Okay, so next up, the Transport, Truck and Industrials Conference. We have RXO. Very happy to have Jared Weisfeld here. He's the Chief Strategy Officer. I believe he's got some brief opening comments to go over, and then we'll jump right into Q&A. So if you have any questions in the room, raise your hand, we'll get you a mic, but let me start off with Jared.
Great. Thanks, Brian, and great to be here, everyone. During this presentation, I may make certain forward-looking statements within the meaning of federal securities law, which by their nature involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from those in 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 a copy of the company's earnings release in the Investor 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 when discussing its results. Thank you.
Okay, with that out of the way, let's jump right in. So just talking about the market to start, Jared. So weather obviously had a big impact in January, but it seemed to fade pretty quickly afterwards. What does that tell you about sort of the state of the truck market right now?
Sure. So weather, to your point, Brian, had a significant impact for RXO in the month of January and for the rest of the industry. To put things in perspective, when you look at January versus December, our gross profit per load in our brokerage business in the regions that were really impacted by weather, in particular, call it the Midwest and Southeast, where it was most acute, gross profit per load declined at a rate 2x-3x that relative to the non-weather impacted states. So when you look at our Q1, adjusted EBITDA guidance that we gave on the call, that was really significantly impacted by the weather, patterns that we talked about and, those gross profit per load considerations. So what does that tell us about the trucking market?
It does show you that even though the market is currently quite loose with respect to too much capacity relative to underlying demand, when you have an event like we had during the month of January, even though national load to truck ratios can be at relatively modest levels, you can have really acute shocks to the system, where ultimately capacity can tighten without the corresponding increase in sell rates, and cause that squeeze that we referred to in the month of January.
So we're in produce season right now. Excuse me. So we've heard some commentary that it's been a little bit more competitive than people had thought, at least for, like, the first 20% or so. Is there anything you can offer in terms of a similar sort of view and where we stand right now, kind of in the early stages of some of these bids getting, you know, put back for the second or third time and seeing where they're going to finalize?
Sure. What we talked about on the call was our expectation for fiscal 2024, calendar 2024 contract pricing to be roughly flattish relative to 2023, depending on customer. Might be up a little bit, might be down a little bit, depend on customer, will depend on lane, but on average, we expected a flattish environment. No real change from our perspective. Obviously, saw the same comments that you're referring to, but from our standpoint, you know, I'd refer you to our comments that we made on the call in terms of roughly flattish in terms of expectation for contract pricing, 2024 versus 2023.
Yeah. So I was at a big shipper conference last week. A lot of it was global and ocean, but there was certainly some surface transportation comments around there. And one comment was that bids were a little bit shorter, and so people are just, you know, doing three months and three months. So I don't know if that's something that you've seen here at this point as well, and if you have, you know, what does that sort of tell you about the shipper mentality?
No, I if anything, I'd say we're seeing the opposite in terms of, you know, given where the current rate environment with, with where we are in terms of carrier rates relative to costs, right? Effectively bouncing along the bottom. We're seeing shippers opt for for longer duration contracts, right? You think about when we're at the peak of the market, I think it was certainly much more appetite for mini bids and shorter duration type contracts. I mean, on average, our contract length is about 12 months, and we're seeing, you know, call it 75% of our contract book is on, call it annual duration. So I'd say, if anything, we're probably seeing shippers look to lock in 12-month type contracts as opposed to three to six months at this point in the cycle.
Yeah, it was a little surprising to hear that because you think exactly what you said, that-
Yeah
People want to lock in-
Exactly.
Closer to the bottom, so hearing that they're still pushing it out wasn't necessarily all that intuitive. But, in terms of just the bids getting, you know, put into the system, sorry. And, sorry about that. And then normalizing, are you still expecting sort of like a normal cadence of execution of bids, you know, when you look at quarters, or is that also sort of been moving around a little bit here in this rate cycle?
Yeah, I think pretty consistent with our initial expectations. You know, if you look between Q4 and Q1, over half our bids occur between those time periods, and not really expecting any significant shift from that normal cadence relative to what we're seeing now.
Okay. Capacity, overcapacity has obviously been a challenge for a while. It's lingered for a lot longer than I think anybody would have expected at this point. So on your platform, do you see any signs of, I know there's thousands of carriers you don't use, and most brokers don't use most of them, but are you starting to see any signs of capacity leaving the system?
Yeah, absolutely. So, to your point, we've got over 100,000 carriers on our RXO platform. As of last quarter, it was about 115,000 carriers. So we've seen, from an industry standpoint, an acceleration of carrier exits, and we've seen net exits every single month since October 2022, which is certainly encouraging in terms of getting us to a better supply-demand equilibrium. From an RXO specific perspective, in terms of our platform, last quarter, we actually had a 5% sequential reduction on active carriers on our network from Q3 to Q4, so call it at about a 20% annualized clip. So that's a big number.
But interestingly enough, if you look at the percentage of volume that those carriers hold for us, it actually represented less than 0.5% of our volume. So, to your point, we have certainly significantly more capacity relative to our current volume. But what it does tell you is that I think the carriers, the smaller owner-operators, those that are on the fringe, are certainly exiting at an accelerated rate. And it really comes down to unit economics, right? If you look at the average carrier, obviously, there are a lot of considerations between whether or not that carrier has paid off their vehicle, whether or not how old that vehicle is, whether or not they've been doing maintenance. But on average, call it, you know, about $1.70 per mi ex-fuel in terms of their cost.
That compares to current spot rates at, you know, call it $1.40-$1.45. So that, that delta is unsustainable, and I think that speaks to the increasing carrier exits that we've seen and our belief that we will see an acceleration between now and year-end.
So in that regard, we're watching the unit economics as well. But anything else that you're monitoring in terms of maybe some early signs of produce season, or what else are you looking at in terms of trying to figure out when this market is going to turn?
Yeah, I'd say you know, the two most important KPIs from a freight market standpoint that we look at in terms of external data set would be loads to truck ratio and would be tender rejections, right? So, going back to the earlier comments with respect to the month of January, you saw the market tighten up a little bit, and in some regions, quite a lot, based on the weather that we talked about, and loads to truck ratio was probably around 3-to-3.5, and it subsequently declined to approximately 1.2, levels not really seen since pandemic, and then you'd have to go back to 2015, 2016.
With respect to tender rejections and, you know, with respect to load-to-truck ratio, before I move on to tender rejections, you know, the long-term average for load-to-truck ratio is about 4-to-1. Typically, see spot volumes when we're at 6-to-1, 7-to-1. So it goes back to what I was saying earlier in terms of still very much in a loose market. With respect to tender rejections, industry-wide tender rejections, probably about 3%-4% versus, you know, in a, quote-unquote, "normal market," probably high single digits.
So, you know, when you start to see load-to-truck ratio and tender rejections, and they'll generally move together, move up towards that 4-to-1 and high single-digit range respectively, I think that'll certainly be a good indicator that supply and demand are in relatively better balance than they are right now.
Okay, so is there, are we looking for some seasonal strength that could help kind of generate that? Obviously, a lot of freight is seasonal, but produce season, home improvement season, like all these things that are coming up here, is that something we can sort of look to as the next, obviously, we could see an event at any point in time. The market feels like it's sort of primed to experience one of those, or could move when one of those happens. But is that sort of the next data point where we should be watching for?
Yeah, I'd agree with that. I mean, Q2 is generally a stronger quarter from a seasonal perspective relative to Q1, and that's across all of our lines of business at RXO, not just truck brokerage, but also inclusive of our three complementary services, last mile, managed transportation, and freight forwarding, which support our brokerage business. So to your point, Q2 is seasonally better relative to Q1. Produce season will occur as well. And, you know, all else equal, you know, I would certainly, you'd expect better volumes Q2 versus Q1.
So there's been a lot of interesting things and different things about this, unique things about this cycle, of course, one of which is just seeing contract and spot and that spread, you know, be inverted for a while in the pandemic and then coming back down into almost record levels. I think it widened back out again in February. So how does that, o bviously, there's two factors to that. How does that resolve itself, and I guess, which one should we see move first, and, you know, how does the business kind of manage through that sort of uncertainty?
Sure. So, to your point, contract versus spot spread right now is certainly wider in February with the market weakening, right? In terms of load-to-truck ratio, moving down towards ones, closer to one. But remember, you know, for a good brokerage, when you have that kind of volatility in load-to-truck ratio, you know, that certainly impacts our ability with respect to cost of purchased transportation, right? When load-to-truck ratio moves down, all else equal, we'll have the ability to bring down our COPT, cost of purchased transportation.
When it moves higher, that'll be a headwind to cost of purchased transportation, but you'll get to the point where spot volumes start overlaying as a percentage of mix when you get back to that 6-to-1, 7-to-1 type level. So with respect to the spread on contract versus spot, our belief is that that spread, when that spread converges, it will be a function of spot moving higher. And I think that goes back to what I was saying earlier in terms of that really being rooted in unit economics, right? The carrier cost relative to spot rates, ex-fuel, is unsustainable. So I do think that ultimately you'll start to see supply exit the system. You'll start to see spot rates move higher.
And how the model behaves on that is really going to depend at the rate of carrier accelerations, right? And I think where you're going on this is, you know, we obviously have a very large contractual book of business. Last quarter, it was 80% of our consolidated mix, on a TL-only basis, was about 75% of our mix. So certainly, you could start to see some margin pressure when that spread converges, like we saw in the month of January. But when you tighten up to the point where load-to-truck ratio moves higher, spot volumes start emerging, you'll have the overlay in terms of pretty accretive gross margins and gross profit per loads, which is how the models worked by design for the last decade.
Right. So I do want to get to that in a second, but just in terms of, you know, most of the companies in transports have a second half recovery sort of built into the expectations. So we're just asking everybody to kind of outline what's in, what's in your view, you know, what do you see from that? Is it which company specific and what sort of market-based recovery?
Sure. I'd say, you know, principally, we believe the main variable impacting the rate of the freight recovery is that of supply, right? You look at the rate of supply, and that's, you know, quite frankly, that's both from a carrier standpoint and from a brokerage standpoint. You look at, let's take those, one by one. From a carrier standpoint, you look at the number of new entrants that entered the market during COVID, when, cost of capital was effectively free, and you looked at, you know, an incredible rate environment, both from a duration standpoint and from an absolute standpoint in terms of where those, rates were. It was a really robust time. So I think we're now working through the excesses of that. Every month since October of 2022, we've seen carrier exits.
We need to see more of that from an industry standpoint, and we need to see that accelerate. I think that will, that will certainly. That gives us confidence with respect to our base case recovery, in the second half. And I think that is, certainly rooted in the assumption that we will have an acceleration of carrier exits between now and year-end. From a brokerage supply standpoint, it's interesting, right? I mean, that same principle applies in terms of, you know, low cost of capital, had a lot of entrants to the brokerage space during COVID as well. Last year, from an industry standpoint, roughly 10% of brokerages, exited. First two months of the year, it's held at that rate.
So if that holds between now and year-end on a two-year stack, it'll be a 20% reduction in the number of brokerages that are out there. And I think that enhances RXO's value proposition to customers and our relative competitive positioning in terms of the ability to go ahead and not only continue to grow volumes like we've been doing with best-in-class margins, but ultimately, when the market does eventually recover, there will be less brokerages that are out there, right? Because to be a scale brokerage, you need to go ahead and be able to invest in technology, invest in customer relationships, and really have the scale necessary to compete, and we think that'll be a relative competitive advantage for us. On the demand side, you know, demand's been weak for some time now.
If you look at Cass Freight Index for 2023, it's been down, call it, mid- to high-single digits. That obviously contrasts with our volume growth at, up 12% last year, and I think that certainly is idiosyncratic to RXO. But, you know, if we get back here into the back half of the year with no peak season, that'll then be, you'll know better than me, but I would assume that would be unprecedented with three no peak seasons, with three peak seasons that were muted or lack thereof, consecutively. So I think that, I think that does also speak to the better inventory position of the consumer, relative to 12, 24 months ago.
You think about all the goods that were consumed during COVID, and we're now, you know, 4+ years through that, and the average useful life on many of those goods were three to five years. So that lines up as well. And then the inventory positions on our customers, right? You've seen, for four straight quarters, the largest retailers in North America, year-on-year revenue growth has accelerated to that of inventory growth. So I think that inventories are certainly going to be in a better position into year-end.
Okay, great. So when you do see that cycle turn and, you know, spot market comes back and you get some spot freight, I think one of the debates that people have in the market now is like, well, how does a broker like RXO, who's got, you know, 75%-80% contract, how do you make sure that you also get your fair share of the spot market, which, you know, by default, is kind of more commoditized, and people like Walmart and Target still want to have good rates on that. So how do you kind of balance that, still keep, you know, profitable growth in mind when you look at that broader basket of freight?
Sure. So the model by design has been largely contractual. Think about who we serve in terms of our customer base. We are serving the largest of the largest shippers in North America, right? We serve over 50 of the Fortune 100. We serve over 200 of the Fortune 500 large enterprise class type shippers. So we've got that contractual mix, and we service that freight really, really well. So with, you know, what we believe is best-in-class service, on-time pickup, delivery, the ability to leverage best-in-class technology, which is RXO Connect, the proprietary system that's been developed over a decade ago. You have the contract customers that have access to significant amount of capacity with that service, with that technology, and we honor our contractual commitments, right?
Time and time again, what we hear from our customers is that we honor our contractual commitments incredibly well, and when the market turns, they remember that, right? The ability to go ahead and win special projects, win mini bids, win that spot volume, this has happened time and time again for the last decade, where, you know, I think it's critical for a good broker to be able to successfully pivot from contract to spot. We'll still haul the same contractual freight, right? But when the market eventually turns, you'll start to see the spot market come back, and we'll be able to go ahead and really earn our share of the spot market. You know, I think 2020 was certainly the last market recovery that we saw, and it was a short market recovery.
But just to give you an understanding of how quickly that spot market can come back, that spot market can come back for RXO. When the market did recover, we saw within 90 days, so within one quarter, we saw that spot market ratio increase by almost 1,000 basis points in one quarter, right? So again, that was certainly more of a V-shaped recovery, which is certainly not our base case, but it just gives you a sense of our ability to go ahead and pivot the business in terms of winning that spot freight when the market does recover.
So the team and Drew talk about, you know, playbooks for different parts of the cycle. If we go into, not that I expect it to happen, but if we go into a third straight peak of no peak, I guess, and lower for longer, what does the playbook for RXO look like at that point?
If it, I mean, so I guess, one, I think it already has been a lower for longer environment. So if the L-shaped recovery persists and there is no recovery, is sort of how I would phrase it, we view that as a pretty significant opportunity for RXO, right? We're gonna go ahead and get even closer to our customers. Our top 20 customers, on average, have been with us for about 16 years, so we're gonna go ahead and get closer to our customers. And you think about some of the dynamics that have been occurring over the last couple years, and certainly expect this to occur in 2024 as well, right? There's less freight available, so the pie is shrinking, but our share has obviously grown significantly relative to the market. Why is that, right?
Our shippers are consolidating the amount of vendors that they use, and RXO is a prime beneficiary of that because we are a core strategic carrier. So, we're at the table. We're considered a true partner for our shippers, and we have the ability to go ahead and gain share throughout all market cycles. And I think that really speaks to the value prop of RXO. So if it is a lower for longer environment, I think that will certainly be the playbook. And I think that's gonna influence the eventual pace of recovery and what that inflection potential inflection looks like.
So if this persists even longer, I'd imagine the rate of carrier exits will continue to increase, the rate of brokerage exits will continue to increase, and I think that certainly has the ability to influence what that shape of the recovery looks like. And I think that our relative competitive positioning, quite frankly, will be even stronger when the market does eventually recover, if it is lower for longer.
I guess, should be lower for even longer.
Even longer.
Yeah. A couple other areas of the business I want to talk about, just high level in terms of power only. You know, that got a lot of attention during the last upcycle. It's not necessarily anything new for you or for the industry. Maybe you can talk a little bit more about that. And then maybe one thing that's a little bit more newer, or at least my perspective, is LTL. Can you talk about growing that business, what that looks like and how early you are in sort of building out that capability?
Sure. So let's touch on both of those. So power only, to your point, is not something new for RXO. We've been doing that for a long, long time. Represents about 10% of our volume for our brokerage business. And that's stayed pretty consistent, which I think shows you how much that business has been growing, because the brokerage business has been growing quite significantly. So I think customers love it. It's a stickier value proposition, and it's something that we're excited to continue to offer. With respect to LTL, LTL has been a really nice growth driver for us. Last quarter, LTL volumes grew approximately 45% year-over-year and now represent about 16% of our mix, with core truckload representing 84% of our mix.
Certainly significantly lower from a revenue perspective, in terms of percentage of revenue. And, you know, it's a, it's a lower revenue per load type offering, right? But what's interesting about LTL is that we're winning a lot of this LTL business from our core truckload carriers. I mentioned earlier that service is so important. We are servicing the full truckload freight really, really well, to the point where we are getting contractual LTL commitments from our full truckload customers wanting to go ahead and engage with us on our LTL service offering. So, I see LTL continuing to increase as a percentage of the mix, quite significantly over the next few years.
I do think at scale, LTL, even though it is lower revenue per load, gross profit per load, and EBITDA per load relative to core truckload, at scale, it will be higher, gross margin percentage and EBITDA, margin percentage as well. It's a much more digital automated offering.
Mm-hmm. So where, where are you, I guess, if you need a baseball analogy, in terms of the inning for LTL? Because obviously truckload is pretty soft, so maybe that's why we're focused a little bit more on LTL, but you know, from an outside perspective, at least that's how it feels. But where, where do you feel like you are in terms of capability and scale for LTL?
If I had to, you know, put a spot on our LTL journey in terms of percentage of mix, I'd say maybe we're at bottom of the third. I think we're still relatively early on in terms of what that offering looks like, and it's very contractual type business, right? It is not spot, not transactional. It's contractual in nature, and I think we're continuing to win more LTL offerings from our full truckload businesses, so full truckload customers. So very early on in that journey.
Okay. So I want to talk about cross-border, as well. I think you just opened another facility or had an expansion at Laredo. What does that do for, I guess, for the customers, for the service offerings, and how big is that specific vertical within RXO?
Yeah. So, you know, when you think about cross-border last, that's been growing at a pretty significant clip for us in terms of year-on-year volume growth. You know, call it 30%-40% year-over-year for quite some time now. Having a position in Laredo with the facility that we have, it's really a state-of-the-art facility sitting right by the World Trade Bridge, and really gives prime real estate access for our customers to have a ton of capabilities down in Laredo. And it's not just a single type functionality, right? It is holistic in nature. So think about transloading, warehousing, doing doing customs brokerage, right? So I think that is a significant opportunity, and Mexico is now United States' largest trading partner, so I don't think that this is a you know, one to two year type trend.
I think this is a long-term secular trend. I think nearshoring is a really significant opportunity for both RXO and the industry. And I expect a continued focus in terms of the build-out of our service functionality down at the border.
Okay. So RXO has been going through some cost savings and getting out a little bit more here on the last earnings call. So maybe you can give us a sense in terms of, you know, what's incremental for this year, where it's coming from, and, you know, given the focus on technology and how that plays out with RXO, is that something you're still investing in, you know, through the bottom of this cycle?
I'll take the last part first. Yes, we are absolutely investing in technology. Our 2024 CapEx guidance is still pretty robust, at $40 million-$50 million year- over- year, of which a majority of that is technology spend, and that puts us more on track with our long-term cross-cycle average at about 1% of revenues. As you recall, last year had about $12 million of strategic real estate spend with respect to CapEx associated with our brokerage offices. In terms of how we think about the cost outs, so you're right, in 2023, we achieved $32 million of annualized cost savings. Not all of it was implemented earlier on in the year, so you will still see some incremental benefit, 2024 versus 2023. A small amount.
I think the larger percentage or the larger contribution of cost savings, 2024 versus 2023, will be associated with the cost takeouts that we talked about on the call. We talked about at least $25 million of incremental annualized cost saving opportunities in 2024, and we talked about moving expeditiously on the call. So you should expect a large portion, if not all, of the full run rate impact of those cost takeouts to occur starting in the June quarter. And I think they are coming out across the board, right? It is it's vendor spend, it's people, it is duplicative roles.
You think about, you know, we, we spun off from, from XPO in, November of, of 2022, and so we've been, you know, going at this about, you know, a year and a half now as a standalone entity. So I think we've gotten certainly, a lot more familiar with, you know, what are the costs really necessary to run this business? Thinking about just the true operating efficiencies that we, that we have in the business. And, you know, the way Jamie and I, and our CEO, think about, the business is certainly from a continuous improvement type mindset. So how do we have the ability to get even more efficient? And I think, you're gonna see a lot of, a lot of that occur in 2024.
Remember, we also had $45 million of incremental corporate expenses that came with us as part of the spin. So I think that's, that's certainly part of some of the cost savings that we see here in 2024. So pretty significant amount between 2023 and 2024, approximately at least $57 million of costs coming out of the model. A large majority, to the extent this is your next question, a large majority are gonna be structural in nature. So, you know, of course, longer term, as the business eventually does recover, we will need to add heads in the business, but, not nearly at a rate of the cost takeouts that we're, that we're taking out here.
The whole goal here is to really prime the model for significant operating margin leverage when the cycle does finally inflect and recover.
You're right, that was gonna be the next question. But in terms of, I guess, looking, you know, here and now, and then through the margin squeeze, and then into the recovery, there still is a question about this profitable growth for RXO and how to measure it, you know, fully loaded, AGP per load. So how would you think about answering that sort of question when we look at, you know, EPS and EBITDA, where it is for this quarter? It's a little bit hard sometimes to square that with profitable growth.
100%. So totally, totally understand what you're saying. So from a, you know, stack our gross margins up within our brokerage business relative to our peers, they are best in class with the best volume growth, and, you know, it's not just this quarter, it's been that way for a long, long time, right? And I think that is a testament to the technology investments that you just referred to. We have the ability to procure cost of purchased transportation at better than market rates, given our robust technology platform, which has yielded sustainable, competitive advantage in terms of gross margin percentage. You know, when you look at adjusted EPS on a fully loaded basis at this point in the cycle, you know, we're certainly gonna be negatively impacted by, by the, by the lower or the softer freight environment.
We also have interest expense that is at our scale, certainly amplifying down to the EPS line. And it's not just the brokerage business as well, right? Think about other lines of business that also have a fixed cost base, notably last mile at this. You know, certainly Q4 versus Q1, right, from a seasonal standpoint, you have some deleveraging in the model. So I think the point that I want to convey is, at this point in the cycle, when, you know, we've been operating at this L-shaped recovery for a decent amount of time, you've got fixed costs spread across, obviously, a lower revenue base, which I think amplifies it down at the adjusted EPS level.
But conversely, when, you know, going back to what I was just saying with respect to the cost takeouts and the operating efficiencies, you're gonna see all of that releveraging on the way up in terms of what the incremental margins look like on the upside. I mean, from the bottom, right, specifically to our brokerage business, you'll see, you know, 60%-70% type incrementals in terms of $1 of gross profit growth would yield, you know, call it $0.60-$0.70, if not higher, in terms of incremental adjusted EBITDA.
Can you talk a little bit about, competition, specifically in the, in the brokerage space? So we've got one of the digital brokers has just been relaunched, not too long ago. You've got UPS saying they're gonna, shop Coyote. So what does the competition look like? And, you know, are these still players that you feel like you're gaining share from and able to hang on to it, you know, as you go through this cycle and again, into an eventual recovery?
Yeah, I mean, we take, w e're very humble. We take all of our competition very seriously. We don't underestimate any of our competitors. I think what we're focused on is our ability to continue to invest in the business. You know, you talked about having a playbook. Our playbook right now is continuing to go ahead and get closer to our customers. As I mentioned, top 20 customers have been with us for 16 years on average. So going ahead and maintaining those strong customer relationships, executing on our technology roadmap, executing on our commitments to our customers, and we think that by focusing on all of those elements, that will continue to yield best-in-class operating results. So that's what we're focused on right now.
One of the other things that focus on more in the near term here is just the revolver and the cash flows. I know that came up on last earnings call as well, but it seems like you need to dip into the revolver by a little bit. I don't know by how much. And are there any covenants that need to be sort of addressed at that point in time as well?
Sure. So from a working capital's perspective, from time to time, we will certainly use our revolver. We've got access to $600 million committed facility on a revolver. We've got another $700 million of receivables on the balance sheet that are totally unencumbered, so call it $1.3 billion of cumulative liquidity across the company. So very strong liquidity position. So you're right, certainly at the midpoint of our guidance, call it $15 million relative to the capital needs of the business, combined with some fixed expenses, we'll certainly be dipping into the revolver. I think we talked about on the call an adjusted free cash flow of probably negative low single-digit million and revolver usage, probably around $10-$15 million.
With respect to covenants, I think we said this on the call as well. We don't anticipate an issue in terms of bumping up against our covenants. But additionally, we also, as you imagine, work very, very closely with our bank group.
Okay. So maybe we'll finish off with some of the other services, lines of businesses. You talk about the pipeline, the book of business. Can you give us a little bit of a sense in terms of what that means? I'm assuming it's mostly on the managed transportation side.
Sure. So, a couple of things there. Before moving over to managed trans, our brokerage pipeline last quarter was up 90% on a two-year stack. So I think that's certainly what gives us confidence on our continued performance in terms of volume and market share gains within our core brokerage business. On the managed trans side, we were, we're really excited for to talk about new managed expedite customers that came onto the platform in 2023 and in Q4, where we believe we are the market leader. And in 2023, we had a 100% customer retention rate in managed transportation. So, that business continues to remain very strong. Pipeline continues to remain very robust.
We talked about some new wins that are onboarding into 2024. The strength of that managed trans pipeline also continues to be quite robust heading into 2024. So we're really excited about that business, and that business fits so strategically with our core brokerage business. You think about the ability to go ahead and have our core brokerage business combined with, you know, over $3 billion of freight under management within our managed transportation business. We've talked about last quarter, synergy loads from our managed transportation business to our brokerage business were up sequentially and year-over-year again. So I think we're really excited about the opportunities within managed trans heading into 2024.
Do you see similar synergies with the global forwarding business, or is that something that's a little bit further afield, considering, you know, just, just what it is relative to something that's maybe a little more domestic with managed trans?
Yeah, I'd agree with that, and I think that's why the team has really pushed hard over the last two years to diversify that forwarding business. Our forwarding business isn't a traditional forwarding business. Over half of the profits within our forwarding business are now domestic services that really nicely complement our truck brokerage business. So think about some of the examples that I was giving at the border earlier in terms of transloading, warehousing, customs brokerage. To be able to go ahead and continue to strategically grow those profit pools, I think really does enhance our competitive positioning and supports our brokerage business.
Then Last Mile is an area, I think, the last couple of years, been working a little bit more on pricing. So how does that look going into 2024? Obviously, we've had a very big buy everything from home sort of movement. So has that settled out now? And where is the profitability sort of trending in that business? Because it is a fairly difficult business to operate and to do well at scale.
So to your point, last year in Q1, we talked about strategic pricing, pricing initiatives that we took within our Last Mile business, and we successfully grew our EBITDA in 2023 versus 2022, despite stops that were down high single digits year-on-year. So I think that speaks to a testament to the value proposition that we offer to our customers. And you know, Last Mile stops down year-on-year. It's been that way for quite some time, right? In terms of the mix shift that we've seen in the economy with respect to goods versus services. Finally, we've started to seen a little bit of stabilization on that goods versus services mix in PCE, so we'll see if that's sustainable into the back half of the year.
But we were really pleased to be able to grow Last Mile EBITDA in 2023 versus 2022, in 2024 versus 2023. I think there's some really interesting opportunities that we have on, on the operational side. One, in terms of, how we think about carrier costs, and then two, how we think about, building out the Middle Mile, and three, how we think about strategically optimizing the footprint of that, of, of that business with about, you know, over 70 Last Mile hubs in the United States. So I think combining all of those threes, those three variables does yield some pretty interesting, opportunities for, for our Last Mile business.
Okay. One quick one to end here, just on organic growth, I think is clearly a priority for the company, but is there anything, you know, from M&A perspective or technology perspective that you think, you know, might be accretive or additive, when you look at this business over the next three to five years?
Sure. We have a pretty balanced approach and philosophy when it comes to capital allocation, and I'd say it's across three main pillars. Number one is organic growth. We've been primarily an organic growth story for the last 10 years, and we continue to take a significant market share from within the brokerage space. Number two, in the form of stock repurchases, with a $125 million share repurchase authorization. And number three, opportunistic M&A. Certainly, from time to time, to the extent something makes sense, we'll go ahead and consider it, but you know, ultimately, it needs to be culturally accretive, financially accretive, and the bar certainly is high, given our strong return on invested capital within our brokerage business.
Okay. Well, we're out of time, so I have to end it there. But Jared, thanks very much for spending the morning with us. Appreciate it.
Thank you, Brian. Appreciate it.
Thank you.