RXO, Inc. Q1 FY2025 earnings call

• Completed Coyote integration with carrier and coverage operations now on the Freight Optimizer platform. • Raised acquisition synergies to over $70 million in cash synergies, including operating and capital expenditures. • Brokerage volume: LTL grew 26% year-over-year, truckload down 8% year-over-year. Productivity in brokerage improved with 17% year-over-year and 40% over two years due to tech investments (AI, ML). • Complementary services: Managed transportation increased synergy loads to brokerage, last-mile stops up 24% year-over-year. • Improved Legacy Coyote's profitability, with gross profit per load up ~20% from January to March.

Broker's revenue was $1.1 billion, representing 72% of total revenue with a gross margin of 13.3%. Complimentary services revenue was $415 million, 28% of total revenue, with a gross margin of 21%. Managed transportation generated $137 million, down 10% year-over-year. Last-mile business generated $278 million, up 20% year-over-year, with last-mile stops growing 24% year-over-year.

• Second quarter adjusted EBITDA expected between $30-$40 million. • Reduced 2025 capital expenditure estimate by $10 million to $65-$75 million, and 2026 CapEx to $45-$55 million. • Adjusted effective tax rate expected 30%-33% in 2025, with long-term target of 25%.

• Weather-related tightness eased but environment remains fluid. • Uncertainty in trade policy impacting truckload demand. • Automotive volume slowdown affecting expedite shipments.

Q: Hi, good morning. Thank you. Is it -- I think it would be helpful if, you know, maybe Drew or Jamie, whoever wants to handle this. If you could speak to your mid-cycle earnings power now with Coyote under your umbrella, obviously, there's sort of a faster than expected tech integration that you've called out and some pretty clear line of sight on PT synergy. So how could this compare to your prior mid-cycle earnings?

A: Yes, I think, Stephanie, when you look at the business, we took what was a really strong business in Legacy RXO. And we've dramatically improved the long-term earnings power of the business. You focus on purchase transportation, and Jamie framed it up that if we're only able to improve that by 1%, it'll be around $40 million of how well we buy versus what's going on the market. You look at doubling our volume and being able to spread our cost out across more loads, which essentially lowers our cost to serve for our customers and makes us more profitable. When you look at the productivity improvements that we're really just getting started on right now at 17% on a year-over-year basis, for us, there is so much runway in continuing to improve the long-term profitability of the business and being able to have higher lows, higher midpoints, and higher highs.

Q: Great. Thanks, Good morning. Maybe to follow up on that question, as you think about the gross margin percentage range for the second quarter, I guess maybe can you talk a little bit about the sort of the potential dynamics that can influence you one way or another? Presumably, if you see the TL market continue to soften, that might help that number. I just want to get a little bit of sense of how you think about sort of the high end and the low end there. What are the dynamics you'd expect to see?

A: Hi, Chris, that's exactly right. I mean, to the extent that the market does soften, you'll see the ability of continued improvement in gross profit per load. I mean, if you look at Q1 as a proxy, I think that's a really good example in terms of how quickly we brought down purchase transportation. If you look at between January and March, we increased gross profit per load by approximately 20% across our truckload business, mostly attributable to the buy side. So if the market does go ahead and get a bit looser, and then you think about on the sell side in terms of some of the contract rates that we talked about where low to mid single digits, we still feel very good about for the full year. And that was up about 4% year-over-year in Q1. Those should all be tailwinds. And I think most importantly, now that we are buying capacity, procuring capacity as one organization with all carrier reps procuring and covering freight in one system, freight optimizer, our customers have better access to more trucks with the right loads. And that has the ability to go ahead and contribute as well.