Welcome to the RXO Fourth Quarter 2024 Quarter 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, either 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 call 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…

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…

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. Now I'd like to turn it over to Chief Strategy Officer, Jared Weisfeld, who will talk in more detail about our results and their outlook. 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. This 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…

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. But that turn it over to the operator for Q&A.

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 PT 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? Hey, Ken. Good morning. It's Jared. So I can give you some seasonality comments as it relates to the combined business. So we talked about from Q1 to Q2, we typically see a seasonality uplift, and that really is across all lines of business. From a brokerage standpoint, we typically see seasonally better volumes. We'll have the benefit on the newer contracts that we're talking about. We talked about moving to an inflationary rate environment with contract rates probably up low to mid-single digits year on year for 2025 when compared to 2024. New books of business that we're winning will also ramp across complementary services. You'll see managed transportation. We expect better automotive volumes Q2 versus Q1. And then last mile, Q2 is one of the seasonally strong quarters as weather warms up. So on a combined basis, Q2 and Q4 are typically the seasonally strongest quarters when you think about what the combined business looks like. On your second question in terms of the higher buy rate environment, you're exactly right. And over the last few weeks, we have seen an improvement in buy rates, and that has been a tailwind for gross profit per load, and we expect gross profit per load for the brokerage business to increase throughout the first quarter. If I can squeeze a follow-up, Ben, what do you see the broker market growing if you're seeing kind of down mid-single digits in the fourth quarter and maybe accelerating to mid to high single digits? How do you think the market's compared to that?

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.

Thank you. Your next question is from Scott Schneeberger from Oppenheimer. Your line is now open.

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 north shore 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 $75 million to $85 million, you're right. $15 million is a strategic real estate. You know, Charlotte has really 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 in 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.

Great. Thanks, all.

Thank you. Your next question is from Stephanie Moore from Jefferies. Your line is now open.

Great. Good morning, everybody. This is Joe Halfling on

Stephanie Moore at Jefferies.

I wanted to ask a little bit about the incremental synergies as well as, you know, what's kind of 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 maybe 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. Been a great cultural fit. People are working very well together. You know, we have up to 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. Yeah. Actually, late in the year 2025, so you'll see that benefit really begin to flow through the P&L more in 2026. Last raise from $40 million to $50 million really came from two primary areas. Real estate consolidation, and we took a hard look at a footprint. Been able to, you know, put some real estate together. 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 Manas Trans, 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 who 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 is extremely high right now.

Thanks so much. And, Jared, if I could squeeze one in, was 2024 kind of wrapped up? Something you kind of have given in the past is kind of RXO, Inc. volumes on a, you know, two and three-year stack. I was just kind of curious where 2024 landed.

Yeah. We're moving really quickly in the integration as just talked about. So we're really viewing this as one combined business right now, Joe. And I think when we look at 2025, we're pretty happy to be able to go ahead and endorse full-year volume growth relative to 2024, given the strong execution of the team throughout mid-season with one unified strategy. So I'd anchor to that metric because at this point, we're doing this combined business.

Okay. Got it. Thanks so much, guys.

Thank you. Your next question is from Brandon Oglenski from Barclays. Your line is now open.

Hey, good morning, everyone, and thanks for taking the question. Drew, maybe if I can just come back to Ken's question because I think it's pretty important here, and there's so many numbers being tossed around this call, so it's a little hard to keep up. But I think at the end of the day, what a lot of investors are trying to figure out here is that your EBITDA or your operating earnings, you know, look pretty well here on a consolidated basis, especially going into the first quarter. And I guess it's just maybe a lot lower than we thought at integration of Coyote. So there's a fear that there's been a deterioration in the core business, and I want to anchor off something you just said that you'll get back to taking share in the marketplace. So has there been an issue in the last, you know, six to nine months at either RXO, Inc. or Coyote? Is this something that you think you can rectify and, you know, get back on a much better earnings pace looking forward?

Well, I would start by reminding you, Brandon. If you go back to what we told you our bid season strategy for 2024 was, at Legacy RXO, Inc. We told you that we were pricing in some sort of recovery. And if that did not happen, we would sacrifice a little bit of volume and, you know, potentially a little bit of EBITDA as well. And that is what played out. The position that we're in with our customers is extremely strong. But, yeah, I said earlier, the feedback that we're getting on the early returns of the bids that we've got is positive, and there's a lot of momentum there. We don't look at this business on a six to nine-month basis. We never have. We view this business for the long term and what it looks like through a cycle. And if you go back and you look at the history of what we've got, of being able to take share through a market cycle, I don't think there's many others that have done it like it. So very proud of what the team has done and confident in what the team is going to be able to continue to do. When you look at the overall earnings, which was the first piece of your question, as I said in my prepared commentary, the biggest thing is a deterioration in gross profit per load. That is what has happened with the cost of purchase transportation going up and the sell rates had come down over the last year and a half. We've now told you that we're entering into a period where rates are going up for the first time in two and a half years on a year-over-year basis, so we're hitting an inflationary rate environment. Confident with what's happening there, and when the market turns, I think that you've seen that we are going to be the provider that people will turn to for spots, projects, and mini bids. The last piece of your question was the overall health of the Coyote business. You know, when you look at what we acquired last year, very happy with how they perform versus the market. And I think that brokerages, in general, there's been a compression on gross profit per load. Coyote is no different than that. But the opportunity is far bigger than, I think, what we even realized at the time of acquisition, which is why we've again raised our synergy estimates. We've talked about the cost of purchase transportation. We've talked about cross-selling. So as the market turns, we're better positioned than what we have ever been since we did spend.

Appreciate that, Drew. And I guess, can you put in the context moving to, I think, a higher contractual mix in the fourth quarter? Maybe this is one for Jared, but you see rates moving up, don't you want to be moving less contract at the moment, or maybe I have that confused? And thank you.

Yeah. Brandon, I think that what the part that you're forgetting is if you remember whenever we announced the Coyote acquisition, we said that there was a large customer that had a heavy contractual mix that was seasonally weighted to the fourth quarter. So I think that's the biggest piece. And the large driver for the contractual piece. We talked about the month of October that we did see some spot loads, some projects, and some mini bids as you saw some market tightening.

Okay. Thank you, Drew.

Thank you. Your next question is from Tom Wadewitz from UBS. Your line is now open.

Yeah. Thanks. Good morning.

Wanted to see I think, Jared, you

you know, maybe in I'm trying to recall. I think you might have in the past talked about, like, first quarter as a percent of full year or something like that. Wanted to get a sense of if there's any perspective you can offer on that just to help us think about what does the full year end up looking like off the base of what you're talking about for 1Q? I guess another way you could look at it would just be like, you know, is there a point where you'd see a bigger than normal seasonal step up if you look at 2Q or 3Q? So I guess just to start with any thoughts on that for, you know, 1Q versus full year,

Tom, good morning. So when you think about Q1, it's typically our softest quarter, so lowest as a percentage of full-year contribution to EBITDA. Go back to Ken's question from earlier. If you think about that ramp from Q1 to Q2, we have positive seasonality across all lines of business. What we do know is that we're bouncing off the bottom, and we're now in an environment where we're talking about rates moving higher on the contractual side with our confidence is high in terms of being able to grow year-on-year volumes for the combined business year over year. But when you think about what that shape of the year could look like, it really depends on what the recovery is going to look like. Right? So at this point, I think there are just too many variables to start hypothesizing on how the second half looks versus the first half when you think about just the nature of the recovery. You know, if it's a sharp recovery, you'll see us pivot pretty quickly to the spot board and be able to go ahead and benefit from all of the strong relationships that we have with our customers that trust us with their spot freight and the special projects. And in that case, you'll see a nice sharp move higher in gross profit per load. It's more of a stair step, you'll see a little bit of a squeeze on the contractual book of business until we get to a healthier market condition.

Right.

Okay. So it sounds like maybe from where we are today, you'd you would think that if we just you know, 1Q might be kind of a lower than normal percent of the full year. Do you think that's right if we're assuming I mean, I guess, we're that makes sense if we're assuming some improvement in cycle through the year,

Yeah. I mean, I think it's also important to realize that this is a new combined business. Right? So when you look at the RXO, Inc. plus Coyote, this is the first year that we're obviously operating as a combined entity. Right? So I don't want to start getting into how to think about Q1 as a percentage of the full year in that basis, especially as we're coming off the bottom, right? So to the extent that you have a different shape of recovery, whether it's a V or a W or an L, right, I think it all is going to go into that notion of how to think that spot versus contract mix behaves. What we do feel comfortable about saying is that Q1 should be the low point in terms of percent contribution, and the business should move higher as we get to Q2 across all lines of business.

Okay. Yeah. Fair enough.

From a second question,

I think looking at you know, you mentioned and it's straightforward. So Coyote's gross margin percent is lower than legacy RXO, Inc. And you're talking with the technology implementation, you know, I guess, you know, maybe 2Q 3Q that the know, carrier-focused brokers would get the new technology. Do you think that that technology of RXO, Inc. will allow a fairly quick step up in Coyote gross margin percent? And that's kind of the key lever. Assuming that the Coyote gross margin percent could move towards legacy RXO, Inc., or do you think there's, like, a difference in business mix that, you know, that spread might be more kind of structural or more, you know, take longer to change? Thank you.

Yeah.

Thank you, Tom. You look at the Coyote business, there is a structural difference in the gross margin percent. There's really three pieces to the Coyote business. One is a large enterprise customer who there's deep relationships with and long-term contracts with that runs at a lower gross margin percentage. It is a good chunk of the business. It's a good piece. It is profitable business. It's steady volume. We're able to keep our carrier network moving through it. It's business that we like and appreciate and want to continue to be able to grow. But it's lower gross margin percentage. The second piece of the business is their SMB business. And on the SMB business, that runs at a strong gross profit per load, but you will see that us be able to improve that with the power of purchase transportation. We told you very early on when we did the diligence one of the things that got us excited was we knew there were lanes that Coyote bought better, and we knew that there were lanes that were legacy RXO, Inc. bought better. So we would be able to improve margins. And the last piece is their middle market enterprise business. And similar to the SMB, I think that there is the opportunity to improve those margins as well over time. The last caveat that I would add in is can improve legacy RXO, Inc.'s gross profit per load versus market cycle because, again, there are lanes that Coyote was buying better that we'll be able to tap into that capacity as we come onto one platform.

Oh, okay. That's helpful. What just you mentioned the mix

Can you give a sense of the pro forma mix between enterprise and SMB and brokerage volume and the rough sense on that?

At the time of spin, we talked about SMB being roughly the one large customer being around 10% of the overall gross margin.

Okay. So combined 40% is SMB with, cards. Okay. Odie.

Little bit than that now. It's on RXO, Inc. was not heavy in the SMB, but the 40% SMB was legacy Coyote. Oh, legacy Coyote. Okay. So not performing.

Okay. Thanks for the time.

Yep. Thank you.

Thank you. And your next question is from Chris Wetherbee from Wells Fargo. Your line is now open.

Yeah. Hey. Thanks. Good morning, guys.

Maybe I want to pick up on gross profit per load trends and thinking about some of the moving pieces there. So I know there's some differences between the two businesses, but I guess as you think about balancing volume growth, I know it was up sequentially, gross profit per load was down sequentially. I guess as you think about the market and maybe a return to growth on a year-over-year basis, how should we think about that sequential progress in gross profit per load as we move through the rest of 2025? Do you see a step up in the first quarter? Is that maybe the low watermark and then we start to see some improvement beyond that?

Hey, Chris. It's Jared. So if you look at the progression from Q3 to Q4, gross profit per load moved a bit lower sequentially. I'd say part of that was attributable to the inclusion of Coyote, which runs lower gross profit per load. And part of that also is some of the seasonality within that Coyote business driven by customer mix in particular for Q4. And then the market tightened. We had some benefits on the legacy RXO, Inc. side to start the quarter with some special project and spot opportunities. But as expected, that moved lower. So that really drove the move lower throughout Q4 on gross profit per load relative to Q3. When you think about that bridge from Q4 to Q1, we are expecting a little bit more lower from Q4 to Q1, I'd say a modest decrease in gross profit per load. Because the market really did start pretty tight here to start the year given the inclement weather across the country. But we do expect gross profit per load to improve as Q1 progresses with January marking the low point. So we sort of the progression through Q1. And then from Q1, you know, I would think about two factors. From Q1 to Q2, seasonally, Q2 is a tighter market with produce season and road check. So I think you have to really combine that with where we are from a recovery standpoint to get the shape of that gross profit per load. And I go back to the prior question where when you think about that shape of the recovery, if it's a V-shaped recovery, I think you'll see a strong recovery in gross profit per load. You'll see the spot opportunities. And if it's a more modest recovery, it'll be a little bit of a squeeze.

Okay.

That's helpful, Cole. Appreciate it. And then I guess when you think about the cost synergies as you play that through the rest of the year, any way to think about the cadence of that contribution kind of by quarter or maybe by half as you think about the progress towards that fifty plus.

Yes. This is Jamie. Twenty-five million had been completed by the end of the year. Of that amount, think about over the course of twenty-five million dollars into twenty-five to thirty million dollar range, can be realized as we head into this year incrementally. That would include some impact from the twenty-five synergies. But most of the raise and especially around technology is going to be implemented in the fourth quarter. And so you really see that progression more in a Q beginning in Q1 2026. And so the dollars that we have completed thus far, you'll begin to see that roll into 2025. But the predominance of the majority of the twenty-five additional twenty-five will be in the 2026 time frame.

Okay. That's helpful. Thank you very much. Appreciate it.

Thank you. Your next question is from Ravi Shankar from Morgan Stanley. Your line is now open.

Great. Thanks. Good morning, guys.

Jared, I just want to follow-up on your commentary on the shape of the recovery. I think you said in your prepared remarks you're looking for low to mid-single-digit rates in 2025. I think some of the asset-based carriers have hinted that maybe they are already getting and looking for more than that. Do you think that's just yet an ambitious on their part? Do you think that, you know, that opportunity to get maybe high single-digit, pushing double-digit is available for you as well? If the cycle is sharper, or do you think there's a little bit of a gap between asset-based and asset-light pricing this cycle?

Yeah. I can only speak to what we're seeing so far, Ravi, and what we're seeing and what we're hearing from customers gives us confidence that we're talking about low to mid-single-digit increase for 2025. But to your point, to the extent that the cycle develops here and we start seeing a stronger recovery and it is that type of V shape, we will absolutely be able to go ahead and see those kinds of price increases that you're talking about. And, you know, you know how our model works, and I would just reemphasize that the deep relationships that we have with our customers are what's driven that strong spot volume over the last ten plus years. So when you think about the cycle getting to an inflationary type rate environment, for that and starting to really recover with tender rejections approaching ten percent plus. You know, in sharp recoveries, our spot volume has increased by almost a thousand basis points in ninety days because our customers come to us as the first call.

Understood. And maybe as a follow-up, sorry if I missed this, but can you unpack a little bit as to why Coyote seasonality is so skewed relative to base RXO, Inc.? Is it a mix of customers? Do they kind of have more kind of project business or kind of what's the reason for that? Four four four six. Yeah. This is Jamie.

The big factor we have one large customer that provides some seasonal uptick in the fourth quarter. Good piece of business. Strong partnership, but it's really driven by one particular customer who's got a lot of contract business in the fourth quarter.

Understood. Thank you.

Thank you. And your next question is from Jordan Oliger from Goldman Sachs. Your line is now open.

Yeah. Hi. Morning. I wonder if you could talk about Coyote's operating performance since you bought it not talking about integration, I'm talking about the operating performance. Better or worse than you thought? And I don't know if you could frame it in terms of standalone

EBITDA profitability, you know, from a trajectory standpoint. Has it come in under generally under expectations? And then the second question is,

the transaction integration restructuring charges of forty to fifty million for the year. Can you talk to what's in those buckets? And does that diminish through the year? Is it stay evenly paced? Thanks.

Thanks, Jordan. I'll start and Jamie and Jared will take the second portion. So when you look at how it's performed versus expectations, I don't think when we bought Coyote, we knew exactly what the market was going to do over the next six months. I would say when you look at how Coyote has performed versus what's going on in the market, we're pleased, and we're excited. When you look at the opportunity to take our overall volume and grow it by 125% and spread that cost across spread our overall fixed cost across more loads, excited about what that looks like. When you look about getting on one platform, and being able to reduce purchase transportation, we're excited about being able to do that. So you look at cross-selling. There is a lot going on within the business that you may not see right now with gross profit per load being compressed, at the bottom of the cycle, but the actions that we're taking right now, we're confident in what they're going to do for the long-term piece of the business.

Yeah. So this is Jamie. On the second part of your question around transacting calls, restructuring calls, the majority of the calls, both for 2024 and going into 2025 are going to be related, obviously, to Coyote. The big items are going to be we got technology spend that we can that will be, you know, eliminating as we put the systems together. So we'll have some transaction costs to, you know, get rid of some contracts. There'll be, like, in the fourth quarter, we the biggest spend charge we had was related to some real estate consolidation where we impaired the leases because we were moving out of some space. And then just general, you know, this general restructure, you know, sign out a contract of a vendor as an example. Would be the type spend.

K.

Thank you. And your next question would be Jason Seidl from J. D. Cowen. Your line is now open.

Thank you, operator. 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 good morning, Jason. 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 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 Trans. And if you look at what we've been able to do and what's going through our facility in Laredo, that is picked up. If you look at what we've been able to do from a customs broker status 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.

Appreciate the time, gentlemen.

Thank you. Your next question is from Scott Group from Wolfe Research. Your line is now open.

Hey, thanks. Good morning, guys.

We're at the hour, so I'll keep it quick. You talk about the managed trans pipeline keep growing. What do we think

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?

Thank you. Yeah. The way that we've described the UPS business was that it was around ten percent of the overall margin with 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 phone that we're looking at onboarding over the next several quarters.

So when do you think that overall managed trans revenue starts to grow again?

I think as we onboard these customers, we've got a lot of onboarding that we did late last year into Q1 of this year. Did it takes time to get the full kind of power of that transportation model, you know, built in. But we think, you know, late first half going into the second half, we'll see the impact of that begin to flow through the managed trans model and then the opportunity to get those synergy loads over into the brokerage side of the business.

Thank you, guys.

Thank you. And your last question would be from Daniel Imbro from Stephens. Your line is now open.

Hey. Good morning, everybody. Thanks for taking our questions. We've been in here.

I'll be brief just maybe starting on the near term, can you help us some guardrails around the 1Q guidance, Jared? I think when we think about the $20 million to $30 million goal I was thinking

are the variables to get to that higher low end? I'm guessing January was tight. And so is it if the truck market loosens, we come in at the high end and gross margin's a swing factor?

Are the puts and takes we should be watching as we move to 1Q? Yeah. Good morning, Daniel. I'd say the biggest variable for Q1 in terms of that $20 million to $30 million guidance range that we put out is really gross profit per load and more specifically cost of purchase transportation. So we've seen over the last couple of weeks buy rates come down a little bit, and we'll have some of the newer contracts implemented as the quarter progresses. But if you think about, you know, what will delineate between the bottom half and the upper half, it's really going to depend on cost of purchase transportation and our ability to continue to bring down the buy. We do think that gross profit will per load will improve as the first progresses.

Helpful. And then, Jimmy, maybe a follow-up on cash flow

think 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 guides, we're thinking about cash burn maybe stepping up in the near term. And then related to that, I know they're adjusted out, but of 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? Maybe two questions on cash flow there. Thanks.

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 cap 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 chat, that free cash flow to do restructuring charges. Coming in 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 the 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 free cash flow. Switch 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.

Thank you. 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

Coyote is ahead of schedule, and we have increased our estimate for annualized call 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.