The truckload spot market remained subdued in the third quarter and a modest peak season will likely keep a lid on rate increases in the fourth quarter, freight broker RXO outlined in its quarterly outlook released Thursday. However, the company said increased regulatory action targeting non-compliant CDL holders could tip the scales next year, ushering in “freight rate volatility.” RXO’s (NYSE: RXO) Curve report showed TL spot rates (excluding fuel) were up just 1.8% year over year in the third quarter – ...

Revenue Performance - Revenue for the third quarter of 2025 increased by 36.6% to $1.421 billion, compared to $1.040 billion in the same quarter of 2024, driven by a $384 million increase in truck brokerage revenue due to the Coyote acquisition[86]. - Revenue increased by 48.2% to $4.3 billion in the first nine months of 2025, compared to $2.9 billion in the same period of 2024[95]. Cost and Expenses - Cost of transportation and services in the third quarter of 2025 was $1.137 billion, or 80.0% of revenue, up from $809 million, or 77.8% of revenue in the same quarter of 2024, primarily due to a full quarter of Coyote activity[87]. - Cost of transportation and services was $3.4 billion, or 79.8% of revenue, in the first nine months of 2025, up from $2.2 billion, or 76.6% of revenue, in 2024[96]. - Direct operating expenses decreased by 2.0% to $48 million in the third quarter of 2025, representing 3.4% of revenue, down from 4.7% in the same quarter of 2024, attributed to cost reduction initiatives[88]. - Direct operating expense decreased by $9 million, or 5.9%, to $143 million, representing 3.3% of revenue in 2025 compared to 5.3% in 2024[97]. - SG&A expenses increased by 39.6% to $208 million in the third quarter of 2025, representing 14.6% of revenue, compared to 14.3% in the same quarter of 2024, mainly due to a full quarter of Coyote activity[89]. - SG&A expenses increased by $184 million, or 41.1%, to $632 million, but as a percentage of revenue decreased to 14.8% from 15.5%[98]. - Depreciation and amortization expense rose to $26 million in the third quarter of 2025, compared to $21 million in the same quarter of 2024, reflecting an increase from Coyote activity[90]. - Depreciation and amortization expense rose to $88 million in 2025 from $54 million in 2024, largely due to the Coyote acquisition[99]. Financial Performance - The net loss for the third quarter of 2025 was $14 million, compared to a net loss of $243 million in the same quarter of 2024, indicating improved financial performance[85]. - Net cash provided by operating activities was $44 million in the first nine months of 2025, compared to a net cash used of $5 million in the same period of 2024[109]. - Net cash used in investing activities decreased significantly to $56 million in 2025 from $1.1 billion in 2024, primarily due to the Coyote acquisition in 2024[110]. Taxation - The effective income tax rate for the third quarter of 2025 was 9.2%, compared to (0.4)% for the same quarter in 2024, influenced by nondeductible expenses during a pre-tax loss[93]. - The effective income tax rate for the first nine months of 2025 was 16.0%, compared to 2.2% for the same period in 2024[102]. Acquisition and Integration - The company acquired Coyote for $1.038 billion in cash, with an additional $10 million for working capital adjustments, enhancing its truckload freight brokerage services[78]. - Transaction and integration costs decreased significantly to $5 million in the third quarter of 2025 from $30 million in the same quarter of 2024, with costs related to the Coyote acquisition included[91]. Assets and Liabilities - Total current assets decreased by 10.3% to $1.2 billion as of September 30, 2025, from $1.3 billion at the end of 2024[108]. - Total liabilities decreased by $181 million from December 31, 2024, to September 30, 2025, primarily due to a decrease in third-party transportation costs[108]. Service Positioning - The last mile service is positioned within 125 miles of the majority of the U.S. population, serving a customer base of omnichannel and e-commerce retailers[77].

Core Insights - RXO is experiencing a "squeeze" due to locked-in lower contractual rates and rising rates needed to fulfill those obligations, a situation likely affecting the broader 3PL sector [1][4] Financial Performance - RXO reported a net loss in its third quarter earnings, leading to a negative reaction from Wall Street and a decline in stock price [2] - The SONAR National Truckload Index indicated a rise in linehaul rates from $1.68 per mile to $1.80 per mile during the third quarter, ending at $1.72 per mile [5] Market Conditions - CEO Drew Wilkerson highlighted that the freight market is facing a tightening dynamic, with capacity exiting certain regions due to regulatory changes [4][6] - Approximately two-thirds of RXO's freight came from regions experiencing rate increases, despite a backdrop of weaker volume [6] Structural Changes - Wilkerson suggested that the current market changes, driven by regulatory enforcement, could represent one of the largest structural shifts in truckload supply since deregulation in the 1980s [7] - The freight market may enter a "higher for longer" phase if regulatory changes persist, potentially leading to a significant and permanent exit of truckload capacity from the market [8]

Financial Data and Key Metrics Changes - Overall brokerage volume grew by 1% year-over-year, with less-than-truckload (LTL) volume increasing by 43% and truckload volume declining by 11% year-over-year [4][16] - Adjusted EBITDA for the quarter was $32 million, below expectations, with a gross margin of 16.5% [16][4] - Adjusted free cash flow conversion was 56%, with cash on the balance sheet increasing by $7 million sequentially to $25 million [19][14] Business Line Data and Key Metrics Changes - Brokerage revenue was $1 billion, representing 70% of total revenue, with LTL growth offsetting a decline in full truckload volume [17][16] - Managed transportation revenue decreased by 9% year-over-year to $137 million, while last-mile business revenue grew by 14% to $305 million [18][16] - Brokerage gross margin decreased by 90 basis points sequentially to 13.5% due to increased transportation costs and demand weakness [18][16] Market Data and Key Metrics Changes - Industry tender rejections were at 6%, while RXO's were only 2%, indicating strong customer relationships [5] - Demand trends weakened throughout the third quarter, with cash freight shipments reaching their lowest level since 2020 in August [8] - Approximately two-thirds of RXO's freight came from regions where buy rates increased, impacting overall results [4][30] Company Strategy and Development Direction - RXO is focused on improving its cost structure, having removed over $125 million in costs since becoming a standalone public company [9][20] - The company is investing in technology, including AI, to enhance productivity and customer service [10][14] - RXO aims to capitalize on potential structural changes in the industry due to regulatory enforcement, which could lead to a tighter freight market in the long term [8][36] Management's Comments on Operating Environment and Future Outlook - Management noted that the market tightened in September, leading to a decline in gross profit per load [4][7] - There is uncertainty regarding the sustainability of recent supply exits and the need for demand recovery to improve market conditions [40][41] - The company expects fourth-quarter Adjusted EBITDA to be between $20 million and $30 million, reflecting a challenging macroeconomic environment [22][36] Other Important Information - The company has taken additional actions to achieve more than $30 million in incremental annualized savings [20][21] - RXO's liquidity position remains strong, with $590 million in total committed liquidity [19][20] - The company is closely monitoring macroeconomic factors, including interest rates and housing market trends, which could influence demand [24][70] Q&A Session Summary Question: Sustainability of recent supply exits and actions to manage gross profit per load - Management believes recent supply exits could lead to a significant reduction in market supply, but demand recovery is essential for a sharper market inflection [40][41] - The company is implementing cost initiatives to manage gross profit per load in the near term [42] Question: Concerns regarding Adjusted EBITDA guidance and Coyote acquisition - Management acknowledged that financial results from the Coyote acquisition have not met expectations, primarily due to pricing decisions impacting volumes [48][49] - They emphasized that the current market conditions are not typical and are influenced by structural changes in the industry [48][49] Question: Operating expenses and potential for rein in costs - Management confirmed ongoing efforts to optimize costs, including automation and footprint consolidation [66][67] - They are actively seeking opportunities to reduce direct operating expenses in response to market challenges [66][67] Question: Demand environment and potential recovery - Management is monitoring various factors, including interest rates and automotive demand, to gauge future demand recovery [69][70] - They highlighted the importance of strong customer relationships and technology in navigating the current market dynamics [71][72]

Financial Data and Key Metrics Changes - Overall brokerage volume grew by 1% year-over-year, with less-than-truckload (LTL) volume increasing by 43% and truckload volume declining by 11% year-over-year [4][16] - Adjusted EBITDA for the quarter was $32 million, below expectations, with a gross margin of 16.5% [16][19] - Adjusted free cash flow conversion was 56%, with cash on the balance sheet increasing by $7 million sequentially to $25 million [19][14] Business Line Data and Key Metrics Changes - Brokerage revenue was $1 billion, representing 70% of total revenue, with LTL growth offsetting a decline in full truckload volume [17][18] - Managed transportation revenue decreased by 9% year-over-year to $137 million, while last-mile business revenue grew by 14% to $305 million [18][19] - Brokerage gross margin decreased by 90 basis points sequentially to 13.5% due to increased transportation costs and demand weakness [17][18] Market Data and Key Metrics Changes - Industry tender rejections were at 6%, while RXO's were just 2%, indicating strong customer relationships [5] - Cash freight shipments reached their lowest level since 2020 in August, reflecting weakened demand trends [8] - Approximately two-thirds of RXO's freight came from regions where buy rates increased, contributing to margin pressure [30] Company Strategy and Development Direction - RXO is focused on improving its cost structure, having removed over $125 million in costs since becoming a standalone public company [9][20] - The company is investing in technology, including AI, to enhance productivity and customer service [12][28] - RXO aims to capitalize on potential structural changes in the industry due to regulatory enforcement, which could lead to a tighter freight market in the long term [8][36] Management's Comments on Operating Environment and Future Outlook - Management noted that the market tightened in September, impacting results, and expressed confidence in RXO's ability to recover when demand returns [4][8] - The company expects fourth-quarter adjusted EBITDA to be between $20 million and $30 million, reflecting a challenging macroeconomic environment [22][34] - Management highlighted the importance of monitoring macroeconomic indicators, such as interest rates and housing market trends, which could influence demand [24][70] Other Important Information - RXO's liquidity position remains strong, with $590 million in total committed liquidity [19] - The company is taking additional actions to achieve more than $30 million in incremental annualized savings [20][23] - The impact of recent regulatory changes could lead to a significant structural shift in the trucking industry, benefiting larger brokerages like RXO [8][36] Q&A Session Summary Question: Sustainability of recent supply exits and actions to manage gross profit per load - Management believes recent supply exits are significant and could lead to a structural change in the industry, but demand must return for a sharper market recovery [40][41] - Actions to manage gross profit per load include new cost initiatives and improving productivity through technology [42][43] Question: Concerns about adjusted EBITDA guidance and Coyote acquisition impact - Management acknowledged that the financial results post-Coyote acquisition have not met expectations, attributing some challenges to pricing decisions made in 2025 [48][49] - The company remains focused on regaining market leadership and improving performance in the future [48] Question: Operating expenses and potential for cost reduction - Management has implemented significant cost actions and continues to seek opportunities for further expense reductions through automation and process improvements [66][67] Question: Demand outlook and potential recovery - Management is closely monitoring various factors affecting demand, including interest rates and automotive sector performance, and believes that a structural change in supply could benefit large carriers when demand returns [70][71][72]

Financial Data and Key Metrics Changes - Overall brokerage volume grew by 1% year-over-year, with less-than-truckload (LTL) volume increasing by 43% and truckload volume declining by 11% year-over-year [3][15] - Adjusted EBITDA for the quarter was $32 million, below expectations, with a gross margin of 16.5% and adjusted EBITDA margin of 2.3% [13][14] - Adjusted free cash flow conversion was 56%, with cash on the balance sheet increasing by $7 million sequentially to $25 million [17][18] Business Line Data and Key Metrics Changes - Brokerage revenue was $1 billion, representing 70% of total revenue, with LTL volume growth offsetting a decline in full truckload volume [15][16] - Managed transportation revenue decreased by 9% year-over-year to $137 million, while last-mile business revenue grew by 14% to $305 million [16] - Brokerage gross margin decreased by 90 basis points sequentially to 13.5% due to increased transportation costs and demand weakness [15][16] Market Data and Key Metrics Changes - Industry tender rejections were at 6%, while RXO's were just 2%, indicating strong customer relationships [4] - Cash freight shipments reached their lowest level since 2020 in August, reflecting weakened demand trends [6] - Approximately two-thirds of RXO's freight came from regions with increased buy rates, impacting overall results [4][27] Company Strategy and Development Direction - RXO is focused on improving its cost structure, having removed over $125 million in costs since becoming a standalone public company [7][18] - The company is investing in technology, including AI, to enhance productivity and customer service [11][25] - RXO aims to capitalize on potential structural changes in the industry due to regulatory enforcement, which could lead to a tighter freight market [6][32] Management's Comments on Operating Environment and Future Outlook - Management noted that demand trends weakened throughout Q3 and remained below typical seasonality, with expectations for continued softness in Q4 [6][30] - The company anticipates adjusted EBITDA for Q4 to be between $20 million and $30 million, impacted by higher transportation costs [19][30] - Management expressed confidence in RXO's long-term growth potential due to its improved cost structure and technology investments [12][34] Other Important Information - The company has taken additional actions to achieve more than $30 million in incremental annualized savings [18][20] - RXO's liquidity position remains strong, with $590 million in total committed liquidity [17] - The company expects CapEx for 2025 to be at the low end of the previously discussed range of $65 million to $75 million [19] Q&A Session Summary Question: Sustainability of recent supply exits and actions to manage gross profit per load - Management believes recent supply exits are likely sustainable due to regulatory changes, which could significantly reduce market supply [36][37] - Actions to manage gross profit per load include new cost initiatives and improving productivity through technology [39] Question: Concerns about adjusted EBITDA guidance and Coyote acquisition impact - Management acknowledged that while the Coyote acquisition has performed well in terms of people and technology, financial results have not met expectations due to pricing decisions [43][44] Question: Operating expenses and potential for rein in costs - Management confirmed ongoing efforts to optimize costs, including automation and footprint consolidation, with significant savings already achieved [61][63] Question: Demand outlook and potential recovery - Management is closely monitoring interest rates and housing market trends, which could drive demand recovery in the future [65][67]

Core Insights - RXO reported quarterly earnings of $0.01 per share, missing the Zacks Consensus Estimate of $0.03 per share, representing an earnings surprise of -66.67% [1] - The company posted revenues of $1.42 billion for the quarter ended September 2025, missing the Zacks Consensus Estimate by 2.01%, compared to $1.04 billion in the same quarter last year [2] - RXO shares have declined approximately 26.1% year-to-date, contrasting with the S&P 500's gain of 15.6% [3] Earnings Performance - Over the last four quarters, RXO has surpassed consensus EPS estimates only once [2] - The current consensus EPS estimate for the upcoming quarter is $0.06 on revenues of $1.56 billion, and for the current fiscal year, it is $0.11 on revenues of $5.89 billion [7] Market Outlook - The company's earnings outlook is critical for assessing future stock performance, with recent estimate revisions trending unfavorably, resulting in a Zacks Rank 4 (Sell) [6] - The Transportation - Services industry, to which RXO belongs, is currently in the bottom 10% of Zacks industries, indicating potential underperformance compared to higher-ranked industries [8] Competitor Insights - PowerFleet, another company in the same industry, is expected to report quarterly earnings of $0.05 per share, reflecting a year-over-year increase of +350%, with revenues projected at $105.59 million, up 37.1% from the previous year [9][10]

Q3 2025 Performance - RXO's Q3 2025 revenue was $1421 million [12] - Adjusted EBITDA for Q3 2025 was $32 million [12] - Q3 2025 adjusted diluted EPS was $001 [25] - Q3 adjusted free cash flow conversion was 56% [28] - Gross margin was $234 million [12] Operational Highlights - Truckload (TL) volume was down 11% year-over-year (y/y), representing 69% of total volume, while Less-Than-Truckload (LTL) volume was up 43% y/y, accounting for 31% of volume [15] - Last Mile stop growth increased by 12% y/y [15] - Productivity gains in brokerage increased by 19% [15] Cost Savings Initiatives - Total annualized operating expense reductions are expected to be greater than $155 million, including over $60 million from Coyote synergies [18] - The company anticipates approximately 100 basis points of savings/avoidance in Cost of Purchased Transportation (COPT) [17] Q4 2025 Outlook - Adjusted EBITDA is projected to be between $20 million and $30 million [51] - Brokerage volume is expected to decrease by a low-single-digit percentage y/y [51] - Brokerage gross margin is anticipated to be in the range of 12%-13% [51] Capital Structure - Net debt stood at $395 million [32] - Gross leverage was 24x, and net leverage was 23x [33]

Core Viewpoint - RXO's third quarter earnings report led to a significant pre-market stock sell-off of over 14.8%, reflecting investor disappointment despite the earnings not being overly negative [1] Financial Performance - Adjusted net income decreased year-on-year from $7 million to $2 million, with non-GAAP EPS dropping to 1 cent from 5 cents, missing Wall Street estimates by 3 cents [2] - Total revenue for the quarter was $1.4 billion, falling short of consensus estimates by $30 million [2] - Adjusted EBITDA slightly declined to $32 million from $33 million year-on-year, with the adjusted EBITDA margin decreasing from 3.2% to 2.3% [3] - The net loss per share on a GAAP basis was 8 cents, accumulating to a total loss of 32 cents per share for the first three quarters [3] Strategic Positioning - RXO's CEO highlighted the company's strong positioning as the third-largest brokered transportation provider in North America, emphasizing the benefits of scale and technology [4] - The company anticipates over $30 million in savings from new cost initiatives, aiming for long-term strong cash flow due to its asset-light business model [4] Market Comparison - RXO's performance contrasts sharply with its peer C.H. Robinson, which has seen significant growth in key metrics and a stock price increase of over 45% in the last year [4] - RXO's stock has declined approximately 37.5% over the past year, although it has risen about 13.8% in the last three months prior to the recent sell-off [4] Revenue Drivers - The increase in RXO's revenue for the third quarter was partly attributed to the acquisition of Coyote Logistics, completed in the previous year's third quarter [5]

Revenue Performance - RXO reported third-quarter 2025 revenue of $1.4 billion, a 36.5% increase from $1.0 billion in the same quarter of 2024[3] - Total revenue for Q3 2025 was $1,421 million, a 36.6% increase from $1,040 million in Q3 2024[29] - Truck brokerage revenue reached $1,039 million in Q3 2025, up 58.6% from $655 million in Q3 2024[29] - Complementary services revenue was $442 million in Q3 2025, slightly up from $419 million in Q3 2024[34] - Total revenue for the nine months ended September 30, 2025, was $4.273 billion, a 48.3% increase from $2.883 billion in the same period of 2024[34] Profitability and Loss - The company experienced a GAAP net loss of $14 million in Q3 2025, significantly improved from a net loss of $243 million in Q3 2024[4] - Net loss for Q3 2025 was $14 million, significantly improved from a net loss of $243 million in Q3 2024[31] - Adjusted EBITDA for the quarter was $32 million, slightly down from $33 million in Q3 2024, with an adjusted EBITDA margin of 2.3% compared to 3.2% in the prior year[5] - Adjusted EBITDA for Q3 2025 was $32 million, with an adjusted EBITDA margin of 2.3% compared to 3.2% in Q3 2024[31] - Gross margin for Q3 2025 was $234 million, compared to $180 million in Q3 2024, reflecting a 30% increase[34] - Gross margin as a percentage of revenue decreased to 16.5% in Q3 2025 from 17.3% in Q3 2024[34] Operational Metrics - Brokerage volume growth was 1% year-over-year, driven by a 43% increase in less-than-truckload volume, although full truckload volume declined by 11%[6][7] - Last Mile service achieved a 12% year-over-year growth in stops, marking the fifth consecutive quarter of double-digit growth[6][8] - Cost of transportation and services for Q3 2025 was $1.137 billion, up from $809 million in Q3 2024, representing a 40.5% increase[34] - Direct operating expenses for Q3 2025 were $48 million, slightly down from $49 million in Q3 2024[34] Future Outlook - RXO expects fourth-quarter 2025 adjusted EBITDA to range between $20 million and $30 million, with a projected low-single-digit percentage decline in overall volume[9] - The company anticipates brokerage gross margin to be between 12% and 13% in Q4 2025, reflecting ongoing market tightness[9] - RXO's new cost initiatives are expected to yield over $30 million in incremental savings[6] - RXO, Inc. continues to focus on expanding its truck brokerage and complementary services to drive future growth[34] Balance Sheet Highlights - Cash and cash equivalents at the end of Q3 2025 were $26 million, down from $35 million at the end of Q4 2024[27] - Total assets decreased to $3,201 million in Q3 2025 from $3,414 million in Q4 2024[25] - Total current liabilities decreased to $907 million in Q3 2025 from $1,065 million in Q4 2024[25] - Long-term debt increased to $387 million in Q3 2025 from $351 million in Q4 2024[25] - The company reported a net cash provided by operating activities of $44 million for the nine months ended September 30, 2025, compared to a net cash used of $5 million for the same period in 2024[27] Business Acquisition Costs - Business acquisition costs amounted to $10 million in Q3 2025, a significant decrease from $1,019 million in Q3 2024[27]