FedEx Corporation ($FDX)

Welcome, and thank you for joining us for FedEx Freight Investor Day. Please welcome to the stage, Marianna Rose, Managing Director, Investor Relations.

Good morning, and welcome to FedEx Freight's First Investor Day. I'm Marianna Rose, Head of Investor Relations, and we are thrilled to have you with us as we outline the exciting path forward for FedEx Freight. A strong safety culture is one of the clearest indicators of a well-run business. And nowhere is that more evident than at FedEx Freight, where safety is more than a value, it's at the fundamental backbone of this company. As such, we begin every meeting with a safety message. And today's message hits close to home for all of us, distracted driving. Every year, thousands of lives are lost because a driver looked away for just a few seconds. The good news is, according to preliminary estimates, automobile fatalities have declined by 12% in 2025. And we can all do our part to keep this positive trend going. Prevention starts before the wheels ever turn, set your mirrors, adjust your GPS, silence your phone, eliminate multitasking and let passengers help when they can. But most importantly, manage your mental load because just like our drivers at FedEx Freight, when you are behind the wheel, your job is to arrive safely at your destination. Before we dive into today's program, please note that certain statements may be considered forward-looking as defined in the federal securities laws and are subject to factors that could cause actual results to differ materially from those expressed or implied. For additional information as well as reconciliations of the non-GAAP measures discussed today to the most directly comparable GAAP measures, please visit our website and refer to our press releases and SEC filings. We are joined today by key members of the FedEx Freight executive leadership team. And whether you are here with us in person or joining via webcast, we have an exciting morning ahead. We'll start with 3 presentations and a Q&A session, followed by a short break. We'll then reconvene for additional presentations and conclude with the final Q&A, ending the formal program around 11:30 Eastern Time. Today's presentation will be available through our live webcast, which can be found on our IR website. And for those here in the room with us, we invite you to join us for lunch afterwards. With that, let's kick off with a short video, and then welcome to the stage, FedEx Freight's Incoming President and CEO, John Smith. [Presentation]

Good morning, everyone, and welcome. I'm John Smith, Incoming President and CEO of FedEx Freight. Thank you for joining us here at the New York Stock Exchange, and thank you to those joining us on the webcast. Today is an important moment for our company. While it's just me on this stage right now, what stands behind me in the company are 40,000 FedEx Freight team members that day in and day out make sure that the FedEx Freight promises we deliver. Without them, I wouldn't have this opportunity to introduce you to the new FedEx Freight. So thank you to our team members who have gotten us to this point. Now depending on where you're joining us from, you might know a lot or maybe just a little about FedEx Freight, whether you're part of our team, invest in, cover our industry or transact with us, what I hope you leave with today is an understanding of the pride that we have in our network, our service and our team and how we position to profitably grow as the leader in the North American LTL freight industry and what we mean by our commitment to our customers and our shareholders. Before we get into the reason why we are here, I want to thank Mary for starting this meeting the same way we start every meeting at FedEx Freight, and that's with a safety message. Safety above all is not just a phrase to us. It is deeply ingrained in our culture, and that starts at the top. We can't take care of our people without making sure that they're safe. So with that, let's dive in. The new FedEx Freight is built to serve our 3 stakeholder groups. Our people, our customers and our shareholders. So first, our people. As you just heard, we place safety above all in everything we do. Our safety culture has been in place for many years and is a daily focus for our team across every level of the operation. In addition to safety, we have a culture of collective responsibility at FedEx Freight. What does that mean? That means everyone owns our results, and we help each other in any way we can. We recognize that each of us, no matter our role, impacts the customer experience, and how they engage, that customer engages with FedEx Freight. And we invest accordingly in our people, and we will continue to do so to make sure that FedEx Freight is the best place to work in our industry. Second, our customers. Our customers choose FedEx Freight because they depend on our industry to make sure that we deliver. And when you think about from a customer perspective, when there is a break in service, that causes a ripple effect in the economy. We don't let that happen. You will hear more about how we plan to improve the customer experience and leverage our network from the team later this morning. And third, our shareholders. We've always delivered for shareholders through FedEx. But now as an independent company, we are charting our own path, executing on our freight-focused strategy to convert our strengths into high-quality growth, enhanced profitability and expanded free cash flow. We believe the spend will enable us to create significant value for our shareholders. Everything we do operationally and commercially supports these outcomes. Now the strength of our business didn't happen overnight. FedEx Freight has been built over decades through disciplined, well-timed acquisitions, each guided by the vision of our founder, Fred Smith, and integrated into a broader long-term strategy. Now we entered the LTL market back in 1998 with Viking Freight. That gave us a strong foothold out in the Western United States. And in 2001, acquisition of American Freightways expanded our regional network across the U.S. And then in 2006, Watkins Motor Lines expanded our long-haul capabilities and strengthened our position in key markets. In 2011, we merged FedEx Freight National, the former Watkins, and FedEx Freight Regional, the former Viking and American Freightways companies and created our priority and economy services running through one network. And since then, we've continued to invest in and expand our network and rationalize it to make sure we're in the right places where the freight is located. The footprint gives us the best locations, the best door capacity and the best transit times. What you see today is the result of years of investment in scale, service and operational discipline. Now the foundation is a major reason we believe that FedEx Freight is positioned to continue to lead the industry going forward. Building on this foundation, this year, we expect to generate $8.7 billion in revenue, and approximately $1.1 billion in adjusted operating income, which translates into an operating margin of around 12%. Taken together, these metrics demonstrate the high-quality profitable nature of our business. We operate from a position of strength. FedEx Freight is an established leader in the attractive LTL industry, firmly positioned to win today and into the future. We connect supply chains across North America, transporting goods for companies of all sizes, industries and specialties. For manufacturers, distributors, industrials, retailers, e-commerce and beyond, our customers rely on us to move their goods quickly, efficiently and with superior service. The LTL industry has high barriers to entry. To do what we do, infrastructure at scale matters. We not only have the largest and densest network with more doors than any other peers, but we provide a best-in-class service. And the result, a significant advantage in cost efficiency, transit times and customer retention. Our speed and level of service is incredibly valuable to our customers, and it creates deep, long-term relationships. In fact, with our top customers, nearly 90% of our revenue comes from those who have worked with us for more than a decade. The bottom line is FedEx Freight is the gold standard in this market. We have a scaled network-driven business with durable competitive advantages. And we're just getting started. Of course, none of this works without the people who operate the network every day. FedEx Freight operates with the best team in the industry that is focused on safety above all, as I mentioned, has collective responsibility for our results, and they take care of each other and our customers. Our drivers are among the most skilled professionals on the road, and this is reflected in industry awards and competitions, like a National Truck Driving Championship, where FedEx Freight drivers represented more than 50% of all award winners, more than 50% of all award winners in 2025. So behind the wheel, on the dock, in our service centers and across the field, our operations team worked with precision, managing a highly complex logistics system with incredible discipline. And our growing commercial teams, which you'll hear more later from Mike Lyons in terms of our investment in a dedicated LTL sales force, they are relentlessly focused on enhancing the customer experience and expanding our reach. Our executive leadership team brings over a century of collective industry experience, and they have exceptional teams in place to help us execute our strategy moving forward. And you'll meet several of these leaders this morning. So leading up to day 1 as a public company. The team has been focused on running the business, taking care of our customers and improving the customer experience while delivering a tax-free spend, and they have done an outstanding job balancing all of these very important priorities. So when we step back, and look at the opportunity ahead, our strategy comes down to 4 principles that reinforce each other. The first is optimizing our network, which Clint McCoy will discuss later. The second priority is delivering a leading commercial offering, which Mike Lyons will cover. The third priority is advancing our technology capabilities. This enables everything we do. And Mike Rodgers will discuss where we're investing and how we're making it easier to do business with FedEx Freight. And all of this will drive value to our shareholders, which Marshall will cover later. Now taken as a whole, we're positioned to deliver strong financial performance over time. Top line, we will deliver sustainable revenue growth driven by yield management and higher quality mix. Marshall will give more detail on the financial targets this morning, and I am confident that we will drive operating leverage as we unlock FedEx Freight's full capabilities. As a team, we talk about this internally as we evaluate business opportunities. And I tell them all the time, we're not hauling freight for practice. We're here to make money and grow profitably. So let me close by bringing all this together. We have structural advantages that few can try to replicate. We have the biggest and most reliable network with the fastest transit times, and we operate with a world-class team. We're taking this opportunity as we spin to build an even stronger company. This is the new FedEx Freight. So with that, let me hand it over to my Chief Operating Officer, Clint McCoy, to talk more about our network. Thank you.

Good morning. I'm Clint McCoy, Chief Operating Officer, and I've been fortunate to call FedEx Freight home for nearly 30 years now. I started out as a frontline supervisor in Little Rock, Arkansas in 1997. And over the course of my career, I've held several leadership roles across our operations, engineering, safety and fleet maintenance teams. FedEx Freight operates the largest, fastest and most reliable freight network in the industry. And that network is the backbone of our value proposition. Over the past several years, we have fundamentally reshaped and strengthened this network by rationalizing our service center footprint, modernizing our fleet, reengineering lanes and network flows, and driving tighter, more disciplined execution on our docs. These actions have reinforced our scale advantage, improved service consistency and reduced our structural cost to serve. As these changes take root, their benefits compound, creating a smarter, more efficient network that continues to lower costs while elevating the customer experience. Today, I'll walk you through what we've already accomplished and where we see the next upside at FedEx Freight. To appreciate the power of what we built, it helps to start with where we sit today. We are the largest pure-play LTL network in North America, and we are uniquely positioned to win. Our physical infrastructure today includes more than 365 locations, approximately 26,000 doors, 30,000 motorized vehicles, including more than almost nearly 17,000 tractors and coverage across all 50 states, Mexico and Canada. We are the only carrier to offer 2 distinct service products, priority and economy. Our priority product is industry-leading, serving 90% of the LTL market in 3 days or less from any of our locations, which is 40% faster than our nearest competitor. When speed isn't a priority, our economy service gives customers a more cost-effective option while still delivering the same reliable FedEx Freight service that they depend on. Our doors are concentrated in key volume areas, giving us the right capacity in the right markets with the right proximity to our customers, ensuring we are best positioned to service our customers efficiently and effectively. This strategic positioning didn't happen by accident. It's the product of decades of disciplined network building. FedEx Freight was built through the strategic acquisitions of Viking Freight in 1998 and American Freightways in 2001, which established our regional network across the U.S. And with the acquisition of Watkins Motor Lines in 2006, we expanded our long-haul freight capabilities. As we integrated each of these companies, we ensured that we maintain the scale of their networks, while at the same time, evaluating service center concentration. From our peak footprint, we've rationalized service centers to boost efficiency and improve cost to serve. Since 2023, we have consolidated 39 service centers, removing 1,000 doors, while at the same time, adding 9 new locations in 600 doors in strategic locations to expand our capabilities in the densest freight markets. The result is a network that is positioned where the freight is with unrivaled scale and proximity in a business where scale and proximity matter. We are positioned to absorb incremental volume with minimal additional capital investment, creating meaningful operating leverage through cycles. When you overlay where freight volumes are concentrated across North America, the strategic value of our network becomes clear. Our facilities and door capacity are located where the volumes are concentrated, allowing us to flex capacity efficiently, maintain consistent service performance and capture profitable share as demand grows. For example, let's take a look at the Chicago metro market, which is the largest market in the LTL industry, generating over 6% of the total outbound LTL volume each day. Within our Chicago footprint, we have 11 service centers, and almost 1,500 doors. That is over 50% more capacity than our closest competitor in that market. So now let's watch a short video to show the speed and the flexibility of our network. In this example, you'll see a coast-to-coast shipment moving from Raleigh, North Carolina to Gardena, California, just outside Los Angeles. [Presentation]

As you can see, the strength of our network creates a powerful foundation. But we're not standing still. To advance our leadership position, we are executing against 3 key operational initiatives. First, line-haul network optimization, where we are leveraging our advanced modeling capabilities to improve the flow of volume through our network, protecting our speed and service superiority, while structurally reducing our cost to serve. Next, dock optimization. With focus on increasing trailer utilization, reducing freight touches across the network and deploying technology that enhances shipment visibility. And finally, fleet modernization, reducing the average age of our fleet to improve fuel efficiency and lower maintenance expenses. The collective benefit of these initiatives will continue to lower our cost to serve and improve our service performance. Importantly, these initiatives are fully within our control. They do not depend on macro recovery or volume uplift to generate meaningful benefit. As demand returns, our streamlined network and more efficient cost structure position us for greater operating leverage and margin expansion. So let's dig into the first of the initiatives, lane optimization. We've implemented a highly engineered, data-driven process that adapts how freight flows through our network and optimizes outcomes at least 3 times per year. First, we forecast volume by origin destination pair and simulate those flows through our hub-and-spoke network. We then determine the optimal mode based on service speed required, which brings in our mode flexibility across truck and rail. This allows us to better align our service commitments with cost, driving greater leverage through our rail advantage. Our newly revised planning schedule then allows us to align drivers, schedules and routes to expected demand. This process is repeatable and built into our operating plan. That dynamic management removes unnecessary miles, improves asset utilization and controls line-haul costs more effectively, all with service performance as a top priority. Next, we turn to optimizing what happens on our docks, which is the core of any LTL network. Traditionally, LTL carriers plan line-haul based on shipments and weight. At FedEx Freight, we've taken a different path. We shifted from weight-based planning to cube-based dimensional planning, unlocking a far more accurate and actionable view of our freight. We can do this because our DIM and Motion technology now captures over 90% of shipments in real time. This gives us a precise understanding of freight characteristics, driving better planning, higher productivity and lowering operating costs across the network. It's been a true game changer, contributing to a 12% increase in cube utilization in our line-haul operation over the past year. To further reduce handles in the network, we've deployed machine learning tools that provide our frontline leaders the real-time insights into direct load and head load opportunities based on both actual and forecasted volumes. This has enabled a 10% reduction in planned versus actual handles. We've also enhanced shipment visibility through our RFID technology. RFID allows us to track shipments at the handling unit level, improving how we measure efficiency and freight movement, while giving customers more precise, real-time tracking for their goods. Our third initiative focuses on modernizing the FedEx Freight fleet. Over the past few years, we've taken a targeted data-driven approach to reduce the average age of our equipment and ensure we're matching the right asset to the right route. Using performance insights from our fleet maintenance platform, we identified the most fuel efficient and reliable units and assigned them to our longest mileage runs where efficiency gains deliver the greatest return. We also use that same platform to pinpoint underperforming assets, units with higher maintenance events, lower fuel efficiency or recurring reliability issues and systematically remove them from the fleet. This has further improved overall fleet performance and contributed to reducing average age. Through these efforts, we've reduced the average age of our line-haul fleet from 5.6 years to 4.5 years since 2023, improving miles per gallon by 3%. And as John noted, we are deeply committed to safety. In support of that commitment, we've deployed advanced safety technologies across the fleet. These investments, combined with our strong safety-above-all culture have contributed to a 30% reduction in DOT preventable accidents over the past 5 years. And we're not just focused on optimizing our network. We're also focused on optimizing the customer experience. Our scale, speed and reliability allow us to meet customers where and how they need us. Everything that we do has the customer squarely in focus from on-time service, pickup reliability and quality. Our customers count on us to get it right every time. You'll hear from Mike Lyons in a moment on how everything we do within our network translates into customer service and value. And behind every on-time pickup and on-time delivery is the real engine of our success, our people. We have the best people in the industry, and a culture of collective responsibility. Our drivers are some of the safest in the industry, with 40% of our drivers exceeding the 1 million-mile safe driving mark. Our team is consistently represented and recognized at industry events, including the National Truck Driving Championships where we were the grand champion again in 2025 and had more than 150 professional drivers compete. And most recently, the American Trucking Associations named 4 FedEx Freight drivers to the 2026 America's Road Team, a tremendous honor for professional truck drivers. So let's take a moment to hear from our team directly on the FedEx Freight difference. [Presentation]

Before I turn it over to Mike Lyons, let me reiterate a few points. We have the network, the scale and the service advantage to win today. Our targeted operational initiatives are driving structural efficiency gains that do not depend on the market to deliver value. As demand returns, we are poised to capture profitable share and deliver meaningful operating leverage. That is how we unlock the full potential of FedEx Freight and accelerate value creation for years to come. Now let me pass it off to our Chief Commercial Officer, Mike Lyons, to talk more about our commercial offering. Thank you.

Thanks, Clint. Good morning. It's great to be here with you. I'm Mike Lyons, Chief Specialized Services and Commercial Officer. I've spent nearly 20 years at FedEx Freight, starting on the front lines of operations and holding leadership positions in finance, operations and specialized services. Over my career, I've had the opportunity to see FedEx Freight evolve, and I'm most excited about the dilution happening today. My team is responsible for making sure our best-in-class network not only meets customer needs, but consistently exceeds them. As a stand-alone company, we're strengthening and modernizing the customer experience, while addressing new markets with high growth potential. Let me start with what we offer today. FedEx Freight is the only national LTL carrier with a true dual service offering across priority and economy. Priority makes up more than 60% of our shipments and it is a service that can't be beat. It's complemented by our economy service when customers value savings over speed. The remaining mix comes from Custom Critical, Freight Direct and other specialty services. This structure provides customers with choice without leaving our network. That flexibility creates resiliency. We have built targeted value-added capabilities around our core services to solve specific customer challenges. Volume Services offers additional discounted rates for less time-sensitive shipments by filling available network capacity on a day-to-day basis. With Retail Flex, we deliver to major retailers benefits that go beyond your standard LTL services. We ensure on-time deliveries to avoid late fees and provide accountability for handling units to reduce incomplete shipments and chargebacks. For our B2C customers, Freight Direct delivers large and bulky items, not just to the front door, but directly into the home or business with a uniformed driver. Freight Direct reaches more than 99% of all U.S. ZIP codes. Priority Plus is our fastest delivery option with early morning, after hours, shave a day and weekend deliveries available. And finally, our dimension-based pricing model simplifies freight classification and improves pricing accuracy and reduces disputes. These capabilities solves customers' challenges that enables their long-term success and unlocks better commercial outcomes, which brings me to our current customer base. Our nearly 140,000 active customers are diverse across size, product, end market and tenure. They stick with us. As John mentioned, the majority of our revenue comes from customers that have been with us for over a decade. When you exclude single shippers, those customers represent nearly 90% of our revenue. In fact, I still directly engage with many customers that I supported on the docs nearly 20 years ago. Beneath the service, our revenue is fortified by long-standing customers and diversified by industry. Our top 25 customers represent 17% of our total revenue. We are trusted by some of the world's largest operators as well as small to midsized businesses, showcasing the scale and flexibility of our offerings. We're also well positioned to serve growing end markets, which I will speak to in a moment. This solid base reduces volatility and reinforces how we will continue to drive revenue durability. Our next chapter growth will focus on 3 things: one, strengthening our go-to-market strategy; two, enhancing the customer experience; and three, generating durable, high-quality revenue growth. We don't do one without the other. Customers need to know that when they come to FedEx Freight, they have the right people, tools and support to serve their own customers. At the top of the funnel, we are sharpening our approach by investing in a dedicated LTL sales force. For the customer, we're getting back to the basics, simplifying our offering and back-end processes, making it easier to do business with us. And how we're taking this to market will continue to be differentiated, focused on profitable revenue growth. Over the last year, we have made strategic investments in building a dedicated LTL sales force. I am pleased and proud to announce that we have reached our hiring target and now have a team of 500 talented sellers across North America. They are already engaging existing and prospective customers with greater credibility, precision and care. This team is best-in-class. They all bring dedicated LTL experience, whether they transition from Federal Express or joined from outside the organization. Not only will they have an immediate impact to the customer experience, but they will also support the development of the next generation of LTL sellers. We have a more direct sales strategy that allows us to go to market in a targeted, personalized way. We are equipping our team with new CRM tools to execute with greater visibility and accuracy, which you'll hear more about from Mike Rodgers later this morning. And we have reengineered our sales team incentives to more closely align with our freight strategy. This is already enhancing employee satisfaction and will drive retention. The future of FedEx Freight is committed to maintaining a rational pricing strategy. To echo John's words from earlier, we aren't hauling freight for practice. Our goal and focus is on generating high-quality revenue growth with an emphasis on yield. Yield improvement is not a byproduct. It is a core objective. We are building a leading engine with a disciplined pricing and transparency that our customers expect. Previously, our contracts were structured for general industry use and to be candid, were complicated. As an LTL-focused company with a streamlined offering, our contracts are now structured more simply and clearly. Additionally, our pricing platform was designed for complex global shipping services. As we modernize our technology stack, we're adopting a pricing platform that is fit for LTL. It includes common industry practices and features like dimensional pricing to simplify the customer shipping experience. Longer sales cycles and slow resolution speed were driven by back-office complexity and standardization under the broader industry pricing platform and contract structure. As we simplify and focus on the LTL industry, we expect our sales cycles to shorten as we better address our customer needs. Finally, our investment in technology will provide us with greater cost visibility from quoting through invoicing, which will significantly reduce quote ambiguity and the frequency of billing questions. While it may sound straightforward, improving billing and invoicing at our scale requires significant coordination. With our 2 core services, we're able to streamline the billing and invoicing process which will considerably improve our cost and customer service. Historically, the majority of our bills and invoices required a manual touch, leaving ample opportunity for error and even frustration. As we modernize the technology that supports these processes, we are on track to reduce manual touch points by up to 60%. Additionally, given the previous structure, the majority of our billing documents and invoices were handled by offshore vendors with limited industry experience. Going forward, we are strategically shifting these resources in-house and nearshore, leveraging FedEx Freight's deep industry expertise to structurally resolve issues faster. We're moving away from systems that were built for the FedEx Enterprise's global shipping demands to simplified fit-for-purpose systems that meet our LTL customer needs and reach best-in-class industry standards for accuracy and timeliness. We know where it makes sense to automate, billing, rating and invoicing to reduce errors upfront. But we also recognize how critical effective issue resolution is to the customer and are devoting the necessary resources in this area. To make this all happen, we're elevating the digital experience. Now when our customers engage with FedEx Freight, it's simpler, faster and more intuitive. We are launching a dedicated FedEx Freight website designed specifically for our LTL customers with enhanced tracking capabilities that provide real-time shipment visibility and greater peace of mind. It will include a streamlined customer service portal, along with virtual assistance and live chat functionality, making it easier for the customer to get answers quickly. Our customers expect transparency, immediacy and control. By delivering on these expectations, we are strengthening loyalty, improving satisfaction and reducing cost to serve. These investments will fundamentally remove friction from our operations. We are laser-focused on making sure every interaction a customer has with FedEx Freight is a positive one. For example, we're strategically scaling our premier customer support, starting with our highest-value enterprise customers, where responsiveness and expertise matter most. Additionally, we're reducing the number of clicks required for customers to reach a customer service specialist either online or over the phone. Our goal is to improve first contact resolution. When we make it easier to do business with FedEx Freight, when satisfaction improves, retention strengthens. With higher retention, lifetime customer value expands, all powering the customer life cycle. With more resources dedicated to our go-to-market strategy and initiatives to improve customer experience well underway, we are targeting higher growth, attractive end markets that align with our offerings. Here are 4 key markets where we see sizable opportunity from a freight perspective. First, small- and medium-sized businesses, where service consistency, timeliness and digital convenience matter. We can provide end-to-end shipping visibility that integrates with the customer system, ensuring that they know when, where and how their freight is being delivered. And now with our built-out sales force, we not only have the capabilities to reliably help these SMBs do business, we have the best team in place to sell. Second is health care, which has a total addressable market measured at around $6 billion. Here, reliability and time-definitive solutions are mission critical. These customers are often regulated by the FDA or have a cold chain documentation requirement, which mandate shipment integrity and visibility. We are uniquely positioned, particularly given our Custom Critical business and our speed of service to meet health care customer needs. Third is grocery. We're well suited to address this $1 billion market with our temperature-controlled and liftgate capabilities, which enables us to flex to serve these customers seamlessly and within our existing network. Expanding our presence in the food and grocery space will not only be a growth driver, it will improve our weight per shipment and further enhance our overall profile mix. And finally, with the rise of automation and AI, data centers and energy is a large and growing $2 billion total addressable market that demands flexibility, urgency and security. We are primed to be the provider of choice for secure, compliant and time-critical deliveries. We expect to optimize our mix, strengthen yield and deliver sustainable profitable growth as we execute this targeted commercial strategy. Let me close with a few key takeaways. We are deepening our leadership in the North American LTL market, delivering a differentiated value proposition centered on speed, choice and reliability. We're strengthening our commercial foundation, thoughtfully elevating the customer experience and doing all of this while maintaining a disciplined focus on yield. We're firing on all cylinders, and we're just getting started. Let's hear from some of our customers about how we are delivering for them today. Thank you. [Presentation]

I'm pleased to be joined on stage by John Smith, Clint McCoy and Mike Lyons for our first Q&A session for the day. As we have upcoming sessions with Mike Rodgers and Marshall Witt, we kindly ask that you focus your questions on the topics just presented. [Operator Instructions] And with that, let's get started. Let's go here in the front.

Ken Hoexter from BofA. I guess I'd start with Mike, just looking at kind of the strategy now in terms of adding these SMBs, health care, grocery, going for premium business, how different is that what FedEx Freight was going now? Are you -- how do you target these markets? Are you entering new markets? Are you already doing it? I just want to understand the strategy. And then what are you doing differently as you do that? Are you using price or service improvement? How do you get those quality revenues that if you haven't been doing that?

Yes. Great question. Appreciate it. So I think first and foremost for us is the build-out of the LTL sales force that we needed, being specifically aligned to LTL-only activities. That gives us then the engine to go out and go after addressable markets. The kind of the 3 key that we talked about and that you referenced there is roughly about a $9 billion market opportunity that we really have very little penetration in today. And so when you think about what FedEx Freight does and does well when it focuses and concentrates on something, it generally will go out and we'll win. And so we feel confident about our strategy of using the new sales force that's up and running, stepping into these markets that are high profitable and a high-growth opportunity for us and winning business, whether the market is where it sits today or is an upswing in the market either way.

I think to add to that, Ken, when you think about not only the dedicated LTL sales force, but really the focus, we're doing very little business, as you mentioned, in these verticals. And we've moved Custom Critical over to freight about 18 months ago, and that really truly gives us an opportunity, especially in the health care and the cold chain piece that we really have never tied in with the LTL company. So going forward, we feel really good about the health care vertical because Custom Critical is coming with FedEx Freight.

Chris Wetherbee from Wells Fargo. Maybe two questions. I guess on the revenue numbers that you guys have talked about, I guess, how do you think about volume versus yield in the context of the 4% to 6%? And then I guess, there's a number of initiatives that you guys have talked about in terms of network optimization. Where are we in that process? How long do you think that plays out? And I guess, how to sort of -- if you can unpack some of those initiatives and what it means to your margin growth going forward?

Well, I won't steal -- great question. I won't steal the thunder from Marshall. We'll kick that revenue question and let him present, and then we'll have another Q&A and we'll answer that. I think we've got a really good strategy on that going forward, and I think you'll like our answer. But with that, I'll just turn it over to you, Clint.

Yes. From a network optimization perspective, we're continually looking at volumes as volumes shift or move around. We've got advanced network modeling capabilities that we'll assess the flow from an OD perspective, origin-destination pair perspective, and then make the necessary adjustments. And one of the things, the scale of our network and the node density that we have allows us to adjust flows very easily without impacting our service products. So if we see a lane that is underperforming, we can prune that lane and flow that volume through another hub and not impact our value proposition from a service perspective.

It's Scott Group from Wolfe. So over time, we've talked about bundling, I'm sure some degree of cross-selling. Do we have to go through a period of unbundling to some extent? And what does that mean for sort of that volume inverse yield equation? And then maybe just separately, talk about where you guys are from a capacity standpoint and if there's any plans for terminal or door count growth? I know it's been a long time since you've added any terminals. I don't know if you need to.

Do you want to address the bundling?

Yes, I'll start with the bundle. Thanks, Scott. When you look at historically, the way that we've bundled pricing from a Federal Express standpoint, you've got LTL with the parcel side. There's a 2-step process that has to occur to unbundle that. One is the contractual piece and then two is the actual discounting and earned discount piece that a customer gets. And so good news is we're about 99% done with that unbundling piece. And the focus for us right now is, one, making sure that the customer understands, here's the business rules that we need to engage and the way things are going to work. And then two, ensuring that when we separate the bundling discount that the customer still gets the exact same discount that they have from a parcel standpoint and the exact same discount of FedEx Freight. So the customer doesn't feel an impact in terms of their price and what they get for us in moving the volume in our lane. And so we've got teams that we've stood up to ensure that, that occurs and occurs correctly. And so the desire for us is that there's no impact to the customer as we separate and unbundle those things. And then we will give them a net neutral conversion on that piece from a pricing standpoint through the end of their contract and then enter into your normal standard negotiations at that point.

From a capacity perspective, we're sitting very well from a facility perspective with about 30% available capacity in our network today. So we feel good that we've got the right capacity and we've got it in the right markets. The other elements of capacity when you think about fleet capacity, we're also in really good shape there. We've done a lot of work over the last 3 years to rightsize our fleet and modernize it, but we've got ample headroom to be able to absorb any demand. And then the third component of capacity is staffing. And we feel really good about that position. We have a highly engineered process that we go through every single month at every location to make sure we got the right staffing in place to meet whatever demand we have in the forecast.

I will add to that. One of the hidden powers that we have is our driver training program. And we have well over 200 driver trainers spread out throughout our network, and that allows us to get ahead of the curve when we see that uptick coming in order to make sure that we have drivers ready and available. And what we do, it's a great program because we promote within internally and take part-time dockworkers, dockworkers that want to become drivers and we put them through our extensive CDL training program, and it allows us to have driver-ready employees working the docks. So when we ramp up we're never short on drivers. So we feel really good about that. That is a critical part of being ready for a capacity change.

Let's go down in front.

Stephanie Moore with Jefferies. I really appreciate the additional color from a service standpoint and appreciate that you're the only LTL carrier offering 2 distinct service products. But I think the leading industry service -- survey provider, Mastio, consistently ranks FedEx Freight kind of outside those top positions. So maybe talk about where service has been lacking and then what is being done to address those aspects going forward?

I'll start it out and then pass it over. What we've recognized where we have the biggest opportunity is in the customer-facing technology. And we knew that before we even announced a spin. But we've been working on that technology, and you'll hear a lot from Mike Rodgers in the second session on how we're attacking that. But we feel really good about what we've built already, what we will have in place 6/1 that is going to help us eliminate several of those categories where we are not scoring very well. And that's why you keep seeing that we're attacking the customer experience for FedEx Freight. That is one of the main reasons that we've started early on building the new technology and focusing as much as we can on the customer-facing technology. So when you think about that, that's the other piece. But we also do have, from an operational perspective, and I'll let Clint talk about that, where we have opportunity to improve in certain categories on Mastio and we're attacking those as well. So we're not waiting until 6/1 to attack that. We're already seeing progress in a lot of those areas. And it's really, really important on that customer technology to give that dedicated LTL sales force, those tools to go out and resell, especially the small and medium group. So we understand that. We're attacking it, and we know that's a good opportunity for us to improve. Do you want to add anything?

No. You hit it great from a customer perspective, but if Clint wants something from a...

Yes. From an operations perspective, when you look at the Mastio and you look at the elements and how they're ranked in importance from a customer perspective, at the top is claims. And we are very focused on that from an operations perspective and driving meaningful improvements inside of our network there. And then the other 2 pieces, of course, on-time service and picking up on time, and we've made some really good strides there as well.

Yes. Tom Wadewitz with UBS. I wanted to see if you could add a bit more on how you think the hiring of the salespeople translates to a ramp in business. And you mentioned that it sounded like a large portion, maybe I don't know if all of the salespeople you hired were experienced or some of those are kind of newer and don't have experience in transportation. So maybe a bit more on the mix and then how long does it take them to really have an impact where we'd say, "Hey, you're outperforming the market on volume," or there's just, I don't know, some way in the focus segments that it would be visible?

Yes, that's a great question. I appreciate it. And I'd say, one, from a sales perspective, everyone that we conveyed over to FedEx Freight from Federal Express and everyone that we hired, we were going out and trying to find specific LTL talent and there is a requirement for us that if we were going to hire them and bring them over that LTL experience was required and necessary because when you get into the selling of LTL, it's different than the selling of parcel. And we want to leverage and use that expertise when we get back out to our customers and we're face-to-face with them. And so you think about turning these 500 sellers out into the market and meeting with our small- and medium-sized customers, and customers that we don't have today, potential customers and giving them the opportunity to talk to their needs, understand what they're looking for, the issues that they face. And then one, when you pivot from that and go, here's how we can provide service for you, here's how we can solve those issues, and here's how we can differentiate ourselves in the marketplace. What I'm most excited about is that whatever that customer asks us to do or what they require or they need, we have a branded solution available to them because of the size and the scale of the network that we have, the dual priority and economy that we have and then custom critical gives us a lot of flexibility in some other areas that some customers have potential needs for. And so we've got a unique offering to be able to go to the customer with and say, "Here's how we can do business better for you and with you, how can we partner together to make that work?" So I'm excited about the future of that.

And I think just to add to that, Tom, I think something other critical for us is in order for us to grow in the small and medium business, we felt like that the frontline sales team needed to be geographically based where they're selling. And what we've done is we put these frontline sales teams out in the centers where they're going to be selling. And the reason I say that is important is because one of the mantras that we have here is everybody at FedEx Freight sells, everybody. And what that does is it ties that operational leadership team and with that sales team as well as what I feel like is our #1 sales team, and that's our drivers. And I can tell you that doing this has really generated a lot of enthusiasm for our frontline as well as our driver team on really truly having a geographically frontline-based sales team. So we're really excited about that as well.

Jordan Alliger, Goldman Sachs. I wonder if you could talk a little bit more about your -- the priority versus economy offering. I think it's sort of alluded that no one else has really bifurcates it like that and breaks it out like that. So I guess I'm curious, is this something that the customer demands? How come no one else is seemingly doing it? And is there a way that you could maybe benchmark a little bit more like how many days does it save or price premium type of situation as well?

All right. I'll start it out and let them pile on. But when you think about the key word in that is not a priority or economy, the keyword is one network. So when you think about one network, that is what makes this work. So think about what's going on at FEC right now. Everybody's heard about Network 2.0, right? So if you think about the legacy ground products and you think about the legacy express products, freight was doing the same thing. Before we merged back in 2011, we were going to freight docks, 2 drivers, 2 tractors and 2 trailers and picking up a product for regional and a product for long haul, which is FedEx National LTL. And guess what happened on the other end? We were waiting in line together to deliver to the same dock. So when you think about putting those together, and why one network is so important, you go back and you think about Fred Smith, as I said earlier, putting these 3 LTL companies together, we were basically the guinea pig for one network. And since it works so well, we had talked about this and when the timing become right, that's when we kicked off Network 2.0 to eliminate that duplication and become one network, but that doesn't mean we're just going to run one product at FEC. So think about it as the ability to engineer a network with more than one product, but the key word that is one network. And that's why we're excited about this, and it's hard to duplicate this. The other piece, and then I'll turn it over to Mike Lyons is we have the ability and Clint hit into this, we have the ability to mode shift the economy product, and that's what mostly runs on the rail, which gives us a distinct advantage in line-haul cost so that we really don't care whether our customer ships at priority or economy from a profit perspective. Okay. With that, anything to add?

I think the only thing that I would add is what I really like about having the dual service offering is it gives optionality and choice to the customer. And so when you think about a down market like we've been in over the last several years, customers begin to look for cost savings and look for ways to pivot and position out. They don't have to leave the freight network or leave the freight service or do something different than staying with where they are today because we have the dual option of being able to go back and forth. And it's not something that takes months to change. It's a click of the button in terms of I need this to go priority and this to go economy. So it really gives the customer optionality in how they want to move their freight and get it to where it needs to go.

So Ari Rosa from Citi. So two questions, if I could. I'm curious just if you could speak to how much volume is in the network that perhaps is there because of the cross-sell opportunity with Express that maybe needs to get rationalized out to the extent that you've done that already or if there's still room to go on that? And then also to the earlier question, if you could just speak to kind of where cargo claims are right now? What is on-time service performance? And how much room for improvement do you see there?

You'll take the bundle?

I would say from a bundle perspective because of the intense focus that we have on ensuring that, that customer separation piece goes well, Marshall can cover more what's baked into the algorithm in terms of the financial piece, but that has already been accounted for. When you think about separation of those 2 pricing programs, we've done -- like I said earlier, we've got 99% of that unbundling done, and we're not seeing material impact right now. And so our focus is on the customer experience and ensuring that they're getting the service levels that they need. And if any issue does pop up as we work our way through that, we're swarming to ensure that the customer has what they need moving forward.

And we're keeping the customer whole until the next contract comes up. So they will keep the same if it was a bundled together pricing and through both revenue groups, they hit a certain level, they will still get that until the contracts come up either for freight or FEC. So basically, we're going to keep them whole through this transition.

From a claims perspective, everybody measures that a little bit differently. So we're not going to disclose an absolute number on that, but we've made meaningful progress in the area as it relates to claims. Same thing with an on-time service perspective. We're in a really good spot there and continue to focus on that.

Brian Ossenbeck from JPMorgan. Probably two for Mike, maybe you can talk a little bit about 3PLs and how they fit into the sales strategy, sort of where it was before, where it's going after and if that changes with the sales force they're hiring internally? And then secondly, we've all seen the truck market get quite a bit tighter here. Maybe you can give us some history in terms of how that affects the economy product or just the shippers you have in the network. And so what we should expect if we do see this continue to improve here?

Good question. So we'll start with the 3PL side of the house. 3PLs is a mix of our overall revenue. I don't foresee that changing up or down significantly as we separate. It's a part of our overall strategy. We have customers that are in some of the smaller segments that prefer to go through a 3PL piece. We've got good relationships in the 3PL arena, and we will continue to service those customers in that way. I don't foresee major changes as we step out into June and begin to work our way through from that standpoint. And then one more time on the second part of your question, sorry. So when you think about the truckload market, do you want to start?

Yes, I'll take that. But just to add on that, from the 3PL perspective, we knew that we needed some better technology to make sure that when we plug in that we're protected, and I think that's one of the big opportunities still that we have. We've gotten better, but I still think we've got some good opportunity with 3PL from a technology perspective. When you think about the truckload market, we've always watched it. And if you go back historically, usually when capacity tightens in the truckload market, it takes about 6 months or so to where it falls over to the LTL. So we always watch it really close. But this has been really unusual over the last 3 to 4 to 5 months. And we've seen the capacity come out both from a physical perspective on some of the truckload carriers that came into business during COVID and basically have gone -- been started -- a lot of them have been going out of business, but there's been some other dynamics that we're watching close. And one of those is, of course, the domicile CDL requirements that have come on, plus the -- some of the CDL schools that have been closed recently that probably wasn't going through the proper channels to get drivers per the regulations. The other key one is they're really starting to crack down on cabotage out of Mexico. And basically, what that is, through the NAFTA agreement, a Mexico qualified driver can come into the U.S., but they're supposed to turn back very quickly to go back across the border. And what's been happening is they're coming across the border and then staying and running for some of these 3PLs 14, 21 days, 28 days before going back. With the crackdown on that, that takes a ton of capacity out of the truckload market. So I think there's more dynamics going on than normal. So we're watching it really close.

Dan Moore with Baird. Just curious, you guys have clearly added some costs with the spin at a lot of tools as well, presumably to allow yourselves to compete even more effectively and grow more effectively than you have. Curious if you could maybe add a little color around the incentive structure for the growth in the sales force. And what the opportunity is as you see it on the go forward -- on a go-forward basis to meet or exceed historical levels of profitability, kind of how you get there, whether it's price, whether it's growth, whether it's a combination of volume and price.

You'll cover sales?

Let me do. So from a sales incentive standpoint, really what we're trying to focus on is making sure that we get sales incentive aligned to the overall company strategy. So when you think about profitable growth, how do we drive profitable growth. And so we're trying to ensure that, one, we're meeting the current customer base that we have needs and we're selling into them, and we're enhancing and deepening our share of wallet with them. But then, two, how do we go out find new business, new organizations and incentive sales to go out and grow into net neutral or net new logos for us. And so it's a combination of both, right? It's not -- we're not just incentivizing based off revenue, we're trying to drive profitable growth. That's going to be the focus for us as we step out into June and even now as we lead up to it.

And I think that also pertains to leadership as well as hourly incentives. We're revamping that, and we'll have our first Board meeting on 6/1 and we're looking forward to. We've got some great packages, proposals, and we're looking forward to the Board putting those through, and then we'll be able to share a lot more for you after that or with you after that.

Richa Harnain with Deutsche Bank. So John, I think you did a great job kind of setting up how you guys have been investing to set up for improving in service and getting the tech tools and people together. Just curious, on June 1, do you think that we're going to be at the completion of that journey? Or do you think there could be more costs or investments needed to kind of get you to where you need to be? And then just Mike, I wanted to ask about the accessorials piece, this Retail Flex, Freight Direct and your concept of improving your share of wallet with your customers, where do you think you are in that process and incorporating more of those accessorials into the fare structure? And how far do you think -- how much of a journey do you think there is left there?

I think from a cost going forward, both Marshall, he's going to close up with it, but Mike is also going to talk about the technology. Again, we focus strictly on the customer-facing technology from a new perspective. But we are all going to go to platform-based technology, which means that back office, everything that we're going to do is going to be platform based. And the system that we have that Clint and his team runs is not a platform-based system, which we will have to do that as well. So going forward, we still have technology, but Marshall is going to go over how we're going to allocate our capital by category, and we'll talk about that. But as we move forward, and we talk about TSAs in the next session. So there are several things that will impact that cost going forward. But we feel really good about our medium and long-term strategy as we come out of it. So more to come on that.

Then I think from an accessorial surcharge standpoint, when you look at giving the customer optionality and letting them then pick and choose what they need from a service standpoint or with the requirements that they have, right? If you won price correctly from the beginning, as John talks about, there's no bad freight, just bad pricing, right? If we price appropriately to begin with and then we layer in additional differentiated services on top of that, that the customer has the optionality to pick and choose and say, I need this or I don't need that, then the surcharge revenue or accessorial revenue is just a byproduct that comes along with that. And so as you get a customer to want to step into a higher service level offering, there will be unnecessary compensation that ties to that piece from a -- come back to for a FedEx Freight piece. But for us, it's more focused on, one, what is the customer need and then how do we build a pricing program that they want to understand; two, is simplified; and three, delivers for us what it is that we're looking to do and ultimately satisfies the customers' needs.

We'll take one more question. Let's go over here.

Jeff Kauffman from Vertical Research Partners. I just wanted to clarify, Mike, the 3PL and then just a quick question for John. On the slide where you showed share by industry, transport and logistics was your second largest. Is that a good way to think about the size of 3PL relative to your shipment count? And then for John, you ran this business once you went to Express to help with the network integration. Is there anything you learned in that process that you thought, "Hey, I'm going to go back to freight. I want to do this a little differently. We can make it better."

I'll start and be quick and then turn it over to you. I think you're looking at it appropriately when you look at the pie there and the size of the revenue.

Well, I spent most of my time in the LTL industry going up through here. And then when I went up to ground, the first thing all the freight folks were telling me, you don't know anything about tiny boxes. So I caught a lot of c*** over that. But I'd tell you, when you think about the fundamentals of the business and the ground and what we call surface now because it's a combination as we rolled out Network 2.0, I learned a ton from that team. And I don't think there's a better operating surface team out there than that surface team. And Scott Ray, who replaced me, I'm excited about the momentum that he and his team have. But when you think about starting from LTL and then really truly learning in the package and air business, it's been really, really good for me because it's hard when you just focus on one silo piece of the enterprise. What it does for you is it really truly elevates you up to the point to where you can see everything. And then some of the things that you used to question, why are we doing this? You understand now. Or you find things and you really have a different idea and the solution to help improve that. So it was really, really good for me personally and professionally. And -- but I'm excited to be back to FedEx Freight and being able to take a company and separate it and become a stand-alone company. You don't get to do that often in your career. So I'm really, really excited to be back.

Great. Well, thank you for the questions, and thank you, John, Clint and Mike, for the answers. We're going to take a 15-minute break, and we'll be back shortly. [Break]

And now please welcome to the stage Mike Rodgers, Chief Technology Officer, to begin the second half of our program.

Good morning. I'm Mike Rodgers, Chief Technology Officer for FedEx Freight. Prior to joining the company, I spent over 30 years leading technology and technology transformations across logistics, retail and banking. In fact, I had so much experience that I actually retired. But I chose to come out of retirement and I am fired up to help transform and launch the new FedEx Freight. Our technology team is building modern tools that integrate the freight value chain from sales to operations and throughout the entire customer journey. We'll be leveraging new tools like Agentic AI, machine learning and native capabilities within critical platforms like Salesforce. And we're doing this in lockstep with our business partners to deploy a truly business-led technology strategy. This approach allows us to build stronger, more effective capabilities for our business partners. So before I get too far, I think it's important to talk about what technology brings to the freight business. As Fred Smith, our founder, once said, the information about the package is just as important as the package itself. And the same holds true for FedEx Freight. The information about the shipment is just as important as the physical movement of the freight itself. How we use this data impacts how we support our customers today, and it also positions us for a future where we can leverage rapidly evolving technology. Customers no longer want their shipments simply picked up and delivered. They want timely, accurate information at their fingertips so they can track their shipments dynamically and plan their business. They need digital capabilities to seamlessly integrate into their operations. In other words, they want a smarter, faster supply chain. As my colleague, Clint, mentioned, our network provides the most doors across North America and the fastest delivery times of any national LTL carrier. When you combine that solid foundation with the digital tools we're building, FedEx has a significant head start and a clear competitive advantage. We're connecting shipment data, network operations and customer-facing platforms in a way few, if any, can replicate. By continuing to invest in these trends, we're not only providing operational efficiency, we're elevating the customer experience. Simply put, we're building technology solutions that are fit for LTL and purpose built for FedEx Freight. Our newly formed talented and growing technology team is focused on being business-led and platform-enabled. We've intentionally designed this organization to deliver the right capabilities for our stakeholders, and we live by 3 guiding principles. The first principle is to simplify. As we prepare for the spin, we retain the best of the LTL-specific technology that powers our industry-leading capabilities today, but we've also taken the opportunity to reduce our technology footprint by over 20%. And by eliminating more than 300 applications, we've reduced the complexity, lowered the cost to operate and decreased the attack surface from cyber threats. The second principle is to enhance. As my partner, Mike, discussed, we have a significant opportunity to improve post-delivery service by modernizing our approach to pricing, rating and invoicing. Since our North American-focused LTL systems don't have the same complexities as the global parcel business, the separation will have an immediate and positive impact on our customers as we focus solely on LTL. And our third principle is to enable. We're enabling FedEx Freight's strategy by delivering capabilities like Agentic AI, machine learning and dynamic platforms. For example, our native Salesforce platform has AI capabilities out of the box. We can deploy those capabilities quickly after separation to drive immediate improvements in customer experience. After June 1, we have even more opportunities to modernize the tech stack. As I've discussed, we narrowed the application footprint by 20% and the streamlined, uncluttered, fit-for-LTL tactical backbone will allow us to rapidly shift the competitive landscape and a shifting demand dynamic. We've also been laser-focused on achieving the tax-free spin, making it seamless for our 140,000-plus customers. Over the next 18 months, we have 2 primary objectives. One, we're going to exit the transition service agreements or TSAs as expeditiously as possible to reduce risk and rationalize cost. We expect to reduce IT-specific operating costs over the next 3 years, allowing for investment into strategic capabilities that enable profitable growth. Two, we'll modernize legacy applications by leveraging best-of-breed platforms and rapidly updating existing software with advanced AI capabilities. This is an important point because we see AI as a critical enabling technology. Here's how we intend to put this technology to work. First, we'll take advantage of native AI capabilities already present in the modern platforms. Second, we're going to strategically deploy custom AI solutions to improve our logistics capabilities. And third, we'll employ AI agents to refactor legacy applications as we continue to monetize the estate. And lastly, AI will allow us to rapidly develop differentiated capabilities. The freight spin-off has allowed us to take a fresh approach in shedding technical debt, modernizing enterprise platforms and building new capabilities that are critical to our future. There's been a lot of benefits from the spin process. It's helped us generate valuable well-architected data that we can use to continually improve the customer experience. It's improved clarity and enhances insights for our business partners and it informs the foundation for the deployment of AI across the organization. The AI capability is put in place now and into the future will allow us to continue to drive efficiency. We're going to leverage AI to drive down overall cost in certain areas like customer service, operations, finance and human resources. And capitalizing on the experience and capabilities of our partners will further accelerate our digital transformation, specifically, partnerships like Salesforce driving our CRM, Microsoft enabling our cloud migration, Oracle powering our ERP systems and Accenture driving the integration across the landscape will help us scale both quickly and strategically. And let's not forget, safety. Safety and security are at the forefront of everything we do. Our product teams use a secure-by-design strategy from the start of the development process through deployment. We've embedded enterprise-grade security capabilities into every aspect of our tech stack, and we will continue to make these investments. And again, we're not just cloning existing capabilities, which were significantly intangible with a complex global business. We've evolved our commercial applications to improve how we see, interact and engage with our customers. The launch of our fit-for-LTL CRM will ensure all sales, service, marketing and pricing touch points are aggregated on one platform. As a result, lead prioritization and wallet share opportunities are front and center, easily accessible by our sales team, driving improved selling performance. We're also modernizing our pricing and rating methodology in a way that is fit to the unique needs of the LTL customer. This will significantly improve pricing transparency and invoice accuracy, which, as Mike Lyons indicated, are major, major pain points for our customers. Today, pricing requires manual intervention and reconciliation across quoting and invoicing, largely stemming from the entanglement with our global parcel business. The new pricing platform will operate with a simplified structure, streamlined to conform to LTL pricing norms. Our new rating platform provides the functionality for dimension-based pricing, which is the first for our industry. It will simplify the complex class-based rating that often results in customer confusion and disputes. We've also simplified account management. This has reduced the number of duplicate accounts, which have historically been a fundamental driver of invoicing problems. Instead of managing the symptoms by manually correcting the invoices, we've diagnosed and solved the root cause, and as a result, we expect a 60% reduction in manual invoice touch points. And we're not only making it easier to transact with freight, we're making the overall customer experience better. On day 1, our service centers and customer service team will have a unified view of all customer interactions, resulting in improved first contact resolution. With respect to transitioning freight to a stand-alone company, one of our biggest concerns was making sure we minimize any customer disruption. This presented us a challenge because many of our customer systems are directly integrated into legacy FedEx platforms. To facilitate disentanglement, some of the customers are required to make changes on their end, which, as you can imagine, can be problematic. To make that transition easier, we've implemented an AI solution to simplify the process for them. As you can see, the simple prompts on the right side of the slide show how the AI agent can guide the customer through the process, and they're using this capability as we speak. Additionally, we've improved our online experience. Currently, Freight and FedEx share a website. This makes it very cumbersome and complicated for freight customers to use. We redesigned and streamlined the user interface with the launch of the new dedicated FedEx Freight website. The new workflow is much simpler to use. For example, on the shared website, it takes 5 clicks just to start a shipment. On the fit-for-LTL site, it takes 1. Enhancements like this drive significant customer improvement. Let's take a look at the new site. [Presentation]

Now let's shift from the customer focus to an operations focus. As Clint said, we also are making vast strides in technology to improve our operations productivity. Let's see some of that technology in action. [Presentation]

Now as you've just seen, we already have the foundation to unlock greater value through AI and modern technologies like DIM and Motion. This has further enhanced our access to rich data from every element of the supply chain. Taking all this together, we're lowering the cost to serve, optimizing trailer density and synchronizing dock flow and mitigating risk. Now let me close with a few key takeaways. The spin has presented us with a unique opportunity to position this new stand-alone company to deliver on its strategic priorities. We're capitalizing on this opportunity by rethinking, reimagining and rebuilding a fit-for-LTL technical foundation that lowers the cost to serve, improves customer experience and enhances profitability. And finally, we're leveraging critical enablers, including data, strategic partnerships and AI to deliver high-quality growth and unlock long-term value. And now I'll hand it over to Marshall Witt, our CFO, to unpack the financial strategy. Thank you.

Thank you, Mike. Appreciate it. Good morning, everyone. Good to see you all, and thank you for coming. I'm Marshall Witt, Chief Financial Officer of FedEx Freight. And I joined the company last year after spending more than a decade as CFO of TD SYNNEX. Early in my career, I spent about 15 years at FedEx, primarily within the finance division at FedEx Freight. You saw a plot map that was staked out in California as part of the history of the organization that was Viking Freight, and that's where I started. In 1998, I started working with Viking Freight, where I learned so much about the LTL industry and more importantly, about the unique culture of FedEx Freight. So in many ways, it feels like I'm coming home. The opportunity that brought me back was to be able to work with such an exceptional group of people as we build significant value together through this process of making this company great and independent. So today, I'm going to walk you through how our operational strategies translate into strong financial outcomes and drive long-term value creation. Our financial strategy is designed to unlock the intrinsic value of FedEx Freight by leveraging our industry-leading scale, transit times and service capabilities. We are aligning commercial excellence, operational efficiency, business-led technology and a disciplined financial strategy into one integrated value creation model. Importantly, our approach is not simply about cost control or margin expansion in isolation, but it's about building a durable financial model that supports profitable growth, consistent cash generation and a disciplined reinvestment in our network that differentiates FedEx Freight in the marketplace. Our final pillar today is around disciplined financial strategy, and it's built on 4 key elements. The first is accelerating profitable growth. Second is our cash flow durability. Third is a disciplined capital allocation strategy. And fourth, a compelling value for shareholders. My focus today will be showing our conviction in the strategy and in our ability to deliver on our long-term financial plans. FedEx Freight already operates the highest quality LTL network in North America. And the financial strategy we're outlining today is focused on fully capturing the economic potential of our network. As the business continues to optimize density, pricing and service levels, we believe there's meaningful opportunity to further expand returns while maintaining or improving upon the service standards that our customers depend upon. High quality and profitable revenue growth are keys to unlocking value at FedEx Freight. While the LTL industry has been under pressure over the last 3 years, our business has shown revenue durability and margin stability through various economic cycles, and we expect this to continue. We are targeting a 4% to 6% revenue CAGR over the medium term, focusing on quality over pure volume growth. Our adjusted operating income is expected to grow faster than revenue at a 10% to 12% CAGR, demonstrating expanded profitability. And looking beyond the medium term, we will continue our efforts to improve operating income even further. Growing operating income faster than revenue reflects the yield discipline, operating leverage, and effective cost control over the medium term. We're focused on delivering durable, cycle resilient profitability rather than short-term volume expansion. Our strategy ensures that incremental growth contributes meaningfully to margins and drive shareholder value. We expect to drive this growth trajectory through several ways. First, the LTL industry remains a highly attractive, supported by growing and diversified end markets. And second, as Mike Lyons talked about, we are implementing multifaceted commercial initiatives to improve revenue quality and drive growth. Over time, this more sophisticated commercial approach should enable us to grow revenue while simultaneously improving network efficiency and profitability. And third, as Mike Rodgers described, our tech-enabled go-to-market strategy is complemented by differentiated products and service offerings and a dedicated LTL sales force. And by leveraging improved analytics and technology, we are able to evaluate freight shipment at a much more granular level than we had in the past, arming our sales team with the tools to provide exceptional service to our customers. Finally, to supplement the work we are doing to drive high-quality revenue growth, we're also taking steps to manage costs. Said another way, at FedEx Freight, revenue growth comes with margin expansion. And this will be done through maintaining a disciplined approach to pricing, optimizing productivity and reducing the overall cost to serve and support growth. Technology innovation is a critical unlock for efficiency and productivity gains. LTL-focused investments in capabilities, automation and technology will drive structural operating leverage over time. We anticipate these incremental investments will represent approximate 50 basis point headwind during the transition period in 2026. With increasing volume, we anticipate significant fixed cost leverage across the network. The foundational components of FedEx Freight operations include our service centers, our line-haul footprint and technology infrastructure. And they're designed for capacity well beyond today's volumes, enabling us to scale efficiently without substantially incremental investments into the network. Yield management initiatives further enhance margin capture on incremental shipments. And we're also focused on numerous efficiency initiatives to sustainably reduce our cost to serve. Finally, we have the opportunity to exit the majority of our TSAs early, which will allow us to accelerate modernization and automation initiatives. We view these initial investments as necessary. And once internal systems are built and optimized, productivity and efficiency will materially improve. The illustrate bridge here highlights expansion from approximately 12% to approximately 15% adjusted operating income margin over the medium term. The biggest driver of this is yield expansion, which is expected to contribute to over half the expected growth. Volume growth and cost efficiencies are also expected to drive margins higher. As we previously discussed, near-term profitability is expected to be adversely impacted by investments we are making for the long term. The approximate 300 basis point improvement reflects disciplined execution across revenue growth and cost management. One of the keys to margin expansion over time is seeing a better flow-through from our cost structure. And essential to this, in our view, was lowering our functional support cost per gross profit dollar. Keep in mind that gross profit is defined as our revenue, less direct transportation costs, which includes sales, pickup and delivery, dock, line-haul and operations management. Functional support costs include all of the other operating costs to manage the enterprise. So let me pause here and acknowledge that this does represent a different view on evaluating profit. Given our focus on profitable growth, we believe comparing functional support cost to gross profit better aligns how we will manage and motivate the organization. Profitable growth is now our North Star. Let me repeat that. Profitable growth is now our North Star. It aligns our decision-making in our organization around profitability rather than just revenue in isolation. From December -- from June to December of this year, which we're calling our transition period, we expect this ratio to be about 70%. And as you can see from this page, we expect to generate an improvement to approximately 60% over the medium term. The ability to achieve this level of flow-through is supported by technology and AI-driven investments that will streamline support cost and reduce manual intervention or workarounds. Importantly, we are also leveraging technology to improve planning, routing and asset utilization, which should further support margin expansion over time. In the near term, organizational simplification with the separation will improve visibility, increase agility and reduce structural overhead. And workflow optimization across functions will improve efficiency and our decision speed. However, over the long term, our goal is even bigger than this. We think this ratio could reach to over 50%. Lower cost to serve is not a onetime initiative. It's a structural and ongoing priority. These initiatives will expand margins over time as we profitably grow revenue without proportionately increasing our operating costs. Before we move on, I'd like to spend a couple of minutes on the near term. To be clear, we'll be waiting until our fourth quarter earnings announcement to give our thoughts regarding the 4-month period from June to September as we transition from our fiscal year to a calendar year reporting. That being said, I would like to address 2 near-term dynamics. First, in a tough freight market with macroeconomic volatility, we are focused on executing on our long-term priorities. We are managing near-term profitability through efficiencies and cost management that won't hinder long-term growth. Building off of that, we have a few considerations for our performance in this transition period, again, defined as June 1st through December 31, 2026. We expect modest top line growth, slightly below our medium-term algorithm given current market conditions. And we will experience some sequential margin pressure relative to fiscal '26 defined as fiscal year ended May '26, due to TSAs and near-term technology investments that will result in high returns to the business. Now moving to our capital allocation framework. From improved efficiency and margin expansion, we are positioned to generate more than $1 billion per year in free cash flow, which represents more than a 90% net income to free cash flow conversion over the medium term. Our capital allocation framework is designed to deploy our free cash flow responsibly and focus on growing ROIC above our cost of capital. The first priority is investing in high-return organic growth opportunities. We expect to maintain CapEx at about 5% of revenue over the medium term to support this. Our second priority is reducing outstanding debt and maintaining investment-grade rating. We have a methodical plan in place and expect that we can decrease leverage to under 2.5x within 12 months post spin. Next, we're focused on maximizing the return of capital to shareholders by establishing a framework for solid dividends and share repurchases, which, at a minimum, will offset future dilution. And finally, as the largest LTL carrier in North America, it's our responsibility to continually evaluate accretive and strategic M&A. And we plan to do this with a set of very stringent criteria, ensuring potential transactions fit well with FedEx Freight return objectives and drive shareholder value. Our capital expenditures are aligned with high ROI initiatives that strengthen network and technology capabilities. And as I just mentioned, we're planning to maintain CapEx at about 5% of revenue over the medium term, demonstrating not only capital discipline, but also underscoring the strong cash-generative nature of our business. We are prioritizing areas like automation, efficiency and customer-facing enhancements. Each of these investments is evaluated through the lens of improving service, increasing productivity, and strengthening long-term competitive positioning. Our capital spend will be generally allocated across equipment, facilities and technology. And as it stands today, roughly, we allocate 45% of our CapEx towards equipment, 25% towards facilities and another 25% towards technology. This steady and targeted approach to organic investment supports sustainable growth for the long term, while maintaining capital discipline and maximizing shareholder value. As mentioned, maintaining an investment-grade balance sheet with the flexibility and resilience to sustain business through the cycles is a -- through all the cycles is a core financial priority. In line with that priority, we're focused on improving our financial position within the first 12 months of the spin and anticipate leverage to decrease to under 2.5x. Our committed capital and evenly distributed debt maturity schedule are structured for long-term stability, allowing us to invest in profitable growth, while maintaining balance sheet resilience. With about $1.5 billion of expected available liquidity and a conservative leverage profile, we have the solid financial foundation beneath us to operate the business effectively and deliver on our commitment to unlock full value of FedEx Freight for our shareholders. And now let me bring it all together. Our medium-term outlook is a 4% to 6% revenue CAGR based on growth drivers that were outlined today. A 10% to 12% adjusted operating growth CAGR as margins expand due to yield management, cost controls and efficiency improvements. Approximately 5% CapEx spend as a percentage of revenue to ensure steady growth, technological enhancements and prudent capital discipline. And finally, over 90% free cash flow conversion, which will result in greater than $1 billion in annual free cash flow generation. As those financial outcomes compound over time, they support both reinvestment in the business and consistent returns to shareholders. And now let me close with a few takeaways. FedEx Freight is building off the base of durable revenues and strong profitability through business cycles. Our core strategies are expected to drive consistent, reliable and profitable growth. We have multiple levers to drive operating leverage, increase free cash flow generation and lower the cost to serve. And we will use the strong cash flow growth to prioritize balance sheet health and invest through a disciplined capital allocation framework. And finally, our medium-term finance outlook is prudent and achievable. Combined with the operational improvements discussed earlier today, we believe these financial priorities position FedEx Freight to deliver solid earnings growth and attractive returns across economic cycles. Thank you.

I'm pleased to be joined on stage by John Smith, Mike Rodgers and Marshall Witt. [Operator Instructions]

John Chappell, Evercore ISI. Marshall, I kind of asked this last month on the FedEx call, but we've heard a lot about best-in-class service, best-in-class network. If you look at your yields on a dollar basis, they're the best in the industry by a pretty long shot, yet, even if you hit that 15% margin in the medium term, you're still kind of behind some of the top legacy players today. So basically 2-parter. Are there structural reasons why FedEx Freight would be at a disadvantage from a margin perspective with the publicly traded peers? And two, other than those structural functional costs, support costs, what are the methods you can get to kind of get that 15% up to in a good freight environment, something in the 20s?

Sure. Thank you for the question. So if I lay out what we talked about in the medium-term algorithm in terms of growth, that 300 basis point improvement, we still believe coming into the transition period, there's going to be some headwinds, and I called out that 50 basis point kind of net headwind that primarily relates around the TSAs and the transformative investments we're making. There's quite a bit of duplication that is taking place there, serving as that net headwind. That will play through into calendar '27 and then start to dissipate as we see the productivities from those investments play through. Given where we ultimately want to be, and I mentioned this, we think beyond the medium term, there's significant upside in terms of where we could go in terms of that ceiling and how high it can be raised. Two elements that I would like to think about, and certainly, John can chime in, on the pricing aspect, as Mike Lyons spoke to, quite a bit of focus and discipline on yield management in terms of getting appropriate and the right results from an overall yield performance perspective. And then on the cost side, and the comments we made there was the scale that we can drive and build in terms of our operations being at 70% support cost today, getting to 60%. And ultimately, as we go forward beyond the medium term, for every dollar of gross profit, our goal is to drop $0.50 down to EBIT. So we think the upside from both pricing discipline and yield and efficient and effective operation management and support costs, we can see growth beyond the medium-term outlook.

Donald Broughton, Broughton Capital. Let's get a little more specific. So the compound annual growth rate and revenue, you're expecting, medium term, 4% to 6%. Is it 50-50 volume yield? Is it 1/3 volume, 2/3 yield? And how do you expect that to develop over the top?

Yes. Thanks for the question. So if I think about the components that we laid out on that grid from left to right, the first piece was a volume aspect, a little less than 1/3 of the overall 300 basis point growth. The second part was more than half of the margin growth is coming from yield expansion. So if I think about the volume piece first, there's really 2 pieces. One, there absolutely is kind of economic GDP, ISM, PMI correlations. And so as the market goes, we'll feel that impact. But the other piece of that volume growth is what Mike Lyons, Clint and John spoke to, which is what we can go after and capture. You think about those untapped markets around the various sectors that Mike Lyons spoke to. That's a substantial growth opportunity in terms of us growing and gaining market share. And I think the third piece of that on the volume is what we spoke about that dedicated LTL sales force. And again, I want to emphasize -- if you think about the journey of Viking Freight to American Freightways to Watkins, each 3 of those franchises had locally based sales structure teams. And so in essence, now going back to that is in essence kind of returning where we came from. So we believe there's going to be also good incremental growth as it pretends to that dedicated alignment at the operating level, service center manager level down to the driver level in that contact with our customer. We believe there's a piece that we can own and control there.

It's Ken Hoexter. So just one -- from BofA. Are you seeing signs of the industrial upturn at this point? John, I think you mentioned it usually takes a couple of months. We've been at this for 3 months with ISM over 50. Your thoughts on maybe the near term, what's going on right now? How much revenue do you expect to fall away from those -- the bundles? I think you mentioned, was that in the 50? Was that the basis points? Or is that different? I just want to understand how that falls away versus your sales with the new entrants and targets. And then if I can ask a tech question. You went 90 miles an hour through some of the slides there. I just want to understand, RFID had said, it's a future on your next up, but the video said it was on every package now. Where are we? And how -- what insight do you have to the trailers now?

It's on every package now. And we're gathering those insights. We use that to basically plan our trailer density and helps -- we feel it's a competitive advantage because we're the ones really doing that. So it's about 90% of our shipments now.

And real quick to add on to that, what we want to do from where we're at right now with RFID, we won't go further upstream. We want to be able to -- when the customer decides to chip that we know that information further upstream, which will feed our planning process is quicker, which allows us to make better decisions, especially on our priority network, where we have tight operational wins, especially on the outbound. So right now, like we said, every shipment pretty much has an RFID tag and what that allows the customer to do because we ship shipments with multi-skids, they know where every skid is, not just the shipment, which people track, what we call the Pro number, now they know where individual pots are within the trailer and within the network. So that's an advantage.

And the other two questions. Industrial sector relative to the other sectors is showing growth relative to the others, and that's a January, Feb, March commentary. So we are seeing some upside there. And then on the bundling, just to make sure I captured that correctly, even though we're making great progress on that unbundling, I've been through spins before. So as we think about dyssynergies and ultimately what that looks like, and I'll start with the revenue first, there'll be some dyssynergies. They're immaterial. They're already embedded in the outlook that we gave in terms of our medium term and those headwinds. If you think out the other elements of those spin-related dyssynergies, there certainly will be, you think about like the contracts we have over self-insurance and how that's a bundled solution. And as we disaggregate that, we'll lose a little bit of leverage on the freight side, just given the power that the FedEx brand had. But over time, we'll build that back up and get efficiencies there. So there'll be some breakage there. And then as we go through the contracts, I expect there'll be some inefficiencies that come from disaggregating that. Again, as we see and experience that, you guys will hear about that on our quarterly updates. But so far, for what we know, it's built into our current model. And it's generally deemed to be immaterial to the outcome.

Chris Wetherbee from Wells Fargo. So I guess just a clarification on the margin point. So as we enter 2027, we should be 50 basis points worth, so maybe 11.5% margin is sort of what the right starting point is. I guess that's the first question. And then the second is around yields and the opportunity. I think you mentioned half of the margin comes from yield. I guess if there's a way to think about getting into some of these newer or more premium markets, how long that might take and sort of how that progression plays out as you think about that 3-year or 3-plus year journey, how quickly sort of the yield contribution kicks in?

Sure. I'll handle the margin. You might want to handle the upside to the customer profile. You're thinking about that correctly. I spoke to the trailing 12 fiscal year ended May, roughly 12% margin. We expect to see 50 bps head went into the transition period, so you have that correctly done. I'll start with the customer side and let you certainly finish that. If you think about the capabilities that our team has in place today in terms of that dedicated sales force, and the current value prop that we have in those sectors, our belief is that there'll be good uptake and good momentum in those sectors. And back to the SMB play, as you guys understand, SMB, a little bit less price sensitive just in terms of elasticity to price and volume. And as we continue to increase our overall SMB play, that mix will actually end up driving a higher yield improvement for the organization. Anything else you want to...?

Just to add on the small and medium, the key is the technology that we're building. That's where we are at a disadvantage in my opinion, but will not be on 6/1. We'll have that built. And that's what really, in my opinion, along with the dedicated sales force geographically based, the technology that Mike Rodgers and team are building is really truly going to allow us to go and get back even some of the small and mediums because of those pain points that we have not fixed over the last previous year. So excited about that, plus the new verticals. Those are high dollar type verticals that need service, especially the health care, and we do very little in that area right now. So we're excited about that as long with the other 2 or 3 that we talked about.

Scott Group from Wolfe, again. So just, John, another sort of version of the margin question. Last time you were running FedEx Freight, it peaked at a 19% margin. What's different now versus then that makes it potentially harder to get back to that 19% if the guidance is 15%? And then Marshall, I just want to just understand and clarify, are there any other like corporate costs or anything that we need to be thinking about? I'm just trying to like we've got -- you gave us that 12% margin goes to 11.5% initially, but is there anything else as we just think about like the earning -- like the EPS of what FedEx Freight's starting point is going to be?

Yes. In terms of the separation costs as it relates to separate board, right, separate coverages and insurance, et cetera, they're not material to the overall outlook for our organization. So they're in there. And you probably heard us speak in the last quarter that we're pulling in some of those separation costs a little bit earlier than anticipated. And that's some of those upfront costs that we thought we would incur in transition period '26, plus the platform investments from a technology standpoint that Mike spoke to. So it's minimal in terms of its impact on the economic outcome, but it certainly is reflected in the forecast we provided.

I could take the easy way out on that question and say it's because Raj sent me to ground. But I'm not going to do that. I hope Raj wouldn't be watching. He'll get mad at me. When you think about the time difference from when I left to go to ground and where we're at today, the market has changed, of course. But when you look at, especially the last, since we decided to do the spin, and we've got in there, our spin cost, if you just took that cost out, you're going to add 2, 2.5 points to where we're sitting now. So we've got to go through that transition. And then we get to that 15% or more in 2029. We're not stopping there. We're not stopping there. And in my opinion, all the things that we need to do to truly tack the network, sales team, the commercial offering, the technology and then the financial wherewithal that we bring with Marshall and the opportunity to start after we deleverage to the 2.5 or more to look at tuck-in M&As, we're excited about the future. But right now, that midterm is what we're focusing on.

Marshall, Richa Harnain with Deutsche Bank. So given the far-reaching nature of the FedEx network and the fleet age we learned today has already been reduced by a year over the last 2 years, right? I guess it's no surprise that the capital intensity is lower than what we typically see in the business or in the industry at large. So just maybe talk to us about the capital spend and how it's going to be allocated going forward. Is there opportunity to streamline that 5% down lower? Or do you think there's a still a long wish list of tech items that you want to invest in? And if you do have incremental free cash flow beyond what's in your plan, where is that going to go? Is it -- or buybacks, could they be in the picture more near term versus longer term?

Thanks for the question. I'll bring that into a capital allocation response and then more directly to capital itself. So capital allocation, I'll just say this upfront, the Board is not in place yet. We put together our capital allocation framework. We said very disciplined, covers kind of all the pillars, which I'll speak to briefly, but the Board will obviously have to approve this. So if you think about the shareholder return pieces of dividends and share repurchases. In my prepared remarks, you heard us say that we will maintain a dividend. More likely than not, that will start up as we enter into calendar '27, subject to Board approval. And of course, share repurchases is going to be anti-dilutive to start. But certainly, as we think about cash flow generation and the power that we have in terms of earnings power, there's significant upside as we go forward. I referenced the $1 billion in free cash flow we want to hit medium term. And then as John briefly mentioned, now investments in the business, M&A and organic. Organic is meaningful. You've heard a lot of the discussion today around significant organic investments needed to grow our organization profitably. But the last piece is M&A. And I think just given the need for us coming out of the gate, we're going to have about $4.3 billion in debt. So we want to properly manage that accordingly. Our goal is to have that get down to 2.5x within a year. Looking at that all in, we want to be mindful of the best and highest use of those free cash flows and put that back into the business or invest back to shareholders in the highest returns possible. Specific to capital, as you saw the framework laid out, we do believe that, that allocation between facilities and equipment and IT will probably stay in those same percentage ranges. They'll probably ebb and flow a little bit. The algorithm today on growth does not reflect much in terms of facilities or vehicles. That's to maintain, grow, optimize the network and our vehicle fleet. On technology, we've got quite a bit of investments in front of us. As we get into and pass the stub period, we'll reassess just ultimately the next things that we need to invest in to ensure that we're properly allocating the capital the right way. But I would expect that 5% probably stay with us for a couple of years. And then if growth ends up being more on the higher end of that range, that could go up.

And on the technology side, doing -- through the spin, we've done a lot of modernization. For example, we have new ERP for Oracle, New Workday. That is done by the time we get to June 1. And we conveyed over where we have the secret sauce, talk about our fastest network. That estate has been conveyed over. We do need to modernize that over time, but we didn't do that as part of the spin. And then we spent significant resources on modernizing where the customer pain points are on the commercial side. That's going to be done by June 1, and we'll turn our attention to like deploying AI on the operations space, so we have lots of opportunity for more optimization and that kind of thing.

I think to add just real quick on the capital piece from our facilities and equipment. You heard that from a facility capacity, we're in really, really good shape. We're 30% ahead. And Clint and his team have done a really good job on modernizing and driving down the age of our equipment, especially our power equipment. However, when you think about our facilities, we're least heavy. And we've got facilities where we have our eyes on where we know we're going to be 30 years from now, and we may start allocating capital, which we will, we'll pick these off and go from lease to buy and utilize that. So long term, we'll continue to strengthen our balance sheet. So just wanted to add that as well.

Brian Ossenbeck from JPMorgan. So Marshall, maybe you can talk about the cost efficiencies in that margin walk because I think maybe I caught it wrong, but I think some of that was the TSA early exits, but how much of that goes back to what I think Clint was talking about in terms of line-haul and dock and the fleet modernization. So some more details there would be helpful. Also with the SMB mix, clearly, a big driver of yield. Like where are you right now? And I guess, John, what do you -- what's the technology you're looking to fix? Is that the LTL Select platform or perhaps something else?

I want to cover the optimization first in terms of scale. So good question. And I think about that in 2 dimensions. We have what I first teed off about kind of describing this gross margin concept of sales, direct costs. We do put sales into that because they're, of course, accountable for production and growth. There is quite a bit of upside that we believe in Clint's network in regards to further optimization. If you think about the ACOP system, which is the current system in place that we'll carry forward, there are substantial areas that we're going to be able to improve upon. Clint is going to continue to optimize what he has control of today with the systems he has. But as Mike spoke to, there's going to be more enhancements and focus there that will continue to improve that gross margin as a percentage of direct cost or its revenue as a percentage of direct cost. Then pivoting to the concept that we introduced today around that support cost to gross profit dollars, there's quite a bit of automation and technology already in place today in those support functions. But what it does for us is it transitions gross profit into revenue really -- revenue now that the surrogate is gross profit. So as we think about support functions like mine and thinking about how we want to grow the business, we have to scale it to how GP grows in that revenue. We'll keep revenue in mind, but we think there's quite a bit of runway and opportunity to improve that. So those will -- again, will be incremental dollars that fall to the bottom line.

And I'll finish up on the technology piece, and I'll let Mike clean me up. But when you talk about small and medium where we think where the biggest disadvantage is those things that we're working on today, the new technology and it starts with invoicing. And when you think about a small and medium customer, if you can't invoice correctly and flow it all the way through to delivery without having to manual. I believe Mike talked about how many manual processes we have to correct. They basically -- they don't have the back office to do these things. And that's where we've lost side of that, and we're getting all over it. The other thing is, when you think about a geographically based sales force, it is critical for small and medium because they require that face-to-face, they know they have a contact. They know who to call instead of going through the 1-800 number and never getting anyone. So we're excited about that. And plus that website is going to really truly help our small and medium. So those 3 things, along with just getting back out and getting in front of these feel like we can make some really good progress and we're excited about that.

LTL Select is a go-forward platform, and customers can compare speed, rates on that with our competitors. And we're comfortable with that because of our speed mostly.

Tom Wadewitz of UBS. I wanted to ask, John, a comparative question and just kind of thinking about like the mix. So you're focused on mix to improve. You identified the verticals. What about the mix in the sense of industrial shipments and weight per shipment? Your weight per shipment is quite a bit lower than if you look at like an OD or Saia. And they'll talk about growing weight per shipment is effectively price and kind of margin accretive. So how do you think about it not so much from the verticals you mentioned, but from a weight per shipment perspective? And then the second question would be on volume. So I think generally, it's very positive to focus on price over volume, which -- that seems to come through. But at the same time, it does seem like with the additional, I guess, resource for SMB and with the 2 service offerings, you could maybe grow in line with the market, grow better than the market. How do you think about volume relative to some of the capabilities you have? And maybe versus the market, do you grow in line with the market on volume? Or how do you -- just how do you think about volume?

Okay. I'll start with the weight per shipment first. I can't remember who said that one of my favorite sayings is there's no bad freight, there's bad pricing. And one of the things when you think about the verticals that we're in right now, industrial is our largest vertical. However, we do a lot of retail, we do different ones, and the lighter shipments come into our network. So we feel really good, especially the new pricing system that's going to eventually give us dynamic pricing that we're building today, and then we just started testing and we'll have it ready 6/1. It allows us to truly, whether it's a heavy shipment or a lighter shipment, make sure that, again, we sell 2 things, space and pace. And that's why when we go back to Clint's piece on our DIM and Motion machines are so critical for us because they feed our operating systems. And if we know exactly what the cube for that trailer that is coming down the docks, we know that we've got the ability to load every bit of that shipment and take up all that cube in that trailer versus worrying about how many shipments you have on it, which a lot of LTL carriers, shipments per trailer or they do weight per trailer. And that's why the cube base piece is really critical. Now the vertical that we are excited about from a weight per shipment or 2 of them. One of them, of course, is food. And again, we play very little in that market, and we're looking forward to getting into that. But then also from the power perspective, we're going to get into that, and that's some pretty heavy dense freight as well. But again, we're going to price that accordingly because weight is just one component of pricing of shipment. So we feel good about -- we -- the last 3 or 4 months, our weight per shipment has started gradually going up, and it's because we've had that sales team getting out there and getting their feet wet and going after some of these verticals. So we feel pretty good about that.

And I'll touch on volume real quick. So again, that's, I'll call it, a combination of strategy and incentive. And in the last Q&A, there was discussion around that how are we compensating our teams all the way from the service center locations to our employee base, all the way up to the 16B. And there has been interconnectedness from top to bottom in terms of how we're going to be driving that balance between volume and yield and overall margin expansion. So as John said, that has to be approved by the Board, but incentive and the way that gets plumbed up and down the network and the stack of leaders within the organization has to be very clear. SMB, as we talked about, I think that's going to be a clear differentiator that's going to allow us to grow market share. That should be an increment to our volume portion of that growth story.

Let's take one last question.

David Vernon with Bernstein. Two for you real quick. How do we reconcile the 30% excess capacity that Clint had mentioned earlier with the expectation that you're going to grow volume 1% to 2%? Why wouldn't it make sense for you to trim the network a little bit to drive more operating leverage out of the business as opposed to maintain the size and scope of the network, if it is, if the growth aspirations are low? And then the second question is around the 5% of sales for CapEx. Obviously, you guys are in a position where you need to invest in service to close the gap to your peers. Why is 5% the right number and the focus on sort of high earnings quality right now when you need to kind of put more emphasis into improving the business? And I guess the real question is, if you spend more, could you close that service gap and be able to maybe get a better right to grow, I think, going forward?

All right. When you think about -- I'll start with the service piece. We feel really good. We can always improve. But when you're 40% faster in your priority service than any other carrier, we feel really good with the service that we're providing today. Now we're going to continue to attack it. We're going to continue to go after that. But when you look at the speed of our priority network and look at the service that Clint and his team are providing right now, it's top in class. It's top in class. So I'm really -- feel really good about that. And when you think about capacity, you got to remember the conversation about making sure that you have facilities and doors where the freight is. And when you think about that 30% capacity, it's not like that we've got a facility sitting around and is empty. But we've built that to grow. And what we're able to do is not add any nodes, but fill the buildings up that we have. And so it's not like that we've got 30% of our facilities dark and they're not open. We've got capacity within these big markets to where we can truly expand in a really, really good market and keep up with it and keep that service up. So that's the way that I look at it from a facilities perspective. And I think that's key going forward because we are going to grow, but we're going to grow profitably, and we're prepared for that, both from that position, and we talked about our equipment as well as our ability to ramp up from a labor perspective. So we're excited about that.

Great. Well, thank you, John, Mike and Marshall, and thank you to all of our participants as well. We appreciate you joining us for our first Investor Day, and I will turn it to John now to close out our program.

All right. I want to thank you again for joining us for the FedEx Freight Investor Day. Before we end, I want to leave you with where we started. We have the largest and most reliable network in the LTL market with the fastest transit times. Our differentiated offering, combined with our world-class people enables us to meet broad and evolving needs of our customers today, tomorrow and well into the future. As we become an independent company, we are building an even stronger foundation. As Clint said, we're further improving operational efficiencies. As Mike Lyons discussed, we're building a leading commercial offering. And as Mike Rodgers just walked you through, we're enhancing the network through advanced technology. Now pulling all this together, we will create long-term value marked by high-quality growth, improved profitability and a very strong balance sheet. So what you've seen today is the new FedEx Freight. Thank you.