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DATE

Thursday, May 7, 2026 at 8 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Drew Wilkerson
  • Chief Financial Officer — James R. Harris
  • Chief Strategy Officer — Jared Weisfeld

TAKEAWAYS

  • Total Revenue -- $1.4 billion, with brokerage revenue of $1.1 billion, representing 74% of total revenue and up 3% year over year due to higher freight rates, increased truckload length of haul, and higher fuel prices.
  • Gross Margin -- 14.2% for the quarter; brokerage gross margin at 11.4%, which declined 50 basis points sequentially due to increased truckload length of haul and higher fuel prices.
  • Adjusted EBITDA -- $6 million, at the low end of guidance primarily attributed to approximately $3 million in negative impact from severe weather, mostly affecting last mile operations.
  • Adjusted Loss Per Share -- $0.09 for the quarter, with an $11 million debt extinguishment loss from refinancing senior notes.
  • Spot Mix -- Increased by 500 basis points sequentially and 600 basis points year over year, now comprising 35% of truckload mix in April and contributing to a 9% sequential increase in truckload gross profit per load.
  • Truckload Volume -- Down 12% year over year but improved sequentially each month in the quarter and declined only 2% in April; LTL brokerage volume up 5% year over year, representing 28% of brokerage volume.
  • Contract Rates -- Average increases of mid- to high single digits from bid season, with new contracts over the last month seeing low double-digit percentage increases; full-year 2026 contract rates now expected to grow high single digits, versus a prior low- to mid-single digit outlook.
  • Managed Transportation Revenue -- $123 million in the quarter, down 10% year over year largely due to Express service restructuring; awarded more than $100 million in new freight under management and late-stage pipeline up $200 million sequentially.
  • Last Mile Revenue -- $265 million in the quarter, down 5% year over year, with stops down 8%, both impacted by severe weather; sequential volume improvement projected in the second quarter.
  • Complementary Services Revenue -- $388 million, down 7% year over year, comprising 26% of total revenue; gross margin at 19.8%, down 40 basis points sequentially and 120 basis points year over year.
  • Liquidity -- Total available liquidity at quarter end was $386 million; cash balance was $21 million, up $4 million sequentially.
  • Net Leverage -- 3.7x trailing twelve months bank adjusted EBITDA due to lower profitability, with expectations for leverage to decline in the second half of the year.
  • Adjusted Free Cash Flow -- Negative $15 million for the quarter, affected by lower profitability and timing of $7 million in accelerated interest payments due to bond refinancing.
  • AI and Technology Initiatives -- Agentic AI tools led to a 30% sequential increase in digitally quoted truckloads and a 15% increase in digital carrier offers; AI spot quoting tool users saw 15% more volume and increased gross profit per load.
  • Q2 2026 Guidance -- Adjusted EBITDA projected at $27 million to $37 million, with management seeing a "clear path to achieve the high end of our outlook."

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RISKS

  • James R. Harris said, "Gross margin and adjusted EBITDA were negatively impacted by severe weather conditions in the quarter. There was an approximate $3 million impact, mostly in our last mile business."
  • Adjusted free cash flow was negative $15 million, citing lower profitability and timing impacts, including a $7 million accelerated interest payment from bond refinancing.
  • Truckload volume declined 12% year over year, outpacing the approximate 6% market decline referenced onsite; management attributed part of the underperformance to deliberate pricing strategy and timing of spot market volume emergence.
  • Net leverage increased to 3.7x trailing twelve months bank adjusted EBITDA, driven by lower levels of profitability in the quarter.

SUMMARY

RXO (RXO +17.79%) demonstrated sequential improvement in key operating metrics despite persistent market softness and weather disruption during the quarter. Management announced a marked acceleration in spot business, driving a significant upturn in gross profit per load and positioning the company to capture additional share as market tightening persists. Bid season outcomes meaningfully outperformed previous internal forecasts, resulting in a revised contractual rate outlook and expected margin expansion during implementation in the second and third quarters. Technology investments, specifically Agentic AI and digital quoting tools, yielded measurable productivity gains and are enabling RXO to scale volume without proportionate headcount increases. The company closed additional large managed transportation contracts and rapidly built a pipeline for its new middle mile solutions.

  • Management highlighted the structural nature of recent supply-side reductions in trucking capacity, viewing this as a foundation for a multiyear recovery as demand strengthens.
  • Chief Strategy Officer Weisfeld indicated technology investments led to a 15% year-over-year productivity increase measured by loads per person per day, and automated more than 500,000 phone calls during the quarter, with significant additional scale possible as adoption ramps.
  • RXO refinanced its 2027 senior notes in February, lengthening maturity to May 2031 and enhancing balance sheet flexibility for investment and growth.
  • The company expects its contract rates, which recently began implementation, to deliver high single-digit growth for full year 2026, a notable upswing from the previously guided low- to mid-single-digit increase.
  • CEO Wilkerson noted, "At a midpoint in the cycle, this is a mid-single-digit EBITDA business. And at an up cycle, it's a high single to low double-digit EBITDA business," suggesting normalized earnings power remains well above current run rates, with visibility for sequential EBITDA improvement in Q2 and an eventual return to historical outperformance as macro conditions normalize.

INDUSTRY GLOSSARY

  • Agentic AI: RXO’s proprietary artificial intelligence suite, deployed to automate brokerage processes such as quoting, carrier matching, and fraud detection for increased productivity and improved gross profit per load.
  • Spot Mix: The proportion of truckload volume transacted at prevailing market (spot) rates rather than under pre-negotiated contract rates, typically higher margin but more volatile.
  • Managed Transportation: An RXO service offering where the company takes responsibility for optimizing and executing a shipper’s freight spend through integrated tools and carrier management across modes.
  • Last Mile: The segment of RXO's operations focused on final delivery of goods to end customers, particularly in big and bulky product categories.
  • Middle Mile Solutions: RXO’s integrated logistics offering connecting first, middle, and last mile transport into a single managed network for increased customer control and visibility.
  • Complementary Services: RXO’s collective term for business lines outside core truckload brokerage, including Managed Transportation, last mile, and freight forwarding.

Full Conference Call Transcript

Drew Wilkerson: Good morning, everyone. Thank you for joining today. With me here in Charlotte are RXO's Chief Financial Officer, Jamie Harris; and Chief Strategy Officer, Jared Weisfeld. There are 4 main points I want to convey this morning. First, we're seeing clear signs of improvement in the freight market, primarily driven by supply side tightening despite overall soft demand, typical seasonality and severe weather in the first quarter. Second, we have significant momentum within the business. Our brokerage full truckload volume improved every month as the first quarter progressed. Additionally, our spot mix increased by 500 basis points sequentially in the first quarter, resulting in a strong gross profit per load improvement. Spot mix also increased in April.

Third, we continue to secure major customer wins. In brokerage, we're converting our significantly larger sales pipeline. In managed transportation, we were awarded more than $100 million in freight under management in the first quarter, and our late-stage sales pipeline increased by more than $200 million. We also saw traction with our new middle mile solutions offering. Lastly, we've accelerated our deployment of Agentic AI, which is driving significant improvements in volume, margin, productivity and service. I'll start with an update on the freight market. We believe a supply-driven recovery is taking shape. Capacity continues to exit the market, a trend that began to accelerate late last year due to regulatory changes and enforcement.

We have even more conviction that these capacity reductions are structural in nature. In addition to improving the overall safety of the industry as well as helping to combat theft and fraud, this has set the market up for a multiyear recovery when demand improves. For now, demand remains soft. Our customers are still managing through macroeconomic uncertainty, and we have yet to see a sustained increase in the demand for goods. Shippers are becoming increasingly selective about who they work with and are choosing proven scale brokers like RXO. In the first quarter, we were recognized with Carrier of the Year awards from Heineken USA, Graphic Packaging and Rise Baking.

Our customers value our exceptional service, our robust and rigorous carrier betting process and our financial stability. These are the hallmarks of the RXO brand and they're why about half of the Fortune 500 entrust us with their freight. With that as a backdrop, we launched what has so far been a very successful strategy for this year's bid season. As we said previously, we've been working with customers to optimize service, volume and price. On average, through bid season, contract renewal rates, excluding the impact of fuel, are up mid- to high single digits.

These new rates began phasing in, in late Q1 and will continue to go into effect throughout the second quarter, helping to improve the profitability of our contractual book of business. When you take a closer look at contract business that has been awarded to RXO over the last month, rates have increased on average by low double-digit percentage. As a result, we now expect that our full year 2026 contract rates will increase by high single digits. Our prior expectation was for low to mid-single-digit growth. We're servicing our customers' freight throughout all phases of the market cycle, and that's translating to real business momentum. Historically, we've had about a 40% win rate on our brokerage late-stage pipeline.

Last quarter, we highlighted that the pipeline was up more than 50% year-over-year. I'm happy to report that we held our win rate at about 40% in the quarter, even though the pipeline was significantly larger than it's been historically. Now let's discuss our first quarter. In brokerage, overall volume declined by 8% year-over-year. Less than truckload volume growth of 5% was more than offset by a 12% decline in truckload volume. Volume trends are improving, however. Our success in converting our brokerage sales pipeline opportunities and improving our spot mix has resulted in full truckload volume that improved every month throughout the quarter.

Another encouraging data point is that we've achieved a significant increase in our brokerage spot mix over the last few months. Our spot mix increased by 500 basis points sequentially, which directly contributed to an improvement in gross profit per load. Spot volume increased as a percentage of the truckload mix every month in the first quarter and increased again in April. This is the power of the RXO model. Our focus on providing exceptional service and deep customer relationships through all parts of the freight cycle is enabling us to win spots, projects and mini bids now that capacity is tight.

You can see the results in the rapid increase in our spot mix and gross profit per load in the first quarter. In complementary services, Managed Transportation continues to win. We were awarded more than $100 million in freight under management in the first quarter. These wins are significant because they result in an increased synergy loads for RXO's other lines of business. Our late-stage sales pipeline is extremely robust and increased by more than $200 million sequentially. This pipeline is composed of high-quality new names and long-tenured existing enterprise customers with whom we built successful deep relationships.

We're also very excited about the early traction of our middle mile solutions offering, which leverages our network of carriers and RXO hubs to integrate first, middle and last mile logistics into a single comprehensive network. The new service eliminates the need for multiple vendors and provides consistent visibility and control, creating stickiness with our customers. We launched this solution in February, and our sales pipeline is already more than $70 million. We've secured more than $20 million in wins. Shippers continue to choose RXO because we help them solve complex logistics challenges with unique high-tech solutions that leverage our scale and infrastructure.

While last mile stops declined by 8%, in part due to the impact of severe weather, we're seeing more positive trends within last mile to start the second quarter. RXO remains the provider of choice for the best-known brands in the big and bulky space. Our exceptional service and massive scale in last mile continue to enable us to gain profitable market share. Overall, RXO's EBITDA was $6 million in the quarter at the low end of the range we provided to you due to severe weather, which impacted our deliveries in last mile.

In the second quarter, we expect our EBITDA to increase significantly, driven by stronger volume across the business and a more favorable spot mix and higher contract rates in brokerage. We expect brokerage volume to be about flat year-over-year in the second quarter and truckload volume to resume its outperformance versus the market as early as the middle of the year. Jamie and Jared will talk more about our outlook in detail later in the call. Turning to technology. In the first quarter, we made significant progress on our road map, especially when it comes to putting AI into action.

The systems integration we completed last year have enabled us to move faster to build and launch smart AI tools that tap into RXO's decades' worth of data. Everything our technology team is currently working on is centered around moving beyond basic repetitive task and towards smart, proactive decision-making. We have many examples of how our efforts are already driving real results across the company, and I'd like to share an exciting one. Late in the quarter, we rolled out an important part of our tech road map, an AI spot agent in reps inboxes that adds to our already best-in-class quoting capabilities. While it's still in the very early days, the initial results are promising.

Reps that have adopted the tool early are seeing an increase in volume and gross profit per load when compared to the rest of the brokerage organization. We expect the broader organization to be fully ramped up on the tool over the next few quarters. As we continue to mature our capabilities, we remain committed to getting these types of powerful tools into more hands. We're focused on multiplying the impact technology brings to every function within our company to improve volume, margin, productivity and service. In summary, RXO has a unique algorithm for long-term success, larger scale, focus on profitable growth, investments in technology, long-term cash generation and a slimmer cost structure.

This is the point in the cycle that really begins to show the power of the RXO model. We remain focused on providing exceptional service, comprehensive solutions, continuous innovation and deep customer relationships. And all of that is enabling us to win spot, project and mini bid business as the market recovers. We're in the early innings of what we believe will be a sustained robust recovery. RXO is well positioned to be a major winner. Now Jamie will discuss our financial results in more detail. Jamie?

James Harris: Thank you, Drew, and good morning. Let's review our first quarter performance in more detail. For the quarter, we reported $1.4 billion in total revenue, gross margin of 14.2% and adjusted EBITDA of $6 million. Gross margin and adjusted EBITDA were negatively impacted by severe weather conditions in the quarter. There was an approximate $3 million impact, mostly in our last mile business. Our interest expense in the quarter was $9 million, and our adjusted loss per share was $0.09. You can find a bridge to adjusted EPS on Slide 7 of the earnings presentation. You'll note that we had an $11 million debt extinguishment loss as a result of refinancing our 2027 senior notes.

I'll talk more about this in our capital structure later. Turning to our lines of business. Brokerage revenue was $1.1 billion, up 3% year-over-year and was 74% of our total revenue. The year-over-year revenue growth was driven by increased freight rates, increased truckload length of haul and higher fuel prices. We also captured more spot opportunities in the quarter with our spot mix increasing sequentially by 500 basis points, which is also accretive to revenue. Cost of transportation increased in the quarter due to a continued tightening of the full truckload market, driven largely by regulatory enforcement and higher fuel prices. These factors contributed to brokerage gross margin of 11.4% towards the low end of our outlook.

Brokerage gross margin declined 50 basis points sequentially, driven by increased truckload length of haul and fuel prices. Higher fuel prices were an approximately 20 to 30 basis point headwind to brokerage gross margin. Rising fuel prices lead to increased revenue without a meaningful corresponding increase in gross profit dollars as fuel costs are a pass-through over time. Truckload gross profit per load increased 9% sequentially. This is reflective of the significant increase in spot loads and an increase in contract rates due to tightening capacity. We expect overall gross profit per load to improve in the second quarter given increased spot volume and higher contract rates.

Complementary services revenue in the quarter of $388 million was down 7% year-over-year and represented 26% of our total revenue. Complementary services gross margin was 19.8%, down 40 basis points sequentially and 120 basis points year-over-year. Most of the sequential decline was due to the impact of weather. Within complementary services, Managed Transportation generated $123 million of revenue in the quarter, down 10% year-over-year. As a reminder, last quarter, we talked about the restructuring of our Express service offering within Managed Transportation, which explains most of the year-over-year revenue decline in Q1. Revenue associated with this offering is being serviced across other lines of business within RXO.

Encouragingly, our automotive business within Managed Transportation increased slightly year-over-year, and we are well positioned to capitalize on any improvement in demand. Our last mile business generated $265 million in revenue in the quarter, down 5% year-over-year with stops down 8% year-over-year. This was lower than our expectations of down mid-single digits due to the previously discussed weather impact. During the quarter, we also saw continued weak demand for vegan bulky goods. While demand generally remains soft, we are seeing more favorable trends within last mile to start the second quarter with improvement across our RXO hubs and back of store business. Now turning to Slide 8. Let's discuss our capital structure and balance sheet.

During the quarter, we refinanced our 2027 senior notes. The new notes have a maturity of May 2031 with a coupon of [indiscernible]. At the end of the first quarter, our total available liquidity was $386 million. With the successful refinancing of our senior notes in February and our new asset-based lending facility that we announced last quarter, RXO has a strong capital structure and liquidity position that gives us the flexibility to invest and grow across all phases of the freight cycle. Quarter end net leverage was 3.7x LTM bank adjusted EBITDA due to the lower levels of profitability. We anticipate our leverage ratio to move lower in the second half of the year. Moving to Slide 9.

Let's talk about cash. For the quarter, our adjusted free cash flow was negative $15 million and was impacted by lower levels of profitability and some timing considerations. CapEx is higher in the first half of the year, but is expected to decline approximately 30% in the second half, primarily due to lower real estate and software expenditures. In addition, as a result of the refinancing of our senior notes, we accelerated the associated interest payment of $7 million into the first quarter, which usually occurs in the second quarter. Our bond interest will be paid semiannually beginning in the fourth quarter of this year.

Given our asset-light business model, we remain confident in the 40% to 60% conversion over the long term and across market cycles. From a cash balance perspective, we ended the quarter with $21 million of cash. Cash increased by $4 million sequentially with no change to the ABL balance. In the quarter, we had $12 million of cash outflows associated with our bond refinancing and $9 million of restructuring and integration activities in line with our expectations. Now let's move to Slide 14 and discuss our outlook. Within our brokerage business, we're seeing improvements as a result of our bid season strategy and the action we've taken to capitalize on spot opportunities combined with increased capacity in the market.

As I mentioned earlier, we're also seeing encouraging trends within our last mile business in addition to typical seasonality. For the combined company in the second quarter, we expect to generate between $27 million and $37 million of adjusted EBITDA. This reflects the strong contribution margins in our business attributable to both volume and price. Our 2026 modeling assumptions remain unchanged. Jared will provide more details on our outlook shortly. As we think about the macro economy, we are optimistic. While consumer confidence has recently decreased given geopolitical concerns and higher oil prices, there are many bright spots in the macroeconomic data. Improvements in the industrial economy are noteworthy.

The ISM manufacturing PMI has been in expansionary territory every month this year. Additionally, data last week showed a strong increase in capital goods orders, which is a good leading indicator of business investment. Also, year-to-date tax refunds are up double digits, helping to support the consumer. We're entering the second quarter with strong momentum across all of our lines of business. The truckload market remains tight despite soft demand. Any sustained broad-based improvement will set up for a sharp inflection and RXO is well positioned to win. Now I'd like to turn it over to Chief Strategy Officer, Jared Weisfeld, who will talk in more detail about our results and our outlook.

Jared Weisfeld: Thanks, Jamie, and good morning, everyone. Let's start by reviewing our quarterly brokerage performance in more detail. Overall brokerage volume declined by 8% year-over-year. LTL volume increased by 5% year-over-year and represented 28% of brokerage volume in the first quarter. Truckload volume declined by 12% year-over-year and represented 72% of brokerage volume. Truckload volume was in line with the expectations that we communicated to you last quarter. Importantly, full truckload volume improved every month throughout Q1. Year-over-year trends have started to improve and truckload volume in the month of April was down only 2% year-over-year. Spot represented 3% of our truckload volume in the quarter, increasing by 500 basis points sequentially and 600 basis points year-over-year.

Spot increased as a percentage of the mix in every month during the quarter and increased further in the month of April to 35%. Contract volume was 67% of our overall truckload volume in the quarter. Moving to revenue per load on Slide 10. In the first quarter, truckload revenue per load increased by 8% year-over-year. This was the fastest increase in 4 years, driven by supply side tightening. Note, this excludes the impact of both fuel prices and length of haul. Revenue per load benefited from a richer mix of spot freight and new contract rates also went into effect as a result of bid season.

Revenue per load growth accelerated in the month of April, increasing by 12% year-over-year, excluding the impact of higher fuel prices and length of haul. It's important to note that industry-wide line haul rates have increased by approximately 20% since the third quarter of last year, primarily due to supply side market tightening. We continue to work with our customers to optimize service, volume and price. Given the current environment, we now expect contract rates to be up high single digits, which compares to our previous forecast of up low to mid-single digits just 90 days ago. This, combined with a higher spot mix, should result in even stronger revenue per load trends.

Let's now discuss current market conditions and brokerage margin performance on Slide 11. The truckload market remains tight. Freight market KPIs were at their highest level in 4 years and industry-wide tender rejections eclipsed 15% in the quarter. Importantly, this tightness was despite muted demand and a seasonally slow quarter. Tighter market conditions have been primarily driven by structural supply side changes largely due to enforcement actions related to non-domiciled CDLs and English language proficiency. From a profitability standpoint, truckload gross profit per load increased by 9% from the fourth quarter as a stronger spot mix offset the squeeze in our contractual book of business.

We expect our spot mix and gross profit per load to improve again in the second quarter. Of note, in the month of April, truckload gross profit per load was approximately 10% higher when compared to the first quarter. Turning to Slide 12. As we just discussed, truckload gross profit per load increased by 9% in the first quarter, given a richer spot mix, offsetting the squeeze in our contractual book of business. This was the largest sequential improvement in truckload gross profit per load in more than 3 years. Moving to Slide 13. RXO's LTL brokerage volume continues to outperform the broader LTL market.

We're winning LTL business with existing truckload customers and new customers that trust us with their freight because of our excellent service, increasing the stickiness of these relationships. Last year, we grew our LTL volume significantly. Recently, we've expanded the scope of some of that business and transitioned it to managed transportation. This is another example of the power of the RXO model. Once a customer is on the RXO platform, we can quickly adjust to their business needs by providing complementary services. Doing so increases the stickiness of our customer base.

For our outlook, I'd like to review the significant progress we made in the quarter, increasing the adoption of Agentic AI solutions, which you can find on Slide 6. We continue to focus our technology investments on driving improvements across our key pillars: volume, margin, productivity and service. Starting with volume and margin. As Drew mentioned earlier, we broadly deployed a new proprietary Spot Quote agent and the early results are encouraging. Reps that are using the agent are seeing an increase in both volume and gross profit per load as the agent helps unlock incremental volume opportunities with strong contribution margins. We also extended the adoption of our proprietary sppotBot and API tools. Continued investment is yielding tangible results.

The amount of truckloads that were quoted digitally improved by 30% sequentially. We also continue to streamline our tech to make it easier for carriers to do business with RXO. Last quarter, we began testing a new matching algorithm. And as a result, digital offers from carriers have increased by about 15%. From a productivity standpoint, we continue to expand our Agentic AI deployments, which automated more than 500,000 phone calls in the quarter. Our people are becoming more productive and spending more time with our customers and carriers to drive creative solutions for their business. We're also innovating to drive even better service and decrease risk.

We introduced an AI fraud protection agent in the quarter, providing additional protection for shippers that rely on RXO to move their high-risk freight. We continue to apply AI to structurally improve our long-term margin profile by driving more volume through our business at a lower cost to serve. I'd now like to give you some more details on our second quarter outlook, starting with brokerage. Given our success in converting our late-stage pipeline during bid season, we expect truckload year-over-year volume trends to materially improve in Q2. We expect sequential growth in volume, which will translate to approximately flat volume year-over-year.

We continue to expect our truckload volume to resume its year-on-year outperformance versus the market as early as the middle of the year. We also expect our LTL volume to be approximately flat year-over-year. This accounts for the part of the business that has recently transitioned to managed transportation. Importantly, based on the strength of our LTL pipeline, we anticipate LTL returning to year-over-year volume growth in the second half of the year. Moving to truckload gross profit per load. We expect tight market conditions to persist for the remainder of the second quarter.

However, given the team's strong execution, we expect a higher spot mix and the phasing in of higher contract rates to result in another quarter of truckload gross profit per load improvement. That is despite an expected moderation from April to May given seasonal market tightness and DOT checkpoint weak. Let's now talk about complementary services. In Managed Transportation, we're winning new business and the pipeline remains strong. Our automotive business has also returned to growth, and we expect Managed Transportation results to improve when compared to the first quarter. In last mile, while big and bulky demand generally remains soft, the second quarter is our seasonally strongest quarter, and we're seeing improved business momentum.

We expect last mile stops to be down a low single-digit percent year-over-year, improving from the first quarter. Putting it all together, we expect RXO's second quarter adjusted EBITDA to be in the range of $27 million to $37 million. We see a clear path to achieve the high end of our outlook. The midpoint of our range assumes market conditions that are similar to those that we've experienced over the last few years with gross profit per load compressing from April to May, no meaningful uptick in demand. While we're encouraged by the anticipated rapid sequential growth in EBITDA, we're even more excited about our path to normalized earnings and the market setup.

To close, we're entering the second quarter with strong momentum, improved profitability and a growth mindset. In brokerage, truckload volume is firmly on a trajectory toward growth and outperformance. Managed Transportation continues to win new awards with a growing pipeline and automotive has returned to growth. Last mile is seeing improved trends, and we have a huge opportunity within the middle mile. We are aggressively investing in artificial intelligence, leveraging our massive scale and proprietary data. And the supply side changes occurring in the truckload industry represent the biggest structural transformation in almost 50 years and are setting the stage for a multiyear recovery.

RXO is capitalizing on these changes by staying close to our customers, delivering superior service and winning spot opportunities. RXO is well positioned to deliver strong shareholder returns over the long term. With that, I'll turn it over to the operator for Q&A.

Operator: [Operator Instructions] Your first question comes from the line of Stephanie Moore of Jefferies.

Stephanie Benjamin Moore: I guess with your spot mix up, I believe you said 600 basis points year-over-year. I mean this is a pretty stark contrast to your largest competitor where contract exposure was up 500 basis points. So maybe -- so how are you thinking about your strategy at this stage in the cycle? And what, I guess, company-specific actions are driving your ability to execute on the increased spot volumes?

Drew Wilkerson: Stephanie. First, obviously, we've got a lot of respect for Robinson and the team, and they've had good results. But we've been very clear for the last several years that this is the part of the market that we win in. We've got a model that's built on service. When you think about service, we talked about several customer awards that are awarding us with Carrier of the Year awards. You're seeing it in our pipeline. You're seeing it in the conversion of a larger pipeline. We talk about solutions. There's always optimization that goes into customers' freight and making sure that we are looking at the different modes of transportation that we can service them from.

But even the different lines of business, you saw us convert some customer business from brokerage into managed transportation. You see the new middle mile solutions offering. On the technology side, we're using AI to continue to get more efficient within the business. We're driving more loads. You heard me talk some about that. And the most important thing is relationships with customers. Our top customers have been with us for 16 years on average. They trust us. They know that when there's any disruption in the market that there are spots, projects and mini bids that RXO is the place that they turn.

We're in the early innings, and we're just now starting to see the lift off of that.

Stephanie Benjamin Moore: That's helpful. And actually, a pretty good follow-up to a question that I had or a pretty good segue into a follow-up that I have. As you think about some of the investments that you have and that you just called out, especially in AI and just technology, how do you balance, I guess, AI and tech investments with your people and your relationships, particularly at this point in the cycle?

Drew Wilkerson: We value the relationship first. We are a relationship business. We win because of the relationships that we have with customers. Customers come back to us because of what we've done before and it's the people that they do business with. When you look at the tightening that happened in the market in December and January, it was our team and our people that they were reaching out to. But we're using technology to fundamentally change the business and drive more productivity within it. You saw our productivity was up 15% on a year-over-year basis.

You continue to see us be able to quote more loads with the quoting tool that I talked about, the adoption that we've already got on that, the people who are using it are winning 15% more volume versus what they were winning. So we see clear ways to improve the relationship off of the technology that we're using.

Operator: Your next question comes from the line of Brandon Oglenski from Barclays.

Brandon Oglenski: Drew, I get it was a difficult quarter, but just looking even at the guidance for 2Q, I think at the high end, earnings are still down year-on-year. I know you got a lot more spot mix, which I thought historically is what really can drive that incremental gross profit as you look forward. So -- and again, maybe 2Q is still not where you want to be. But I think even Jared was alluding to it earlier. Just what is the right normalized earnings power for this business, if you don't mind?

Drew Wilkerson: Yes, Brandon, we've been very consistent on normalized earnings. At a midpoint in the cycle, this is a mid-single-digit EBITDA business. And at an up cycle, it's a high single to low double-digit EBITDA business. even on our Q2 guide, we are multiples away from what normalized earnings, but we see a clear path, and we see that we're in the early innings of heading towards that.

Brandon Oglenski: Okay. I appreciate that. And then maybe -- Jared, can you elaborate more on the spot business and how that impacts profitability here? I thought maybe with how much it improved in 1Q, maybe things could have been a bit better, but maybe we're misinterpreting that.

Jared Weisfeld: Sure, Brandon. So when you look at the progression of spot mix, we increased spot mix by 500 basis points sequentially from Q4 to Q1. That was up 600 basis points year-over-year. We saw spot increase as a percentage of the mix every month throughout Q1. That momentum continued into Q2. April spot mix was up again relative to March and relative to Q1. We are assuming that we have spot mix increase again in Q2 as a whole relative to Q1. And that spot mix carries a very strong incremental contribution margin. When we think about that spot mix relative to contract at this part in the cycle, it is multiples that of contract.

And to Drew's point earlier, we're servicing our customers freight exceptionally well throughout all parts of the freight cycle, and that's what's allowing us to win, and we're doing this, and we believe that's idiosyncratic to RXO. I think one point I want to reiterate, this is still a very soft part of the freight cycle, and we're able to show a significant improvement in our spot mix, and that's allowing us to achieve almost a 6x increase in terms of adjusted EBITDA from Q1 to Q2 at the midpoint of our outlook, and we also see a clear path to achieve the high end of our outlook.

Operator: Your next question comes from the line of Ravi Shanker of Morgan Stanley.

Ravi Shanker: Drew, as you highlighted, there are a number of new regulations impacting supply on the TL side, but there are some potential catalysts that may be impacting supply on the brokerage side as well, particularly a renewed focus on Canadian carriers and the potential Montgomery case in front of Supreme Court. Would just love your views on how much of an endemic issue is this and what impact there could be for the brokerage industry and maybe even RXO, both as a risk and opportunity going forward?

Drew Wilkerson: Yes. I'll start with the current regulations, and then I'll move on to the Montgomery case. If you look at the current regulations, it's clear that it's driving a higher quality of carriers across the network. We've got a very robust, rigorous carrier vetting process. We built the business off of just-in-time automotive shipments off of high-value cargo shipments. So the bar to haul loads for us is very high. We continue to increase the standards on being able to haul loads for RXO, and I think that's been a differentiator for customers.

When customers look to who they're doing business with now with everything that's going on, they want to talk through what is your carrier vetting process and who you're using. And we're winning because of that right now. Shifting to the Montgomery case, I think from my opinion, it is clear that the side of the industry is the right side. I think the law is clearly written off of that way. But running our company, we've got a playbook for everything, and we're prepared for anything.

And if the case goes on the Montgomery side, I think that will drive out the tail on brokers and will create a lot of opportunity for organic growth very quickly in our business, and it also creates some opportunities on the M&A side for consolidations.

Ravi Shanker: Got it. That's very helpful. And maybe, Drew, I think you said that your Agentic tools made 500,000 phone calls in the last quarter, if I got that stat right. Can you just give us a frame of reference, like what percentage of total calls was that? And kind of is there a target for where that goes over time?

Drew Wilkerson: It's a very low percentage of the number of calls, Ravi. And I think that shows how far we can go and that we're in the very early innings of this. We're just -- the journey is just starting, and we've got a lot of upside off of what we're doing there.

Operator: Your next question comes from the line of Chris Wetherbee of Wells Fargo.

Christian Wetherbee: I want to dig a little bit more on to the spot moves because that seems to be sort of the big piece in the quarter here. So I guess when you think about competitively, where do you think the share is coming from? Because it sounds like you still think the sort of demand environment is muted. So it doesn't feel like it's kind of organically coming through with more volume. It just seems like you're capturing share from other folks. Just kind of curious how you're thinking about that market dynamic.

Drew Wilkerson: Yes. On the spot market, a lot of times, those are open bids. So it's not a clear indication of where it's coming, but we're also not picky on where it comes from. Our goal is to service the customer and make sure that we are the ones that they are calling. I think you're still in the early innings. Tender rejections are still sitting in the low to mid-teens right now. And that, in my opinion, will continue to rise when you look at the capacity that is coming out. of the market. And any signs of demand returning will take it even higher. So I think there's more opportunity that is coming down the pipe off of that.

For us, it's about how well we position ourselves. And are we the ones who customers come to and that they trust whenever those -- there are those opportunities. And we've got a team that set up war rooms of different solutions that we could provide for customers as the market was tightening, different ways that we could service them in the spot market. We've seen where carriers are handing back a lot of freight as the market tightens, and we've been the place that customers have gone as that's happened.

Christian Wetherbee: Okay. Super helpful. And then I know you mentioned contract high single digits. Just want to -- any sort of color in terms of how that process is going and then maybe what sort of the exit rate of bid season might look like if it's sort of above that high single-digit number? Just kind of curious because obviously, we haven't seen demand come back. It seems to be mostly driven by supply. It seems like there's upside potential if things get a bit better. I'm just kind of curious your thoughts around that.

Drew Wilkerson: Yes. This has definitely been a supply-driven recovery. This is the first time in 20 years of doing this that I've seen a supply-driven recovery that has been sustained. When you look at demand, demand is a catalyst to take it even further off of where we are today. Right now, on the supply side, I do think that supply will continue to come out, which, as I said earlier, I think will take tender rejections up even further. Contract rates, when you look at what the exit rate was over the last 4 weeks, we were in the double digits. We've had several that have been in the low teens, even mid-teens coming up.

And we're largely through the pricing piece on bid season. we're in the implementation phase of going through the second quarter, which will continue throughout the second quarter. And I'll say that this year is a little bit different. This has been an ongoing conversation with customers about what's going on in the market on the regulatory side, what to expect from a capacity standpoint, what are we doing from a carrier vetting process. So I think this will be a yearlong of conversations, and we've got a tool in the curve that customers view as their truth sum of what's going on in the market.

Operator: Your next question comes from the line of Scott Group of Wolfe Research.

Scott Group: So I get all the spot mix stuff. But if overall volume is in truckload is down 12% and spot mix is up 6%, I think the math implies that contract volume is down something like mid- to high teens. So maybe just, Drew, some thoughts on why we're seeing such big declines in contract business and how you think about that sort of evolving going forward? And maybe just along the same lines, I think you said LTL volume flattens out in Q2, but then reaccelerates. So maybe just color on LTL as well.

Drew Wilkerson: Yes. So Scott, like if you look at it, demand is still soft. It's a muted environment on the demand side. And so the fill rates are not there. If you look at the overall industry tender-wide rejections, they're sitting in the low teens right now, especially as you're implementing new bids. And we've said all along that we're optimizing service solutions and price for customers, and I feel good about where we're executing off of that market. On the LTL piece, we talked about that being roughly flat on a year-over-year basis in the second quarter. I think we'll get back into growth mode as we get into the back half of the year on that.

The pipeline is strong there.

Scott Group: Okay. And then when I just think longer term, I think you said earlier, mid-cycle mid-single-digit EBITDA margin, peak of the cycle, high single. If I just look back '21, '22, right, last peak, we got like a 5% or 6% EBITDA margin. So -- what's changing here? Maybe it's Coyote, I don't know, but what's changing here that we get meaningfully better sort of peak margin this time around?

Drew Wilkerson: Scott, I'll have to let Jared or Jamie weigh in. But in '21 or '22, I know for the brokerage business, the margins were much higher than the numbers you just talked out. As a matter of fact, in '22, we highlighted on one of the XPO earnings calls that brokerage margins hit double digits.

Unknown Executive: Yes. You have it, Chris. So Scott, that's the right way to think about it. Historically, if we look at our peak EBITDA, you can think about, call it, high single digits, low double digits. We do also think that there is an opportunity to continue to leverage AI to fundamentally improve the structural profitability of this business. So it's not a mix issue. And when we think about where we are right now, entering Q2, certainly with improved momentum and significant EBITDA growth, to Drew's point, we are still multiples away from normalized earnings.

Drew Wilkerson: And Scott, with more scale, I think the margins can go higher with what we're doing on the AI side, we talked about the spot quoting tool that our team is using now and the team that has ramped up on that first to seeing volumes up 15%. That's going to pull down cost to serve. So I think those are all things that can be upside to the numbers that we're talking about.

Operator: Your next question comes from the line of Tom Wadewitz of UBS.

Thomas Wadewitz: So I've got 2. I wanted to -- you touched a little bit, Drew, on Montgomery. I want to drill down on that a bit further. I think there is a sense that kind of heads you win, tails you win on this case, right? Like if you lose -- if CH loses Montgomery, then small carriers exit. But I just want to see if you could elaborate a bit further on the mechanism for that pressure on small brokers. It seems to me like the insurance costs that brokers are paying today are not very large. I'm guessing you pay a couple of million dollars a year in insurance.

And so even if it doubles, it's like -- I just -- I don't know if that's the mechanism to drive small carriers out? Or is it like shippers just won't use them and so they lose the demand side. I just want to see if you could drill down a little bit more on how you think that might drive small carriers out if CH and TQL lose the Montgomery case? And then I had one follow-up after that.

Drew Wilkerson: Yes. So again, I want to be clear. We think that the industry is on the right side of this and that the law is clear on how it is written and it should be ruled in favor of the industry. If it does not err on that side, insurance costs, I wish our insurance costs were a couple of million, Tom. They're definitely more than that. And I think that, that is definitely something that would be a headwind for smaller players. Shippers requirements will also go up. And the carrier vetting process is we're already seeing that play out with shippers right now given what's going on in the regulatory.

I think that's something that will kick it into high gear even faster than what it has been. And they're going to want to look to do business with people who have scale, who have good technology, people that have delivered for them in the past and people who have financial stability. And thankfully, we check all of those boxes.

Unknown Executive: Yes. And I would add to that from an insurance market standpoint, the carrier -- the insurance carriers are going to be looking to brokers who have good vetting processes, have invested in carrier compliance and the requirement for more insurance that Drew talked about will be harder for smaller players to acquire or procure from the market, I think.

Thomas Wadewitz: I guess if you're a small broker and you work with small and midsized shipper, do you think they will have the higher requirements, too? Or is it more like large shippers that drive the pressure?

Drew Wilkerson: I think large shippers will set the tone, but small shippers will certainly want to follow what the benefits that large shippers are receiving.

Thomas Wadewitz: Okay. All right. Yes. Other question is just on kind of like what the mix of loser loads or kind of negative gross margin loads looks like. I think -- is that pretty elevated right now? And is that something like you see that improve quite a bit as you look forward? I think it's just like looking under the hood a little bit, just kind of what's happening with that in terms of kind of what's normal and where are you at for negative gross margin loads?

Drew Wilkerson: Yes. Negative gross margin loads are definitely up. The other thing that is also up is our high-margin winter loads that is also up significantly, and those go hand in hand. If I think back to 2022, that was our strongest profitability, as I just highlighted to Scott, that was our highest negative margin load percentage as a business. And again, because customers trust us because we deliver for them, that was also our highest high-margin loads during that time period as well. So it's about creating solutions for customers, being the carrier of choice for customers as the market tightens. And I think that this is the first inning of us proving that's who we are.

We've told you for multiple years that as the market tightens, customers will come to us with spots, projects and mini bids. This is the evidence that, that is happening, especially as things are getting re-rated and turned back to customers, we're seeing big wins there, both on the spot and the contract side. So yes, negative gross margin loads are elevated, but so are high-margin loads. And we look at the customer as a total profitability, not off of one load.

Thomas Wadewitz: So you don't necessarily need the bad loads to go down. It's just you're making more money on the broader mix. Is that kind of the way to look at it?

Drew Wilkerson: We look at the total customer profitability. I think it would be shortsighted to look at it on a load basis.

Operator: Your next question comes from the line of Ari Rosa of Citigroup.

Ariel Rosa: So I wanted to go back to this point about truckload volume being down 12% year-over-year. Just I was hoping you could help us contextualize that number. Maybe you could give your view on kind of how much the overall market was down relative to that 12%? And just help us understand like how much of that was RXO being -- making a deliberate decision to move away from certain loads? Or like how are you moving relative to the market? And what gets you back to taking share?

Drew Wilkerson: Yes. We talked about some headwinds in the business heading into it. So I think off of memory, cash freight index was down around 6% and our truckload volume was down around 12%. But you also see the rate of change where we talk about it being flattish on a year-over-year basis in the second quarter. So the rate of change exiting from Q1 to Q2. And the biggest thing driving the rate of change is, one, our conversion on our sales pipeline, we're winning there, and we're winning in big ways off of big numbers. And we're also seeing a lot more spots.

So I mean, I think there's 2 things that are driving the improvement in the rate of change from what you're seeing from the first quarter to the second quarter.

Ariel Rosa: True. But what is it that's driving the delta between the 6% and the 12% in the first quarter? Just because that's what I'm not clear on.

Drew Wilkerson: Yes. I think whenever you look at the 6% to the 12%, we talked about the pricing strategy last year. And I think we highlighted that 2 or 3 earnings calls ago where we said that this was going to be the position we were in. And there wasn't a lot of spots out there in the fourth quarter. Spots really started to come on in February. So you saw December and January where there wasn't a lot of spots and you were still seeing contracts hold up. As soon as the spots started to come in, that's whenever you started to see the rate of change in the business.

I think it's obvious whenever you saw that April was down too.

Ariel Rosa: Okay. Got it. Understood. And so just as a second question, I was hoping you could talk a little bit more about your approach to AI. It sounds like you're getting some traction there. That's great. Obviously, people have responded well to that in the market. Help us understand what it is that RXO is doing different? Like how much of your approach to AI is built off of proprietary technology? How quickly you expect it to scale, et cetera? If you could just give us more color there, I think it would be helpful.

Drew Wilkerson: Yes. I'll let Jared come over the top on some of the tools. But I mean, when you look at our AI strategy, it's built for who we are. It's built to be able to adjust with what's going on in the market. It's built tailor specific for our customers, especially large enterprise customers. We've built new tools as we start to ramp up the SMB parts of our business. We're building things in there on the carrier side. Anything that is customer, carrier or employee-facing, we view as secret sauce. And those things we really want to lean in and use proprietary tools.

If there's something that we view that is not as critical, then we're open to using some things off the shelf there.

Unknown Executive: And Ari, to build on what Drew was saying, the 4 key pillars that we talk about have remained consistent between volume, margin, productivity and service. We're a tech-enabled organization. But as we highlighted earlier on, it's all about the customer relationship. It's all about the carrier relationship and then how do we leverage technology in a way that makes our people more productive. We saw our productivity was up 15% over the last 12 months, measured by loads per person per day.

We're really excited about some new tools that we've launched recently, including our Agentic AI e-mail spot quote functionality where we've seen significant traction over the last couple of months, and that's still in the very early innings. So as we go ahead and start to broadly deploy these tools across the organization, and we think about the opportunity to decouple volume growth from headcount and make our people that much more productive, it speaks to the long-term contribution margins that are attributable to AI and technology.

Operator: Your next question comes from the line of Ken Hoexter of Bank of America.

Ken Hoexter: So you set the scale for EBITDA outlook for 2Q. Thoughts on maybe seasonality, pace of growth, maybe a little further out third quarter, full year. And then, Jared, on that last point, as you get more automated on quotes, thoughts on staffing. I don't think you disclosed headcount, but how are you thinking about early efficiency gains on reshaping the workforce?

Jared Weisfeld: Sure. I could start. So as you know, Ken, we give an outlook one quarter at a time, but can certainly provide a little color on Q3. Typically, Q3 does decline when compared to Q2 in last mile. Q2 is the strongest quarter of the year from a seasonal perspective. But I would certainly say there's nothing typical about this year, right? As Drew just mentioned, starting in Q3, you'll see the full implementation of the contract rates that we're talking about right now in Q2, which are coming in right now, to some extent, low double-digit, mid-teen type increase. So that will continue.

Volume will be a function not only of the market, but also our successful conversion of the pipeline that we've talked about, managed trends, also implementing new awards in the second half of the year and any sustained increase in demand, including automotive, could be substantially better than that. So last year, Q2, Q3 went down about 15% sequentially, but would certainly reiterate that we've got a lot of strong momentum in Q2 right now, and we'll see -- we expect further momentum in Q3. And on the -- what was a follow-up on technology, Ken?

Ken Hoexter: Yes. Just your thoughts on staffing, right? As you become more automated, does that -- since you don't disclose that count, how do you think about early efficiency gains reshaping that workforce?

Drew Wilkerson: If you look at our brokerage headcount, -- can it was down double digits on a year-over-year basis. I think we've talked earlier in the call about this being a relationship business. Relationships matter in this business. Our people matter to this business. But what's going to happen is they're going to get more productive over time and the more tools that we implement. So the rate that we add heads will not be at the rate as we start to grow -- outgrow the market, which we've said we'll start to outgrow the market around the middle of the year, maybe sooner.

Ken Hoexter: Wonderful. And then just one follow-up quickly, if I can. The truckload volume improved each month in 1Q. Is that a year-over-year comment? Is that in line with normal seasonal or sequential progression?

Jared Weisfeld: That's that comment with respect to -- on an absolute basis, we've seen an improvement within our truckload business every month throughout Q1. that is then translating into an expectation of a sequential volume increase from Q1 into Q2 from a truckload perspective, driven by the success that we've had converting that late-stage pipeline. And then Ken, that will then translate to about year-on-year flattish from Q2 -- in Q2 relative to Q2 last year, which is certainly significantly improved relative to Q1, and we then expect to start to resume our outperformance versus the truckload market as early as the middle of the year.

Operator: Our last question comes from the line of Bruce Chan of Stifel.

J. Bruce Chan: Maybe just to follow up on the headcount productivity question. It seems to me like you're in a better position to implement a lot of these tech and AI programs now that the tech stacks are more harmonized. You listed a lot of different initiatives. Maybe if you could just help us to quantify the impact of those? Any KPIs that you're seeing in terms of productivity or GP per head or maybe margin contribution that you can give us to help kind of illustrate what the impacts might be to the bottom line?

Jared Weisfeld: Bruce, it's Jared. So on the productivity side, we're seeing some real tangible benefits. Productivity in the second quarter was up about 15% when compared to the prior 12 months, benefiting from those investments. And I'll go back to those 4 key pillars that we talked about earlier in terms of how we think about our technology strategy across volume, margin, productivity and service. And the one tool that we've been talking about that we're quite excited about is some of the benefits that we're seeing from the Agentic AI e-mail spot quote functionality because not only does it enable incremental volume and margin opportunity, it comes with a pretty strong contribution margin to the business.

So as we think about scaling the business longer term, decoupling volume growth from headcount, it could really add some pretty strong contribution margins longer term.

Operator: I would now like to hand the call back to Drew Wilkerson for closing remarks.

Drew Wilkerson: Thank you, Elli. RXO has significant momentum across all of our lines of business. Our full truckload volume improved every month of the first quarter. We're winning more spots, projects and mini bids, thanks to the exceptional service we provide and our spot mix increased by 500 basis points sequentially in the first quarter and 600 basis points year-over-year. We've had an outstanding bid season and expect full year contract rates to increase by high single digits year-over-year. We expect to resume our market outperformance when it comes to brokerage volume as early as the middle of this year. In complementary services, we continue to win.

We've secured more than $100 million in new managed transportation awards, and our new Middle Mile solutions offering has already built a $70 million pipeline in just its first few months. Our technology is a force multiplier. We put Agentic AI in action and our proprietary tools, including our AI spot agent have already delivered increases in both volume and gross profit per load for our reps. We're at the beginning of the recovery, and we're uniquely positioned to be a major winner. RXO has significant long-term earnings power. Thank you for your time today, and we look forward to seeing you at the upcoming conferences.

Operator: Thank you for attending today's call. You may now disconnect. Goodbye.