RXO (RXO) 16th Annual Wells Fargo Industrials & Materials Conference summary

Market environment and capacity trends

• Significant supply is exiting the truckload market, with regulatory changes accelerating this trend, especially among smaller brokers and non-domiciled CDL holders.

• Regulatory actions, including new laws and Supreme Court rulings, are tightening both asset and brokerage capacity, with about 10% of brokers exiting annually in recent years.

• Spot rates have surged, with industry-wide spot rates up 40% year-over-year and tender rejections nearing 18%, despite muted demand.

• Shippers are consolidating relationships, favoring larger, trusted brokers with robust vetting and safety processes.

• Owner-operators may increasingly join mid-sized fleets, driving further consolidation among carriers.

Demand dynamics and business performance

• Demand remains soft, below 2019 levels, with homebuilding and retail still subdued, but industrial and automotive sectors showing some improvement.

• AI data centers and technology are emerging as fast-growing verticals, contributing to new business wins and expanding managed transportation volumes.

• Volume performance is expected to resume around mid-year, with recent results outperforming broader market indices.

• Spot activity is increasing as a share of truckload volume, rising from 28% in Q4 to 35% in May, driving higher gross profit per load.

• Gross profit per load grew 9% sequentially in Q1, with expectations for further improvement in Q2, supported by strong spot execution.

Financial outlook and operational strategy

• Adjusted EBITDA guidance for Q2 is $27–$37 million, with gross profit per load as the key variable; strong execution could allow outperformance versus typical seasonality.

• Last Mile productivity is expected to improve in Q2 after weather-impacted Q1, and managed transportation is onboarding significant new business.

• Seasonality typically leads to a Q3 step back, but ongoing market tightness and new business could offset this.

• Fuel costs are largely a pass-through, impacting gross margin percentage optically but not gross profit per load.

• Insurance costs are manageable due to scale and strong safety ratings, with premiums expected to remain competitive.