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

Great. So let's resume with transportation content. And next up, we have RXO and very happy to welcome back Laguna. CEO, Drew Wilkerson; and Chief Strategy Officer; Jared Weisfeld. Gentlemen, thanks so much for coming back to Laguna.

Thanks for having us. Always great to be here.

Absolutely. So maybe you can start out by just running through what you're seeing out there. Obviously, a lot of focus on the 2Q to 3Q transition, whether we saw any pull forward into 2Q where there's been a normal seasonality into 3Q or not, data is a little bit over the place. So kind of what do you see from your perspective?

Yes. I mean, I think it starts with -- as we all know, we're still in a soft freight market. And so as you look at Q3, around the holidays, there's been pockets of tightness. That's not always a great thing whenever there's pockets of tightness and there's not spot loads to correlate on the other side. But there's also been times in the market when there's been loose and those are times that you're able to focus in on purchase transportation. And it really has varied for us of what we're seeing around different parts of the country, especially as you look at a month like July, as you're coming out of produce season. If you think about the southern states, the West Coast states, of what's happened in the produce side, that is something that is -- was impactful -- more impactful this year than what we've seen in the last several years

Got it. Can you remind us again kind of what your segment exposure is like, obviously, we've heard from industrial exposed companies about that side of the business being a lot harder in the consumer side of the business. So what's the like for you guys? And kind of what is the difference you're seeing out there.

If you look across our business, call it, 20% to 25% industrial manufacturing, 20% to 25% retail e-commerce, 20% to 25% industrial manufacturing and then food and beverage. So those 3 are about 75% of our exposure. Also a little bit of homebuilding and then automotive is about high single-digit percentage of our truckload brokerage business in terms of volume. And if you look across the board, I think you're exactly right, when you think about the freight economy over the last 12, 24 months where it's been different trends across each vertical, right, where industrial manufacturing, I think all eyes are on the industrial PMI. And you saw a little bit of a positive last month in terms of finally getting above 50% on that new orders component. We'll see how sustainable that is heading into 2026. But you then compare that to the consumer, right, where spending on big and bulky has not been robust. And when you think about the housing market, which has been soft, and I think the rule of thumb is, right, every new home is equivalent to 7.5 truckloads, right? So to have housing economy as soft as it's been has certainly played into the extended down cycle in the freight market.

Got it. Understood. So from that perspective, do you think like what happens next week and 24 or 50 bps kind of does that help the cause? And kind of do you think it moves the needle? Or do you think it's just a little -- too little...?

I mean, if there's a -- not to hypothesize on what the Fed will or will not do next week, right? But if there's a jumbo side cut next week and it's 50 basis points, could that help stimulate demand? Let's see what happens to the long end of the curve. And does that continue to help mortgage rates, which have been falling. And as you think about 2026, to the extent that you see that continued trend in mortgage rates, which are on 10-, 11-month lows, that could certainly be a positive. But I don't want to hypothesize what the Chairman may or may not do next week.

Got it. Understood. Drew, I think you said on the 2Q call that you're seeing -- you're hearing cautious optimism from customers on tariff clarity. Do you think what we've heard in August and September so far constitutes clarity and kind of what are your customers telling you? Like is that optimism continuing? Or are they like we don't know yet?

Clarity may have been a strong word. I think that having some sort of a direction of where they are going and landing somewhere around 15% for a large portion of it, I think, was a good thing because when you first saw the trade war start, there was so much unknown, and we saw so many different things from customers. I mean we saw some customers who were working fiercely before the trade war started to pull inventory forward. We saw some who didn't and they're trying to pull it forward as things were announced. We saw some that just were a slow drip as things started to come through. And we saw some large customers that just completely paused until there was a little bit more around the percentage that they would be paying. So I think that it's a moving target at times. So clarity may have been a strong word, but I think having some sense of a direction allows them to plan for their budgets. And I think as you look at some of the high numbers that were put out, especially for small to midsized customers of ours, they weren't sustainable for them.

Got it. And so looking ahead, do you have a sense of what peak season is looking like for you guys? Obviously, it's been a little bit of a mixed message you think the parcel guys sound a little bit bearish. The PL guys are saying we are seeing some charging business. So from your vantage point, what are you seeing?

I think it's still too soon to call right now. We'll have better clarity as we get on to our earnings call. As we sit here today, like I've had some customers on the retail side who have been optimistic, and they think they're going to have a strong peak season. I have some others who have been very pessimistic. And so as I sit here today, like I don't see anything in terms of overall demand that would drastically change peak season from what we've seen from the last couple of years. So as we sit here today, if I was forced to make a comment on it, I would say I would expect another muted peak season going into this year. But also, there is still a lot to be done in a lot of conversations we have with customers on it.

Got it. Are you able to sense -- see any patterns between the guys that sound good and the guys that sound bad?

Are you saying the ones who are more positive?

More positive on...

Yes. I think if you go down a level to some of your -- not your highest event on cost to retailers, some of them are more positive going forward.

Okay. Got it. Understood. So another big trend that you guys have been focused on is the growth on the -- in the LTL business for you guys, and you said 45% in the last quarter. What's the driver of that? How do you maintain that going forward? And kind of what are the catalysts we can look forward to.

Well, if you go back at the time of spin, LTL was like 10% of our overall volume. Right now, it's sitting at 32% of our overall volume. You're going to continue to see that go up. I think I said on the call that I see this getting to 50 or higher percentage points. And from a financial side, what we like on it is the stability in gross profit per load, which equates to stability in EBITDA. We've seen other companies who have done this well, and we've learned from it. We've done it in a different way than what -- I think we thought we would have started out. If you think of some of the companies who do LTL well, a lot of them built it off of transactional small to midsized customers. Ours has been different. It has really come in off of demand from our large enterprise customers who we have really, really strong relationships with. They've seen our RXO Connect platform. They're comfortable with it. And they may be working with 3 or 4 national providers right now. But when you look at LTL, it's a really small piece of their overall spend. So our sales pitch to them is this is a small piece of your spend. But when you think about claims, lost shipments, damages, logging on to multiple platforms, it is a big times up compared to truckload, which is your bigger size.

All that complex.

Right. And so when you look at it from that side, it is not a hard sell. And we've actually -- it started of customers coming to us, do you have a platform that we're able to use. And so RXO Connect has become a platform that I think will continue to see large growth out of LTL. It will be lumpy because these are large deals. So there will be times that you see it, like you see it right now where it's going up 30%, 40%, 50% on a year-over-year basis. And then there are times that it will be much lower than that because it will depend on the timing of the deal whenever they're coming on. This is more -- it lives in brokerage, but it's almost become for us a managed trans light product. So for us, very excited about where we're going for LTL, what it means for us as a company. It allows us to still have the torque on the truckload volume, but it helps us build out more stability. We talked early on in the downturn on investing in a downturn and like LTL is an investment for us. Managed transportation is an investment for us. So that for the next downturn, we've got a stronger base to be able to build off of.

Got it. Just a follow-up there, kind of you mentioned RXO Connect a couple of times, you said kind of quasi managed trends. In these effects...

Managed trans light. Managed trans light, get out of [indiscernible]...

Managed trans light. So is this a quasi-tech solution that is driving the share towards you and that you maybe have a better connectivity than the carriers, the LTL carriers themselves do that bringing the business to you? Or is it just the fact of where you are in their supply chain?

It's largely a tech solution. Like when you think about it, the customer is able to come on to the platform. They're still able to work with some of the same carriers. They're also able to work with the regional providers that they may have not been working with prior to this. They're able to have visibility to all of their shipments. They're able to get data on all of their shipments. And then they're able to take that data and be able to look at it and say, you know what, I just shipped out 3 LTL loads. I could have done that in truckload.

Yes.

We're able to have better conversations with them off of them being able to do that. So again, I think that when you look at it, this is largely a tech solution and technology is something that we've been investing in for over a decade. I should have also said one of the tailwinds that we've had coming out of the spin is not being under XPO of being able to sell LTL. As I'm sure everybody in the audience knows, selling LTL as a brokerage under XPO, there's probably a lot of other LTL providers that didn't necessarily want to work with us from that. And we've seen that go away coming out of the spin.

Got it. And just kind of on that point, this may be an unfair question, just heads up, but a lot...

Thank you. I appreciate that.

A lot of the TLs have historically kind of almost blamed brokers for putting pressure on pricing on the TL side. And is there a risk that kind of LTL pricing might also -- honestly, you guys bring transparency to pricing, right, which is a good thing for everybody. But do you think there's a risk that LTL pricing under pressure?

Yes. I don't agree with that sentiment at all because I think when you look at it, brokers still have 22%, 23%, 25% of the overall market. Asset-based carriers have 75% or more of the market. So who sets the pricing off of that? Asset-based carriers set where the market price is. Our job is to go in there and be able to find out where market is and be able to procure capacity at better than what market is off of having relationship carriers, off of getting people home, off of a backhaul, getting larger carriers to another customer's load, finding the right truck for the right load. And I think I'd even double down on that and say that it's not just something that of asset-based carriers. If you think about part of the problem that we ended up with in a capacity being too much for -- I don't think capacity is in a bad place right now overall. But when you think of the first 2 years coming out of the pandemic, in '23 and '24, and you're talking about having too much capacity, why do we have too much capacity? Because during the upturn, asset-based carriers did what? They went out and bought trucks.

Yes.

So I think whenever you look at it, like to me, that was the driver of a lot of this.

But kind of -- on that point, kind of where do you think the asset-based to asset-light share goes over time? Kind of some of that is cyclical, some of that is structural. You guys have been saying that using the asset-light has been taking share. Kind of where do you think that normalized level peaks out at?

I'm almost at 20 years of doing this. I'm coming up on that this year. And whenever I started in the industry, brokers have -- I think it was 6% of the overall market share. And today, it's at 22%, 23%. So to me, it's unquestionable that brokers have been taking share from asset-based carriers. As you look forward, when you think about solutions that brokers are able to put together, whenever I started, I couldn't even put together a drop trailer solution because that was largely held at an asset-based carrier. We have a large trailer pool now that for some of the largest companies in the world, we look and feel like an asset-based carrier. They don't care what the front of the truck looks like. They care about the trailer. So that allows us to be able to take share. When you think about -- it's 11:00 here, but on the East Coast time, it's 2:00 right now. If you call a load where I'm from, picking up in Charlotte, North Carolina at 2:00, and asset-based carriers' capacity is largely spoken for.

Okay.

So having the flexibility of capacity to be able to move up and down on a market, I think you're going to see brokers continue to take share. I think that over the short term, especially in the upturn of a cycle, you'll see brokerage get up into the 30s. And I think longer term, you'll see it get up into the 40s.

Got it. So Drew, just to kind of wrap up the discussion on 3Q and maybe even 4Q, if you can. It looks like trends have been reasonably stable from 2Q to 3Q. What are we looking at from a gross margin perspective, kind of given -- again, it seems like truck pricing was fairly stable through August. But at the same time, August is a seasonally weak month. So on our numbers, at least it looks like it actually beat seasonality, right? So how do we think about that sequential walk on the gross margin?

Sure. So we gave a wide range for that very reason in terms of when you think about the bridge from Q2 to Q3, a lot of moving parts for RXO. When you think about it specifically from a brokerage standpoint, which I think is the heart of your question, what must be true for the midpoint is we anchored towards the end of July through September. And if we saw typical seasonal volume growth from July through September, we'd be at the midpoint. If it was a bit lower, we'd be towards the low end. And if it was a bit higher, be towards the high end. And then to Drew's point, as it relates to what we've seen from a market standpoint, I think it really depends on region and when you sort of look at holiday-related events, Labor Day, et cetera, you saw certainly a squeeze in the market where you got up to 6%, 7% on tender rejections without any kind of corresponding spot loads, which typically happens. And then what you typically -- and then what we've seen now for the last 3.5 years is every time there is any kind of episodic squeeze, we just basically return to baseline, albeit at higher levels versus the year ago period. So we are making progress from an industry standpoint in terms of making higher loads, but it's just been taking a while, right? So -- and then when you go ahead and you sort of revert back to the baseline, what does that tell you? It tells you that we're still in a very soft freight market. So we'll see what happens here into Q4 and whether or not it is again another muted peak. But the range that we gave from 33% to 43% encapsulated a lot of those scenarios that you're talking about.

Got it. Let's shift gears a little bit and talk about what I suspect is your favorite topic, which is Coyote and how that integration is going. Any surprises, positive or negative in the time that you've now kind of almost completed the integration?

Well, I think first, start with like what are the most important parts of getting an acquisition right. And an asset-light business, people. And so when you think about director level and above, I think our voluntary churn is around 4%. So the people are excited, and that is going extremely well. The second piece is on the customers. We talked on the earnings call about like when you look at the company, like of the top 100 customers from pre-acquisition, 99 are still with us, and they're still sizable. We still got a great footprint into their overall transportation spend. When you think about technology, it's extremely important because we've been investing in technology, but putting one company onto another company's platform is a big lift. And this is the largest acquisition that has ever happened from an asset-light company to an asset-light company. And I think when you look at the speed of which we've done it, it has been faster than what some of the ones that were much, much smaller than us have been. Within 8 months, we were able to have all of carriers being able to book out of one platform. As we wrap up Q3 in the early parts of Q4, we'll largely be done with the customer side of the integration. So like whenever I think of people, customers, technology, it's been a home run. The part that has not gone as well as what we had hoped is the profitability of it, right? Like I think when you look at the profitability of where we thought it would be, we understood when we bought Coyote that they were priced below market. And we understood why they were priced below market. The sales process was launched in January, that bid season. Like we -- conceptually, we got that and probably would have done the same thing in that market. But when you look at what happened in Q4 and Q1 from how we modeled it, we looked at Q4 and Q1 from the prior year and said, "Hey, there were weather events." Can't get worse than what it got in Q4. So we don't think gross profit per load can move. We still see that as an opportunity. Well, weather events were worse in Q4 and Q1. So gross profit per load took a stronger hit than what we expected it to. As you got into Q2, we told you we're going to take price. We're going to get the gross profit per load right. You saw that gross profit per load increased 7% sequentially from Q1 to Q2. As we took price, we lost a little bit of volume off of that. And that -- we lost more than what we anticipated on that. The good thing is we've still got the footprint with the customers to be able to go out there and grow with them. And I was prior to coming down here, I was on the phone with 2 very, very large customers, and it's not bid season, but these customers are running a bid right now. And this is typically when they would run a bid and kind of off cycle for them. Like the feedback that we're getting from them is very, very favorable of the position that we're sitting in. So I think like as I look at that, that is going well overall. But I think we have to acknowledge that the profitability of the business is not where we thought it would be or not where we modeled it out to be. But I would also caution you, we hadn't even hit our year anniversary yet.

Yes, fair enough.

Next week, by the way.

That's true. But so how much of that gap is, to your point, idiosyncratic to Coyote given how that business was run versus the cycle?

Well, I think there's definitely a cycle component. We knew we were buying at or near the bottom of the cycle. The cycle took a leg lower. So like I think there's definitely a market component to that. And I think even at legacy RXO, we've always had a healthy gross profit per load. We saw our gross profit per load come down as well. So I think there's 100% a market component. But whenever you look at what we saw out of Coyote, we knew that the power of purchase transportation would allow us to be able to buy better versus what was happening in the market. And if we could get on one platform, we'd be able to see that. And we saw in the first 5, 6 weeks, like we were able to improve how well we're buying versus market by like 30 to 50 basis points overall. And so we saw a significant opportunity that through a cycle over the long-term, we're going to structurally improve our gross profit per load versus what's going on in the overall market.

Got it. Understood. And just to follow up on your point that you said the customer migration will be complete by end of 3Q, early 4Q.

Largely complete. There's a couple of pockets, but largely complete.

Got it. How do we think about what happens outside? Is there like a switch and like a wall of customers that kind of convert off of that? Or is it -- what does that look like?

Yes. No. So like if you think of the carrier side, we pulled it in a day. We literally -- now there was a lot of training that went up into the leading up of carriers coming on, carrier reps coming on. We were training everybody for weeks leading into that. We have people who are sitting on the floor as the carrier reps who are booking their first load. Legacy RXO reps who have been on the platform for 10 years. We're sitting beside legacy Coyote reps, showing them the shortcuts and how to use the system...

Okay.

In real time. On the customer side -- and again, that was important so that we could start to realize purchase transportation. On the customer side, it was a different approach. And it was always planned to be a different approach. We started with the small customers, and we're gradually phasing them in. And we're knee-deep in that already. And like there is no hiccups to report as we've been rolling that out. And we continue to learn. We take feedback from the customers. As customers are onboarded, we're having calls with them. How do you like the platform? How do you like the system? As reps are doing it, we talk about what are the tools that you used to have? Do you understand that there's a similar tool and you can use that, and that's still a shortcut. So it's a lot of training that goes into it, but we'll largely be complete by end of Q3, early Q4.

Understood. And just on the synergy side, obviously, you guys have raised the synergies a couple of times already on the cost side. Is that largely done kind of in the bag? Or do you think there's more opportunity there?

Well, I think I saw Jared, he was fumbling at the mouth to speak right there, but I'm going to jump in real quick. I think, no, it's not -- we're not stopping at $70 million, right, $70 million in cash. We're going to run well past that. But that becomes more of who we are as a company and a company that lives in a continual state of improvement. That number, as we look back on it a year from today, will be much larger than $70 million. And I think it's one of our levers as you start looking into what's going to happen in '26, this idiosyncratic best, that's one of the levers that we'll talk about.

No, I think you nailed it in terms of me fumbling up the mouth talking about the opportunity as well as just you think about what's available to RXO, right? We've raised the synergy estimate multiple times, and we're now framing it in the context of $70 million, more than $70 million in terms of cash synergies. $60 million of operating expenses, $10 million of CapEx. You break that down. CapEx comes down materially 2026 versus 2025, about $20 million in aggregate from a company standpoint and going to about $50 million next year. From an operating expense standpoint, you look at the Q2 outlook that -- or the Q2 results that we delivered, that had the full run rate of about $50 million of operating expenses or about $12.5 million per quarter. Another $10 million here in the back half of the year associated with the tech platform as we decommission Bazooka, the legacy Coyote platform with the integration being largely complete on the shipper side, we'll have $10 million of incremental operating expense savings heading into 2026. And then to Drew's point, we're now viewing -- we view this company holistically as one. So it's less about synergies. And now as we think about the benefits to scale, as the third largest provider of broker transportation, how do we run this organization even more effectively from a cost standpoint, leveraging the cumulative investments that we've made from a technology standpoint. We spend more than $100 million per year in technology. How do we think about -- we're not going to be the company that talks about what that AI road map looks like externally because ultimately, a lot of it is proprietary. But how do we think about leveraging Agentic AI? How do we think about leveraging automation? How do we leverage that incrementals, right? Last quarter, we delivered a 2.7% adjusted EBITDA margin, but the incremental margin in our brokerage business can be as high as 75% to 80%, right? So how do we go ahead and prime the model for incremental operating leverage and doing it in a way that you can enjoy the benefits of scale, where last quarter, our productivity in terms of loads per person per day was up 45% on a 2-year stack. So I said a lot there, but I think that's just goes to Drew's point in terms of how excited we are about the opportunity to really deliver higher lows in terms of -- and higher highs in terms of operating margins through cycle.

Got it. I'm going to get a tech in a sec, but just want to follow-up to what you just said. What is the time line for the scale benefits ramping up to the full synergy level as well?

So when you think about the $60 million of operating expense synergies that we talked about, $50 million is embedded within the Q2 results that we delivered with another $10 million here in the back half of the year. When you think about incrementally on top of that, to your point, which I think is the heart of your question.

Yes.

I think we are -- that's one of the levers that we have that's idiosyncratic to RXO heading into 2026. I think we're -- when you think about what 2026 could look like, right? Whether or not there's a market recovery, we want to make sure that we have the ability to go ahead and deliver EBITDA growth in the context of what could be another flattish market. We don't know, right? So how do we just make sure, we think the opportunity is significant in terms of running this business more effectively and taking actions to make sure that we can deliver EBITDA growth regardless of the market environment next year.

Understood. So let's talk about tech, right? Because that's always been very close to you guys had kind of back in the XPO days. And so what are some of the most exciting initiatives you're talking about right now? Are you not talking about it enough compared to maybe some of your peers, kind of how do you think about how you put that out there?

I mean we've taken tech seriously since day 1, right? I mean that's part of, to your point, the DNA of this company is built on technology. So we spend north of $100 million per year from a technology standpoint. And we've been pretty consistent in terms of how we've talked about it externally across the last few years, where 3 specific cohorts that we think about, right, our carriers, our customers and our employees. And how do we go ahead and deliver that increased productivity to yield higher operating margins over time? How do we go ahead and make sure that we've got seamless connectivity with our customers where you think about 97% of loads created or covered digitally on the legacy RXO side, some moving parts here relative to legacy Coyote. You think about some of the differences across the networks and now that we're going to be on one tech platform, we'll be able to communicate that on a go-forward basis. But then also on the carrier side, right, making sure that we've got RXO Connect, which is RXO Drive, which is the platform for carriers to go ahead and bid on loads and do so not with a human on the other side, but with our pricing algos on the other side. So leveraging machine learning techniques from a pricing algorithm standpoint has been at the heart of what we do for a while now. But then you sort of think about the developments in AI, which have been very rapid in a short period of time and how are we leveraging Agentic AI, right? How do you think about the sales enablement function where ultimately the ability for our top salespeople, which we think about that customer relationship is sacred, right? Our top 20 customers have been with us for 16 years on average. So we don't want to endanger that customer relationship. We cherish that. But can we make that salesperson far more efficient by leveraging agents instead of humans? I think that's certainly something that not only we're thinking about, we're already doing, right? So leveraging Agentic AI to think about can this business run at structurally higher operating margins long-term? I think that's definitely the case.

Have you guys done any kind of quantification about what an ideal number of transactions per headcount or what headcount could look like relative to volume growth over time, that spread looks like by leveraging AI?

Well, I think, no, we have not put out a target on that externally. But when you look at it, look at what we're already doing on the technology side. Over the last 2 years, our loads per employee per day are up over 45%. That's attributed to what's going on, on the technology side. And that's not new. That's something that's ongoing. When you walk through our offices and you see some of our top reps, they're doing hundreds of loads per day. They're leveraging AI. They're leveraging assistants that used to be people that are helping them do their jobs. And so what I would say is we are very, very early in our journey of being able to increase productivity over time. And as you look out, this is still a people business. It is still a relationship business. But over time, we will not hire anywhere near at the same rate for growth of what we've hired over the last 5 years.

Got it. And when you see the tools that many of your peers are using kind of is there anything that you're like, hey, that's really cool. We don't have that, either we need to go acquire that or build that? Or kind of is that something that you guys have had with you already? Or kind of who do you see out there -- I mean you have always been the leader, if not one of the leaders on the tech side, kind of who do you think out there has cool tools that you'd like to use?

Look, I don't know that we have seen them, right? Like I don't think that they're lining up to give us tech demos of their system for competitors...

Surely [indiscernible]...

We're not line enough to give them. But I mean, I think, obviously, if you look at a company like Echo that was public at one point, Doug is a technologist himself without seeing it, I'm sure they have great technology. I think that Doug is a very smart guy. You look at Robinson, they've been around for 100 years. I'm sure that they're getting smarter in what they're using in technology and how they're building it out. There's a lot of great competitors at the top of the brokerage industry. For us, as Jared said, it is very, very simple on whenever we think about building technology. What is this going to do for customers, carriers and employees. But more importantly, what is this going to allow us to do in terms of how well we're buying versus market in terms of a capacity standpoint? What is this going to allow us to do from a productivity side of what we just talked about? Can we increase over the next 2 years our productivity by 100%. And the last thing is, what does this -- what does our technology allow us to do from a volume perspective versus what's going on in market. And for us, we're not necessarily looking for what's the flashiest thing or for the next thing, we're looking at how do we -- you focus on the business and how do you make those components of the business better. And so like everything within it is reducing keystrokes, reducing clicks of the mouse. Can you talk to the computer to be able to start creating orders, whereas whenever I started, it took me 7 or 8 minutes to build an order.

Understood. Any questions from the audience? Yes.

Considering many of the initiatives you talked about with Coyote and sort of some TLs beginning to see maybe normal seasonality in the back half of the year, how should we think about normalized earnings for the business? And when can we expect to see that?

So when you think from a normalized earnings standpoint, right, this business at our scale is the #3 provider in brokerage transportation holistically across the company between managed transportation, last mile and brokerage. We should be doing mid-single-digit type EBITDA so call it, 5% to 6% range. As we think about leveraging some of the technology investments that we talked about longer term, could there be some most, but not potentially. But I think that's how we're framing it. And I think I would also think about it in the context of your question in terms of timing. I don't know when that's going to be, right? Do we get that 50 basis point jumbo size rate cut next week? Could that help? Sure. But ultimately, as we think about priming the operating model for incremental leverage and the ability to go ahead and deliver that, call it, mid-single-digit EBITDA margin, like what are we focused on? We're focusing on delivering the higher lows and the higher highs for better cross-cycle profitability when we think about the business. And I would also encourage you when you think about normalized earnings, it's not just about slapping a 5% to 6% EBITDA margin on sort of the current revenue of the company, right? Think about how far behind we are from normalized volumes in terms of overall freight demand. Think about to Drew's point earlier, some of the legacy Coyote customers that we're active at where volume is not where it was from a few years ago. When the market turns, the ability to have that incremental torque and capture share on the spot side is significant. And then on gross profit per load, we're still mid-teens percentage behind our 5-year average, excluding the peaks of COVID. And when you get torque from gross profit per load, the incrementals can be as high -- and attributable to price, it could be as high as 75% to 80%. So there are a lot of initiatives we have. And then you think about the other 2 things I would mention, one, purchase transportation benefits, we feel very good in terms of the 100 basis points of improvement on our PT spend as a combined organization and then the cost opportunities that we obviously just talked about.

Got it. Drew, at the risk of -- sorry Jared, at the risk of potentially making me repeat the answer you just gave me. If I were to ask that same question in a different way, your large peer obviously is getting a lot of attention rightfully for having -- for improving their net operating margin quite significantly, right? And there is a fairly significant gap between where you guys are and where they are. What would be the drivers of that gap? And how do you close that over time? Is it largely scale and kind of things you mentioned or other factors as well?

Scale is part of it, but I would also highlight 2 other things. One, business mix is an important factor. When you think about automotive for us, in particular, has been a very big headwind, right? Where last quarter, automotive was a $10-plus million EBITDA headwind year-over-year, so $40-plus million on an annualized basis relative to where we are from a company standpoint, that's a very significant headwind because we are the leader in ground expedite in North America. And given the time-critical nature of that kind of volume, very high incrementals and decrementals. The other I would focus also is just from a modality standpoint, right? I think that particular competitor that you're mentioning, I think it's 50% to 60% of their volume is LTL, right? So for us, it's -- call it, last quarter, it was about 32%. So -- and I think this ties back into what you were saying earlier with Drew on growing that LTL business longer term and the technology that's embedded in our platform. That is such a -- we think a pretty big investment, call it, 4, 5 years ago in that LTL platform. And that business, not only does it provide the stability in EBITDA that we talked about, but the contribution margins there are significant. So we have the ability to scale that LTL volume over time with pretty de minimis headcount additions. So the contribution margins there could be very -- are will be very, very strong. So when you think about it relative to the largest player in the space, I would certainly caution as it relates to modality mix, LTL versus TL and then vertical mix, especially automotive.

Got it. Just to the point on auto, we had a couple of the rails here earlier actually sounding reasonably constructive on autos. But we had a trucking company that was not sounding as good in autos, and it sounds like you guys are fairly muted as well. Is there some kind of share shift occurring here in the auto space between truck and rail?

Yes. So I think when you look at automotive, you have to remember that there's 4 things that happen in automotive. It starts on the rail. The next piece is it goes to truckload. The third piece is it goes to deviated truckload. So it's not quite an expedite shipment. And then the last one is it's an expedite shipment. And that's the world that we play in. Like if you look at SARS, SARS is fine, right? So like I think that that's probably what the rails are seeing. And so when you think of when we do well, it's when there's disruption in the market. So disruption in the market comes from first tender rejections off of -- through the first 3 rounds. Is there something that happens in the market that causes disruption? Is there something regardless of what's going on in the market, is a company rolling out a new product? Or is a company behind on a product because they're not going to chance that to one of the first 3. They're going to go straight to expedite on those type moves. And the answer to all of those has been no recently. Like automotive, just to put more context around what Jared said, if you think about the peak for our managed transportation business, it's about half of our freight under management is automotive. When you think about that volume, we've added new customers over the last 2 years. We haven't lost any and our volume is down 40%. So that's not a market share question because we own the market. And so like confidence in that whenever that starts to come back. What that means for our brokerage business because at this point, managed transportation is a customer to brokerage off of that. If you think of expedite gross margin dollars in total, what it meant for brokerage, I think it was like 12% to 14% of our overall gross margin dollars were coming from expedite. I think today it's 1% to 2%.

Yes.

So like the impact on the P&L is real off of that. And I'm not calling that we get back to 12%. But what if we get back to the midpoint at 7% or what if we don't even get to that, we get to 4%, like the meaningfulness that, that has to the P&L is very, very large.

Got it. We shall remain on cycle watch and hopefully...

We are too.

We will see them talk sometime soon. Drew, Jared, thanks so much for joining us.

Thank you.

Thanks, [indiscernible].