New Operating Model Impact
Q: What's changing with the new operating model?
A: The new operating model emphasizes discipline, accountability, and responsibility, driving better execution and performance. Based on Lean principles, it focuses on critical inputs rather than outputs, allowing for faster problem-solving and aggressive focus. This approach links divisional scorecards to enterprise goals, connecting the entire company. While it's still early, behaviors are changing, and there's momentum towards a more disciplined and focused organization.

Net Revenue Inflection
Q: What's driving the net revenue inflection in March?
A: The enterprise adjusted gross profit (AGP) per day improved from down 3% in February to up 7% year-over-year in March. This improvement results from the implementation of the new operating model, which enhances execution. Investments in pricing science and technology allow for quick responses to market changes, and there's confidence in continued progress as seasonal strengths like produce and beverages contribute in Q2. , ,

Working Capital and Free Cash Flow
Q: Will ocean rates continue to drain working capital, impacting free cash flow?
A: Higher ocean rates have absorbed cash due to increased costs in purchased transportation. This trend may continue if costs rise, potentially leading to negative free cash flow in the short term. However, as costs and prices stabilize or decrease, working capital trends will reverse. The company expects positive cash flows over the cycle, depending on market conditions for truckload, LTL, ocean, and air services. ,

Compensation Structure Changes
Q: How has the compensation structure changed under the new model?
A: The compensation structure now balances productivity and growth, with a 50-50 split between profitable growth and volume targets. Employees are incentivized to drive both adjusted gross profit and volume, embedding discipline and aligning with the operating model's focus on critical inputs and performance metrics.

Implementation of Fast-Moving Initiatives
Q: What has been implemented to allow faster execution?
A: After diagnosing areas for simplification, the company reduced complexity and brought in new talent to establish a project management office and deploy Lean principles. An operating model was implemented, focusing on critical inputs, visual management, and timely problem-solving. This includes scheduled meetings that link divisional activities to enterprise goals, enabling faster decision-making and execution.

AGP per Day Inflection Drivers
Q: How was the AGP per day inflection achieved?
A: The inflection resulted from disciplined execution of the operating model, active revenue management, and balancing volume with adjusted gross profit. Investments in pricing science, costing science, and technology enhanced responsiveness to market changes. Focusing on shipments per person per day, reducing manual tasks, and leveraging technology like generative AI improved productivity and efficiency.

Ocean Capacity and Pricing Outlook
Q: How will ocean capacity and pricing affect Q2 results?
A: Previous disruptions like the Red Sea issues and Panama Canal constraints have eased, with capacity being repositioned. Spot rates have declined, and the market has returned to supply and demand fundamentals. With more capacity entering the ocean market and uncertain demand, prices may remain steady or soften. The company monitors these trends closely but expects outcomes to depend on global economic conditions.

Productivity Drivers and Targets
Q: How will productivity targets be achieved—volume growth or headcount reduction?
A: Productivity targets will be met by building flexibility into the model, allowing adaptation to both demand growth and soft markets. The focus is on reducing manual tasks, enhancing technology, and enabling employees to concentrate on higher-value activities. This approach increases capacity and improves shipments per person per day without necessarily reducing headcount, aiming for smarter work execution regardless of market conditions.

Competitive Landscape and Market Share
Q: Is winning market share due to other brokers exiting or company initiatives?
A: While there is pressure in the brokerage industry and some smaller brokers are exiting, the company's success is primarily attributed to disciplined execution of the operating model. The active management of inputs and responsiveness to market dynamics have enabled outperforming the market, rather than relying on competitors' weaknesses.

Brokerage Capacity Balance
Q: Is the brokerage industry capacity closer to balance now?
A: The brokerage industry has not yet returned to the balanced levels of 2019. Although capacity is decreasing, it hasn't reached desired levels within the cycle. The company continues to monitor capacity trends but does not believe the brokerage market is balanced at this time.