RXO Q2 Earnings Call Highlights

RXO exceeded its second-quarter outlook, reporting $1.8 billion in revenue, $40 million in adjusted EBITDA and adjusted EPS of $0.06. Results were supported by brokerage growth, a higher spot-freight mix and stronger-than-expected last-mile volumes. Brokerage revenue increased 32% year over year to $1.3 billion, while spot freight reached 42% of truckload volume in the quarter and 50% in July. Management said favorable brokerage trends and higher gross profit per load are likely to continue into the third quarter. RXO forecasts third-quarter adjusted EBITDA of $35 million to $45 million, but expects last-mile performance to weaken beyond normal seasonal patterns. Second-quarter free cash flow was negative $42 million because of working-capital needs, though the company anticipates stronger conversion in the third quarter.

RXO reported second-quarter results that exceeded its prior outlook, as brokerage volume growth, a larger mix of spot freight and stronger-than-expected last-mile stops supported profitability. The company said it expects brokerage momentum to continue into the third quarter, though it also anticipates weaker conditions in its last-mile business. RXO generated $1.8 billion of revenue in the second quarter, with a 13.9% gross margin, $40 million of adjusted EBITDA and adjusted earnings per share of $0.06, Chief Financial Officer Jamie Harris said. Adjusted EBITDA exceeded the high end of the company’s guidance range, which management attributed to better-than-expected brokerage performance and last-mile stop growth.

Brokerage revenue rose 32% year over year to $1.3 billion, representing 73% of RXO’s revenue. The increase was primarily driven by higher freight rates and fuel prices, Harris said. Overall brokerage volume increased 2%, including 2% growth in full truckload volume and 3% growth in less-than-truckload volume. Chairman and CEO Drew Wilkerson said the company gained profitable market share in brokerage, with truckload volumes outperforming the broader market. Chief Strategy Officer Jared Weisfeld said truckload volume outperformed the Cass Freight Shipments Index by 500 basis points during the quarter.

A key contributor was RXO’s rising spot-freight mix. Spot freight represented 42% of truckload volume in the second quarter, up 900 basis points sequentially and 1,500 basis points from a year earlier. Management said spot loads generally produce higher revenue and gross profit per load than contract freight. Truckload gross profit per load increased 11% sequentially, which Wilkerson described as the company’s largest sequential improvement in four years. Brokerage gross margin, however, declined 70 basis points sequentially to 10.7%, as higher fuel prices created an estimated 90-basis-point headwind. Harris noted that fuel costs are generally passed through over time and can increase revenue without a meaningful corresponding increase in gross profit dollars. Management said brokerage conditions remained favorable in July. Spot freight reached 50% of truckload volume during the month, while truckload revenue per load rose more than 25% year over year excluding fuel and length-of-haul effects. Weisfeld said July truckload gross profit per load was about 40% above its January level and approximately 20% above the prior-year period.

Revenue from complementary services increased 7% year over year to $488 million, with a gross margin of 21.1%. Managed...