RXO, Inc.

Welcome to the RxO Q4 2022 Earnings Conference call and webcast. My name is Michelle 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 the federal security 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 files as well as the earnings release. You should refer to a copy of the company's earnings release in the investor relations section of the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of the non-GAAP financial measures that the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin.

Good morning, everyone. Thanks for joining today's earnings call, our first since our spinoff from XPO. Joining me today in Charlotte are Chief Financial Officer Jamie Harris and Chief Strategy Officer Jared Weisfeld. Our first quarterly report as a standalone company was a strong one, despite the challenging macroeconomic environment. We reported adjusted EBITDA of $64 million. Our Q4 results were driven by another quarter of profitable volume growth in brokerage, despite a muted peak season. Our complementary services, including last mile and managed transportation, also performed well. Overall, our gross margin remained strong at 19.6%, up 250 basis points year over year. Our tech-enabled brokerage business continued to significantly outperform the industry, take share, and grow volume profitably. We set a new volume record in the fourth quarter. Brokerage volume was up 4% year over year in the fourth quarter of 2022. For the year, we grew brokerage volume by 12%. We are proud of our sustained volume growth. Since the fourth quarter of 2020, RxO's brokerage volume has increased by 27%, and since 2019, our brokerage volume has increased by 56%. We are focused on continuing this momentum, and we are confident that we will deliver. This is profitable growth. In the fourth quarter, brokerage gross margin was 17.9%, an increase of 290 basis points year over year. Many of our complimentary services also perform well. Our managed transportation pipeline is especially strong right now, and the business won several contracts with large new customers. In a volatile market, large shippers are more likely to outsource their transportation departments to RxO, and when they do, they stay with us for years to come. Last mile performance in the quarter was strong despite the difficulties facing the retail and e-commerce sectors. December 2022 was our strongest December in terms of stops since 2019. In freight forwarding, ocean and air rates have declined as expected. We have done a good job of diversifying this business and domestic offerings now comprise approximately 50% of freight forwarding's profitability. These domestic services provide synergy stint to other parts of our business. RxO's business model is capable of generating significant free cash flow, and our balance sheet remains strong. Jamie will talk more about that in a few minutes. We have a playbook for every stage of the market. At this point in the cycle, we're focused on taking market share while maintaining our best-in-class profitability. Our contract volume is growing. The rates are declining. Additionally, there are limited opportunities in the spot market, and these dynamics are putting pressure on the gross margin per load in the first half of the year. But this is my favorite part of the cycle. RxO is positioned to win as customers consolidate their carriers. They are choosing RxO because of our track record of delivering results for our customers our best-in-class technology, and our massive capacity. This positions us well for when the market inflects. Jared will discuss the market cycle in more detail. Our financial performance was underpinned by our winning sales strategy and best-in-class technology. Our sales team continued to expand business with longstanding customers while onboarding new blue-chip companies. New customers are coming to us at an impressive rate, and our sales pipeline is stronger than it has been in several years. RxO bid on about 70% more brokerage revenue year over year in the fourth quarter, driven by annual bids. Existing customers continue to grow with For the full year, the number of brokerage customers who generated over $1 million of revenue with us increased by 14% versus the prior year. The number of customers generating more than $1 million of revenue has increased by 66% over the last two years. Our customers see value in our unique portfolio of services. In 2022, about 62% of revenue came from customers that utilized more than one of our services. Customers also choose RxO because of our best-in-class technology. In the fourth quarter, 87% of our loads were created or covered digitally, the most ever for us. The RxO Drive app has been downloaded more than 920,000 times, representing 45% growth year over year. We will continue to invest in our technology to push for even more adoption. Relative to the market conditions, we are performing well as a standalone company and have significant volume and big momentum heading into 2023. I'm pleased with how smoothly our new leaders are integrating with those that have been with RxO for years. We've assembled some of the best minds in the business, a strong combination of seasoned leaders, best-in-class operators, and cutting-edge technologists. We have a great company culture which combines the experience of an industry leader with the energy and entrepreneurial spirit of a startup. We're proud of what we were able to accomplish in the fourth quarter. And while we're executing well in a volatile macro environment, we're also planning for a variety of scenarios. Our business thrives during volatile times. We have the playbook, the technology, and the people to outperform the industry, and I'm confident that we will grow brokerage volume again on a year-over-year basis in the first quarter. Our January volume supports our confidence. RxO's January brokerage volume grew year-over-year and accelerated when compared to the fourth quarter of 2022 volume growth rate. RxO remains strongly positioned for long-term growth and we are on track to meet the long-term targets we set at Investor Day last year. And now, Jamie will cover the quarter. Jamie?

Thank you, Drew, and good morning to everyone. In our first quarter as a standalone company, we generated $1.1 billion in revenue compared to $1.3 billion in the fourth quarter of 2021. Profitability remains strong with a 19.6% gross margin of 250 basis points year over year. Our adjusted EBITDA was $64 million in the quarter compared to $77 million in the fourth quarter of 2021. And our adjusted EBITDA margin was 5.7% down 10 basis points from the fourth quarter of 2021. We are very pleased with these results given the overall economic environment. Adjusted earnings for the quarter was $0.28 per share. Our results were driven by another quarter of profitable market share gains in brokerage, as well as good results in our last mile and our managed transportation service offerings. Importantly, we continued to outperform the industry. Despite a muted peak season, we grew brokerage volume by 4% year over year and 6.5% sequentially. We were pleased to report that we set a new volume record in the fourth quarter. From a profitability standpoint, brokerage results were again best in class with brokerage gross margins of 290 basis points year over year. Below the line, our interest expense for the quarter was $5 million. Our adjusted effective tax rate was 21.5% in the quarter, lower than our expectations driven by discrete, non-recurring tax items. Regarding cash, we continue to have a strong balance sheet, and we had strong cash collections in the quarter. As I will discuss cash today, I would like to refer you to slide 10 of the investor deck for reference. We ended the quarter with $98 million of cash. This is consistent with our internal expectations as we had non-recurring cash outflows of $27 million post-spin, which was completed on November the 1st. $21 million of the cash outflows were related to the spinoff, including items such as rebranding costs, banking and financing costs, and tech-related CapEx. The remaining $6 million of cash outflows were to repay the final portion of money received in a prior year related to the CARES Act. Taking these unusual items into account, our ending cash balance would have been $125 million. This translates into a free cash flow post-spend of $25 million, which was very strong. This represents a more than 60% conversion of EBITDA to free cash flow. We expect our EBITDA to free cash flow conversion to continue to be strong, and we expect to grow our cash balance sequentially. We anticipate approximately $10 to $15 million of spend-related and restructuring costs in 2023 weighted more heavily in the first half of the year. Approximately $10 million of these costs are expected to be cash outflows. Available capital remained strong with approximately $600 million in liquidity, including our $500 million revolver, which remains undrawn, and our December 31st cash balance. Our net leverage at quarter end was 1.2 times adjusted EBITDA, which remained at the low end of our stated target range of 1 to 2 times. Regarding 2023 modeling assumptions, We expect depreciation and amortization in the range of $70 to $75 million, interest expense between $33 and $35 million, and an adjusted effective tax rate of approximately 25%. You should also model an average diluted share count of approximately 120 main shares. Overall, we are pleased with our financial and operating results as well as our balance sheet positions. Now, I'd like to turn it over to our Chief Strategy Officer, Jerry Weisfeld, who will talk more about our long-term outlook.