RXO, Inc.

Welcome to the RxO Q2 2025 earnings conference call and webcast. My name is Ludie 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 federal securities laws, which by their nature involve a number of risks, uncertainties, and other factors that could cause actual results to be permaterialized from those in the forward-looking statements. A discussion of factors that could cause actual results to be permaterialized is contained in the company's SEC filings 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 NANDGAP financial measures that the company uses when discussing its results. I will now turn to go over to Drew Wilkerson. Mr. Wilkerson, you may begin.

Good morning, everyone. Thank you for joining today. I'm here in Charlotte with RxO's Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weisfeld. There are five main points I want to convey this morning. First, we again delivered on our commitments in the quarter and achieved adjusted EBITDA of $38 million at the high end of the guidance range we provided to you last quarter. Second, our brokerage business outperformed the market and grew volume by 1% year over year, driven by 45% growth and less than truckload volume. Importantly, truckload gross profit per load improved by 7% sequentially despite tighter market conditions. Third, we're beginning to realize the benefits of having our team on a combined tech platform. We're purchasing transportation more effectively than we did before the integration, but still have a lot of opportunity ahead. Fourth, Last Mile continued its impressive run of year over year growth, achieving 17% stop growth, the fourth consecutive quarter of double-digit growth. And lastly, we accomplished all of this while achieving an exceptional adjusted free cash flow conversion of 58% and adding cash to our balance sheet. I'd now like to give you an overview of our results within Brokers, which outperformed despite the prolonged soft freight markets. Overall, Brokers volume grew by 1% year over year, outpacing the cash freight index, which contracted by more than 3% in the quarter. Our growth was led by a 45% increase in less than truckload volume. That's an acceleration from last quarter's 26% growth. We continue to win in this area because we make LTL shipping easy for our customers. Over the past few years, we've invested in cutting-edge technology that improves productivity and reduces costs for our team while giving LTL customers complete visibility. We maintain relationships with nearly all the LTL providers in North America, which enables our customers to realize the benefits of scale. Growing our LTL business is a key part of our company strategy because it provides a stable source of EBITDA with strong margins across market cycles. We still have many opportunities to continue growing our LTL business, and that growth will come from both existing truckload customers and new customers. On the truckload side, volume declined by 12%. The decline was primarily due to automotive weakness and efforts we undertook with customers to optimize price, volume, and service. Brokerage gross margin was .4% in the second quarter, above the midpoint of our outlook, and truckload gross profit per load increased by 7% sequentially, despite tighter market conditions. This was the strongest sequential increase in three years, and we expect to improve truckload gross profit per load again in the third quarter. We continue to achieve robust productivity gains in brokerage, driven by enhancements to our tech platform. Productivity over the last 12 months increased by about 18%, and over the last two years by 45%. There's still significant room for improvement. We continue to invest in AI tools that help our people be more productive and enhance the experience for our customers and network of carrier partners. Let's talk about our efforts to procure brokerage capacity more efficiently, leveraging our larger scale. As a reminder, on May 1st, our coverage operations were combined, providing our carrier network with access to significantly more freight, and our reps with access to an even larger network of carriers to cover that freight. Our common platform is enabling us to realize the benefits of our increased scale, helping provide the best truck for each load, and realize the benefits of our additional power lanes. We're already seeing the results, and over the last few months, we've improved our buy rate favorability by approximately 30 to 50 basis points. We remain confident in our ability to drive further improvements, and Jared will walk you through more details later in the call. Earlier this quarter, we successfully completed the migration of Legacy Coyote's ERP system, which was a huge accomplishment. The last two items remaining in the integration are the completion of the customer migration to RxOS Technology Platform and the decommissioning of certain back office systems. The customer migration is underway, and we continue to expect that the bulk of our tech integration will be complete by the end of the third quarter. Importantly, our team is already operating as one RxO, working together to ensure the success of our customers and our network of carrier partners. As I travel to the branches around the country, I'm proud of the energy and the dedication that I'm seeing. We set forth an aggressive timeline to complete integration, and we're ahead thanks to the hard work of our team. In complementary services, our momentum continued in the second quarter. Last mile stops grew by 17 percent year over year, the fourth consecutive quarter of double-digit stop growth. The exceptional service we provide, combined with our massive scale, cutting-edge technology, and financial stability, is enabling us to gain profitable market share. The best-known brands in the big and bulky space continue to rely on RxO for home delivery services. Managed transportation again increased the number of synergy loads it provided to brokers and grew its late-stage sales pipeline sequentially. For the quarter, RxO delivered adjusted EBITDA of $38 million. RxO's company-wide gross margin was 17.8 percent. Cash performance was a highlight for us in the second quarter. Despite the prolonged soft freight market, we delivered a 58 percent adjusted free cash flow conversion. We also added cash to our balance sheet. All of this speaks to the long-term free cash flow generation capabilities of the RxO business model. Jamie will discuss cash in more detail later in the call. Overall, the freight market continues to be soft. We did see some tightening throughout the second quarter, but this was driven by capacity and not improved freight demand. As we previously stated, carriers have exited, resulting in a more balanced market overall. On the demand side, though, our customers are still managing through macroeconomic uncertainty. Our effort to procure transportation more effectively, along with our focus on cost discipline, will enable us to outperform typical seasonality in the third quarter. Jared will discuss this in more detail later in the call. Our strategy remains the same. We're focused on driving profitable growth across market cycles while continuing to advance our cutting-edge technology platform. When it comes to growth, we're focused on increasing our scale and expanding the solutions we offer to our customers. We have a great track record when it comes to driving growth. Our total volume in the second quarter, when including the inorganic impact of the Coyote acquisition, is up 275% versus the comparable quarter five years ago. Our long-term organic growth results are likewise impressive. Over the five years prior to the Coyote acquisition, RXO grew total volume by 72% organically and 11% Cager. In that time period, Truklo was up 43%, and LTL was up a whopping 851%. More importantly, when you focus on the three years pre-acquisition, which narrows in on the current down cycle, our team was able to grow volume by 21%. Future growth will not only come from our core Truklo business, but will also come from premium services that expand our deep customer relationships. We'll continue to advance the businesses that provide us with stable sources of EBITDA during all market conditions, including LTL and managed transportation. We are focused on taking profitable market share over the long term through market cycles. We continue to hear from customers and carriers that our technology is the most advanced and easiest to use in the industry. Each year, we spend more than $100 million on technology. Our tech continues to improve the productivity of our people, enabling them to spend more time with our customers and network of carriers. Our AI and machine learning algorithms are also constantly working to optimize our pricing. You can see the impact of these investments in our margins and our productivity, which has increased by 45% over the last two years. We're doing all of this while remaining disciplined when it comes to cost. The focus is helping us navigate the difficult freight market conditions and will enable us to achieve significant operating leverage once the market improves. RHO is well positioned to deliver increased earnings power and free cash flow over the long term and across market cycles. Now Jamie will discuss our financial results in more detail.

Jamie? Thank you, Drew, and good morning. Let's review our second quarter performance in more detail. Our results were at the high end of the ranges we provided. For the quarter, we delivered $1.4 billion in total revenue, gross margin of 17.8%, adjusted EBITDA of $38 million, and adjusted EBITDA margin of 2.7%. Sequential adjusted EBITDA growth was driven by improved truckload profitability within brokerage, strong execution and seasonality from last mile, and disciplined cost management. We delivered these improved results despite continued headwinds within the automotive industry. Automotive headwinds increased on both the sequential and -over-year basis. Specifically, the slowdown in automotive volume represented a company-wide gross profit headwind of more than $10 million -over-year. Automotive freight, because of its time-critical nature and higher service requirements, typically carries a higher than average gross margin with strong flow through to EBITDA. Below the line, our interest expense was $8 million. For the quarter, our adjusted earnings per share was $0.04. You can find a bridge to adjusted EPS on slide 7 of the earnings presentation. Now, I'd like to give an overview of our performance within our lines of business. Broker's revenue was $1.025 billion and represented 69% of total revenue. We had strong LTL growth driven by continued customer wins. That growth was all set by a decline in full truckload volume. The decline was primarily due to automotive weakness and efforts we undertook with customers to optimize price, volume, and service. Broker's gross margin was .4% of 110 basis points sequentially. Gross profit per load for truckload improved by 7% sequentially, which was the largest increase in three years. We achieved this result despite the tighter market conditions in the quarter. We continued to bring down our cost of purchase transportation, and we're also beginning to see early benefits associated with the carrier and coverage migration, which was completed on May 1. Complementary services revenue in the quarter of $457 million increased by 9% year over year and was 31% of our total revenue. Gross margin within complementary services remained strong at 22.8%, a sequential increase of 180 basis points. Now let's move to each line of business within complementary services. Managed transportation generated $142 million of revenue in the quarter, down 9% year over year. Managed transportation continues to be impacted by lower automotive volume in our managed expedite business. Our last mile business generated $315 million in revenue in the quarter, but 19% year over year. Last mile stops grew by 17% as we continued to gain profitable market share within the big and bulky category. This was the fourth consecutive quarter we've grown last mile volume by double digits. Let's now discuss cash. Please refer to slide 8. Adjusted free cash flow in the second quarter was $22 million, yielding a strong 58% conversion from adjusted EBITDA. This puts our -to-date conversion at 47%. We're especially pleased with our conversion during the quarter as it included our semi-annual bond interest payment of $13 million. Our results were primarily driven by working capital management. Most impactful, we've harmonized working capital processes across the combined organization and we believe the majority of these improvements to be permanent. We anticipate strong cash performance again in the third quarter. Longer term, given our asset-like business model, we remain confident in the 40% to 60% conversion across market cycles. We ended the quarter with $18 million of cash on the balance sheet, which increased by $2 million sequentially with no change to the revolver balance. We grew a cash balance despite our $13 million semi-annual bond interest payment and $12 million of restructuring, transaction, and integration cash outflows. Looking forward, we expect to grow our cash balance again in the third quarter. As you can see on slide 9, our liquidity position continues to be strong with more than $575 million of total committed liquidity at the end of the second quarter. Quarter-end net leverage was 2.1 times trailing 12 months bank-adjusted EBITDA, but slightly with compared to the prior quarter. We continue to have significant capacity to deploy our balance sheet in line with our balanced capital allocation philosophy. Now let's discuss our expectations for the third quarter. We continue to operate in a fluid macroeconomic environment with significant shipper uncertainty, which is reflected in our outlook. For the combined company in the third quarter, we expect to generate between $33 and $43 million of adjusted EBITDA. Sequentially, improved truckload brokerage profitability and discipline cost management are helping to offset a seasonal decline in last month. For the third quarter, you should model SG&A down slightly when compared to the second quarter, depreciation expense of approximately $17 to $19 million, amortization expense of approximately $9 to $11 million, and an adjusted effective tax rate of approximately 30%. Jared will provide more details on our third quarter outlook shortly. Slide 14 includes our 2025 modeling assumptions. There are a few things I want to highlight. While we're always operating with a continuous improvement mindset, we have completed most of the cost actions associated with the Coyote acquisition. We therefore expect a significant reduction in second half restructuring, transaction, and integration expenses when compared to the first half of 2025. For 2026, we continue to anticipate a material reduction in capital expenditures and expect next year's capex to be between $45 and $55 million. Our business model, combined with our cost discipline, will yield significant operating leverage as the market improves. While the timing of an improvement in freight market demand remains uncertain, we are hearing some cautious optimism from our customers that clarity on trade policy is bringing incremental business confidence. The integration of Coyote is nearly complete, and we are seeing early wins when it comes to procuring transportation more effectively. RXO is well positioned to deliver strong results across market cycles. Now I'd like to turn it over to our Chief Strategy Officer, Jared Weisfeld, who will