Summary of RXO FY Conference Call (September 10, 2025) Company Overview - **Company**: RXO (NYSE: RXO) - **Industry**: Transportation and Logistics Key Points and Arguments Market Conditions - The freight market remains soft, with varying conditions across different regions, particularly noted during the transition from Q2 to Q3 [3][4] - There are pockets of tightness in the market, especially around holiday seasons, but overall demand remains muted [3][11] - The Southern and West Coast states have experienced significant impacts from the produce season, more so than in previous years [4] Segment Exposure - RXO's business segments are approximately 20% to 25% each in industrial manufacturing, retail e-commerce, and food and beverage, with automotive and homebuilding making up the remainder [5][6] - The housing market's softness has contributed to a prolonged downturn in the freight market, with each new home equating to approximately 7.5 truckloads [6] Customer Sentiment and Tariff Clarity - Customers express cautious optimism regarding tariff clarity, with many planning their budgets based on a clearer direction around tariffs [9][10] - The sentiment varies, with some customers optimistic about the upcoming peak season while others remain pessimistic [11][13] LTL Business Growth - RXO's LTL (Less Than Truckload) business has grown significantly, now accounting for 32% of overall volume, up from 10% at the time of the spin-off [15][16] - The company aims to increase LTL's share to 50% or more, driven by strong relationships with large enterprise customers [15][16] - RXO Connect platform is a key driver for LTL growth, providing visibility and efficiency for customers [19][25] Integration of Coyote - The integration of Coyote is progressing well, with high retention of top customers and successful technology integration [40][41] - However, profitability has not met expectations due to market conditions and pricing strategies [42][48] - The company anticipates improvements in gross profit per load as they adjust pricing strategies [45][49] Financial Outlook - RXO expects gross margins to remain stable, with a range of 33% to 43% anticipated for Q3 [38] - The company is focused on achieving mid-single-digit EBITDA margins (5% to 6%) in the long term, with potential for upside through technology investments [71][72] Technology Investments - RXO invests over $100 million annually in technology, focusing on enhancing productivity and operational efficiency [63][64] - The company leverages AI and machine learning to improve pricing algorithms and operational processes [63][66] Competitive Landscape - RXO acknowledges the competitive pressures from asset-based carriers and the need to differentiate through technology and service offerings [28][32] - The company believes that brokers will continue to gain market share, potentially reaching 30% to 40% in the long term [34] Challenges and Risks - The automotive sector presents a significant headwind, with a noted decline in volume impacting overall profitability [78][81] - The company is cautious about the cyclical nature of the market and the potential for further downturns [48][72] Additional Important Insights - The company is committed to continuous improvement and operational efficiency, aiming to exceed initial synergy estimates from the Coyote acquisition [55][57] - RXO's focus on technology and customer relationships is seen as a critical factor for future growth and stability in a fluctuating market [63][70]

Financial Data and Key Metrics Changes - The company achieved adjusted EBITDA of $38 million, at the high end of the guidance range provided last quarter [4][21] - Total revenue for the quarter was $1.4 billion, with a gross margin of 17.8% and an adjusted EBITDA margin of 2.7% [21][24] - Adjusted free cash flow conversion was 58%, with cash on the balance sheet increasing to $18 million [14][28] Business Line Data and Key Metrics Changes - Brokerage revenue was $1.025 billion, representing 69% of total revenue, with LTL volume growing by 45% year over year [23][34] - Truckload volume declined by 12%, primarily due to automotive weakness, while truckload gross profit per load improved by 7% sequentially [9][34] - Last Mile revenue increased by 19% year over year, with stops growing by 17%, marking the fourth consecutive quarter of double-digit growth [13][25] Market Data and Key Metrics Changes - The overall freight market remains soft, with a contraction of more than 3% in the cash freight index [6][15] - Automotive volume was down 28% year over year, contributing to the overall decline in truckload volume [34][102] - The company expects to continue operating in a soft freight market with limited spot opportunities [76] Company Strategy and Development Direction - The company is focused on driving profitable growth across market cycles while advancing its technology platform [16][19] - Growth will come from both the core truckload business and premium services, with a strong emphasis on LTL and Managed Transportation [19][20] - The integration of Coyote is nearly complete, with expectations for significant operating leverage as the market improves [31][49] Management's Comments on Operating Environment and Future Outlook - Management noted that while the freight market is soft, there are signs of tightening driven by capacity adjustments rather than improved demand [15][41] - There is cautious optimism among customers regarding trade policy clarity, which may unlock demand [31][106] - The company anticipates strong cash performance in the third quarter, with adjusted EBITDA expected to be between $33 million and $43 million [29][47] Other Important Information - The company has invested over $100 million annually in technology to enhance productivity and customer experience [19][20] - The integration of technology platforms is expected to be substantially complete by the end of the third quarter [12][49] - The company maintains a strong liquidity position with over $575 million in total committed liquidity [28] Q&A Session Summary Question: Comments on truckload volumes and optimizing price, volume, and service - Management explained that automotive weakness accounted for a portion of the volume decline, but efforts to optimize pricing and service have improved gross profit per load by 7% sequentially [55][56] Question: Margin characteristics of LTL growth compared to truckload - Management highlighted that LTL growth is driven by strong customer relationships and stable margins, with LTL now representing over 30% of overall volume [67] Question: Underlying freight market assumptions for the third quarter - Management expects continued automotive headwinds and a soft freight market, but anticipates improvements in procurement and profitability [76][78] Question: Impact of AI on productivity - Management noted that productivity has increased by 45% over the last two years, driven by AI and machine learning in pricing algorithms [110]

Market Overview - Freight market remains soft, with demand still down compared to 2019 [1] - Customers are seeking clarity amidst trade and tariff uncertainties, leading to varied order behaviors [6][7] RXO's Performance & Strategy - RXO's gross profit per shipment increased by 7% sequentially, the largest increase in three years [1][2] - Every dollar of gross profit per load translates to over 1 million USD of EBITDA on an annualized basis [2] - RXO grew less than truckload (LTL) volumes by 45% in a down market [2] - RXO's big and bulky last mile deliveries increased by 17% year-over-year, despite market decline [3] - RXO leverages its technology platform, RXO Connect, to provide customers with visibility and capacity [4][5] - RXO positions itself to be agile and flexible, using technology to help customers make better decisions in response to market changes [7][8] Customer Focus - Growth in LTL is driven by existing customers who have experienced RXO Connect on the truckload side [4] - RXO Connect provides customers with complete visibility, more capacity, and savings, allowing them to focus on their truckload spend [4][5]