RXO, Inc. (RXO) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals a mix of challenges and opportunities. Despite a soft freight market and higher leverage, RXO shows strong financial health, strategic investments in technology, and a focus on cost reduction. The cautious optimism from customers and structural capacity changes present potential growth. The strategic plan highlights improvements in truckload profitability and lower CapEx, while AI investments enhance operational efficiency. The Q&A section shows management's confidence in navigating market conditions, supporting a positive sentiment.
Key Financial Performance
Overall Brokerage Volume Grew 1% year-over-year, driven by less-than-truckload (LTL) volume growth of 43%. Decline in truckload volume by 11% year-over-year was due to overall demand weakness, softness in the automotive sector, and efforts to optimize price, volume, and service.
Last Mile Stops Grew by 12% year-over-year, marking the fifth consecutive quarter of double-digit growth. However, demand for big and bulky goods weakened post-Labor Day, impacting future trends.
Brokerage Gross Margin 13.5% in Q3 2025, down 90 basis points sequentially due to increased cost of transportation and market tightening in September.
EBITDA $32 million in Q3 2025, below expectations due to increased buy rates, lack of accretive spot opportunities, and demand weakness.
Revenue $1.4 billion in Q3 2025, impacted by broad-based demand weakness and higher transportation costs.
Adjusted Free Cash Flow Conversion 56% in Q3 2025, supported by the asset-light business model and no semi-annual interest payment due in the quarter.
Automotive Sector Impact Represented a $5 million year-over-year margin impact in Q3 2025 due to time-critical freight with high service requirements.
Managed Transportation Revenue $137 million in Q3 2025, down 9% year-over-year, impacted by lower automotive volume in managed expedite business.
Last Mile Revenue $305 million in Q3 2025, up 14% year-over-year, driven by 12% growth in last mile stops but offset by weakening demand for big and bulky goods.
Truckload Revenue Per Load Increased by 1% year-over-year, excluding fuel price and length of haul changes, but impacted by weaker demand.
LTL Volume Grew by 43% year-over-year in Q3 2025, representing 31% of brokerage volume, driven by strong growth opportunities.
Adjusted Earnings Per Share $0.01 in Q3 2025, reflecting the impact of increased transportation costs and demand weakness.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
AI and Machine Learning Investments: Invested in AI and machine learning to enhance productivity, pricing models, and customer service. Examples include AI solutions for carrier inquiries and photo validations in last mile delivery.
LTL Volume Growth: LTL volume grew by 43% year-over-year, representing 31% of brokerage volume. This segment has significant growth potential.
Cost Structure Improvements: Achieved over $125 million in cost reductions since becoming a standalone company, with an additional $30 million in annualized savings announced.
Productivity Gains: Brokerage productivity increased by 19% over the last 12 months and 38% over the last 2 years.
Cost Per Load Reduction: Brokerage cost per load decreased by more than 20% since the company spin-off.
Regulatory Changes Impact: Regulatory changes and enforcement are causing capacity exits in the truckload market, potentially leading to long-term structural changes and a higher freight environment.
Focus on Profitable Growth: Strategic focus on growing managed transportation and LTL segments for consistent EBITDA and long-term value creation.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Brokerage Truckload Volume Decline: Brokerage truckload volume declined by 11% year-over-year, driven by overall demand weakness, softness in the automotive sector, and efforts to optimize price, volume, and service.
Market Tightening and Regulatory Changes: Capacity began exiting in certain regions due to regulatory changes and enforcement, leading to increased buy rates faster than contractual sale rates, impacting gross profit margins.
Weakening Demand for Big and Bulky Goods: Since Labor Day, demand for big and bulky goods has weakened, counter to typical seasonality, negatively impacting the last mile business.
Squeeze on Gross Profit Per Load: The squeeze on gross profit per load in the truckload brokerage business has intensified due to higher purchase transportation costs without a corresponding increase in accretive spot opportunities.
Automotive Sector Headwinds: Automotive freight, which typically carries higher gross margins, has been a continued headwind, representing a $5 million year-over-year margin impact in the quarter.
Soft Freight Market Conditions: Demand trends weakened throughout the third quarter and remain below typical seasonality, with freight shipments reaching their lowest level since 2020 in August.
Higher Cost of Purchase Transportation: The cost of purchase transportation has increased, further squeezing margins, especially in the contractual brokerage business with Tier 1 shippers.
Weak Spot Opportunities: Despite market tightening, there has not been a meaningful increase in accretive spot opportunities to offset higher costs.
Structural Changes in Truckload Supply: Regulatory changes and enforcement could lead to permanent capacity exits, creating uncertainty about the long-term impact on the freight market.
Counter-Seasonal Market Tightening: Buy rates moved higher in September and October, counter to typical seasonal trends, further pressuring margins.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Fourth Quarter EBITDA Expectations: The company expects EBITDA between $20 million and $30 million for the fourth quarter. This decline is attributed to volume weakness in the last mile business and intensified squeeze dynamics in the brokerage segment.
Last Mile Business Outlook: Demand for big and bulky goods has weakened since Labor Day, counter to typical seasonality, and this trend is expected to persist into the fourth quarter.
Brokerage Segment Outlook: The squeeze on gross profit per load is expected to intensify in the fourth quarter due to higher purchase transportation costs and lack of accretive spot opportunities. Approximately 70% of the truckload brokerage business is contract-based, primarily with enterprise customers.
Market Recovery Assumptions: The company anticipates that when demand recovers, spot loads will increase, which will be accretive to gross profit per load. However, demand trends remain below typical seasonality, and no meaningful recovery is currently observed.
Structural Changes in Truckload Supply: If regulatory changes and enforcement continue, a significant amount of truckload capacity may permanently exit the market, potentially leading to a higher freight rate environment. RXO is positioned to capitalize on this due to its scale as the third-largest provider of broker transportation.
Capital Expenditures (CapEx): For the fourth quarter, CapEx is expected to be approximately $20 million. For 2026, CapEx is projected to be between $45 million and $55 million, down materially year-over-year.
Cost Structure Improvements: The company has achieved over $125 million in cost reductions since becoming a stand-alone company and announced an additional $30 million in annualized savings. These actions are expected to enhance operational efficiency and improve long-term profitability.
Long-Term Growth Drivers: RXO aims to drive long-term earnings growth through an improved cost structure, larger scale, focus on profitable growth, best-in-class technology, and strong cash flow generation. The company is also investing in AI and machine learning to enhance productivity and customer experience.
Freight Market Conditions: The freight market remains soft, with demand trends weakening throughout the third quarter and below typical seasonality. The company is monitoring macroeconomic factors such as interest rates and housing market recovery, which could positively impact freight activity.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
The selected topic was not discussed during the call.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Do you think the recent supply exits are sustainable and enough to structurally reduce market supply?
A:Drew Wilkerson believes the recent supply exits represent a significant structural change in the transportation industry, potentially larger than past changes like ELD enforcement. He notes that drivers are being pulled off the road due to non-compliance with federal mandates, which will reduce capacity significantly. However, demand needs to return to create a sharper market inflection.
Q:If demand doesn't materialize near term, what actions can RXO take to manage gross profit per load for the next couple of quarters?
A:Jared Weisfeld highlighted $30 million in new cost initiatives announced, which will partially impact the fourth quarter. RXO is streamlining its cost structure and improving efficiencies through RXO Connect and Freight Optimizer. Additionally, lower interest rates and potential investments in the U.S. could benefit the company when supply normalizes and demand inflects.
Q:Looking back at the Coyote acquisition, are there things you might have done differently?
A:Drew Wilkerson acknowledged that while RXO has done well with people, customers, and technology from the Coyote acquisition, the financial results have not met expectations. He admitted to making a wrong pricing decision in 2025, which impacted volumes. He remains optimistic about RXO regaining its market leadership position.
Q:Can you talk about your adjusted leverage calculation and whether it will be challenged given the earnings outlook?
A:James Harris stated that RXO ended the quarter with a net leverage of 2.3, which is expected to rise to 2.8 by the end of Q4, well below the 4.5 covenant. He emphasized RXO's strong balance sheet, access to capital, and cash flow generation, noting that $65-70 million of cash outflows in 2025 will not recur in 2026.
Q:How do you differentiate your tech platform in the brokerage space?
A:Drew Wilkerson emphasized RXO's focus on results rather than press releases. He highlighted investments in AI, which have improved pricing algorithms, carrier communication, and operational efficiencies. He also mentioned AI-driven innovations in last-mile installations and invited stakeholders to see the technology in action.
Q:Is your Q4 guidance predicated on the current demand-supply equation holding?
A:Jared Weisfeld explained that the Q4 guidance assumes current market conditions persist. The low end of the guidance reflects further market tightening without increased demand, while the high end assumes easing buy rates or improved gross profit per load.
Q:What opportunities do you have to reduce operating expenses in this weaker market?
A:James Harris noted that RXO has taken $155 million in cost actions, including synergies from the Coyote acquisition. The company continues to focus on automation, process improvement, and footprint consolidation to reduce costs while maintaining high customer service levels.
Q:How do you see the demand environment evolving in the next couple of quarters?
A:Drew Wilkerson mentioned monitoring interest rates, housing, and automotive trends. He highlighted RXO's focus on expanding in technology and high-value cargo verticals. He also noted that the current supply squeeze is structural and sets up well for large carriers with strong customer relationships and technology.
Q:What is the capacity rationalization expected to look like in terms of fleet percentage?
A:Drew Wilkerson estimated that 15-20% of capacity could exit the market, excluding private fleets and large carriers, representing a significant industry change.
Q:Why is RXO's Q4 outlook more challenging compared to peers?
A:Jared Weisfeld attributed the outlook to lower demand and higher purchase transportation costs. He noted RXO's mix of large Tier 1 enterprise-class shippers and exposure to automotive and big-and-bulky goods as factors. He also highlighted the structural nature of the current capacity squeeze.
Q:Have you seen a market tightening where buy rates go up but sell rates don't move?
A:Drew Wilkerson acknowledged the unusual nature of the current market, attributing it to a structural change. He refrained from predicting the duration of the squeeze but noted that past cycles have shown quick margin recovery once demand returns.
Q:What is the sensitivity of buy rate changes to EBITDA?
A:Drew Wilkerson stated that every $0.01 increase in buy rates impacts EBITDA by $2.5 million per quarter. He noted that RXO's buy rate increase was less than the industry average of $0.06, thanks to the Coyote acquisition.
Q:Will the current squeeze lead to higher contract rates in the next cycle?
A:Drew Wilkerson indicated that rate increases depend on market conditions during the bid cycle. He emphasized RXO's close customer relationships and tailored solutions, noting that routing guide breakdowns could lead to higher spot rates.
Q:How long would it take RXO to adjust pricing to mitigate the impact of the current squeeze?
A:Drew Wilkerson highlighted tender rejections as a key indicator, noting that rates typically rise when tender rejections exceed 10%. He emphasized the structural nature of the current capacity squeeze and its long-term benefits for RXO.
Q:What is RXO's approach to carrier vetting and compliance?
A:Drew Wilkerson emphasized RXO's strict carrier vetting process, which exceeds federal guidelines. He noted that RXO does not allow new carriers to book loads digitally without prior vetting, ensuring high standards for safety and reliability.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the duration of the current market squeeze and its impact on pricing adjustments. Drew Wilkerson refrained from predicting how long the squeeze would last or when demand would return, citing the unpredictability of market cycles.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
LTL
Scale
Slide
action expense
balance
brokerage example
change enforcement
conversion
cost load
cost structure
cost transportation
decline
demand good
demand weakness
detail
differentiator
environment
expense saving
favorability
increase cost
increase spot
industry
interest
line
margin
market cycle
month
outlook
rate
recovers
sector
spot opportunity
squeeze
truckload volume
RXO Transcript
RXO, Inc. (RXO) Q4 2025 Earnings Call Transcript
Unknown2-6
The earnings call summary presents a mixed outlook. Financial performance and market strategy are challenged by weak demand and cost pressures, though cost structure improvements and AI investments are positive. Q&A insights reveal weather impacts and restructuring costs, but also spot volume growth and potential synergies. The neutral sentiment reflects these balanced factors, with no strong catalysts for significant price movement. The mid-sized market cap suggests moderate stock reaction.
RXO, Inc. (RXO) Presents at Goldman Sachs Industrials and Materials Conference 2025 Transcript
Neutral12-3
RXO, Inc. (RXO) Presents at UBS Global Industrials and Transportation Conference Transcript
Neutral12-3
RXO, Inc. (RXO) Q3 2025 Earnings Call Transcript
Positive11-8
The earnings call reveals a mix of challenges and opportunities. Despite a soft freight market and higher leverage, RXO shows strong financial health, strategic investments in technology, and a focus on cost reduction. The cautious optimism from customers and structural capacity changes present potential growth. The strategic plan highlights improvements in truckload profitability and lower CapEx, while AI investments enhance operational efficiency. The Q&A section shows management's confidence in navigating market conditions, supporting a positive sentiment.
RXO Slides
RXO Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
