RXO, Inc.

Hello, everyone. Welcome to the RxO Q2 2026 Earnings Conference Call and Webcast. My name is Erica and I will be your operator for today's call. Please note that this conference is being recorded. Thank you so much for joining us. 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 begin.

Good morning, everyone. Thank you for joining today. With me here in Charlotte are RxO's Chief Financial Officer, Jamie Harris, and Chief Strategy Officer, Jared Weisfeld. We delivered strong results in the second quarter, including volume gains across the business and improved profitability. There are four main points I want to convey this morning. First, in brokerage, we gained profitable market share. Truckload volume grew by 2%, outperforming the market. As you'll recall, we previously committed to resuming our truckload outperformance as early as the middle of the year. We achieved that ahead of schedule. We had the largest sequential increase in the gross profit per load growth rate in four years, driven by our spot mix, which was 42% in the quarter. Second, complimentary services delivered strong results. Last Mile gained share and grew stops by 3%, and Manage Transportation was awarded about $100 million in freight under management in the quarter. Third, we expect the momentum in the business to continue with anticipated year-over-year brokerage volume and gross profit per load growth again in the third quarter. And lastly, our results are underpinned by our continuous innovation. We made significant advancements in our rollout of agentic AI tools in the quarter, which drove improvements in volume, margin, productivity, and service. I'll start by discussing our second quarter results. In brokerage, we grew overall volume by 2% year-over-year. Full truckload volume grew by 2%, and less than truckload volume grew by 3%. Full truckload volume grew sequentially every month in the first six months of the year. We also again increase our truckload spot mix, which we grew by 900 basis points sequentially. This helped to drive an 11% sequential increase in truckload gross profit per load, the highest growth rate in four years. Our focus on having deep customer relationships, providing exceptional service, and being staffed for growth to respond quickly to customer needs is enabling us to win spots, projects and many bids. In complementary services, managed transportation continues to win. We were awarded about $100 million in freight under management in the second quarter. These wins are significant because they result in increased synergy loads for RxO's other lines of business. Shippers continue to choose RxO for their managed transportation needs because we help them solve complex logistic challenges with unique high-tech solutions that leverage our scale and infrastructure. Our late stage sales pipeline in managed transportation remains robust and composed of a diverse set of high quality new names and long tenured existing enterprise customers with whom we've built successful deep relationships. And last mile, stops grew by 3% as a result of market share gains. RxO remains the preferred provider for leading big and bulky brands. Our exceptional service and significant last mile scale continue to help us gain profitable market share. Overall, RxO's EBITDA was $40 million in the quarter, exceeding the high end of the range we provided due to the rapidly improving dynamics in brokerage and better than anticipated last mile stop growth. We've seen all of the key brokerage trends, including volume, spot mix, and gross profit per load, continue into July. Managed Transportation also won another $100 million in freight under management in July. Those results give us confidence in our third quarter outlook, which includes continued growth in brokerage volume and gross profit per load, but weakening within last mile. Jamie and Jared will talk more about our outlook in detail later in the call. Now I'd like to provide an update on the freight market and how we're winning. The supply-driven recovery is well underway. When regulatory enforcement began last fall, we said it was a structural change to the market, and that's proving to be true. This structural change will improve the safety of the industry, help combat theft and fraud, and set the market up for a multi-year recovery once there is a sustained improvement in demand. I'd like to talk about how this is affecting our business. The cost of purchased transportation continues to rise due to the capacity exits, but the contract rates are not rising fast enough to fully offset the increase in cost. You can see the effect this is having on the industry by looking at the industry-wide tender rejections rate as measured by freight wave sonar, which approached 18% in June, the highest in more than four years. This is normal for this part of the cycle. In this environment, shippers turn to their most trusted partners to get their freight covered. They turn to the partners that have delivered unique solutions for them in all parts of the cycle that provide deep relationships and, importantly, have the resources to be able to handle significant increases in volume. RxO is working closely with our customers to optimize service, volume, and price, and we're their partner of choice for covering spots, projects, and minibids. This freight has a higher gross profit per load. were growing volume and profitability and taking market share despite continued soft demand. I'd now like to talk about another important topic in today's freight market, carrier vetting, cargo security and insurance programs. Our approach to these areas is also differentiated. We serve large enterprise shippers with complex needs and a strict standard. and we do not compromise on the quality of carriers we allow onto the RxO platform. Our cargo security program has been recognized externally, recently earning awards from both CargoNet and Freightways. As insurance providers put more emphasis on the quality of broker procurement and carrier vetting process, we believe RxO is well positioned versus the broader industry. Shippers are becoming more selective about their partners, not only selecting providers based on their scale and service, but also on their rigorous carrier vetting process and financial stability. These strengths define the RXO brand and are why about half of the Fortune 500 trust us with their freight. Jamie will give you more details about our carrier vetting and insurance programs later in the call. Turning to technology, we continue to make significant progress on our roadmap in the second quarter, especially when it comes to our agentic AI initiatives. All are driving results when it comes to volume, margin, productivity, and service. Let me give you some examples of recent wins in this area. Earlier this year, we announced the launch of a new spot quote agent that was driving increases in both volume and gross profit per load for the reps that were using it. In the second quarter, we focused on driving adoption of this tool and processed five times more spot quotes via email through the agent. This contributed to our strong spot mix in the quarter. We're also seeing increased engagement from our carriers as a result of deploying new tools. Our improved AI freight matching model, combined with a better carrier user experience, helped drive a 25% sequential increase in digital offers from carriers in the quarter. This is a powerful tool, especially given how tight capacity is in the market. We're deploying these types of tools within complementary services as well, and AI is helping onboard new managed transportation customers faster and enabling faster delivery within last mile. We remain focused on putting these types of powerful tools in more hands and expanding technology's impact across our business to improve volume, margin, productivity, and service. I'm excited for the momentum we've built across the business. In brokerage, we're gaining share, winning lucrative spot opportunities, and achieving significant increases in gross profit per load. In managed transportation, we have a robust sales pipeline and are winning new customers and expanding with existing customers, which in turn will fuel outperformance in brokerage. and in Last Mile, we're the largest provider of home delivery services for the biggest brands in the big and bulky space. We're rolling out and driving adoption of new tools that are having a significant impact on our ability to capture new business opportunities, improve the user experience for our network of carriers, and reduce the time it takes for people to handle routine tasks. This is helping free up time for our people to build even deeper relationships with our customers and carriers, which in turn helps drive the sales fly well within the business. On top of the winning formula our business has, the market is much more favorable now than it has been in the last three years. Capacity continues to leave the market, spurring a supply-driven recovery, and we're clearly in the early innings of it. We've made the most of the current market conditions to fuel our outperformance in the second quarter. Any increase in overall demand will result in even more outsized growth for RxO. We haven't hit normalized earnings for RxO yet. We're not even close, but the path is visible and achievable. I couldn't be more excited for the future. 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. For the quarter, we reported $1.8 billion in total revenue, gross margin of 13.9%, adjusted EBITDA of $40 million, and adjusted EPS of $0.06. We exceeded the high end of our outlook, driven by better than expected performance within brokerage and last mile. Let's talk about our lines of business in more detail. Brokerage revenue was $1.3 billion, up 32% year-over-year, and was 73% of our total revenue. The year-over-year revenue growth was primarily driven by increased freight rates and higher fuel prices. We continued to capture additional spot opportunities in the quarter, with our spot mix increasing sequentially by 900 basis points to 42%. Spot volume carries a significantly higher revenue and gross profit per load when compared to contract volume. Cost of transportation increased in the quarter due to a continued tightening of the full truckload market, driven largely by regulatory enforcement, increased spot mix, and higher fuel prices. Brokerage gross margin was 10.7% in the quarter, declining by 70 basis points sequentially. This was due to higher fuel prices, which represented an approximately 90 basis point headwind. As a reminder, rising fuel prices lead to increased revenue without meaningful corresponding increase in gross profit dollars as fuel costs are a pass-through over time. Importantly, truckload gross profit per load increased by 11% sequentially, which is reflective of the significant increase in spot loads. Complementary services revenue in the quarter of $488 million increased 7% year-over-year and represented 27% of total revenue. Complementary services gross margin was 21.1%, up 130 basis points sequentially and down 170 basis points year over year. Within complementary services, managed transportation generated $144 million of revenue in the quarter, up 1% year over year. Our automotive business contributed to that performance. Specifically, managed expedite volume was up almost 30% year over year. Last Mile generated $344 million in revenue in the quarter, up 9% year-over-year. Stops increased by 3%, higher than our expectations of approximately flat, despite continued softness in the housing market. RXO outperformed the broader industry, and we gained share within the big and bulky category. Now, turning to slide eight, let's discuss our capital structure and balance sheet. Quarter end net leverage was 4.1 times LTM bank adjusted EBITDA, reflecting the working capital usage of the business, which I'll discuss shortly. Importantly, we anticipate our LTM leverage ratio to decline significantly by year end as results continue to improve. At the end of the second quarter, our total available liquidity was $350 million. We also have a $200 million accordion feature on our ABL, 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. Moving to slide nine, let's talk about cash. For the quarter, adjusted free cash flow was negative $42 million, primarily driven by working capital. There were two key drivers, revenue growth and carrier quick pay. Revenue growth represented approximately two-thirds of our working capital usage in the quarter. This is consistent with how our model typically performs early in a freight cycle recovery. As revenue growth accelerates, it has an outsized temporary impact on working capital before it normalizes. The rest was due to increased usage of quick pay, primarily within managed transportation. As a reminder, quick pay gives our carriers the option to get paid faster than standard terms. We view this as a good use of capital with a strong return. It also improves carrier liquidity and strengthens our carrier relationships, which matter more than ever in the current environment. From a cash balance perspective, we ended the quarter with $15 million of cash. Based on our current forecast, we expect strong adjusted free cash flow conversion in the third quarter as we collect cash associated with the working capital used during the second quarter. Given our asset light business model, we remain confident in a 40 to 60% conversion over the long term and across market cycles. Before turning to our outlook, given recent developments in the industry, I thought it would be useful to walk through our carrier vending processes and insurance program. We believe that our carrier vending process is best in class. In fact, our cargo security program recently won two industry awards. Our business was built on large enterprise shippers, many of which have complex needs that require superior service. To meet those needs, we built a network of loyal carrier partners, each of which has met some of the strictest vetting standards in the industry. We have invested significant time and money in people and process over the years to thoroughly vet carriers before signing freight. As an example, we do not allow conditional carriers on the RXO network. and carriers must have an active authority for at least 90 days before they even have an opportunity to serve a customer. All carriers must speak with and be vetted by a member of our carrier team before they book their first load. These are a few of the policies that have led to our excellent safety record. Jared will provide more details about our program later in the call. As it relates to insurance, We maintain a comprehensive and data-driven program that we believe is appropriate given our scale and safety record. We have been in communication with our insurance partners and are confident that insurers will be even more focused on carrier vetting processes and controls as well as safety outcomes. We believe that our best-in-class process and safety record will continue to be of significant benefit when we renew our policies at the end of the year. While the situation is fluid, we're expecting the insurance market to be much more selective than in the past, which plays the RxO's advantage given our stronger infrastructure and tracking capabilities. We have heard some of the industry commentary around insurance renewals. Unlike RxO, we believe many brokers in the industry, small and large, are significantly underinsured, and those companies are likely to face larger increases in insurance capacity as well as premiums. Based on our initial analysis, we believe our renewal outcome should be more favorable than the broader market. Now let's move to slide 15 and discuss our outlook. We expect to generate between $35 and $45 million of adjusted EBITDA in the third quarter. Within brokerage, we're seeing continued momentum as the team improves contract pricing and capitalizes on spot opportunities. Last Mile is expected to decline more than typical seasonality, primarily due to weaker demand and higher carrier cost. This is incorporated into our third quarter outlook, and our broker's momentum will offset the impact. To close, we continue to believe that supply-side tightening is structural in nature, and any sustained broad-based improvement in demand will set up for a sharp inflection. 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.