Monty Rakusen Summary Following my coverage on RXO, Inc. (NYSE:RXO) in Dec'23, which I reiterated a hold rating as I was worried about the pricing headwinds despite positive indicators for a volume recovery, this post is to provide an update on my thoughts on the business and stock. I am upgrading my recommendation from hold to buy as I see greater visibility to a recovery in the coming years, with expectations that RXO can accelerate growth to 20% in FY26 and EBITDA margins to hit 6%. Investment thesis On ...

[Part I—Financial Information](index=4&type=section&id=Part%20I%E2%80%94Financial%20Information) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) The company reported a **$15 million** net loss in Q1 2024, a decline from break-even, with total assets at **$1.80 billion** and operating cash flow at **$7 million** Q1 2024 Key Financial Metrics | Metric | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | **Revenue** | $913 | $1,010 | | **Operating Income (Loss)** | $(12) | $5 | | **Net Income (Loss)** | $(15) | $0 | | **Diluted EPS** | $(0.13) | $0.00 | Balance Sheet Summary | Account | March 31, 2024 (in millions) | Dec 31, 2023 (in millions) | | :--- | :--- | :--- | | **Total Current Assets** | $770 | $796 | | **Total Assets** | $1,799 | $1,825 | | **Total Current Liabilities** | $674 | $682 | | **Total Liabilities** | $1,217 | $1,231 | | **Total Equity** | $582 | $594 | Cash Flow Summary | Activity | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $7 | $42 | | **Net Cash used in Investing Activities** | $(11) | $(12) | | **Net Cash from (used in) Financing Activities** | $6 | $(8) | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's brokered transportation platform, revenue disaggregation, debt, and legal contingencies, including Q1 2024 restructuring charges - RXO operates as a technology-driven, asset-light brokered transportation platform, with its core business in truck brokerage, complemented by managed transportation, last mile, and freight forwarding services[24](index=24&type=chunk) Revenue by Service Offering (Q1 2024 vs Q1 2023) | Service Offering | Q1 2024 (in millions) | Q1 2023 (in millions) | | :--- | :--- | :--- | | Truck brokerage | $564 | $600 | | Last mile | $232 | $240 | | Managed transportation | $97 | $117 | | Freight forwarding | $55 | $80 | - The company recorded restructuring charges of **$11 million** in Q1 2024, primarily for severance and facility costs, with a remaining liability of **$12 million** expected to be paid within twelve months[33](index=33&type=chunk) - The company is involved in several class action lawsuits alleging misclassification of independent contractors in its last mile business. The company believes the claims are without merit but is unable to estimate the possible loss or range of loss[50](index=50&type=chunk)[53](index=53&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Revenue declined **9.6%** due to lower rates and volumes, causing margin compression, with a credit facility amendment providing increased financial flexibility - Revenue for Q1 2024 decreased by **9.6% to $913 million** from $1,010 million in Q1 2023[69](index=69&type=chunk) - The revenue decline was driven by a **$36 million decrease in truck brokerage** (15% lower revenue per load, partially offset by 11% higher volume), a **$25 million decrease in freight forwarding**, and a **$20 million decrease in managed transportation**[69](index=69&type=chunk) - Cost of transportation and services as a percentage of revenue increased from **75.1% to 76.6%** year-over-year, primarily due to margin pressure in the truck brokerage segment[70](index=70&type=chunk) - The company amended its Revolver in April 2024 to temporarily increase the maximum consolidated leverage ratio, raising it to **4.25:1.00** for the quarters ending June 30 and September 30, 2024[80](index=80&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=21&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes occurred in market risk exposures, including foreign currency, commodity, interest rate, and fuel price risks, since the 2023 Form 10-K - There have been no material changes to the company's market risk exposures related to foreign currency, commodity prices, interest rates, or fuel prices since the 2023 Form 10-K[86](index=86&type=chunk) [Item 4. Controls and Procedures](index=21&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[87](index=87&type=chunk) - No material changes were made to the company's internal control over financial reporting during the first quarter of 2024[88](index=88&type=chunk) [Part II—Other Information](index=22&type=section&id=Part%20II%E2%80%94Other%20Information) [Item 1. Legal Proceedings](index=22&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 9 of the financial statements for details on legal proceedings, including misclassification claims against its last mile subsidiary - For information on legal proceedings, the report directs readers to Note 9—Commitments and Contingencies in the financial statements[90](index=90&type=chunk) [Item 1A. Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors were reported since the 2023 Form 10-K - There have been no material changes to the company's risk factors as disclosed in the 2023 Form 10-K[91](index=91&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=22&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered securities were issued, and no shares were repurchased in Q1 2024, with **$123 million** remaining for future repurchases - No unregistered securities were issued in the three months ended March 31, 2024[92](index=92&type=chunk) - The company did not repurchase any shares during Q1 2024. As of March 31, 2024, **$123 million** remains authorized under the share repurchase program[93](index=93&type=chunk) [Item 6. Exhibits](index=23&type=section&id=Item%206.%20Exhibits) Exhibits filed include CEO and CFO certifications as required by the Sarbanes-Oxley Act - Exhibits filed with the report include certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act[98](index=98&type=chunk)

RXO, Inc. (NYSE:RXO) Q1 2024 Earnings Conference Call May 2, 2024 8:00 AM ET Company Participants Drew Wilkerson - CEO James Harris - CFO Jared Weisfeld - CSO Conference Call Participants Stephanie Moore - Jefferies Tom Wadewitz - UBS Scott Schneeberger - Oppenheimer Brandon Oglenski - Barclays Ken Hoexter - Bank of America Jason Seidl - TD Cowen Ravi Shanker - Morgan Stanley Jordan Alliger - Goldman Sachs Daniel Imbro - Stephens Inc. Kevin Gainey - Thompson Davis Operator Welcome to the 1Q 2024 RXO Earning ...

– LTL: up more than 30% 14 7 Diverse exposure across attractive end markets Adjusted diluted earnings (loss) per share 2 $ (0.03) $ 0.11 Financial reconciliations (cont.) RXO • Stock-based compensation: $24-$26M 3 16 1 See the "Non-GAAP financial measures" section. 2 Includes the cash component of these line items. 3 Adjusted EBITDA for all periods presented is reconciled above. 4 Free cash flow conversion from adjusted EBITDA is calculated as free cash flow divided by adjusted EBITDA. 5 Adjusted free cash ...

Business Model and Operations - The company operates an asset-light business model that generates strong free cash flow and high returns on invested capital[26]. - The proprietary RXO Connect™ digital brokerage platform enhances service delivery and operational productivity, leveraging advanced technology for real-time freight management[29]. - The company’s managed transportation service includes bespoke load planning and performance monitoring, enhancing revenue synergy across its service offerings[19]. - The company’s last mile service is the largest provider of outsourced last mile transportation for heavy goods in the U.S., serving a diverse customer base[20]. - The company benefits from a long-tenured customer base across various sectors, including e-commerce and retail, which supports revenue stability[26]. - The company aims to capitalize on increasing broker penetration in the for-hire trucking industry, driven by shippers' growing preference for digital brokerage services[30]. - The company’s freight forwarding service covers approximately 150 countries and territories, enhancing its global reach and operational capabilities[21]. Financial Performance and Customer Base - The top 20 customers accounted for approximately 38% of the company's revenue in 2023, with the largest customer contributing about 9.5%[32]. - The top five customers accounted for approximately 21% of the company's total revenue for the year ended December 31, 2023, with the largest customer representing about 9.5%[115]. - The company has experienced higher volumes in the fourth quarter due to peak season demand from consumer sectors[53]. - RXO's volumes typically increase in the fourth quarter due to peak season demand from customers in consumer sectors[53]. Workforce and Employee Engagement - As of December 31, 2023, the company operated with a total workforce of 8,432, including 6,051 full-time and part-time employees and 2,381 temporary workers[56]. - 45% of the company's employees are in hourly roles, while 55% are in salaried positions, with approximately 38% of employees being female[56]. - The company has a strong commitment to diversity, equity, and inclusion, encouraging employees to bring their authentic selves to work[57]. - RXO's total rewards program is designed to attract and retain talent, providing competitive compensation and benefits from day one[59]. - The company has a focus on professional development and offers numerous career development opportunities, including workshops and leadership training[58]. Regulatory and Compliance - The company is subject to various federal and state regulations, including those related to emissions and independent contractor classifications, which could impact operational costs and legal exposure[49][50]. - RXO's operations are subject to various regulations, including those from the Federal Motor Carrier Safety Administration and state regulations affecting motor carriers[38][40]. - The company is subject to environmental regulations concerning hazardous materials and emissions, with a focus on compliance and risk management[50][51]. - The company maintains insurance for various liabilities, including commercial automobile liability and workers' compensation, with coverage limits deemed reasonable based on historical claims[52]. Market Conditions and Risks - The transportation services industry is highly competitive, with risks including reduced revenues and profit margins due to competition from other companies and pricing pressures during economic downturns[69]. - Economic recessions can significantly impact demand for transportation services, leading to reduced revenues and increased competition for pricing[70]. - Fluctuations in fuel prices can materially affect profitability, as fuel expenses are a major cost for independent contractors and third-party carriers[73]. - A reduction in overall freight volume can limit growth opportunities, and financial distress among customers may lead to increased working capital needs[75]. - Labor disputes and organizing efforts could disrupt operations, negatively impacting revenues and customer relationships[87]. - The company relies on third-party carriers for operations, and any changes in their classification as independent contractors could increase operational costs and liabilities[83]. - Cybersecurity risks pose a threat to the company's operations, with potential breaches leading to operational difficulties and reputational harm[93]. - Changes in international trade policies and tariffs could adversely affect global transportation volumes and customer demand[75]. Corporate Structure and Governance - The company completed its separation from XPO, Inc. on November 1, 2022, and began trading on the New York Stock Exchange under the ticker symbol "RXO"[22]. - RXO began regular trading as a standalone public company on November 1, 2022, with historical financial information not necessarily indicative of future results[122]. - RXO's historical financial results included allocations of corporate expenses from XPO, which may be less than the expenses incurred as a separate entity[123]. - RXO may face increased volatility in cash flows and working capital requirements post-Separation, potentially necessitating additional financing[123]. - The company has a strong governance structure and commitment to employee engagement, which supports its operational effectiveness and corporate culture[54]. - RXO's amended and restated certificate of incorporation includes provisions that may deter hostile takeovers, potentially affecting stockholder interests[136]. - The Separation may trigger tax liabilities under Section 355(e) of the Internal Revenue Code, with RXO required to indemnify XPO for such taxes[138]. - RXO's exclusive forum provision may discourage lawsuits against the company and its directors[139].

RXO, Inc. (NYSE:RXO) Q4 2023 Earnings Conference Call February 8, 2024 8:00 AM ET Company Participants Drew Wilkerson - CEO James Harris - CFO Jared Weisfeld - CSO Conference Call Participants Ken Hoexter - Bank of America Jordan Alliger - Goldman Sachs Stephanie Moore - Jefferies Brandon Oglenski - Barclays Allison Poliniak - Wells Fargo Scott Schneeberger - Oppenheimer Ravi Shanker - Morgan Stanley Scott Group - Wolfe Research Bruce Chan - Stifel Jack Atkins - Stephens Operator Welcome to RXO Q4 2023 Earn ...

$140 Adjusted EBITDA and margin %1Brokerage y/y volume growth Solid execution in a prolonged soft freight market RXO's brokerage business continues to outperform and gain profitable market share | --- | --- | --- | --- | --- | --- | |-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|-------|----------------------------------------------------------------------------------------|-------|- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________________________________ Form 10-Q ___________________________________ (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission File Number: 001-41514 ___________________ ...

Revenue Performance - Revenue for Q2 2023 decreased by 21.5% to $963 million, down from $1,226 million in Q2 2022, primarily due to a $198 million decrease in truck brokerage revenue and a $36 million decrease in freight forwarding revenue [76]. - For the first six months of 2023, revenue decreased by 22.3% to $1.973 billion from $2.538 billion in the same period of 2022, primarily due to a $422 million decrease in truck brokerage revenue [84]. Cost and Expenses - Cost of transportation and services for Q2 2023 was $723 million, representing 75.1% of revenue, compared to $904 million or 73.7% of revenue in Q2 2022, driven by a 5.4 percentage point increase in truck brokerage costs [77]. - Direct operating expenses for Q2 2023 were $59 million, or 6.1% of revenue, up from $56 million or 4.6% of revenue in Q2 2022, reflecting deleverage on lower revenue [78]. - SG&A expenses for Q2 2023 were $144 million, or 15.0% of revenue, compared to $166 million, or 13.5% of revenue in Q2 2022, with higher compensation-related costs contributing to the increase [79]. - Transportation and services costs for the first six months of 2023 were $1.5 billion, or 75.1% of revenue, down from $1.9 billion, or 75.8% of revenue in the same period of 2022 [85]. - Direct operating expenses for the first six months of 2023 were $120 million, or 6.1% of revenue, compared to $111 million, or 4.4% of revenue in the same period of 2022 [86]. - SG&A expenses for the first six months of 2023 were $297 million, or 15.1% of revenue, down from $327 million, or 12.9% of revenue in the same period of 2022 [87]. - Depreciation and amortization expense for the first six months of 2023 was $36 million, a decrease from $42 million in the same period of 2022 [88]. Net Income and Tax - Net income for Q2 2023 was $3 million, down from $44 million in Q2 2022, resulting in a net income margin of 0.3% compared to 3.6% in the prior year [75]. - The effective income tax rate for Q2 2023 was 44.0%, significantly higher than the 24.3% rate in Q2 2022, influenced by state income taxes and non-deductible expenses [82]. - The effective income tax rate for the first six months of 2023 was (11.0)%, compared to 24.3% for the same period in 2022 [90]. Cash Flow and Assets - Net cash provided by operating activities for the first six months of 2023 was $66 million, a decrease of $111 million (62.7%) compared to $177 million in the same period of 2022 [96]. - Cash used in investing activities for the first six months of 2023 was $28 million, compared to $24 million in the same period of 2022 [99]. - Financing activities used $13 million of cash in the first six months of 2023, compared to generating $30 million in the same period of 2022 [100]. - Total current assets decreased by $113 million (11.0%) from December 31, 2022, to June 30, 2023, primarily due to a $157 million decrease in accounts receivable [95]. - Total liabilities decreased by $121 million from December 31, 2022, to June 30, 2023, driven primarily by a $69 million decrease in accounts payable [95]. Business Model and Operations - The company had approximately 121,000 carriers in its North American truck brokerage network, with access to over 1.5 million trucks as of June 30, 2023 [64]. - The company operates an asset-light business model, focusing on truck brokerage, managed transportation, last mile, and freight forwarding services [62]. - Transaction and integration costs for Q2 2023 were $4 million, down from $18 million in Q2 2022, primarily related to spin-off costs [81].

[Part I—Financial Information](index=4&type=section&id=Part%20I%E2%80%94Financial%20Information) This part presents RXO's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents RXO's unaudited condensed consolidated financial statements, including key financial statements and detailed notes on accounting policies, debt, and other financial disclosures [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of RXO's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (Millions) | Metric | March 31, 2023 (Millions) | December 31, 2022 (Millions) | Change (Millions) | % Change | | :--------------------------------- | :-------------------------- | :--------------------------- | :---------------- | :------- | | Cash and cash equivalents | $121 | $98 | $23 | 23.5% | | Accounts receivable, net | $862 | $900 | $(38) | (4.2)% | | Total current assets | $1,029 | $1,029 | $0 | 0.0% | | Total long-term assets | $989 | $1,002 | $(13) | (1.3)% | | Total assets | $2,018 | $2,031 | $(13) | (0.6)% | | Total current liabilities | $820 | $823 | $(3) | (0.4)% | | Total long-term liabilities | $613 | $621 | $(8) | (1.3)% | | Total liabilities and equity | $2,018 | $2,031 | $(13) | (0.6)% | [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines RXO's financial performance over a period, showing revenues, expenses, and net income Condensed Consolidated Statements of Operations (Millions) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | Change (Millions) | % Change | | :------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :---------------- | :------- | | Revenue | $1,010 | $1,312 | $(302) | (23.0)% | | Cost of transportation and services | $759 | $1,021 | $(262) | (25.7)% | | Direct operating expense | $61 | $55 | $6 | 10.9% | | Sales, general and administrative expense | $153 | $161 | $(8) | (5.0)% | | Operating income | $5 | $51 | $(46) | (90.2)% | | Net income | $0 | $39 | $(39) | (100.0)% | | Basic earnings per share | $0 | $0.34 | $(0.34) | (100.0)% | | Diluted earnings per share | $0 | $0.34 | $(0.34) | (100.0)% | [Condensed Consolidated Statements of Comprehensive Income](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents RXO's comprehensive income, including net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (Millions) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | Change (Millions) | % Change | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | :---------------- | :------- | | Net income | $0 | $39 | $(39) | (100.0)% | | Foreign currency translation gain | $0 | $2 | $(2) | (100.0)% | | Comprehensive income | $0 | $41 | $(41) | (100.0)% | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details RXO's cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Millions) | Metric | Three Months Ended March 31, 2023 (Millions) | Three Months Ended March 31, 2022 (Millions) | Change (Millions) | % Change | | :------------------------------------------- | :------------------------------------------- | :------------------------------------------- | :---------------- | :------- | | Net cash provided by operating activities | $42 | $103 | $(61) | (59.2)% | | Net cash used in investing activities | $(12) | $(12) | $0 | 0.0% | | Net cash used in financing activities | $(8) | $(74) | $66 | (89.2)% | | Net increase in cash, cash equivalents | $23 | $17 | $6 | 35.3% | | Cash, cash equivalents, end of period | $121 | $46 | $75 | 163.0% | [Condensed Consolidated Statements of Changes in Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) This section illustrates the changes in RXO's equity components over a period, including net income and stock-related transactions Condensed Consolidated Statements of Changes in Equity (Millions) | Metric | December 31, 2022 (Millions) | March 31, 2023 (Millions) | Change (Millions) | | :------------------------------------------- | :--------------------------- | :------------------------ | :---------------- | | Total Equity | $587 | $585 | $(2) | | Stock compensation expense | N/A | $5 | N/A | | Tax withholdings related to stock awards | N/A | $(7) | N/A | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements [1. Organization](index=10&type=section&id=1.%20Organization) This note describes RXO's business model as an asset-light brokered transportation platform - RXO, Inc. operates as a brokered transportation platform with an asset-light business model, primarily focusing on truck brokerage, complemented by managed transportation, last mile, and freight forwarding services[24](index=24&type=chunk) [2. Basis of Presentation and Significant Accounting Policies](index=10&type=section&id=2.%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) This note outlines the accounting principles and policies used in preparing RXO's financial statements, including post-separation adjustments - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and SEC rules, consistent with the 2022 Form 10-K[25](index=25&type=chunk) - RXO completed its separation from XPO, Inc. on November 1, 2022, becoming a standalone publicly traded company. Financial statements post-Separation are consolidated, while prior periods were combined and derived from XPO's records, including allocated costs[27](index=27&type=chunk)[28](index=28&type=chunk)[30](index=30&type=chunk) - The company adopted ASU 2022-04 on January 1, 2023, regarding supplier finance programs, which did not impact financial statement disclosures[34](index=34&type=chunk) - RXO is currently evaluating the impact of ASU 2023-01, "Leases (Topic 842) - Common Control Arrangements," effective for fiscal years beginning after December 15, 2023[35](index=35&type=chunk) [3. Revenue Recognition](index=12&type=section&id=3.%20Revenue%20Recognition) This note details RXO's revenue sources by service offering and industry sector, along with geographical distribution - The majority of RXO's revenue is generated in the U.S., with approximately **7%** and **9%** from outside the U.S. for Q1 2023 and Q1 2022, respectively[36](index=36&type=chunk) Revenue by Service Offering (Millions) | Service Offering | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :------------------ | :-------------- | :-------------- | :---------------- | :------- | | Truck brokerage | $600 | $824 | $(224) | (27.2)% | | Last mile | $240 | $246 | $(6) | (2.4)% | | Managed transportation | $117 | $139 | $(22) | (15.8)% | | Freight forwarding | $80 | $139 | $(59) | (42.4)% | | Total | $1,010 | $1,312 | $(302) | (23.0)% | Revenue by Industry Sector (Millions) | Industry Sector | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :-------------------- | :-------------- | :-------------- | :---------------- | :------- | | Retail/e-commerce | $386 | $481 | $(95) | (19.7)% | | Food and beverage | $105 | $150 | $(45) | (30.0)% | | Industrial/manufacturing | $181 | $229 | $(48) | (20.9)% | | Logistics and transportation | $52 | $87 | $(35) | (40.2)% | | Automotive | $102 | $89 | $13 | 14.6% | | Other | $184 | $276 | $(92) | (33.3)% | | Total | $1,010 | $1,312 | $(302) | (23.0)% | - As of March 31, 2023, the fixed consideration component of remaining performance obligations was approximately **$153 million**, with **97%** expected to be recognized over the next 3 years[37](index=37&type=chunk) [4. Restructuring Charges](index=13&type=section&id=4.%20Restructuring%20Charges) This note explains the restructuring charges incurred by RXO, primarily for severance costs, and the expected timing of cash outlays - RXO incurred **$8 million** in restructuring charges for the three months ended March 31, 2023, primarily for severance costs, increasing the total restructuring liability to **$8 million** from **$3 million** at December 31, 2022[38](index=38&type=chunk) - The majority of cash outlays for the remaining restructuring liability are expected to be completed within twelve months[38](index=38&type=chunk) [5. Debt](index=13&type=section&id=5.%20Debt) This note provides details on RXO's debt instruments, including term loans, notes, and revolving credit facilities, and compliance with covenants Debt and Obligations Under Finance Leases (Millions) | Debt Type | Principal Balance (March 31, 2023, Millions) | Carrying Value (March 31, 2023, Millions) | Principal Balance (Dec 31, 2022, Millions) | Carrying Value (Dec 31, 2022, Millions) | | :--------------------------------------- | :------------------------------------------- | :------------------------------------------ | :------------------------------------------- | :------------------------------------------ | | Term Loan | $100 | $100 | $100 | $100 | | 7.50% Notes due 2027 | $355 | $346 | $355 | $346 | | Finance leases, asset financing and other | $9 | $9 | $9 | $9 | | Total debt and obligations under finance leases | $464 | $455 | $464 | $455 | - RXO has a five-year, unsecured **$500 million** revolving credit facility with no amounts outstanding as of March 31, 2023, and was in compliance with all covenants[40](index=40&type=chunk) - The company has a five-year **$100 million** unsecured term loan facility with an effective interest rate of **5.93%** as of March 31, 2023, and was in compliance with all covenants[41](index=41&type=chunk)[42](index=42&type=chunk) - RXO completed an offering of **$355 million** in unsecured **7.50% Notes due 2027**, with an effective interest rate of **8.14%** as of March 31, 2023, and was in compliance with all covenants[43](index=43&type=chunk)[44](index=44&type=chunk) [6. Fair Value Measurements](index=14&type=section&id=6.%20Fair%20Value%20Measurements) This note discusses the fair value of RXO's financial instruments, including current assets, liabilities, and specific debt types - The carrying values of current assets and liabilities (cash, receivables, payables, accrued expenses, current debt maturities) approximated their fair values due to their short-term nature[45](index=45&type=chunk) Fair Value of Debt (Millions) | Debt Type | Level | March 31, 2023 (Millions) | December 31, 2022 (Millions) | | :------------------ | :---- | :------------------------ | :--------------------------- | | Term Loan | 2 | $95 | $95 | | 7.50% Notes due 2027 | 1 | $367 | $358 | [7. Earnings per Share](index=15&type=section&id=7.%20Earnings%20per%20Share) This note presents RXO's basic and diluted earnings per share calculations, including the impact of anti-dilutive shares Earnings per Share Calculation (Shares in thousands) | Metric | 2023 (Shares in thousands) | 2022 (Shares in thousands) | | :----------------------------------- | :------------------------- | :------------------------- | | Net income (Millions) | $0 | $39 | | Basic weighted-average common shares | 116,600 | 115,163 | | Diluted weighted-average common shares | 119,369 | 115,163 | | Basic earnings per share | $0 | $0.34 | | Diluted earnings per share | $0 | $0.34 | - Approximately **0.9 million** shares were excluded from diluted EPS calculation for Q1 2023 as their inclusion would have been anti-dilutive[47](index=47&type=chunk) [8. Commitments and Contingencies](index=15&type=section&id=8.%20Commitments%20and%20Contingencies) This note outlines RXO's involvement in various legal proceedings and claims, assessing potential financial impacts and insurance coverage - RXO is involved in various legal proceedings, including claims for property damage, personal injury, environmental liability, commercial disputes, employment-related claims, and class action "misclassification claims" regarding independent contractors[48](index=48&type=chunk) - The company accrues for probable and reasonably estimable losses and believes the ultimate resolution of current matters will not have a material adverse effect on its financial condition, results of operations, or cash flows, though outcomes are uncertain[50](index=50&type=chunk) - RXO's liability and excess umbrella insurance policies generally do not cover misclassification claims, and the company has agreed to indemnify XPO for liabilities related to these claims from its last mile business[51](index=51&type=chunk)[52](index=52&type=chunk) [9. Related Party](index=16&type=section&id=9.%20Related%20Party) This note details transactions and cost allocations with related parties, particularly XPO, before and after RXO's separation - Post-Separation (November 1, 2022), XPO's general shared costs are no longer allocated to RXO[54](index=54&type=chunk) Allocated Expenses from XPO (Millions) | Expense Type | 2022 (Millions) | | :-------------------------------- | :-------------- | | Sales, general and administrative expense | $18 | | Depreciation and amortization expense | $2 | | Transaction and integration costs | $3 | | Total | $23 | Related Party Transactions with XPO (Millions) | Metric | 2022 (Millions) | | :------ | :-------------- | | Revenue | $49 | | Costs | $17 | [10. Subsequent Events](index=17&type=section&id=10.%20Subsequent%20Events) This note discloses significant events occurring after the balance sheet date, such as the authorized share repurchase program - On May 2, 2023, RXO's Board of Directors authorized a share repurchase program of up to **$125 million**, with no expiration date[58](index=58&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes RXO's financial condition, operational results, liquidity, and cash flows, considering external factors and the impact of its separation from XPO [Business Overview](index=18&type=section&id=Business%20Overview) This section describes RXO's asset-light brokered transportation platform, including its core truck brokerage and last mile services - RXO is an asset-light brokered transportation platform, with its core truck brokerage business complemented by managed transportation, last mile, and freight forwarding services[61](index=61&type=chunk) - The company's truck brokerage business leverages proprietary, cutting-edge technology and a network of approximately **119,000 carriers** in North America, with access to over **1.5 million trucks** as of March 31, 2023[63](index=63&type=chunk)[64](index=64&type=chunk) - RXO is the largest provider of outsourced last mile transportation for heavy goods in the U.S., serving omnichannel and e-commerce retailers[66](index=66&type=chunk) [Notable External Conditions](index=19&type=section&id=Notable%20External%20Conditions) This section discusses external factors like the COVID-19 pandemic, inflation, and recession risks impacting RXO's operations and pricing - RXO's business is impacted by external factors such as the COVID-19 pandemic, economic inflation, and potential recession, which can affect operating costs, activity levels, and pricing environment[68](index=68&type=chunk)[69](index=69&type=chunk) [Basis of Presentation](index=19&type=section&id=Basis%20of%20Presentation) This section explains the financial statement preparation post-separation from XPO and defines key expense categories - Following the November 1, 2022 separation from XPO, RXO's financial statements are prepared on a consolidated basis, while prior periods were combined and derived from XPO's records[70](index=70&type=chunk) - Cost of transportation and services primarily covers procuring freight transportation, while direct operating expenses include personnel, facility, equipment, and IT costs. SG&A comprises sales, executive, administrative, professional fees, and legal costs[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) This section analyzes RXO's revenue, expenses, operating income, and net income, highlighting significant year-over-year changes Key Financial Metrics (Millions) | Metric | 2023 (Millions) | 2022 (Millions) | Change (Millions) | % Change | | :------------------------------------------------ | :-------------- | :-------------- | :---------------- | :------- | | Revenue | $1,010 | $1,312 | $(302) | (23.0)% | | Cost of transportation and services (% of revenue) | 75.1% | 77.8% | (2.7) pp | | | Direct operating expense (% of revenue) | 6.0% | 4.2% | 1.8 pp | | | Sales, general and administrative expense (% of revenue) | 15.1% | 12.3% | 2.8 pp | | | Operating income | $5 | $51 | $(46) | (90.2)% | | Net income | $0 | $39 | $(39) | (100.0)% | | Effective income tax rate | 106.0% | 24.3% | 81.7 pp | | - Revenue decreased by **23.0%** year-over-year, primarily due to a **$224 million** decrease in truck brokerage revenue (**32%** reduction in revenue per load, partially offset by **6%** volume increase) and a **$59 million** decrease in freight forwarding revenue (lower ocean rates and volume)[75](index=75&type=chunk) - Cost of transportation and services as a percentage of revenue decreased by **3.0 percentage points**, driven by lower last mile transportation costs and an improved mix in freight forwarding[76](index=76&type=chunk) - SG&A as a percentage of revenue increased due to higher compensation-related costs (**2.7 percentage points**) reflecting deleverage on lower revenue and incremental corporate costs as a standalone public company[78](index=78&type=chunk) - Restructuring costs of **$8 million** were incurred in Q1 2023, primarily for severance[80](index=80&type=chunk) - The effective income tax rate for Q1 2023 was **106.0%**, significantly higher than **24.3%** in Q1 2022, primarily due to a **$2 million** tax benefit from changes in uncertain tax position reserves magnified by a low pre-tax loss[81](index=81&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses RXO's ability to meet short-term and long-term obligations, detailing funding sources and capital expenditure plans - RXO relies on cash from operations and its revolving credit facility to fund operations, working capital, capital expenditures, debt repayment, and strategic development[82](index=82&type=chunk) - The company believes its existing liquidity and capital sources are sufficient for the next 12 months[83](index=83&type=chunk) - Capital expenditures for 2023 include strategic investments in technology, equipment, and real estate, with significant discretion over timing and amount[84](index=84&type=chunk) - No material changes to outstanding debt and financing arrangements occurred in Q1 2023, and RXO was in compliance with all covenants[85](index=85&type=chunk) [Financial Condition](index=22&type=section&id=Financial%20Condition) This section reviews RXO's balance sheet changes, focusing on total assets and liabilities and their primary drivers Financial Condition Summary (Millions) | Metric | March 31, 2023 (Millions) | December 31, 2022 (Millions) | $ Change (Millions) | % Change | | :---------------------- | :------------------------ | :--------------------------- | :------------------ | :------- | | Total current assets | $1,029 | $1,029 | $0 | 0.0% | | Total long-term assets | $989 | $1,002 | $(13) | (1.3)% | | Total current liabilities | $820 | $823 | $(3) | (0.4)% | | Total long-term liabilities | $613 | $621 | $(8) | (1.3)% | - Total assets decreased by **$13 million**, primarily due to a **$7 million** decrease in operating lease assets and a **$3 million** decrease in identifiable intangible assets from amortization[87](index=87&type=chunk) - Total liabilities decreased by **$11 million**, mainly driven by a **$7 million** decrease in total operating lease liabilities due to amortization[87](index=87&type=chunk) [Cash Flow Activity](index=22&type=section&id=Cash%20Flow%20Activity) This section analyzes RXO's cash flows from operating, investing, and financing activities, explaining significant changes Cash Flow Summary (Millions) | Activity | 2023 (Millions) | 2022 (Millions) | $ Change (Millions) | % Change | | :------------------------------------------- | :-------------- | :-------------- | :------------------ | :------- | | Net cash provided by operating activities | $42 | $103 | $(61) | (59.2)% | | Net cash used in investing activities | $(12) | $(12) | $0 | 0.0% | | Net cash used in financing activities | $(8) | $(74) | $66 | (89.2)% | | Net increase in cash, cash equivalents | $23 | $17 | $6 | 35.3% | - The **$61 million** decrease in operating cash flow was due to a **$39 million** decrease in net income and a **$30 million** reduction in cash from accrued expenses and other liabilities[90](index=90&type=chunk) - Financing activities used significantly less cash in Q1 2023 (**$8 million**) compared to Q1 2022 (**$74 million**), primarily because of the absence of net transfers to XPO post-separation[92](index=92&type=chunk) [Critical Accounting Policies](index=23&type=section&id=Critical%20Accounting%20Policies) This section confirms no significant changes to RXO's critical accounting estimates since the prior annual report - There have been no significant changes in RXO's critical accounting estimates since December 31, 2022, as detailed in the 2022 Annual Report on Form 10-K[93](index=93&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) RXO is exposed to market risks from changes in foreign currency exchange rates, commodity prices, and interest rates, but reported no material changes to its quantitative and qualitative disclosures about these risks during Q1 2023 compared to its 2022 Annual Report on Form 10-K - RXO is exposed to market risks related to foreign currency exchange rates, commodity prices, and interest rates[94](index=94&type=chunk) - There have been no material changes to market risk disclosures in Q1 2023 compared to the 2022 Annual Report on Form 10-K[94](index=94&type=chunk) [Item 4. Controls and Procedures](index=23&type=section&id=Item%204.%20Controls%20and%20Procedures) As of March 31, 2023, RXO's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective. There have been no material changes in internal control over financial reporting during the quarter - As of March 31, 2023, RXO's CEO and CFO concluded that the company's disclosure controls and procedures were effective[95](index=95&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2023[96](index=96&type=chunk) [Part II—Other Information](index=24&type=section&id=Part%20II%E2%80%94Other%20Information) This part provides additional information on RXO's legal proceedings, risk factors, equity sales, and other disclosures [Item 1. Legal Proceedings](index=24&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 8 of the condensed consolidated financial statements for a description of RXO's legal proceedings, which include various claims and class actions - Legal proceedings are detailed in Note 8—Commitments and Contingencies of the condensed consolidated financial statements[98](index=98&type=chunk) [Item 1A. Risk Factors](index=24&type=section&id=Item%201A.%20Risk%20Factors) RXO states there have been no material changes to the risk factors previously discussed in its Annual Report on Form 10-K for the year ended December 31, 2022 - No material changes to risk factors have occurred since the Annual Report on Form 10-K for the year ended December 31, 2022[99](index=99&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) RXO reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds were reported[100](index=100&type=chunk) [Item 3. Defaults Upon Senior Securities](index=24&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) RXO reported no defaults upon senior securities - No defaults upon senior securities were reported[101](index=101&type=chunk) [Item 4. Mine Safety Disclosures](index=24&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to RXO - This item is not applicable[101](index=101&type=chunk) [Item 5. Other Information](index=24&type=section&id=Item%205.%20Other%20Information) RXO reported no other information for this item - No other information was reported[102](index=102&type=chunk) [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including various certifications (Sarbanes-Oxley Act Sections 302 and 906), XBRL documents, and a form of Restricted Stock Unit Award Agreement - The report includes certifications (31.1, 31.2, 32.1, 32.2) and XBRL interactive data files (101.INS, 101.SCH, etc)[104](index=104&type=chunk) - Exhibit 10.17 is a Form of Restricted Stock Unit Award Agreement under the RXO, Inc. 2022 Omnibus Incentive Compensation Plan[104](index=104&type=chunk) [Signatures](index=26&type=section&id=Signatures) The report is signed by Drew M. Wilkerson, Chief Executive Officer, and James E. Harris, Chief Financial Officer, on behalf of RXO, Inc - The report was signed by Drew M. Wilkerson (CEO) and James E. Harris (CFO) on May 3, 2023[108](index=108&type=chunk)