Drew Wilkerson: Yes. No. So we’re very confident in the long-term. As you look at different parts of the cycle, whether it was in 2017 when the market was down, 2015 when the market was down, in 2020 at the beginning parts of COVID. You’ve seen that customers — as tender rejection start to go, customers come to us and we’re their go-to choice for spot loads, for projects, for many bids. We’ve got a proven history of showing that the gross profit per load does recover in the up part of the cycle. So we’re extremely confident in that.
Scott Group: Thank you guys. Appreciate it.
Drew Wilkerson: Thank you.
Operator: We have our next question coming from the line of Bruce Chan from Stifel. Please go ahead.
Bruce Chan: Thank you operator. And good morning everyone. Maybe just to follow up on a couple of things. Specifically, Scott’s questions there on the customer adds and the contract mix. To what extent is that going to be a headwind to gross margins if we do see a recovery in buy rates increase in the back half? Is the expectation that gross margins are going to continue to be under pressure in 2025? Or does your base case kind of anticipate that you can pivot into the spot market fast enough to offset that?
Drew Wilkerson: Bruce, I think that we’ve shown in the past that we can absolutely pivot to be able to do that. You’ve seen our mix shift as close to 1,000 basis points on a quarter-over-quarter basis. Again, it goes back to what I told Scott. When the market turns, when people are rejecting loads, when there’s projects, customers are going to come to the people that they know best. They’re going to go to who they’ve had long-term relationships with, who’s got technology that’s integrated within their business. Somebody who has delivered results for their supply chain and their transportation needs. And if you look at our largest customers, they’ve been with us for 16 years on average. So we’re highly confident that as the market inflects, you will see a big movement in gross profit per load and overall profitability.
Bruce Chan: That makes a lot of sense. I guess what I’m getting at to a little bit more is the timing. Is that going to be more of a 2025 event? And I guess what I’m really trying to get at is, if I think about annual EBITDA, you’ve got a 60% guide down for Q1 here. I know you’ve got that second half expectation for an inflection here, but is the thought that you can grow EBITDA in 2024? Or are we likely to see another flat year?
James Harris: Yes, this is Jamie. As we look at 2024, I mean, clearly, Q1 is below where we expected it to be. As we look to the back half, it really depends on the timing and the shape of the recovery. Our base case is for that recovery to hit in the second half. If that hits, we’re very confident we’ll grow that EBITDA in the back half of the year. But I think it really depends on the timing and the shape of the recovery. We’re positioning ourselves well from a cost standpoint and from a customer relationship point to be able to take those spot loads and to service well. And we’ll get significant flow through when the market does inflect.
Bruce Chan: Okay, appreciate it.
Operator: We have our next question coming from the line of Jack Atkins from Stephens. Please go ahead.
Jack Atkins: Okay, great. Thanks for taking my question guys. Really appreciate it. So I guess, Drew, going back to your comment earlier about when the cycle turns, customers are going to want to — shippers are going to all go up to capacity providers that they know really well. I guess as I think about the brokerage market, oftentimes, it’s perceived as being highly commoditized. So I guess, in that type of market inflection, why wouldn’t shippers try to find the best possible price in addition to looking for good service as well? I just — I think there’s just some worry that these market share gains may not be — stick with you once the cycle does inflect.
Drew Wilkerson: Jack, I think that one thing that you could go back and look at is the history and they have stuck with us. The growing volume isn’t something that has been unusual to us or onetime on a yearly basis. I think that what you would look for is the best price. Customers look for best price, best solution, best service. Service is really important to our customers. And the fact that we can flex our capacity up and down with them, the fact that we’re delivering when we say we’re going to deliver, we’ve got great communication. We’ve got technology that helps deliver results into their business. We can help customers decide when they’re going to ship something, what mode of transportation they’re going to use. We’ve helped them optimize their freight. So in that sense, you do see them lean on us more to create solutions in a tighter market than what you see in a looser market.
Jack Atkins: Okay. Got it. And then I guess my last question, going back to sort of, Jamie, your comments around working capital needs, what the cycle does inflect. I guess you’re kind of run rating now somewhere at or above 3 times debt to EBITDA leverage. As you sort of think about the working capital needs, once the cycle does turn, I guess, how much leverage are you comfortable adding to the balance sheet perhaps temporarily to fund business growth there before you’re able to start collecting cash and pay that down?
James Harris: Yes. So at year-end, we were about 2.5, Jack. If you project forward into Q1 at both ends of the range. We’re in the 2.9 to 3 range ballpark. We use about a 7% to 9% factor on the growth on the top line. That being said, we have actually a very quick turnaround on our DSO. So we collect — we begin to collect money fairly quickly. And as we do that, we repeat that business through that second and third and fourth cycle, we become cash flow positive very quickly. And so we feel very comfortable that we’ve got the balance sheet strength to support the growth plan that we have in place. And when the cycle inflects, I think we’ll be in really good shape to accommodate that.
Jack Atkins: Okay, thank you for the time guys. Appreciate it.
James Harris: Thank you, Jack.
Operator: This concludes the question-and-answer session. I’d now like to turn the call back over to Mr. Wilkerson for final closing comments.
Drew Wilkerson: Thank you, Lara. RXO continued to deliver significant brokerage volume growth and strong margins in the fourth quarter despite the freight market that has been solved for a significant amount of time. We’re taking the right actions today to deliver long-term results, including deepening our customer relationships, having a disciplined approach to cost and making the right investments for future growth. I’m proud of all that RXO delivered in 2023, and I’m looking forward to continuing to deliver for shareholders, customers, employees and the carriers that we partner with again in 2024. Thank you all for your time today, and I look forward to seeing a lot of you over the next few weeks.
Operator: Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.
