David Hicks

David Hicks asked about the drivers behind the record gross profit in the customs business and whether this strength is a transitory benefit from tariff complexity or a more structural improvement.

Answer

CFO Damon Lee explained that while the company has benefited from increased customs activity due to tariff uncertainty, the sustainability of this performance is 'highly dependent on the tariff environment.' He believes some level of complexity will remain but could not guarantee that Q2 performance levels would continue.

David Hicks asked about the Global Forwarding segment, seeking commentary from ocean liners on a potential return to the Red Sea/Suez Canal route and how that might affect the timing of AGP per shipment normalization.

Answer

CEO David Bozeman and CFO Damon Lee responded that the situation remains fluid and they do not see a full return to the Suez route yet. Lee added that their view is that carriers will not return immediately and that a return to normalcy will take time. They are actively monitoring the situation and servicing customers based on current market conditions.

David Hicks asked if the Dedicated segment's mix, now at 70% of the truckload fleet, is approaching a natural ceiling. He also inquired about the progress and timing of the targeted $40 million in cost reductions.

Answer

CEO Mark Rourke stated there is no 'magic number' for the Dedicated mix, as the focus is on return hurdles and customer value, noting the various specialty platforms (Cowan, M&M, MLS) offer continued growth potential. EVP & Group President Jim Filter added that with the private fleet market growing to 57% of a $400 billion market, there is a long runway for outsourcing. CFO Darrell Campbell explained the $40 million cost savings target is a full-year annualized impact and progress would not be linear, declining to break it down by quarter.

David Hicks asked for observations on retail inventory levels and how customers are positioning themselves ahead of potential future tariffs.

Answer

EVP and Group President Jim Filter stated that there has been no massive trend of inventory build-up. He noted that customers generally feel their inventory levels are appropriate for expected demand. While there was a small amount of freight pull-ahead related to potential port disruptions, it was not a widespread or substantial trend.

David Hicks asked about the LTL growth strategy for the Northeast, specifically if recent M&A by competitors limits acquisition targets and makes a gradual, organic expansion more likely.

Answer

Executive Adam Miller responded that while not discussing specific targets, the company has multiple options for Northeast expansion, including organic growth or an M&A deal to gain a foothold. He noted that some terminal overlap from a potential acquisition would not be a deal-breaker. However, the current priority is on optimizing the existing network after the DHE acquisition before actively pursuing Northeast expansion.

David Hicks of Raymond James asked about the expected timing of a return to volume acceleration and whether a significant difference exists in gross profit per load between legacy RXO and Coyote.

Answer

CEO Drew Wilkerson explained that the recent volume trend was a result of a deliberate 2024 bid strategy focused on strengthening customer relationships for the long term, and he remains confident in outperforming the market over time. He confirmed that Coyote's gross profit per load is slightly lower than RXO's, partly due to customer mix, but sees a clear opportunity to improve profitability for both businesses, particularly as the freight cycle turns.

David Hicks of Raymond James Financial asked about the impact of recent technology investments on productivity and the current health of BCOs, specifically regarding tractor age, maintenance costs, and service levels.

Answer

CEO Frank Lonegro and Executive Vice President James Applegate explained that technology investments have focused on making agents and BCOs more efficient, allowing them to handle more revenue without adding staff. Executive Vice President Joseph Beacom added that upcoming enhancements to freight matching will improve decision-making. Regarding BCO health, Beacom noted the average truck age is about 10 years, but frequent inspections (every 120 days) ensure safety and service are not compromised. He stated that many BCOs are mechanically inclined, which helps maintain a low operating cost, an advantage in the current environment.