Brandon Oglenski: Okay, thank you guys.
Operator: Our next question comes from the line of Allison Poliniak from Wells Fargo. Please go ahead.
Allison Poliniak: Hi, good morning. Just on the cost side of it, what I’m implying is — or what I’m hearing is it sounds like it’s a more structural cost reduction there versus variable? Or is it a bit of a mix? Just trying to understand those costs out for 2024.
James Harris: Yes. It’s primarily structural. There will be some variable, but it’s predominantly structural, Allison. I mean, obviously, as the market grows and we continue to grow, we’ll have to invest in the right places around the structure, but that $25 million is predominantly structural.
Allison Poliniak: Got it. And then, Drew, you had talked about the contracts and the profitability of those contracts when it accelerate. Could you talk about the profitability of those adds versus maybe, say, a year ago? Is it better, the same? Just any thoughts there. Thanks.
Drew Wilkerson: Yes. So if you look at it, the gross profit per load is down from where it was a year ago which is what gives — again, what you see in the $12 million to $18 million number is the impact that gross profit per load has on the business. And you’ll see or feel the upside of that as the market starts to recover. For every dollar the gross profit per load recovers is a meaningful impact to the P&L.
Allison Poliniak: Got it. Thank you.
Drew Wilkerson: Thank you.
Operator: Our next question comes from the line of Scott Schneeberger from Oppenheimer. Please go ahead.
Scott Schneeberger: Thanks very much. Good morning. I guess if we could start out managed transportation, it sounds like a lot of the softness there was in automotive. So I’m curious if you could just talk managed transportation and brokerage about the end markets, what you’re seeing across the end markets. If you could elaborate on the automotive weakness. And then you mentioned some wins in managed transportation synergistic with brokerage that will impact 2024 or onboard in 2024, if you could touch on that, too, please?
Drew Wilkerson: Yes. So obviously, we’re impacted by the strikes with the UAW. And I would say that things came back online slower than what we would have anticipated. The major OEMs did a fantastic job of preplanning how they were routing shipments to make sure that they had enough inventory at sites as they were starting back. So there wasn’t as many of the expedite just-in-time shipments is what we would expect going in. As far as the wins that we’re having in managed transportation, we’ve had a number of wins in the three specifically in the managed transportation expedite business. That’s been a leading position for us for a long time. Customers know that we understand the importance of time-critical freight and what it does to their supply chains.
We’ve been a trusted partner in that for more than two decades. So we think that we’ll continue to take share there. The overall managed transportation business, that pipeline is strong. We’ve got a number of large deals that are in the works right now that can potentially move the ball forward in a big way.
Scott Schneeberger: It is just kind of along the lines of the cost question theme that’s been going. But you mentioned some investments to cross-border capabilities, GenAI in sales, increased protection, maybe just touch on those. But I think the bigger question is, how are — in this environment, how are you weighing your investments as it’s not an optimal time, but you guys perpetually push the business forward with your IT and others. So just curious how you’re looking at the investments in this time period? Thanks.
Drew Wilkerson: Yes, I’ll start with that, the second part of your question, Scott, with how we look at it. The first thing is we look at ROIC and what’s the return on invested capital that we’re putting in. The second thing that I would say is for everything that we do, we look at how it will impact volume, how it will impact our overall margins and how it will impact us as employees? Will it make us more productive and allow us to do more loads per day per head? And that’s a metric that we’ve continued to move forward. So we look at the business for the long-term. We’re not — while we’re optimizing our costs right now, we look at the business at where we’re headed for the long term. You mentioned some of the specific investments that we’ve had down at the border, down at Laredo that was a huge deal for us.
If you look at where we’re positioned at Laredo, we’re right at the World Trade Bridge. There’s a lot of freight that goes through there. It’s the largest crossing for cross-border shipments north and south bound. And if you look at — most recently, we announced a GenAI tool that allows our customers to move loads more efficiently on cross-border freight and it allows our carriers to have complete tracking of where their trailers are at, at our different facilities.
Scott Schneeberger: Thanks very much.
Operator: We have our next question coming from the line of Ravi Shanker from Morgan Stanley. Please go ahead.
Ravi Shanker: Good morning everyone. I think you said in the press release that you’re seeing a strong pipeline of new business. Can you give us a little more detail there, kind of which end markets, what kind of customers? And also, where is this pipeline coming from? Are these customers who are ramping up and kind of getting revved up to start restocking soon? Or kind of what’s the message you’re hearing from them?
Jared Weisfeld: Hey Ravi, good morning. It’s Jared. So to your point, the pipeline does remain quite strong, up late-stage pipeline, specifically within brokerage is up about over 20% year-over-year and on a 2-year stack, it’s up almost 90%. So I think that speaks to just the broad-based idiosyncratic share gains that we are having with strong margins as a company by that. It’s pretty broad-based in nature in terms of what we’re seeing within brokerage in the quarter. All of our major verticals grew on a year-over-year basis, including retail and e-commerce and industrial despite being in a broader industrial economy recession. So I think that it speaks to — you look at RXO post-spin, us being even more focused on our customers, us allocating capital more effectively, really using this time to ensure that we’re delivering the services that our customers want. It’s pretty broad-based in nature, and I think it’s coming through in the pipeline.
Ravi Shanker: Got it. And maybe as a follow-up, kind of going back to your previous response on investments. So are you saying the [Indiscernible] that your CapEx plans are reasonably locked? Or is there much flexibility there? I’m just wondering if the downturn lasts longer or deeper than you guys think, especially in the first half of this year. Or can you push back some of that CapEx to the back half of the year to preserved equity?
James Harris: Yes, Ravi, this is Jamie. That CapEx for the majority of the spend is always flexible. We’ve got a plan. We’re working to plan. But for the most part, it’s very flexible. So we could defer if needed.
Ravi Shanker: Understood. Thank you.
Operator: We have our next question coming from the line of Scott Group from Wolfe Research. Please go ahead.
Scott Group: Hey thanks good morning. So it sounds like 1Q is more about weather than the real inflection in the market, and you’re assuming that’s more of a second half recovery. Sort of in that backdrop as your base case assumption, what’s a typical ballpark of how to think about 1Q as a percentage of a year? I’m just trying to sort of understand are we — do we think EBITDA grows this year or not? Any color?
Jared Weisfeld: Hey Scott, it’s Jared good morning. So when you look at the ongoing market dynamics, to your point, weather has had an acute impact in the month of January, and that’s impacting Q1 as we said in the prepared remarks, you look at some of the regions in the country is severely impacted by weather. Gross margin per load was impacted by 2 to 3x that of other regions. So I think that was acute when you talk about how the quarter progressed, we’re expecting to progress, as Drew just mentioned in one of the other responses, we have seen some relief in the last week or so in terms of gross profit per load. It’s still early. We want to see whether or not buy rates cool. When you look at the full year, our base case right now is for a second half recovery.
And assuming that the second half recovery does play out that would lead to second half growth year-on-year. In terms of Q1 as a percentage of the full year, just given the dynamics that we’re seeing right now, I think that’s probably not a great way to look at things just given how acute the squeeze has been as impacted by weather.
Scott Group: So the hope would be an inflection in EBITDA in the second half of the year?
Jared Weisfeld: I wouldn’t say hope, I would say that our base case recovery is for second half and the largest variable impacting that would be the rate of capacity exits. We’ve seen capacity exit the industry every month since October of 2022 that accelerated in December. It accelerated in January to the point of 30% above 2023 levels. And it just comes back to economics at the — with respect to where spot line haul rates are relative to the cost of the carrier. So we expect that to continue to accelerate throughout 2024.
Scott Group: Okay. And then just one follow-up. So if I think about the contract mix today, the cash balance today, the working capital drag, whenever the up cycle will come. Do all those factors combined, does that in any way limit in your mind how quickly or how much of a recovery you’ll see?
Drew Wilkerson: Scott, I want to make sure that I’m understanding the question right. Are you saying like the recovery in cash or gross profit per load? I’m not sure I followed you completely.
Scott Group: Yes, ultimately, your recovery in earnings, EBITDA, everything, Yes.
