the scenarios from Q1 to Q2.
Thank you. Appreciate the time. Thank you.
Chris Weatherby: Your next question comes from Chris Wetherbee with Wells Fargo. Your line is now open.
Chris Weatherby: Thank you, great thanks, Lauren. Maybe to follow up on that question, as you think about the gross margin percentage range for the second quarter, I guess maybe can you talk a little bit about the sort of the potential dynamics that can influence you one way or another, presumably if you see the TL market continues off and that might help that number. Just want to get a little bit of sense of how you think about sort of the high end of the low end there, what are the dynamics you'd expect to see. [inaudible]
Chris Weatherby: Hey, Chris, that's exactly right. I mean, to the extent that the market does soften, you'll see the ability of continued improvement and gross profit per load. I mean, if you look at Q1 as a proxy, I think that's a really good example in terms of how quickly we brought down purchase transportation. Thank you very much.
if you look at between January and March.
We increased gross profit per load.
Chris Weatherby: Mostly attributable to the buy side. So if the market does go ahead and get a bit looser And then you think about on the sell side in terms of some of the contract rates that we talked about We're low to mid single digits We still feel very good about for the full year and that was up about 4% year-over-year in Q1 those should all be tailwinds and I think most importantly now that we are
Chris Weatherby: Buying capacity, procuring capacity as one organization with all carrier reps procuring and covering freight in one system for an optimizer. We have, you know, our customers have better access to more trucks with the right loads and that has the ability to go ahead and contribute as well.
and then...
Speaker Change: That's great, and then maybe one follow up here, maybe zooming out a little bit, thinking bigger picture about EBITDA progression as you move through the rest of the year. I guess what we're trying to kind of figure out is, I guess you have seasonality, which I think in some cases might be a little bit softer in 3Q versus 2Q for the overall business, but you obviously have synergies, the potential for PT optimization. Any help that you can give us in terms of thinking about how this might build over time. I understand also obviously that the macro is quite challenging and difficult to predict, but anything you can kind of help us with.
Speaker Change: How do you think about the shape of the rest of the year from profitability perspective? Yes.
Speaker Change: Sure, I'll start and then I'll let I'll let Jamie come in and give you some more color as it relates to synergies You know when you think about You know q2 to q3 as you know We we give guidance one quarter at a time But it can certainly give you some frameworks in terms of how we're thinking about the back half of the year
Jamie: Q3 will get to benefit from the new implementation of all the all the contract increases as we talked about as you know, you know we will go ahead and it's a it's a staggered approach right where as the new contract start to roll in Q3 will reflect the full run rate benefit of that [inaudible]
Jamie: We're working really hard to benefit from purchase transportation synergies quickly with the successful integration complete on carrier migration last week.
Jamie: Last mile business to your point is seasonally lower relative to Q2. We are continuing to gain significant share there. You saw it stops up 24% year over year last quarter. That will moderate a bit into Q2.
Jamie: But, you know, from a sequential standpoint, that is seasonally weaker into Q3, but the biggest variables are going to be volume and gross profit per load, and I think at this point...
Jamie: We're in such an uncertain environment, we certainly incorporated that as it relates to our Q2 outlook but beyond that I think it's too early to call but I'll head it over to Jamie on the synergy front.
Yeah.
and thanks. I'm Synergy Zinaweep.
Jamie: We've taken out a lot of calls, $70 million annualized, we'll realize for the year about 45 of that into 2025.
Jamie: You saw Sequential Q1, Q2, there should be a bump of about another four, there'll be a slight increase going into the back half of the year as we take out that last $10 million of Op-X.
Jamie: Primarily in the back half of the year, we get a little bit of that in the fourth quarter, but we should see most of that realize in 26.
Jamie: The other thing that Jared touched on, re-emphasize, you know, we've...
Jamie: Just cut over the procurement side of our carrier transportation calls.
Drew Wilkerson: There's a big opportunity there to give you the framework for $4 billion spend. If we can get 1%, we should see it by better than the market rates. We see that ramping up as we head into the back half of the year as well as in terms of the execution of the opportunity.
Perfect. Thanks very much for the call. I appreciate it.
Speaker Change: Your next question comes from Brandon Oglenski with Barclays. Your line is now open.
Creep!
Hey, this is David Zazulon for Brandon.
Speaker Change: I think you'd previously talked about the art so business being primarily a domestic business. I wonder if you could help us a little bit on what you're thinking for the potential tariff with impacts in second quarter and third quarter. I think we're seeing.
Speaker Change: You know, pretty sharply down imports coming in from Asia. So how that might impact your business and where that's incorporated into your guys.
Speaker Change: We're seeing different things from different customers, David. There's not a uniform approach to what customers are doing.
Speaker Change: We've got some customers that have pulled inventory ahead. We've got some that have paused completely and we've got some that have continued shipping as normal.
Obviously, we're watching it closely and...
Speaker Change: Well aware that imports coming into the US are dramatically down over the last 30, 45 days.
Speaker Change: With that said, you know, it could have an impact on the overall truckload market and the truckload demand. At our playbook bears, we're going to focus largely on purchase transportation to be able to improve profitability if that's what occurs.
Speaker Change: Thanks, and then specific to volume trends, you trusted a little bit on it earlier. Our perception is the cops on the coyote side are getting a little easier. Are you expecting to have maybe a little bit of tailwind there and are there some offsets that would potentially, you mentioned, you maybe have some headwinds in April and moving forward into you. [inaudible]
Well, I think the biggest headwind is automotive. [inaudible]
Speaker Change: When you look at it, we are the leader in the US on ground expedite shipments and that's largely driven by automotive and we have been forever so as that comes back that will be a tailwind to the business.
Speaker Change: But for right now, you certainly see the impacts of less automotive expedite shipments out there.
Speaker Change: with in our network for the legacy coyote and legacy RxO, yes cops get easier but that's the most important thing is the feedback that we're getting from our customers. This is the most important thing that we're getting from our customers.
Speaker Change: When you look at what we've heard from our customers, we're hearing good feedback on the awards that we're actually receiving, the awards that are still coming in, and where they expect us to finish from a rate perspective, we still expect to see that increase on contractual business of low to mid-single digits.
Thanks, Jared. Thanks, Drew.
Speaker Change: Your next question comes from Jeff Kaufman with Vertical Research Partners. Your line is now open.
Speaker Change: Thank you very much and thanks for the context in your outlook. I guess I'd like to ask a question a little bit differently.
Speaker Change: I hear the conservative forecast and how the second quarter is a little different from previous second quarters, but in any forecast, there's the parts of the forecast you feel, you got your arms around and then there's the parts of the forecast that are a bit of a leap of faith.
Speaker Change: I'm just curious what the leaps of faith are in your outlook, whether it's second quarter or full year 25.
Speaker Change: We're confident in the forecast that we put out Jeff. I think that the way that Jared framed it up, we looked at a number of different scenarios.
Speaker Change: We've got to playbook if volume goes down to be able to focus even more on purchase transportation. We have the tailwind of coming on to one platform that is idiosyncratic. So I'm sure everybody's focused on purchase transportation but we've got the benefit of having capacity that didn't cross over. [inaudible]
Speaker Change: to be able to find the right truck for the right load, to be able to improve it there. So, when you look at Gross Profit per load, you know, for us to be able to say that we expect that to improve sequentially. There's confidence in the numbers there.
Speaker Change: And just to follow up, you know, nobody really knows what's coming with this freight air pocket that's going to hit us in 2Q and 3Q.
Speaker Change: If the environment is somehow worse yet than even you're looking for, how much flexibility you have at this point with the technology part of the integration more behind you to respond to positive or negative market environment?
Speaker Change: We're very agile. We've shown the ability to move quick and realize the synergies faster than...
Speaker Change: What we originally communicated out, you know, we've talked about in the past being staff for growth and being staffed at around 15% overnight growth that we could realize we're above that right now from where we sit. So, you know, we've got a lot of different things that we can run from the playbook with the market right now. [inaudible]
Okay, thank you very much.
Speaker Change: Your next question comes from Lucas Sverva, with True Security. Your line is now open.
Lucas Cervera: Hey guys, good morning. Just wanted to touch on productivity improvement. Where could you see some of those further improvements longer term and then I'll have another one after that.
Jared Weisfeld: Hey Lucas, it's Jared. So I think, you know, one of the key strategic benefits associated with the acquisition of coyote was...
Jared Weisfeld: We have the ability to go ahead and actually accelerate our technology road maps after we close the acquisition and we compare the technology road maps.
Jared Weisfeld: It was really interesting to sort of do side-by-side because a lot of things that we had on our road map, like I said, Coyote in some cases actually had implemented and I think part of that also, we saw last week with the successful migration of the carrier coverage where, you know, if you think about the makeup as it relates to the carrier bases across the organization, RxO historically, more owner operators, like I said, Coyote leveraged larger fleets, private fleets, so their digital capabilities, their ability [inaudible]
Jared Weisfeld: We need to cover freight with those larger freight, with those larger fleet sizes. I think we took the best of both worlds, we've integrated that and I think we're going to, I think that's one area to continue to focus on in terms of how to go ahead and continue to be efficient from a cost standpoint and increase our productivity by leveraging the technology suite of the combined company. Thank you very much.
Speaker Change: Okay, and then last mile came my end head of overall expectations. Do you think there was a level of pull four there from and consumers maybe trying to get ahead of Harris?
Speaker Change: Absolutely not. Last mile had a whopping 24% year-over-year increase in their stops and that was driven by growth from current customers as well as new customers. When you look at current customers
Speaker Change: We were getting business in new markets that we were not operating for them today where we've got really good service we've got strong relationships they've seen the results that we've been able to deliver form new customers were taking markets from other other competitors and giving them to us because of how much they trust us [inaudible]
Speaker Change: because we've been the leader in the space. We've got a great reputation. We've also seen new customers come on at a really good rate and the onboarding has been great. So it's a growth from new customers as well as existing customers, but it's new markets importantly.
Thank you.
Speaker Change: Your next question comes from Ken Hexter with Bank of America. Your line is now open. Hey, great good morning. Less than truckload volumes were of 26% in a market that seeing kind of up for single digit declines.
Speaker Change: What's driving the sharegames? Is there something where you're using price to take share? Is there different capacity offers from the carrier partners that are working with you to enable the sharegames? Just wondering what's driving such a different factor versus the market? Yeah.
So, Kim, let's start with the price piece.
Ken Hexter: When you look at our revenue per load and LTL on a year of your basis and you back out fuel and you back out length of halt is flat.
Ken Hexter: So I think the answer is if you're looking for price as a lever, it's not how we do business. That's something that's not in our playbook.
Ken Hexter: We want to price in land with what's going on in the overall market.
Ken Hexter: The first part of your question about how are we taking share? The biggest thing that we're seeing right now is a lot of times LTL can be a pain point for customers.
Ken Hexter: It's a small piece of their revenue spend, and it's a small piece of their overall volume. But when you talk about tracking, when you talk about claims that come in, you talk about lost shipments, you talk about working with multiple different carriers for something that's a small piece of their business.
Ken Hexter: We bring an easy solution to use from the technology side for them. They're familiar with us from the service that we've provided from the truckloads out, so we're winning with large enterprise customers.
Ken Hexter: that are coming to us and giving us the opportunity to service LTL in addition to truckload.
Ken Hexter: and I would close with, we're just getting started in LTO. It went from 20% of our volume to 25% of our volume, but you know if you look at some other large brokers in the industry
Ken Hexter: 50 to 60% of their overall volume comes from the LTL side, so we think we've got a lot of share to take in the market in the coming years.
Speaker Change: Thanks for that, that's great. Ed Sheeral Clarified, did you say pricing was flat or did I revenue you promote? I missed what the original comment was there.
Speaker Change: Revenue per load, excluding fuel and length of haul was flat. So when you look at lowering price to get business, not in our playbook. Yeah, okay, great.
Speaker Change: And then you mentioned the code over on May 1st of the systems. Any early signs of the PT cost savings that you've enacted? Does it happen? Can you get it in that quick? Or is that something you need practice and it takes time to start to blend those in?
Speaker Change: So our expectations coming in were zero. I mean like all we wanted to be able to do was have a system that can handle the scale that we were putting on making sure that it was a stable system and that people were learning how to operate in the system and we were servicing our customers.
Speaker Change: Knocked out of the park, so we didn't expect to see a lot of cross-pollination from capacity in the early innings of this [inaudible]
Speaker Change: But on day one, we started seeing it, you know, Legacy Coyote, when you look at whether Careups are Covering, it's around 20% of what's coming on Legacy Arts so free. And it's the same for Legacy Arts Ocareer, it's about 20% of what they're covering.
Speaker Change: is coming from Legacy Coyote Freight. So our customers are getting the right truck for the right load.
Speaker Change: Services there, and then when you look at purchase transportation, we are seeing some early signs. Now we're four days in. We're not running around high five and celebrating. We're laser focused on continuing to improve purchase transportation, but there are early ones that we're seeing in the first four days. [inaudible]
Speaker Change: Great, all right, thanks, good luck, thank you, appreciate the time [inaudible]
Speaker Change: Your next question comes from Ravi Shanker with Morgan Stanley . Your line is now open.
Great, thanks. Morning, everyone. Good night.
Speaker Change: So, here's a follow-up on the LTL share commentary. What is the...
Speaker Change: So when you look at the LCL market, what is the target share of the overall industry? Do you think the asset light print players can get?
Speaker Change: versus acid heavy relative to the TL market. And also in the past, on the TL side acid base carriers are sort of almost blamed brokers for putting pressure on the industry as a whole. Do you think the same thing will happen on the LTL side as well? This is not an RXO question as much as an overall injury question.
Drew Wilkerson: I think that we look at the carriers, Ravi, as our partners, of who we're doing business with and...
Drew Wilkerson: We're a sales channel for these LTL carriers to be able to grow over the years. We've got great relationships with them and for us it's all about finding the lanes that work within their network and we're they're going to provide the best service in a reasonable price.
Drew Wilkerson: to the customers and it's about giving the customers the right truck for the right load. A lot of it comes down to the technology and the ease of use within the system that we're able to provide for the customers.
Drew Wilkerson: So as you start talking about to Stephanie's question earlier, of higher highs, higher lows, higher midpoints, LTL provides that stability through a cycle as we grow that out.
Drew Wilkerson: Understood, and maybe to just follow up on this energy topic as well.
Speaker Change: How are you able to, I mean, obviously very good that you're able to raise the synergy target so often, but where is that coming from? Is this like, you know, peeling layers of the onion where every layer take off and kind of you find more in which case kind of how much more of the onion do you have to cut? I think this analogy works better than the baseball innings one. So I'm gonna.
David Hicks. [inaudible]
Speaker Change: Yeah, hey, Robbie, this is Jamie. Yeah, we've had good success in our synergies and we have raised it now three times in the last three quarters.
Speaker Change: Think about the typical places in business like this, bringing this technology integration first phase to be complete, that's a big win.
Speaker Change: Not only operational, but it gives this opportunity to take out duplicative calls. We've had good wins in real estate consolidation, just taking a building and closing a floor and putting folks on two floors instead of three as an example, subletting the space.
Speaker Change: and then third probably one of the bigger ones, it really doesn't begin to hit until next year from a realization standpoint is the procurement side. You know, taking two businesses that really do virtually the same thing.
Speaker Change: Having contracts with the same vendor or having contracts with two different vendors putting them together and getting the power of scale.
Speaker Change: And so we've been able to do all of those things is you'll know 10 million dollars of that 70 is capex savings that is that be to be eliminated going into next year because you know we now we have one platform instead of two to spend money on
Speaker Change: And Robbie, one other thing to add, if you look at that 70, the return on investment that we've got has been very powerful I mean we're going to spend, just call it $50 million in total to generate $70 million of the savings that's annualized on a go-forward basis, we're very pleased with that return.
Anderson, thank you.
Brian Osenbeck: Your next question comes from Brian Ossenbeck with JP Morgan. Your line is now open.
A. Good morning, thanks for taking the question. [inaudible]
Brian Osenbeck: So, maybe just wanted to ask a little bit more about the competitive dynamic obviously the market is quite soft and love and certainty is you highlighted. We've seen one major retailer at least.
Brian Osenbeck: Maybe get into the brokerage side a little bit more, but maybe you can broaden out just to the competitive dynamic, specifically in full truck load as we go through an extended week period of the cycle here.
Brian Osenbeck: Good morning, Brian . I've been doing this almost 20 years. Broker has always been a very competitive business. We have seen retailers come into the space before. This is not something that is new. For us, you have to look at how are we building the business? [inaudible]
Brian Osenbeck: and we built the business on having fantastic service for our customers.
Brian Osenbeck: We've got solutions that we put together for them that allow them to optimize their freight more efficiently and give them great visibility of what they're doing.
Brian Osenbeck: We've got technology that helps them drive decision-making, telling them what days of the week they should ship something, what mode of transportation they should use [inaudible]
Brian Osenbeck: and we've got long-tenured relationships and a history of creating these solutions for them. When you look at our top customers, they've been with us for over 15 years.
Brian Osenbeck: on average. So for us, you know, we look to be able to build on that and it's more about how are we building in what has always been a competitive landscape in the brokerage industry.
Speaker Change: So, maybe if you can give a little more color on sort of the pricing dynamics you're expecting, contractual specifically, phasing in throughout the rest of the year, you mentioned the most single to the single digit improvements, obviously Marken used to cooperate for those to become effective so maybe a little bit more in the confidence and visibility to those. [inaudible] I'm sorry, I'm sorry
Speaker Change: Great to actually coming through. Again, it gives us more of a competitive question, but confidence and is holding and being able to recognize that I guess more specifically, you know, what are you reflecting in that sequential improvement in TQ?
Jared Weisfeld: Hey Brian , it's Jared, so our confidence is high as relates to the contract rate increases that we talked about so we're reiterating our view in terms of low to mid single digit contract rate increases year over year you're starting to see the implementation of that throughout Q1 throughout Q2 Q2 throughout Q2 throughout Q2 throughout Q2 throughout Q2
Speaker Change: with the full run rate impact of that into Q3, so we feel really good about that, and I think that comes back to exactly what Drew was talking about earlier, the service that we provide to our customers, we have to win the right to serve every load, and we see that in our service results, so that's part of it. The other thing to think about certainly is mix, so you can, Q1 was a great example of that, where revenue per load. The other thing to think about is the service that we provide to our customers, so that's part of the service that we provide to our customers, so that's part of it.
and our full truckload business.
Speaker Change: Excluding Michael Paul, excluding fuel, was up 4% year over year, right? But that was also in the context of automotive being a approximate 10 million dollar headwind to gross profit year over year given the time critical nature of those shipments so we feel really good about our contract rate increases but it needs to also be viewed in the context of mix where automotive has been a headwind. [inaudible]
Speaker Change: for the business and that's also incorporated into our Q2 Outlook as well. [inaudible]
Understood. Thanks very much.
Speaker Change: Your next question comes from Bruce Chan with Steeple. Your line is now open.
Thanks operator and good morning guys
Speaker Change: You know, when I think about that, against the overall trends for the overall business still being kind of stagnant, while you know some of your peers have maybe seen a pretty steady improvement in the AGP is that?
Jared Weisfeld: All due to automotive, and then Jared, you talked about the big opportunity in GP Proload now that you're on the Unified Platform.
Jared Weisfeld: But you also said that the high end of the guidance range assumes a flat AGP per load from Q4 so maybe you can just help me to synthesize all that commentary and you know kind of figure out why you're seeing flatter trends versus some of the competition. [inaudible]
Jared Weisfeld: Sure, I'll have to take that first. So when you think about the baseline, just to frame it up, right? January was a very difficult month for us in the industry and we moved quickly from January .
Jared Weisfeld: to reduce cost-to-purchase transportation very quickly. That improvement that we saw from January to March was, you know, almost entirely by side driven. So we were able to go ahead and improve.
Jared Weisfeld: Gross Profit Proload, by about 20% from January to March, that improvement sustained as it related to the month of April as well. So we saw stable Gross Profit Proload off of that improvement and when you look at Q2 as a whole.
Jared Weisfeld: You know, all of the guidance scenarios that we provided assumes that gross profit [inaudible]
Perlode will be up sequentially. [inaudible]
Jared Weisfeld: from Q1 levels at the high end and at the low end. To your point, if you look at the high ends where, you know, off of that April baseline, we are assuming gross profit per load is stable.
Drew Wilkerson: Moved Lower. And we're also expecting a gross margin percent improvement as well from Q1 to Q2. If you look at the midpoint of our outlook, it's about 14%, which I think is pretty strong relative to the industry. And remember, mix is also a percentage of that. I think Drew touched on this earlier when you think about mix on gross margin percentage. Recall a higher LTL mix will generally yield a higher gross margin percentage. And we think we've got a long run way to go as it relates to LTL growth, which would be a tailwind to gross margin percentage longer term. And we're also expecting a higher gross margin percentage. And we're also expecting a higher gross margin percentage.
Okay, great. Thank you [inaudible]
Speaker Change: Your next question comes from Jordan Alliger with Goldman Sachs. Your line is now open.
Yeah, hi, just a couple of quick questions. One, on the...
William, you gave first.
Speaker Change: Sequential Thoughts as to how Marched April's doing but can you maybe translate that to sort of year-of-year for the second quarter?
Speaker Change: and then just to follow up with Jared and what you just talked about on LPL and the gross margin percentage. Can you also talk about...
Speaker Change: L.T.L. vs. T.L. Gross Prophet Perlode, and how they compare. Thank you. If there's some order of magnitude differential since L.T.L. seems to be a bigger piece of your pie. Bye.
Speaker Change: Yep, happy to take that Jordan. So when you look at Q2 volume or outlet calls for a load of mid single digit decline year over year, I think when you look at April trends, that's a pretty good way to think about how we're thinking about the quarter. You know, that would equate to, you know, truckload down, right? High single digit year over year, LTL up strongly, you know, but I think importantly in the month of April volume was actually up year over year, right? So I think we're seeing that play out as it relates to that.
Speaker Change: That's sort of the dynamics that are underlying or Q2 assumption. As part of your second question in terms of the different dynamics across.
T.L. and L.T.L. [inaudible]
Speaker Change: Generally speaking, LTL, building off the off-persons question, carries a higher gross margin percentage
Speaker Change: So, and a lower gross profit per load, and it could be significant, right? In terms of lower gross profit per load, which is why when you saw Q1, our volume outlook was ahead of our expectations entirely driven by LTL, but because TL came at the lower end of our expectations for the quarter, you had that result in terms of Q1 results. So, I think that, you know, lower gross profit per load on LTL, but higher gross margin percentage, in some cases it could be significantly higher.
Thanks.
Speaker Change: Your next question comes from Scott Schneeberger with Oppenheimer. Your line is now open.
Speaker Change: Thanks, good morning. Could you speak the cross-selling question, just you mentioned manage transportation, increase energy loads, provide the brokerage? Just talk about the opportunities there over the course of this year. Thanks.
Yeah, Scott, every time, man is transportation...
All boards a new customer.
Speaker Change: It's an opportunity for brokerage if they've got great service and the rates are in line with what's going on from the market. It's an opportunity for brokerage to be able to win business and
Speaker Change: because our brokers has good service. A lot of customers are coming into that cell cycle, asking man his transportation to use our brokers or where can we use our brokers.
Any time something goes wrong?
Speaker Change: for a customer which happens in transportation on the manage transit, the customer has more comfort knowing that we've got a backstop.
Speaker Change: from the capacity standpoint with our brokerage. So, you know, brokerage has always been a part of the sales cycle for us with man of transportation. The synergies between those two teams are extremely high and they've done a good job of building it over the years and I think we've got a lot of opportunity to be able to continue to do that. [inaudible]
Great, thanks, and then Jamie on the CAP-EX show...
Speaker Change: Taken it down 10 million this year and it looks like it's the gaysome guidance for 2026, 45 to 55 a good bit lower than 2025. You speak to what areas are the closest of the pullback and what you view as far as how that you know what area is your you're cutting in specifically. Thank you.
Yes, for 25, specifically, I mean, it was...
Speaker Change: Nothing specific other than we are constantly doing an evaluation of what's a good return.
Take $10 million out of our Catholics Plan.
Speaker Change: We're not pulling back on any strategic or high ROIC investment, so I'd say...
Speaker Change: Ringing the 10 down is just normal course of business that we're constantly looking at. If you move into 26,
Speaker Change: Specifically two items. One is we have about $10 million in there related to the integration spend that will be done with that latter half of 2025 into Q4.
Speaker Change: And so that goes away, and then we have one investment that we're spending some money on this year.
Speaker Change: Some strategic real estate investment, call it 10 to 15 million dollars, that goes away in 26, it's not a repeatable span, so that's the 25 to 26, but
Speaker Change: You know, it's still all high RIC organic type investments that we think are a good position that's good for the long term.
Thank you.
Drew Wilkerson: There are no further questions at this time, I will now turn the call over to Drew for closing remarks.
Drew Wilkerson: Thank you, Joel. In closing, I want to outline how we're more confident than ever in RXO's ability to drive increased earnings in free cash flow. This is going to go across market cycles.
Drew Wilkerson: Our successful migration of legacy coyotes carrier and coverage operations over to RxO's platform is game changing.
Drew Wilkerson: Our early results provide us with confidence that we'll be able to realize significant costs to purchase transportation synergies, our investments in technology, including AI and machine learning or driving significant productivity improvements across our business.
Drew Wilkerson: We remain disciplined when it comes to cost and we have a strong balance sheet and a unique platform that provides us with opportunities to drive both organic and in organic growth. [inaudible]
Drew Wilkerson: Our people remain focused on providing exceptional service, a comprehensive set of solutions, continuous innovation and close customer relationships.
Drew Wilkerson: We're making the right strategic investments to drive long-term success and outperform across all parts of the freight cycle. Thank you and look forward to seeing many of you soon.
Speaker Change: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating in FAA, please disconnect your lines.