RXO, Inc. Q4 FY2025 Earnings Call

Welcome to the RXO, Inc. Q4 2025 Earnings Conference Call and Webcast. My name is Ina, and I will be your operator for today's call. Please note that this conference 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 Investor Relations 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. Thank you for joining today. With me here in Charlotte are RXO's Chief Financial Officer, James E. Harris, and Chief Strategy Officer, Jared Ian Weisfeld. This morning, I want to cover three key points. First, we continue to take decisive actions to mitigate the effects of the prolonged soft freight market and significant capacity reductions which are squeezing our brokerage gross margin. We have a rigorous disciplined approach to optimizing our cost structure and our gross profit per load. We are taking steps to augment our carrier base, grow brokerage volume, grow businesses that are stable sources of EBITDA, and leverage our deep customer relationships and last-mile hub network to design unique solutions for customers. Second, we have a strong brokerage late-stage sales pipeline for new business, which grew more than 50% year over year. Most of that growth is driven by full truckload. Our managed transportation business continues to win and also has a very strong pipeline. Third, we finalized a new asset-based lending facility which replaces our revolver. Our new facility is right-sized for our needs, decreases our cost, and provides us with increased flexibility across all market cycles. Now let's discuss our fourth-quarter results. In brokerage, overall volume declined by 4% year over year. Less than truckload volume growth of 31% was more than offset by a 12% decline in truckload volume. Brokerage gross margin was 11.9%. In complementary services, managed transportation was awarded more than $200 million of freight under management, and last-mile stops grew by 3% year over year. Complementary services gross margin was 20.2%. Overall, RXO's EBITDA was $17 million in the quarter, below our expectations primarily due to a more pronounced brokerage margin squeeze towards the end of the quarter. This was primarily driven by capacity exits which led to the largest November to December increase in industry-wide buy rates in sixteen years. In December, rates increased by about 15% month over month, much faster than our contractual sales rates. At the same time, demand remains soft with not enough spot loads to offset the rise in purchase transportation costs. Sonar tender rejections and the load-to-truck ratio reached the highest levels of the year in December and both increased further in January. Because our book of business is largely contractual with enterprise customers, this affected our near-term brokerage gross margin performance. That said, winning contract business is a hallmark of our brokerage model because it positions us to win accretive spot opportunities, mini bids, and special projects. The capacity reductions in the industry represent one of the largest structural changes to truckload supply since deregulation and should set the market up for a sharper inflection when demand recovers. The regulatory actions will also help improve the overall safety of the industry as well as help combat theft and fraud. But they do put pressure on near-term results. We are continuing to take decisive actions to navigate the market. Specifically, we remain disciplined when it comes to cost and optimizing our gross profit per load. We are expanding alternative sources of capacity like private fleets to help reduce buy rate volatility. We are working closely with our customers to optimize volume, service, and price dispensation. We are also working to convert the strong late-stage brokerage sales pipeline and we are developing more creative ways to leverage our hub network within Last Mile to provide customers with customized middle-mile solutions. I remain extremely positive about the actions we are taking to mitigate this part of the freight cycle and all those we are taking to position RXO for future outperformance. More importantly, now that we are past the bulk of the integration, we are more unified than ever with a singular focus on returning to growth mode, leveraging our scale and outperforming the market. We will do that through our differentiated approach to sales and customer service and our unified tech platform. Our multilayered sales team focuses on building exceptional customer relationships. This helped us grow our late-stage brokerage sales pipeline by more than 50% year over year, strong momentum as we start 2026. This pipeline is composed of high-quality new names, and long-tenured existing enterprise customers for which we have built successful solutions in the past. While bid season is not yet complete, we have seen early wins. The strength and makeup of our pipeline give us confidence that we will resume year-over-year truckload volume outperformance as early as the middle of this year. In managed transportation, we also continue to win. We were awarded more than $200 million in freight under management in the fourth quarter and still have a very robust pipeline of opportunities. These wins will result in increased synergy loads to RXO's other lines of business. We are very proud of the strength of our customer relationships across RXO. Recently, we received awards from blue-chip customers including Kelanova, Lowe's, and Electrolux. Another reason I am excited is our team is now operating on an integrated platform. Which includes our CRM, our pricing tools, and our proprietary systems. RXO Connect and Freight Optimizer. The integration work we have done over the past year is now providing unparalleled visibility for our sales and operations team. It has enabled us to leverage decades worth of proprietary data from both legacy RXO and legacy Coyote to power our pricing algorithms and recommend the best truck for each load. We are positioning RXO for the long term through our investments in transformational AI capabilities. Our vision is that RXO will lead the next decade in freight by arming expert people with the best-in-class intelligence to solve problems before they happen, delivering a level of speed and flexibility that makes the old way of thinking unimaginable. Later in the call, Jared will talk more about the rapid progress and real results we are seeing from our initiatives. RXO has a strong balance sheet. And we took steps in the fourth quarter to further improve our capital structure. We finalized a new asset-based lending facility which replaces our revolving credit facility. We have tailored the new facility to better align with our business needs securing better pricing and greater financial flexibility across all parts of the market cycle. Jamie will walk you through these details later. In summary, we continue to take strategic actions to better position RXO for both the short and long term. I remain confident in RXO's ability to deliver outsized earnings growth driven by five key factors. Scale, Scale allows us to purchase transportation more effectively. Our technology platform and the Coyote acquisition have helped decrease our cost to serve by more than 20% since our spin. We also expect buy rate favorability to continue improving. Profitable growth. We are focused on gaining profitable truckload market share, and we are expanding the parts of our business that are stable sources of EBITDA like managed transportation, SMB, and LTL. In the fourth quarter alone, LTL volume grew 31%, the fourth consecutive quarter of double-digit growth, underscoring our momentum in this area. Technology. We invest over $100 million annually in our best-in-class tech, all in service of achieving our future state tech vision, which will be driven by AI. Once fully implemented, our capabilities will fundamentally change how our people get work done and provide customers with a faster, more seamless way of managing their freight. Cash generation. Our asset-light model is resilient. Despite soft market conditions, we achieved adjusted free cash flow conversion of 43% in 2025, within our long-term target range. Cost structure. Since becoming a stand-alone company, we have taken out more than $155 million in costs through targeted initiatives, including AI investment, real estate optimization, and productivity. We are not done yet. Notably, brokers' headcount declined by mid-teens percentage year over year. Over the last twelve months, we also achieved a 19% increase in productivity. Our streamlined operations will provide us with substantial operating leverage. While we are not satisfied with near-term results in this soft environment, we are very excited about the path ahead for RXO. We have shifted from integration mode and are returning to growth mode to take advantage of our larger scale. We continue to adhere to the formula that has driven our success for over a decade. Exceptional service, comprehensive solutions, deep customer relationships, and cutting-edge technology. RXO has a unique algorithm for long-term growth. Now Jamie will discuss our financial results in more detail.

Thank you, Drew, and good morning. Let's review our fourth quarter and full-year performance in more detail. For the quarter, we reported $1.5 billion in total revenue, gross margin of 14.8%, adjusted EBITDA of $17 million, and adjusted EBITDA margin of 1.2%. Gross margin and adjusted EBITDA were negatively impacted by the increase in cost of transportation within our brokerage business and soft demand within Last Mile. Our interest expense was $9 million. For the quarter, our adjusted loss per share was $0.7. You can find a bridge to adjusted EPS on Slide eight of the earnings presentation. Of note, we had a $12 million goodwill impairment associated with the restructuring of our express service offering within our managed transportation business. This impairment was noncash. Turning to our lines of business, brokerage revenue was $1.1 billion and was down 14% year over year due to continued soft freight market conditions. Brokerage represented 72% of total revenue in the quarter. Cost of transportation increased in the quarter due to tightening of the full truckload market, primarily driven by regulatory developments and associated capacity exits. This occurred without a meaningful corresponding increase in sales rates or sufficient spot opportunities causing a margin squeeze on our contractual book of business. Jared will provide more details later in the call. Given the market tightening, and resulting margin squeeze, brokerage gross margin was 11.9%. Slightly below the low end of our outlook. Brokerage gross margin declined 160 basis points sequentially and 130 basis points year over year. Complementary services revenue in the quarter $431 million was flat year over year and represented 28% of total revenue. Complementary services gross margin was 20.2%, down 110 basis points sequentially and 90 basis points year over year primarily due to weakening demand within last mile and the impact of the fixed cost structure of our last mile hubs. Within complementary services, managed transportation generated $133 million of revenue in the quarter, down 6% year over year. Encouragingly, our year-over-year automotive headwind eased as company-wide automotive gross margin dollars declined by low to mid-single-digit percent. Year over year, our last mile business generated $298 million in revenue in the quarter, up 3% year over year. Last mile stops also grew by 3%. As we communicated during our last call, big and bulky demand weakened towards the end of the third quarter and that continued throughout the fourth quarter. Turning to the full year, we reported $5.7 billion in total revenue, gross margin of 16.2%, adjusted EBITDA of $109 million, and an adjusted EBITDA margin of 1.9%. Now let's discuss cash. We ended the quarter with $17 million of cash on the balance sheet, in line with our expectations. Cash decreased by $8 million sequentially with no change to the revolver balance. As a reminder, the quarter, we made our semiannual bond payment of $13 million and we had a $9 million cash usage associated with restructuring, transaction, and integration activities. For the quarter, our adjusted free cash flow conversion was 6%, and for the trailing six months, it was 39%. As you can see on slide nine, adjusted free cash flow for the year was $47 million yielding a solid 43% conversion from adjusted EBITDA. This was primarily driven by disciplined strategic capital deployment and favorable working capital. Net CapEx for the year was $57 million compared to our outlook of $65 million to $75 million. We also harmonized working capital processes across the organization. Given our asset-light business model, we remain confident in a 40 to 60% conversion over the long term and across market cycles. We are very pleased with our full-year conversion at this point in the freight cycle. Turning to Slide 10. Quarter-end net leverage was three times 11. I'd like to spend time walking through our new asset-based lending facility which we announced this morning. The ABL is a $450 million facility and replaces our previous $600 million revolver. The ABL provides us with more flexibility through all market cycles. There are a few important points and key benefits associated with the new ABL facility. First, we intentionally structured the credit facility to $450 million of capacity based on the needs of the business, saving approximately $400,000 of annual unused commitment fees. This facility also has a $200 million accordion fee available. We have access to 100% of the facility to use for our cash needs and letters of credit requirements. At current utilization levels, our interest rate is approximately 35 basis points more favorable. Lastly, all covenants under the revolver, including the leverage and interest coverage covenants, have been replaced with a fixed charge covenant that has minimal impact on our ability to borrow. Now let's move to slide 16 and discuss our outlook for the first quarter and our full-year 2026 modeling assumptions. Similar to last quarter, our outlook continues to reflect weak freight demand across all our lines of business. Within our brokers business, we are not assuming a meaningful increase in either spot opportunities or sale rates in the first quarter. Additionally, our outlook reflects elevated purchase transportation costs. For the combined company in the first quarter, we expect to generate between $5 million and $12 million of adjusted EBITDA. Jared will provide more details on our outlook shortly. For our 2026 modeling assumptions, we expect the following. CapEx to be between $50 million and $55 million. Depreciation expense between 65 and $75 million, amortization expense between 40 and $45 million, stock-based compensation between 25 and $35 million, net interest expense between 32 and $36 million, and cash tax outflows of approximately 6 to $8 million. We anticipate restructuring transaction, and integration expenses to be between $25 million and $30 million. It's important to note that approximately one-third of these expenses relate to actions taken in prior periods. The associated cash outflow with these actions is expected to be $30 million to $35 million about half of which is related to prior periods. We expect a fully diluted share count of approximately 170 million shares. To summarize, while elevated purchase transportation costs are squeezing our contractual brokerage gross margin and impacting profitability this is a positive development for the long-term health of the freight market. As we think about the macro economy, we continue to see many developments that have the potential to stimulate demand. These include lower short-term interest rates, new tax legislation, proposals for housing affordability, and domestic investment announcements. As an example, Monday's ISM report showed many positive developments in the manufacturing data a key leading indicator for the US economy the transportation industry, and an important vertical for RXO. Specifically, US manufacturing activity in January expanded by the most since 2022. While it's difficult to predict the timing of the demand recovery, any significant improvement in demand could set up for a sharp inflection and RXO is well positioned to benefit.

Thanks, Jamie, and good morning, everyone. As I typically do, I'll start with an overview of our brokerage performance in the quarter. Overall brokerage volume declined by 4% year over year, outpacing the CAS freight index, which declined by 8% year over year. LTL volume increased by 31% year over year and represented 26% of brokerage volume in the fourth quarter. Truckload volume declined by 12% year over year and represented 74% of brokerage volume. As a percentage of our brokerage business, truckload volume increased by 500 basis points sequentially. As a reminder, support of a seasonal ramp with some customers, our brokerage business typically sees higher truckload volume in the fourth quarter when compared to the third. Truckload volume was impacted by our continued efforts to optimize price, volume, and service with our customers, as well as broader market weakness. Let's now discuss what we saw within the truckload business. Industrial and manufacturing trends continue to outperform our broader truckload trends. Volume within this vertical declined just 1% year over year, benefiting from some special projects and opportunities. We remain well positioned to capture our customers' special project freight due to our close relationships and excellent service. As Jamie mentioned, the year-over-year headwind in our automotive business eased in the quarter. Automotive volume and brokerage declined by a mid-teen percentage, easing from declines earlier in the year of almost 30%. And from a company-wide standpoint, overall automotive gross margin declined by only a low to mid-single-digit percentage. Contract volume was 72% of our overall truckload volume in the quarter. Contract business increased by 100 basis points sequentially. Spot represented 28% of our truckload volume in the quarter. Total spot volume on an absolute basis increased slightly sequentially as we capitalized on some additional spot opportunities. However, these were not meaningful enough to offset the significant margin compression in our contractual business. I'll talk more about this shortly. Before reviewing our financial performance and market conditions in more detail, I'd like to highlight the results from our transformational AI efforts that Drew described. We deliver technology that drives improvements across four key pillars: volume, margin, productivity, and service. During the quarter, we made progress further enhancing our AI capabilities across each pillar. We recently introduced a new proprietary AI spot quote agent that will unlock an incremental margin opportunity. We continue to make improvements to our pricing engine, and in the quarter, we extended pricing tooling with increased automation and launched the contract pricing model view for enhanced decision making. We rolled out AgenTic AI capacity sourcing in the quarter as we continue to attract qualified carriers to the RXO platform and we also automated thousands of tracking updates via AgenTic AI tooling and delivered a generative AI assistant to support customer sales and operations. Here are some of the results we achieved. We saw a 24% increase in digital bids per carrier with a new AI-based load recommendation in RXO Connect. We enhanced our theft prevention processes across thousands of loads in high-risk cargo areas by deploying an AgenTic AI solution and we performed thousands of customer tracking updates in the quarter by leveraging AgenTic AI. We're applying AI to structurally improve the long-term margin profile of the business. Let's now review our brokerage financial performance and market conditions in more detail. Starting with revenue per load on slide 12. In the fourth quarter, truckload revenue per load trends remained muted. Year over year, revenue per load, excluding the impacts of changes in fuel prices and length of haul, increased by 1%. This reflected a continued weak demand environment and limited accretive spot opportunities. Additionally, our cost of purchased transportation increased at a faster rate than revenue per load. Let's discuss that more on slide 13, which shows brokerage margin performance. Truckload gross profit per load decreased by 10% from November to December alone, as margins in our contractual book of business were squeezed. This squeeze was due to a significant tightening of the truckload market in the fourth quarter and industry buy rates were up 15% in December month over month. Industry KPIs also moved higher, which has persisted into the first quarter. In fact, this week, tender rejections exceeded 13%, a level not seen since early 2022. Tighter market conditions have been primarily driven by supply-side dynamics as overall demand remained soft. This tightening in supply is largely due to enforcement actions related to nondomiciled CDLs and English language proficiency. Specifically, following regulatory changes effective in June, English language proficiency violation rates have climbed back to pre-2016 levels near 3% with the out-of-service enforcement rate spiking to over 30% from less than 5%. Turning to slide 14. As we just discussed, truckload gross profit per load declined in the fourth quarter given tighter capacity and continued soft demand. Our truckload gross profit per load in the month of December was about 30% below our five-year average (excluding COVID highs). Moving to slide 15, RXO's LTL brokerage volume continues to outperform the broader LTL market. In the quarter, LTL gross profit per load also improved sequentially. We continue to grow our LTL business with existing truckload customers and new customers that trust us with their freight because of our excellent service, increasing the stickiness of these relationships. I now like to look forward and give you some more details on our first-quarter outlook. We're assuming continued soft demands across all our lines of business. Starting with brokerage, we expect total brokerage volume to decline five to 10% year over year. It's important to note that our truckload volume has stabilized. On a sequential basis, we outperformed the CAS rate index in the third and fourth quarters. While we do anticipate truckload volume to seasonally decline in the first quarter, given the strength of our late-stage brokerage pipeline, we expect our truckload volume to resume its year-on-year outperformance versus the market as early as the middle of the year. Turning to LTL, we expect LTL to grow by mid-single-digit percentage year over year. Recall, we have tougher comparisons due to the large LTL onboarding from last year, and year-on-year growth can be lumpy depending on new customer wins. Moving to truckload gross profit per load, in January, market conditions tightened to the highest levels in four years and we captured incremental spot opportunities, helping to mitigate some of the margin pressure on the contractual book of business. This resulted in January brokerage truckload gross profit per load slightly higher when compared to December. We expect tight market conditions to persist for the remainder of the first quarter. We anticipate that brokerage gross margin will be between 11-13% in the first quarter. Let's now talk about complementary services. Managed transportation has strong sales momentum; however, please note that Q1 is seasonally a softer period for managed transportation. In last mile, we expect big and bulky demand weakness will continue. We expect last mile stops to be down mid-single-digit percent year over year. The first quarter is also typically the weakest quarter for Last Mile. Putting it all together, we expect RXO's first-quarter adjusted EBITDA to be in the range of $5 million to $12 million. The main drivers of the sequential decline from the fourth quarter to the first are the seasonal decline in truckload brokerage volume and last mile. The winter storms also impacted the month of January.

To close, capacity exits and tighter market conditions are impacting the near-term profitability of our brokerage business. This supply-side shock is a result of continued enforcement of nondomiciled CDL restrictions, and English language proficiency. These changes represent a major structural change to the industry which we expect will lead to an increased freight rate environment. Continued enforcement will also improve safety and reduce theft and fraud. Longer term, this is a very positive development for large-scale brokerages like RXO that have access to massive high-quality capacity. While the current demand environment remains soft, and it's difficult to predict the timing of the recovery, the supply-demand balance in the industry is fragile. With generally lean inventory positions, any significant improvement in demand could set up for a sharp inflection. We are also not waiting for the market recovery. We are taking aggressive actions to improve results including reducing buy rate volatility, going after new profitable truckload volume, growing our SMB business, growing stable sources of EBITDA, including LTL and managed transportation, and leveraging our hub network. With our focus on best-in-class service and continued investment in transformational AI capabilities, we are well-positioned to drive significant long-term earnings and free cash flow growth.

With that, I'll turn it over to the operator for Q and A. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. And should you wish to cancel your request, please press 4 by 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. And your first question comes from the line of Ravi Shanker from Morgan Stanley. Please go ahead.

Great. Thanks. Good morning, everyone. So Drew, you mentioned the 50% increase in the late-stage brokerage pipeline. Can you just unpack that a little bit?

Yeah. Good morning, Ravi. When you look at the pipeline apples to apples, from last year it's up more than 50%. And I think it speaks to the focus of the team. Last year was a big year for us in terms of the integration of Coyote into the organization. This is the largest acquisition that has ever happened in the brokerage space. And this is all about us returning to what we do. It's returning to growth mode for the organization. It speaks to the strength of the relationships that we have with our largest customers who have been with us for more than fifteen years. So a lot of the pipeline is existing customers. And then we do have some new names in there as well. And these are big new names that attract new names to do business with. For us, the pipeline is important because you don't get the spot opportunities without having a significant presence on the contract side. And so when you look at that, that's a huge opportunity for us. The second part on the timing, the bids are typically implemented throughout the second quarter, which is why we speak to the optimism and confidence that we've got about being able to return to outperforming the truckload market around the middle of the year. On the pricing side, you know, I think in line with what most other public companies have said, you're talking about something on the contractual side in the low to mid-single digits. On the spot side, we expect it to be significantly more than that.

Got it. And then maybe as a quick follow-up kind of on the AI initiative, you spoke of what you're doing there. I think late last year, you had spoken about a kind of midyear inflection in that productivity coming through. You just talk about what the second half of the year looks like? And maybe kind of how much this AI is helping with your SMB outreach? Thank you.

Hey, Ravi. It's Jared. So we are making significant progress with continued investment in transformational AI capabilities. We really look at it across four key pillars: volume, margin, productivity, and service. And you hit it right on the head because it's really two components. When we think about the ability to go ahead and improve the cost structure of the business by leveraging AI efficiently, we look at productivity in 2025. Up 19% year over year. On a two-year stack, up almost 40%. So being able to go ahead and drive incremental throughput throughout the network at a rate that is disproportionate to volume growth. When you think about that volume growth really decoupling from headcount growth, bringing those strong incremental contribution margins is really important. We think we are still in the early innings. The other key aspect to it, to your other point, was driving incremental margin opportunity across the business. We look at the initiatives that we have across the company, especially on the volume side. We talked about rolling out AgenTic AI capabilities in the quarter. We feel really strong as we think about the second half of the year and into the rest of the year with rolling out these AI capabilities and what they mean from an incremental margin standpoint.

Understood. Thanks, guys.

Thank you. And your next question comes from the line of Stephanie Moore from Jefferies. Please go ahead.

Hi. Good morning. Thank you. You know, maybe as I think through the results and your commentary, I mean, I think it's very clear that there's kind of two dynamics underway right now. You know, the first, the cycle does appear to be turning, and then second, I mean, you guys do have kind of numerous company actions underway. I mean, you called out a lot of them. For AI actions, the Coyote integration, you know, buy rate improvements. You also have easier comps in 2026 as well. So can you speak to how and when these two dynamics can maybe start working together in 2026? Meaning, can your own actions start to offset some of the market dynamics near term, or do we need to see the market improve first? Thanks.

Hey, Steph. It's Jared. I can start, and the rest of the team can come in. When we think about RXO entering into 2026, we're certainly seeing some positive developments as it relates to the macro. Earlier this week, Jamie talked about encouraging results from the ISM hitting its highest level in four years, but we're not waiting just for the macro to turn. And we do company-specific initiatives, and I would point to that late-stage pipeline that Drew just talked about, up more than 50% year over year with high-quality enterprise accounts, existing customers, and new customers. The ability to go ahead and drive growth and resume our historical outperformance versus the truckload market. The team is very confident in executing on that pipeline and resuming our truckload outperformance.

Great. And then maybe just as one follow-up, I know that you called out a little bit of winter weather activity in the first quarter. I'm certainly not I'm certainly very familiar with that activity, but maybe talk a little bit about any impact that it could have had in the first quarter thus far. Thanks.

Yes. Stephanie, it's Jamie. We did have some winter weather in the Southeast, Southwest had two major snow, ice storms back to back, which is very unusual. We've quantified it through January to a tune of about $2 million of our EBITDA impact to the negative. So it's definitely impacted.

Stephanie, just to add to that, it's not just on the brokerage side that it impacts. If you think about the last mile section of the business, it has a huge impact on there whenever driveways are iced over and you can't get into them. So the brokerage piece is one on the purchase transportation, but it also has an impact on our last mile business as well.

Thank you. And your next question comes from the line of Scott Group from Wolfe Research. Please go ahead.

Hey. Thanks. Good morning. So Drew, a couple of things. For a while, you've been saying, hey. Once we get these tender rejections north of 10, we're going to start seeing spot volume. Why do you think it's been a couple of months now? Why do you think we're not seeing the spot volume? And then I get, you know, one Q squeeze. I get that. Like, what I'm not sure how to think about is, you know, if this market stays tight and we get some seasonal demand improvement, like, how much of a bounce in EBITDA earnings do you think is realistic as we look out a quarter or two?

Yes. Thanks, Scott. When you look at tender rejections being north of 10, I would say you are starting to see spots. When you look from the third quarter to the fourth quarter, you saw an increase in spot loads. And a lot of that was driven in December when you saw the tender rejections start to climb right there around 10. You saw that increase continue into January. But it has not been enough to offset the compression of what we've seen on the contractual side of the business in terms of gross profit per load. I think that we're in the early innings of continuing to see that as you look out this week, tender rejections continue to climb. When you look at what's going on in the regulatory side, we think that you're setting up with any sort of demand to where you're going to see tender rejections come, and the spots will be more robust. We're already starting to see it in the waterfall routing guides where it's making it past the first, second, third, fourth carrier. So you are starting to see some waterfall routing guides break down. On the impact to EBITDA, Scott, know, we talked about gross profit per load being more than 30% below our average excluding the COVID highs, off of that. And when you look at that, you know, we've said in the past that for every dollar that gross margin per load improves, it is well north of a million dollars in EBITDA annualized. So when you think about the earnings power during a recovery, it's extremely strong.

Can you just say, like, what are spot volumes tracking up or down year over year so far in Q1? And then maybe just Jamie, can you just walk us through puts and takes on cash and confidence in free cash flow positive free cash flow this year?

I'll take the first part. Spots are up on a year over year basis as we look into January, and then I'll turn it over to Jamie on the cash.

Yeah. Thanks, Scott. Cash, you know, we ended the quarter with $17 million. We had a great year from a conversion standpoint. 43%. As we look into next year or actually this year now, 2026, know, Q1, you heard it. The guide you know, if you take the midpoint of the guide, we'll use a low single-digit amount of cash for the quarter. I think as you look at the company over the kind of the annualized basis, you know, if you take our cash outflows, which we've given in our guide, and you just apply, let's just say, 25 EBITDA as a proxy, you know, that ends up being in the 45% range of a free cash flow conversion. And we'd have a positive free cash flow. If you can extrapolate that to what the cash flow production of this company will be in an up and mid cycle, it'll be significant. You know, short term cash is good. We've had a good cash year, good cash quarter. But, you know, look forward to still being in that 40 to 60% conversion rate over the long term.

So you think you have positive free cash flow on a reported basis this year?

It obviously depends on where earnings line up, but absolutely, we believe it'll be a strong cash year.

Drew, if you could just expand on that last answer. Right? So the volume is down in truckload versus, peer significantly outperforming and growing? I know you talked about flipping to growth and not using price. Is that is this something different in your end markets that you want to highlight? Guess, how should investors view the different compares we're seeing here? And then, essentially, maybe I'll explain on that. Sorry. Just let me throw it all in at once. But the in a view of where your first quarter outlook where EBITDA is getting worse sequentially, right, fourth quarter to first quarter, and I think well below consensus. So I maybe just helping people understand why the why the differential pressure points are continuing to expand. I think one, we've got to acknowledge that the peer you're referenced in CH Robinson is executing well, and they had a great year last year. For us, our year was about integration and making sure that we were holding on to the people, to the customers, and integrating the technology, and we executed on that strategy. When you look back at 2025, you know, when you look at integrating Coyote, we thought that we would stabilize the volume decline faster than what we did. As you start to look at what happened in Q3 and Q4, we actually outperformed the truckload market on a sequential basis and what happened there. So I think when you look at that, we've stabilized the business and it's returning to growth mode for us. And it's something that we have done in the past, something that we're confident in. And it's not just blind confidence. It's confidence based off of the feedback that we're getting from our customers. When you look at the last part of your question or two more parts of your question, the end markets as well as the EBITDA, the end market is a diverse pipeline, and we're touching a lot of different things. But where we're seeing some great wins is in high cargo value and technology. We've seen some recent wins come over in the automotive side. And there's a strong pipeline in industrial and manufacturing as well right now. On the EBITDA Q1, you know, when you look at it, like, obviously, we've talked about the squeeze that is happening in the brokerage business. Last mile is a business that typically sequentially goes down from Q4 to Q1 that's being magnified this quarter because of the weather. So I think when you look at it, that's where we're pointing to towards the optimism as you start to get towards the middle of the year and you start laughing some of these things.

Year over year, we do have some restructuring there. We still have some initiatives going on. But our restructuring charges are actually down about 60% year over year. Of that number we gave, 25 to 30 for the year, about a third of that relates to actions taken last year that are running through the P&L this year. So those actions, you know, we've already talked about. And then, you know, we have a couple of initiatives, and you still got some transformation work going on where we think there's some good opportunities for process improvement. We're still not a hundred percent done with all the technology side of the integration, so that's to come. And then we're really putting a big focus on our footprint and our real estate, and we've got some plans to consolidate even some more real estate to make us more efficient there. And so those are the three big buckets. But, you know, keep in mind, down 60% a third of that number that we gave as we got is really actions that carry over from prior years. So we feel like we're in a good spot, and we feel like we've got some really good initiatives that are producing good ROI on it going forward.

Drew, if you could just maybe expand on that last answer. Right? So the volume is down in truckload. Versus, peer significantly outperforming and growing? I know you talked about flipping to growth and not using price. Is that is this something different in your end markets that you want to highlight? Guess, how should investors view the different compares we're seeing here? And then, essentially, maybe I'll explain on that. Sorry. Just let me throw it all in at once. But in a view of where your first quarter outlook where EBITDA is getting worse sequentially, right, fourth quarter to first quarter, and I think well below consensus. So I maybe just helping people understand why the differential pressure points are, you know, continuing to expand. I think one, we've gotta acknowledge that the peer you're referenced in CH Robinson is executing well, and they had a great year last year. For us, our year was about integration and making sure that we were holding on to the people, to the customers, and integrating the technology, and we executed on that strategy. When you look back at 2025. You know, when you look at integrating Coyote, we thought that we would stabilize the volume decline faster than what we did. As you start to look at what happened in Q3 and Q4, we actually outperformed the truckload market on a sequential basis and what happened there. So I think when you look at that, we've stabilized the business and it's returning to growth mode for us. And it's something that we have done in the past; something that we're confident in, and it's not just blind confidence. It's confidence based off of the feedback that we're getting from our customers. When you look at the last part of your question or two more parts of your question, the end markets as well as the EBITDA. The end market is a diverse pipeline, and we're touching a lot of different things. But where we're seeing some great wins is in high cargo value, and technology. We've seen some recent wins come over in the automotive side. And there's a strong pipeline in industrial and manufacturing as well right now. On the EBITDA Q1, you know, when you look at it, like, obviously, we've talked about the squeeze that is happening in the brokerage business. Last mile is a business that typically sequentially goes down from Q4 to Q1. That's being magnified this quarter because of the weather. So I think when you look at it, that's where we're pointing to towards the optimism as you start to get towards the middle of the year and you start laughing some of these things.

Yeah. So year over year, we do have some restructuring there. We still have some initiatives going on. But our restructuring charges are actually down about 60% year over year. Of that number we gave, 25 to 30 for the year, about a third of that relates to actions taken last year that are running through the P&L this year. So those actions, you know, we've already talked about. And then, you know, we have a couple of initiatives, and you still got some transformation work going on where we think there's some good opportunities for process improvement. We're still not a hundred percent done with all the technology side of the integration, so that's to come. And then we're really putting a big focus on our footprint and our real estate, and we've got some plans to consolidate even some more real estate to make us more efficient there. And so those are the three big buckets. But, you know, keep in mind, down 60% a third of that number that we gave as we got is really actions that carry over from prior years. So we feel like we're in a good spot, and we feel like we've got some really good initiatives that are producing good ROI on it going forward.

Thank you, Ina. Our team has taken the right actions to navigate the current market conditions. We're in growth mode and focused on converting our very strong sales pipeline. We expect to get back to outperforming when it comes to truckload brokerage volume as early as the middle of this year. We're operating on one tech platform, which is providing better data to our people and unparalleled visibility to our operations and carriers. We're making significant investments in our technology and are seeing real results from our AI initiatives. We have a slimmer cost structure that we continue to optimize and our capital structure provides us with more flexibility across all parts of the freight cycle. We will continue to focus on what differentiates RXO: exceptional service, comprehensive solutions, deep customer relationships, and cutting-edge technology. I remain confident in our ability to deliver outsized earnings growth over the long term. Thank you all for your time today, and we look forward to seeing you at the upcoming investor conferences.

And this concludes today's call. Thank you for participating. You may all disconnect.