RXO, Inc. Q4 FY2024 Earnings Call

Welcome to the RXO Fourth Quarter 2024 Earnings Conference Call and Webcast. My name is Jenny and I will be your operator for today's call. Please note that this conference call is being recorded. During this call, the company will make certain forward-looking statements within the meaning of federal securities laws, which, by nature, involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those in the forward-looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release. You should refer to a copy of the company's earnings release in the Investor Relations section on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures that the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin.

Good morning, everyone, and thank you for joining today. With me here in Charlotte are RXO, Inc.'s Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weisfeld. There are four main points I want to convey this morning. First, the integration of Coyote Logistics remains ahead of schedule, and we continue to see the benefits of our increased scale and our larger portfolio of service offerings. As a result, we are again raising our estimate for cost synergies, which we now expect to be at least $50 million. As a reminder, this number does not include the significant cost of purchase transportation and cross-selling benefits we expect to see. Second, while the market remains soft, RXO, Inc. continued to deliver on our financial commitments. Importantly, we achieved these solid results while making significant progress on the Coyote integration. Third, momentum continued within complementary services. Our sales pipeline and managed transportation is now nearly $2 billion, and we achieved another acceleration in last mile stops, which grew by 15% year over year. And fourth, the structural improvements we are making to our business will increase our earnings power and free cash flow over the long term and across market cycles. I'll start by giving you an update about the integration of Coyote. Last quarter, I mentioned that we are ahead of schedule, and that's still the case. We are focused on our people, our customers, our carrier partners, our technology, and synergies. When it comes to people, we are continuing to retain our top talent. Since the acquisition closed, voluntary turnover of director level and above employees was only about 2% across the company. I've been impressed with the engagement I've seen within the workforce. We are operating as one cohesive team, and employees have been reaching out to me regularly to share the wins they've had with customers and carriers. Our larger size and scale are resonating with our employees and our key external stakeholders. Thanks to the dedication of our people, we were able to deliver on both our financial commitments and the integration. Our people remain focused on taking care of our customers, including executing our bid season strategy and reliably servicing the freight we've been awarded. We have one unified strategy for the vast majority of the bids we participated in. This was made possible by the effective collaboration we have across the team. I mentioned that the integration is ahead of schedule. And one of the key areas that is showing up is in cross-selling. Cross-selling opportunities have exceeded the lofty internal goals we set for ourselves. Customers have been eager to leverage RXO, Inc.'s broad portfolio of services beyond truck brokerage, and we've had several wins with large shippers who are now using more services from RXO, Inc., including managed transportation and last mile. We've made significant progress on integrating our technology in the fourth quarter. We migrated critical components of our tech platform to the cloud to achieve greater scalability and flexibility. We launched a unified tracking experience for shippers as well as a new website that provides customers with instant quotes. We continue to anticipate that the bulk of our tech integration will be by the end of the third quarter. The smooth integration so far has enabled us to identify additional synergy opportunities. We now expect to achieve at least $50 million of annualized cost synergies, double our initial estimate. These numbers exclude the significant opportunities for improving our cost of purchase transportation and the impact of our cross-selling efforts. Jamie will talk in more detail about synergies later in the call. The Coyote acquisition positions us well for future organic growth. Now I'd like to talk about our fourth quarter results, which were in line with our expectations. RXO, Inc. delivered adjusted EBITDA of $42 million within the guidance range we provided to you last quarter. Brokerage volume for our combined business declined by 6% year over year within the expected range. Less than truckload volume increased by 1% but was offset by an 8% decline in full truckload volume. Importantly, brokerage volume increased by 10% sequentially from the third quarter as a result of our continued focus on providing the best service, solutions, innovation, and relationships in the industry. Brokerage gross margin was 13.2% in the quarter. Momentum continued within complementary services. Our managed transportation sales pipeline continues to grow and is now nearly $2 billion, up almost 50% from last quarter. Converting that pipeline will provide significant cross-selling opportunities with enterprise customers across RXO, Inc. In last mile, stops grew by 15% year over year, another acceleration from the third quarter growth rate of 11%. The most well-known retailers of big and bulky goods continue to turn to RXO, Inc. for last mile delivery services because of our scale, technology, financial stability, and exceptional service. Complementary services gross margin was 21.1%, and RXO, Inc.'s company-wide gross margin was 15.5% for the quarter. Turning to the overall freight market, we continue to operate in a soft freight environment, and it was a muted peak season as we had anticipated. However, during the fourth quarter, conditions tightened significantly, impacting buy rates and gross profit per load. The national load-to-truck ratio and industry tender rejections reached their highest levels in more than two years. While there's still too much capacity in the market compared to the demand we're seeing from shippers, the industry is making progress towards reaching a more balanced state. In the first quarter so far, we've seen a continuation of these dynamics. While we typically see softer market conditions this time of year, in January, we also saw impacts from severe weather sustaining the market tightness. We have seen some project opportunities but not enough to offset the increase in carrier rates. Clearly, the freight environment is still soft. However, for the first time in two and a half years, contract rates are increasing year over year, and spot rates are also starting to catch up. The market still isn't at equilibrium, but we are moving into an inflationary rate environment. The data is telling us that we're coming off the bottom of the cycle, but we don't know what the shape or pace of the recovery will be. We remain focused on executing our bid season strategy and reliably serving our customers' freight. Jamie and Jared will discuss our outlook in more detail, but we expect the first quarter combined brokerage volume to decline by mid to high single-digit percentage year over year with tightening market conditions continuing to impact our buy rates. Importantly, given the strong execution by the team and feedback from our customers, we expect our combined brokerage volume to grow on a year-over-year basis for the full year. I'm confident that RXO, Inc. is well-positioned for the future. We've made significant structural changes to our business over the last few quarters. We increased our truckload volume by 125% as a result of the Coyote acquisition, which has provided us with better lane density and more freight to award our carrier network. Ultimately, our additional volume combined with our cutting-edge technology will enable us to achieve significant benefits when it comes to the cost of purchase transportation. We've improved our go-to-market strategy to focus on cross-selling our wide array of services to customers, which is fueling new wins across the company. We enhanced our already best-in-class technology platform, which includes pricing algorithms that leverage AI and machine learning. Our employee-facing software is continuously improving productivity and is a significant competitive advantage. The synergy actions we're taking today will improve the efficiency and operating leverage of our business. And lastly, we improved our already strong balance sheet, which provides us a solid foundation for future organic and inorganic growth. You're not currently seeing the benefits of these structural changes due to the persistent soft market conditions that have decreased gross profit per load. However, the steps we've taken have significantly increased the long-term earnings power of RXO, Inc. We're building this business for the long term, and I'm more confident than ever in our future. Now Jamie will discuss our financial results in more detail.

Thank you, Drew, and good morning. Let's review our fourth quarter performance in more detail. We're presenting our financials on an as-reported basis, which includes the acquisition of Coyote as of September 16, 2024. Unless otherwise noted, my comments referring to periods prior to the closing of the acquisition exclude the impact of the acquisition. Our brokerage business is now a significantly larger portion of our overall company. You can see that our revenue and gross profit were significantly higher year-over-year in the fourth quarter because of the acquisition. Additionally, Coyote's historical gross margin and EBITDA margin were lower than RXO, Inc., which also impacts the comparisons to prior periods. During the fourth quarter, we generated $1.7 billion in total revenue. Gross margin was 15.5%. Our adjusted EBITDA was $42 million, in line with our guidance range. Our adjusted EBITDA margin was 2.5%. Below the line, our interest expense was $8 million. For the quarter, our adjusted earnings per share was $0.06. You can find a bridge to adjusted EPS on slide seven of the earnings presentation. Now I'd like to give an overview of the performance within our lines of business. Brokerage revenue was $1.3 billion and represented 75% of total revenue in the quarter. From a profitability perspective, brokerage gross margin was 13.2%, slightly above the midpoint of our outlook and consistent with our expectations. Given this is the first full quarter of combined results and because the legacy businesses had different gross margin profiles, we wanted to note that legacy RXO, Inc. brokerage gross margin was approximately 14.5% in the quarter. This was a strong result given tightening market conditions. Complementary services revenue in the quarter of $431 million increased by 5% year over year and was 25% of our total revenue. Complementary services gross margin of 21.1% remained strong and increased by 20 basis points year over year. Our last mile business generated $290 million in the quarter and performed better than our expectations. We are gaining share within the big and bulky category. Stops grew about 15% year over year, accelerating from last quarter's growth rate. Managed transportation generated $141 million of revenue in the quarter, down 8% year over year. The decline was primarily attributable to lower automotive volume in our managed expedite business, which was softer than we expected. Let's now discuss cash. Please refer to slide eight. Adjusted free cash flow in the fourth quarter was $6 million. This represents a 14% conversion from adjusted EBITDA. The conversion rate was impacted by our semiannual interest payment, lower profitability at the bottom of the freight cycle, and timing of certain working capital cash flows. Longer term, we remain confident in a 40% to 60% conversion through market cycles given the strong free cash flow characteristics of the business. We ended the quarter with $35 million of cash on the balance sheet, higher than the range of $5 million to $10 million that we shared with you last quarter. This higher cash balance was solely due to the timing of transaction payments and other costs related to the Coyote acquisition. These payments will be made at the end of the first quarter, and you'll see a lower cash balance in our first quarter earnings report. As you can see on slide nine, our liquidity position continues to be the strongest it's been in our company's history. Our $600 million revolver was undrawn at the end of the fourth quarter. Quarter-end gross leverage was 1.7 times trailing twelve months pro forma adjusted EBITDA. We have significant capacity to deploy our balance sheet in line with our balanced capital allocation philosophy across organic investments, share repurchases, and opportunistic M&A. Let's move to the Coyote integration. As Drew mentioned, integration is progressing well, and we’re again increasing our cost synergy estimate. We now expect at least $50 million of annualized cost synergies, $10 million higher than last quarter's estimate. We've moved quickly, and by the end of the fourth quarter, we completed approximately $25 million of annualized cost synergies. We expect to complete the remaining $25 million this year. As a reminder, included in that number is $15 million related to the integration of our technology platforms. The cost synergies tied to the technology integration will be realized in 2026. Putting it all together, based on actions taken, we expect incremental realized operating expense savings of $25 million to $30 million in 2025. Importantly, these synergies exclude opportunities for cost to purchase transportation and the benefits we'll receive from the cross-selling that Drew mentioned, which we believe will be significant. Now let's discuss our expectations for the first quarter. The first quarter is typically our softest quarter of the year. Within brokerage, we're expecting seasonally lower volume. In addition, tightened market conditions impacted our buy rates to start the quarter. Moving to complementary services, we expect continued weak automotive volumes and managed expedite. In last mile, given the better-than-expected fourth quarter performance, we're anticipating a larger-than-normal seasonal decline into the first quarter. For the combined company, we expect to generate between $20 million and $30 million of adjusted EBITDA in the first quarter. Jared will provide more details on our outlook. Slide fourteen includes our 2025 model in options, which fully reflect the acquisition of Coyote. We expect the following: capital expenditures between $75 million and $85 million. This includes approximately $15 million of strategic real estate spend associated with the expansion of our brokerage operations and headquarters in Charlotte. For 2026, the real estate cost will not recur. In addition, we expect a reduction in CapEx of approximately $10 million following the integration of our tech platforms. This implies a 2026 CapEx spend of approximately $50 million to $60 million, materially lower than 2025.

We expect depreciation expense between $70 million and $80 million.

Amortization between $45 million and $50 million, stock-based compensation expense between $30 million and $35 million, restructuring, transaction, and integration expenses between $40 million and $50 million. Cash outflow associated with restructuring, transaction, and integration activities of approximately $50 million to $60 million, which includes actions from prior periods. Net interest expense between $32 million and $36 million and an adjusted effective tax rate between 27% and 29%. You should also model an average fully diluted share count of approximately 170 million shares. As we look at the upcoming year, the macro economy remains reasonably healthy. Unemployment remains low, core inflation has moderated, and many key indicators, including the ISM manufacturing index, are moving higher. We'll continue to monitor any changes to trade policy, including tariffs. While recent freight market developments have been encouraging, we're still operating in a prolonged soft freight environment. Gross profit per load has moved lower, which is impacting our near-term results. That said, we're making structural improvements which will increase the earnings power of the business. The team is executing well. The integration of Coyote is ahead of schedule, and we're positioning RXO, Inc. for the long term.

Thanks, Jamie, and good morning, everyone. As I typically do, I'll start with an overview of our brokerage performance in the quarter. To make the comparisons more useful for you, I'll give you pro forma numbers for our combined brokerage business, which includes Coyote's results in prior periods. Brokerage volume in the quarter was at the high end of our expectations, up 10% sequentially and down 6% year over year. LTL volume increased by 1% year over year. Contractual LTL volume was up double-digit percentage year over year, while transactional LTL volume declined by a high single-digit percentage. LTL represented 18% of our brokerage volume in the fourth quarter, down 300 basis points sequentially and up 100 basis points year over year. Full truckload volume was down 8% year over year and represented 82% of our brokerage volume. We also maintained a favorable mix of contract and spot business in the quarter. Contract business represented 76% of our full truckload volume, an increase of 300 basis points sequentially and 100 basis points year over year. Our customer mix typically drives stronger contract volume in the fourth quarter. Spot business was 24% of our full truckload volume in the quarter and decreased by 300 basis points sequentially. It was another muted peak season, and spot and special project opportunities decreased after the disruptions from Hurricane Helene and Milton East, which was in line with the expectations we communicated last quarter. Before reviewing our financial performance and market conditions in more detail, I'd like to talk more about our technology integration. Last quarter, we confirmed that RXO Connect will be our primary operational system. As Drew mentioned, we've made great progress with our best-of-both-worlds strategy that is integrating Coyote's unique capabilities into RXO, Inc.'s best-in-class tech platform. RXO Connect was built with a microservices architecture allowing for efficient updates and enhancements. We've already scaled critical capabilities and components and migrated them to the cloud as part of our consolidation efforts. Strategically, we're planning to integrate our coverage technology first and bring all our carrier representatives onto one unified system. This will enable us to leverage our proprietary pricing algorithms more effectively and achieve benefits within the cost of purchase transportation. As we've said before, we believe that cost to purchase transportation synergies will be among our largest opportunities. Importantly, while we're making excellent progress with RXO Connect, we're also moving quickly to integrate our core corporate systems, including our CRM and ERP. We continue to anticipate that our technology integration will be substantially complete by the end of the third quarter. Our technology also enables our people to become even more productive. On a rolling twelve-month basis, productivity as measured by loads per person per day improved by over 16%. I now like to review our brokerage financial performance and market conditions in more detail. You can find this information on slides ten through thirteen of the presentation. Starting with revenue per load on slide ten. Please note that starting this quarter and going forward, we'll discuss full truckload revenue per load trends. LTL revenue per load trends are more stable when compared to full truckload, and we thought this would be helpful. We've also excluded the impacts of changes in fuel prices and length of haul on the chart to give you a better view of underlying year-over-year price change. This has been recast for all historical periods, and prior to the third quarter of 2024 refers to legacy RXO, Inc., and starting with the fourth quarter of 2024 includes Coyote. In the fourth quarter, truckload revenue per load was flat year over year. January trends were encouraging, and full truckload revenue per load further improved, up by a low single-digit percentage year over year. As Drew mentioned, we are transitioning from the bottom of the freight cycle to an inflationary rate environment. We expect 2025 contract rates to be up low to mid-single digits year over year. Let's move to slide eleven and discuss brokerage monthly gross margin performance and industry trends. Market conditions tightened significantly as the fourth quarter progressed. Specifically, the load-to-truck ratio increased by a full point to approximately 4.5 to 1 for the quarter, and intra-quarter hit a high of 7 to 1. Industry tender rejections also increased to above 6% and briefly hit 10%. These metrics are the highest since the beginning of 2022. The move higher in industry KPIs was capacity-driven as opposed to an improvement in demand. The impacts from hurricanes Helene and Milton, repositioning of supply, typical seasonality, and continued carrier exits all contributed to the tightening. While there is still too much capacity in the truckload market, carrier exits in the fourth quarter increased significantly when compared to the third quarter. Some weeks in the fourth quarter exhibited the highest number of carrier exits throughout all of 2024, which speaks to the unsustainable unit economics for most carriers. While the market is still soft, we believe it's more balanced than it has been relative to the last few years. We continue to believe that for a robust recovery, capacity will need to continue to exit and demand will need to improve from current levels. Tightening market conditions resulted in higher buy rates as the fourth quarter progressed. Additionally, as Jamie talked about earlier and consistent with our expectations, Coyote has a lower gross margin profile. Brokerage gross margin was 13.2% in the quarter. Of note, legacy RXO, Inc.'s brokerage gross margin was approximately 14.5%. The tightness I just described continued in early January, exacerbated by severe weather across the country, resulting in higher buy rates. Encouragingly, those rates have eased in recent weeks, and we expect gross profit per load to improve throughout the rest of the first quarter.

As you can see on the chart, with the acquisition of Coyote, our full truckload volume increased by more than 125%, significantly increasing our scale. Our truckload gross profit per load moved lower sequentially due to the tightening market conditions that we just discussed combined with customer mix. Moving to slide thirteen, RXO, Inc.'s LTL brokerage volume continues to outperform the broader LTL market with stable gross profit per load. We've more than doubled the size of our LTL business with the acquisition of Coyote and have significant opportunities with our customers to continue to grow. Coyote's LTL gross profit per load is accretive to our LTL business. I'd now like to look forward and give you some more color on our first quarter outlook. Starting with brokerage, we expect year-over-year volume to decline by mid to high single digits. As a reminder, with Coyote, the brokerage business has additional volume seasonality, leading to a greater volume decrease from the fourth quarter to the first quarter. We expect brokerage gross margin to be between 12% and 14% in the first quarter due to the same tightening of the freight market. Let's now talk about complementary services. In managed transportation, the business continues to have tremendous momentum with a sales pipeline that is now approaching $2 billion. In the near term, managed expedite automotive headwinds continued to impact us. In last mile, we're expecting another quarter of year-over-year stop growth, although at a slower rate when compared to the fourth quarter. Given last mile's better-than-expected fourth quarter results, we are anticipating a more than seasonal decline in the first quarter. More than half of the sequential decline we expected adjusted EBITDA in the first quarter is attributable to last mile. Putting it all together, expect RXO, Inc.'s first quarter adjusted EBITDA to be in the range of $20 million to $30 million. This outlook assumes similar freight market conditions and limited spot opportunities. Historically, our adjusted EBITDA increases from the seasonally slow first quarter into the second quarter. Looking to the full year, given strong execution by the team and feedback from our customers, we expect combined brokerage volume to grow on a year-over-year basis. To close, while we're still operating in a prolonged soft freight environment, our integration of Coyote is progressing well and remains ahead of schedule. While we don't know the shape of the recovery, we're transitioning from the bottom of the cycle to an inflationary rate environment and are confident in structurally higher cross-cycle earnings power. Our balance sheet remains strong with a robust liquidity profile, and we have the capacity for future M&A, which can contribute to additional earnings growth. We are focused on delivering returns for our key stakeholders over the long term.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you wish to cancel your request, please press the star followed by the two. If you are using a speakerphone, please select the handset before pressing any keys. Your line is now open.

Hey. Great. Good morning. Maybe to Drew and I guess Jamie and Jared, if you want to jump in. But maybe define the core RXO, Inc. EBITDA shifts over the past year so we can understand how much has gone on seasonally and what's going on with the market backdrop? And then secondly, with Coyote contribution, maybe talk about the shifts from your original expectations to today. And then just real quick on the current market, you've noted kind of we started off with higher purchase transportation costs, but it looks like spot rates have really pulled back. Have you noticed any inflection or anything change really, I guess, more recently in terms of maybe shifting that outlook?

I think, you know, Juan, when you good morning, Ken. This is Drew. When you look at the brokerage market, I mean, brokerage has been taking share in the for-hire trucking for a long time. I mean, if you go back to 2010, it was less than 10% of the overall market. You know, now it's in the low twenties, and we look at the business through a cycle. When you look at what strong brokers who have financial stability, who bring solutions to customers, who are able to operate like an asset-light carrier and pull trailers together and bring flexible capacity to customers. I think we're just getting started on brokers taking share. I think, you know, as you look out over the next five years, brokers will have, you know, roughly 30% of the overall for-hire trucking market, and it will continue to move higher from there.

Thank you. Appreciate the time.

Thanks. Good morning, guys. Just curious what you're as you look out over 2025 and you anticipate that volume does grow. Just want to get a sense of your confidence level in that and degree of magnitude potentially there, and then I'll follow-up.

Good morning, Scott. We're confident. The reason that we were putting it out this quarter is because we're right now in the middle of the season. And we can say with a degree of confidence based off of the early returns and early results that we're getting from customers. And when you look at the feedback that we're getting from customers that we're still in bid with, that we're confident that we're going to be able to grow volume on a year-over-year basis.

Alright. Thanks. And just to follow-up on that, and then I'll have another obviously, tariffs are a big issue. You guys do a bit of business cross-border with our neighbors. Just curious on your initial thoughts on what you're seeing there, how that may affect automotive and other?

Something that we're watching closely. I think if you see tariffs implemented on the short term, you will see inventory pull forward and pull across the border, and that'll be a short-term tailwind to the business. If you look at it and tariffs are something that extend out for the intermediate term, it would be a headwind. As you would see volume start to slow down. And if tariffs are something that are implemented and held for the long term, that's we're extremely bullish on the tailwind that that would create for our business because you would see more business that would be near-shore into the US, which is the vast majority of our business.

Thanks. And just it's somewhat of a housekeeping for Jamie. On the CapEx spend, $75 million to $85 million, $15 million related to expanding headquarters. Could you elaborate on the Charlotte? And then just kind of discuss what's maintenance, what's growth CapEx for this year of that number. Big number. Thanks.

Yeah. So the guide we gave of $75 million to $85 million, you're right. $15 million is a strategic real estate. You know, Charlotte has three big operations that we have a nice-sized brokerage operations here. A lot of back-office services are located here, and it does house our core headquarters as well. But, you know, we're extending the lease. It's been home for, you know, for these operations for over a decade. Kind of it's a one-time, you know, 2025 spend. If you look beyond, there's about, we believe, another $10 million included in 2025 that will come out as CapEx synergies. Now that's in addition to the $50 million of OpEx synergies called out. But we think we will drop, you know, $10 million approximately going into 2026. So the way we think about more of a long-term CapEx is kind of a $50 million to $60 million type number heading to 2026 and beyond, which keeps in line with that 1% of revenue that we talked about, you know, that could expand.

I wanted to ask a little bit about the incremental synergies as well as, you know, what's going on in the integration front. Could you maybe provide us, you know, kind of a historical walk for the last couple of months of, you know, what has changed from the $25 million to the $40 million to the $50 million, you know, what have you found in terms of incremental cost saves? And maybe on the integration front, I know that, you know, sometimes integrating brokerages, you know, there can often be kind of a headcount or attrition, you know, issue. You guys called out, you know, really strong on that front. Can you talk about maybe what's different with the RXO, Inc. Coyote combination and how you've been able to kind of keep, you know, the key talent together?

Yes. This is Jamie. So start with the synergies. First of all, the integration we believe is going very well. It's been a great cultural fit. People are working very well together. You know, we have upped our synergy target. From the original $25 million to now $50 million. So we've been able to double that. Last quarter, when we raised it to $40 million, we had seen a lot more opportunity in the technology synergy space. Now most of that, as we called out last quarter, will be back half of 2025, so you'll see that benefit really begin to flow through the P&L more in 2026. The last raise from $40 million to $50 million really came from two primary areas: real estate consolidation, and we took a hard look at our footprint. We've been able to, you know, consolidate some real estate. And then secondly, our sourcing or our procurement activities. And if you look at these two companies, historically, a lot of the same type services are often the same type vendors. So getting some scale out of our contracts spend. We've been able to work through that and we believe there's more synergies there. Because of that. So, you know, if you think about it, we're actually very happy with the synergy outlook right now and, you know, again, that does not include any synergies from the cost of improved transportation spend nor does it include any synergies that we believe can come from cross-sell.

On the integration piece, Joe, I think it starts with building trust with the employees and building relationships. You hear us talk about relationships all the time and being able to build relationships with them and build trust and show the vision for where we're going. There's a lot of excitement now working for what's the third largest broker in North America and one that will gain share over the long term. Through a cycle. There's excitement about being able to serve our customers and offer them more services than what we were able to offer them before. You heard us highlight in prepared commentary that we've got customers that were doing business with Legacy Coyote that are now in Managed Transportation, that are now talking to Last Mile and doing business there. So I think being able to sell a wider array of services and the excitement of going to work for somebody who you know values the work that you're doing, that has built strong relationships and trust and has a vision for continuing to grow the business, there's a lot of excitement and morale across the company, and it is extremely high right now.

Drew, Jared, Jamie, good morning. Can you talk a little bit about the tender rejection rates? I think you said it was about six percent in the quarter hitting high, you know, I think with hurricanes of about ten percent. You know, where are we currently in the market and where do you think 1Q is going to shape out? And then I guess something that really hasn't been discussed, you guys have a bit of a freight forwarding business. Maybe how should we think about the trends in that business as we progress throughout 2025?

I'll start with the first as it relates to tender rejections. So you're right, tender rejections in the fourth quarter moved up to about 6.3% and for a couple of weeks got as high as ten percent. Heading into Q1, what we see now over the last four weeks, despite typical seasonal softness, we're still at over six percent between six and six and a half percent. So we're sustaining given the tightening market conditions. And even though it's come down from that ten, if you look at it on a year-over-year basis to normalize seasonality, it's still up a hundred hundred fifty basis points. So I think this dovetails with our commentary that we're coming off the bottom moving to an inflationary rate environment. The question now is the rate of recovery. And Jason on the freight forwarding piece, the business has performed well. You know, we have seen some inventory get pulled forward from Asia in that business, and as a smaller piece of the business. But for what it's done, it's punched above its weight class. For the last couple of quarters in contribution. The one thing that they have done as a business, and they really did this, you know, in 2019 and 2020, is they started diversifying a lot of what they did, and there was more domestic pieces, which is why we combined that business with Managed Transportation. And if you look at what we've been able to do and what's going through our facility in Laredo, that has picked up. If you look at what we've been able to do from a customs broker status, that has picked up. So overall in forwarding, we're very happy with what the team has done and continue to see nice growth out of the business.

Hey. Thanks. Good morning, guys. You talk about the managed trans pipeline keeping growing. What do we think about managed trans revenue starts to grow again? And then, Drew, can you just remind us on Coyote how big is UPS and does the big drop in Amazon volume, does that have any impact, do you think, on Coyote and some of the seasonality around Q4 in any way?

The way that we've described the UPS business was that it was around ten percent of the overall margin with the Coyote business. You know, just like with any customer, Scott, we're not going to break down the ins and outs of the puts and takes of what could drive volume going forward and what could cause declines, you know, we'll continue to do with UPS like we do with all of our other customers to show them great service. We're going to build solutions for them, look for other ways that we can grow with them, help them with our technology, and build strong relationships. If you look at the managed trends and the decline in revenue, a lot of that is driven by the automotive volume. The automotive expedite volume has been down dramatically because supply chains in automotive have been running fairly smooth. So that's the biggest driver, but the pipeline is robust. If you remember last quarter, we highlighted how much freight we were onboarding into managed transportation. And the reason that that's so important, Scott, is because that allows us to drop synergy to the rest of the overall business. You know, Jamie and I were on with a potential managed transportation customer yesterday. We're talking to big customers with a lot of potential that we’re looking at onboarding over the next several quarters.

Hey. Good morning, everybody. Thanks for taking our questions. I wonder if you could talk about cash flow. I know working capital was a drag here in the fourth quarter as the market tightened. It probably was a further drag here in January due to the move in truckload rates. I guess with the higher CapEx guide, we're thinking about cash burn maybe stepping up in the near term. And then related to that, I know the transaction cost this year coming in higher than expected. Those cash costs how should we think about that in matching cash flow this year?

Yeah. So let's call it operating cash flow first. We did have some timing late in the year. As we look into next year, you know, we are at the bottom of the cycle. And so, you know, if you think about the structure of our company, we got about $30 million interest spend annually in cash. As we've committed $75 million to $85 million of CapEx. You kind of think about $105 million to $110 million kind of breakeven operating EBITDA to breakeven. But once you get above that $110 million, you've got an opportunity for about 75% flow-through contribution flow-through from EBITDA to free cash flow. So if you think about that ending good to your question about restructuring, we'll use some of that free cash flow to cover restructuring charges. Coming in at about $50 million to $60 million for the year. Keep in mind, a portion of that is the cash portion of some of the restructuring charges we took in 2024 for P&L purposes, deferred payments. But overall, I mean, if you think about the money we spent whether legacy RXO, Inc. and now Coyote integration, return on investment is very nice. And so it's a good use of cash, but long term, we remain confident in the 40% to 60% through market cycles. In the last point of cash, if you think about it, you get back to spend. We've been in a down cycle for most of that period of time. We've actually generated about 43% free cash flow conversion from EBITDA to free cash flow, which is a great number at the bottom of the cycle. So if you take that and think about the power of cash flow generation, in the up cycle it could be very significant for the business. And we think that's a value creator for us.

Thanks so much.

The question and answer session is now closed. I will now hand the call back to Mr. Roberson for the closing remarks.

Thank you, Jenny. Our integration of Coyote is ahead of schedule, and we have increased our estimate for annualized cost synergies to at least $50 million. We're delivering on our commitments in the fourth quarter in brokerage. We achieved 10% sequential volume growth. Our complementary services momentum continued. In managed transportation, the sales pipeline is now nearly $2 billion in freight under management. And then last mile, the stops grew by 15% in the quarter. We remain focused on providing the best service, the most comprehensive set of solutions, continuous innovation, and close customer relationships. We continue to be in a soft freight market, but our disciplined execution and the structural changes we've made in our business are positioning RXO, Inc. well to deliver significant earnings growth and free cash flow across market cycles and over the long term. Thank you all for your time this morning.

Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.