RXO, Inc. Q4 FY2025 earnings call

First, taking decisive actions to mitigate the effects of the prolonged soft freight market, optimizing cost structure and gross profit per load, augmenting carrier base, growing brokerage volume, etc. Second, having a strong brokerage late-stage sales pipeline for new business that grew more than 50% year over year, driven by full truckload, and the managed transportation business having a very strong pipeline. Third, finalizing a new asset-based lending facility. Also, talking about transformational AI efforts across volume, margin, productivity, and service, with results like a 24% increase in digital bids per carrier, etc. And steps taken in cost structure, such as brokers' headcount decline and productivity increase.

Brokerage: Overall volume declined 4% year over year. Less than truckload volume growth of 31% was more than offset by a 12% decline in truckload volume. Brokerage gross margin was 11.9%. Complementary services: Managed transportation was awarded more than $200 million of freight under management, and last-mile stops grew by 3% year over year. Complementary services gross margin was 20.2%. For the quarter, total revenue was $1.5 billion, gross margin was 14.8%, adjusted EBITDA was $17 million, adjusted EBITDA margin was 1.2%. For the full year, total revenue was $5.7 billion, gross margin was 16.2%, adjusted EBITDA was $109 million, adjusted EBITDA margin was 1.9%.

First quarter outlook reflects weak freight demand across all lines of business, expecting adjusted EBITDA between $5 million and $12 million. 2026 modeling assumptions: CapEx between $50 million and $55 million, depreciation expense between $65 million and $75 million, amortization expense between $40 million and $45 million, stock-based compensation between $25 million and $35 million, net interest expense between $32 million and $36 million, cash tax outflows of approximately $6 million to $8 million, restructuring transaction and integration expenses between $25 million and $30 million, and a fully diluted share count of approximately 170 million shares.

Capacity exits and tighter market conditions impacting the near-term profitability of the brokerage business. Supply-side shock resulting from continued enforcement of nondomiciled CDL restrictions and English language proficiency. Winter storms impacting the first quarter's EBITDA.

Q: Drew, what drove the 50% increase in the late-stage brokerage pipeline?

A: The pipeline apples to apples is up more than 50% year over year, speaking to the team's focus, existing large customers with long relationships, some new names, bids typically implemented in the second quarter, contractual side in the low to mid-single digits, and spot side significantly higher.

Q: Why haven't we seen spot volume despite tender rejections north of 10?

A: Spot loads started to increase but haven't been enough to offset the compression in the contractual gross profit per load, with the regulatory side setting up for spots as tender rejections climb and seeing some waterfall routing guides break down.

Q: How much EBITDA bounce can we expect with market tightness and seasonal demand improvement?

A: Every dollar improvement in gross margin per load is well north of a million dollars in annualized EBITDA, and earnings power is strong during a recovery.

Q: What are the different dynamics in LTL vs truckload?

A: LTL built with strong enterprise customer relationships, bids for truckload typically implemented in the second quarter, and LTL onboardings being lumpy depending on timing.