We have Drew Wilkerson. He is the CEO of RXO. Drew, welcome to FreightWaves TV. Welcome back, I should say.
Great to be with y'all today.
It's always good to see you. Congratulations. You guys had a fantastic earnings report. A little bit of, I think Wall Street maybe is priced for perfection. The whole transport sector has been a little bit under pressure in the last couple of weeks. What do you take really the reaction to the overall market in terms of how investors are thinking about the sector right now?
Yeah, I think you know for us we look at the investors the same way that we look at customers and employees. We want investors that we've got long-term relationships with. So overall we don't get caught up a whole lot in what the stock does on a day-to-day basis. Obviously on earnings day you watch it a little bit closer than most other days, but for us it's about partnering with the right investors who are taking long-term views on the company of how we're going to perform through a cycle. Investors who are going to challenge us on some of the ways that we're doing things that is ultimately going to make us better. And you know, I think picking an investor or having an investor pick you, it's important that you're getting people who are challenging you in the right way for the results for the long term of the company, not just necessarily on a week to week, month-to-month or quarter to quarter basis.
So, I think one of the sort of takeaways is the fact that you guys, you know, came off of the great freight recession. You bought Coyote. That was a massive transaction for the industry, one of the largest transactions in brokerage history. You've had the opportunity to integrate that into your business. Unfortunately, the freight recession wasn't helping you do that. It was causing, and I imagine Drew, we talked about this last time, is the fact that timing sometimes isn't your friend, but you're now at a point where you're benefiting from the level of scale that you have and you're seeing improvements in the numbers, maybe even accelerating beyond what Wall Street analysts had expected. What are your thoughts right now about the integration of the Coyote business into RXO's broader business?
We're past the integration. We're now focused on innovation. And I think we spent a little more than a year focused on integration and we were innovating while we did that, but now it's solely focused on innovation and how are we going to serve our customers better? How do we make sure that as there is disruption in the market, whether it's a spot load, whether it's a project, whether it's something that we're seeing come out to spot load, that we can put a new contract rate out there where others have fallen off on it. Those are the opportunities we want to make sure that we're there to serve. What are we doing on the technology side? One of the things that we highlighted on our previous earnings call was that we had rolled out a new spot quote agentic agent in our email tools for customers but also for our employees and the productivity that they'd be able to see. And from our last earnings call to our earnings call last week, we saw that adoption of that go through the roof with our employees. And what they were telling us is this helps us have higher gross margin dollars per day and this helps us have more volume where we can focus on the things that matter more and we're actually able to process five times the amount of orders quarter over quarter with that.
Drew, I think one of the remarkable takeaways that you guys reported is that truckload spot mix is 42% of volume. And I think about your business, large managed trans business. That number stuck out to me because I think of RXO as more of a, you know, regular routing guide participant. That's the way I would describe it or have described it historically. But that number is challenging that thought. Is the idea that in this market you're leaning into a lot of those spot opportunities?
Yeah. So I think like look at what's going on in the market right now. There's so many questions out there. Whenever you look at non-domicile, whenever you look at English language proficiency, now whenever you look at the Montgomery case, there's so much out there that customers are really paring down who they're doing business with. So for us, I'm actually as soon as I leave here, I've got a customer that's in our conference room that I'm going to have a meeting with. And you know, part of what we're talking about is how can we create more solutions? They're reducing the number of carriers that they're working with and they're focused on people who have delivered results for them in the past. And if you look at our top customers, they've been with us for 16 years on average. We have a history of creating results. So we don't look at it as spot versus contract. We look at it as market share. Are we there to service our customers? And there are so many different ways that you can do that. You do not get the spot loads if you are not servicing your contracts. So servicing your contracts is step number one. And you have to make sure that you're doing that really, really well. The second thing is, do you have the relationship that you're going to be the call if a customer's routing guide starts to come under pressure? And then the third thing that we highlighted on our earnings call that not a lot of people talk about is do you actually have the capacity internally to be able to handle more loads? Meaning, are you staffed appropriately for the amount of volume growth that you can have? And for us, we like to stay staffed where we can grow 15 to 20% overnight if we have to because we know that the freight market can be that dynamic out there.
So Drew, we're a couple of months deep into this post-Montgomery world that we're dealing with. What are some of the things that you've uncovered here in the last few months, good or bad, that you're starting to navigate?
Well, I think when you look at it, one, you know, we said as much on our earnings call, the prior earnings call, we disagreed with the verdict and we thought that it was clear of which way that the law should go. But when you look at it for us is how are we set up to service our customers? One of the things right now, the conversations that we're having is how are you set up from an insurance perspective? When you're talking about enterprise customers, you know, does the provider that you're working with have excess liability that's over 50, 60, $75 million? We've got it to where it runs up over $100 million. And there's only a handful of companies who can actually go out there and say that with credibility to large enterprise customers of being able to protect their freight as it's moving along the highways.
True. How much are shippers leaning into the diligence of the providers? It's one thing for, you know, security, but I imagine financial viability is really important. You guys have an advantage being public. What is that? How are shippers leaning into that right now?
It's a lot more over the last few weeks than what it was over the last few years. I think when you look at the last few weeks, it's at the forefront of every conversation you're having is what is your financial stability? What is your insurance coverage? Then it goes into what is your service, what is your capability, what are you able to do from a solutions perspective. But I think financial stability and insurance coverage right now are the start of every conversation with a customer.
Does it give you an advantage? I mean, I imagine I know it gives you an advantage over smaller players, but are you leading with that? Is that part of the sales process of just reminding shippers that, you know, look, liability is an important factor that they've got to now consider in their equation they didn't have to before?
Well, I want to be clear. It's not just smaller players that it gives us an advantage over. It's larger players as well. Like when you think of top five, top 10 brokers, you know, I only know of two that have excess liability of $100 million or more. And so I think when you look at that, the field starts to narrow of people who can do business with enterprise customers at scale. And that's not something that you can build up that type of tower overnight. So I think that the conversations have definitely changed. I think our customers understand that we have the bandwidth and the capability to be able to serve them throughout this, but we also have the financial stability and the coverage to be able to serve them throughout this.
Is it part of the reason you guys are, you know, one could have argued maybe a year ago you're over, quote unquote, overinsured. I'm using those terms as a quote because maybe, but is that because you guys were a part of a large asset-based carrier that you understood the liability perhaps more so than maybe some of the non-asset providers did?
Yeah, I think it was just about maximizing our coverage coming out in the spin. You know, I would love to tell you that it was coming out of XPO, but that wasn't necessarily the case. It was the decision that we made as RXO of like what's the right coverage for us to have and you know where do we need land and our finance team worked very well with our insurance coverage providers and our insurance brokers to make sure that we were adequately covered. We don't want to just scrape by on this. We don't want us to just scrape by for our customers. We want to make sure that we've got more than enough to be there for our customers.
So I'm a big earnings geek, Drew. So I was reading through your statements and you had a pretty big jump in the gross profits per load. What was driving that? Is that mixing or is that just better processes?
Well, I think first you got to acknowledge that the contract gross profit per load had been under pressure for a little bit. So I think that you've got to start there. But then whenever you start to look at the jump, spots jumped. Craig talked about the increase that we saw in spots. Our spot loads went up by 900 basis points sequentially. And since the spin, we had been telling people like, hey, we can flex up and you could see our spot mix change and increase by a thousand basis points quarter over quarter. But given the market we were in, you weren't seeing that. So I think it was the first time for people to be able to see that we are who we say we are. We are the provider of choice when there's spots, projects, and mini bids. The second is we're going to a lot of customers where we see other providers rejecting freight right now and we're offering them temporary rates in a project style 30, 60, 90 days. Some of them we're offering in an annual contract bid. So, it's really going to each customer tailor-making a solution that works for them and is something that we lock arms with and agree on and make sure that for those customers we're getting more than our fair share of the pie because of our service, solutions, technology and relationships.
So, Drew, you've talked a lot about the cycle. I think you've made the statement in the past that this is probably the most transformative set of events in transportation or trucking history since deregulation. This regulatory crackdown, you know, whether we like them or not, these decisions in the court systems are weighing on the way that you know the business is being approached, the way who's operating, the risks that companies will take. Are you still believe that we're early in the cycle?
