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spk09: forward-looking statements within the meeting of Federal Securities laws, which by their 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 filing as well as in its earnings release. You should refer to the copy of the company's earnings release in the Investors Relations section on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of NUNGA app financial measures that the company uses discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin.
spk07: Good morning, everyone, and thank you for joining today. I'm here in Charlotte with RxO's Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weisfeld. In the first quarter, the prolonged soft freight environment continued. RxO delivered adjusted EBITDA at the midpoint of the range we gave you in February. In our brokerage business, we posted double-digit volume growth for the fourth consecutive quarter. Total brokerage volume grew by 11% with 8% growth in full truckload and 29% growth in less than truckload. Full truckload represented 83% of our volume in the quarter. Our LTL business is growing rapidly, and our increased scale and automation capabilities are enabling it to deliver profitable growth. Jared will discuss our results by vertical later, but most of our full truckload verticals grew year over year. In addition, cross-border volume increased by 37% year over year. We continued to strategically manage our mix of contract and spot volume. Contract business represented 79% of our mix in the quarter and positions us well to earn spot volume and project loads when the market improves. Within brokerage, our gross margin was .2% in the quarter. In complementary services, on a year over year basis, managed transportation again grew the number of synergy loads it provided to truck brokerage. In addition, in the first half of this year, managed transportation was awarded or is onboarding more than $350 million in freight under management. In last mile, we continued to focus on our service and our customer relationships, which generated revenue opportunities with new and existing customers. We also focused on optimizing our network of last mile hubs and decreasing our cost of purchase transportation. RxO's company-wide gross margin was .4% in the quarter. At RxO, we build our business on four main growth drivers, service, solutions, innovation, and relationships. When it comes to service, we understand that every shipment matters to our customers and we work to deliver a great customer experience that delivers value at every touch point. We offer a wide variety of solutions to meet every freight transportation need. We are proactive in solving our customers' toughest challenges. We innovate and design technology that leverages data to help customers and internal stakeholders make better decisions and improve productivity. And we build multi-layer, long-term relationships with customers that are built on trust. Our focus on these areas has enabled us to grow quickly. Because of the trust customers have in us and the value we create for them, our company-wide sales pipeline is the largest it's been in four years. We recently made an organizational change that will position us to win even more customer business. We moved our freight forwarding business under managed transportation to help create more comprehensive solutions for our customers. In many cases, customers were purchasing services from both groups. Our forwarding business has built many domestic services that complement our managed transportation business. This combination will reduce costs and accelerate the many natural synergies between the two teams. Jamie will discuss what this means for our financial reporting, but from a strategic standpoint, this combination will enable RxO to more quickly innovate and grow. Next, I want to talk about the overall market conditions and how they affected our business in the first quarter. The freight market remains soft. All major freight market KPIs weakened as the quarter progressed. The quarter was mixed in terms of carrier exits. While carriers left the market every month, the rate of exits was slower than anticipated and in some weeks the total number of registered carrier authorities actually increased. On the demand side, while the macro economy remained reasonably healthy, the data was more mixed than prior quarters. Employment, wage growth, and retail inventory positions were all encouraging. Yet, GDP grew at a slower rate than the market's expectations and inflation remained sticky. January was a difficult month for everyone in the industry, including RxO. As we mentioned during last quarter's earnings report, severe weather caused a temporary market squeeze, but as the weather improved into February, we moved quickly to bring down our cost of purchase transportation. Gross profit per load and gross margin improved every month as the quarter progressed. While we did see some weakening in full truckload volume, it was more than offset by the improvements in gross profit per load. Given current market conditions, we've taken swift actions on costs. Jamie will talk more about this in a few minutes, but this year's actions will now result in at least $35 million of annualized savings. That's $10 million more than the estimate we provided to you last quarter. We'll see the full benefit of these actions in the second half of the year. I'm proud to work with a team that embraces a continuous improvement mindset and reacts quickly to market conditions. Let's now discuss our expectations for the second quarter. Typically, by this point in the year, we would see a positive seasonal increase in full truckload volume within our brokerage business. That is not materialized given the sustained market weakness. In addition, and as we've discussed previously, we believe carrier rates are at or near the bottom and we're preparing for a market recovery. We're making strategic decisions on price based on where we think the market is heading. We're doing this to ensure we earn a fair margin in an environment where carrier rates rise. Because we provide great service to our customers and have a history of honoring our contractual agreements, we're also in prime position to capture spot volume and project freight when the market recovers. Nonetheless, we do anticipate that we will grow our consolidated brokerage volumes again year over year in the second quarter. Our ability to grow total brokerage volumes is a testament to the diversity of our portfolio. Our LTL business continues to gain traction and will grow strongly year over year in the second quarter. We expect brokerage gross margin to hold relatively steady to what we saw in the first quarter. With our improvement in the brokerage gross profit per load and our momentum within complementary services, we anticipate that adjusted EBITDA will increase significantly on a sequential basis in the second quarter. RxO's focus on providing the best service, the most comprehensive set of solutions, continuous innovation and close customer relationships is enabling us to take market share and grow our sales pipeline. When you combine that with our disciplined focus on cost and the expertise of our team, RxO is primed to deliver significant earnings growth when the market influx. Now I'll turn it over to Jamie to discuss our financial results in more detail. Jamie?
spk01: Thank you, Drew, and good morning, everyone. Let's review our first quarter performance in more detail. We generated $913 million in revenue compared to $1 billion in the first quarter of 2023. Our gross margin was 17.4 percent, while gross margin declined to 130 basis points year over year. We're pleased with our performance given the current freight environment. Our adjusted EBITDA was $15 million at the midpoint of the guidance range we provided you in February. This compares to $37 million in the first quarter of 2023. Our adjusted EBITDA margin was 1.6 percent, down 210 basis points year over year. The declines in these metrics were primarily due to lower freight rates and lower brokerage gross margin. Below the line, our interest expense was $8 million. For the quarter, our adjusted diluted loss per share was three cents, which includes approximately one penny of discrete tax benefits. You can find a bridge to adjusted EPS on slide eight of the earnings presentation. Now I'd like to give an overview of our performance within our lines of business. Brokers generated $564 million of revenue, down 6 percent year over year, primarily due to lower freight rates. However, as Drew mentioned, brokerage volume for the quarter increased by 11 percent year over year, the fourth consecutive quarter of double-digit volume growth. Brokerage gross margin remained at a strong 14.2 percent above the high end of our expectations, primarily due to lower cost of purchase transportation. Our gross margin declined 210 basis points year over year. It only declined by 60 basis points sequentially. Complementary services revenue in the quarter of $384 million was down 12 percent year over year. The revenue decline was primarily due to a decrease in automotive expedite volumes in our managed transportation business. Complementary services gross margin of 20.6 percent declined by 20 basis points year over year. Please turn to slide nine as we discuss cash flow. Our adjusted free cash flow in the first quarter was $1 million, exceeding the expectations that we shared with you in February. Over the trailing six months, we generated $7 million of adjusted free cash flow, representing conversion of about 15 percent. Lower profitability levels at the bottom of the freight cycle continue to negatively impact cash conversion. We remain comfortable with a conversion range of 40 to 60 percent over the long term through market cycles. We ended the quarter with $7 million of cash on the balance sheet, slightly above expectations due to strong receipts in the quarter. The primary use of cash over the last six months was to prepay our $100 million term loan in November of 2023. Looking ahead, and as we've discussed previously, we pay interest due on our senior notes in the second and fourth quarters. That will be about a $14 million use of cash in each of those quarters. Additionally, in the second quarter, we anticipate approximately $10 million of outflows for previously discussed legacy claims. As you can see on slide 10, our liquidity position remains strong with over $600 million of committed liquidity at the end of the quarter. Quarter-end gross leverage was three times trailing 12 months adjusted EBITDA, and net leverage was 2.9 times, an approximately half a turn sequential increase due to our cycling of last year's EBITDA. During the quarter, we also proactively enhanced our liquidity position. We amended our revolving credit agreement to relax our covenants for 12 months beginning in the second quarter of 2024. We remain comfortable with our current leverage ratio, and given the strong free cash flow characteristics of our business, we will de-lever rapidly as it cycle and flex. Our customers want to work with partners like RxO that have a strong financial position and can perform and invest across all market cycles. We're pleased with our cash flow and our balance sheet given this extended soft freight cycle. Let's talk about cost. We're operating with a continuous improvement mindset, and our actions are yielding tangible results. Last quarter, we communicated that we would strategically invest in the business while eliminating at least $25 million of annualized expenses in 2024. In the first quarter, we moved quickly to take actions to further optimize our cost structure. We now expect to take out at least $35 million of annualized operating expenses this year. That's in addition to the cost savings associated with last year's actions. We realized a small benefit from our 2024 actions in the first quarter, but we'll see a more meaningful benefit in the second quarter and beyond. The second half of 2024 will fully benefit from the annualized impact of our actions and will help offset -over-year declines in gross profit per load and inflationary pressures. It's important to note that the 2024 restructuring charges we previously communicated to you remain unchanged despite the higher cost takeout. We're getting more efficient and productive with every action, and the steps we're taking now will deliver significant operating leverage when the cycle turns. Now let's discuss our expectations for the second quarter and full year. With the improved momentum Drew mentioned earlier, we anticipate a meaningful sequential increase in our adjusted EBITDA and expect to deliver between $24 and $30 million of adjusted EBITDA in Q2. Jared will provide more details on our outlook shortly. Slide 14 includes our modeling assumptions for the full year. We continue to expect to be following capital expenditures between $40 and $50 million, appreciation expense between $56 and $58 million, amortization of intangibles approximately $12 million, stock-based compensation expense between $24 and $26 million, restructuring, transaction, and integration expenses between $20 and $25 million, net interest expense between $31 and $33 million. We expect our full year 2024 adjusted effective tax rate to be approximately 30%. You should also model an average diluted share count of approximately 120 million shares. One other thing that you'll see beginning next quarter. As Drew mentioned earlier, we've combined our managed transportation and freight forwarding businesses to improve our customers' experience and help drive growth. Starting in the second quarter, you'll see these businesses combined in our earnings presentation and financial statements. Overall, given the current state of the freight cycle, we're pleased with our execution. Our businesses are operating well, we're taking proactive and sustainable actions to reduce costs, and we continue to invest strategically. All of these positions are so well for the cycle inflection. Now I'd like to turn it over to Chief Strategy Officer Jerry Weisfeld, who will talk in more detail about our results and our outlook.
spk12: Thanks, Jamie, and good morning, everyone. We continued to outperform the market in the first quarter, growing brokerage volume by 11% year over year. This is our fourth consecutive quarter of double-digit volume growth in the prolonged soft-rate market. More specifically, we grew our full truckload volumes by 8% year over year. On a three-year stack, our full truckload contract volumes grew by approximately 40%. LTL volume in the quarter grew by 29% year over year. Our full truckload customers award us LTL freight because of our strong service and relationships. LTL represented approximately 17% of brokerage volumes in the first quarter. We also maintained a favorable mix of contract and spot business in the quarter, with contractual volume representing 79% of our business, down 100 basis points sequentially, and up 200 basis points when compared to the first quarter of 2023. Contract volume grew 18% year over year. Within our full truckload business, we saw year over year volume growth in most of our major verticals. Retail and e-commerce volumes grew by 10% year over year. Volume from industrial and manufacturing customers increased by 13% year over year, accelerating from 8% last quarter. The acceleration in our industrial volumes was consistent with the ISM manufacturing PMI entering expansionary territory in the quarter, the first time it's expanded in approximately a year and a half. Automotive grew at 21% year over year, although at a slower pace than the last few quarters. From a profitability perspective, brokerage gross margin of .2% was ahead of the -14% range we provided you in February, and was a result of our quick actions to bring down our cost of purchase transportation. Brokerage gross margin percentage and brokerage gross profit per load improved every month throughout the quarter. In the first quarter, we launched several new technology enhancements across multiple modes of transportation. We increased dedicated lane capabilities to enhance the carrier experience, and seven-day carrier retention remains strong at 76% in the quarter. We also added increased LTL automation capabilities across the order lifecycle. We remain excited about the growth and profitability of our LTL business. Our technology enables our people to become even more productive. On a rolling 12-month basis, productivity in our brokerage business, as measured by loads per head per day, improved by over 18% year over year. I'd now like to review our brokerage financial performance and market conditions in more detail. You can find this information on slides 11 through 13 of the presentation. Revenue per load declines eased for the third consecutive quarter, and declined by 15% year over year. The year over year decline improved by 500 basis points when compared to the fourth quarter. To get a better view of our consolidated year over year price declines on a per load basis, it's important to consider the impacts of length of haul, mix, and changes in fuel prices. When normalizing for those items, revenue per load on a percentage basis was down on high single digits year over year, in line with the broader market. This decline moderated when compared to last quarter's low double digit year over year decline. We generate a strong gross margin percentage across all different parts of the freight cycle by leveraging our proprietary technology and pricing algorithms to procure capacity at better than market rates. We expect year over year revenue per load declines to improve again in the second quarter, marking the fourth consecutive quarter of moderating declines. Importantly, the change in full truckload year over year revenue per load should meaningfully improve into the second quarter. To give additional context, in the month of April, full truckload revenue per load was down just mid single digits on a year over year basis, and up slightly when compared to the month of March. As we look towards the end of the second quarter, we believe full truckload revenue per load will be approximately flat year over year. This would mark the first time in about two years that revenue per load has held on a year over year basis. Let's move to slide 12 and discuss brokerage monthly gross margin trends. Market loosened after January's acute inclement weather. Load to truck ratio, tender rejections, and line haul spot rates all moved lower throughout the quarter. We moved quickly and leveraged our proprietary technology to reduce our cost of purchase transportation in February and March. Let's go to slide 13 and briefly look at Orixo's brokerage gross profit per load, which decreased sequentially in the first quarter because of January's weather-related challenges. However, as we've just walked through, our gross profit per load improved every month as the quarter progressed. I'd now like to look forward and give you some more color on the second quarter outlook that Jamie provided. Let's start with volume. We expect to grow year over year brokerage volumes again in the second quarter, although at a slower rate relative to the first quarter's growth rate. We expect full truckload volume to be down low to mid single digits year over year, primarily because of the prolonged weak freight market and more difficult comps given our robust brokerage volume growth in 2023. To put that in perspective, a low to mid single digit year over year volume decline in the second quarter would still result in full truckload contract volume growth of approximately 40% on a three-year stack, which speaks to our significant multi-year market share gains. As Drew mentioned earlier, we approached this bid season anticipating a freight market recovery. We're focused on reliably servicing our customers' needs and honoring our contractual rates. These actions will put us in prime position to capture spot volume and project freight when the market recovers. Turning to LTL, we have significant momentum and expect year over year volume growth to be more than 30%. We expect brokerage gross margin to be between 13 and 15% in the second quarter, approximately flat at the midpoint when compared to the first quarter. While RXO's brokerage gross margin in March and April came in at the high end of that We are assuming some seasonal moderation in May and June as a result of DOT road check and produce season. We're also not assuming any material spot opportunities in our second quarter outlook. We expect a sequential improvement in brokerage gross profit per load in the second quarter. In complementary services, we expect typical positive Q2 seasonality primarily in our last mile business. Putting it all together, we expect RXO's second quarter adjusted EBITDA to be between $24 and $30 million. From an industry perspective, there is still too much truckload capacity relative to current demand. Carriers are exiting the market slowly, but we still expect the pace of exits to accelerate throughout the year given the challenges to carriers' unit economics. Encouragingly, we saw an acceleration in carrier exits in April when compared to March. In summary, we're continuing to execute well in this soft freight market. We're entering the second quarter with improved momentum and the largest sales pipeline over the last four years. We're optimizing our call structure while strategically investing in our business and have a playbook to deliver strong earnings growth when the market influx. With that, I'll turn it over to the operator for Q&A.
spk09: Thank you. Ladies and gentlemen, should you have a question, please press star 1. If you'd like to withdraw a question, please press star 2. If you're using a speakerphone, please make sure to lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Stephanie Moore from Jeffreys. Please go ahead.
spk06: Hi. Good morning. Thank you.
spk07: Morning, Stephanie. How are you?
spk06: Doing well. Maybe it would be helpful, Drew, could you provide maybe a little bit more color on the volume performance for the first quarter and then really your truckload volume growth expectations for 2Q, how this stacks up on kind of a multi-year growth standpoint and then your ability to take share across the cycle and what is the potential for maybe upside to that guide? Thanks.
spk07: Yeah, absolutely. When you look at where we are right now on truckload growth, very proud of what the team did again by growing 8% on a -over-year basis in the first quarter. As you look out to the second quarter, there's two things that you should look at. One, the overall market is down again on a -over-year basis. The second thing is that our comps get a little bit more difficult, but the way that we look at the business is what are we doing on a multi-year stack? And when you look on a three-year stack, in the first quarter, our contractual business was up around 40% and it's going to be up around the same thing in the second quarter on a three-year stack. So on a multi-year stack, what we've shown is this market share that we're taking is sticky market share.
spk06: Got it. No, that's helpful. And maybe just a follow-up. Can you provide this color, I guess, on the growth margin and growth profit for load trends that you've seen in April? Thanks.
spk07: Yeah, so January was tough. It got better in February. It got better again in March. And it was a little bit better in April.
spk06: Easy enough. Thanks, guys.
spk07: Thank you.
spk09: Your next question comes from Wade Zwits from UBS. Please go ahead.
spk03: Yeah, good morning. So I think the – I guess the two questions. On the EBITDA guide, is the sequential improvement primarily a function of getting the operating expense reductions? Is that the primary lever of the sequential move? It sounds like you're kind of seeing, I guess, worse than normal seasonality in terms of loads in the market. So is that the right way to look at it? Or are there other kind of, you know, meaningful assumptions in that sequential move up in EBITDA?
spk01: Yeah, hey, good morning. This is Jamie. Several things are the drivers. You know, first of all, we enter Q2 with a lot of good momentum. The biggest driver sequentially is our gross profit per load and our brokerage business. We moved quickly in January. It was a tough January – early January for weather. We moved quickly on cost of purchase trends. We've been able to hold that improvement so far through the end of the first quarter and into April. You know, keep in mind we're also replacing April with a – replacing January with a strong April, May, June. We're also seeing improvement in some of our complementary services, and particularly we call out last mile where we've got a lot of good seasonal – you know, sequential seasonal uptick in April, May, and June. Also, we're seeing a lot of good operational improvements from some initiatives. And to your point that you mentioned initially, we are going to see some improvement quarter to quarter from our cost takeouts. And so you put all that together, you know, which really drive the sequential increase.
spk03: Right, okay. And then the second one, I think, Drew, you mentioned your positioning for the improvement in the market. It does seem like that improvement in the market is getting pushed out of ways in general. But how do you think about the contract mix management? The 79 percent you mentioned that's contract in the brokerage side seems like it's at the high end of the range, and that would maybe point to some risk when the – when your cost of capacity goes up that you get squeezed there. But are you doing shorter commitments on the rate? Do you think you have flexibility there, or how do you think about the kind of, you know, preparation for that eventual move up in the market?
spk07: Tom, we think that our contract mix is actually an opportunity because one, it's built strong relationships with our customer. It shows that they trust us with their most important pieces of business. And as the market shifts, the first place that they go is the people that they trust and have delivered value and strong service to them. So spot loads, project, mini-bids, we think we're in prime position. And those will typically be at a higher gross profit per load. So, yes, we would get squeezed on the contractual business, but the spot business would be at a higher gross profit per load. So it's positioned us well for when the market does inflect. You're right that I think most folks have pushed out on when the market recovery is coming, but we do think that it's going to happen sometime over the 6, 9, 12 months, which is why we've taken the step to price the business the way that we have. Our customers have told us two things that are really important. One, service the business, and two, whenever you get the business, tender acceptance is extremely important. So we price the business quarterly for where we think the market is going. And with that said, we've seen some business that customers have gone with lower rates that they've actually already come back to us because service and tender acceptance is so important.
spk03: Right. Okay. Great. Thanks for the time.
spk09: Thank you. Your next question comes from Scott Schneeberger from Hope and Eimer. Please go ahead.
spk10: Thanks. Good morning, everyone. I want to focus a little bit on LTL. You're still anticipating really strong volume growth in the second quarter, and that, in fact, is probably what's going to keep your overall volume growth and brokerage positive. Just your level of confidence that you can keep overall volume and brokerage positive. And then on the LTL, are we going to see some tough comps heading into the back half where that strong growth will moderate significantly?
spk07: Yeah. So if you look right now on a -over-year basis in the second quarter, we did say that we expected to grow overall volume once again. But with that said, we expect truckload to be down a little bit, and we expect significant growth again in our LTL business. The reason that we're getting this LTL business is it's coming from customers who do business with us on the truckload side. And so what these customers have told us is LTL is a small piece of their overall revenue and what they're managing, but it's a big piece of the headaches that they get, meaning claims, late deliveries, things like that. And so for us to be able to put it on our platform, RxO Connect, and manage all of their LTLs is a huge advantage to them. They've seen the value that we've created in their transportation network on the truckload side, and now getting a shot at the LTL is something that we think is a tailwind for us for the foreseeable future. The comps do get tougher in the second half, but I do expect this to still be growing LTL volume in the second half.
spk10: Great. Thanks, Drew. And then could you guys elaborate on this in this largest in four years sales pipeline? Sounds like a lot is in managed transportation, but could you just kind of go across the segments, touch on what that is, how you're getting that, and directionally what you expect going forward? Thanks. Yeah,
spk07: it's really across the board and it speaks to the diversity of our portfolio. I mean, one, we've talked a lot about LTL already this morning. So looking at the LTL pipeline that's coming over from the truckload side is strong. We talked about managed transportation winning or onboarding $350 million of freight under management. Our last mile, because we're the largest player in the market, customers are coming to us and saying, hey, we want to give you new markets. They know that we've got great service and they know that we've got scale and capacity to service their business. So we're seeing huge opportunities there. So very pleased with where the where the overall pipeline is and excited to see the conversion of it in the second half of the year.
spk10: Great. That sounds good.
spk09: Thanks. Your next question comes from Brandon Oklansky from Barclays. Please go ahead.
spk11: Hey, good morning, gentlemen. I was wondering if you could talk to the truckload volumes being down in the second quarter. I guess that's a little bit of a deviation from the past.
spk07: Yes. So, Brandon, again, two things to start off with. One, if you look at the overall industry and truckload volume, volumes are again down on a year over year basis. So that's a multi years that volumes have been down. So there's less volume out there and just the market. The second thing is we've created tough comps for ourselves because we have been going out there and taking share through this market. But as I told Stephanie earlier, the important thing for us is how do we look at the business and we look at it on a multi year stack basis. And if you look at volumes in the first quarter or contractual business was up on a three year stack, 40 percent, it's going to be in that same range in the second quarter. So, again, like the biggest thing that we wanted to be able to answer off of this is showing that the market share gains that we've had are sticky and they're going to stay with us for a long time.
spk11: OK, I mean, is this volumes with existing customers going down or did you walk away from some contracted business in 2Q?
spk07: It is volumes within existing customers that are down. We are always evaluating what's in the portfolio and how do we service that best for the customers and create good solutions. And like I talked about earlier, we've had customers who have come back and told us, hey, we got paper rates. We took the paper rates. But now we're coming back to you because we realize that you'll give us the service and the tender acceptance that we desire. OK,
spk11: thank you on that. And then, Jamie, on the cost reductions, you mentioned purchase transportation. So should we be thinking cost is coming out of, you know, not just SG&A, but also Purchase Trans on these initiatives?
spk01: Yes, so the cost the cost doubts that we called out are does do not include anything related to cost of purchase trans, two separate topics. The cost of purchase trans is really a reaction to what's going on in the freight marketplace. The cost doubts are, you know, back office support service, vendor contracts. We consolidated some facilities in our last mile hub operation. It's structural cost items that will have a meaningful impact, you know, kind of below the gross profit line, if you will.
spk11: All right, thank you.
spk09: Your next question comes from Ken Hoechster from Bank of America. Please go ahead.
spk13: Hey, thanks. Just a follow up on Brands truckload volume question there. Is it business? I'm just trying to understand the messaging here. Are you seeing business accelerate on the decline, right? Just to flip from up 8 percent to I get the tougher comps. But is something shifting quickly here on the market side?
spk07: No, so if you look in April, I mean, truckload was down 1 percent on a year over year basis. Ken, it's more about where we think the market is going. And we've said that we've taken a position that we think that the market is going to turn at some point over the next six, nine, 12 months. And it's important for us to put in prices that we can service our business to our customers, make a fair profit margin and be able to give them the service and tender acceptance that they desire. So for us, it's about pricing for where we believe the market is going. OK,
spk13: and then in the 2430 million EBITDA, I just want to understand the assumption that it sound like I just want to know what what's shifting from, I guess, further from one to two. You noted some seasonality in last mile. I get that. But are you assuming that the dollar twenty five spot pricing is is holding through and that's really aiding? I just want to know what we should look for if something changes in the market that could impact that EBITDA as we move through the quarter.
spk12: Sure, Ken, it's Jared. When we look to the twenty four to thirty million dollars that we provided in terms of Q2 adjusted EBITDA, the way to think about it is, you know, we talked about in the month of March and the month of April, we were at the high end of our brokerage gross margin percentage, so called in that 15 percent range or so. What we've done is we're assuming some seasonal moderation already baked into that guide attributable to the tightness that we expect from DOT Checkpoint Week as well as produce season. And we're also assuming no meaningful spot opportunities in that outlook. So we've already accounted for the seasonal moderation that we typically expect in the brokerage business in that second quarter. And on the positive side, like we talked about, you know, we Q2 is generally a strong quarter for complementary services, in particular last mile. And there's some really good business momentum there right now.
spk13: OK, and then given the light cash flow, Jamie, maybe what shifts sequentially and then the impact of if we continue with this elongated freight recession, you know, if we go into twenty five, maybe what what are your thoughts on cash there?
spk01: Yeah, Ken, so, you know, first quarter, we actually had a really good cash collections for we are at the down part of the freight cycle. And so you see, you know, just even adjusted cash flow of about a million dollars. That being said, as we as we look forward, heading into the second quarter, as you know, we've got our interest payments on our bonds coming up in Q2, Q4 of each year. So you'll see about a 14 million dollar usage of cash for interest payments. We also have some legacy liability claims that we're going to probably pay out in the second quarter, the same ones we talked about last fall. We thought they probably were Q4 item, highly likely going to be a Q2 item. So think about that as a usage of about 10. So we're for the second quarter, we're assuming probably a negative or a usage of about 10 million dollars. And then we'll have some restructuring cash charges from about seven to eight. So it looks like cash usage is all in in the second quarter of about 18. That being said, for the first half of the year, if you really take if you take into account that legacy claim and the restructuring, we're really break even cash flow for the first half of the year. And if you think about that in the cycle that we're in, it's actually a great outcome as we look forward for a pro for if there's a prolonged cycle, we feel like, you know, again, this is a counter cyclical business because of the asset light model. Cash flow is counter cyclical to the top line. And so we feel actually really good about where we are. And most importantly, we feel great about how we've structured our call. So when the market does inflect, we're going to have a lot of flow through to the EBITDA line, which is going to translate into cash flow. And so as we look forward, we know we're very comfortable. Great. Appreciate the insight, guys. Thank you. Thanks for the time.
spk09: Your next question comes from Jason Settle from TD Cohen. Please go ahead.
spk15: Thank you, operator. Good morning, gentlemen. I wanted to talk a little bit about the cost savings. You said it would be predominantly in the back half of the year. Should we spread that evenly between three Q and four Q?
spk01: Yeah. Hey, this is Jamie. I don't think we really said the back half of the year. I think what we said is they happened late in the first quarter. So you don't see the full effect until the second quarter. And so how you really how you should think about it is let's call it 35 plus the 24 impact, call it 32 million dollars plus or minus. You'll see an increase from about three ish to nine ish, which will be the run rate going forward. And so you'll see that impact hit fully in the second quarter for the balance of the year. But keep in mind that that's going to be used to offset some inflationary increases. As an example, April typically hits a merit increase. So you'll see it begin to offset that. So don't think about it that the full six increase will go to the bottom line. It is used to offset some other things that we had in the model for second quarter. But that's how it spread out.
spk15: All right. That makes sense. Also, you mentioned that you saw a little bit more of an exit in April of capacity in the marketplace. Can you put some numbers around that and what you're seeing in your carrier group?
spk12: Yeah, absolutely. Hey, Jason, it's Jared. So from an industry standpoint, hey, so January started off strong from an industry exit perspective, like we talked about last call with the month of January industry exits about 30 percent higher relative to the 2023 average as the quarter progressed. I'd say it was a bit mixed with the month of March. There were actually there actually weeks where a net carrier exits net carriers increased from an industry standpoint. We did see that reverse in April from an industry perspective. And on a monthly basis, we did still see exits in March. But the April versus March increase was about three to four times. So I think it's really a function of carrier unit economics in terms of where carrier costs are right now relative to spot. It's unsustainable from our standpoint. So I think that you will see that continue to accelerate from an RxO active network carrier perspective. They were about flat sequentially Q1 versus Q4.
spk15: That's a great color. And lastly, on the on the last mile business, you know, some of your competitors have reported actually pretty decent results. And I understand everybody. Are a little bit different in the last mile game. Can you talk to demand and what you're seeing out there and what we should expect going forward?
spk07: Yeah, I'm very happy with the last mile team and then their performance. We talked in 2022 about the opportunity to improve last miles overall profitability and growing EBITDA last year in 2023. They started off this year strong. The part of the reason why we have the strongest pipeline that we've had in four years is because the last mile team has such strong relationships with their overall customers. Right now, they're they're in a seasonal uptick. So part of the reason for the the guide being raised for Q2 versus what it was in Q1 is because of the performance that last mile is having. They've got a number of operational initiatives underway. One, just continuing to utilize all of the space that we've got in our last mile hubs. Number two, pulling down purchase transportation from where it started to rise in 2022 and early 2023. I mentioned earlier that we've got opportunities with some of our large customers that trust us and want to give us the opportunity to win more of their business. We're in the middle of some of that right now. And it's going there. The early returns are extremely positive. And then the last thing is we still got some opportunity to take price from some of our customers in last mile and get paid a fair value for the service that we provide for
spk15: them. That's good. Can we dig a little bit more into what you were talking about? You said a record pipeline last mile is responsible for a bunch of that. What percentage of the pipeline is last mile now versus maybe say last year?
spk07: Yeah. So I don't think that I said that they were responsible for a bunch of it. They were one of the reasons that we were able to have the strongest pipeline of what we've of what we had in four years. Not going to break that down by our overall lines of business, because that's not how we manage the business. We told you all along as you look out over the long term, there are a number of ways for us to hit our longer term targets and improving in last miles one, growing brokerage, taking market share, improving the volumes on the LTL business, adding managed transportation from. There's a lot of opportunities and we're excited about where the overall pipeline is right
spk15: now. Understand, gentlemen, I appreciate the time as always. Thank you. Thank you.
spk09: Your next question comes from Ravi Shankar from Morgan Stanley. Please go ahead.
spk08: Thanks, my friends. The commentary on your existing customers giving you incremental LTL volumes is really interesting. Are you are they explaining the rationale for that? Kind of is that the function of what's going on in the LTL marketplace on the asset base side in terms of capacity? And are you seeing any shift in the other direction, which is LTL customers trying to move into the TL market, just given what's going on there as well?
spk07: Yeah. So the first thing that we hear from our customers, Ravi, is that when they're looking at their overall spend, LTL is a small piece of it. The truckload, for the most part, dominates their spend, but they spend a lot of time on LTL cleaning up things like claims, late deliveries, lost shipments. And so what they've seen on the truckload side is they love the platform of RXO Connect. It's easy to do business with. It's something that gives them a lot of data to help them make decisions, gives them great visibility. So they're coming back to it. And they love the fact that it lets them work with multiple LTL carriers. So for them, we're taking away a headache and they trust us because of the service that we've provided on the truckload side. As far as mode shifting over from LTL to truckload, we haven't seen a ton of that at this point, but we always monitor where mode conversions are going, whether it's from LTL to truckload, truckload to LTL or intermodal to truckload or vice versa. But we're doing the last point that I want to make is right now, Robby, we're doing RFPs for our largest customers on the truckload side. We're doing LTL RFPs every single day right now.
spk08: Got it. And maybe as a follow up, can you talk about the decision to get yourself more headroom on the covenants a few weeks ago? Was that opportunistic? Was that necessary? What's the messaging on the balance sheet over the next six, 12, 18 months as we potentially go through a prolonged down cycle, but maybe in fact an up cycle?
spk01: Yeah, I'd say the messaging on the balance sheet, first of all, is very strong. Our customers want to do business with people with strong balance sheets, and we clearly have a strong balance sheet. The decision to up size or mend the revolver, purely opportunistic, proactive in nature. We don't know exactly what the freight market looks like for the next six, 12, 18 months. So we wanted to be proactive to give ourselves plenty of headroom. As we said last quarter, we didn't anticipate an issue. We still do not anticipate an issue. But we're doing what we should be doing as a management team is proactively planning. And so we took the opportunity to go out and raise the amendments. And look, we have good banking partners who understand this freight cycle. And that's why we did that action,
spk08: Robbie. Very good. Thank you.
spk09: Your next question comes from Scott Group from Wolf Research. Please go ahead.
spk04: Hey, this is Jake. I'm for Scott. Thanks for your time. Can you give us a sense about how you're thinking about the shape or seasonality of EBITDA in the second half of the year? And do you expect to return to EBITDA growth?
spk12: Hey, Jake, it's Jared. So as you know, we we give an outlook one quarter at a time. We're very pleased that we're able to almost double our EBITDA sequentially at the midpoint of our guide Q1 versus Q2. You know, I'll hit on what Drew said earlier, right? We look at this business over a multi-year view. Our volume growth is holding very, very strong in Q1 and Q2 with truckload contract up in the second half of the year. I think we're very excited about converting some of the pipeline that we have, which is the largest in four years for the company. And we also have obviously significant cost initiatives underway with respect to at least 35 million dollars of cost out for for 2024. So, you know, I'm not going to specifically comment on the second half, but I think that obviously it's going to depend on the shape of the recovery and what the market looks like. But I think we need to make sure that, you know, we are we've got a playbook for different parts of the cycle and we're we're we're go ahead and we're positioned really, well in terms of, you know, whatever the market gives us.
spk04: Understood. And you're taking out a fair amount of cost between last year and this year. How should we think about operating leverage in the op cycle and do these costs return? Yeah, it would be great to get your perspective there.
spk01: Yes, this is Jamie. The overwhelming majority of these costs are structural in nature and permanent in nature. So, you know, how I think about it is if you take a dollar gross margin that hits our, you know, our P&L, you think about in excess of about 60 percent of that full and flowing through to the EBITDA line. And so it's the marketing flex. And we're we're working hard with our customers to make sure we're there, provide good contract, great customer service. So we're positioned to get incremental volume. We're doing working hard on our call structures to win the market does inflict. We're positioned to have significant flow through.
spk04: Great. Thanks for your time.
spk09: Your next question comes from Jordan Alliger from Goldman Sachs. Please go ahead.
spk14: Yeah. Hi. Good morning. Yeah, I know there's a lot of uncertainty injected injected into the freight recovery, but are you hearing anything from your customers, I guess, particularly in brokerage that maybe give some optimism in a recovery over the next six months? And then second question, I'm assuming on the restructuring charges, those are in some way directly tied to the 35 million in annualized structural cost savings. What was the restructuring mostly headcount or facilities reductions? Just some help there. Thanks.
spk07: I'll start off with the with the first question and Jamie will take the second one on the restructuring. So we're always talking to our customers and I spend a lot of time with customers. I think it depends on the vertical that you're looking at. But if you look at inventory positions right now, they're in a much healthier position than what they were this time last year. We're happy with where our overall pipeline is. So I think that customers are similar to what you've heard this morning. Do they expect a recovery at some point over the next six to 12 months? Yes, they do. Do they know the exact timing of it? I don't think anybody does.
spk01: And Jordan, this is Jamie. On your second question, the answer is yes. All the restructuring charges relate to the cost doubts. First of all, if you think about where the cost doubts came from, there was some reduction in some in some employment, consolidation of vendors, consolidation of roles. We took opportunity as folks have retired or just the retrition to not replace roles and find a more efficient way to maybe put two or three roles together. Your question about facilities, there has been some consolidation of facilities where it made sense always with the mindset towards making sure we can service the business well. And so we're actually very pleased with the cost doubts. And again, I think it positions us well for when the market does inflect, we'll have significant flow through.
spk14: Just as a follow up, I mean, I'm assuming then those restructuring numbers will diminish quarterly, but Jackie.
spk01: That is correct. They should diminish quarterly. One thing to throw out, and we've said it all along, we want to be known as a continuous improvement company. And we're constantly going to be looking at ways to become more efficient. But specifically to the to the restructuring charges, yes, they should go down.
spk09: Thank you. Your next question from Danielle Ambrose from Stevens Inc. Please go ahead.
spk02: Yeah, thanks. Good morning, guys. I'm sorry, no questions. Maybe one near term and one longer term one on the near term, just looking back at the first quarter. So last call, you talked about coming in towards the high end of the EBITDA range if buy rates fell from January. They did. And it sounds like you're running in line to a head on the cost takeouts, but results were kind of at the midpoint. So was there anything on the cost side or anything else in the first quarter that developed maybe worse than you anticipated that kind of kept us from getting to that high end of the range?
spk12: Hey, Daniel, it's Jared. I say a couple of things with respect to the outlook that we provided 90 days ago. You're right. We did say that easing of buy rates would be one factor to get us to the high end. We also said that seasonal improvement in volumes and demand would also be the other factor. And as we talked about in our prepared commentary, I mean, ultimately, seasonality is not right there. Not that right now, as we think about the sustained prolonged free market. We also did talk about in some of the opening remarks with respect to some of the manage expedite weakness with respect to automotive. So I think those were those were the two main reasons that caused us to come in at the midpoint versus high end.
spk02: Got it. And then, Drew, one strategically, you're talking about revenue per load improving to flat and growth on the headline is slowing due to harder comps. That makes sense. I mean, it sounds like managing price to make money is a rational way to do the business. But as the three year stacks stay hard in the back half, should we expect negative growth could persist into the third quarter? And strategically, is this, you know, is our show potentially a slower top line growing but more profitable business going forward? Are we kind of transitioning to that point in the growth curve? Yeah, I think it depends
spk07: on what happens in the market overall. We've got tough comps. We think our three year stacks for the back half of the year will be extremely strong. But we've told you that we've taken a position on where we believe the market is going and the conversations with our customers we priced accordingly. So if if you do not see the recovery in the back half of the year and there's no spot loads, then volume growth gets a little bit tougher. If there is some sort of spot market activity, we think we're going to be one of the first calls, if not the first call for our customers for spot loads, projects and mini bids. You've seen that before whenever the market tightens. So we're confident in our position that whenever the market does turn, we'll be the place that they turn to. But I think the volume growth will depend on how much spot load opportunity there is there.
spk02: And then strategically, is there any change you're kind of thinking around kind of focusing on growth versus the profitability or pricing per contract as you as you approach kind of the out years, maybe not back half, but just the forward looking time frame?
spk07: We've always said that there's a playbook for every market. And so, I mean, if you go back to last year, the market was falling all year long. That's rates fell all year long. As you look into this year, we believe that you're going to start to see a market recovery over the next six, nine, twelve months. So I think that the best approach to have is an agile one, a flexible one, one that can move with the market, this dynamic. And, you know, over the last decade, we've shown the ability to do that. And the important way to look for growth is on a multi-year stack basis.
spk02: Appreciate the color. That's what.
spk09: And our last question for today is coming from Kevin Ganey from Thompson's Davis. Please go ahead.
spk05: Hi, guys. Good morning. I wanted to touch on how you guys have progress post spin on some of the facilities and operations that you've opened the capital expense and how those things have performed versus what your expectations were with those.
spk07: Are you talking about like opening up like brokerage offices? Correct. Yeah, yeah, yeah. We have not opened up any new brokerage offices since the spend. We've expanded some offices. So, for example, like if you're here in Charlotte today, you know, years ago, we had one office that was there. Now we've got three branch leaders. If you think back to one of our acquisitions from Gainesville, Georgia, we have multiple offices that it has expanded to. So it's been more about expanding our larger offices and putting in new real estate for some of those offices. Ann Arbor, Michigan's another one. Columbus, Ohio has grown. It's been expansion within our existing offices and adding new branches within those offices versus new locations.
spk05: OK, that sounds good. And then maybe if we could talk about this first time, I think you guys have emphasized the tech capability of the LTL business. How much is that of a lag versus the TL business? And is that something that you guys are going to focus on this year to improve?
spk12: Hey, it's Jared. So one of the very appealing aspects of the LTL business is that it is highly automated. So we think about that business at scale actually being a creative to both gross margin and even dot margins, just given the technology capabilities that we've put into that business. And we're very pleased with the outlook in terms of delivering profitable growth for our business.
spk00: Perfect. Thanks, Jared.
spk09: Thank you. We have reached the end of our question and answer session for today. I'll hand the floor back over to Drew Wilkerson for closing remarks.
spk07: Thank you, Julie. We entered the second quarter with momentum and our sales pipeline is the largest that has been in four years. We expect to deliver a significant sequential increase in our adjusted EBITDA in the second quarter. We're doing all the right things today to ensure our success, including focusing on service, solutions, innovation and our relationships. We also continue to have a disciplined focus on costs while we're still investing in our future. Thanks for joining us today. And I look forward to seeing many of you at the upcoming conferences.
spk09: Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.
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