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]

Financial Data and Key Metrics Changes - Reported revenue for Q3 2025 was $934 million, a decrease of 5% year-over-year but an increase of 3% sequentially [12] - Adjusted operating income decreased by 4% year-over-year, with an adjusted operating income margin of 4.4%, up 10 basis points from the prior year [15] - Adjusted EPS for Q3 was $0.49, down from $0.52 in Q3 2024 [15][16] Business Line Data and Key Metrics Changes - ITS revenue was $561 million, slightly up from $560 million in the prior year, with a 2% growth in revenue per load [12] - Logistics segment revenue declined 13% year-over-year to $402 million, impacted by lower volume and revenue per load in brokerage [12][19] - Intermodal volumes showed a decline of 1% in Transcon, 2% in Local West, and 12% in Local East, while Mexico grew nearly 300% and refrigerated business grew 55% [7] Market Data and Key Metrics Changes - Strong West Coast shipping demand persisted into October, with expectations for continued strength into November [4] - The logistics segment faced a 13% revenue decline year-over-year, but operating margins improved by 10 basis points due to cost containment initiatives [8][19] - The brokerage segment experienced a 13% decline in volumes, with revenue per load down 5% [10] Company Strategy and Development Direction - The company is focused on strategic priorities, including acquisitions to enhance intermodal and Final Mile segments, and is optimistic about the potential merger between primary rail partners [5][6] - Investments in technology and automation are aimed at improving productivity and service offerings [82] - The company is managing for long-term growth and higher returns on capital while maintaining a disciplined approach to capital deployment [20] Management's Comments on Operating Environment and Future Outlook - Management noted a delayed peak season due to inventory impacts, with expectations for a more normalized seasonality in 2026 [3][35] - The company anticipates a challenging fourth quarter but remains focused on execution and achieving targeted cost savings [19][20] - Management expressed confidence in the potential for growth driven by new business onboardings and improved service offerings [19][24] Other Important Information - The company returned $36 million to shareholders through dividends and stock repurchases during the quarter [16] - The acquisition of Martin Transport's intermodal division and Smith Transport LLC was completed, adding scale to the intermodal and Final Mile segments [6][16] - The company expects full-year EPS in the range of $1.80 to $1.90 and revenue of $3.6 billion to $3.7 billion for 2025 [17] Q&A Session Summary Question: Insights on customer feedback regarding rail merger and share shifts - Management indicated that customer feedback is positive regarding the merger, with expectations of increased engagement and service opportunities as they approach the bid season [23][24] Question: Volume trends throughout Q3 and expectations for Q4 - Management reported a later peak than anticipated, with September up 6% and October month-to-date up 3%, expecting continued demand through November [25][26] Question: Use of cash and capital allocation strategy - Management emphasized a balanced approach to capital allocation, focusing on core business investments, acquisitions, and shareholder returns [27][28] Question: Impact of Martin acquisition on Q4 earnings - Management expects the Martin acquisition to be slightly accretive in Q4, with some startup costs impacting margins [40][41] Question: Competitive dynamics and market conditions - Management acknowledged increased competition but sees it as an opportunity to capture market share, particularly with the upcoming bid season [39] Question: Final Mile business ramp-up and housing market impact - Management noted that the housing market's recovery would significantly benefit the Final Mile segment, with new business onboarding progressing well [75][76] Question: Intermodal pricing perspective for 2026 - Management indicated that while the environment remains competitive, there is potential for improved pricing as customers seek to build resiliency into their supply chains [78]

Core Insights - Alger Weatherbie Specialized Growth Fund's second-quarter 2025 investor letter highlights the impact of trade policy uncertainty and subsequent market recovery, with the S&P 500 achieving a record high and the fund outperforming the Russell 2500 Growth Index [1] Company Overview - RXO, Inc. (NYSE:RXO) is a truck brokerage company that connects customers with carriers, primarily operating in truckload (TL) and less-than-truckload (LTL) shipping [3] - The company also provides managed transportation services, freight forwarding, and last-mile delivery solutions [3] Performance Analysis - RXO, Inc. experienced a one-month return of -0.49% and a 52-week decline of 42.07%, with shares closing at $16.15 and a market capitalization of $2.648 billion as of September 23, 2025 [2] - The company's performance was negatively impacted by weaker-than-expected revenues and earnings, despite a strong LTL segment; the TL business faced lower shipping volumes [3] Market Position - RXO, Inc. was held by 31 hedge fund portfolios at the end of Q2 2025, an increase from 16 in the previous quarter, indicating growing interest [4] - Despite the potential of RXO, the company is not considered among the top 30 most popular stocks among hedge funds, with certain AI stocks viewed as having greater upside potential and lower downside risk [4]