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

Okay. Let's kick off here. So for today's session, we have RXO with us, and we have Drew Wilkerson, who's the CEO; and Jared Weisfeld, Chief Strategy Officer. Thank you both for joining us. It's great to see you. Real pleasure to have you in Miami.

Great to be here.

Yes, absolutely. So let's kick off. We actually have a long list of questions for you and a lot to talk about. So we'll try to keep it moving. So let's start out by just talking about the guide, right? You gave this guide for EBITDA in the range of $20 million to $30 million. Maybe you could talk about what are the macro assumptions that underlie that guide? Help us understand kind of how you drive that because I think it was seen by The Street as a little bit light relative to what I think a lot of people were expecting. Help us understand what you're seeing in the macro.

The biggest driver is gross profit per load. And I think one of the things that probably gets underestimated is what gross profit per load means to the overall profitability to the company. If you look at gross profit per load for every dollar that it moves on an annualized basis, it's more than a 7-figure impact to the P&L. And we have months where it is moving $20, $30, $40 month-over-month. So I think when you look at that, that's a lot of what drives it. And so when you look at coming in at the lower end of the range as to where the market tightens, but not enough to where they're spot, so it puts more pressure on gross profit per load. You've got the midpoint. And then obviously, whenever you get to the upper range, you start seeing a little bit of the spot loads that come into us. When you look at where we were coming in, the biggest factor in the move on EBITDA was legacy Coyote's gross profit per load. And while we knew when we acquired the business that they had priced business for the 2024 bid cycle in the early parts of 2025, a little bit lower than legacy RXO, call it, 5% to 7% below legacy RXO, we knew that there would be gross profit per load -- their gross profit per load would be lower, was running lower. What we did not anticipate was the impact of weather in Q4 and in Q1 -- the beginning of Q1 being worse than what it was prior to the year. So the gross profit per load by legacy Coyote got squeezed harder than what we thought it was. Now what excites us is we went to bid season this year is one. Bids get implemented April through June. So when you talk about having one pricing strategy and how we set up for the rest of '25, I actually feel very good about that.

So say more about the weather impact. Let me read between the lines a little bit. So effectively, it sounds like you were locked in on a contract rate and spot rates started to rise and you got squeezed on the gross margin on the gross profit...

Your carrier costs started to rise on the spot rates, and the market was not tight enough and there was still too much capacity to where there were not spot loads coming out there. Spot loads typically, whenever those start to roll in, they're running at a higher gross profit per load and a lot of them significantly higher gross profit per load. So whenever you don't have that, all you have is the squeeze on the contract gross profit per load, which is where we're at right now.

Got it. And more recently, so we saw that run-up in the spot rate into December, starting really in kind of November, early November. It seems like spot rates have come back down a bit. Does that have positive implications in terms of what we think about in terms of that spread widening back out again?

So 2 things. With that coming in, you can typically pull down purchase transportation, which should mean an increase in gross profit per load. But what you still need to see that move to where you're starting to talk about $30, $40, $50 of gross profit per load movement, you need to start having spot loads come in for there to be a material move.

But what we did see, Ari, was -- and we talked about this on the earnings call, as it relates to the cadence of Q1, where we would expect gross profit per load to improve throughout the quarter with January marking the low point, right? So as we think about both on the cost of purchase transportation side as weather impacts ease, combined with the fact that you'll start to see, as Drew mentioned, the benefits of one cohesive bid strategy, and we talked about 2025 rates on average being up low to mid-single digits, so as you start seeing some of the new bids getting implemented with a lower COPT or cost of purchased transportation, we're expecting gross profit per load to improve throughout Q1, and that's embedded in our outlook.

So I actually have 2 follow-on questions there. One, just help us understand kind of broadly in the truckload market because I know a lot of folks are going to care about what's going on broadly in the truckload market, prospects for inflection. What are you guys seeing? You obviously have a very good perch to kind of gauge the overall truckload market. What are you seeing?

Well, I think, one, we know we're coming off of the bottom of the market for what feels like forever 2.5 years, we talked about bouncing along the bottom of the market. When you start to see contract rates flip positive, you start to see an increase in spot rates. You look at load-to-truck ratio, it almost doubled on a year-over-year basis. You look at tender rejections and even though they've come down a little bit, still sitting at 7-ish percent, which is higher than what it was last year. You're starting to see the signs of a market that's shifting. The thing that's not known is what's the pace of the recovery, right? If it's a slow pace of the recovery, there's going to be pressure on gross profit per load during that. If it's a sharp recovery, whether it's something driven by taxes, whether it's driven by tariffs or whether it's driven by an event, then you actually see significant improvement in gross profit per load during that point in time.

Help me understand that. That actually surprises me that dynamic because I would have thought if we see a rapid inflection in the market, I would think that your purchasing cost effectively gets squeezed and it puts pressure...

It get squeezed for a shorter time, right? Like because if you start to see it and we go into tender rejections from 6%, 7% to 12%, spot loads are there. And so like a lot of times, you see people hoping for the faster inflection and a V-shaped recovery into the market because that leads to more spots. If you're talking about a stair step recovery, you're talking about moving 0.5%, 1% at a time, which puts more pressure on gross profit per load for a longer period of time.

So what is the market or what is the pace of inflection that would be most beneficial to RXO?

I think it depends on what you're looking for, right? Like I think for us, we've never been a company that says we're going to control what we can control and we're down at the bottom of the market and now this stings, that's not our mentality. We look at it as how do we be opportunistic with what's going on in the market. To be able to grow our volume by 125% at the bottom of the cycle was a very opportunistic and an investment that we made at the bottom of the cycle. So I think the longer that it stays down, it actually creates some opportunities for us. Now obviously, from a profitability perspective and an EBITDA improvement, V-shaped recovery is better. But I think it depends on what you're looking for. And even if you look at our management teams, we have debates on what's better for us. And the way that we run the business is what's best for us long term. What's the best thing for us 3 to 5 years, which is exactly to go back to Coyote's contract pricing being lower than ours, it didn't scare us. It didn't scare us at all that their contract -- their contract pricing was lower than ours because we knew it was a 6- to 9-month issue. It was not something that was a longer structural issue for us.

So that's actually, I guess, the second question I wanted to ask about was how should we think about the pricing opportunity now? Because it sounds like it could be pretty robust at Coyote maybe to play some catch-up relative to what legacy RXO is doing. Is that the right interpretation?

Yes. I think when you look at it on an annualized basis right now, we're still in bid season right now, but we've gotten enough results back. We've gotten enough feedback in late rounds from customers that we feel comfortable saying that 2 things, pricing will be up low- to mid-single digits for overall RXO; and two, with that, we'll be able to grow volumes regardless of what the market is doing.

Maybe we could talk about and I don't know if there's the right way to think about it, tell me if we're past this point in terms of the integration. But how is legacy RXO's business performing relative to Coyote's business?

In terms of gross profit per load, legacy RXO is outperforming legacy Coyote. In terms of volume, they're fairly similar with how they've performed. But the biggest factors in gross profit per load for legacy Coyote, you had to break their business up. And so there was an SMB component, a small and midsized business. That actually is our highest gross profit per load for the whole company with what that's running at. So those are smaller customers, it's more transactional, but it's higher gross profit per load. They've got one large enterprise customer that I think was well known that runs at a lower gross margin percentage. It's more automated business. It is profitable with the way that we're running it. And then you've got the enterprise and that will structurally pull down gross margins on that one customer. And then you have the enterprise and middle market customers. And for the enterprise and middle market, that's where we see the pricing opportunity. We see the opportunity for purchase transportation in all 3 areas to be able to improve margins over the long term.

Got it. So let's -- I'm jumping forward a little bit on my questions, but that one large customer that I think we won't name them, but help us understand what share of business that represents in terms of Coyote's largest customer? And I think they've indicated that they're going to be scaling down some of their volume. How is that going to impact your business?

Yes. So we did say for UPS that it was -- at the time of acquisition, it was 10% of gross margin dollars for all of Coyote. So put it in terms of gross margin dollars, it was 10% of their overall gross margin dollars. The one thing that we learned through diligence is UPS was extremely happy with the service and the relationship that they have been provided by the Coyote team, and they know that business inside and out. And because they were happy with them, part of the sale process was making sure that we had long-term contractual with UPS. And so if you look at that contract, it runs through 2030 and there's volume commitments within them. And for us, we look at UPS like any other customer. If we've got great service, if we've got good solutions, if our technology is integrated and draws benefits to them and we build on the relationship, there's opportunity for growth.

Yes. Can you give us any indication of where those volume commitments are, the minimum volume commitments? Or is that...

We have not put anything out on where the minimum volume commitments are at. But I would say that it was enough for us to be comfortable with the valuation that we were paying.

Okay. Fair. So let's actually delve a little deeper on this question of Coyote. How is the acquisition performing relative to expectations? Maybe you could -- for the people who kind of are less familiar with the RXO story, like you talked about the long-term opportunity there, how should we think about that? And kind of what was the logic in terms of long-term opportunity that -- the long-term benefit, I guess, that was derived from doing that acquisition?

Well, the first thing was scale. To be able to grow your volume by 125% at the bottom of the market, it was increased scale. We can take our overall cost as a management team and spread it across 125% more loads. That's significant. That moves down your cost to serve. So we talk about moving gross profit per load higher. When you pull down your cost to serve, that's the same thing as moving gross profit per load. For every dollar you move it, it has significant impact to the P&L. The second thing was on customer overlap. And so if you think about customer overlap, Coyote was built on food and beverage and large enterprise customer. We were built on automotive, industrial manufacturing and retail and e-commerce. So there was not a lot of customer overlap. When you think about carrier overlap, they were working with larger carriers and private fleets. Legacy RXO was working with smaller carriers. So there was not a lot of carrier overlap. And we saw that there were lanes that legacy Coyote was buying better than, lanes that legacy RXO was buying better. So we knew that we had the opportunity to pull down purchase transportation as we got on to one platform. When you look at how the integration is going, which was the first part of your question, to me, I break it down into 3 buckets. And I try to keep it very simple. We've got a checklist of 200 things that are red, yellow, green that we're looking at on a weekly basis. But I look at how is it going with people. And we're in an asset-light business. This is a people business. Relationships matter. And director level and above, voluntary turnover has been like 2%. So when you look at that, I've never seen that in my career at XPO, and we did a lot of acquisitions.

Can I ask, that's out of a base of how many -- what's the headcount on director and above?

Call it a couple of hundred.

A couple of hundred folks. Okay.

Yes. So a couple of hundred folks ballpark, plus or minus a little bit, but a couple of hundred. The second thing is customers. Customers are coming to us and giving us opportunities to grow because they see the expanded services that we can offer. They see things like customs brokerage. They see things like last mile, like managed transportation, cross docks. So the opportunities with customers, we're actually seeing very good results on that. And then the last thing is technology integration. And Coyote had a legacy proprietary platform and legacy RXO did. The way that we approached that was how do we build the best of both worlds? Now legacy RXOs was probably a little bit slicker. It was newer, it was further integrated with large enterprise customers. But there were some tools that we're taking off of legacy Coyote on the carrier side that I think help them develop a bunch of carriers and how they're tendering out freight and how their carrier reps are able to do it and increase productivity over the long term. So those are the 3 big things that I look for with how the integration is going whenever I wake up is, are we doing okay with our people? Are we doing okay with our customers? And to be able to realize all of these benefits that we talk about with purchase transportation, we have to get the integration on the platform right.

One of the things we've gotten a number of inbound questions from investors about is the transaction integration and restructuring expenses. They seem to be running a little higher than maybe what was expected. I think there's about $65 million have been incurred in the last 2 quarters. Is that fair to say that it's running a little higher than expected and kind of give some color around what's within that or what's in that number?

Let me start by telling you what else is running higher synergies that are coming out. And so whenever you look at what we initially said, we said that we expect at least $25 million of synergies and that was going to cost us around $20 million to do. Now we've said it's at least $50 million. I guess what it's going to cost. It's going to cost around $40 million. So I think when you look at synergy costs and synergies coming out of the company and the cost to do it, yes, there's a onetime cost to do it, but like look at what's on the other side of that.

So when you look at 2025 as a whole, to Drew's point, I mean, we're really happy that we're able to go ahead and raise our synergy estimate twice since owning the asset in the period of just months, right? So we're now at least $50 million for 2025 that excludes any benefits associated with cost of purchase transportation. To your point, Ari, the restructuring charges that we're taking in the P&L for 2025 are going to be about $40 million to $50 million and the cash outflow is going to be a little bit north of that. But I think what's important to realize that the cash outflow component is a function of both, restructuring actions taken this year and prior year. Because remember, legacy RXO early last year, we took an initiative to take out approximately $35 million of annualized cost as well. So the spirit of everything that we're doing internally in the org is to prime the operating model for increased leverage when the cycle does turn, and that's what's embedded into those figures.

And remind us -- so the synergies don't include purchased transportation, which could be substantial, right? Have you guys talked about parameters around that?

So what we've talked about is that between legacy RXO and legacy Coyote, it's a combined pool of dollars of approximately $4 billion of cost of purchase transportation. And we talked about this, not this earnings call, but the prior call, we made the comment that if we were to just save 1% on cost of purchase transportation and when you just throw that number out there, we knew that going into the diligence process when we were part of this when we're going through the diligence, legacy RXO bought better on certain lanes, legacy Coyote brought better on certain lanes. And we've seen some proof points on this as we're going through the integration. And when you think about saving, call it, 1% on that $4 billion, a substantial percentage of that would drop right down to EBITDA. So when you think about cost of purchase transportation synergies on top of the at least $50 million of cost synergies and think about that relative to legacy Coyote EBITDA, right, we're going to be able, when all said and done post integration, be able to buy the asset down to mid-single-digit type multiple, I mean, that's a pretty strong return.

Yes. No, it's exciting. It sounds like a big pool of opportunity to kind of wade through. As we think about synergies, as we think about -- we've talked about the pricing opportunity to kind of catch up a little bit with legacy Coyote getting to the -- getting RXO's level. How should we think about -- kind of 2 parts. So how should we think about the progression of EBITDA through the year? And you can talk in specifics if you'd like. I'm sure people would love it. But if you want to talk in more generalities, that's okay, too. And then kind of longer-term vision, how should we think about that?

I'll start, and then I'll let Drew comment on the longer-term vision. So we gave our outlook for Q1 and what we commented is that Q1 is typically the lowest contribution as a percentage of the full year. And we've talked about on a combined basis, when you look at the seasonality of the business, Q2 is generally up across all lines of business within the legacy RXO last mile business, within the legacy RXO managed transportation business and then also the seasonality across the brokerage business in terms of new customer wins during bid season. And you'll see seasonality also on both sides, legacy RXO and legacy Coyote. And as Drew talked about also, Coyote has got more food and beverage exposure. So you'll typically see that. Q3 is typically a seasonally softer period for the combined org and then Q4 then ramps up again across last mile. So if you think about Q1 and Q3 being the seasonally weakest quarters, Q2 and Q4 being the strongest quarters. I think we've shied away of giving specifics, to your point, because I think Drew mentioned this earlier, we're coming off the bottom. I think the shape of the recovery is still unknown, right? You've got a lot of positive signs out there in terms of freight KPIs at the highest levels in the last 2.5 years. You've got some broader economic indicators, which are strong, especially the industrial ISM, but you've also got uncertainty in terms of sticky inflation and trade policy, right? So I think that's what's more unknown. And I'll let Drew comment on the longer-term vision.

Yes. I think longer term, look at the synergies that are coming, look at the purchased transportation that we've got, look at the cost out that we ran even prior to the Coyote acquisition and then take into the volume growth that we think that we'll have over the long term, will outgrow what's going on in the market. And then remember, gross profit per load is a big needle mover for profitability. And take out the COVID highs, take out 2020, 2021 and 2022, take out the COVID highs from a gross profit per load perspective, legacy RXO is still 20% behind our normalized average. Legacy Coyote didn't have quite the same torque on the business in a mid-cycle or an upturn. They're still 15% behind. So we know the opportunity is massive as we go forward. We're more bullish about the long term of the company than what we've ever been.

Okay. So I'm going to try to press you guys a little bit on numbers. And again, you can get as specific as you'd like. But if we think about your largest competitor, right, I think a lot of people are going to inevitably benchmark you against C.H. Robinson. If we look historically, it's not unheard of for C.H. Robinson to have kind of an EBITDA margin in the 5% to 6% range. If we think about the base of business, combined with Coyote, we think about probably about $7 billion to $8 billion of revenue for RXO as we look out to kind of '26 or '27. Applying a 5% EBITDA margin to that gets us to kind of $350 million, $400 million. Is that a reasonable way to think about kind of the normalized earnings power of the business post integration and after you get through some of these initial...

Yes. I think that's a fair approach. I think that part of the strategic rationale of the acquisition of Coyote was increasing the scale of the organization, right, as we talked about, spreading that fixed cost across 125%-plus more increased volume on the truckload side. We've more than doubled our LTL business as well. So we historically talked about RXO being able to punch at double-digit EBITDA margin percentages during the peak and around that margin range that you talked about on the legacy RXO side. So I think that's certainly a fair way to think about it after we go ahead and achieve our synergies, after we go ahead and achieve our cost of purchase transportation synergies, could we be running at 5%, 6%, even higher as it relates to normalized margins? And I think the other component of this, Ari, is also on the return on invested capital. So think about this from the standpoint of increasing our volume the way we just did, the incremental CapEx associated with that on a normalized basis is probably plus $10 million, right? So going from, call it, mid-40s to mid-50s on doubling the size of the org from a volume standpoint, which speaks to why the legacy RXO brokerage business has always run at, call it, 30%, 40% type return on invested capital figures. So the incremental free cash flow generation from this business once we get to those kind of normalized levels is enormous.

One of the things that I find very compelling about the RXO story is the free cash flow potential. So as we think about those adjusted EBITDA numbers, how should we think about how that translates into free cash flow?

Sure. So when you think about this business, as we just talked about, pre-Coyote CapEx, call it, running in the mid-40s. We talked about 2025 being a little bit more elevated because we do have some expansion occurring down in Charlotte, North Carolina, which houses a lot of our main brokerage operations, including our headquarters and the management team. And we talked about that also includes some of the Coyote CapEx, which will roll off into next year. So into 2026, we talked about, call it, mid-$50 million of CapEx at our interest payment, which is about $30 million to $35 million a year on top of that. Once you cover $100 million of adjusted EBITDA, right, every incremental dollar of EBITDA will hit the balance sheet at $0.75 on the dollar, right? So when you start talking about $400 million, $500 million, $600 million of EBITDA in a more normalized environment, less those $100 million of, call it, fixed charges to run the business, that will drop to the balance sheet at $0.75 on the dollar, right? To your point earlier, 2025 is a little bit noisy because we still have some of the cash payments associated with achieving the synergies. That is what -- it's extremely compelling in terms of the cash flow profile of the organization.

So several hundred million dollars of free cash flow is a reasonable expectation, it sounds like a couple of years out.

Pick your EBITDA number and then I told you what the fixed cost of the business are, basically just the CapEx plus the interest, everything on top of that at our long-term effective tax rate of 25%, we will hit the balance sheet.

Okay. That's exciting. We'll have to get our calculator out and do some math there. Let's talk about the industry structure in brokerage. It seems like it's changed quite a bit over the last couple of years. I would argue to the advantage of legacy brokers. How do you see kind of the evolving nature of competition in the industry? We know for a long time, it felt like there was a lot of money flooding into these very well-funded start-ups who are chasing volume perhaps at negative margin. That seems to have gone away. How has that impacted your business?

Yes. So one, I would say it didn't impact our business as some of the dynamics that you were talking about were playing out because we knew who we were. We were a company that was going to -- that would be valued on the service that we're providing to our customers, the long-term history that we had built that if you look at our top customers, they've been with us 16 years on average. And when you look at our growth over the last 5 years, the growth rate of our top 20 customers is actually higher than what our growth rate has been. So we knew that we could stand on service, solutions, innovation and relationships. When you look at the overall brokerage industry, there's over 17,000 truck brokers out there right now. And I think that people get caught up a lot with what's going on is how fragmented the industry is, and it is, it is highly fragmented. But I think it's around 50%. Pre-Coyote acquisition was made up of the 50% was around the top 10. Now it's top 9. So for us, whenever you look at it, we see that this industry is still ripe for consolidation. We think that there will be more large-scale M&A that takes place. And as you go out and you look over 3, 4 or maybe even 5 years, you're talking about 3, 4, 5 players that are making up 50%, 60% or more of the overall market. And we feel like we're in a really good position to be able to do that because of the value that we've been able to provide to our customers.

So how much of that consolidation has to come about through M&A versus some of these smaller players dropping off effectively or not being able to compete effectively?

Well, I think if you look at what customers are doing right now and what they have been doing the last 3 years, they've been consolidating their carrier base, not just brokers, asset-based carriers as well. They've been focused on who provides the best service, who do they have the best relationship, who has a history of creating results for them, who uses solutions to be able to tell them what day of the week they should ship something, what mode of transportation they should use, how are people looking at things differently for them? And when you look at that, I think that from the brokerage world, large financially stable brokers are in a position to win. And so I think you will see consolidation at the top. I also think that you'll see some nice niche tuck-ins for whoever, whether it's in flatbed, whether it's in refrigerated, whether it's in LTL that good operators who can help you grow out within a vertical.

So when we think about M&A plans or M&A prospects for RXO, it seems like, obviously, there's a very large integration that you're working through. But should we expect continued roll-up of the industry? I mean, you talked about some of the free cash flow that you expect to generate, is that most of that going to be directed towards M&A?

Yes. I think that we want to be opportunistic with how we deploy the cash and it has -- our capital allocation structure has not changed. We're always going to invest back into the business. We're going to make sure that we're positioning ourselves for growth. If you think about the times of 2013 through 2021, the brokerage industry was growing at over a 9% CAGR. During that same time period, we were growing at a 27% CAGR, and that was largely driven by organic growth and investments we were making into the business. The second thing is we're going to look at is share repurchase an option. And the third thing is M&A. And we've got a history and a playbook of being able to do M&A over a long period of time. The Coyote acquisition is going extremely well. But M&A is hard to do. And for us, we have a very high bar whenever it comes to M&A. It's got to be a strategic fit. It's got to be a cultural fit to what we're doing. And you've got to have a happy buyer and a happy seller whenever you're doing it. We're looking at something that what positions us best for the long term. We won't do M&A for the sake of doing M&A, but we would do it if it's the right M&A, but there's a high hurdle to clear.

Yes. So I'm glad you mentioned buybacks because we saw one of your former kind of partner companies announced a large buyback yesterday. How are you thinking about -- we've seen RXO share price has been under a bit of pressure. Is there any basis for expecting that you guys might be opportunistic there? Or is it just, hey, let's focus on running the business, let's focus on integrating Coyote properly and then the share price will take care of itself?

We've got authorization for -- I may get the number right, so Jared can correct me, but I think it's around $120 million right now that we've got an authorization that's already out there. For us, going in there and doing the work and seeing what's the best deployment of capital, is it M&A, is it buybacks or is it holding it for what is the right time in the market? And for us, we're always looking to see what's going to be best for the shareholder return over the long term.

Historically, I think we've thought of RXO as a business that's very tech forward. That's kind of a leader in the industry in terms of leveraging data, leveraging technology to improve your operations. Feels like that narrative has kind of maybe gotten pushed to the back burner a little bit, so tell us about that. Like where is -- how are you using technology? How is that helping the business? How is that helping you outcompete some of the other large...

I mean we built our system from scratch, homegrown. And if you look at what we've been able to do, we think we've got the strongest pricing algorithm in the industry. We think it moves faster and more times per day than anything else out there. That's both on the carrier side and spot loads on the customers whenever those start to come in. So it positions us to have strong margins within the industry. We look at tech in a very simple way. We try to simplify the business. And like there's 3 things that we focus on. Does this help us with our gross profit per load? Does this help us grow volume? And does this help us increase our employee productivity? And like if you think about gross profit per load and look through a cycle, or -- and I guess you have to -- as an investor, you have to look at gross margin percentage, we'd stack ours up against anybody else that's out there. If you look at volume growth through a cycle, we'd stack ours up against anybody else out there. If you look at productivity, we just talked about employee productivity even at the bottom of the cycle growing by 15% on a rolling 12-month average. So like for us, are we focused on the right things? It's not about the flashiness of it and saying that we're going to automate the whole industry. We're not. That's not where we're looking at. What we're looking to do is being able to increase our productivity to where our reps are able to do more loads per day, and they can spend their time building the relationship with the customer. They can spend their time focusing on solutions that they have. And then lastly, they're always going to have exceptional management things that come up, but we're reducing the number of keystrokes they've got, we're reducing the number of clicks on the mouse and so we think that we're just getting started on increasing productivity. And like I said on our pricing algorithm, very happy with where that's at.

So one more thing. I think another added benefit of the Coyote acquisition was we're actually able to accelerate our tech road map on a few key product areas, as we think about the combined tech org. And I think that as we keep going through the integration, I think there will be more of that. And I think Drew mentioned some of this earlier, especially on the carrier side, you think about legacy Coyote, right, larger carriers and private fleets, their technology was maybe optimized for that a bit more. So being able to bring that into our system was another added benefit.

So that's a perfect segue into what I wanted to ask, which is where was Coyote's technologies compared to RXO? Was it -- do you see it as kind of having been complementary or do you see it as being maybe trailing what RXO had been doing?

I think whenever you look at what they built, they built a proprietary system that was very good. Jeff Silver did a fantastic job. If you go back to C.H. Robinson and look at who built [ Express ], which was the platform that I operated on whenever I worked at Robinson, Jeff Silver did that at American Backhaulers. You look at Bazooka that he built at legacy Coyote, and it was fantastic. It was great. The operators who are running the business on the carrier side specifically love the platform, but it was an older platform. So it was not moving as fast. It was not as slick as what our freight optimizer system was. So it was being able to take the best tools out of that system and make sure that they're built that as legacy Coyote comes on to Freight Optimizer that there's no interruption in how they do business, there's actually an enhancement.

At the time of the acquisition, and this goes a little bit back to our conversation from earlier on pricing and other things, how much visibility do you have into Coyote's operations? How much of an opportunity did you get to kind of look under the hood prior to doing the acquisition? Or were there things you discovered or things that were kind of surprises?

No, we knew where pricing was. Like we knew that legacy Coyote was 5% to 7% below where legacy RXO was specifically on the enterprise business. We're very well aware of that. What we did not anticipate was getting squeezed harder on the weather factor. We didn't think that -- we thought last year was pretty bad on weather and we didn't think it could be worse this year. And so there was a bigger impact to gross profit per load than what we had modeled in. But for how they performed in the market, we're actually very happy with.

To add on to what Drew was saying, I mean, a very robust diligence process and no real surprises, to your question, Arie, I'd say that -- because we often get asked is the business behaving as you would have expected 6 to 9 months ago, which I assume is the basis of the question, right? And it is -- the business -- the legacy Coyote business is behaving as it should, given where the cycle is. And I think that's the important point where given the pricing dynamics that we just talked about and given the squeeze that's occurring, gross profit per load should be where it is. But from our standpoint, when we look at this over the next 5, 10, 15 years, being able to go ahead and double the size of the business at the bottom of the cycle with all of these idiosyncratic opportunities that we have to go ahead and optimize the cost structure and really generate that cash flow longer term, that's where we get excited.

Got it. It's an exciting opportunity, definitely. I feel like maybe people don't -- in our business, maybe people tend to be a little bit more short-term oriented than -- it behooves them sometimes. Let's talk about some of the other segments of the business. I feel like, especially since Coyote, there's been so much focus on brokerage. But managed transportation, you talked about a $2 billion sales pipeline there. Last mile, I think, has contributed a lot from a customer standpoint. Talk about how those businesses kind of integrate within the larger portfolio and what it brings to your customers and what it brings to RXO?

Managed Transportation is such a great business because when you think about the data that you get from it, you are acting as an extension of the customer at that point. They are outsourcing a piece or all of their freight to you. And so you're highly integrated with the customer. And what Managed Transportation gets to do then is they get to act as a customer to our other lines of business, largely truck brokerage. And if truck brokerage has great service, they're priced in line with what market is, then they've got the opportunity to win a significant amount of freight. And so every time Managed Transportation wins, we get the opportunity to win in brokerage, too. So it's a double win for us. And last mile, we love the business because we're the #1 provider in the space, and there's really not a close second to what we're doing as far as big and bulky deliveries. When you think about big and bulky delivery, washer and dryer, refrigerator, stoves, going into a home, doing installation, there's not a lot of people who do it at the scale that we do it. There's nobody who does it at the scale that we do it at. And for us, we really like that for these large retail and e-commerce customers, it gets us access to the C-suite faster than any of our other lines of business, faster than managed transportation, faster than brokerage. And the reason being is because if something goes wrong on a delivery, a lot of times it's the CEO who's getting a tweet from somebody who's angry about their floor getting scratched or delivery running late. And so for us, that brand protection is real and what it plays. And so when we get that opportunity, we get to talk about our other lines of business as long as we're performing well in last mile. And then the other thing is when you look at the network that we've got set up within last mile, it took us a while, but to be able to have a network that puts us roughly within 120 miles of 90% of the U.S. population, a home delivery network does not set up like that. There's a lot of regional players, but to be able to do it, if you want to start your conversation on a national scale, you would start it with RXO.

And it's interesting to note that the margins in those businesses are actually higher than what they are in -- the complementary services margins are higher than what they are in brokerage.

The gross margin.

The gross margin, yes. And again, with the understanding that some of that is a function of the nature of the business. But should we think about -- I guess, how do you balance the desire to grow in that complementary services area against the desire to grow in brokerage?

If we've got a business, we want to grow, Ari. So like there's not a business that we look at that we say like, "Hey, we're prioritizing growth in brokerage more than managed transportation or last mile." And for us, it's about being able to go to the customers that have those services and talk about the value that we can add to them. So all of those businesses, we think, are positioned to grow. Last mile, again, grew stops on a year-over-year basis. Managed transportation onboarded hundreds of millions of dollars of freight last year and has a $2 billion pipeline. Brokerage, we're saying is going to go back to growing volume as we enter into 2025. So I think we're well positioned in all of them to be able to have growth for the foreseeable future.

Got it. Let me see if there are any questions in the audience. One of the things -- just while we're waiting for this question, talk to me about kind of the structural changes impacting the industry and how you're seeing kind of things move around in the industry? And what are the things that maybe people are underappreciating about how the industry is evolving?

I think looking at from a brokerage standpoint, where share was 10, 15 years ago at low- to mid-single-digit penetration of the $400 billion for-hire truckload market and look where it is now in the low 20%. And we think longer term, that's probably going to 40%-plus. So we think about the serviceable addressable market within that for-hire truckload spend, not only quadrupling over the last 15 years, we think it's going to double again. So if you think about just how brokerage has evolved over the last 10 to 15 years, the services and solutions, especially that the larger brokerages offer relative to what they offered 15 years ago, it's, I'd say, transformational. So the ability to go into a customer and being able to offer them everything from trailer pools to dedicated to capacity and the best technology that's out there that didn't exist 20 years ago. So I think it's been a seismic shift in the industry in terms of the capacity and the solutions that brokerages, especially the top brokerages, have been able to offer.

You've reaffirmed your upping your $25 million to $40 million to $50 million in target from synergies with Coyote. Is there a chance that you might up it even more as you dig deeper in the next 1, 2 quarters or would you say the $50 million is sort of a top limit, there's really no more to go? Could it go to $60 million or $75 million? And then also that 1% from the $4 billion PT, can you give more of a range? Is that 1% fairly firm or is it more like 1% to 2%?

I'll let Jared talk about the PT. But I would say on the $50 million, we used one word in front of that, at least $50 million. And we're a company that operates in a continual state of improvement. So we're always looking for ways to increase synergies, not just from the Coyote acquisition, but as a company in general and where there's opportunities, we'll absolutely take them.

And on the PT side, we wanted to give a framework in terms of how to think about it, right? Because the reality is PT is going to be a moving target because it's a function of where we are in the market, right? So if the market is moving and purchase transportation dollars are more expensive because the spot rates have moved higher, right, we need to measure ourselves against benchmark. But we wanted to provide you that framework in terms of a 1% savings on a $4 billion pool could be approximately $40 million. If we execute and Freight Optimizer integration goes well and coverage goes exceedingly well, could we be above that 1%? Of course.

So we're almost at time, but let me just ask one last question. As you think about -- we've talked about a fair amount about kind of long-term targets. Where do you envision RXO kind of 5, 10 years from now? What's your place in the marketplace? What -- if you want to put some financial numbers around that, that would be amazing. But -- where are you kind of today against those -- or how are you executing today against those targets?

We think we've structurally changed the business with some of the things that we've done and have positioned us to deliver long-term earnings growth for the company forever as we go forward. When you look at who RXO is, we've got a desire to be the #1 truckload provider in North America. And right now, we're sitting at the #3 brokerage in North America. But when you look across managed transportation, when you look across brokerage, we have a lot of opportunity to grow. It is a massive market, and we're still just a small piece in it. We've got great relationships with our customers. But we think there is good opportunity for legacy RXO to grow organically and inorganically as we move forward.

So correct me if I'm wrong here, but am I hearing you say effectively that you think you could be, what, double the size that you're at 5 or 10 years from now? Is that -- is there any chance of that?

Absolutely. Yes.

Okay. And how much of that organically versus M&A?

Well, M&A, you never know, right? Like so I think with M&A, when you look at it organically, what I'm confident in saying is that we'll outgrow the market. When you look at what happens in the market, we'll outperform what's going on in the market through a cycle. Inorganically, there's that high bar to clear. And so like it could be big deals, it could be small deals, it could be no deals. And so I think it is hard to forecast what would happen with M&A because there are so many things that are walk away for us or maybe walk away for the seller.

Got it. So it's an exciting opportunity set, certainly exciting to watch it play out. Drew, Jared, thank you for joining us.

Absolutely. Thank you.

Thank you.