All right. Good afternoon once again. It's Jordan Alliger, and I'm pleased to be able to kick off the logistics portion of our transport firesides with RXO. To speak to us about RXO, the logistics markets, and the transformative purchase of Coyote, we're very pleased to have Jared Weisfeld, Chief Strategy Officer, and Kevin Sterling, Senior Market Strategist, all here to discuss RXO, and with that, I think we're going to just go right into Q&A.
Let's do it. Thanks for having us, Jordan.
Of course. Maybe just to start, big picture, you guys purchased Coyote, and maybe share with folks who perhaps might not be as familiar the rationale behind the deal, what you feel it gives you, and what it launches you to be?
Sure. So we closed the acquisition of Coyote in September, and with the acquisition of Coyote, RXO is now the third largest freight brokerage here in North America. The strategic rationale of the deal is really rooted in the increased scale that we have as an organization. So to be able to service our customers with that increased scale, to be able to benefit from a purchased transportation standpoint, to be able to go ahead and have access to incremental offerings such as intermodal that we didn't have access to prior, we more than doubled the size of our brokerage, doubled the size of our LTL offerings. Then opportunistically doubling down on brokerage at the bottom of the cycle, trough multiple on trough valuation really was compelling.
So those were really the financial highlights of the deal, and the strategic rationale of the deal really rooted in scaling up RXO brokerage. I mean, because when you think about it, once you get past the gross profit line on the P&L, it's people, it's technology, and it's real estate. So we have to spend on those items irrespective of where we are in the cycle. So to be able to go ahead and double the scale of the brokerage and spread that volume across that infrastructure is really compelling.
And Jordan, I would add too, if you think about what I think is going to make this transaction very successful is there's minimal customer overlap. And if you look across your history of brokerage acquisitions, why they've been successful in the past, minimal customer overlap. And so from that standpoint, we're very excited because Coyote is going to bring a lot of new customers to us that we can penetrate and cross-sell.
That's an interesting point on the customer overlap or lack thereof. In theory, you'd think it's transportation, so there'd be a lot of overlap. So how are there differences, I guess, and is there a way you could talk more to that?
Let's break that down. And I think to Kevin's point, when we're going through the diligence process, one of the things that became very compelling was looking at their product portfolio across customer segments. 40% of their business was SMB and middle markets. That's not where legacy RXO played. Legacy RXO was dealing with the largest shippers in North America, Fortune 100, Fortune 500 shippers. We served over 50 of the Fortune 100, over 200 of the Fortune 500. So to be able to gain access to that kind of diversification from an end market standpoint was really compelling. Additionally, if you think about the verticals where legacy RXO was exposed to, think about industrial manufacturing, retail, e-commerce, automotive. Legacy Coyote's largest verticals were food, beverage, and transportation.
So by having a different end market mix and different vertical exposure, that became compelling in terms of the lack of customer overlap. And it's not just lack of customer overlap, it's lack of carrier overlap as well. Legacy RXO, our sweet spot was really the small to medium carrier, I think anywhere between one and 10 power units, one and 10 trucks. For legacy Coyote, it was much more medium, large fleet size, and to some extent also private fleets. And we've already seen some early successes in the month of October for some of the hurricane relief loads with Milton and Helene. We were able to successfully leverage some of that legacy Coyote capacity with some of the legacy RXO spot loads that we received. So we're already starting to see some early benefits on combining those transportation on the coverage side.
So as you've done this, by and large, I assume the Coyote capacity exposure stayed pretty sticky in the merger.
Absolutely.
All right. I mean, is that the big part of scale, just access to the additional capacity? I know you said spreading the cost out, but I mean, scale is an interesting term too in terms of a logistics deal, I think.
For sure. So being able to go ahead and have access to additional capacity to better serve our customers, I think, is certainly a part of the strategic merit of the deal. We now have 150,000 carriers on a combined basis that our customers can tap into. But also, you think about the benefits from scale attributable to the free cash flow generation of the enterprise, that's where we really get excited because once you get north of $100 million or so of Adjusted EBITDA, every incremental dollar all else equal will drop to the balance sheet at 75 cents on the dollar.
And if you just unpack that a little bit, legacy RXO was spending about $50 million in CapEx, legacy Coyote about $15 million-$20 million pre-synergy, and the interest expense of the organization pre- and post-synergy based on the way we financed the deal, it's about $32 million. So once you cover all of those fixed costs from a cash outflow standpoint, anything north of $100 million is going to drop to the balance sheet at about 75 cents on the dollar. So you think about the benefits of scale, and it's why the brokerage business has had such a high return on invested capital over time. Whether or not we're doing $250 million or $500 million of EBITDA, the ability to go ahead and generate significant free cash flow over time is pretty powerful.
Jordan, just to piggyback on the scale concept, think about it from this perspective. As Jared said, we've got access now to 150,000 different carriers. We're going to have opportunities to find more backhaul lanes. That's going to be the sweet spot that will help us improve our purchased transportation costs. We'll have many more opportunities to find backhaul lanes.
I'm not sure I know the answer to this. Are you going to brand everything as RXO?
Yes.
Okay.
Absolutely.
Underway now.
Yeah, for sure. We're still waiting on some permitting on a few different locations to get the RXO logo up there, but absolutely. This is going to be a true integration. We are one RXO. That is how we think about it internally. That is the message to employees. And we really want to make sure that we are one unified organization. And I want to piggyback on what Kevin just said also in terms of some of the benefits to scale, and he alluded to cost of purchased transportation becoming a synergy. We are ahead of schedule with respect to the integration. And we've outlined a plan that we communicated last month during earnings where the integration is going to be substantially complete by 12 months of announcing the acquisition, so call it late Q3 next year. And we've already identified RXO Connect as the technology platform of choice.
We're going to go ahead and sunset Bazooka, which was the legacy Coyote platform. But once these organizations are on one platform, cost of purchased transportation, we think we'll have the potential of being the largest source of synergy across the combined org. The pool of $4 billion of purchased transportation dollars, to put an example out there, we talked about this on earnings. We improved spend by 1% better. That's $40 million that all else equal will drop right to the bottom line. So we certainly expand on that a little bit, but I just wanted to give you some color on that.
That was going to be my question. On the PT, maybe talk about how getting all this on one platform, the preferred platform, obviously, because I don't think the PT was part of the synergy numbers you talked about. So how does technology, how will it help you drive PT? And will that be more on legacy Coyote portion that's going to get better? I would assume.
Let's break that down. So the first part is the cost synergy estimate, which we increased by 60% last month to more than $40 million. That is separate and distinct from the purchased transportation opportunity. So the purchased transportation opportunity, we believe, has the opportunity to be the largest sources of synergies, so by definition, that would approach $40 million or more. And when we think about how we're going to achieve that, we can't really achieve that in earnest until we're on one platform. I think we're seeing a lot of manual wins right now where if legacy Coyote and legacy RXO coverage folks are talking to each other, they can certainly collaborate, but think about across the entire network, across all of our branches. That's a very manually intensive process.
But then fast forward to once the integration is substantially complete, sourcing capacity from one system, leveraging one set of pricing algorithms, and being able to go ahead, to Kevin's point, find the right backhaul lane. How are we sourcing capacity more effectively across that one unified system? That opportunity is significant. But it's also not just, to your point, in terms of is it just legacy Coyote. It's both. We knew through the diligence process that through clean room, certain lanes RXO was buying better and certain lanes that legacy Coyote was buying better. So the way I see it is I think there are three different avenues where we're going to have longer-term improved cost of purchased transportation. I think it's improving on the legacy Coyote side where legacy RXO was purchasing better, vice versa.
And then as a combined org, when we think about just the larger scale that we have, can we buy better together? I think the answer is going to be yes.
Interesting, because I think there's certainly one question out there: is tech integration. You've probably had that a few times. It can be complicated. Is it complicated?
For sure. And our tech folks have been working nonstop for a long time now. But I think what's interesting is that even though we couldn't begin the integration until we closed the deal in September, the pre-integration work began on day one when we announced this deal back in June. So there's been a lot of pre-integration activities that have been occurring. We talked about this last month where we also did engage some external parties that you would expect as it relates to integration partners. So it is mapped out by function across the board. We're making significant progress. We're ahead of schedule. But it's multifaceted. So it's the tech integration on the TMS side, our transportation management system. It's on the CRM side. It's making sure that we're talking about one domain. All the emails work.
So I'm making it sound easy, but I can promise you that it's not trivial. I mean, I think you sort of break down the aspects of a brokerage M&A and sort of the key focus areas that you all should be looking at as we make progress. It should be on the tech integration. It should be on the customer side. It should be on the carrier side. And it should be on the people and the employees. And we can certainly touch on that as well.
And Jordan, too, while we haven't done much M&A prior to Coyote, as you know, legacy XPO, early on, it's part of our DNA. And so a lot of people within the organization worked on those transactions. So we're just dusting off the playbook.
Drew did 17 deals while at XPO. So I think to Kevin's point, it's part of our core competency.
Right. Okay.
And it's not like you're trying to put the two systems together. You're legitimately retiring the Coyote system and rolling out.
That's also a great point. We're taking a best of both worlds approach across the org, but it's not we're going to take the best of RXO, the best of Coyote, and then create a whole brand new system. It is taking RXO Connect, taking Freight Optimizer, our internal TMS, taking some of the functionality that we thought was really, really compelling on the legacy Coyote side within Bazooka, including some tools that they had for RFPs and pricing and on the carrier side, lifting and shifting, bringing that over to RXO, and then decommissioning and sunsetting Bazooka. Exactly.
It's interesting. So it feels like a lot of it was you're going to take RXO stuff and technology and processes, etc., bring it to Coyote. Did Coyote teach you guys something?
Yeah. I think we went into this with eyes wide open, and we actually did a bake-off between Bazooka and RXO Connect. We wanted to make sure we were being as objective as possible to ensure that we were creating the best platform going forward. So within RXO Connect, some of those tools that I was telling you about that we're going to take from legacy Coyote on the pricing side, on the carrier side, on the procurement side, there's a lot of good stuff there. And I think that we're going to take that. We're going to implement that. But it's also a good point in terms of is there good stuff at Coyote? And not only the tech, I can't speak high enough in terms of the quality and the caliber of the people at the organization.
I mean, some of the people that are there now have been there since the company was founded in 2006 by Jeff Silver, so the level of expertise in the organization and the success that we're having on retention of all of the retention agreements that we've handed out, there have been a lot. There's only been one that has not come back, and it's because the individual didn't want to relocate, and in fact, they're actually trying to figure out if there's somewhere else within the org they can fit, so the level of excitement within the org is the highest it's been in a long time, and we're really excited about that because, as you know, we use our technology and it enables the organization, but this is a people business.
Is part of the process, is there consolidation of facilities that may happen or not so much?
For sure. As you think about that $40 million, greater than $40 million synergy target that we have out there, real estate consolidation will absolutely be part of that. I mean, Chicago is a great example. That's where the GX, which is their legacy main headquarters, is. We also have an office in Chicago. As we look at opportunities to continue to consolidate across the country, that's certainly embedded within that synergy opportunity.
One thing you touched on right at the beginning, but we really didn't delve into it before we turned to other sort of topics, is cross-selling. How do you effectuate cross-selling through the purchase of Coyote?
Since the close, we've already identified over 200 unique cross-selling opportunities within the org, and we've got a war room set up in Charlotte, which identifies and tracks every single one of these cross-sell opportunities. Most of them so far have been on the SMB side where legacy Coyote now has access to services that they did not have access to prior, including customs brokerage, warehousing, some transloading, some forwarding opportunities, etc. I think the longer-term opportunity within that cross-sell really sits within managed trans and last mile. How can we successfully cross-sell some of our complementary solutions within legacy RXO into the legacy Coyote enterprise business? It's a much longer sales cycle. Some of the managed trans sales cycles can be 18 month-24 months and beyond, but also very sticky business, 3 year-5 year type cycles.
And the other benefit there is, and this goes back to the earlier comment on lack of customer overlap and lack of vertical overlap. Legacy Coyote enterprise business had a lot of exposure within food and beverage. We did not. And our managed transportation business is also heavily into industrial and automotive. So by tapping into some of the vertical expertise that legacy Coyote has within their brokerage business, I think there's a real nice opportunity to go ahead and add incremental freight under management within managed trans longer term.
Okay. UPS remains a key customer.
Absolutely. Key and important customer.
It's a contractual arrangement.
Yep. That was part of the guiding principles as part of the deal. We wanted to make sure that we had the ability to retain them as a customer and then grow with them longer term, and the current agreement goes through January of 2030.
What packages do they funnel through your brokerage business? Is it heavier? I'm just trying to understand the character. What are they giving you or what goes into your?
Yeah. I'm not going to go into any particular customer in terms of their volume. But I think for legacy Coyote, they've remained an important customer. We talked about in this quarter in particular, legacy Coyote did have a ramp with one of their large customers into Q4. There was a seasonal type business uplift into peak. And we guided the entire business from a consolidated perspective to grow 5%-10% sequentially from the volume perspective. That would include growth at both legacy RXO and legacy Coyote.
Okay. I guess just final Coyote specific question. You've had it. The deal's been closed for a few months now. It feels, I think, a few months already.
Time flies.
Would you say you got pretty much what you expected so far?
It's a good question. You never know what you have until you get the keys to the business. But I think the diligence process was very thorough. And at this point, we're not seeing anything that is inconsistent with our internal expectations. I mean, clearly, as the year progressed, the freight market has weakened. But that's not idiosyncratic to anything with respect to Coyote. I'm sure that's often every other transport company that you cover. But no, I think the biggest surprise to me has been just the quality and the caliber of the people at the organization and how they're going to make a difference longer term. I think our conviction in terms of normalized earnings power post-Coyote being materially higher versus pre-Coyote is certainly higher over the last two months.
I remember.
For sure. Nothing culturally, just how both entities are aligned. It's really amazing. Both have a growth mindset. And that's exciting.
I remember the Coyote Curve.
We're still there.
We are retaining that, and we're going in the process right now of communicating that to customers. Their update just went out a couple of weeks ago, but we've gotten consistent feedback from customers across the board that the Coyote Curve is insightful. The individual that was behind that is staying with us, and we'll absolutely be part of the package going forward.
Maybe bringing it in the last chunk of the presentation. Obviously, it's a freight discussion to some degree here. I've been asking this of all the companies. Would you care to share your thoughts on: is this finally it? Are we at the bottom? Do you see any green shoots out there?
Yeah. We're definitely at the bottom. We've said that for a while now. I think the question becomes that of the path from a recovery standpoint. And I think myself, Kevin, and anyone else that had to crystal ball is certainly throwing it out the window at this point. I think as you think about where we are from here, are there green shoots? For sure, there are green shoots. I mean, tender rejections as a proxy for the industry have been moving higher here over the last few months. They're now at almost 7%. So I think when we look at the business from an external perspective, things that you can keep an eye on in terms of the two KPIs that are most relevant, I think it's going to be tender rejections and loads-to-truck ratio.
Tender rejections are sitting at 6.7%-6.8% year-to-date highs. Last time they were here, probably July 4th, probably up 2x plus year- over- year, so that's encouraging. Loads-to-truck ratio is probably sitting about 4 to 1. It's been a little bit behind, and line haul spot rates have also moved higher, probably to $1.60 a mile. So I think what we don't know is the sustainability of that. Anytime we've seen over the last two and a half years where tender rejections and loads-to-truck ratio have tried to break out, there's just been too much capacity and demand hasn't been there. So I think the sustainability of this move higher is something we're going to be watching over the next couple of months, but that was encouraging. I think that retail inventory positions continue to be very healthy, which is encouraging.
Obviously, you saw over the last week in terms of Black Friday, Cyber Monday, that sell-through was encouraging. On the flip side, I do think that automotive, we talked about this on the call, was weak. Industrial, despite the fact that we saw the first uptick in ISM, new orders component in several months, continues to be weak. And I think sort of as we think about the housing market, given what's happened on the long end of the curve over the last few months with the upcoming change in administrations, do we have a housing recovery? So I think there's certainly green shoots, but I want to make sure that we're balanced.
There was some talk going into the election, maybe what was holding folks up was uncertainty. Election's over. Interest rate cuts are underway. Is there something to maybe conjecture that this could potentially unlock some more people doing things?
Yeah. I think that's fair. I think we do need to see ultimately what policies get implemented. But I do think that clearly the equity markets are ascribing some optimism with S&P sitting at all-time highs. I think that the business community is optimistic in terms of any kind of fiscal stimulus, deregulation, bonus depreciation that could occur in 2025, and what that could mean for incremental capital investments. As I just mentioned, you're already seeing some of the upticks on surveys with industrial PMI moving higher, consumer confidence sitting at seven-month highs, consumer confidence for durable goods at four-month highs. So I definitely agree with you that there is a sense of optimism. But I also think we need to see ultimately what policies end up getting implemented.
You touched briefly. You mentioned capacity in the trucking sector, truckload sector, and the demand side of the equation. I mean, how do you see that? I mean, is enough capacity really come out of the market to create some sustainability? Do we need a very significant demand uptick to truly tighten the markets, would you say?
We've certainly seen capacity exit the market every month for the last two and a half years, which is encouraging, but not at the pace required to get us back into equilibrium. Encouragingly, as I mentioned earlier, loads-to-truck ratio starts to move higher here. You can't have loads-to-truck ratio basically go from 0%-0 7% if there's still that much capacity in the market. So I think on one hand, while there's still too much capacity, I think that's certainly encouraging to see some of the freight KPIs such as loads-to-truck ratio and tender rejections and line haul freight rates start to move higher. So I do think that there's still too much capacity. But I think that's helpful.
I think something to keep an eye out heading into the back half of the year, I guess the rest of the month of December into Q1, is insurance has been a real pain point for a lot of the carriers, and this is typically when we see the seasonal uptick on exits associated with carriers unable to make those insurance payments, so I think that's certainly something we're going to be watching over the next few months. Do you see that seasonality impact the carrier exits? I mean, last week, to put an example, was the highest weekly exit of carriers we've had all year at almost 1,000 carriers as per the FMCSA, so we shall see, but I think that's something to keep an eye on.
One of the things that often denotes a good cycle in brokerage is a spot market developing. And being able to, okay, even though there might be a squeeze because rates go up, etc., you're able to push into the higher-priced spot market. I assume we're not at that point. But I don't know. How do you think how could you envision things progressing? Is it going to be like a normal cycle when we start to cycle up in that regard, do you say?
I don't know what a normal cycle is anymore. But I would say that I think your assumption is correct. We're not yet there. To give you some guideposts in terms of what must be true for us to be there. If tender rejections punched up to low double digits from 7% now and loads-to-truck ratio moved from 4 closer to 6- 1, 7- 1, I think that's an environment that is certainly much more supportive of incremental spot loads.
Got it. And in an up market, let's say, because right now you're heavily contracted, right?
Yep.
I don't know if that's changed with Coyote.
Yeah. Let's talk about that a bit because that's a good point, so if you look at the legacy RXO business, 80% full truckload, 20% LTL from a volume standpoint. Of the full truckload business, about 78% or so was contractual, so heavily contractual to your point, and our firm belief, and we've seen this over the last 15 years, is you need the contractual business to win the spot volumes. When you look at Coyote, I think mix is an important consideration, so their contractual business is probably going to be closer to two-thirds versus our high 70% with one-third being spot, but their SMB exposure is materially higher relative to legacy RXO, and their SMB is largely spot, so I think you need to mix adjust that, so yes, they've got a lower contractual book of business, but that is because they've got a larger SMB business.
When are we thinking about it in the legacy RXO terms in a bull market for brokers, where does the 78% go to?
That 78% could go as low as 60%. High 50s, low 60s. So there is, if you sort of think about peak to trough on that contractual versus spot mix, you could look at on the full truckload side, it's called 60/40 versus where it is right now at 80/20.
Jordan, just to expand on that, if it's 60/40, that doesn't mean we're hauling less truckload freight. I mean, less contractual freight. It just means there's more spot opportunity, which is the lucrative part of the cycle that every broker loves.
Have you gotten really into the next contract negotiation cycle yet?
We are in the thick of it right now. So we'll certainly report back in February during earnings. But I think I'm already going to predict your next question. I think we mentioned this a little bit on the call. As we're thinking into 2025, what we're hearing from customers and what we're hearing out there is low to mid-single-digit increase in contractual rates is probably not a bad way to think about the environment.
Right. What about on the LTL brokerage side? Can you talk to a little bit how big that is for you generally? Coyote, is it similar? And is that a market that you feel is a real growth avenue?
Yes, absolutely. We are very excited about the LTL growth for the combined business going forward, both legacy RXO and legacy Coyote. For legacy RXO, about 20% of the mix was LTL, and for legacy Coyote, about the same, so we've more than doubled the size of our LTL brokerage with Coyote, but the nature of the LTL business is very different, whereby the legacy RXO LTL business was large contractual volumes from our full truckload business, getting big books of business onto the LTL side. On the legacy Coyote side, it was much more transactional, and a lot of it SMB, so it goes back to that SMB comment before where they've got larger SMB exposure, and that's across both TL and LTL.
Okay. So when you sort of put together some of these macro points and how things progress, I mean, I suspect that as the spot rates go up, the odds are we're going to probably see some compression on that gross profit margin or net revenue margin. But I think in the past, you've said that's a good thing to happen because it means things are tightening.
You'll see. We will all be very excited if the squeeze is on. But I think it's still too early to be determined in terms of whether or not this is the squeeze before the recovery. But I do want to. There are a lot of different paths that squeeze could look like. If it is a V-shaped recovery, you might not even see the squeeze because spot volumes would be pretty significant and increase the percentage of the mix. If it's a stair-step recovery, it'll be a little bit slower recovery. Therefore, that contractual book of business squeezes a little bit longer, similar to what we talked about for Q4, whereby we saw that increase in buy rates, especially on the legacy Coyote side, without that corresponding increase in sell, which compressed the margin.
One thing I wanted to ask since we're talking about margins, RXO legacy Coyote, and I know there's a gap. I mean, is closing that gap part of the story? I guess with the pricing algorithms, but.
Absolutely. I mean, I would focus back onto the conversation with respect to cost of purchased transportation. As we think about the ability to really close the gross margin gap between legacy RXO and legacy Coyote, taking that $4 billion pool of cost of purchased transportation dollars, getting on one system, sourcing capacity from one system, leveraging the same pricing algos, that's absolutely part of it.
Okay. Do you have opportunities too with Mexico? Is that part of the story or?
Absolutely. Both legacy Coyote and legacy RXO had Mexico operations. When we think about nearshoring and redomiciling of supply chains, you talked earlier about some of the potential policies that might come with the new administration. I think longer term, that is what we are really excited about, especially on both sides of the border, but especially on the south side of the border with respect to, we've seen a lot of our automotive customers really embrace nearshoring over the last five-plus years. But that opportunity longer term, we've got a pretty massive facility down in Laredo on the World Trade Bridge. That ability to redomicile supply chains into the U.S., I think, is a long-term positive for all of freight in terms of increased truckload demands.
Any near-term jitters though around tariff noise?
Yeah. I think, again, we still need to see what policies are going to get implemented as opposed to narrative that may or may not lead to an actual policy decision. But our exposure there is small but growing, so we're not really seeing anything.
Okay. I want to make sure we leave some time for your other businesses. Any particular updates you could glean how you're looking about those strategically longer-term growth?
You want to talk about managed transportation?
Yeah. I think we talked a little bit about it earlier, Jordan. Managed transportation, we really like that business because the contracts there, they're long-term contracts, I think three to five years. The retention rate is very, very high. So you really get in and you get into the customer's supply chain and now you're managing it. But from that business, we can create a lot of synergy loads. So we can funnel a lot of business to our brokerage division, freight forwarding, last mile. So managed transportation is a business I think you'll see us continue to focus on just because of the relationship, the long-term contracts, the retention rate, but also the ability to create synergy loads across the organization.
That business has tremendous momentum. We are going to be onboarding more than $400 million in freight under management here in Q4 alone. The late-stage sales pipeline is more than $1.3 billion. So when we think about the long-term opportunity within managed trans, not only based on current momentum, but also what I was talking about earlier in terms of the ability to cross-sell back into the legacy Coyote enterprise base, I think there's a lot of opportunity there over the medium term.
That business benefits as supply chains become more complex and changes happen. It leads to kind of, think about it, more outsourcing. That's how we benefit.
So in managed transport, what are you providing the customer just to take a step back, just to make sure people understand?
We act as the control tower for our company, for our customers. We are effectively the shipping department of our customers, making sure that we are managing very complex systems. Deals can be anywhere between $50 and hundreds of millions of dollars in freight under management. Think about some of the largest companies or subdivisions of companies within North America where RXO acts as their transportation department and deals, to Kevin's point, with really complex supply chain decisions. Sometimes we have our employees on site at the customer. It's a very sticky, synergistic relationship.
Realizing you just did a very large acquisition, you're probably not in the mood for another acquisition anytime soon. But are there other avenues in the logistics world that could be interesting to you?
Our capital allocation philosophy really has not changed since spin, where it's been number one, invest back into the business. We also have a $125 million share repurchase authorization from the board. And number third is opportunistic M&A. So I think that will always be part of the playbook. But the bar is high. We need to make sure that it fits from an accretion standpoint, which Coyote obviously did, which was materially accretive to both adjusted free cash flow and earnings per share. We need to make sure that it fits from a cultural standpoint. We need to make sure that the bandwidth is there for the management team. But to your point, I think we didn't touch on this, but the acquisition of Coyote was transformative for the company, not only from a scale perspective, but the balance sheet is significantly healthier.
It was in a very good spot before, but we cut our leverage by more than 40%. So we're now at 1.6x leverage, which is right in the middle of our target longer term of 1x-2x across cycle. But to be at 1.6x at the bottom of the cycle, I think provides significant optionality as we think about how we're going to deploy that balance sheet going forward.
Okay. Great. Well, we are somehow out of time. So I guess with that, we'll leave it there. But thanks, guys, so much for coming. And appreciate you sharing your insights on RXO.
Perfect. Thank you, Jordan. Thank you.