RXO Q1 2026 Earnings Call - Supply-Side Tightening Drives Record Spot Mix and Contract Rate Upside

Operator: 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.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: 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. 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 brokers’ 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 agentic 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. 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. They’re why about half of the Fortune 500 entrust 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 RXO over the last month, rates have increased on average by 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. Let’s discuss our first quarter. In brokerage, 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 mini bids 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 complementary 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’ve 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 launched this solution in February, 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 last mile. 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 of the 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. 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. RXO is well-positioned to be a major winner. Now, Jamie will discuss our financial results in more detail. Jamie?

Jamie Harris, Chief Financial Officer, RXO, Inc.: 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 7 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.

Brokerage revenue was $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 was 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.

Higher fuel prices were an approximately 20-30 basis point headwind to brokerage gross margin, while rising fuel prices lead to increased revenue without a meaningful corresponding increase in gross profit dollars as fuel costs are passed through over time. Truckload gross profit per load increased 9% sequentially. This is reflective of a 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 given 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 managed transportation, complementary services 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 managed transportation increased slightly year-over-year, and we are well positioned to capitalize on any improvement in demand. Our last mile 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 expectation 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 of store business. Turning to slide 8, 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 3/8%. 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 facility 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 free cash flow was -$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%-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. 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. 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 company in the second quarter, we expect to generate between $27 million 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. Jared will provide more details on our outlook shortly. As we think about the macro economy, 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. Data last week showed a strong increase in capital goods orders, which is a good leading indicator of business investment. 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.

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: Thanks, Jamie, and good morning, everyone. Let’s start by reviewing our quarterly brokerage performance in more detail. Overall brokerage volume declined by 8% year-over-year. LTL volume increased by 5% year-over-year and represented 28% of brokerage volume in the first quarter. Truckload volume declined by 12% year-over-year and represented 72% of brokerage volume. Truckload volume was in line with the expectations that we communicated to you last quarter. Importantly, full truckload volume improved every month throughout Q1. Year-over-year trends have started to improve and truckload volume in the month of April was down only 2% year-over-year. Spot represented 33% of our truckload volume in the quarter, increasing by 500 basis points sequentially and 600 basis points year-over-year.

Spot increased as a percentage of the mix in every month during the quarter and increased further in the month of April to 35%. Contract volume was 67% of our overall truckload volume in the quarter. Moving to revenue per load on slide 10. In the first quarter, truckload revenue per load increased by 8% year-over-year. This was the fastest increase in 4 years, driven by supply-side tightening. Note, this excludes the impact of both fuel prices and length of haul. Revenue per load benefited from a richer mix of spot freight. New contract rates also went into effect as a result of bid season. Revenue per load growth accelerated in the month of April, increasing by 12% year-over-year, excluding the impact of higher fuel prices and length of haul.

It’s important to note that industry-wide line haul rates have increased by approximately 20% since the third quarter of last year, primarily due to supply-side market tightening. We continue to work with our customers to optimize service, volume and price. Given the current environment, we now expect contract rates to be up high single digits, which compares to our previous forecast of up low to mid-single digits just 90 days ago. This, combined with a higher spot mix, should result in even stronger revenue per load trends. Let’s now discuss current market conditions and brokerage margin performance on slide 11. The truckload market remains tight. Freight market KPIs were at their highest level in four years, and industry-wide tender rejections eclipsed 15% in the quarter. Importantly, this tightness was despite muted demand and a seasonally slow quarter.

Tighter market conditions have been primarily driven by structural supply-side changes, largely due to enforcement actions related to non-domiciled CDLs and English language proficiency. From a profitability standpoint, truckload gross profit per load increased by 9% from the fourth quarter as a stronger spot mix offset the squeeze in our contractual book of business. We expect our spot mix and gross profit per load to improve again in the second quarter. Of note, in the month of April, truckload gross profit per load was approximately 10% higher when compared to the first quarter. Turning to slide 12. As we just discussed, truckload gross profit per load increased by 9% in the first quarter, given a richer spot mix offsetting the squeeze in our contractual book of business. This was the largest sequential improvement in truckload gross profit per load in more than three years.

Moving to slide 13. RXO’s LTL brokerage volume continues to outperform the broader LTL market. We’re winning LTL business with existing truckload customers and new customers that trust us with their freight because of our excellent service, increasing the stickiness of these relationships. Last year, we grew our LTL volume significantly. Recently, we’ve expanded the scope of some of that business and transitioned it to managed transportation. This is another example of the power of the RXO model. Once a customer is on the RXO platform, we can quickly adjust to their business needs by providing complementary services. Doing so increases the stickiness of our customer base. For our outlook, I’d like to review the significant progress we made in the quarter, increasing the adoption of agentic AI solutions, which you can find on slide 6.

We continue to focus our technology investments on driving improvements across our key pillars: volume, margin, productivity, and service. Starting with volume and margin. As Drew mentioned earlier, we broadly deployed a new proprietary AI spot agent, and the early results are encouraging. Reps that are using the agent are seeing an increase in both volume and gross profit per load as the agent helps unlock incremental volume opportunities with strong contribution margins. We also expanded the adoption of our proprietary Spot Bot and API tools. Continued investment is yielding tangible results. The amount of truckloads that were quoted digitally improved by 30% sequentially. We also continue to streamline our tech to make it easier for carriers to do business with RXO. Last quarter, we began testing a new matching algorithm, and as a result, digital offers from carriers have increased by about 15%.

From a productivity standpoint, we continue to expand our agentic AI deployments, which automated more than 500,000 phone calls in the quarter. Our people are becoming more productive and spending more time with our customers and carriers to drive creative solutions for their business. We’re also innovating to drive even better service and decrease risk. We introduced an AI Fraud Protection Agent in the quarter, providing additional protection for shippers that rely on RXO to move their high-risk freight. We continue to apply AI to structurally improve our long-term margin profile by driving more volume through our business at a lower cost to serve. I’d now like to give you some more details on our second quarter outlook, starting with brokerage. Given our success in converting our late-stage pipeline during bid season, we expect truckload year-over-year volume trends to materially improve in Q2.

We expect sequential growth in volume, which will translate to approximately flat volume year-over-year. We continue to expect our truckload volume to resume its year-over-year outperformance versus the market as early as the middle of the year. We also expect our LTL volume to be approximately flat year-over-year. This accounts for the part of the business that has recently transitioned to managed transportation. Importantly, based on the strength of our LTL pipeline, we anticipate LTL returning to year-over-year volume growth in the second half of the year. Moving to truckload gross profit per load, we expect tight market conditions to persist for the remainder of the second quarter. Given the team’s strong execution, we expect a higher spot mix and the phasing in of higher contract rates to result in another quarter of truckload gross profit per load improvement.

That is despite an expected moderation from April to May, given seasonal market tightness and DOT checkpoint week. Let’s now talk about managed transportation services. In managed transportation, we’re winning new business and the pipeline remains strong. Our automotive business has also returned to growth, and we expect managed transportation results to improve when compared to the first quarter. In last mile, while big and bulky demand generally remains soft, the second quarter is our seasonally strongest quarter, and we’re seeing improved business momentum. We expect last mile stops to be down a low single-digit % year-over-year, improving from the first quarter. Putting it all together, we expect RXO’s second quarter adjusted EBITDA to be in the range of $27 million-$37 million. We see a clear path to achieve the high end of our outlook.

The midpoint of our range assumes market conditions that are similar to those that we’ve experienced over the last few years, with gross profit per load compressing from April to May, no meaningful uptick in demand. While we’re encouraged by the anticipated rapid sequential growth in EBITDA, we’re even more excited about our path to normalized earnings and the market setup. To close, we’re entering the second quarter with strong momentum, improved profitability, and a growth mindset. In brokerage, truckload volume is firmly on a trajectory toward growth and outperformance. Managed transportation continues to win new awards with a growing pipeline, and automotive has returned to growth. Last mile is seeing improved trends, and we have a huge opportunity within the Middle Mile. We are aggressively investing in artificial intelligence, leveraging our massive scale and proprietary data.

The supply-side changes occurring in the truckload industry represent the biggest structural transformation in almost 50 years and are setting the stage for a multi-year recovery. RXO is capitalizing on these changes by staying close to our customers, delivering superior service, and winning spot opportunities. RXO is well-positioned to deliver strong shareholder returns over the long term. With that, I’ll turn it over to the operator for Q&A.

Operator: We are now opening the floor for question and answer session. If you’d like to ask a question, please press star followed by one on your telephone keypad. Again, that’s star followed by one on your telephone keypad. Your first question comes from the line of Stephanie Moore of Jefferies. Your line is now open.

Brandon Oglenski, Analyst, Barclays1: What’s your spot mix up? I believe you said 600 basis points year-over-year. This is a pretty stark contrast to your largest competitor, where its contract exposure was up 500 basis points. How are you thinking about your strategy at this stage in the cycle, and what company-specific actions are driving your ability to execute on the increased spot volume? Thanks.

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: Yeah. Good morning, Stephanie. You know, first,

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: We’ve got a lot of respect for Robinson and the team, and they’ve had good results. We’ve been very clear for the last several years that this is the part of the market that we went in. We’ve got a model that’s built on service. When you think about service, we talked about several customer awards that are awarding us with Carrier of the Year awards. You’re seeing it in our pipeline. You’re seeing it in the conversion of a larger pipeline. We talk about solutions. There’s always optimization that goes into customer freight and making sure that we are looking at the different modes of transportation that we can service them from. Even the different lines of business, you saw us convert some customer business from brokerage into managed transportation. You see the new Middle Mile Solutions offering.

On the technology side, we’re using AI to continue to get more efficient within the business. We’re driving more loads. You heard me talk some about that. The most important thing is relationships with customers. Our top customers have been with us for 16 years on average. They trust us. They know that when there’s any disruption in the market, that their spots, projects, and mini bids, that RXO is the place that they turn. We’re in the early innings. We’re just now starting to see the lift off of that.

Brandon Oglenski, Analyst, Barclays1: Thank you. That’s helpful. Actually, pretty good follow-up to a question that I had or pretty good segue into a follow-up that I have. As you think about some of the investments that you have, and that you just called out, especially at AI and just technology, how do you balance, I guess, AI and tech investments with your people and your relationships, particularly at this point in this cycle?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: We value the relationship first. We are a relationship business. We win because of the relationships that we have with customers. Customers come back to us because of what we’ve done before, and it’s the people that they do business with. When you look at the tightening that happened in the market in December and January, it was our team and our people that they were reaching out to. We’re using technology to fundamentally change the business and drive more productivity within it. You saw our productivity was up 15% on a year-over-year basis. You continue to see us be able to quote more loads with the quoting tool that I talked about. The adoption that we’ve already got on that, the people who are using it are winning 15% more volume versus what they were winning.

We see clear ways to improve the relationship off of the technology that we’re using.

Brandon Oglenski, Analyst, Barclays1: Thanks. Appreciate it.

Operator: Your next question comes from the line of Brandon Oglenski from Barclays. Please go ahead.

Brandon Oglenski, Analyst, Barclays: Drew, I get it was a difficult quarter, but, just looking even at the guidance for 2Q, I think at the high end, earnings are still down year-over-year. I know you got a lot more spot mix, which I thought, you know, historically is what really can drive that incremental gross profit as you look forward. I get it, maybe 2Q is still not where you want to be, but I think even Jared was alluding to it earlier. Just what is the right normalized earnings power for this business, if you don’t mind?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. Brandon, we’ve been very consistent on normalized earnings. At a midpoint in a cycle, this is a mid-single digit EBITDA business, and at an up cycle, it’s a high single to low double-digit EBITDA business. Even on our Q2 guide, we are multiples away from what normalized earnings, but we see a clear path, and we see that we’re in the early innings of heading towards that.

Brandon Oglenski, Analyst, Barclays: Okay. I appreciate that. Maybe Jared, can you elaborate more on the spot business and how that impacts profitability here? I thought maybe with how much it improved in 1 Q, maybe things could have been a bit better, but maybe we’re misinterpreting that.

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: Sure, Brandon. When you look at the progression of spot mix, we increased spot mix by 500 basis points sequentially from Q4 to Q1. That was up 600 basis points year-over-year. We saw spot increase as a percentage of the mix every month throughout Q1. That momentum continued into Q2. April spot mix was up again relative to March and relative to Q1. We are assuming that we have spot mix increase again in Q2 as a whole relative to Q1. That spot mix carries a very strong incremental contribution margin. When we think about that spot mix relative to contract, at this point in the cycle, it is multiples that of contract.

To Drew’s point earlier, we’re servicing our customers exceptionally well throughout all parts of the freight cycle, and that’s what’s allowing us to win. We’re doing this, and we believe that’s idiosyncratic to RXO. I think, you know, one point I want to reiterate, this is still a very soft part of the freight cycle, and we’re able to show a significant improvement in our spot mix, and that’s allowing us to achieve almost a 6x increase in terms of adjusted EBITDA from Q1 to Q2 at the midpoint of our outlook. We also see a clear path to achieve the high end of our outlook.

Brandon Oglenski, Analyst, Barclays: Thank you, Jared.

Operator: Your next question comes from the line of Ravi Shanker of Morgan Stanley. Your line is now open.

Ravi Shanker, Analyst, Morgan Stanley: Drew and Jared. Drew, as you highlighted, there are a number of new regulations impacting supply on the PL side. There are some potential catalysts that may be impacting supply on the brokerage side as well, particularly a renewed focus on chameleon carriers, and the potential Montgomery case in front of the Supreme Court. Would just love your views on how much of a, you know, endemic issue is this and what impact there could be for the brokerage industry and maybe even RXO, both as a risk and opportunity going forward?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. I’ll start with the current regulations. I’ll move on to the Montgomery case. If you look at the current regulations, it’s clear that it’s driving a higher quality of carriers across the network. We’ve got a very robust, rigorous carrier vetting process. We built the business off of just-in-time automotive shipments, off of high-value cargo shipments, so the bar to haul loads for us is very high. We continue to increase the standards on being able to haul loads for RXO. I think that’s been a differentiator for customers. When customers look to who they’re doing business with now, with everything that’s going on, they want to talk through what is your carrier vetting process and who you’re using. We’re winning because of that right now.

Shifting to the Montgomery case, I think from my opinion, it is clear that the side of the industry is the right side. I think the law is clearly written off of that way. Running our company, we’ve got a playbook for everything, and we’re prepared for anything. If the case goes on the Montgomery side, I think that will drive out the tail on brokers and will create a lot of opportunity for organic growth very quickly in our business. It’ll also create some opportunities on the M&A side for consolidations.

Ravi Shanker, Analyst, Morgan Stanley: Got it. That’s very helpful. Maybe Drew, I think you said that your agentic tools made 500,000 phone calls in the last quarter, if I got that stat right. Can you just give us a frame of reference, like what % of total calls was that, and kind of is there a target for where that goes over time?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: It’s a very low percentage of the number of calls, Ravi, and I think that, you know, that shows how far we can go and that we’re in the very early innings of this. The journey’s just starting, and we’ve got a lot of upside off of what we’re doing there.

Ravi Shanker, Analyst, Morgan Stanley: Understood. Thank you.

Operator: Your next question comes from the line of Chris Wetherbee of Wells Fargo. Your line is now open.

Chris Wetherbee, Analyst, Wells Fargo: Yeah, hey, thanks. Good morning, guys. I wanted to dig a little bit more onto the spot moves because that seems to be sort of the big piece in the quarter here. I guess when you think about competitively, where do you think this share is coming from? Because it sounds like you still think the sort of demand environment is muted, it doesn’t feel like it’s kind of organically coming through with more volume. It just seems like you’re capturing share from other folks. Just kind of curious how you’re thinking about that market dynamic.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. On the spot market, you know, a lot of times those are open bids, so it’s not a clear indication of where it’s coming, but we’re also not picky on where it comes from. Our goal is to service the customer and make sure that we are the ones that they are calling. I think, you know, you’re still in the early innings. Tender rejections are still sitting in the low to mid-teens right now. And that, in my opinion, will continue to rise when you look at the capacity that is coming out of the market, and any signs of demand returning will take it even higher. I think there’s more opportunity that is coming down the pipe off of that.

For us, it’s about how well we position ourselves and are we the ones who customers come to and that they trust whenever there are those opportunities. We’ve got a team that set up war rooms of different solutions that we could provide for customers as the market was tightening, different ways that we could service them in the spot market. We’ve seen where carriers are handing back a lot of freight as the market tightens, and we’ve been the place that customers have gone as that’s happened.

Chris Wetherbee, Analyst, Wells Fargo: Okay. Super helpful. I know you mentioned contract high single digits. Just wonder any sort of color in terms of how that process is going. Then, you know, maybe what sort of the exit rate of bid season might look like if it’s sort of above that high single digit number. Just kind of curious because obviously we haven’t seen demand come back. It seems to be mostly driven by supply. You know, seems like there’s upside potential if things get a bit better. I’m just kind of curious your thoughts around that?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. This has definitely been a supply-driven recovery. This is the first time in 20 years of doing this that I’ve seen a supply-driven recovery that has been sustained. You know, when you look at demand is a catalyst to take it even further off of where we are today. Right now, on the supply side, I do think that supply will continue to come out, which, as I said earlier, I think will take tender rejections up even farther. Oh, contract rates.

Chris Wetherbee, Analyst, Wells Fargo: Got it. Okay.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Contract rates, when you look at what the exit rate was over the last 4 weeks, we were in the double digits. We’ve had several that have been in the low teens, even mid-teens, coming up. You know, we’re largely through the pricing piece on the bid season. We’re in the implementation phase of going through the 2nd quarter, which will continue out throughout the 2nd quarter. I’ll say that this year is a little bit different. This has been an ongoing conversation with customers about what’s going on in the market on the regulatory side, what to expect from a capacity standpoint, what are we doing from a carrier vetting process.

I think this will be a year-long of conversations, and we’ve got a tool in the curve that customers view as their truth serum of what’s going on in the market.

Chris Wetherbee, Analyst, Wells Fargo: Perfect. Thanks for the time. Appreciate it.

Operator: Your next question comes from the line of Scott Group of Wolfe Research. Your line is now open.

Brandon Oglenski, Analyst, Barclays0: Hey, thanks. Good morning, guys. I get all the spot mix stuff, but if overall volume in truckload is down 12 and spot mix is up 6, I think the math implies that contract volume’s down something like mid- to high-teens. Maybe just Drew, some thoughts on why we’re seeing such big declines in contract business and how you think about that sort of evolving going forward. Maybe just along the same lines, I think you said LTL volume flattens out in Q2 but then re-accelerates. Maybe just color on LTL as well. Thank you.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Scott, like if you look at it, demand’s still soft. It’s a muted environment on the demand side, the fail rates are not there. If you look at the overall industry tender rejections, they’re sitting in the low teens right now, especially as you’re implementing new bids. We’ve said all along that we’re optimizing service, solutions, and price for customers, and I feel good about where we’re executing off of that market. On the LTL piece, you know, we talked about that being roughly flat on a year-over-year basis in the second quarter. I think we’ll get back into growth mode as we get into the back half of the year on that. The pipeline is strong there.

Brandon Oglenski, Analyst, Barclays0: When I just think longer term, I think you said earlier, mid-cycle, mid-single-digit EBITDA margin, peak of the cycle, high-single-digit. If I just look back 2021, 2022, right? Last peak, we got to like a 5% or 6% EBITDA margin. What’s changing here? Maybe it’s Coyote, I don’t know. What’s changing here that we get, you know, meaningfully better sort of peak margin this time around?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Scott, I’ll have to let Jared or Jamie weigh in, but in 2021 or 2022, I know for the brokerage business, the margins were much higher than the numbers you just tossed out. As a matter of fact, in 2022, we highlighted on one of the XPO earnings calls that brokerage margins hit double digits.

Jamie Harris, Chief Financial Officer, RXO, Inc.: Yeah. You have, you have it, Drew. Scott, that’s the right way to think about it. Historically, if we look at our peak EBITDA, you can think about, call it, high single digits, low double digits. We do also think that there is an opportunity to continue to leverage AI to fundamentally improve the structural profitability of this business. It’s not a mixed issue. When we think about where we are right now, you know, entering Q2, certainly with improved momentum and significant EBITDA growth, to Drew’s point, we are still multiples away from normalized earnings.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Scott, with more scale, I think the margins can go higher. With what we’re doing on the AI side, we talked about the AI spot agent that our team is using now, and the team that has ramped up on that first is seeing volumes up 15%. That’s gonna pull down cost to serve. I think those are all things that can be upside to the numbers that we’re talking about.

Brandon Oglenski, Analyst, Barclays0: Okay. Thank you, guys. Appreciate the time.

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: Uh, you’re-

Operator: Your next question comes from the line of Thomas Wadewitz of UBS. Your line is now open.

Brandon Oglenski, Analyst, Barclays2: Yeah. Good morning. I’ve got two. You touched a little bit, Drew, on Montgomery. I wanna drill down on that a bit further. You know, I think there is this sense that, you know, kinda heads you win, tails you win on this case, right? Like, you know, if CH loses Montgomery, then small carriers exit. I just wanna get see if you could elaborate a bit further on the mechanism for that pressure on small brokers. You know, it seems to me like the insurance costs that brokers are paying today are not very large. I’m guessing you pay a couple million dollars a year in insurance.

You know, even if it doubles, it’s like, I just don’t know if that’s the mechanism that drives small carriers out, or is it like shippers just won’t use them, and so they lose the demand side. I just wanna see if you could drill down a little bit more on how you think that might drive small carriers out if, you know, C.H. and TQL lose the, Montgomery case. I had one follow-up after that.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. Again, I wanna be clear. We think that the industry is on the right side of this and that the law is clear on how it is written, and it should be ruled in favor of the industry. If it does not err on that side, insurance costs, I wish our insurance costs were $2 million, Tom. They’re definitely more than that, and I think that is definitely something that would be a headwind for smaller players. Shippers’ requirements will also go up. The carrier vetting processes we’re already seeing that play out with shippers right now, given what’s going on on the regulatory. I think that’s something that will kick it into high gear even faster than what it has been.

They’re gonna want to look to do business with people who have scale, who have good technology, people that have delivered for them in the past, and people who have financial stability. Thankfully, we check all of those boxes.

Jamie Harris, Chief Financial Officer, RXO, Inc.: Yeah. I would add to that from an insurance market standpoint, the carrier, the insurance carriers are gonna be looking to brokers who have good vetting processes, are invested in carrier compliance, and the requirement for more insurance that Drew talked about will be harder for smaller players to acquire, procure from the market, I think.

Brandon Oglenski, Analyst, Barclays2: I guess if you’re a small broker and you work with small or midsize shipper, do you think they will have the higher requirements too, or is it more like large shippers that drive the pressure?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: I think large shippers will set the tone, but small shippers will certainly wanna follow what the benefits that large shippers are receiving.

Brandon Oglenski, Analyst, Barclays2: Okay. All right. Yeah. Thank you for that. Other question is just on kinda like what the mix of loser loads or, you know, kinda negative gross margin loads looks like. I think, is that pretty elevated right now? Is that something, like you see that improve quite a bit as you look forward? I think it’s just like looking under the hood a little bit, just kinda, you know, what’s happening with that, in terms of, you know, kinda what’s normal and where are you at for negative gross margin loads?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. Negative gross margin loads are definitely up. The other thing that is also up is our high margin winning loads, that is also up significantly, and those go hand in hand. If I think back to 2022, you know, that was so our strongest profitability, as I just highlighted to Scott. That was our highest negative margin load percentage as a business. Again, because customers trust us, because we deliver for them, that was also our highest high margin loads during that time period as well. It’s about creating solutions for customers, being the carrier of choice for customers as the market tightens. I think that this is the first inning of us proving that that’s who we are. We’ve told you for multiple years that as the market tightens, customers will come to us with spots, projects, and mini bids.

This is the evidence that that is happening, especially as things are getting re-rated and turned back to customers. We’re seeing big wins there, both on the spot and the contract side. Yes, negative gross margin loads are elevated, but so are high margin loads. We look at the customers as total profitability, not off of one load.

Brandon Oglenski, Analyst, Barclays2: You don’t necessarily need the bad loads to go down, it’s just you’re making more money on the broader mix. Is that kind of the way to look at it?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: We look at the total customer profitability. I think it would be short-sighted to look at it on a 1 load basis.

Brandon Oglenski, Analyst, Barclays2: Yeah. Yeah. Okay. Thank you.

Operator: Your next question comes from the line of Ariel Rosa of Citigroup. Your line is now open.

Ariel Rosa, Analyst, Citigroup: Hey, good morning. I wanted to go back to this point about truckload volume being down 12% year-over-year. Just, I was hoping you could help us contextualize that number. Maybe you could give your view on kind of how much the overall market was down relative to that 12%. Just help us understand, like, how much of that was RXO making a deliberate decision to move away from certain loads? Or, like, how are you moving relative to the market, and what gets you back to taking share?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah, we talked about some headwinds in the business heading into it. I think, you know, off of memory, Cass Freight Index was down around 6, and our truckload volume was down around 12. You also see the rate of change where we talk about it being flattish on a year-over-year basis in the second quarter, so the rate of change exiting from Q1 to Q2. The biggest thing driving the rate of change is, 1, our conversion on our sales pipeline. We’re winning there, and we’re winning in big ways off of big numbers, and we’re also seeing a lot more spots. I mean, I think there’s 2 things that are driving the improvement and the rate of change from what you’re seeing from the first quarter to the second quarter.

Ariel Rosa, Analyst, Citigroup: True, what is it that’s driving the delta between the 6% and the 12% in the first quarter? Just ’cause that’s what I’m not clear on.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. I think whenever you look at the 6% to the 12%, we talked about the pricing strategy last year. I think we highlighted that 2 or 3 earnings calls ago, where we said that this was gonna be the position we were in. There wasn’t a lot of spots out there in Q4. Spots really started to come on in February, you saw December and January where there wasn’t a lot of spots and you were still seeing contracts hold up. As soon as the spots started to come in, that’s whenever you started to see the rate of change in the business, I think it’s obvious whenever you saw that April was down too.

Ariel Rosa, Analyst, Citigroup: Okay, got it. Understood. As a second question, I was hoping you could talk a little bit more about your approach to AI. It sounds like you’re getting some traction there. That’s great. Obviously people have responded well to that in the market. Help us understand what it is that RXO is doing different. Like, how much of your approach to AI is built off of proprietary technology, how quickly you expect it to scale, et cetera. If you could just give us more color there, I think it’d be helpful.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Yeah. I’ll let Jared come over to the top on some of the tools. You know, I mean, when you look at our AI strategy, it’s built for who we are. It’s built to be able to adjust with what’s going on in the market. It’s built tailor specific for our customers, especially large enterprise customers. We’ve built new tools as we start to ramp up the SMB parts of our business. We’re building things in there on the carrier side. Anything that is customer, carrier, or employee facing, we view as secret sauce, and those things we really want to lean in and use proprietary tools. If there’s something that we view that is not as critical, then we’re open to using some things off the shelf there.

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: Ariel, to build on what Drew was saying, you know, the four key pillars that we talk about have remained consistent between volume, margin, productivity, and service. You know, we’re a tech-enabled organization, but as we highlighted earlier on, it’s all about the customer relationship, it’s all about the carrier relationship, and then how do we leverage technology in a way that makes our people more productive? We saw our productivity was up 15% over the last 12 months, measured by loads per person per day. We’re really excited about some new tools that we’ve launched recently, including our agentic AI email spot post functionality, where we’ve seen significant traction over the last couple of months. You know, that’s still in the very early innings.

As we go ahead and start to broadly deploy these tools across the organization and we think about the opportunity to decouple volume growth from headcount, make our people that much more productive, it speaks to the long-term contribution margins that are attributable to AI and technology.

Ariel Rosa, Analyst, Citigroup: That’s great. Okay, thanks for the thoughts.

Operator: Your next question comes from the line of Ken Hoexter of Bank of America. Your line is now open.

Ken Hoexter, Analyst, Bank of America: Hey, great. Good morning, Drew and team. You set the scale for EBITDA outlook for 2Q. Thoughts on maybe seasonality, pace of growth, maybe a little further out, third quarter, full year. Then Jared, on that last point, you know, as you get more automated on quotes, thoughts on staffing. I don’t think you disclose head count, but how are you thinking about early efficiency gains on reshaping the workforce?

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: I could start. As you know, Ken, we give an outlook, 1 quarter at a time, can certainly provide a little color on Q3. Typically, Q3 does decline when compared to Q2 in last mile. Q2 is the strongest quarter of the year from a seasonal perspective. Would certainly say there’s nothing typical about this year, right? As Drew just mentioned, starting in Q3, you’ll see the full implementation of the contract rates that we’re talking about right now in Q2, which are coming in right now to some extent, low double-digit, mid-teen type increase. That’ll continue. Volume will be a function not only of the market, but also our successful conversion of the pipeline that we’ve talked about.

Managed trends, also implementing new awards in the second half of the year, any sustained increase in demand, including automotive, could be substantially better than that. You know, last year, Q2 to Q3 went down about 15% sequentially. Would certainly reiterate that we’ve got a lot of strong momentum in Q2 right now, we’ll see. We expect further momentum in Q3. On the, what was the follow-up on technology, Ken?

Ken Hoexter, Analyst, Bank of America: Yeah, just your thoughts on staffing, right? As you, quote, "Become more automated," you know, does that, since you don’t disclose that count, how do you think about early efficiency gains reshaping that workforce?

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: If you look at our brokerage headcount, you know, Ken, it was down double digits on a year-over-year basis. I think, you know, we’ve talked earlier in the call about this being a relationship business. Relationships matter in this business. Our people matter to this business. What’s gonna happen is they’re gonna get more productive over time, and the more tools that we implement. The rate that we add heads will not be at the rate as we start to outgrow the market, which we’ve said we’ll start to outgrow the market around the middle of the year, maybe sooner.

Ken Hoexter, Analyst, Bank of America: Wonderful. Just one follow-up quickly if I can. The truckload volume improved each month in 1Q. Is that a year-over-year comment? Is that in line with normal seasonal or sequential progression?

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: That comment was with respect to on an absolute basis. We’ve seen improvement within our truckload business every month throughout Q1. Translating into an expectation of a sequential volume increase from Q1 into Q2 from a truckload perspective, driven by the success that we’ve had converting that late-stage pipeline. Ken, that’ll then translate to about year-on-year flattish from Q2 in Q2 relative to Q2 last year, which is certainly significantly improved relative to Q1. We then expect to start to resume our outperformance versus the truckload market as early as the middle of the year.

Ken Hoexter, Analyst, Bank of America: Great. Thanks for the update, guys. Appreciate it.

Operator: Our last question comes from the line of J. Bruce Chan of Stifel. Your line is now open.

J. Bruce Chan, Analyst, Stifel: Yeah, thanks. Morning, everybody. Maybe just to follow up on that headcount productivity question. You know, it seems to me like you’re in a better position to implement a lot of these, you know, tech and AI programs now that the tech stacks are more harmonized. You listed a lot of, you know, different initiatives. You know, maybe if you could just help us to quantify the impact of those. Any, you know, KPIs that you’re seeing in terms of productivity or GP per head or, you know, maybe margin contribution that, you know, you can give us to help kind of illustrate what the impacts might be to the bottom line.

Jared Weisfeld, Chief Strategy Officer, RXO, Inc.: Hey, Bruce, it’s Jared. On the productivity side, we’re seeing some real tangible benefits. Productivity in the second quarter was up about 15% when compared to the prior 12 months benefiting from those investments. I’ll go back to those 4 key pillars that we talked about earlier in terms of how we think about our technology strategy across volume, margin, productivity, and service. The one tool that we’ve been talking about that we’re quite excited about is some of the benefits that we’re seeing from the agentic AI email spot code functionality. Not only does it enable incremental volume and margin opportunity, it comes with a pretty strong contribution margin to the business.

As we think about scaling the business longer term, decoupling volume growth from headcount, it could really add some pretty strong contribution margins longer term.

J. Bruce Chan, Analyst, Stifel: All right. Appreciate it.

Operator: Thank you. I would now like to hand the call back to Drew Wilkerson for closing remarks.

Drew Wilkerson, Chief Executive Officer, RXO, Inc.: Thank you, Ellie. RXO has significant momentum across all of our lines of business. Our full truckload volume improved every month of the first quarter. We’re winning more spots, projects, and mini bids thanks to the exceptional service we provide, and our spot mix increased by 500 basis points sequentially in the first quarter and 600 basis points year-over-year. We’ve had an outstanding bid season and expect full year contract rates to increase by high single digits year-over-year. We expect to resume our market outperformance when it comes to brokerage volume as early as the middle of this year. In complementary services, we continue to win. We’ve secured more than 100 million in new managed transportation awards, and our new Middle Mile Solutions offering has already built a $70 million pipeline in just its first few months.

Our technology is a force multiplier. We put agentic AI in action, and our proprietary tools, including our AI spot agent, have already delivered increases in both volume and gross profit per load for our reps. We’re at the beginning of the recovery, and we’re uniquely positioned to be a major winner. RXO has significant long-term earnings power. Thank you for your time today, and we look forward to seeing you at the upcoming conferences.

Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.