RXO Q2 2025 Earnings Report

RXO EPS Results

• Actual EPS: $0.04
• Consensus EPS: $0.02
• Beat/Miss: Beat by +$0.02
• One Year Ago EPS: $0.03

RXO Revenue Results

• Actual Revenue: $1.42 billion
• Expected Revenue: $1.44 billion
• Beat/Miss: Missed by -$25.39 million
• YoY Revenue Growth: +52.60%

RXO Announcement Details

• Quarter: Q2 2025
• Date: 8/7/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 8:00AM ET

RXO (NYSE:RXO), Inc. provides full truckload freight transportation brokering services. It also offers brokered services for managed transportation, last mile, and freight forwarding. The company was incorporated in 2022 and is based in Charlotte, North Carolina.

RXO Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Adjusted EBITDA beat expectations, delivering $38 million in the quarter at the high end of guidance.
• Positive Sentiment: Brokerage volume outperformed the market with 1% year-over-year growth, led by 45% LTL expansion, and truckload gross profit per load rose 7% sequentially.
• Positive Sentiment: Integration of RXO and Coyote tech platforms is driving procurement efficiency, with buy-rate favorability improving ~30–50 bps and customer migration on track to finish by end-Q3.
• Positive Sentiment: Last Mile stops grew 17% year-over-year, marking the fourth straight quarter of double-digit growth and continued market share gains.
• Negative Sentiment: The freight market remains soft with limited spot opportunities, and automotive headwinds contributed to a 12% year-over-year decline in truckload volume.

Presentation

[Operator]

Welcome to the RxO Q2 twenty twenty five Earnings Conference Call and Webcast. My name is Ludie, and I will be your operator for today's call. Please note that this conference is being recorded. During this call, the company will make certain forward looking statements within the meaning of federal securities laws, which by their nature involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those in the forward looking statements. A discussion of factors that could cause actual results to differ materially is contained in the company's SEC filings as well as in its earnings release.

[Operator]

You should refer to a copy of the company's earnings release in the Investor Relations section on the company's website for additional important information regarding forward looking statements and disclosures and reconciliations of non GAAP financial measures that the company uses when discussing its results. I will now turn the call over to Drew Wilkerson. Mr. Wilkerson, you may begin.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Good morning, everyone. Thank you for joining today. I'm here in Charlotte with RXO's Chief Financial Officer, Jamie Harris and Chief Strategy Officer, Jared Weisfeldt. There are five main points I want to convey this morning. First, we again delivered on our commitments in the quarter and achieved adjusted EBITDA of $38,000,000 at the high end of the guidance range we provided to you last quarter.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Second, our brokerage business outperformed the market and grew volume by 1% year over year driven by 45% growth in less than truckload volume. Importantly, truckload gross profit per load improved by 7% sequentially despite tighter market conditions. Third, we're beginning to realize the benefits of having our team on a combined tech platform. We're purchasing transportation more effectively than we did before the integration, but still have a lot of opportunity ahead. Fourth, Last Mile continued its impressive run of year over year growth achieving 17% stop growth, the fourth consecutive quarter of double digit growth.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

And lastly, we accomplished all of this while achieving an exceptional adjusted free cash flow conversion of 58% and adding cash to our balance sheet. I'd now like to give you an overview of our results within brokerage, which outperformed despite the prolonged soft freight market. Overall, brokerage volume grew by 1% year over year, outpacing the cash freight index, which contracted by more than 3% in the quarter. Our growth was led by a 45% increase in less than truckload volume. That's an acceleration from last quarter's 26% growth.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

We continue to win in this area because we make LTL shipping easy for our customers. Over the past few years, we've invested in cutting edge technology that improves productivity and reduces cost for our team while giving LTL customers complete visibility. We maintain relationships with nearly all the LTL providers in North America, which enables our customers to realize the benefits of scale. Growing our LTL business is a key part of our company strategy because it provides a stable source of EBITDA with strong margins across market cycles. We still have many opportunities to continue growing our LTL business and that growth will come from both existing truckload customers and new customers.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

On the truckload side, volume declined by 12%. The decline was primarily due to automotive weakness and efforts we undertook with customers to optimize price volume and service. Brokerage gross margin was 14.4% in the second quarter above the midpoint of our outlook And truckload gross profit per load increased by 7% sequentially despite tighter market conditions. This was the strongest sequential increase in three years and we expect to improve truckload gross profit per load again in the third quarter. We continue to achieve robust productivity gains in brokerage driven by enhancements to our tech platform.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Productivity over the last twelve months increased by about 18% and over the last two years by 45%. There's still significant room for improvement. We continue to invest in AI tools that help our people be more productive and enhance the experience for our customers and network of carrier partners. Let's talk about our efforts to procure brokerage capacity more efficiently leveraging our larger scale. As a reminder, on May 1, our coverage operations were combined providing our carrier network with access to significantly more freight and our reps with access to an even larger network of carriers to cover that freight.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Our common platform is enabling us to realize the benefits of our increased scale, helping provide the best truck for each load and realize the benefits of our additional PowerLanes. We're already seeing the results and over the last few months, we've improved our buy rate favorability by approximately 30 to 50 basis points. We remain confident in our ability to drive further improvements and Jared will walk you through more details later in the call. Earlier this quarter, we successfully completed the migration of legacy Coyote's ERP system, which was a huge accomplishment. The last two items remaining in the integration are the completion of the customer migration to RXO's technology platform and the decommissioning of certain back office systems.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

The customer migration is underway and we continue to expect that the bulk of our tech integration will be complete by the end of the third quarter. Importantly, our team is already operating as one RXO working together to ensure the success of our customers and our network of carrier partners. As I travel to the branches around the country, I'm proud of the energy and the dedication that I'm seeing. We set forth an aggressive timeline to complete the integration and we're ahead thanks to the hard work of our team. In complementary services, our momentum continued in the second quarter.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Last mile stops grew by 17% year over year, the fourth consecutive quarter of double digit stop growth. The exceptional service we provide combined with our massive scale, cutting edge technology and financial stability is enabling us to gain profitable market share. The best known brands in the big and bulky space continue to rely on RXO for home delivery services. Managed transportation again increased the number of synergy loads it provided to brokers and grew its late stage sales pipeline sequentially. For the quarter, RXO delivered adjusted EBITDA of $38,000,000 RXO's company wide gross margin was 17.8%.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Cash performance was a highlight for us in the second quarter. Despite the prolonged soft freight market, we delivered a 58% adjusted free cash flow conversion. We also added cash to our balance sheet. All of this speaks to the long term free cash flow generation capabilities of the RHO business model. Jamie will discuss cash in more detail later in the call.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Overall, the freight market continues to be soft. We did see some tightening throughout the second quarter, but this was driven by capacity and not improved freight demand. As we previously stated, carriers have exited resulting in a more balanced market overall. On the demand side though, our customers are still managing through macroeconomic uncertainty. Our effort to procure transportation more effectively along with our focus on cost discipline will enable us to outperform typical seasonality in the third quarter.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Gerard will discuss this in more detail later in the call. Our strategy remains the same. We're focused on driving profitable growth across market cycles while continuing to advance our cutting edge technology platform. When it comes to growth, we're focused on increasing our scale and expanding the solutions we offer to our customers. We have a great track record when it comes to driving growth.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Our total volume in the second quarter when including the inorganic impact of the Coyote acquisition is up 275% versus the comparable quarter five years ago. Our long term organic growth results are likewise impressive. Over the five years prior to the Coyote acquisition, RXO grew total volume by 72% organically and 11% CAGR. In that time period, truckload was up 43% and LTL was up a whopping 851%. More importantly, when you focus on the three years pre acquisition, which narrows in on the current down cycle, our team was able to grow volume by 21%.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Future growth will not only come from our core truckload business, but will also come from premium services that expand our deep customer relationships. We'll continue to advance the businesses that provide us with stable sources of EBITDA during all market conditions, including LTL and Managed Transportation. We are focused on taking profitable market share over the long term through market cycles. We continue to hear from customers and carriers that our technology is the most advanced and easiest to use in the industry. Each year, we spend more than $100,000,000 on technology.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Our tech continues to improve the productivity of our people, enabling them to spend more time with our customers and network of carriers. Our AI and machine learning algorithms are also constantly working to optimize our pricing. You can see the impact of these investments in our margins and our productivity, which has increased by 45% over the last two years. We're doing all of this while remaining disciplined when it comes to cost. The focus is helping us navigate the difficult freight market conditions and will enable us to achieve significant operating leverage once the market improves.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

RXO is well positioned to deliver increased earnings power and free cash flow over the long term and across market cycles. Now Jamie will discuss our financial results in more detail. Jamie?

[Jamie Harris, CFO at RXO]

Thank you, Drew, good morning. Let's review our second quarter performance in more detail. Our results were at the high end of the ranges we provided. For the quarter, we delivered $1,400,000,000 in total revenue, gross margin of 17.8%, adjusted EBITDA of $38,000,000 and adjusted EBITDA margin of 2.7%. Sequential adjusted EBITDA growth was driven by improved truckload profitability within brokerage, strong execution and seasonality from last mile, and disciplined cost management.

[Jamie Harris, CFO at RXO]

We delivered these improved results despite continued headwinds within the automotive industry. Automotive headwinds increased on both the sequential and year over year basis. Specifically, the slowdown in automotive volume represented a companywide gross profit headwind of more than $10,000,000 year over year. Automotive freight, because of its time critical nature and higher service requirements, typically carries a higher than average gross margin with strong flow through to EBITDA. Below the line, our interest expense was $8,000,000 For the quarter, our adjusted earnings per share was $04 You can find a bridge to adjusted EPS on slide seven of the earnings presentation.

[Jamie Harris, CFO at RXO]

Now I'd like to give an overview of our performance within our lines of business. Brokerage revenue was $1,025,000,000 and represented 69% of total revenue. We had strong LTL growth driven by continued customer wins. That growth was offset by a decline in full truckload volume. The decline was primarily due to automotive weakness and efforts we undertook with customers to optimize price, volume, and service.

[Jamie Harris, CFO at RXO]

Brokerage gross margin was 14.4%, up 110 basis points sequentially. Gross profit per load for truckload improved by 7% sequentially, which was the largest increase in three years. We achieved this result despite the tighter market conditions in the quarter. We continue to bring down our cost to purchase transportation, and we're also beginning to see early benefits associated with the carrier and coverage migration, which was completed on May 1. Complementary services revenue in the quarter of $457,000,000 increased by 9% year over year and was 31 of our total revenue.

[Jamie Harris, CFO at RXO]

Gross margin within complementary services remained strong at 22.8%, a sequential increase of 180 basis points. Now let's move to east line of business within complementary services. Managed transportation generated $142,000,000 of revenue in the quarter, down 9% year over year. Managed transportation continues to be impacted by lower automotive volume in our managed expedite business. Our last mile business generated $315,000,000 in revenue in the quarter, up 19% year over year.

[Jamie Harris, CFO at RXO]

Last mile stops grew by 17% as we continued to gain profitable market share within the big and bulky category. This was the fourth consecutive quarter we've grown last mile volume by double digits. Let's now discuss cash. Please refer to slide eight. Adjusted free cash flow in the second quarter was 22,000,000 yielding a strong 58% conversion from adjusted EBITDA.

[Jamie Harris, CFO at RXO]

This puts our year to date conversion at 47%. We're especially pleased with our conversion during the quarter as it included our semiannual bond interest payment of $13,000,000 Our results were primarily driven by working capital management. Most impactful, we've harmonized working capital processes across the combined organization, and we believe the majority of these improvements to be permanent. We anticipate strong cash performance again in the third quarter. Longer term, given our asset light business model, we remain confident in the 40 to 60% conversion across market cycles.

[Jamie Harris, CFO at RXO]

We ended the quarter with $18,000,000 of cash on the balance sheet, which increased by $2,000,000 sequentially with no change to the revolver balance. We grew a cash balance despite our $13,000,000 semiannual bond interest payment and $12,000,000 of restructuring transaction and integration cash outflows. Looking forward, we expect to grow our cash balance again in the third quarter. As you can see on slide nine, our liquidity position continues to be strong with more than $575,000,000 of total committed liquidity at the end of the second quarter. Quarter end net leverage was 2.1 times trailing twelve months bank adjusted EBITDA, up slightly when compared to the prior quarter.

[Jamie Harris, CFO at RXO]

We continue to have significant capacity to deploy our balance sheet in line with our balanced capital allocation philosophy. Now let's discuss our expectations for the third quarter. We continue to operate in a fluid macroeconomic environment with significant shipper uncertainty, which is reflected in our outlook. For the combined company in the third quarter, we expect to generate between $33,000,000 and $43,000,000 of adjusted EBITDA. Sequentially, improved truckload brokerage profitability and disciplined cost management are helping to offset a seasonal decline in last mile.

[Jamie Harris, CFO at RXO]

For the third quarter, you should model SG and A down slightly when compared to the second quarter, depreciation expense of approximately $17,000,000 to $19,000,000 amortization expense of approximately 9,000,000 to $11,000,000 and an adjusted effective tax rate of approximately 30%. Jared will provide more details on our third quarter outlook shortly. Slide 14 includes our 2025 modeling assumptions. There are a few things I want to highlight. While we're always operating with a continuous improvement mindset, we have completed most of the cost actions associated with the Coyote acquisition.

[Jamie Harris, CFO at RXO]

We therefore expect a significant reduction in second half restructuring, transaction, and integration expenses when compared to the 2025. For 2026, we continue to anticipate a material reduction in capital expenditures and expect next year's CapEx to be between 45,000,000 and $55,000,000 Our business model, combined with our cost discipline, will yield significant operating leverage as the market improves. While the timing of an improvement in freight market demand remains uncertain, we are hearing some cautious optimism from our customers that clarity on trade policy is bringing incremental business confidence. The integration of CODI is nearly complete, and we are seeing early wins when it comes to procuring transportation more effectively. RXO is well positioned to deliver strong results across market cycles.

[Jamie Harris, CFO at RXO]

Now I'd like to turn it over to our Chief Strategy Officer, Jared Weisfeld, who will talk in more detail about our results and our outlook.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Thanks, Jamie, and good morning, everyone. As I typically do, I'll start with an overview of our brokerage performance in the quarter. To make the comparisons more useful for you, I'll give you combined numbers for our brokerage business, which include Coyote's results in prior periods. Brokerage volume in the quarter was up 1% year over year, ahead of our expectations. The better than expected performance was driven entirely by LTL strength.

[Jared Weisfeld, Chief Strategy Officer at RXO]

LTL volume increased by a strong 45% year over year and included the full quarterly contribution from the customer onboardings we shared with you last quarter. LTL represented 32% of brokerage volume in the second quarter, up 1,000 basis points year over year and the highest contribution in the company's history. Truckload volume was down 12% year over year, primarily driven by automotive weakness and efforts we undertook with customers to optimize price, volume and service. Combined, those two drivers represented a majority of the year over year volume decline. To give you more color, automotive volume was down 28% year over year and headwinds increased on both a sequential and year over year basis.

[Jared Weisfeld, Chief Strategy Officer at RXO]

This accounted for about a quarter of our overall truckload volume decline in the quarter. As a reminder, we service our automotive customers across brokerage and managed transportation. As the largest provider of managed ground expedite services to the automotive industry in North America, RXO is uniquely exposed to the current automotive headwinds. However, we are well positioned for growth when the market recovers. Truckload represented 68% of our brokerage volume.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Contract was 73% of our truckload volume, flat sequentially and up 100 basis points year over year. Spot represented 27% of our truckload volume in the quarter. We continue to operate in a prolonged soft freight environment with minimal spot opportunities. Before reviewing our financial performance and market conditions in more detail, I'd like to talk more about the initial success we've achieved as a result of the combination of RXOs and Coyote's carrier and coverage operations, which was completed on May 1. We've historically purchased transportation better than the market.

[Jared Weisfeld, Chief Strategy Officer at RXO]

We believe that combining Auricos and Coyote's carrier networks would allow us to purchase transportation even more effectively by increasing our network density and reducing deadhead miles. We previously communicated a framework to think about the long term COPT opportunity. A 100 basis point improvement would translate into an approximately $40,000,000 of cost avoidance or savings depending on market conditions. The initial results are encouraging. Over the last few months, we have seen buy rate favorability improve incrementally by approximately 30 to 50 basis points.

[Jared Weisfeld, Chief Strategy Officer at RXO]

This improvement also occurred during tighter freight market conditions yielding cost avoidance. As a reminder, buy rate favorability needs to be measured against constantly changing market conditions. We still have a significant opportunity to improve our buy rates as a combined organization. Let's now review our brokerage financial performance and market conditions in more detail. You can find this information on slides 10 through 13 of the presentation.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Starting with revenue per load on slide 10. In the second quarter, truckload revenue per load trends remained inflationary. Revenue per load, excluding the impact of changes in fuel prices and length of haul, was up 3% year over year, but the lack of meaningful spot opportunities continued to be a headwind to revenue per load. Truckload revenue per load also increased year over year during the month of July. We continue to expect 2025 contract rates to be up low to mid single digits year over year.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Let's move to slide 11 and discuss current market conditions and brokerage margin performance. The market tightened throughout the second quarter with both industry wide tender rejections and load to truck ratio moving higher. We believe this was driven by continued supply rationalization, not improved demand for freight. Also supporting this view, Class eight net orders have continued to decline and remain below replacement levels. Carrier unit economics continue to remain challenged in the current environment.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Additionally, we saw even more market tightness driven by produce season this year when compared to the last few years, an encouraging sign that the market is responding to seasonality and is more balanced when compared to the last few years. While industry KPIs moved lower into July as they typically do, we are seeing them increase year over year. Despite tightening market conditions as the second quarter progressed, we were able to procure transportation effectively. This resulted in truckload gross profit per load improving by 7% sequentially. We also saw early benefits of the previously discussed Carrier and Coverage migration.

[Jared Weisfeld, Chief Strategy Officer at RXO]

This will help drive another sequential improvement in truckload profitability in the third quarter. Let's go to Slide 12 and look at quarterly truckload gross profit per load trends. As I just mentioned, we improved Truckload gross profit per load significantly, resulting in a 7% improvement when compared to the first quarter. This is the largest increase in Truckload gross profit per load for the combined company since 2022. An improvement in truckload gross profit per load yields very strong contribution margins and flow through to EBITDA, typically greater than 60%.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Moving to slide 13. Arxo's LTL brokerage volume continues to outperform the broader LTL market, contributing stable gross profit per load and strong contribution margins to the business. We have significant opportunities to continue to grow LTL volume with existing and new customers. I'd now like to look forward and give you some more details on our third quarter outlook that Jamie provided. Starting with brokerage, we expect overall volume to remain approximately flat year over year with continued soft truckload volume trends offset by strong LTL growth.

[Jared Weisfeld, Chief Strategy Officer at RXO]

We expect truckload gross profit per load to be up slightly in the third quarter, significantly outpacing recent seasonality. We anticipate that brokerage gross margin will be between 13.515%. Let's now talk about complementary services. In Managed Transportation, while the business has significant sales momentum and an expanded pipeline, Managed Expedite Automotive headwinds continue to impact us in the near term. In Last Mile, we expect another quarter of year over year stock growth, although at a slower rate when compared to the second quarter.

[Jared Weisfeld, Chief Strategy Officer at RXO]

As a reminder, the third quarter is seasonally weaker for Last Mile when compared to the second quarter, and we also expect Last Mile stop growth to decelerate into the back half of the year due to tougher comparisons as we lap last year's new business wins. Putting it all together, we expect RXOs third quarter adjusted EBITDA to be in the range of $33,000,000 and $43,000,000 We thought it would be helpful to give you some historical trends for the combined company. Over the last few years, on average, third quarter adjusted EBITDA is typically down anywhere between 1530% sequentially, primarily driven by last mile seasonality. We expect to perform better than this with improvement in truckload brokerage profitability and lower expenses offsetting a sequential decline in last mile. Similar to last quarter, we thought it would also be helpful to share the brokerage volume assumptions underlying our third quarter outlook.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Truckload volume is typically higher in September when compared to the seasonally slow month of July. The midpoint of our outlook does not embed any above seasonal volume growth from July. The high end of our adjusted EBITDA outlook assumes volume growth from July to September modestly above our three year average, while the low end assumes volume growth modestly below our three year average. To close, while we continue to operate in a fluid environment, we've entered the third quarter and upcoming bid season with momentum. Truckload brokerage profitability has significantly improved.

[Jared Weisfeld, Chief Strategy Officer at RXO]

We are gaining profitable market share within LTL. With carrier and coverage migration complete, we're seeing early wins on procuring transportation more effectively. Productivity gains fueled by our investments in technology are accelerating. Our technology integration will be substantially complete this quarter. Managed transportation continues to increase synergy loads to brokerage with an expanded sales pipeline, and we continue to gain market share within Last Mile.

[Jared Weisfeld, Chief Strategy Officer at RXO]

We remain focused on driving profitable growth and leveraging our cutting edge technology, both of which position the company for significant long term earnings and free cash flow growth. With that, I'll turn it over to the operator for Q and A.

[Operator]

Thank With that, our first question comes from the line of Tom Wadewitz with UBS. Please go ahead.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Group]

Yes, great. Thank you. Good morning. Wanted to ask Drew on the one of the comments you made in kind of talking about the truckload volumes and the weakness. So the auto makes sense, you have more leverage to that.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Group]

You mentioned the optimizing price, volume and service, I think, is kind of the language you used. So to me, that sounds like kind of quality of the book that you're working on improving that. I don't know if that's the right way to view it. And how much of this is kind of related to Coyote that you'd say maybe, well, the mix of what we had needed some of this improvement. I guess, I'm just a little more color behind that.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Group]

And how long does this process last in terms of working on the price volume service component just so we can think about kind of the forward impact on volume? Thank you.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. Thanks, Tom. First, when you look at the volume, you highlighted the first piece on automotive. Automotive was roughly a quarter of the 12% of why volume was down on a year over year basis. And a bigger piece of it was exactly what we talked about.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

We worked with the customers and it wasn't an overarching strategy of, hey, we're just going out there and taking price from customers. We're working with the customers one by one on what's the right strategy for them, looking at the power lanes that we've got across the country, where we have the strongest amount of capacity, where we provide the best value to their overall transportation network. So we were able to improve gross profit per load 7% sequentially. It's the biggest increase that we've had in three years and price was obviously a piece of that. Customers even come to us and they want to make sure that we can service their business profitably.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

And so there was some business that we did lose and walk away from. Some of that we think we've got good opportunity to move back. You know well, Tom, that bid season typically happens in Q4 and Q1 and is implemented throughout Q2. So that's largely behind us and that's what gives us confidence. When you start to look at sequentially on Q3, it's going be roughly flat.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

It could be up a little bit, could be down a little bit. One last point I want to make is just on the customer base and the retention of customer, Tom. When you look at our top customers, take our top 100 for example, from pre acquisition, we're still with 99 of them and we're still at 99 of them at size. So what we want to make sure that we're doing is that we know that we're in a soft rate market. We want to make sure that we're relevant and that we're providing enough value that we are the call whenever the market starts to turn that we receive those spots projects in many bids.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Group]

Right. Okay. That makes sense. And focusing on quality of the book or improvement, that 7% improvement in gross profit per load is obviously a constructive move. Long do you think this kind of focus on quality would affect the volume?

[Tom Wadewitz, Senior Equity Research Analyst at UBS Group]

No, you think like 3Q, 4Q, will you be still talking about this in 1Q next year? Just trying to think about the duration of that impact to the truckload volume year over year.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. I think when you look at year over year for Q3, you're probably talking about similar numbers for what we put up for Q2. But I think the important piece is where you look at where you're going sequentially. And like I said, that's going to be roughly flat. So bid season

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Bid season is implemented and we're already working on next bid season. I spent time over the last couple of weeks with some of our top customers working on what the strategy is for 2026.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Group]

Okay. And is it related to Coyote or this is just kind of broader look across the combined book?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

We stay in a continual set of improvement as a company. That's something that we've done from day one as a company. We did talk about at the time of acquisition that we felt like we had the opportunity to improve gross profit per load and profitability for the overall Coyote book. But that's not exclusive to them. It's we're operating as one company and it's all RxO now.

[Tom Wadewitz, Senior Equity Research Analyst at UBS Group]

Okay. Thank you for the time.

[Operator]

Thank you. And your next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

[Ken Hoexter, Managing Director at Bank of America]

Hey, great. Good morning. Drew, can you talk about the margin characteristics or maybe the operating differences in getting such strong LTL growth compared to truckload? How should we think about the impact on the business there?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. So when you look at the LTL piece, it starts with the relationships that we have on the truckload side, Ken. These are customers who have been with us for a really long time and they're large customers. And they come to us and they say LTL is a small piece of our overall transportation spend. And I'm working with a few of the national players, but I'm having to go into different platforms and I'm having to look for claims, lost shipments, damages, all of those things.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

And they're familiar with our technology, RXO Connect. And so they come in and they say, if we can put everything on RXO Connect and now we can start capitalizing on some of the capacity from the regional players as well. This can be something that gives us better visibility. And for us LTL is going to be a part of our growth story for a long time. We're just getting started.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

I'm sure you remember at the time of spin LTL made up only 10% of our overall volume. It's now over 30%. I want that volume to get up over 50%. We know the stability that that adds to margins. If you look at what comes out in the deck, gross profit per load in that is relatively stable.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

It doesn't move a whole lot. It doesn't have the volatility that truckload does. So it's good stable EBITDA for us as a book of business.

[Ken Hoexter, Managing Director at Bank of America]

And then just a follow-up, right. So given the integration, the merger, can you talk about the synergy details? Where are we now? Jared, you kind of threw in the potential cost savings, I guess, to 50 basis points on your buying. Can you talk about what's left? How should we see that scale going forward?

[Jamie Harris, CFO at RXO]

Hey Ken, it's Jamie. On the synergies, we're still on track with the $70,000,000 we talked about last quarter. In terms of realization, let's call it, annualized $50,000,000 of the $60,000,000 of OpEx has flown through the P and L from a realization standpoint in Q2, a small amount moving into Q3. But as you head into Q1 of next year, that last $10,000,000 of annualized synergy because of the completing the tech integration will be complete. We should see $2,500,000 per quarter flow through the P and L beginning in 2026.

[Jamie Harris, CFO at RXO]

And then that last $10,000,000 of synergies that we talked about, which is CapEx spend this year, you should see that be removed from CapEx spend going into 2026.

[Jared Weisfeld, Chief Strategy Officer at RXO]

And then on hey Ken, it's Jared. On purchased transportation, that was part of the original investment thesis as it relates to acquisition, combining these two organizations approximately last year, dollars 4,000,000,000 of cost of purchase transportation. How do we as an organization procure capacity more effectively? Carrier migration was completed on May 1. And in just a few months, we've seen significant improvement in our ability to buy relative to the market.

[Jared Weisfeld, Chief Strategy Officer at RXO]

We've increased already buy rate favorability incrementally by about 30 to 50 basis points in a period where rates were inflationary. So that yielded significant cost avoidance. When we think about that historical framework that we provided of approximately 100 basis points of incremental improvement relative to buy rate favorability, we feel very confident in that.

[Ken Hoexter, Managing Director at Bank of America]

Great. Thanks for the time guys.

[Operator]

And your next question comes from the line of Stephanie Moore with Jefferies. Please go ahead.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Good morning. Thank you. So hoping you could touch a little bit about what your underlying freight market assumptions are for the third quarter, you know, in particular, maybe your outlook for the automotive sector just given the impact you've seen so far in the first half of year, And then as well any benefits from PT savings and the integrated platform and that contribution to third quarter expectations? Thank you.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Hey, Stephanie, it's Jared. When you think about the underlying assumptions from Q2 to Q3 that's embedded in our outlook, We are continuing to assume that we're operating within a soft freight market. So limited spot opportunities. July as you know is the seasonally one of the seasonally slowest months of the year. And when you think about automotive relates to our business, as Drew mentioned earlier, it was down 28% year over year with headwinds increasing both sequentially and year over year into the second quarter embedded within our third quarter outlook assumes continued automotive headwinds.

[Jared Weisfeld, Chief Strategy Officer at RXO]

We're the largest provider of ground expedite services in North America. So when the market does recover, we will have strong incremental contribution margins in excess of 70% to 80% when the market does recover. So we're positioned very well. As it relates to PT synergies, absolutely we have embedded continued improvement as it relates to our ability to buy. And just to give you a little bit more flavor in terms of from Q2 to Q3, typically brokerage gross margin is down sequentially and typically gross profit per load is down significantly sequentially.

[Jared Weisfeld, Chief Strategy Officer at RXO]

So we're outpacing historical seasonality over the last few years by a pretty wide margin embedded within our Q3 outlook in part due to how well we are procuring transportation.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Thank you. That's helpful. And you know, I guess as we think about normal seasonality, three q to four q, and if we kinda layer in what you just outlined, synergies, you know, PT optimization, the like, maybe you could talk a little bit about your confidence and the ability to continue to outperform seasonality if this environment overall freight environment, you know, continues to be weak. Thanks.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Yep. From from from q three to q four, historically, the combined business is up sequentially, but would caution you that the variability is pretty significant. If you look at over the last few years, there's been a quarter where we've been down sequentially and there's been a quarter where we've been up 100% sequentially. So it really does depend on how peak season shapes up, what whether or not the consumer shows up and what consumer demand looks like. But we do expect Q4 to be up sequentially relative to Q3 in the context of continued improvements we're making in the business with truckload profitability combined with how well we are procuring transportation. That should remain to be a tailwind into Q4.

[Stephanie Moore, SVP - Equity Research at Jefferies]

Thanks everybody.

[Jared Weisfeld, Chief Strategy Officer at RXO]

Thank you.

[Operator]

And your next question comes from the line of Chris Wetherbee with Wells Fargo. Please go ahead.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

Yes. Hey, thanks. Good morning guys. Drew, you were talking about the work you're doing with the customer base on the truckload side, and that's certainly a piece of the year over year declines in volume that we saw in the second quarter. I think a quarter came from the auto business.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

How much of the third of the three quarters that was left, I guess, came from sort of this customer exercise? And where are you with that process? I guess, in other words, do should we expect to see a multi quarter effort to kind of get the book of business, the portfolio in the right place from a profitability perspective? How much more kind of runway do you have that?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. Thanks for the question, Chris. It's largely done because bid season was Q4, Q1 and it was implemented in Q2. So we've said before, we stay in a continual state of improvement. So it's something that we're always working on and it's something that we're always having conversations with our customers.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

I don't know of an organization that could be in front of customers more than what we are. And so it's making sure that we're working through it thoughtfully, strategically and we're adding value for the customers in what we're doing. But when you look at bid season, it's largely done. And we're off and running. And that's why when you look at Q3, volumes will be roughly flat.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

It could be up a little bit, it could be down a little bit, but roughly flat from Q2 to Q3 overall.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

Okay. That's helpful. And then when you think about peak season, maybe if we could zoom out a little bit and get a sense, I guess, there's been some discussion of a pull forward and maybe what we're seeing in July and August is potentially the peak and fourth quarter could be a little bit weaker as a result. If you could offer some thoughts on what you're hearing from your customer base about how busy or not you're going to be as we move through the rest of the year?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. We're hearing different things from different customers. And I don't know that there's a consistent message. It's still too early to call what will happen for peak season. We saw some customers pull volume forward.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

We saw some customers hold volume and that's hitting now, as there starts to be a little bit more clarity on tariffs and where that's landing. So yes, I think that it's still too early to call what happens on peak season. Right now off of what we see, we're confident in our ability to be able to grow EBITDA from Q3 to Q4, but it's too early to call what happens on peak season at this point.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

And just if I could sneak in just sort of a follow-up on that. UPS has got some volume dynamics that they're working through as you go through the rest of the year. How does that influence that sort of outlook for the fourth quarter if it does at all?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. UPS is obviously a peak season customer. We talked about at the time of acquisition of Coyote. We went through a great peak season of giving them phenomenal service last year. We've got a very strong relationship there, one that we look to continue to build on.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Our job is to be able to go in there and service them as they experience peak season. I think it's still too early to call what happens with peak season for them or for anyone else. But happy with where the partnership is. And Chris, if you'll remember, there was volume commitments that came in with the time of acquisition. And right now, we're hitting those volume commitments.

[Chris Wetherbee, Senior Analyst at Wells Fargo]

Perfect. Appreciate the time. Thank you.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Thank you.

[Operator]

And your next question comes from the line of Daniel Imbro with Stephens Inc. Please go ahead.

[Daniel Imbro, Managing Director at Stephens Inc]

Hey, good morning guys. Thanks for taking our questions. You. Drew, maybe I'll start on the Final Mile piece and continues to grow stops, I think high teens. Is any of that due to inorganic growth?

[Daniel Imbro, Managing Director at Stephens Inc]

Or is that all organic? And I guess if it is organic, why do you think you're gaining share in that market? How should we think about that growth into the back half of the year just from an absolute growth standpoint?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

It's all organic, 100% organic. We haven't done a last mile acquisition in many, many years. And so when you think about it, it is all organic. And it starts with our relationships with our existing customers. So when you think about customers who are working with multiple last mile providers, what we've seen over the last couple of years is they've started to reduce the number of carriers that they're working with.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

So this isn't necessarily a market share pickup in the certain markets what we're operating in. What it means is if we're operating in the Southeast market for a customer today and they look to go with one of their current providers that they have strong strategic relationships within another market, we're winning a lot of those markets with multiple existing customers right now. The other piece is off of the Coyote acquisition, there were some large customers that came over from Coyote that was were not doing last mile business with us that started doing last mile business with us very early on after the acquisition. So the cross sell from the acquisition is paying off. And then we've got an outside sales team that is always working the pipeline.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

And so we brought on some new customers in Last Mile as well.

[Daniel Imbro, Managing Director at Stephens Inc]

Great. And then, Jared, maybe focusing a little more on third quarter. You gave some helpful sequential seasonality comments to Stephanie, but maybe stepping back, would you just walk through the $5,000,000 year over year increase in EBITDA for the third quarter? Because I mean, you bought Coyote, brokerage volume is flat. I think Jamie mentioned $50,000,000 of synergies are in the P and L now.

[Daniel Imbro, Managing Director at Stephens Inc]

Truckload gross profit is like up. I'm trying to think what are the offsets as to why maybe on a year over year basis that EBITDA increase isn't maybe larger in the third quarter?

[Jared Weisfeld, Chief Strategy Officer at RXO]

Yes. The biggest delta there, Daniel, is going to be automotive. When you think about the headwinds that we had in the automotive business in the second quarter, they were down automotive volumes were down 28% in our brokerage business. Overall, company wide gross profit dollars were actually down more year over year in the second quarter relative to the first quarter. And I think Jamie said in his prepared remarks more than $10,000,000 We expect those headwinds to persist again into the third quarter.

[Jared Weisfeld, Chief Strategy Officer at RXO]

So that's definitely part of the bridge. The other thing to consider also is that we still have continued synergies that will get rolled out that are not yet fully reflected in the P and L as you think about 2026 with the decommissioning of Bazooka as we finish the tech integration. So that will be another $10,000,000 year over year, which will come in the P and L in 2026. And those going to be the two biggest drivers when you think about the year over year.

[Daniel Imbro, Managing Director at Stephens Inc]

All right. Great. Appreciate the color.

[Operator]

And your next question comes from the line of Ravi Shanker with Morgan Stanley. Please go ahead.

[Ravi Shanker, Managing Director at Morgan Stanley]

Great. Good morning, Jeff.

[Ravi Shanker, Managing Director at Morgan Stanley]

So I was surprised to hear you guys you say that your customers are cautiously optimistic on the environment given some of the tariff in the last week and a half? Are you saying that a settled tariff is what your customers need to unlock the demand side of the equation here rather than the actual tariff level? Or just trying to provide us what we might expect into the broader economic activity like?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Ravi, we got about a quarter of what you said. So I'm not sure if it's our line or yours, I'm going take a stab at what I think you said. If I didn't answer your question, then we can take it in a follow-up. What we are talking about with our customers right now is having clarity on what's going on. When you look at what happened on Liberation Day, you had customers who had already pulled things forward.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

You had customers who had not. You had customers who slowed down on some of what they're shipping, some who stopped completely during that time. And when you start to look at more clarity that has come on some of the tariffs, people have better visibility of how to do planning. There was a lot of chaos early on right around Liberation Day of what should we do and plans were changing every single day as we work with our customers on how they were going to pull inventory into The U. S.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

And now there's more clarity on that. So I think that that's the optimism that Jamie was referencing. So if that did not answer your question, we'll give you a chance to ask it again.

[Ravi Shanker, Managing Director at Morgan Stanley]

No. That's deep and short. I apologize. Hope you can hear me better now. Maybe as a follow-up, how much of a magic wand is AI for what you guys are doing?

[Ravi Shanker, Managing Director at Morgan Stanley]

And is there a natural feeling of productivity in terms of the employees or or transactions per employee? And also, kind of, who area of the path getting there and how do you get there?

[Jared Weisfeld, Chief Strategy Officer at RXO]

Hey, Robbie. It's Jared. When you think about how we're leveraging artificial intelligence in the business, you know, this is something we've been doing for a long time, you know, ten years plus. I'd say specifically, we've been we use AI and machine learning on our pricing algorithms pretty significantly as the algorithms continue to learn itself learn learn from each other. And when you think about the combination of RxO plus Coyote having that larger dataset combined with the operating history of Coyote, we think increases the power of our pricing algorithms.

[Jared Weisfeld, Chief Strategy Officer at RXO]

I would say secondly to your point, when you think about productivity and our ability to go ahead and think about margin expansion from the operating margin line driven by artificial intelligence and what that means to productivity. Over the last two years, productivity is up 45% in terms of loads per person per day. Think about everyone in the organization that's involved with touching a load and what that looks like relative to two years ago. That growth rate actually accelerated versus prior quarter was about 40%. So having the ability to go ahead and drive incremental volume in the network with a growth rate that is nonlinear, right, relative to the headcount growth driving that significant operating margin, we think that we are still in the very early innings with significant expansion opportunities ahead. Ravi, one

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

thing that I would add, I agree with everything that Jared said on being on the early innings of AI and it will continue to help us with employees, with customers and with the network of carriers we partner with. The other thing is, we're a company that wants to stay staffed for growth for the long term through a market cycle. And so we probably do carry some headcount right now knowing of what we can do in the upside of a market. And so that's something that we still operate in a people business that is built off of relationships. That's how we were able to go in and have so many of these conversations, deep conversations, strategic conversations about adding value to our customers.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

But we're staffed for growth right now. Make no mistake about it.

[Ravi Shanker, Managing Director at Morgan Stanley]

Understood. Thanks guys. Sorry about the phone issues.

[Operator]

All right. Thank you. And your next question comes from the line of Scott Group with Wolfe Research. Please go ahead.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Hey, thanks. Good morning. Couple of things. As the LTL volume growth is really accelerating, the gross profit per load has moderated a little bit the last couple of quarters. Just wondering if you had any color there.

[Scott Group, MD & Senior Analyst at Wolfe Research]

And then why do you think you're having such outsized declines in auto volume?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. Scott, this is Earl. I'll take that. I don't think you can walk outside of your office in New York and buy a Snickers bar for how little gross profit per load is down whenever you look at it sequentially. That's the beauty of the LTL business.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

When you look at that chart, it is very, very stable on what it does. Now when you look at length of haul on some of the business that we have onboarded, it is a lower length of haul. So that means your revenue per load comes down. And therefore, the gross profit per load is a little bit lower on those. But it's still a good margin percentage.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

It's highly automated and it's accretive. And on the automotive, I would disagree with the premise of your question. When you look at automotive, we're the largest manager of ground expedite shipments. So when you're managing these ground expedite shipments, it's not a market share question. You own the market.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

You're doing this for the largest OEMs, the largest auto parts providers out there. So when you're managing it, it's the portion that comes over that. And typically, the part that we're managing is the expedite. So it's not the normal truckload. It's not the deviations that happen.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

It's that last part when things fall apart, that's when these companies depend on us.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. And then you made a comment that you're starting to prepare for next year's bid season. I know it's early, but what are you thinking about? Should we be thinking about another year of low to mid single digit pricing increases? Do you think it could be better than that? Just any initial thoughts.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

It's still very, very early, Scott. And like these are preliminary conversations with customers on planning. So I don't want to pin ourselves down on what we're expecting on the truckload market to do on a year over year basis. Right now, we understand that we're still in a soft rate environment.

[Scott Group, MD & Senior Analyst at Wolfe Research]

Okay. All right. Thank you, guys.

[Operator]

And your next question comes from the line of David Sizullo with Barclays. Please go ahead.

[David Zazula, Senior eVTOL Equity Research Analyst & Transportation Associate at Barclays Capital]

Hey, good morning. Thanks for taking the question. You'd mentioned during the prepared remarks you're bringing on profitable last mile growth. Is there any way to talk about the profitability of kind of the existing book to business normal trends and then the incremental profitability of the new business you brought on and how we should expect to compare and monitor going forward?

[Jamie Harris, CFO at RXO]

David, this is Jamie. Yes, so the business we brought on, as Drew said, we're winning new customer relationships. We're also winning some white space and new markets from existing customers. The business that we won year over year, fourth quarter in a row with double digit growth, really came more in the area where we're running business out of a customer facility. That's typically going to have a smaller contribution margin flow through than when we've been Win business and our hubs.

[Jamie Harris, CFO at RXO]

If you think about winning business in one of our hubs, you can think about a 30% to 40% flow through from revenue down to EBITDA. When we run that business out of the customer hub, that's going to be in the mid teens. The profitability, the incremental profitability was in line with what we're expecting. The business is doing well. Customers like our service, And we're really we actually win in a lot of good new markets.

[David Zazula, Senior eVTOL Equity Research Analyst & Transportation Associate at Barclays Capital]

Okay. Roger, so just so I understand the business at the customer facility is a lower capital type spend and, yeah, that is why you have a lower market profile?

[Jamie Harris, CFO at RXO]

Yeah. Probably yes. I'd probably frame it up more in a lower fixed cost type spend because we're operating out of their facilities. Therefore, we don't have our our warehousing cost to that's part of the equation. But that's the primary difference between the flow through.

[David Zazula, Senior eVTOL Equity Research Analyst & Transportation Associate at Barclays Capital]

Got it. And then, Jamie, you mentioned earlier the $100,000,000 in tech spend. How are you measuring the results of that tech spend and kind of evaluating the flow through of what's appropriate to spend going forward?

[Jamie Harris, CFO at RXO]

Yes. So we've got a very robust process internally. We have an internal investment committee, if you will. It's made up of our tech leadership, Drew and myself. Every project that comes through, we're looking at what's the ROIC, what's the strategic value to the customer service, does it give us new capabilities, etcetera, etcetera.

[Jamie Harris, CFO at RXO]

If you take an example, Drew mentioned the 30 to 50 basis points that we've gotten from the integration of the carrier procurement. That's the beginning of what we think is a lot of upside in terms of our purchase trends that took investment dollars to achieve that. But every project that we have in tech, regardless of the line of business to supply to, we're going through this model, strategic value, customer service value, return financial value. And we think we've got a lot of upside in organic investments around our tech spend and it's still ahead of us.

[David Zazula, Senior eVTOL Equity Research Analyst & Transportation Associate at Barclays Capital]

Awesome. Thanks, Jamie.

[Operator]

And your next question comes from the line of Ari Raza with Citigroup. I

[Ari Rosa, Senior Analyst at Citigroup]

wanted to talk about the LTL versus TL market dynamics. I was surprised, Drew, to hear you say that you expect LTL eventually to reach 50% of your load volume or correct me if I got that wrong. But just talk about what the value add is that you're bringing in the LTL market versus the TL market. And given that the TL market is so much bigger than the LTL market, like why would that not continue to just outpace, I guess, the LTL share?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Yes. So it's not an eitheror for us, Ari. We want to be able to do both. And that's again, if you go back and you look at the organic growth just of truckload pre Coyote acquisition for the last five years that included the downturn, that's still up more than 40%. So growing truckload organically is still a part of our story and who we are.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

But LTL has a lot of room to grow. We love the stability that that brings from a profitability perspective to us. And we also the ease of managing it on our RXO Connect platform for our customers it's highly automated. There's not a lot of touch. But I want to be very clear, it is not an eitheror, and we expect to grow both through a cycle.

[Jamie Harris, CFO at RXO]

Hey, let me add one thing to that. From the shipper side, having been on the shipper side a lot of my career, this is an area that's hard to manage. It's often the smallest part of the transportation spend of a shipper. It's an easy piece of business to outsource. It's also been very beneficial to outsource.

[Jamie Harris, CFO at RXO]

And one of the things we provide a shipper is we have the scale on a regional level to pick different LTL providers to provide that shipper that can create even a bigger scale than an individual shipper can get on their own. So there's a lot of kind of operational and financial advantages to move into us, which is one of the reasons why we're winning big books of business at a time.

[Ari Rosa, Senior Analyst at Citigroup]

I guess just a point of clarification. Do you think that you're adding more value for shippers in the LTL market than you are in terms of the service that you're offering in the truckload market? And I don't mean that specific as like a knock on RXO. It's just is there more opportunity to add value to shippers in LTL brokerage than there is in TL brokerage?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

No. Because remember, Ari, these are coming to us because of our truckload relationships and the value that we were adding on the truckload side. If we were not adding value on the truckload side, we would not be getting these opportunities within LTL. That's how they started. So I mean, again, through a cycle, we will organically grow both truckload and LTL above the market.

[Ari Rosa, Senior Analyst at Citigroup]

Okay, understood. And then just for my second question, I wanted to ask about expectations for the buyback. I noticed in the slides you mentioned the buyback authorization. I know it hasn't really been tapped, but just wanted to get your thoughts on is that a good use of cash right now given the cash conversion that you're seeing and kind of the expectations to continue to generate cash and the level of interest internally on deploying that towards a buyback?

[Jamie Harris, CFO at RXO]

Yes. So the buyback, we've had it in place a couple of years. It has been since day one of kind of one of our key pillars of capital allocation. First and foremost, organic growth, strategic M and A as it becomes available and we think it's a good strategic move and then of course the buyback capital allocation to kind of the return to shareholder. As we think about the buyback, we certainly think there's good value in our stock.

[Jamie Harris, CFO at RXO]

We're always looking at that relative to the market conditions overall. And our balance sheet is something that we pay a lot of attention to. Your point had a really strong cash flow quarter. We expect another strong cash flow quarter in Q3. We think about that balance sheet, though, if you go all the way back to our time and spend, we talked about a leverage ratio of one to two times.

[Jamie Harris, CFO at RXO]

We're at that 2.1 times. We feel good about that right now in the market cycle. So that buyback decision is always going to be taken in context of how where are we with our balance sheet. And so it's something we're watching very closely. But those three pillars are our key allocation priorities and they continue to be where we're focused.

[Ari Rosa, Senior Analyst at Citigroup]

Okay. Thank you for the time.

[Operator]

And your next question comes from the line of Jason Seidl with H. D. Cowen. Please go ahead.

[Jason Seidl, Managing Director at TD Cowen]

Thank you, operator. Drew, Jamie, Jared, morning guys. Wanted to flip back a little bit to sort of your gross profit per load commentary. How much of the improvement that you saw on the truckload side in 2Q and then your forecasted improvement is due to sort of your carrier migration and your unified pricing dataset that we saw move over earlier in 2Q?

[Jamie Harris, CFO at RXO]

Yes. I'd say it's a combination of two things, Jason. You've got the pricing strategy that we've talked about. You've seen that begin to kick in. You're also seeing the cost of purchase trends.

[Jamie Harris, CFO at RXO]

We'll quantify each of those individuals. Think Jared made this point earlier. If you look at back at the history, Q2 to Q3 as an example, we typically would see gross profit per load being down. And materially, we could see gross margin percentage being As we go from Q2 to Q3, we see both of those up, gross profit per load up slightly. We see kind of a stable gross margin percentage.

[Jamie Harris, CFO at RXO]

Both of those are different than we've seen in the last two or three years. So we believe that you're seeing both pricing strategy and our procuring transportation better begin to kick into the P and L.

[Jason Seidl, Managing Director at TD Cowen]

That makes sense. For my follow-up, wanted to hop over to Managed Trans since we haven't talked much about it. You guys mentioned that the pipeline continues to expand a bit. Maybe you can dive a little bit deeper in there and talk about that pipeline and where you see the opportunities coming from?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

For Managed Trans, the pipeline is up sequentially. Right now, we've got a bunch of deals that we think are making decisions over the next six months. With Managed Trans, typically they are longer sales cycles. So sometimes those do get pushed out a little bit. For us right now, when you look at how we built Managed Trans, a lot of it was built off of automotive, oil and gas and industrial manufacturing. One of the things that we've done a really good job at over the last couple of years is building a pipeline that is stronger on the food and beverage side, stronger on the CPG side, stronger on the technology and electronics side. So building diversification in the verticals that we're serving in the managed trans is something that we're focused on as we go forward.

[Jason Seidl, Managing Director at TD Cowen]

Appreciate the color. Appreciate the time as always guys.

[Operator]

Thank you. And your last question comes from the line of Jordan Alliger with Goldman Sachs. Please go ahead.

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

Yes, hi. I know you generally freight conditions remain soft. But I'm just sort of curious, are there pockets that have developed in the spot market at all where there's signs of life? And then sort of following on that, to get the true inflection in gross profit per load, let's say, do you need that spot market to be favorable? Thanks.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

We do not need the spot market to be favorable as far in terms of how well we buy transportation versus market. That's what you saw as one organization now buying 30 to 50 basis points better than what we were doing previously in the acquisition. So we do not need it for that. To see the true inflection, of course, you need spot loads. You look at what spots do is typically those are higher gross profit per load.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

And you see that around whenever tender rejections get up and stay over that 10% mark. For us, we've got some things that are idiosyncratic in our favor as far as how well we can perform in terms of gross profit per load. But the market if the market influx, it impacts the whole industry. And you've seen what we can do there before whenever we posted double digit EBITDA margins during that time period.

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

And just in the spot market in general, it's you would say it's fairly nonexistent?

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

I think when you look at large enterprise customers, routing guide compliance is holding up very well. If you think about the SMB market, that is largely spot. Those aren't typically contract moves. They're spots on a one off basis. But routing guides for large enterprise customers is holding up right now.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

And so for us, our job is to go in there and make sure that we are leveraging where we have the strongest capacity, where we can provide the best service and where we can make a fair margin at.

[Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs]

Okay. Thank you.

[Operator]

Thank you. And that is all the time we have for questions. I would like to turn it back to Mr. Wilkerson for closing remarks.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Thank you, Ludie. RXO delivered strong results in the second quarter. We're starting to see the benefits from our Unified Carrier operations and we're purchasing transportation more effectively than we did before the integration with a lot of runway for future improvements. Despite tighter market conditions, we increased truckload gross profit per load by 7% sequentially, an impressive result. Brokerage volume grew by 1% year over year and in last mile we grew stops by double digits for the fourth consecutive quarter.

[Drew Wilkerson, Chairman, CEO & Director at RXO Inc]

Our cash performance was strong with 58% adjusted free cash flow conversion. We also added cash to our balance sheet. We remain focused on taking profitable market share and we're well positioned to deliver increased earnings power and free cash flow over the long term and across market cycles. Thank you all for joining today.

[Operator]

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Drew Wilkerson, Chairman, CEO & Director
• Jamie Harris, CFO
• Jared Weisfeld, Chief Strategy Officer

Analysts

• Tom Wadewitz, Senior Equity Research Analyst at UBS Group
• Ken Hoexter, Managing Director at Bank of America
• Stephanie Moore, SVP - Equity Research at Jefferies
• Chris Wetherbee, Senior Analyst at Wells Fargo
• Daniel Imbro, Managing Director at Stephens Inc
• Ravi Shanker, Managing Director at Morgan Stanley
• Scott Group, MD & Senior Analyst at Wolfe Research
• David Zazula, Senior eVTOL Equity Research Analyst & Transportation Associate at Barclays Capital
• Ari Rosa, Senior Analyst at Citigroup
• Jason Seidl, Managing Director at TD Cowen
• Jordan Alliger, VP & Equity Research Analyst at Goldman Sachs