- Revenue: $930 million, down from $963 million in Q2 2023.
- Gross Margin: 19%, up 160 basis points sequentially and 40 basis points year-over-year.
- Adjusted EBITDA: $28 million, compared to $38 million in Q2 2023.
- Adjusted EBITDA Margin: 3%, up 140 basis points sequentially and down 90 basis points year-over-year.
- Adjusted Earnings Per Share (EPS): $0.03.
- Brokerage Revenue: $543 million, down 4% sequentially and 3% year-over-year.
- Brokerage Gross Margin: 14.7%, towards the high end of guidance.
- Complementary Services Revenue: $421 million, up 10% sequentially and down 4% year-over-year.
- Last Mile Stops Growth: 7% year-over-year.
- Complementary Services Gross Margin: 23%, up 240 basis points sequentially and 170 basis points year-over-year.
- Adjusted Free Cash Flow: Negative $9 million for the quarter.
- Cash on Balance Sheet: $7 million, flat with the prior quarter.
- Committed Liquidity: Approximately $600 million at the end of the quarter.
- Gross Leverage: 3.3 times trailing 12 months adjusted EBITDA.
- Net Leverage: 3.2 times.
- Annualized Cost Reductions: Expected to be approximately $35 million to $40 million.
- Capital Expenditures: Expected between $40 million and $50 million for the full year.
- Depreciation Expense: Expected between $56 million and $58 million for the full year.
- Amortization of Intangibles: Approximately $12 million for the full year.
- Stock-Based Compensation Expense: Expected between $24 million and $26 million for the full year.
- Net Interest Expense: Expected between $31 million and $33 million for the full year.
- Adjusted Effective Tax Rate: Approximately 30% for the full year.
- Average Diluted Share Count: Approximately 120 million shares for the full year.
Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- RXO Inc (RXO, Financial) delivered adjusted EBITDA of $28 million, meeting the high end of their guidance range.
- Brokerage volume grew by 4%, with a significant 40% increase in less-than-truckload (LTL) volume.
- The company has a strong sales pipeline in managed transportation, with over $1.6 billion in potential new business.
- Last mile stops grew by 7% year-over-year, the fastest rate in nearly two years.
- RXO Inc (RXO) expects sequential and year-over-year adjusted EBITDA growth in the third quarter.
Negative Points
- Full truckload volume was down 2% year-over-year, reflecting a tough comparison to the previous year.
- The overall freight market remains soft, with mixed demand indicators and continued capacity exits.
- Adjusted EBITDA margin was 3%, down 90 basis points year-over-year.
- Adjusted free cash flow was negative $9 million for the second quarter.
- Brokerage gross margin declined by 70 basis points year-over-year, despite being at the high end of guidance.
Q & A Highlights
Q: Understanding you expect volumes still down year-over-year in third quarter more so relative than it was second quarter. Can you speak to how you anticipate seasonal build, sequentially, second quarter to third quarter to fourth quarter maybe?
A: We expect volume to move higher throughout the quarter. While full truckload volume is down high single-digit to low double-digit year-over-year, over the last three years, our full truckload contract volume is up more than 30%. We expect volumes to be up slightly on a sequential basis and full truckload to be about flat sequentially.
Q: On revenue per load, you've had an improving decline in revenue per load year-over-year, four consecutive quarters now. When do you foresee potential inflection there?
A: In June, our full truckload revenue per load inflected positively, slightly ahead of our expectation of flat. The third quarter will mark our fifth consecutive quarter of easing. We do have a mix shift with LTL increasing as a percentage of the mix, but full truckload did inflect positive in June.
Q: Can you talk about the drivers of the sequential EBITDA improvement Q2 to Q3?
A: It's really a cost story. We see kind of flattish over the operational side, but some of the cost initiatives that we've talked about previously are beginning to flow through the P&L in full. We see the leverage coming down 10 to 20 basis points in Q3.
Q: Any more color or clarity on financing for the Coyote deal?
A: We have committed financing in place for the deal in the form of a bridge. We are in the process of getting all of our financing pulled together. We expect the financing to be such that our leverage is at least credit neutral.
Q: Can you elaborate a bit on your bid season pricing strategy?
A: We put rates in place that we felt we could service through a bid. We communicated that to our customers, and it was received well. We took a position that the market would inflect at some point before the middle of next year. The margins have been strong and have put us in a position of strength with our customers.
Q: What are customers telling you now about project loads?
A: Project loads are ongoing and driven by market conditions. You typically see project loads increase as tender rejections increase. We have seen some spot loads come through, but nothing that indicates a market inflection or turning.
Q: How should we think about headcount going forward as we look into 2025?
A: Headcount is in a good spot as we head into the acquisition of Coyote. We like to be staffed for growth at around 15%. We feel like we've got some areas to invest in and some areas that we're going to hold flat on.
Q: Can you talk about the assumed backdrops at both ends of the gross margin target range of 13% to 15%?
A: The biggest factor will be overall freight market conditions in terms of our cost of PT. If we're able to buy a little bit better, you'll probably see it towards the higher end. If the market tightens a little bit more, you'll probably see it towards the lower end.
Q: How do you think about the preparation ahead of the integration of Coyote?
A: There's integration planning happening on a weekly basis, covering back office, customers, carriers, operational initiatives, and more. Everything is progressing nicely and on track.
Q: Can you provide more color on the financing of Coyote, specifically with respect to anchor investors?
A: We have committed financing in the form of a bridge from the banking community and our two primary investors, MSN and Orbis. We don't intend to use the bridge and expect the permanent financing to be at least credit neutral.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
