RXO, Inc. Q2 FY2025 earnings call

• Achieved adjusted EBITDA of $38 million, at the high end of the guidance range. - Brokerage business outperformed the market, with volume growing 1% YOY, led by 45% growth in less than truckload volume; truckload gross profit per load improved by 7% sequentially. - Beginning to realize benefits of combined tech platform, with more effective transportation purchasing. - Last mile continued double-digit growth, with 17% stop growth for the fourth consecutive quarter. - Achieved 58% adjusted free cash flow conversion and added cash to balance sheet.

Brokerage: Revenue was $1.025 billion, representing 69% of total revenue. LTL volume grew 45% year-over-year, while truckload volume declined 12% year-over-year. Brokerage gross margin was 14.4%, up 110 basis points sequentially. Complementary services: Revenue was $457 million, 31% of total revenue. Managed Transportation generated $142 million in revenue, down 9% year-over-year. Last mile revenue was $315 million, up 19% year-over-year, with last mile stops growing 17% year-over-year, marking the fourth consecutive quarter of double-digit growth.

• Expect Q3 adjusted EBITDA to be between $33 million and $43 million. - Sequentially improved truckload brokerage profitability and disciplined cost management to offset seasonal decline in last mile. - Anticipate significant reduction in second half restructuring, transaction, and integration expenses compared to the first half of 2025. - In 2026, expect capital expenditures between $45 million and $55 million.

• Prolonged soft freight market conditions. - Automotive weakness impacting truckload volume. - Uncertainty in macroeconomic environment affecting customer demand.

Q: Tom Wadewitz from UBS asked about truckload volume weakness and the impact of optimizing price, volume, and service.

A: Drew Wilkerson responded that automotive was part of the volume decline, and they worked with customers to optimize, with bid season largely behind us and continued focus on customer relationships.

Q: Ken Hoexter from Bank of America asked about margin characteristics of LTL vs truckload and synergy details.

A: Drew Wilkerson explained LTL's stability and lower volatility, while Jamie Harris and Jared Weisfeld discussed synergies, with $50 million of synergies in the P&L and ongoing integration progress.

Q: Stephanie Moore from Jefferies asked about freight market assumptions and seasonality.

A: Jared Weisfeld responded on continued soft market assumptions, automotive headwinds, and expectations for Q4 improvement due to truckload profitability and transportation procurement.

Q: Chris Wetherbee from Wells Fargo asked about the customer process for truckload profitability.

A: Drew Wilkerson stated the process is largely done with bid season behind us, but continued focus on customer relationships.

Q: Daniel Imbro from Stephens Inc. asked about last mile growth.

A: Drew Wilkerson said it's all organic, with cross-sell from acquisition and new customer wins.

Q: Ravi Shanker from Morgan Stanley asked about customer optimism and AI.

A: Drew Wilkerson and Jared Weisfeld discussed customer clarity on tariffs and AI's role in productivity and margin expansion.

Q: Scott Group from Wolfe Research asked about LTL gross profit per load and auto volume decline.

A: Jared Weisfeld explained LTL's stable gross profit per load and automotive being a significant factor in truckload decline.

Q: David Zazula from Barclays asked about last mile profitability.

A: Jamie Harris discussed profitability of new and existing business, with lower contribution margins from some new business.

Q: Ariel Rosa from Citigroup asked about LTL vs TL market dynamics.

A: Drew Wilkerson and Jared Weisfeld stated both LTL and TL will grow, with LTL offering stability and ease of management for shippers.

Q: Jason Seidl from TD Cowen asked about truckload gross profit per load improvement.

A: Drew Wilkerson said it's due to pricing strategy and better transportation procurement.

Q: Jordan Alliger from Goldman Sachs asked about spot market and gross profit per load.

A: Drew Wilkerson responded on spot market impact and that they don't need spot market for transportation procurement but it affects overall industry.