RXO, Inc. (RXO) Earnings Call Transcript & Summary

Okay. All right. Great. So our next fireside chat here is with RXO. We have the CEO, Drew Wilkerson; We have the Chief Strategy Officer, Jared Weisfeld. Thank you. Thanks to both of you for joining us. I really appreciate you spending some time with us. We had a dinner with a group of brokers last night, including RXO had a great discussion. I had some really good panels earlier today. And so we look forward to hearing really good insights from RXO. Drew, I don't know if you want to provide some initial comments to just dive into things.

We'll start right into it.

Let's dive into it. Okay. Great. So how are -- I guess, at the top of the list that I think people want to understand from you, how are things go with Coyote.

Things are going much better than what we expected at this point of acquisition. And like there's -- from that standpoint, there's 3 things that I would point to. First, from a technology standpoint, we've been able to pick the platform that we would operate off of, which is going to be RXO Connect. But not only have we picked the platform and it was the legacy Coyote folks that drove a lot of the conversation of selecting RXO Connect. We've also picked the tools from Bazooka, which was a very good transportation system of what needs to come over to RXO Connect. So we picked the platform, and we know what needs to come over, so that our reps and our customers and our carriers don't face any interruption. The second thing is from the employee standpoint. Typically, during these acquisitions, it caused a lot of angst for employees with somebody new purchasing them. We've actually seen the opposite. From a retention standpoint of all the retention agreements that we put out. I think right now, there's only like 1 person who didn't sign the retention agreement to stay with us. When you think of our top enterprise sellers, every one of them from legacy Coyote state, the top operators, every single one of them stayed. So from a retention standpoint, that's gone better than the past acquisitions that I've been a part of at XPO. And then the last piece is the customers. And customers is always something whenever you do an acquisition that you want to make sure that you get your arms around you get in front of them quick. And from the customers, there's actually been excitement to talk about growth. There's not a lot of talking about paring back freight. It's more about talking about how do we grow and what's the future together.

Okay. Great. How do you think about the timing for that taking some of the pieces you want to keep functionality from Bazooka and building that functionality into RXO Connect? Is that something that can be done fairly quickly? I know you guys are pretty nimble with your micro services strategy and ability to, kind of, make updates quickly. So is that something that happens really fast? Or is that something that you want to take your time a little bit to make sure it works?

We'll take our time and get it right. And the time line that we've provided publicly is we said in the Q3, early Q4. And that's when you'll see the biggest benefit from the acquisition of what we think will be purchased transportation. Getting on to one platform will allow us to be able to purchase transportation stronger. One example that I'd give you is just -- and I think I gave it last night at dinner, walking the floor at legacy Coyote. There was a simple lane from PA to New York and a legacy RXO rep saw it, and they saw that, hey, we're booking the same lane for around $150 cheaper. It's a small volume lane, but it adds up to $60,000 annually. So we think there's a huge number behind purchase transportation and the synergies that we'll see once we're on one platform and you create visibility for all of your customer reps, for all of your carrier reps to be able to put the right truck on the right load over time. Another example is we talked about legacy RXO seeing spot freight in the month of October, some of that driven by Hurricane Helene and Hurricane Milton of customers being in times of stress and being able to provide relief for them in crisis moments. Legacy Coyote came in and helped from a capacity standpoint and pulled capacity quicker than what we typically have done in the past. So we're able to react for our customers quicker and get the products down to the areas that needed to faster.

Right. Okay. Great. Let's see, how do you think about the, I guess, the integration in terms of -- I should know this off hand, but kind of how many offices that were in the Coyote footprint? How many offices are in the RXO footprint? Do you need to kind of cross-pollinate, if you will? And have people from both sides kind of integrated and go into the different offices? Or is it more something where you say, Hey, look, we have some redundancy and we can drive some efficiency. How do you think about that?

Both brokerages had somewhere between 10 and 15 offices across North America. And when you look at it, there is a real estate opportunity on synergy. We have 2 offices in Columbus, Ohio. Legacy Coyote was founded in Chicago, and they have a huge space there. Legacy RXO had a small space downtown with a little brokerage and some technology folks that were there. There's also an office in Naperville. So Chicago can be centralized more than what it is today for us. When you look in the Detroit area, we have a managed trans office in Southfield, Michigan. There was a legacy Coyote office in Detroit, and then we had a brokerage in on Arbor, may take that down to 2 offices over time to be able to put people into one space. We think that the more people that you're able to drive together that are dealing with customers and carriers, the stronger the synergy we'll see. So where there's opportunity for us to create real estate consolidation, we'll do that.

Okay. Is that a component of the -- what you're -- I think you're saying like you were $25 million for cost savings or cost synergies, you said that's kind of what -- now that's going to be like $20 million in '25 and another $20 million in '26, if I understand it right? Around if you want to clarify that, Jared?

Sure. So to your point, Tom, the initial target on the cost synergy side, which excludes cost of purchased transportation was at least $25 million. We upped that from at least $25 million to at least $40 million. So we upped that by 60% within less than 2 months of owning Coyote and the incremental $15 million that we upped by was really tied to the tech transition that Drew was talking about earlier that we expect to be substantially complete by Q3 of next year. So when you think about the incremental $15 million being realized after we go ahead and standardize on RXO Connect and Freight Optimizer, our internal TMS and we sunset Bazooka after leveraging some of those features and functionality, bringing them over to RXO, we think that we'll be able to go ahead and achieve on a run rate basis, an incremental $15 million. So if you think about the timing and staging of synergies from a realized P&L standpoint, we talked about $1 million here in Q4 2024. If you think about the timeline for 2025, probably about $20 million or so from a realized P&L perspective. And then you'll have the full $40 million in effect for calendar 2026 after the tech integration is complete. And that's when we'll also see the cost of purchase transportation synergies. And to your point, that is inclusive of some of the real estate consolidation opportunities as well.

But purchase transportation to, be clear, is not in the at least $40 million.

Okay. What are the bigger pieces of that? So it's like real estate, it's like some IT. What are the other kind of bigger pieces of that $40 million?

Duplicative vendors, duplicative roles, back-office operations, there's a lot in terms of when we think what that comprehensive number looks like. We gave some insight on the call a few weeks ago that legacy Coyote. We're spending about $50 million in technology across OpEx and CapEx, probably about 2/3 OpEx, 1/3 CapEx. So when we think about this holistically and the opportunity set that we have from a synergy perspective, we think it's pretty significant.

Is that $50 million number? Is there some maintenance component that has to persist? Or is that something that, for the most part, can kind of go away and just get absorbed in the RXO spend?

Maintenance -- so when you think about -- when we think about sunsetting Bazooka, after we have fully cut over to RXO that maintenance spend will no longer have to persist.

But you're still going to have things like Microsoft licenses and things like that...

Yes. So some of the $50 million like an ongoing spend...

That tech spend will not go to zero, right? But ultimately, we think that there's substantial synergies associated...

Yes. It can come down quite a bit.

That's right.

What's the tech spend number for RXO? Do you think of that would be comparable?

We've said roughly $100 million in the past.

On a multiyear basis or the...

On Annual basis.

Annual. Okay. But that's OpEx and CapEx?

OpEx and CapEx. Sorry.

Okay. Yes. All right. That makes sense. Okay. And I should mention as well, I think I mentioned this to the other ones. [Operator Instructions] Let's see. Okay. So how do you think about -- I was asking is -- I feel like this is maybe less applicable for you because you got a lot going on with Coyote and RXO. But how do you think about growth over time? I ask this to the other the private company brokers that we had, and it's like, okay, is it more about people? Is it more about tech? Is it about both? Is Texas kind of table stakes? Or how do you think about what you spend on what you invest in to drive growth for RXO on a multiyear basis?

This is a people business that's empowered by technology that allows us to be more productive. This is a relationship-driven business on both the customer and the carrier side. We've got a lot of room with technology to be able to continue to increase our productivity. You saw last quarter that we put out on a rolling 12-month basis. Our productivity, as measured in loads per head per day is up roughly 15% on a rolling 12-month basis. So we think we've still got a long runway based on what we see our top reps are doing from a productivity standpoint to be able to continue to see efficiencies come out of the technology side. But as long as I've been in this business, it has been a people business and relationships matter. And you look on the customer side, our top customers have been with us for 15 years on average. And part of that is because of the history that we've created with them, the layers of relationships that we've created across those organizations that I do not see the people element of this business going away.

Does -- I guess, when I -- so one of the comment from one of the private brokers last night was along the lines of if I could have more people, I would have more people and that would just be more growth, right? So I'm not going to say particularly who we said that. But what do you look at it that way? Or do you say, well, yes, people business, but because I'm driving more loads per person, I don't necessarily need to grow my head count that much to still see volume growth.

Well, the way that we've always talked about it from a staffing perspective is we want to be staffed for growth. You want to be able to prepare for the inflection. So that means that you're probably carrying a little bit more than what you need to right now. And for us, the way that we have always operated the business is that we want to be able to grow 10% to 15% overnight, meaning tomorrow in that if the loads come in tomorrow, we have the people who are trained and capable of handling those loads. And so -- that's how we run the business is staying staff for growth typically in the 10% to 15% range.

Okay. So I guess if you look at that and look at 2025, you probably don't organically grow people at RXO, right? Because you have the synergies and work together or were you organically growing the kind of RXO headcount?

I think that's fair on a total head count basis, but when you look at brokers, people talking to customers and carriers, if there's opportunity in the market is right for it, we'll add.

Right. Okay. Let's see. If we look at the other drivers of -- let's say, kind of where your mix is, where you want your mix to be? And I know it's different with pro forma with Coyote. But where is your mix of enterprise -- let's look at it combined, right? You own them. So what's your mix of enterprise and SMB? What is your mix of dry van versus refrigerated versus maybe if there's other some kind of specialized and probably not getting all the categories that you could divide it to? But how do you think about that kind of mix on customer size and kind of type of service. Where it is today? And then is that something you want to change over time? Or is that kind of like you're happy with it and you just grow all the pieces?

So legacy RXO was built on enterprise customers. And really all of the business was coming from the enterprise markets. We did business with over half of the Fortune 100 and almost half of the Fortune 500 companies out there. So when you're talking about being able to do business at scale and working with smaller carriers was how we built the business in the early days. One of the things that was so attractive about the Coyote market is there was a lot of diversification of what it brought to us. Roughly 40% of their business was SMB, it's not something that we were ever great at doing in legacy RXO. The way that we always saw growth was from enterprise customers. And so that is absolutely a market that we wanted to be able to tap into. We felt like it was a long underpenetrated market for us, and this gave us the opportunity for it. When you're talking about the mix of overall business, those are roughly 80% truckload. That's predominantly dominated by 53-foot dry van freight, and that's around 20% LTL. I think LTL has a huge opportunity for growth within the whole company as we go forward. And one of the things that we like about LTL freight is it does provide stable EBITDA. Typically, your gross profit per load in LTL doesn't move a lot. So it's an area we'll continue to invest in and grow both in SMB as well as in the enterprise book of business. Because when you think about the next down cycle, it's not just preparing for the inflection, but it's also preparing for the next down cycle. And one of the ways that we do that is by growing our LTL business as well as grow in managed transportation, which is an important piece of the RXO portfolio.

Right. Okay. So drilling down a little bit more to the SMB. To me, it seems like if I look at profitability, and we've discussed this a little bit on one of the earlier panels is like, okay, SMB might be stronger margin business. I think of more specialized. And I think a refrigerator can be other things, can be higher business, can higher margin business. Are those areas that -- I guess how strict is like how do you -- assuming those are good areas to be -- have more business, how do you grow them? Is that like is there a different sales strategy like you have to hire different types of people to grow that or you have to have -- give them different tools to grow the SMB piece. How do you think about that?

So the SMB, it is investing in the people who are cold calling on the floor level on the desk level to customers. It is a higher-margin business. If you look at the legacy Coyote business of the SMB is operating at a higher gross profit per load for both that enterprise book of business as well as the RXO enterprise business.

So are you taking actions that say, okay, we're specifically growing salespeople that are going to do that cold calling in to fit that.

Yes, Yes. It's an ongoing investment.

Okay. All right. [Operator Instructions] So let's see, -- what -- we haven't talked about the market. We've left that alone, but I certainly want to hear your thoughts. I think you had some caution on automotive, and that's been -- we've heard that from railroads from others as well. I don't know if that's changing? Are there any areas of the market that kind of seem better or worse to you as you look at just broader freight trends?

So if you look at it by market, to your point, Tom, automotive, we called out a few weeks ago on our earnings call that we expected to move lower sequentially from Q3 to Q4 based on what we were seeing from our customers. No change there. I'd say we also talked about a slowdown in industrial and I think that's been consistent with what you've seen on the industrial ISM. Encouragingly, I think yesterday, you saw the first uptick in new orders in the last few months. So I think there certainly is optimism building as it relates to industrial heading into 2025. I'd say on the retail e-commerce side, I think that's where there's the most optimism with respect to looking at customer inventory positions. And it's the healthiest it's been in probably 2-plus years. If you look at the rate of change of revenue growth of the largest retailers in North America relative to the change in inventory growth. Inventory growth has been less than that of revenue growth now for 6 to 7 straight quarters. So I think inventory positions are healthy. Which is encouraging to see. So I think it's important to have a diversified book of business, which we have. And I think that was, to Drew's earlier point on thinking about across the businesses on RXO versus Coyote, RXO historically very strong in retail and e-commerce, industrial manufacturing part of the attractiveness of the acquisition was you look at where legacy Coyote was historically strong, food and beverage and transportation, which nicely complemented RXO.

Do you -- so how much of your leverage would be like retail and consumer goods? Is it like do you have much exposure to kind of the peaking in the market.

I mean if you think about retail e-comm across both sides of the business, right, from a legacy RXO standpoint, retail e-com is probably about 40% of the business, and that's across the business, including our complementary services, where we are the leader in Last Mile, big and bulky home delivery that's about 40% of legacy RXO. For legacy Coyote, they were a little bit more levered towards peak based on some of their customer exposure, which we talked about in the call and that is contemplated in our outlook where we talked about consolidated volume for the combined organization, growing between 5% and 10% sequentially from Q3 to Q4, that's embedded within that outlook in terms of their leverage towards peak.

We had Hub Group up on the stage and we were asking about kind of the trend that they had commented that this intermodal comment. I know truck can move a little differently. But they said, they had some strength in early shipments related to, I think, concerned about port strike, East Coast ports strike, but then they had some follow-through. There were other shippers that were strong. And so they characterize it as being an elongated peak that they were continuing to see some strength in intermodal, even up into Thanksgiving even, I guess, a little bit beyond. So I thought that was a constructive comment. Do you think that the peak season, like would you agree with that, that kind of peak as you're seeing some sustained improvement? Or I don't -- what level you can kind of comment. But how do you think about how peak season is playing out. Is that you're also incrementally constructive?

Yes. So I mean we said on the earnings call that we did not expect a strong peak season overall. Since the earnings call, I would say that there are some green shoots if you look at -- because to have a strong peak season, typically, that's whenever demand has picked up enough to where it is causing spot loads to happen. And typically, the spot loads roll in, whenever you see tender rejections hit 9%, 10%, 11%. And load the truck ratio sitting around that 6 to 7 to 1 ratio. And there are pockets of the country where it is well over that. But as a whole, tender rejections are sitting at a year-to-date high at 7% and load the truck ratio sitting around 4:1. So I'd say there's some green shoots in the market, but it is still -- it's not a market where you can say it's off to the races, and you're seeing spot loads at this point in time.

Yes. Okay. What about Last Mile? That was another comment where they have a Last Mile business as well that's increased with their acquisition of Forward Final Mile, they said, well, we're seeing some improvement in Last Mile also just in terms of the areas that had been weak that have seen some improvement. Is that -- is your Last Mile business kind of along the lines of seeing that seasonality or...

Yes. So the Last Mile business is a critical part of our business overall. And when you look at it, we've been the leader in that space for a long time. We do over 10 million home deliveries on an annual basis. And when you think about big and bulky goods, washer and dryers, refrigerators, stoves, dishwashers, fitness equipment, during 2020 and 2021 and the early parts of 2022, you saw that business really take off as a whole within the industry. It came back in, and I would say volumes have been down through '23 and '24. For us, we've been able to grow our stops per day, which is a key metric to us, and we highlighted last quarter that it was up 11% on a year-over-year basis. And when you look at how we did that, it was market share from our current customers who were consolidating the number of carriers that they were working with. And we were fortunate that we put ourselves in a position to be able to earn that business from the customers. And we also brought on some new customers. And when customers are looking at how do they want to build out their Last Mile network because we've got locations that put us within 125 miles of 90% of the U.S. population, they start their conversation with us as they're building out their strategy. And so that's -- it's been a good business. But when you look at people ordering new washer and dryers and refrigerators, Typically, there's a cycle for that. I think we're starting to hit the cycle to where you could see that starting to pick up for the industry again. But right now, the growth that we've seen in that business, I feel like it's more idiosyncratic to some of the things that we've done.

Do you think that's pretty housing sensitive, pretty interest rate sensitive in terms of how you look at Last Mile or at least as a component of Last Mile?

Yes, absolutely, I would agree with that. I mean if you think about big and bulky goods, electronics, appliance and fitness equipment, do-it-yourself type projects. No doubt about it, right? That will be economically sensitive to both the overall interest rate environment and the overall housing market. So as we look towards 2025 and beyond, I think it's certainly important to monitor where mortgage rates are, which are now sitting around 7%, right? So as you think about whether or not we do have any kind of housing recovery, I think that will certainly be linked to the health of the Last Mile and big and bulky market.

If you think about your mix of businesses, obviously, growth brokerage is the core business, truckload brokerage and then growing LTL as well. And I think that's where a lot of the investor discussion is -- do you think there's a pretty attractive growth in the other businesses, too. So I guess the Last Mile would be the most significant, but transportation management is something I think you've been enthused about the growth in freight under management. So -- how do you think about growth of the other businesses?

We absolutely think that we can continue to grow Last Mile and outpace what the market is doing over there from the industry. Managed Transportation is the part of the business that provides the most synergy to the rest of the organization. And when you look at the access to data that it gives us, we've got roughly $8 billion, $9 billion of freight that we've got data for. And so we've got access to a lot of data. But it's being able to use that data to help our customers make better decisions is how we positioned it. When you look at that right now, our pipeline is over $1.3 billion in Managed Transportation. We said on our earnings call that we would onboard more than $400 million of freight under management in the back half of the year. So I would say that business right now is growing like a weed, and it is something that we are very bullish on '25 and '26. It is a long sales cycle. It can be anywhere from 12 to 36 months of getting something across the finish line. But the benefit and the synergy that it provides to the rest of the company is real and significant.

What are the keys to growing that right? Like is that just -- okay, you have a track record, you can do it well and so kind of success and customer stories begets more success? Or is that just hiring kind of really good salespeople, I think good relationships. So what's the recipe for growing Managed Trans in a significant way.

A lot of times, there's customers who start off with us in brokerage, and they get to know us and you build that relationship, you build the trust and the service. They can see the technology that you're offering. So a lot of times, it's a conversion from brokerage to Managed Transportation as you get deeper into it. Obviously, we know who our top competitors are in that market, and there's a lot of great companies out there that are very strong competitors. But typically, these Managed Transportation deals are anywhere from 3 to 5 years. So it's also knowing what business is with your competitors and when those contracts come up and go back out the bid.

And I think there's also a pretty significant opportunity to cross-sell our Managed Transportation business into the legacy Coyote enterprise business. Think about legacy Coyote, 40% plus of their -- 60% of their business, core enterprise, right? So -- and they had a small Managed Transportation offering. But you think about selling our suite of offering -- our suite of products within that Managed Trans portfolio into legacy Coyote customer base. And like I mentioned before, with food and beverage as a large vertical, if you think about our Managed Transportation business, right? It's largely automotive, industrial, so the ability to go ahead and help diversify that freight under management and cross-sell that. To Drew's point, it's a long sales cycle, 18-plus months, but the opportunity there longer term is very significant.

Yes. So I mean, I guess, you're saying your brokerage capability helps you sell Managed Trans. I was also thinking of if you had a lot of Managed Trans that helps you have opportunity to do more brokerage, right?

Absolutely. Brokerage is a core care to manage transportation and our customers want us to use our broker. They know the service. They know the reliability. They know that whenever they're in a pinch, that they have the RXO brokerage team to be able to lean on. So what we've actually seen from Managed Transportation customers as they come and they said, how do we put more whenever we're evaluating our whole portfolio, how do we put more within your brokerage.

Right. So what do you think the best framework is, your base framework for how the market plays out? Do you think that capacity attrition continues, and that's a key component for improvement in '25. You think the more likely lever for improvement is just economy gets better, freight activity picks up. You think about kind of the pieces and the way we put together a scenario for '25?

I think most people gave up their crystal ball a long time ago, whenever it came to this market. And for us, it is about having a playbook for every point in the cycle. And right now being at the bottom of the cycle, one of the things that got us excited was being able to do opportunistic M&A at this point in the cycle. And if the market stays down, then we've got a playbook for that. If the market has a V-shaped recovery, we think we are very well positioned with our customers to be the beneficiary of that when spot loads start to come and if it's a stairstep recovery, you'll see some compression on gross profit per load. But on the other side of that, there will be some pain for some carriers within that. But on the other side of that, when you get to the spot loads, we'll be in a good position.

Right. So do you think it's likely capacity attrition continues or just...

I think that when you look at the current demand, capacity has to continue to come out of the market. Now capacity has come out over the last 2 years, much slower than what I thought it would have going in. And so it's still coming out today, you've got insurance renewals that are coming up towards the end of the year. That's something that typically pulls capacity out of the market, especially whenever rates are bouncing along the bottom.

Right. Okay. If we look at the going to '25 as well. So we had, again, 2 prior panels with some private, very large, very successful private companies in brokerage. There were some comments that were a little different than I expected about '25 view and in particular, on the opportunity to improve net revenue per load, right? So my intuition is, okay, you have a constructive view on freight and pricing and maybe more second half. But that would probably be consistent with a little bit of pressure developing on net revenue per load or gross profit margin percent. But there were a couple that said, hey, we can reprice kind of bad business, and we've maybe had some bad business because freight has been weak. And so we're actually optimistic we'll get not a lot, but a little bit of improvement in that net revenue per load. Do you think that's reasonable? Or is it better for us to say, okay, if we're optimistic on cycle haircut the net revenue per load a little bit?

When you look at where we are, you take the COVID highs out and legacy RXO's gross profit per load is 20% below -- or more than 20% below what our average has Coyote about half of that whenever you look at their mix of business of where they are. So there's absolutely opportunity regardless of the market to be able to improve gross profit per load over a cycle.

Okay. But not necessarily in '25, you'd say, over a cycle that your...

I think it depends on what happens, right? Like if you talk about a V-shaped recovery, you're going to see a V-shaped gross profit per load improvement. If you're talking about a stairstep recovery, you're going to see gross profit per load come down a little bit before it starts to go back up. It all depends on what the shape of the recovery is.

It's also customer by customer, relationship by relationship. So I think we take a pretty holistic approach when we look at our book of business. And to Drew's point, I mean nobody has a crystal ball for next year, but I think there are a lot of different outcomes that could occur. We need to make sure that we're in a position to service our customers and be able to staff for growth. And regardless of what happens from a market standpoint, we need to make sure that we can service our customers.

Okay. That makes sense. How do you think about tariff impact and the risk? I think you don't have probably very much exposure to cross border, correct me if I'm wrong. But how do you think about where would you see risk if tariffs on Canada and Mexico are put in place?

Sure. So to your point, from an overall company perspective, it's not a large percentage, but it is growing quickly last year across broader business, specifically at the Southern border grew about 30% year-over-year. So that continues to be a growth area for us and an area of focus. When we think about the long-term implications of what may occur with respect to tariffs and the redomiciling of supply chains and what that means for transportation here in North America, we think the opportunity is significant longer term. So no direct, I'd say, large impact. I think the bigger question remains, let's see what actually happens is this a negotiating tactic. If they do go into place, how do we think about ultimately the impact to inflation and the end consumer demand, right? So I think that there are going to be stages of that where ultimately, are you seeing now a potential pull forward on the ports ahead of those tariffs? Then do they or do they not occur? And if they do occur, what are the inflationary and consumer impacts associated with them, but ultimately, long term, as you think about near-shoring and redomiciling of supply chains, I think that is a significant long-term positive for freight demand.

So I mean, if we wanted to put it in a bucket, is it like kind of low single digits percent of loads of revenue if we said, okay, it's not large, right? Is that the right ballpark for what's cross-border?

Probably not a bad way to or something like that. Okay. It is an area of focus for us. It's growing significantly. And we think that longer term, there's a lot of opportunity especially down on the southern border. I mean we've got the -- we got a very large facility down at Laredo, right, right on the World Trade Bridge, and that facility has ramped up significantly over the last few years. So we're really excited about that longer term.

What do you do with that facility because I think a brokerage is being not a facility-based business, like office space, but facility sounds like you have, I don't know, cross-dock or warehouse or different things. Is that what type of facility is that you're referring?

It's largely a cross stock. And when you look at something that's not going on through trailer, it would go through that facility. We also do a little bit of customs brokerage through the facility and is housed there. And then there's a small component to it, that's some warehousing as well.

Okay. So what would you -- if you look to the kind of future for RXO. What would capabilities be? And obviously, you have a full plate with what you did with Coyote it's a very, very big deal. If you look further out, what do you think the future is for RXO that you build capabilities or acquire them that you may not have in a fulsome way today?

Well, I think when you look at what we do well, we do dry van freight really, really well, especially domestically within the U.S. We've grown the LTL business significantly over the last 2 years. We expect to continue to grow that. Refrigerated, flatbed, are all verticals that we do very little in today that we think is a huge opportunity for growth. And typically, those are at a little bit higher gross profit per load. When you're talking about M&A -- it's all about finding the right fit at the right time. You have to have a willing seller and you have to be able to agree on price. So there's a lot that goes into M&A, but we've told you for 2 years that that's part of our playbook. And is something that we will make sure that we find the right strategic fit, the right cultural fit, but absolutely something that we're constantly evaluating.

Okay. Would you want to be bigger in freight forwarding in the future?

That's -- when you look at any business that we do, we want to be able to continue to grow organically. It's probably not a focus for us from an M&A perspective, but the businesses that we have, we want to grow.

Okay. Thinking about freight forwarding makes me think about your largest competitor that does have that capability? It's a big market out there, but do you see any kind of change in the C.H. Robinson's behavior in the market or dynamic or just kind of too hard to see.

I mean I grew up at Robinson and since I've come to XPO and then now RXO, they have been a great competitor. We've got a lot of respect for them in the marketplace. They've got good operators, good relationships with customers. It's hard to go into an enterprise customer that they're not active in. So I've seen no change in their behavior in any specific way. I don't know if there's something that you're asking to, but just like for us, we've got respect for them in the marketplace.

Okay. But it doesn't sound like you see -- I guess, the quite -- they could be more aggressive on volume, they could be less aggressive. You could see...

We compete with them today just like we did yesterday, just like we did a year ago, just like we did 5 years ago.

Yes, right. Okay, makes sense. Let's see, shipper perspective, when you go meet with shippers, do you sense a change in what they're looking for? Are they becoming more concerned about capacity as we look to 2025, are they continuing? Is it possible they reload for yet another year and say, I really need to save a little money or I can't give you much in order to protect capacity. So how are your -- you go meet with big shippers, what's the conversation like? And what's their kind of mindset and priorities look like?

I'd say we're in the very early days of bid season. But what we're hearing back from customers is that contractual rates will be up somewhere in the mid-single-digit range right now. Now there's a long time between now and when bid season ends. But when you look at what some of the green shoots are, there's opportunities for that to go up more. If you continue to see tender rejections increase and load-to-truck ratio increase. There's also the opportunity if that pulls back after peak that it could come in a little bit. So I would say right now, what we're hearing from shippers is more in the mid-single-digit range.

And you -- so you think they are getting probably a little more concerned about capacity and...

I think right now, they're looking to people that they value. And for the last 1.5 years, 2 years, you've seen large enterprise shippers reduce the number of carriers that they're working with. And -- for us, that's something that we want to be in position for that whenever the market does inflect, we know that tender rejections will go up. That will lead to spot loads. And so we want to be on the other end of that. We want to honor our contractual business. We want to have high service to our customers. create really strong relationships that will get rewarded that whenever there's times of stress, they'll lean on us.

Okay. Good. Let's see. I think we've got one more. We just got a few minutes left. On technology, how do you think about the value of having more data, right? Like with Coyote, you've got a lot more data, its your data, it's not DAT data. And how is that helpful to you in a meaningful way to price better to buy better such that you can have a better gross margin or net revenue per load? So how do we -- how do you think of the value of that data? Is that like a real thing that your increased scale, you're just going to be better at buying and selling? Or is it like the data is broadly available, and so it's not really a big difference.

It's absolutely a big difference, right? Not only having that data, but making sure that you understand that data, analyze that data and use it in a way that is beneficial to RXO and to our customers, right? You think about leveraging that data that we have internally not just across our brokerage business, legacy RXO plus our legacy Managed Transportation business, but then combining that with the Coyote data and the ability to have Coyote been around since 2006, right? So 20 years' worth of proprietary data on top of the data that we've had at legacy RXO using that as part of our pricing algorithms, right? We talk about the ability to go ahead and price our business accordingly based on where we think the market is going. We talk about the ability to go ahead and use our technology to source capacity effectively by having access to that data and using it effectively. I mean that's what's led to what we believe are -- we believe that's led to our outsized market growth over the last 10, 15 years with some of the best margins in the industry. And then having that legacy Coyote data as part of the system will only enhance that value proposition going forward. And we think about being on one system and cutting over late Q3 time frame next year. Having that data on one system, leveraging all the same pricing algorithms, I think will be a significant benefit. And I think that certainly ties into some of the synergies that we've been talking about on the cost of purchase transportation side being. We talked about that being $4 billion worth of combined pool of dollars between legacy RXO and legacy Coyote just on the corporate side. And you look at some of the deals that have happened in brokerage in the past, I mean, in some cases, it saved 150 basis points plus in terms of gross margin dollars. So just trying to quantify that impact. We think that cost of purchase transportation can be the largest bucket of synergies in addition to the cost synergies that we've identified. So data is very powerful.

Okay, one more component to that type question. Where do you think your tech is the most differentiated? I feel like it's one of the hardest things to analyze because the companies I cover, the companies that tend to talk to are big and successful, generally speaking. They invest in technology. And so I think that there are -- a lot of companies have good technology. I know that's been a big investment as we're part of XPO and ongoing. But we think our technology is most differentiated or better? Is it like the connection with owner operators and carriers, it's more seamless, more automated? Is it the shipper connection? Is it, hey, we got the better machines so the pricing algorithm is a better optimization or a better machine than others?

Yes. I would put it into the buckets that you just outlined, customer, carrier and employee productivity. So first, allowing our employees to do more loads per day if we're building tools, we don't build them for flash. We build them for things that reduce the clicks on the mouse, reduce the number of key strokes so that they can spend more time on the phones with the customers, building the relationships, creating solutions for the customers than they are doing for order entry. On the carrier side, it's about creating a flywheel effect of bringing carriers back to the platform. And when you look at carriers who come on to our platform, they're back to our platform within a week, over 75% of the time to do business with us again. So is something that is extremely sticky to carriers that they know that they don't have to leave our platform to find their next load. And then on customers, it's about taking the data that we've got and helping them create and make better decisions for their transportation. If it's taking our data and showing them on a different day of the week they should ship something, if saying that they could do something in a different mode of transportation. We've got a lot of opportunity to be able to use our data to create stronger solutions for customers.

Excellent. Okay. Well Drew, Jared, let's go ahead and wrap there. Thanks so much for joining us. Thanks for the great insights.

Thank you.

Thanks, Tom.