RXO, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Coyote Integration: Ahead of schedule with voluntary turnover of director-level and above employees at ~2%. Cross-selling opportunities exceeded goals. Technology integration progressed with critical components migrated to the cloud. Expecting at least $50 million in annualized cost synergies, double the initial estimate.
• Fourth Quarter Results: Adjusted EBITDA was $42 million, in line with guidance. Brokerage volume declined 6% year over year but increased 10% sequentially. Complementary services showed momentum with managed transportation sales pipeline nearly $2 billion and last mile stops up 15% year over year.
• Market Conditions: Operated in a soft freight environment with tightened conditions in Q4, including load-to-truck ratio and tender rejections at highs. Moving to an inflationary rate environment with contract rates increasing year over year.
• Structural Improvements: Increased truckload volume via Coyote acquisition, improved go-to-market strategy for cross-selling, enhanced technology platform with AI/ML, and strengthened balance sheet.

Segment Performance

• Brokerage: Generated $1.3 billion in revenue, accounting for 75% of total revenue. Brokerage gross margin was 13.2%. Legacy RXO, Inc. brokerage gross margin was approximately 14.5% in the quarter.
• Complementary Services: Generated $431 million in revenue, 25% of total revenue. Gross margin was 21.1%, up 20 basis points year over year.
• Last Mile: Generated $290 million in the quarter. Stops grew 15% year over year.
• Managed Transportation: Generated $141 million in the quarter, down 8% year over year due to lower automotive volume.

Guidance

• First Quarter: Expect combined brokerage volume to decline mid to high single digits year over year. Combined adjusted EBITDA expected $20 million to $30 million.
• 2025: Capital expenditures $75 million to $85 million (includes ~$15 million strategic real estate in Charlotte). Expect reduction in CapEx in 2026 to ~$50 million to $60 million. Provided ranges for adjusted EBITDA margin, interest expense, tax rate, etc.
• Full Year: Confident combined brokerage volume will grow year over year due to strong execution and customer feedback.

Risks

• Freight Market Volatility: Continued soft market conditions impacting gross profit per load.
• Integration Risks: Challenges in fully integrating technology and operations despite progress.
• Tariffs and Trade Policy: Potential impact on cross-border business and volume, both short-term tailwinds and long-term headwinds.
• Carrier Exits: Significant carrier exits in Q4, affecting market balance and unit economics.

Q: Define core RXO, Inc. EBITDA shifts over past year and Coyote contribution shifts.

A: Jared discussed seasonality, Q1 to Q2 uplift, and contract rates expected low to mid-single digits in 2025. Drew mentioned brokerage market taking share, moving from <10% in 2010 to low twenties now.

Q: Confidence in 2025 volume growth.

A: Drew confident based on early returns and customer feedback, expecting year-over-year growth.

Q: Tariffs impact.

A: Drew said short-term tariffs could pull inventory, intermediate-term headwind, long-term tailwind for near-shore business.

Q: CapEx in Charlotte.

A: Jamie said $15M strategic real estate spend for brokerage operations and headquarters, with CapEx expected to drop in 2026.

Q: Incremental synergies and integration talent retention.

A: Jamie discussed synergy sources (real estate, procurement), Drew talked about building trust, relationships, and vision to retain talent.

Q: EBITDA and core business health.

A: Drew said gross profit per load hit due to market, but entering inflationary rate environment, confident in future share gain.

Q: First quarter vs full year outlook.

A: Jared said Q1 is softest quarter, expecting Q2-Q4 to be stronger with seasonality, shape of recovery affecting gross profit per load.

Q: Coyote gross margin mix and improvement.

A: Drew and Jamie discussed Coyote's business mix (enterprise, SMB, middle market) and potential margin improvement via technology and purchase transportation synergies.

Q: Gross profit per load trends.

A: Jared said Q4 gross profit per load lower due to Coyote mix and market tightness, expecting Q1 to improve with January low, shape of recovery affecting progression.

Q: Cost synergy cadence.

A: Jamie said $25M completed by end 2024, ~$25M-$30M incremental in 2025, majority in 2026 from technology integration.

Q: Tender rejection rates and freight forwarding.

A: Jared said tender rejections ~6% in Q4, ~6-6.5% in Q1, freight forwarding business performed well with domestic diversification.

Q: Managed transportation revenue growth and Coyote UPS business.

A: Jamie said managed transportation revenue to grow late 2025/early 2026 with onboarding customers, Drew discussed UPS business as ~10% of margin, focusing on relationships.

Q: 1Q guidance and cash flow.

A: Jared said Q1 guidance $20M-$30M depends on gross profit per load and cost of purchase transportation, Jamie discussed cash flow with ~$105M-$110M breakeven EBITDA, 40%-60% free cash flow conversion in up cycles.