RXO, Inc. (RXO) Q2 2024 Earnings Call Transcript

RXO, Inc. (NYSE:RXO) Q2 2024 Earnings Conference Call August 7, 2024 8:00 AM ET

Company Participants

Drew Wilkerson – CEO
James Harris – CFO
Jared Weisfeld – CSO

Conference Call Participants

Scott Schneeberger – Oppenheimer
Scott Group – Wolfe Research
Stephanie Moore – Jefferies
Tom Wadewitz – UBS
Jason Seidl – TD Cowen
Ken Hoexter – Bank of America
David Zaslav – Barclays
Ravi Shanker – Morgan Stanley
David Hicks – Raymond James
Daniel Imbro – Stephens Inc.
Bruce Chan – Stifel

Operator

Welcome to the Q2 2024 RXO Earnings Conference Call. My name is Sharon and I will be your operator for today’s call. Please note that this conference is being recorded. During this call, the company will make certain forward-looking statements within the meaning of Federal Securities laws, which, by their nature, involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward-looking statements.

A discussion of factors that could cause actual results to differ materially is contained in the company’s SEC filing as well as in its earnings release. You should refer to the copy of the company’s earnings release in the Investors Relations section on the company’s website for additional important information regarding forward-looking statements and disclosures and reconciliations of non-GAAP financial measures that the company uses for discussing its results.

I will now turn the call over to Drew Wilkerson, Mr. Wilkerson, you may begin.

Drew Wilkerson

Good morning, everyone, and thank you for joining today. I’m here in Charlotte with RXO’s Chief Financial Officer, Jamie Harris; and Chief Strategy Officer, Jared Weisfeld. There are four main takeaways I’d like you to walk away with today. Frist, we delivered adjusted EBITDA, brokerage volume growth, both full truckload and LTL and brokerage gross margin at the high end of our guidance ranges. Second, we have momentum in managed transportation and have won significant new business and have an impressive sales pipeline. Third and last mile, we achieved the fastest year-over-year growth rate in stops in nearly two years and have taken actions to significantly improve profitability and lastly, we expect our actions to result in both sequential and year-over-year adjusted EBITDA growth in the third quarter.

Now let me walk you through our second quarter results. RXO executed well with adjusted EBITDA of $28 million in what continues to be a soft freight market. Our brokerage business grew volume by 4%, with a 40% increase in less than truckload volume. We continue to build scale in our LTL business, which now represents 20% of our brokerage volume and is contributing to profitable growth.

Full truckload volume was down 2% above the midpoint of our expectations. The decline was the result of the bid season strategy we walked you through last quarter and a tough comparison to the second quarter of 2023. Cross border brokerage volume increased by 12% year-over-year. We’re hitting tough comparisons, but cross border demand remains robust. Full truckload contract business represented 78% of our mix in the quarter and positions us well to earn spot volume and project loads when the market improves.

Our strong relationships and service lead customers to choose RXO for spot loads and projects. Importantly, the bid season strategy we talked with you about last quarter, combined with our effective management of purchased transportation, yielded brokerage gross margin of 14.7%. Jared will discuss brokerage margin dynamics in more detail.

Complementary Services were a major contributor to our results. In Managed Transportation, we again grew synergy loads provided to our brokerage business year over year and customers awarded us more than $200 million in freight under management or FUM, in the quarter. The total new FUM in our sales pipeline is substantial, greater than $1.6 billion. We have a long runway for growth in managed transportation and converting that pipeline will fuel growth across RXO.

In the second quarter, last mile stops grew by 7% year-over-year, the fastest rate in nearly two years. This was a result of our focus to build deep relationships with the top brands and provide those customers with the best service in the industry. The largest retailers of big and bulky goods are turning to large national last mile providers like RXO because of our scale, technology, financial stability, and exceptional service. We continue to bolster our position as the number one provider of big and bulky last mile deliveries.

Complimentary Services gross margin of 23% was up 170 basis points year-over-year. The increase was primarily driven by last mile performance, which included stronger volume and the results of a profitability initiative. Jamie will talk more about this in a few minutes, but we expect this effort to generate more than $20 million in annualized adjusted EBITDA. RXO’s companywide gross margin was 19% in the quarter.

Let’s talk about the overall freight market. While conditions remain soft, most key industry metrics improved since the first quarter. On the supply side, carriers continued to exit each month in the quarter. However, the rate of exit slowed when compared to the first quarter. As we anticipated, the national load-to-truck ratio moved seasonally higher as the quarter progressed. This was a result of DOT road check, produce season and continued capacity exits.

Carrier rates have started to increase and while this puts short-term pressure on our gross margin, it’s consistent with our view that rates are at an unsustainable level for many carriers.

On demand side, indicators continue to be mixed. While inflation has moderated and retail inventory positions are healthy, the labor market, consumer confidence and the industrial ISM index have all weakened. It’s too soon to tell whether the tightening we’re seeing is sustainable, but we continue to make strategic decisions in anticipation of the market recovery. We remain focused on reliably serving our customers’ needs and honoring our contractual rates. This strategy contributed to our second quarter results and will position us well to capture spot volume and project freight when the market recovers.

Let’s talk about what we saw in July and what our expectations are for the third quarter. July is typically the slowest month of the quarter, and we expect that to be the case this year. Full truckload volume in the month was down approximately mid-single digits when compared to June and down high single-digits year-over-year. As July progressed, we did see an improvement in our gross margin. For the third quarter, we anticipate that brokerage volume will decline by a low to mid-single digit percentage on a year-over-year basis and will grow slightly quarter-over-quarter.

We anticipate that growth in LTL will continue, but that full truckload volume will decline by high single-digit to low double digit percentage. This is primarily because of our bid season pricing strategy and the tough comparison to the third quarter of 2023. As you recall, in the third quarter of last year, our brokerage volume grew by 18% year-over-year.

RXO will continue to take profitable market share over the long term and those gains will be sticky. In the second quarter, full truckload contract volume grew by more than 40% since the second quarter of 2021. Even with the anticipated third quarter year-over-year volume decline, full truckload contract volume will be up approximately 30% on a three-year stack.

While we’re still operating in a prolonged soft freight environment, our strong margin performance and disciplined focus on costs give us confidence in our ability to grow adjusted EBITDA again sequentially and also year-over-year. Jamie and Jared will discuss our guidance in more detail in a few minutes.

This is the right point in the cycle to make strategic investments, like our planned acquisition of Coyote Logistics. We’re on track to close in the first half of the fourth quarter. As I mentioned on our call in June, we’ve had an integration mindset since we started the due diligence process and have made good progress. I’ve had the opportunity to spend some time with a wide range of team members at Coyote, and I’m impressed by their energy, passion, and knowledge. Many in key roles have been with Coyote since its early days and are excited about the significantly increased scale that RXO will have after the acquisition closes. This is the right deal at the right time. We’re buying at a good point in the freight cycle, Coyote and RXO share a few customers and carriers in common, and our large scale business will be even more primed for profitable growth. I remain confident that this acquisition will create substantial value for our customers, carriers, employees and investors.

You’ll hear more about our progress in the coming weeks months, but for now, we’re focused on continuing to provide the best service, the most comprehensive set of solutions, continuous innovation, and close customer relationships. We’ll also remain disciplined when it comes to cost. RXO is well positioned to deliver earnings growth when the market inflects.

Now, Jamie will discuss our financial results in more detail. Jamie?

James Harris

Thank you, Drew, and good morning, everyone. Let’s review our second quarter performance in more detail. We generated $930 million in revenue compared to $963 million in the second quarter of 2023. Gross margin was 19%, up 160 basis points sequentially and up 40 basis points year-over-year. Our adjusted EBITDA was $28 million among the midpoint of the guidance range we provided to you in May. This compares to $38 million in the second quarter of 2023. Our adjusted EBITDA margin was 3%, up 140 basis points sequentially and down 90 basis points year-over-year. Below the line, our interest expense was $8 million. For the quarter, our adjusted earnings per share was $0.03. You can find a bridge to adjusted EPS on Slide 7 of the earnings presentation.

Now I’d like to give an overview of our performance within our lines of business. Brokers generated $543 million of revenue, down 4% sequentially and 3% year-over-year. The year-over-year decline was primarily due to slightly lower full truckload volume and lower freight rates. Brokerage gross margin remained solid at 14.7% towards the high end of our guidance. The margin performance in the quarter was primarily due to our bid season strategy that anticipated a market recovery while honoring customer rates as well as our focus on procuring purchase transportation effectively. Brokerage gross margin expanded by 50 basis points sequentially and declined by 70 basis points year-over-year.

Complimentary Services revenue in the quarter of $421 million was up 10% sequentially and down 4% year-over-year. The sequential revenue increase was primarily due to seasonality within our last mile business driven by an increase in stops from new and existing customers. Last mile stops grew 7% year-over-year, the fastest growth in nearly two years. Similar to the first quarter, automotive expedite volume in our managed transportation business remained soft. Complimentary Services gross margin of 23% increased by 240 basis points sequentially and by 170 basis points year-over-year. All of our lines of business contributed to this performance. We’re pleased with our Complementary Services gross margin performance, but we still have plenty of opportunities for future expansion.

In last mile, we have several profitability initiatives that are underway, but one specifically I’d like to expand on. Earlier this year, we partnered with an outside consultant to accelerate the design and implementation of the strategy to significantly reduce last mile purchase transportation costs. The initiative has already positively impacted last mile. In the second quarter, the annualized adjusted EBITDA impact of this initiative was approximately $11 million. We realized the associated benefits in a phased approach throughout the quarter resulting in an improvement in second quarter adjusted EBITDA of $2 million, which was more than offset in the quarter by onetime professional fees. Looking forward and when fully implemented, we expect the annualized adjusted EBITDA impact to be more than $20 million, an impressive return on the dollars spent.

As we discuss cash, please refer to Slide 8. Over the trailing six months, our adjusted free cash flow was negative $8 million, which was impacted by lower profitability levels at the bottom of the freight cycle. Additionally, this includes the impact of our semiannual interest payment, the settlement of previously discussed legacy liability claims, and our strategic use of working capital notably increased usage of our quick pay offering for carriers. Our adjusted free cash flow in the second quarter was negative $9 million, slightly better than our expectation of negative $10 million which we shared with you in May.

We ended the quarter with $7 million of cash on the balance sheet, flat with the prior quarter. Our revolving credit facility increased by $18 million sequentially consistent with our estimate. The primary difference between adjusted free cash flow and cash usage in the quarter was $7 million of restructuring related cash outflows. We continue to expect a conversion range of 40% to 60% through market cycles and remain excited about the cash flow generation that RXO will produce as the market influx.

As you can see on Slide 9, our liquidity position remains strong with approximately $600 million of committed liquidity at the end of the quarter. Quarter end gross leverage was 3.3 times trailing 12 months adjusted EBITDA and net leverage was 3.2 times. This is higher than our first quarter leverage due to our siphon of last year’s adjusted EBITDA. We remain comfortable with our current leverage ratio and given the strong free cash flow characteristics of our business, we expect to de-lever rapidly as the market recovers.

Moving to cost. Last quarter, we updated our expectations for annualized cost reductions to at least $35 million 2024. We now expect annualized cost reductions of approximately $35 million to $40 million. The actions to achieve these cost reductions are complete. The P&L expense and cash outflows associated with these cost reductions were approximately $13 million, a strong return of just under 200%. While a large portion of these cost reductions were offset by the year-over-year declines in gross profit per load and inflationary pressures, they position us well for operating leverage when the market recovers. Importantly, these cost outs are mostly structural in nature. Over the last 18 months, we’ve taken out more than $65 million of annualized costs while strategically invested in the business. RXO is well positioned for the market recovery.

Importantly, as with everything else we’re discussing today, these cost savings and restructuring charges don’t include any impact from synergies or charges resulting from the upcoming Coyote acquisition.

Now let’s discuss our expectations for third quarter and the full year. While we’re still operating in a prolonged soft freight environment, our strong margin performance and cost discipline give us confidence in another quarter of sequential adjusted EBITDA growth. We expect to deliver between $28 million and $34 million of adjusted EBITDA in Q3. We also expect a strong adjusted free cash flow quarter with an adjusted free cash flow conversion of more than 50%. Jared will provide more details on our outlook shortly.

Slide 14 includes our modeling assumptions for the full year, which remain unchanged. As mentioned previously, these assumptions exclude the impact of the pending acquisition of Coyote Logistics.

We continue to expect the following; capital expenditures between $40 million and $50 million, depreciation expense between $56 million and $58 million, amortization of intangibles of approximately $12 million, stock-based compensation expense between $24 million and $26 million, restructuring transaction integration expenses, excluding Coyote acquisition related costs, between $20 million and $25 million, net interest expense between $31 million and $33 million and we expect our full year 2024 adjusted effective tax rate to be approximately 30%, which is above our long term expectation of approximately 25%. You should also model an average diluted share count of approximately a 120 million shares.

Overall, we’re very pleased with our execution given the current phase of the freight cycle. Our brokerage business is generating solid gross margin despite the tightening market, and we’re seeing improved gross margin and pipeline opportunities across all complementary services. We’re especially pleased with the improvement to date in last mile and the significant opportunities ahead to structurally improve our margins.

Now, I’d like to turn it over to our Chief Strategy Officer, Jared Weisfeld, who will talk more in detail about our results and our outlook.

Jared Weisfeld

Thanks Jamie and good morning everyone. We continued to outperform the market in the second quarter, growing brokerage volume by 4% year-over-year. LTL growth was robust with 40% year-over-year growth, exceeding our guidance of 30%. Our full truckload customers continue to award us LTL freight because of our strong service and relationships. LTL represented 20% of brokerage volume in the second quarter, up 300 basis points sequentially and 500 basis points year-over-year.

Full truckload volume was down 2% year-over-year, above the midpoint of the range we provided last quarter. Full truckload volume represented 80% of brokerage volume in the quarter, down 300 basis points sequentially and down 500 basis points year-over-year. We also maintained a favorable mix of contract and spot business in the quarter. With LTL growing so quickly and considering that a vast majority of our LTL freight is contractual in nature, starting this quarter and going forward, we’ll communicate our spot and contract mix from a full truckload perspective. We believe this is a more accurate representation of our underlying volume mix.

Contracts represented 78% of our full truckload volume in the quarter, approximately flat sequentially and up 300 basis points when compared to the second quarter of 2023.

In the second quarter, overall contract volume grew 9% year-over-year and full truckload contract volume was up 2% year-over-year. Importantly, on a three-year stack, our full truckload contract volume grew by over 40% which speaks to our multi-year market share gains. Within our full truckload business, performance across our major verticals was largely consistent with our consolidated volume trends.

Retail and e-commerce volume was approximately flat year-over-year. Inventory positions at our retail customers were made healthy. At the largest retailers in the country, year-over-year revenue growth has exceeded inventory growth for the last six consecutive quarters. While this is encouraging, consumer confidence continues to fall with many leading indicators sitting at multi-month lows. Volume from industrial and manufacturing customers was also approximately flat year over year. While there were some encouraging signs earlier in the year with the ISM manufacturing PMI, the new orders component has been in contractionary territory for the last few months. Automotive volume grew by 14% year-over-year although at a slower pace than the last few quarters.

From a profitability perspective, brokerage gross margin of 14.7% was toward the high end of the 13% to 15% range we provided you in May. As expected, brokerage gross margin and gross profit per load moved lower as the quarter progressed due to seasonality. I’ll expand on this momentarily.

In the second quarter, we launched several new technology enhancements. We strengthened tracking and visibility for cross-border customers and rolled out enhanced AI pricing algorithms. We continued to expand our LTL automation capabilities and rolled out LTL enhancements to drive improved billing accuracy and time to bill. Seven-day carrier retention remains strong at 75% in the quarter, down slightly from 76% in the first quarter.

Our technology enables our people to become even more productive. On a rolling 12-month basis, productivity in our brokerage business as measured by loads per person per day improved by over 18% year-over-year.

I now like to review our brokerage financial performance and market conditions in more detail. You can find this information on slides 10 through 13 of the presentation. Revenue per load declined by 7% year-over-year, the 4th fourth consecutive quarter of easing. That’s an 800 basis point improvement when compared to the first quarter. To get a better sense of our consolidated year-over-year price declines on a per load basis, it’s important to consider the impacts of length of haul, mix and changes in fuel prices. When normalizing for those items, revenue per load on a percentage basis was down just low single digits year-over-year, also moderating when compared to last quarter’s year-over-year decline. While we have lapped the length of haul headwinds, we expect mix to be a continued headwind given our robust LTL volume growth. As a reminder, LTL revenue per load is dilutive to consolidated revenue per load, but at scale LTL runs at higher gross margin and EBITDA margin percentage when compared to full truckload. Full truckload revenue per load inflected positive year-over-year in the month of June, slightly ahead of our expectation of roughly flat year-over-year.

Let’s move to slide 11 and discuss RXO Brokerage monthly gross margin and industry trends. We entered the second quarter with a gross margin of approximately 16%. As expected, the market tightened as the quarter progressed due to seasonal factors, most notably produce season and DOT road check. Thanks to our bid season strategy and our ability to leverage technology to effectively procure capacity, we were still able to post a gross margin toward the high end of guidance despite tightening market conditions.

From an industry perspective, we’re still operating in a prolonged soft freight environment but there are some encouraging signs. The national load-to-truck ratio and tender rejections moved higher both sequentially and year-over-year in the second quarter, averaging approximately 4.2% and 4.5% respectively. However, the national average was heavily influenced by pockets of regional tightness due to produce season.

On the demand side, while it has not yet translated into over the road volume strength, year-to-date port volume growth has been robust. This is also consistent with the improved inventory positions of our retail customers. However, as I mentioned earlier, we are monitoring the macroeconomic indicators that have recently weakened.

Turning to supply, there is still too much truckload capacity relative to current demand and carrier unit economics remain challenged. However, there have been monthly carrier authority exits for almost two years and with the reduced supply, the environment is likely now more susceptible to being impacted by near-term changes in demand. While it’s too early to determine if this is the beginning of the recovery, industry metrics are moving in the right direction.

Let’s go to slide 12. With our LTL brokerage volume growing so rapidly, we thought it would be helpful to break out our historical full truckload and LTL volume gross profit per load trends. As we just walked through, our profitability moved lower as the quarter progressed due to seasonal factors, but full truckload gross profit per load in the second quarter improved modestly when compared to the first quarter. RXO’s full truckload gross profit per load remains at trough levels. To give some more color, in the second quarter, RXO’s full truckload gross profit per load was approximately 30% below our five-year average. When the cycle recovers, there will be strong flow through to adjusted EBITDA.

Moving to slide 13, our LTL business has grown rapidly over the past few years. Importantly, LTL brokerage operates with less cyclical gross profit per load. At scale, LTL will be a key contributor of stable EBITDA.

I now like to look forward and give you some more color on our third quarter outlook. This outlook assumes no meaningful improvement in freight market conditions and limited spot opportunities.

Let’s start with brokerage. We expect consolidated brokerage volume to decline by low to mid-single digit percent year over year in the third quarter and to increase slightly sequentially. We expect LTL volume to grow again in the third quarter, the business is performing well as we scale and we expect LTL volume to increase by 10% to 20% year-over-year.

Turning to full truckload, we expect full truckload volume to decline by a high single-digit to low double-digit percent year-over-year, primarily due to our bid season strategy and more difficult comps. On a sequential basis, we expect full truckload volume to be approximately flat when compared to the second quarter.

I want to expand on our historical volume growth. We grew volume by 12% in 2023, significantly outperforming the broader market which declined by mid-single digits. As we mentioned last quarter, our comps get tougher as the year progresses and we expect this dynamic to be most pronounced in the fourth quarter of this year.

A high single digit to low double digit percent year-over-year decline in third quarter full truckload volume would still result in full truckload contract volume growth of approximately 30% on a three-year stack, significantly ahead of the broader market.

Moving to revenue per load, we expect consolidated year –over-year revenue per load declines to improve again in the third quarter marking the fifth consecutive quarter of moderating declines. We expect full truckload revenue per load to be approximately flat year over year in the third quarter. We expect brokerage gross margin to be between 13% and 15% in the third quarter, similar to our outlook for the second quarter despite tightening freight market conditions. We expect brokerage gross margin percentage and gross profit per load to seasonally improve throughout the third quarter with July representing the low point of the quarter.

Turning to Complimentary Services, in Managed Transportation we expect automotive volume to improve throughout the quarter as plants come back online and in last mile, while we’re expecting a seasonal decline from the second quarter, this will be largely offset by the profitability initiative that Jamie described earlier. We also continue to remain disciplined on costs and the third quarter will benefit from the full run rate of our cost take outs.

Putting it all together, we expect RXO’s third quarter adjusted EBITDA to grow again sequentially and be between $28 million and $34 million.

In summary, we’re continuing to execute well in this soft freight market. We’re entering third quarter with continued momentum, sustained multi-year brokerage market share gains, a managed transportation pipeline of greater than $1.6 billion and tangible progress on improving last mile profitability. We expect to deliver strong earnings growth when the market influx and look forward to closing the acquisition of Coyote in the first half of the fourth quarter.

With that, I’ll turn it over to the operator for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions]. First question comes from Scott Schneeberger with Oppenheimer.

Scott Schneeberger

Thanks very much. Good morning. Just following up on some of Jared’s comments there around third quarter. Understanding you expect volumes still down year-over-year in third quarter more so relative than it was second quarter. You mentioned July is the lowest month of the year, but that’s expected seasonally. So can you speak — it sounds like — speak to how you anticipate seasonal build, sequentially, second quarter to third quarter to fourth quarter maybe? I thought I heard Jared you say that it was going to be flattish, but just want to get a sense for that anticipation on volume looking out over the balance of the year, maybe some consideration with the holiday season as well. Thanks.

Jared Weisfeld

Sure, Scott. Good morning. So when we think about the volume progression from Q2 to Q3, you’re right. We expect volume to move higher throughout the quarter. While it is on full truckload down, call it, high single-digit to low double-digit year-over-year, I’d say two things: One, we look at this business over the long term and if you look at over the last three years, even with that guide for Q3, our full truckload contract volume is up more than 30% over the last three years, which I think speaks to our multiyear market share gains and when you combine that with the tough comps from Q3 of last year where volume was up 18% year-over-year that’s what really translates into that volume growth.

I think importantly, moving from Q2 to Q3, volumes will be up slightly on a sequential basis and full truckload will be about flat sequentially and as the quarter progress, we also expect automotive volumes to move higher throughout the quarter as plants come back online, which should benefit both brokerage and managed transportation.

Scott Schneeberger

Great. Thanks. Appreciate that. Now on revenue per load, you’ve had an improving decline, Slide 10, I think this is, in revenue per load year-over-year, four consecutive quarters now. Year-over-year comps relatively easy, but becoming more challenging in coming periods now. When do you foresee potential inflection there? And are you seeing any indications that that could potentially occur later this year or just too much of a challenging environment to even talk about that now? And can you at least anticipate a continued demonstration of improvement in this metric over the coming quarters? Thanks.

Jared Weisfeld

Yes, absolutely. I think importantly in the month of June, our full truckload revenue per load inflected positively, which was slightly ahead of our expectation of flat. So we did see that improvement and I think that’s a direct reflection of our bid season strategy that we talked to you about three months ago. As it relates to the back half of the year, I think it will depend on how the freight market evolves and we look forward to communicating that later this year, but I think we’re really proud of the fact that the third quarter will mark our fifth consecutive quarter of easing. We do have a mix shift, right, with LTL increasing as a percentage of the mix, but importantly, on full truckload, it did inflect positive in the month of June.

Scott Schneeberger

All right. Thanks very much.

Operator

Your next question comes from Scott Group with Wolfe Research. Please go ahead.

Scott Group

Hey, thanks. Good morning. Maybe just starting just a little bit like color on the market, right. So you talked about load-to-truck and rejections in that 4% to 5% range, I think for second quarter. Where are we July early August? And what’s the level we’re looking for where we start to see some real spot volume opportunities, start to see some real pricing opportunities? Do you have the confidence that we’re getting there?

Drew Wilkerson

Good morning, Scott. This is Drew. If you look at what we’re seeing, load-to-truck ratios is still below, what we typically see when we start seeing spots. We start seeing spots at 6:7:1. If you look at July, it was just over 4:1 from a load-to-truck ratio. Tender rejections is still in, call it, low to mid-single digits, overall, and you wanna see those start itching closer to double digits. We have seen some spot loads come through, but I wouldn’t say it’s anything that has caused us to say that you are seeing a market inflection or market turning. I anticipate that you could see that later in the year or early next year.

Scott Group

Okay, helpful and then can you just talk about the drivers of the sequential EBITDA improvement Q2 to Q3. It sounds like last mile seasonally a little bit lower. Is it brokerage that’s driving it? Is it forwarding? I know it’s small, but that maybe that’s is that how big of a factor is that? And then can we just clarify with the EBITDA growth starting to inflect positive in Q3, do you think we’ve hit the high point on the leverage ratios?

James Harris

Yes. Scott, this is Jamie. Look at Q2 to Q3, it’s really a cost story. We see kind of flattish over the kind of the operational side, but there’s some of the cost initiatives that we’ve talked about previously are beginning to flow through the P&L in full. We do agree with you with the Q3 EBITDA up year-over-year. We see the leverage coming down 10 to 20 basis points in Q3. We begin to have obviously lower comps-to-cycle as time moves forward and so we feel good about our balance sheet. It’s very strong, but yeah, we see that coming down.

Scott Group

Okay. And if I could just ask one more, any more color or clarity on financing for the Coyote deal?

James Harris

Yes. We can’t get into the specific details right now. As we talked about at the announcement, we’ve got committed financing in place for the deal in the form of a bridge. We are in the process of getting all of our financing pulled together. There’ll be more to come later. What we do want to emphasize though, as we sit back at the time of the announcement, we expect the financing to be such that our leverage — our credit profile and find by our leverage is at least credit neutral and so we’re very we feel very good about that.

Scott Group

Thank you, guys.

Operator

Next question comes from Stephanie Moore with Jefferies.

Stephanie Moore

Hi, good morning. Thank you. I was hoping you could maybe elaborate a bit on your bid season pricing strategy, if this has changed at all as the cycle has progressed. Can you talk a little bit about, what you might be seeing from a competitive standpoint as well? Thanks.

Drew Wilkerson

Yes. Stephanie, this is Drew. When you look at what we said on the first quarter call, for us, it was important to put rates in place that we felt like we could service through a bid. We communicated that to our customers. It was received well of the transparency that we were providing and we took a position that we felt like the market would inflect at least at some point before the middle of next year when the next season’s bids were being implemented. So for us, we’re happy with the execution that the team has delivered on that. The margins have been strong and has put us in a position of strength with our customers by communicating where we believe the market is going to continue to receive spots, projects and mini bids.

Stephanie Moore

Got it. That’s helpful, and then just, I wanted to follow-up on a prior question and some of the success you’ve had with the cost initiative. I think earlier you quantified some of those initiatives. Are those running better than expected about in line? Maybe just if you wanted to touch on those a little bit more as it does seem like the progress has been very, very strong. Thank you.

James Harris

Yes. I would say they’re running as expected, in line with what we thought, both from an amount as well as the timing. As we talked about last quarter, Stephanie, those are phased in throughout the year. We’re beginning to see the full impact of that hit in Q3, Q4, but they’re right in line with what we’re expecting.

Stephanie Moore

Great. Thank you so much.

Operator

Your next question comes from Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz

Good morning. Wanted to — I know you had a question on this earlier in the call, but I’m not sure if I understand what you’re saying on the brokerage volume, the truckload brokerage volume in 3Q versus 2Q. Are you saying that’s similar to normal seasonality, but the worst year-over-year decline is just comps or how do we think about that volume compared to maybe just what’s normal seasonality for truckload brokerage volume 3Q versus 2Q?

Jared Weisfeld

Hey, Tom, it’s Jared. So you’re right. We are expecting typical seasonality from Q3 from Q2 to Q3 with respect to our volume. We expect volume to improve throughout the quarter. I think one of the main drivers there also will come down to automotive with the plants coming back online impacting both brokerage and Managed Transportation from a sequential perspective, right, modest growth sequentially Q3 versus Q2 on volumes, about flat sequentially with respect to full truckload and to your point about comps, right, we grew volumes last year Q3, up 18% year-over-year and the volume strength continued throughout the year. So our comps do get a little bit tougher from Q3 to Q4. Okay.

Tom Wadewitz

So kind of flat is normal truckload seasonality 3Q versus 2Q?

Jared Weisfeld

Yes. I think you’re thinking about it, right?

Tom Wadewitz

Okay. Good. On the cost initiatives, if I look at the SG&A costs in the quarter, I think was if I’ve got the numbers in here right, it looks like it was up like $9 million I think sequentially. What’s the driver of that increase in SG&A? And is that something that potentially comes down as the cost initiatives go in place or how do we think about that?

James Harris

Yeah, this is Jamie. The primary driver we talked about in my remarks, we had an initiative inside last mile, where we really focused on taking out and taking down cost-to-purchase trends. We brought in some outside resources to help us accelerate and implement a restructure of how we’re going to market with paying carriers. Those fees that we paid that outside party all hit in the Q2, we’re done with those now. That’s the primary driver of the increased SG&A.

Tom Wadewitz

Okay. So the fees are in SG&A?

James Harris

That’s right.

Tom Wadewitz

Okay. And then I guess related to that project, how do — you when you think about lowering PT costs, obviously, you want to do that structurally for last mile, but I would think there’d be a cyclical component too, right? And so, if you lower PT costs in a kind of a weak market, that’s maybe easier to do. How do you think about kind of separating, decoupling that from lowering PT costs structurally versus the cyclical benefit you might get from a weak market?

Drew Wilkerson

Yes. So without getting into all the details of exactly what we did, we approached it to your point of a very structured manner of going to market, how we pay and more importantly, how we’re aligned incentives for being efficient. We think it’s a very sustainable program. We mentioned in the remarks that we’ve identified at least $20 million over time to come out. We feel good about that number. That number begins to fully run through the P& L, we believe first part of 2025. We just started seeing small benefits of that in the second quarter, but it’s really overall program that we can it’s very, I would call it, repeatable amongst all of our sites. We think it applies in all the markets.

Tom Wadewitz

Okay, great. Thanks for the time.

Operator

Your next question comes from Jason Seidl with TD Cowen.

Jason Seidl

Thank you, operator. Drew, Jamie, Jared, good morning, guys. Wanted to chat a little bit on your guidance for the gross margin, so 13% to 15%. Can you talk about, the assumed backdrops at both of the ends of the ranges one at 13% and one at 15%?

Jared Weisfeld

Sure. Good morning. It’s Jared. I think the biggest factor there will be depending on what happens to overall freight market conditions in terms of our cost of PT. So I think at the midpoint, on both bookends, if we’re able to buy a little bit better, you’ll probably see it towards the higher end. If the market tightens a little bit more, you’ll probably see it towards the lower end. I think importantly, encompassed in that guide is our expectation that freight markets remain relatively unchanged from Q2 to Q3, and it does not assume material improvement in spot opportunities.

Jason Seidl

Okay. Fair enough. You talked a little bit about the potential for project loads. I know some of the other asset based carriers have mentioned that on their calls. What are customers telling you now? And sort of when will you know what to expect on project loads? And then if we could look further, how does that impact sort of your gross profit in terms of in the quarters? How should we think about that?

Drew Wilkerson

Project loads are something that are really ongoing and a lot of what’s driven in the market. So if you think about Hurricane Debbie right now, there are project loads that are going on right now. It’s not a great scale, but there are project loads that are going on right now. You typically see project loads increase as tender rejections increase. So the tighter a truckload market becomes, the more you see projects, spots and mini bids when people start rejecting loads, you see customers start to put out mini bids of loads that have been rejected too many times so they can try to find a new core carrier.

Jason Seidl

Okay, makes sense. Real quickly also, how should we think about headcount going forward as we look into 2025?

Drew Wilkerson

Did you say, did you say headcount? Just want to make sure we heard you correct.

Jason Seidl

Yes. Headcount is correct.

Drew Wilkerson

Headcount right now is in an overall good spot, as we head into the acquisition of Coyote. When you look at where we are, there’s going to be places that we’re adding and some branches that are dealing with customers and carriers. We’d like to be staffed for growth and being staffed for growth at around 15% is where we’ve always tried to keep the mark. So feel like we’ve got some areas to invest in and some areas that we’re going to hold flat on.

Jason Seidl

Perfect. Appreciate the time, guys.

Operator

Your next question comes from Ken Hoexter with Bank of America.

Ken Hoexter

Great. Thanks. Good morning. Just to follow-up on that gross margin target down sequentially. Is that just solely from bid season or is there another anything else in there where you think there’s a little bit more pressure on that?

Jared Weisfeld

Hey, Ken, it’s Jared. I think it’s a result of the tightening market conditions that progressed as Q2 played out, right? So I think as we mentioned, load-to-truck ratio intended projections have moved higher. So I think importantly, the guidance range that we provided 13% to 15% is the same range that we gave for Q2 despite the market tightening conditions and I think that reflects our overall our bid pricing strategy that we talked to you about earlier this year and that we’re able to navigate the tightening market pretty effectively.

Ken Hoexter

So just to clarify that, Jared, if I can and you’re looking forward and despite the macro and everything you said, kind of getting a little bit weaker on some of those stats, you’re looking for a little bit of an improving truckload market given the statistics that you ran to. Right? Is that what you got?

Jared Weisfeld

Yes. I think that’s right. We are seeing some encouraging signs in terms of some of the freight KPIs that we’re looking at, specifically load to truck ratio and tender projections. I think it’s too early to call in terms of how sustainable this is. I think it’s important to recognize that in Q2, a lot of the tightness was heavily influenced by a few regional pockets throughout produce season, but as we talked about, there are definitely some encouraging signs, most notably port volume strength, but I think we want to also be cognizant of some of the recent developments in the macro as well.

Ken Hoexter

Sticking with gross margin for a second, complementary, the upward move, was there anything that drove that? Was it more the process you’re doing on last mile that Jamie talked about or is there anything I don’t know Jamie if you want to detail anything that was driving that, if one outsized growth of last mile versus forwarding or anything else?

James Harris

Yeah, we were very pleased with our complementary services. Our margin was up both year-over-year as well as sequential. I think what we’re most pleased with is the margin being up, which contributed from all of our lines of business. So it was very broad based. If I had to call out one, I think you hit it Ken, our last mile performed very well. We had a great quarter. We were up 7% year-over-year in terms of number of stops. We’ve got the profit initiative going on, on cost to purchase trend now that did not contribute a lot to the bottom line this quarter to the margin, because we just are implementing that program, but last mile had a really nice quarter and we’re making really good progress on all of our initiatives there, but it was broad based.

Ken Hoexter

Great. And then for my follow-up, I guess, just I’m surprised how little we’ve talked about Coyote given the scale of what you’re acquiring and the near-term kind of timeframe here, but can you talk a little bit about the preparation ahead of the integration? I don’t know if have you got any interim updates in terms of how they’re performing given the announced sale and what is going on over at UPS now from their perspective or financial perspective? Thanks.

Drew Wilkerson

Ken, I appreciate the question. We love talking about Coyote, so happy to do that. There’s no update in terms of the financials off of what we shared with you. If you remember what we shared back in June, they started to see volume improvement to where their volume declines and their sequential growth were roughly in line with what was going on in the border market. I don’t think with us not owning the business yet, I don’t think that we are the ones who should comment on June results. I think we’re the ones who should comment on June results. I think that’s best coming from UPS, but there’s still a lot of excitement. There’s integration planning that is happening, you know, on a weekly basis, things from back office to customers, to carriers, to operational initiatives, to what does day one look like, what are we hoping for, for day 60. There’s a lot of moving parts right now and, I would say that everything is progressing nicely and on track.

Ken Hoexter

And you haven’t quantified costs planned integration costs, right? I think Jamie just gave this year’s integration costs, right?

James Harris

That’s right, and the full year numbers we gave Ken were exclusively related to RXO, we have not included anything from Coyote yet.

Ken Hoexter

All right. Great. Appreciate the time guys. Thanks.

Operator

Your next question comes from David Zaslav with Barclays.

David Zaslav

Hey, thanks for taking my question. Jamie, I know you did get asked about it, but if you provide maybe just a little bit more color or confirmation on the financing of Coyote, specifically with respect to anchor investors, any change in commitment or additional anchor investors and just reconfirm your plan to use potentially not use the bridge financing?

James Harris

Yes. So first of all, at the time of announcement, we said we had committed financing in the form of a bridge, both from the banking community, as well as our two primary, MSN and Orbis. We don’t intend to use that bridge. We feel like our permanent financing is going very well. We’re right on track with that. We do expect MSN and Orbis to be part of the permanent financing. Can’t get into details of what that looks like now, but more details will come soon. I think the big takeaway that we talked about in June, we’ll reiterate today is our plan for permanent financing is intended to be at least credit neutral defined by our leverage, our pro forma leverage and so we look, we’re very pleased with that the market has reacted well. We’ve heard great feedback from the market. We’re pleased that the investment community sees Coyote as a great acquisition for us as we do, but more to come on that later.

David Zaslav

Thanks, and then if I could maybe follow-up a little on past investments. So in 2023, you had made some capital and operational investments in the business to support growth, which seems like the growth is going to be more of a 2025 story at this point. So what can we not see in the numbers right now about how that investment is paying off and how it sets you up for growth in the future?

Jared Weisfeld

Yes, I’ll start that. We did make some investments last year. We’ve said back to the date of spend that we anticipated about a 1% of revenue CapEx investment. We still believe that’s the long term number. Last year, we were a little higher than that. We made some strategic investments that we talked a lot about in real estate, which was really to give us the capacity for growth in terms of physical locations, if you will. We also are constantly making investments that run through CapEx, but also run through our operating expenses in the form of technology spend. If you were to look at our CapEx, the large majority of that is tech spend. We’re constantly trying to take our platform and keep it fresh and updated and being leading edge with what we can offer to our customers.

As we look forward, we believe those will pay off in the form of efficiency, internal efficiencies, productivity by from a low’s by employee. We intend for it to be better for our carriers to use our technology, for our shippers to be able to use technology. I mean, you see the how many loads are created digitally as an example of the technology usage.

So we see that continuing to pay off and I would kind of roll it into the kind of a bigger theme. If you look at our technology spend, our customer relationships, our cost optimization, we’re positioning ourselves for when the market recovers, it will have a significant growth opportunity both in terms of size as well as flow through profitability.

David Zaslav

Thanks, Jamie. Much appreciate the time.

Operator

Your next question comes from Ravi Shanker with Morgan Stanley.

Ravi Shanker

Thanks. Good morning, guys. So just a couple to start over here. I think you mentioned that obviously you’re being pretty disciplined on price, which is very understandable and good to hear at this point of the cycle, but does that kind of conversely mean that there are some others in the industry who are not obviously one of your large competitors, that seem to be losing share for a long time is now kind of talking about potentially gaining share and so, how would you see the pricing share dynamics in marketplace? And also some of your peers have mentioned seeing a shipper switch from asset light to asset heavy carriers going in the up cycle. Are you guys seeing any of that as well?

Drew Wilkerson

Yes. So I’ll take your question in three parts. One, you mentioned our largest competitor. I think that is kudos to them. They had a great quarter. It’s a large market. There’s room for multiple winners. They did it with strong margins. So I think it’s kudos to them for a great quarter. As far as are there irrational players in the market? Absolutely. I’ve been doing this for 18 years and you’ve always had people who have used price as a way of getting business. For us, that’s never the way that we’ve looked at doing business. We always look at it on service, solutions, innovation and relationship and we think over the long term that our customers see significant value in what we’re what we’re providing to them as a carrier.

And then, Ravi, the last part of your question, I’m forgetting right now, so I apologize.

Ravi Shanker

Asset.

Drew Wilkerson

That asset, look, you go back and look at what’s happened over the last 10 years. So if you go from 2013 to 2021, you saw brokerage go from single digits to over 20% of the truckload market. I think that that trend will continue over the long term. What you see during this part of the cycle whenever it’s a soft time in the cycle, you see customers reduce the number of carriers that they’re working with and over the last year and a half as they’ve been doing that, we’ve been a large beneficiary of that. I think you’ll continue to see brokers take share from asset-based carriers over the long term and I think that we’ve positioned ourselves to be one of the large winners in that.

Ravi Shanker

Understood, really helpful. And so maybe just to wrap all this up, Obviously, it’s been quite a tumultuous period since the spin, obviously with the big up cycle and the big down cycle and the Coyote acquisition and everything else. How do you think about where your normalized mid cycle EPS lies here, kind of especially post Coyote? Obviously, the stock price has been a pretty big move and so, you were doing north of a dollar during the last half cycle, kind of is it back in that range, is it $1.50, is it $2, kind of how do you think of that kind of earnings power here?

Jared Weisfeld

Hey, Ravi, it’s Jared. So yes, we are pleased that the market is as excited about the transaction as we are. When it comes to specific accretion, what we said was that the transaction is immediately accretive to both adjusted earnings per share and adjusted free cash flow. Not going to get into specifics right now in terms of how to think about that accretion, but ultimately, the benefits of Coyote from a scale perspective are going to be significant to the enterprise in terms of how we think about the benefits in the market and we’re looking forward to closing that in the first half of the fourth quarter.

Ravi Shanker

Very good. Thanks guys.

Operator

Your next question comes from David Hicks with Raymond James.

David Hicks

Hi, guys. Thanks for taking the questions. First, just wanted to hit on you’ve talked about your commitment to the contract volumes mean, how that’ll serve you well in the upcycle, on the spot side, but we’ve seen kind of that mix flat from 1Q to 2Q. So we’ve obviously seen, kind of seasonality return to the spot rate market. I’m just kind of curious if there’s a lag to mix shifts between spot and contracts, or does the market need to get more consistent gains rather than just the seasonality that we saw before you start getting kind of rewarded with more of those spot volumes?

Drew Wilkerson

I think that the market has to tighten for the spot volumes to be there. It’s really a supply and demand that you’re looking at. We talked earlier about load-to-truck ratio in July being just over 4:1. So it is inching closer to that 6:7:1 whenever you start spot loads appear, but it’s more spot loads appear, but it’s more of a supply and demand versus a point in time in the year of it being seasonal of when you see the spots.

You typically do see them more during a peak season or a produce season, but right now there’s still too many carriers in the market, so supply and demand has not put it to where there is any sort of significance in spot loads in the market.

David Hicks

Okay, that’s helpful, and then kind of we’ve heard throughout this earning season, everyone talks up to Mexico and cross border opportunities, seems like there’s a there’s a lot of growing competition out there. I just was curious see how RXO is differentiating itself in that big growth opportunity?

Drew Wilkerson

Yeah. If you remember last year, I think our cross border growth was over 30%, and if you look at what we just did this year, it was over 12% even with the tough comps. So for us, we definitely see near shoring as a trend as customers continue to pull their distribution centers close closer to them. We’re positioning ourselves well with that. We’ve got a facility in Laredo that is right at the World Trade Bridge. It is easy access once you’re crossing and you’re able to do trans loads there through trailers. We think we’re going to be a large player as you start continue to see near shoring and more cross border freight there.

David Hicks

Great. Thank you, guys. Appreciate the time.

Operator

Your next question comes from Daniel Imbro with Stephens Inc.

Daniel Imbro

Good morning, guys. Thanks for squeezing us in here at the end. Maybe starting on the complementary services side, just some clarifiers. You called out, I think, $200 million of freight under management, when did you — I guess, what does that mean from the modeling standpoint in terms of annual op income? And I think you have a $1.6 billion in the sales pipeline. I guess, should that all start to flow through next year? Just kind of curious if you can talk about the flowing through contribution of those business wins. Thanks.

Drew Wilkerson

Yes, I’ll start and then Jared can come in on the op income piece. I mean, what $200 million in FUM means is that as we onboard that freight, we’ve got a lot more data. We’ve got relationships with new customers that are coming onboard. We’ve got our other lines of business, largely truck brokerage that are have the ability if they service the freight well to be a provider and you could continue to see synergy loads increase on a year-over-year basis.

On the $1.6 billion I think we’ve got to win it first. We feel good. We’re putting ourselves in a good position and the winds have been racking up for us in Managed Transportation, but we got to convert it, we got to get it over the finish line and Managed Transportation growth in FUM is one of the four key things that we look at whenever we’re looking at the longer term guide numbers that we put at, there’s brokerage volume, there’s brokerage gross profit per load, it’s Managed Transportation FUM and it’s improving last mile’s profitability, and if you look at where we are right now, three of the four are on track or ahead of the track within brokerage volume, Managed Transportation FUM growth, last mile profitability, gross profit per load is obviously below expectations for a long-term guide, but that’s not unexpected at this point in the cycle.

Jared Weisfeld

In terms of FUM, to Drew’s point, it’s significant in terms of what we have. I think it’s when you think about the drop through, it’s going to vary clearly customer-by-customer. So we’re not going to get into specifics about that, but I think the way you should think about that is $200 million awarded in the quarter, $1.6 billion in our late stage pipeline. That’s significant relative to our approximate $3 billion of FUM within our Managed Trans business and ultimately, that’s going to yield better results within Managed Trans in addition to synergy volumes across the entire organization.

Daniel Imbro

And then for my follow-up, Jared, maybe I just want to ask about volume growth in a different way. If we look at this chart on Slide 12, like we’re diverging on the truckload side a little bit more from that long-term volume trend line. Can we return to that trend without a big market improvement, or should that trend line just flatten out a bit at this point in your growth curve? Just thinking about where RXO is on its maturity cycle. And then, Jared, in the script, I think you said peak volume headwinds in 4Q. Does that mean TL volumes are down more in 4Q than 3Q, just to level set expectations? Thanks.

Drew Wilkerson

For the truckload volume growth, we expect to outperform the market over the long term. If you look at what we talked about right now, there’s not a lot of spot loads and there hasn’t been for the last few years. So when we talk about growing our contractual volume on a three-year stack at over 40% for the second quarter and it will still be at over 30% for the third quarter. Those are very strong numbers of what’s going on in the market. So I expect us for the long term to continue to outperform the market and gross profit per load, you can see on Slide 12, that is at trough levels and is 30% below our five-year average. So as you start to see the returns of that, you see the significant earnings power that we’ve got behind it.

Jared Weisfeld

And on fourth quarter, Daniel, the way to think about it is we’re not going to get into fourth quarter volume growth right now. That’s going to be a function of what happens here into prestaging for peak and how peak season develops in the fourth quarter. So stay tuned on that, but I think the point is that from Q3 to Q4, our comp does get tougher by, call it, a few 100 basis points.

Daniel Imbro

Helpful. Appreciate the color guys.

Operator

Your next question comes from Bruce Chan with Stifel.

Bruce Chan

Hey, thanks and good morning. Maybe just to touch again on last mile for a minute here. Good to see the acceleration in volume growth there. Can you just maybe break down what’s driving the strength? How much of that is easy comps from last year versus an improvement in the core market versus maybe some winning of share? And how do you think about the top line as we move into the back half of the year in that segment?

Drew Wilkerson

Yes, I don’t think that when you’re looking at comps from last year, I think that the end consumer was spending less and having less home deliveries last year by a lot and so what you’re seeing this year, they’re still doing the same thing. So the market share gains that you’re seeing are significant and what we are hearing from our customers is that they want to do business with large financially stable companies who have scale and a footprint, who give them good service, have great technology, have strong relationships and have built trust over a period of time and is the market leader in the last mile space, we’ve been doing that for a long time.

We’ve got a footprint in our last mile hubs that puts us roughly 125 miles away from 90% of the U.S. population. So we’re in a strong position to be able to continue to go out there and win. Our customers, our large customers are actually coming to us and saying, hey, we want to talk to you about potentially doing more business. We’re bringing on new customers that we haven’t done business with.

So on the last mile side, we do expect to continue to grow last mile stops on a year-over-year basis in the third quarter.

Bruce Chan

Okay, that’s helpful, and then maybe just a real big picture question here. Obviously, it’s been a very challenging cycle. When you think about what transpired this quarter with a lot of the moving parts and puts and takes, do you feel better, worse, the same about some of the kind of midterm targets that you’ve laid out in the past?

Drew Wilkerson

Yes, I think that we just talked about that there’s 4 key things whenever you look at the numbers that we put out for 2027 targets is brokerage volume growth and on brokerage volume growth we’re ahead of where we thought we would be at this point in time. This brokerage gross profit per load, which is a big driver, we’re behind where we thought we would be. We thought that there would be some sort of turn in the cycle by now.

Managed Transportation FUM growth, we’re right on track with the potential to start running significantly ahead over the next couple of quarters if we convert some of this pipeline and on last mile profitability improvement, we’re a little bit ahead on that one. So, when you look at the four key drivers, we feel good about where we are and the one that we’re behind on is one that is more market driven than anything.

Bruce Chan

Okay, very helpful. Thank you.

Operator

We have no further questions at this time. Mr. Wilkerson, I will turn the call back over to you for closing comments.

Drew Wilkerson

Thank you, Sharon. In the second quarter, RXO delivered brokerage volume growth, large customer wins in Managed Transportation and significant increase in last mile stops and underlying profitability. In the third quarter, we expect to grow EBITDA sequentially and year-over-year. We’re effectively managing our costs, including the cost of purchase transportation. We remain focused on providing the best service, the most comprehensive set of solutions, continuous innovation and deep customer relationships. The Coyote acquisition is on track and we’re well positioned to continue to outperform over the long term.

Thank you for joining me today and enjoy the rest of your summer.

Operator

Ladies and gentlemen, this concludes your conference call for today. [Operator Closing Remarks].