RXO, Inc.

welcome to the rxo first quarter 2026 earnings conference call and webcast my name is ellie and i will be your operator for today's call please note that this call 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 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 filings as well as in its earnings release. You should refer to a copy of the company's earnings release in the Investors Relations section on the company's website for additional important information regarding forward-looking statements and disclosures and reconciliations of 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 now begin.

Good morning, everyone. Thank you for joining today. With me here in Charlotte are RSO's Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weitzfeld. There are four main points I want to convey this morning. First, we're seeing clear signs of improvement in the freight market, primarily driven by supply-side tightening despite overall soft demand, typical seasonality, and severe weather in the first quarter. Second, we have significant momentum within the business. Our broker's full truckload volume improved every month as the first quarter progressed. Additionally, Our spot mix increased by 500 basis points sequentially in the first quarter, resulting in a strong gross profit per load improvement. Spot mix also increased in April. Third, we continue to secure major customer wins. In brokerage, we're converting our significantly larger sales pipeline. In managed transportation, we were awarded more than $100 million in freight under management in the first quarter. and our late-stage sales pipeline increased by more than $200 million. We also saw traction with our new middle-mile solutions offering. Lastly, we've accelerated our deployment of the GenTech AI, which is driving significant improvements in volume, margin, productivity, and service. I'll start with an update on the freight market. We believe a supply-driven recovery is taking shape. Capacity continues to exit the market, a trend that began to accelerate late last year due to regulatory changes and enforcement. We have even more conviction that these capacity reductions are structural in nature. In addition to improving the overall safety of the industry, as well as helping to combat theft and fraud, this has set the market up for a multi-year recovery when demand improves. For now, demand remains soft. Our customers are still managing through macroeconomic uncertainty, and we have yet to see a sustained increase in the demand for goods. Shippers are becoming increasingly selective about who they work with and are choosing proven scale brokers like RXO. In the first quarter, we were recognized with Carrier of the Year awards from Heineken USA, Graphic Packaging, and Rise Baking. Our customers value our exceptional service our robust and rigorous carrier vetting process, and our financial stability. These are the hallmarks of the RxO brand, and they'll buy about half of the Fortune 500 and trust us with their freight. With that as a backdrop, we launched what has so far been a very successful strategy for this year's bid season. As we said previously, we've been working with customers to optimize service, volume, and price. On average, through bid season, contract renewal rates, excluding the impact of fuel, are up mid to high single digits. These new rates began phasing in in late Q1 and will continue to go into effect throughout the second quarter, helping to improve the profitability of our contractual book of business. When you take a closer look at contract business that has been awarded to RHO over the last month, rates have increased on average by a low double-digit percentage. As a result, we now expect that our full year 2026 contract rates will increase by high single digits. Our prior expectation was for low to mid single digit growth. We're servicing our customers freight throughout all phases of the market cycle, and that's translating to real business momentum. Historically, we've had about a 40% win rate on our brokerage late stage pipeline. Last quarter, we highlighted that the pipeline was up more than 50% year over year. I'm happy to report that we held our win rate at about 40% in the quarter, even though the pipeline was significantly larger than it's been historically. Now let's discuss our first quarter. In brokers, overall volume declined by 8% year over year. Less than truckload volume growth of 5% was more than offset by a 12% decline in truckload volume. Volume trends are improving, however. Our success in converting our brokerage sales pipeline opportunities and improving our spot mix has resulted in full truckload volume that improved every month throughout the quarter. Another encouraging data point is that we've achieved a significant increase in our brokerage spot mix over the last few months. Our spot mix increased by 500 basis points sequentially, which directly contributed to an improvement in gross profit per load. Spot volume increased as a percentage of the truckload mix every month in the first quarter and increased again in April. This is the power of the RxO model. Our focus on providing exceptional service and deep customer relationships through all parts of the freight cycle is enabling us to win spots, projects, and minibids now that capacity is tight. You can see the results in the rapid increase in our spot mix and gross profit per load in the first quarter. In complimentary services, managed transportation continues to win. We were awarded more than $100 million in freight under management in the first quarter. These wins are significant because they result in an increased synergy loads for RxO's other lines of business. Our late-stage sales pipeline is extremely robust and increased by more than $200 million sequentially. This pipeline is composed of high quality new names and long tenured existing enterprise customers with whom we built successful deep relationships. We're also very excited about the early traction of our middle mile solutions offering, which leverages our network of carriers and RxO hubs to integrate first, middle, and last mile logistics into a single comprehensive network. The new service eliminates the need for multiple vendors and provides consistent visibility and control, creating stickiness with our customers. We lost the solution in February, and our sales pipeline is already more than $70 million. We've secured more than $20 million in wins. Shippers continue to choose RxO because we help them solve complex logistics challenges with unique, high-tech solutions that leverage our scale and infrastructure. While last mile stops declined by 8% in part due to the impact of severe weather, we're seeing more positive trends within last mile to start the second quarter. RxO remains the provider of choice for the best known brands in the big and bulky space. Our exceptional service and massive scale in last mile continue to enable us to gain profitable market share. Overall, RxO's EBITDA was $6 million in the quarter, at the low end of the range we provided to you due to severe weather, which impacted our deliveries in the last month. In the second quarter, we expect our EBITDA to increase significantly, driven by stronger volume across the business and a more favorable spot mix and higher contract rates in brokerage. We expect brokerage volume to be about flat year over year in the second quarter and truckload volume to resume its outperformance first to market as early as the middle of the year. Jamie and Jared will talk more about our outlook in detail later in the call. Turning to technology, in the first quarter, we made significant progress on our roadmap, especially when it comes to putting AI into action. The systems integration we completed last year have enabled us to move faster to build and launch smart AI tools that tap into RxO's decades worth of data. Everything our technology team is currently working on is centered around moving beyond basic, repetitive tasks and towards smart, proactive decision-making. We have many examples of how our efforts are already driving real results across the company, and I'd like to share an exciting one. Late in the quarter, we rolled out an important part of our tech roadmap, an AI spot agent in reps' inboxes that adds to our already best-in-class quoting capabilities. While it's still in the very early days, the initial results are promising. Reps that have adopted the tool early are seeing an increase in volume and gross profit per load when compared to the rest of the brokerage organization. We expect the broader organization to be fully ramped up on the tool over the next few quarters. As we continue to mature our capabilities, we remain committed to getting these types of powerful tools into more hands. We're focused on multiplying the impact technology brings to every function within our company to improve volume, margin, productivity, and service. In summary, RxO has a unique algorithm for long-term success. Larger scale, focus on profitable growth, investments in technology, long-term cash generation, and a slimmer cost structure. This is the point in the cycle that really begins to show the power of the RxO model. We've remained focused on providing exceptional service, comprehensive solutions, continuous innovation, and deep customer relationships. And all of that is enabling us to win spot, project, and mini-bid business as the market recovers. We're in the early innings of what we believe will be a sustained, robust recovery. RSO is well positioned to be a major winner. Now, Jamie will discuss our financial results in more detail. Jamie?

Thank you, Drew, and good morning. Let's review our first quarter performance in more detail. For the quarter, we reported $1.4 billion in total revenue, gross margin of 14.2%, and adjusted EBITDA of $6 million. Gross margin and adjusted EBITDA were negatively impacted by severe weather conditions in the quarter. There was an approximate $3 million impact, mostly in our last mile business. Our interest expense in the quarter was $9 million and our adjusted loss per share was $0.09. You can find a bridge to adjusted EPS on slide seven of the earnings presentation. You'll note that we had an $11 million debt extinguishment loss as a result of refinancing our 2027 senior notes. I'll talk more about this in our capital structure later. Turning to our lines of business. Brokers revenue is $1.1 billion, up 3% year over year, and with 74% of our total revenue. The year-over-year revenue growth was driven by increased freight rates, increased truckload length of haul, and higher fuel prices. We also captured more spot opportunities in the quarter, with our spot mix increasing sequentially by 500 basis points, which is also accretive to revenue. Cost of transportation increased in the quarter due to a continued tightening of the full truckload market driven largely by regulatory enforcement and higher fuel prices. These factors contributed to brokerage gross margin of 11.4% towards the low end of our outlook. Brokerage gross margin declined 50 basis points sequentially, driven by increased truckload length of haul and fuel prices. Our fuel prices were an approximate 20 to 30 basis point headwind to brokerage gross margin. rising fuel prices lead to increased revenue without a meaningful corresponding increase in gross profit dollars as fuel costs are a pass-through over time. Truckload gross profit per load increased 9% sequentially. This is reflective of the significant increase in spot loads and an increase in contract rates due to tightening capacity. We expect overall gross profit per load to improve in the second quarter giving increased spot volume and higher contract rates. Complementary services revenue in the quarter of $388 million was down 7% year-over-year and represented 26% of our total revenue. Complementary services gross margin was 19.8%, down 40 basis points sequentially and 120 basis points year-over-year. Most of the sequential decline was due to the impact from weather. Within complimentary services, managed transportation generated $123 million of revenue in the quarter, down 10% year-over-year. As a reminder, last quarter we talked about the restructuring of our express service offering within managed transportation, which explains most of the year-over-year revenue decline in Q1. Revenue associated with this offering is being serviced across other lines of business within RxO. Encouragingly, our automotive business within United States Transportation increased slightly year-over-year, and we are well-positioned to capitalize on any improvement in demand. Our last small business generated $265 million in revenue in the quarter, down 5% year-over-year, with stops down 8% year-over-year. This was lower than our expectations of down mid single digits due to the previously discussed weather impact. During the quarter, we also saw continued weak demand for big and bulky goods. While demand generally remains soft, we are seeing more favorable trends within last mile to start the second quarter with improvement across our RxO hubs and back to store business. Now turning to slide eight, let's discuss our capital structure and balance sheet. During the quarter, we refinanced our 2027 senior notes. The new notes have a maturity of May 2031 with a coupon of 6.38%. At the end of the first quarter, our total available liquidity was $386 million. With the successful refinancing of our senior notes in February and our new asset-based lending that we announced last quarter, RxO has a strong capital structure and liquidity position that gives us the flexibility to invest and grow across all phases of the freight cycle. Quarter-end net leverage was 3.7 times LTM bank-adjusted EBITDA due to the lower levels of profitability. We anticipate our leverage ratio to move lower in the second half of the year. Moving to slide 9, let's talk about cash. For the quarter, our adjusted pre-cash flow was negative $15 million and was impacted by lower levels of profitability and some timing considerations. CapEx is higher in the first half of the year, but is expected to decline approximately 30% in the second half, primarily due to lower real estate and software expenditures. In addition, as a result of the refinancing of our senior notes, we accelerated the associated interest payment of $7 million into the first quarter, which usually occurs in the second quarter. Our bond interest will be paid semi-annually beginning in the fourth quarter of this year. Given our asset-light business model, we remain confident in a 40% to 60% conversion over the long term and across market cycles. From a cash balance perspective, we ended the quarter with $21 million of cash. Cash increased by $4 million sequentially, with no change to the ABL balance. In the quarter, we had $12 million of cash outflows associated with our bond refinancing and $9 million of restructuring and integration activities in line with our expectations. Now let's move to slide 14 and discuss our outlook. Within our brokerage business, we're seeing improvements as a result of our bid season strategy and the action we've taken to capitalize on spot opportunities combined with decreased capacity in the market. As I mentioned earlier, we're also seeing encouraging trends within our last mile business in addition to typical seasonality. For the combined and $37 million of adjusted EBITDA. This reflects the strong contribution margins in our business, attributable to both volume and price. Our 2026 modeling assumptions remain unchanged. Jerry will provide more details on our outlook shortly. As we think about the macroeconomy, we are optimistic. While consumer confidence has recently decreased given geopolitical concerns and higher oil prices. There are many bright spots in the macroeconomic data. Improvements in the industrial economy are noteworthy. The ISM manufacturing PMI has been in expansionary territory every month this year. Additionally, data last week showed a strong increase in capital goods orders, which is a good leading indicator of business investment. Also, year-to-date tax refunds are up double digits helping to support the consumer. We're entering the second quarter with strong momentum across all of our lines of business. The truckload market remains tight despite soft demand. Any sustained broad-based improvement will set up for a sharp inflection, and RxO is well-positioned to win. Now, I'd like to turn it over to Chief Strategy Officer Jared Weisfeld, who will talk in more detail about our results and our outlook.