David Zazula

David Zazula asked for clarification on the positive outlook for Supply Chain Solutions (SCS) contrasting with Q3 headwinds, specifically if the headwinds were temporary and if revenue growth could offset poor e-commerce network performance. He also questioned if SelectCare's recent headwinds were temporary or indicative of increased volatility.

Answer

Steve Sensing, President, Supply Chain Solutions and Dedicated Transportation Solutions, attributed SCS headwinds to higher medical costs, a productivity miss in e-commerce due to lower-than-forecasted volumes, and higher optimization costs. Cristina Gallo-Aquino, EVP and CFO, added that the Q4 forecast anticipates flat sequential rental demand and potential market improvement in used vehicle sales. Tom Havens, President, Fleet Management Solutions, viewed SelectCare's headwinds as temporary, stemming from lower transactional activity, expecting a return to normal levels in Q4.

David Zazula of Barclays inquired about the key assumptions for the fourth quarter that are embedded in the full-year guidance, particularly for the FMS segment, and asked if the current reduction in CapEx is expected to reverse in 2026.

Answer

Chairman & CEO Robert Sanchez detailed that the high end of the guidance range assumes historical rental trends and a modest Q4 increase in used vehicle pricing, while the low end assumes flat rental and declining prices. He noted that the current CapEx decline is tied to lower lease and rental activity and should reverse in 2026 as the business cycle improves.

David Zazula of Barclays questioned why the 15% FAA compliance verification figure hadn't increased from the prior quarter, asking if a flight test issue was causing a delay in progress.

Answer

Chief Technology Officer Tom Muniz clarified that the 15% figure is about the same and that progress occurs in chunks, not as a smooth curve. He stated the hold-up is not a flight test issue but an administrative one, as they await the FAA's finalization of certain industry-wide policy papers. Once these are formally closed, Archer can submit its compliance reports, which will then increase the percentage.

David Zazula of Barclays requested more detail on the specific tests unlocked by the recent FAA rule finalization and asked for measurable ways for investors to track certification progress with both the FAA and GCAA.

Answer

Executive Thomas Muniz clarified that the unlocked testing involves repeating flight envelope expansion tests, including failure scenarios, but now with a pilot on board as part of the formal TIA process. To track progress, Muniz highlighted that the FAA has accepted ~15% of final certification documents and that work with the UAE's GCAA is largely overlapping. CEO Adam Goldstein noted a specific progress metric for the GCAA was not available at this time.

David Zazula of Barclays asked for the plan and timeline to produce a 'conforming aircraft' for FAA certification, questioned the strategic timing of dedicating resources to a new defense project, and asked how much capital is allocated to the Anduril initiative.

Answer

COO Thomas Muniz noted that conformity is being phased in across test aircraft and is pending FAA finalization of an industry-wide topic on emergency landings. CEO Adam Goldstein justified the defense project's timing by explaining that engineers are rolling off the maturing Midnight program and can be redeployed. He also highlighted a 'flywheel' effect where defense tech can later be certified for civil use. CFO Priya Gupta stated that the Q1 adjusted EBITDA guidance incorporates these efforts and that the company is leveraging existing resources for the defense program.

David Zazula from Barclays followed up on the SFAR's energy reserve requirement, asking about potential operational restrictions, and inquired about the challenges and solutions for urban airspace integration.

Answer

Chief Operating Officer Thomas Muniz clarified that the SFAR's base 20-minute energy reserve requirement allows Archer to fly nearly all intended commercial missions. He noted the FAA also provided 'better than expected' flexibility with alternate compliance paths for longer missions. Muniz stated that executive Billy Nolen, who had mentioned airspace integration, was not available for the Q&A portion of the call.

David Zazula inquired about the profitability of new Last Mile growth compared to the existing business and asked how the company measures the ROI on its $100 million annual technology spend.

Answer

CFO Jamie Harris detailed that recent Last Mile growth was in a lower-margin model (mid-teens) operating from customer facilities, compared to the higher-margin hub model (30-40%). He explained that tech spend is governed by an investment committee evaluating ROIC and strategic value, citing the 30-50 basis point procurement improvement as a direct, measurable result of tech investment.

David Zazula, on for Brandon Oglenski, questioned the potential impact of tariffs on the business and asked if easier volume comparisons on the Coyote side would provide a tailwind.

Answer

CEO Drew Wilkerson stated that customer reactions to tariffs are mixed, with some pulling inventory ahead and others pausing. He noted that while it could impact truckload demand, the company's playbook is to focus on purchase transportation to improve profitability. He also mentioned that the biggest volume headwind is automotive, and its recovery would be a significant tailwind, more so than just easier comps.

David Zazula of Barclays asked about the cash requirements needed to achieve the newly increased synergy targets and questioned RXO's positioning to capture spot market business in the coming year.

Answer

CFO Jamie Harris stated that achieving the $40 million in synergies would require a cash spend of approximately $25 million, with about half occurring in Q4 and the remainder next year. CEO Drew Wilkerson addressed the spot market, emphasizing that RXO's strong customer relationships, proven by its ability to win project freight in October, position it well to capitalize on a market turn, whenever it may occur.

David Zazula of Barclays asked about the intermodal margin profile in Q2, which appeared to lag typical seasonality. He also inquired about the allocation of cost savings to the Logistics segment and the expected impact on its margins, and requested the intermodal yield figure for the quarter.

Answer

CFO Kevin Beth and CEO Phillip Yeager explained that while intermodal revenue seasonality was muted, they were pleased with the ITS segment's year-over-year margin improvement, driven by network efficiencies and favorable rail contracts that offset weakness in Dedicated. Mr. Beth anticipates sequential OI margin improvement in Logistics from cost savings and new Final Mile business. Mr. Yeager stated that intermodal revenue per load was down 9%, driven primarily by lower fuel and a mix shift to shorter hauls, with core pricing relatively flat.

David Zazula asked for color on the lowered CapEx guidance, whether the issue of dedicated customer retention was accelerating, and if the end-market profile of the Dedicated business was changing with new customer wins.

Answer

CFO Kevin Beth explained the CapEx guide was lowered to $40-$50 million, reflecting less fleet investment and new efficiencies in using equipment in Mexico. Executive Phillip Yeager clarified that Dedicated retention remains strong at around 90%, with losses being small sites converting to one-way truckload. He added that new wins are primarily in the retail and consumer sectors with high-performing companies in lanes where Hub Group has density.

David Zazula of Barclays asked about Hub Group's pricing strategy for the upcoming cycle, questioning whether the focus would be on driving volume to raise rates as an incumbent or on protecting margins. He also inquired about the potential for further margin tailwinds from improved network balance and backhaul utilization.

Answer

Executive Phillip Yeager affirmed that the strategy in an upcycle is to have the volume, which provides the ability to raise rates as an incumbent with good service. He stated the focus is on protecting network efficiency and seeking yield expansion in productive and head-haul lanes. CFO Kevin Beth confirmed that improving network balance is a constant focus, as it creates efficiency in repositioning costs and driver productivity, especially in balancing the western part of the network to support demand surges from Southern California.

David Zazula from Barclays asked about the specific actions that led to the stabilization of the BCO truck count and questioned if there were any potential headwinds, such as tariffs, for the strong-performing heavy haul segment.

Answer

CEO Frank Lonegro and VP Matt Miller credited the stable BCO count to strategic initiatives in recruiting and onboarding, which resulted in the best gross additions in seven quarters. On heavy haul, VP Jim Applegate stated the business is primarily domestic and not significantly exposed to tariffs, though they are monitoring potential legislative impacts on wind energy.

David Zazula asked Interim Chief Commercial Officer Janet Drysdale about her key priorities and opportunities in her new role.

Answer

Janet Drysdale stated her key focus is to build more "agility" into the commercial organization to adapt to evolving market dynamics. Her priorities include intensifying execution on the spot market, driving CN-specific growth initiatives, and adapting to new supply chain patterns, including potential shifts to offshore markets.

David Zazula from Barclays asked how management balances the strategic priorities of near-term cash flow, long-term margin, and market share, and requested color on potential direct, non-defense aircraft sales.

Answer

Executive Chairman Paul Sciarra explained that the company maintains three go-to-market paths (direct sales, partnerships, and direct-to-consumer) to retain flexibility and adapt to market conditions. He added that non-DoD direct sales are being explored globally with a focus on credible, well-structured partnerships.

David Zazula asked about the change in language regarding the start of passenger operations and requested an update on which aircraft systems are currently 'conforming' and the plan to produce more ahead of TIA testing.

Answer

Founder and CEO JoeBen Bevirt attributed the refined timeline for Dubai operations to strong momentum with regulators, but noted work remains and that they'll have better fidelity once the aircraft is testing in-market. On conformity, JoeBen Bevirt and Executive Chairman Paul Sciarra explained that progress is accelerating across all system levels. Paul Sciarra provided a key clarification: for Joby, 'conforming' means the FAA has approved the design, manufacturing processes, and test plans, directly linking this progress to their certification advancements.

David Zazula asked about the operational impact of the reserve requirements in the new SFAR and sought clarification on the 'flexible pathways' for working with the FAA.

Answer

Didier Papadopoulos, President of Aircraft OEM, responded enthusiastically, stating the reserve requirements came out 'exactly where we wanted' and were planned for, posing no operational limitations. He explained that 'flexible pathways' refers to the SFAR allowing for tailored operational rules based on the specific mission profiles and designs of different eVTOL aircraft, which he views as a positive development.

David Zazula inquired about the strategic nature of the BNSF relationship and what dynamic actions could be taken together to help repair Intermodal margins and return to targets.

Answer

Darren Field, President of Intermodal, responded that the primary strategic focus for improving margins is growth. He stated that while they will focus on asset utilization and core pricing, there is no single new project or model that will unlock margins; rather, it's about growing the business together.