RXO, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q and other written reports and oral statements we make from time to time contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements. In some cases, forward-looking statements can be identified by the use of forward-looking terms such as “anticipate,” “estimate,” “believe,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “should,” “will,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” “trajectory” or the negative of these terms or other comparable terms. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements are based on certain assumptions and analyses made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause or contribute to a material difference include those discussed below and the risks discussed in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). All forward-looking statements set forth in this Quarterly Report are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence to or effects on the Company or its business or operations. The following discussion should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report, and with the audited consolidated financial statements and related notes thereto included in the 2024 Annual Report on Form 10-K. Forward-looking statements set forth in this Quarterly Report speak only as of the date hereof, and we do not undertake any obligation to update forward-looking statements to reflect subsequent events or circumstances, changes in expectations or the occurrence of unanticipated events, except to the extent required by law. Business Overview RXO, Inc. (“RXO”, the “Company” or “we”) is a brokered transportation platform defined by cutting-edge technology and an asset-light business model. The largest component is our core truck brokerage business. Our operations also include asset-light managed transportation and last mile services, which complement our truck brokerage business. Our truck brokerage business has a history of generating robust free cash flow conversion and a high return on invested capital. Shippers create demand for our service, and we place their freight with qualified independent carriers using our technology. We price our service on either a contract or a spot basis. Notable factors that enable volume growth in our business include our ability to access massive truckload capacity for shippers through our carrier relationships; our proprietary, cutting-edge technology; our strong management expertise; and favorable long-term industry tailwinds. We provide our customers with highly efficient access to capacity through our digital brokerage technology. This proprietary platform is a major differentiator for our truck brokerage business, and together with our pricing technology, we believe it can unlock incremental profitable growth. Our complementary services for managed transportation and last mile also utilize our digital brokerage technology. 17 Table of Contents Our managed transportation service provides asset-light solutions for shippers who outsource their freight transportation to gain reliability, visibility and cost savings. The service uses proprietary technology to enhance our revenue synergy, with cross-selling to truck brokerage and last mile. Our managed transportation offering includes bespoke load planning and procurement, complex solutions tailored to specific challenges, performance monitoring, engineering and data analytics, among other services. Our control tower solution leverages the expertise of a dedicated team focused on continuous improvement, and digital, door-to-door visibility into order status and freight in transit. In addition, we offer technology-enabled managed expedite services that automate transportation procurement for time-critical freight moved by road and air charter carriers. We also offer freight forwarding services, including facilitation of ocean and air transportation, customs brokerage and additional domestic services. Our last mile offering is an asset-light service that facilitates consumer deliveries performed by highly qualified third-party contractors. We are the largest provider of outsourced last mile transportation for heavy goods in the U.S., positioned within 125 miles of the vast majority of the U.S. population and serving a customer base of omnichannel and e-commerce retailers and direct-to-consumer manufacturers. The Coyote Acquisition On September 16, 2024 (the “acquisition date”), the Company acquired the technology-driven, asset-light based truckload freight brokerage services business, as well as certain assets used to conduct haulage, dedicated transport and warehousing services in the United Kingdom (collectively, “Coyote”), from United Parcel Service of America, Inc. (“UPS”) and certain subsidiaries of UPS. We acquired Coyote for $1.038 billion in cash, subject to certain additional customary adjustments. The purchase price was subsequently increased by $10 million for working capital and other post-closing adjustments, which was paid in the first quarter of 2025. Refer to Note 3—Acquisition to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for disclosures regarding the Company’s acquisition of Coyote. Impact of Inflation Economic inflation can have a negative impact on our operating costs, and any economic recession could depress activity levels and adversely affect our results of operations. A prolonged period of inflation could cause interest rates, fuel, wages and other costs to continue to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases. Generally, inflationary increases in labor and operating costs related to our operations have historically been offset through price increases. However, the pricing environment generally becomes more competitive during economic downturns, which may, as it has in the past, affect our ability to obtain price increases from customers both during and following such periods. Basis of Presentation The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to the rules of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”). The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the 2024 Form 10-K. The Company’s condensed consolidated financial statements include the accounts of RXO, Inc. and its majority-owned subsidiaries. All intercompany accounts and transactions have been eliminated. In management’s opinion, the condensed consolidated financial statements reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of financial condition, results of operations and cash flows for the interim periods presented. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025. Refer to Note 2—Basis of Presentation and Significant Accounting Policies for additional details regarding the basis of presentation used for the Company’s condensed consolidated financial statements. 18 Table of Contents Cost of transportation and services (exclusive of depreciation and amortization) primarily includes the cost of providing or procuring freight transportation for RXO customers. Direct operating expenses (exclusive of depreciation and amortization) includes both fixed and variable expenses and consists mainly of personnel costs; facility and equipment expenses, such as rent, utilities, equipment maintenance and repair; costs of materials and supplies; information technology expenses; and gains and losses on sales of property and equipment. Sales, general and administrative expense (“SG&A”) primarily consists of salaries and commissions for the sales function; salary and benefit costs for executive and certain administration functions; third-party professional fees; facility costs; bad debt expense; and legal costs. RXO has one reportable segment. Results of Operations Three Months Ended September 30, Percentage of Revenue (In millions) 2025 2024 2025 2024 Revenue $ 1,421 $ 1,040 100.0 % 100.0 % Cost of transportation and services (exclusive of depreciation and amortization) 1,137 809 80.0 % 77.8 % Direct operating expense (exclusive of depreciation and amortization) 48 49 3.4 % 4.7 % Sales, general and administrative expense 208 149 14.6 % 14.3 % Depreciation and amortization expense 26 21 1.8 % 2.0 % Transaction and integration costs 5 30 0.4 % 2.9 % Restructuring costs 4 2 0.3 % 0.2 % Operating loss $ (7) $ (20) (0.5) % (1.9) % Other expense (income) (1) 216 (0.1) % 20.8 % Interest expense, net 9 6 0.6 % 0.6 % Loss before income taxes $ (15) $ (242) (1.1) % (23.3) % Income tax provision (benefit) (1) 1 (0.1) % 0.1 % Net loss $ (14) $ (243) (1.0) % (23.4) % Three Months Ended September 30, 2025 Compared with Three Months Ended September 30, 2024 Revenue increased by 36.6% to $1.4 billion in the third quarter of 2025, compared with $1.0 billion for the same quarter in 2024. The year-over-year increase in revenue in the third quarter of 2025 was driven by (i) a $384 million increase in truck brokerage revenue, primarily as a result of the Coyote acquisition and (ii) a $37 million increase in last mile revenue, primarily as a result of a 12% increase in volume. This was partially offset by a $14 million decrease in revenue in our managed transportation business, driven primarily by a decrease in expedite automotive volume. Cost of transportation and services (exclusive of depreciation and amortization) in the third quarter of 2025 was $1.1 billion, or 80.0% of revenue, compared with $809 million, or 77.8% of revenue in the same quarter in 2024. The $328 million increase is primarily attributable to a full quarter of Coyote activity in the third quarter of 2025. The year-over-year increase as a percentage of revenue during the third quarter of 2025 was driven primarily by (i) a 0.4 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue as the market tightened during the third quarter of 2025, with capacity rapidly exiting in certain regions driven primarily by regulatory changes and enforcement, which caused buy rates to increase faster than our contractual sell rates and (ii) a 2.2 percentage point increase in last mile cost of transportation and services as a percentage of revenue as a result of freight mix changes. 19 Table of Contents Direct operating expense (exclusive of depreciation and amortization) of $48 million in the third quarter of 2025 decreased $1 million, or 2.0%, from $49 million in the same quarter in 2024. As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 3.4% in the third quarter of 2025 compared with 4.7% in the same quarter in 2024 driven primarily by cost reduction initiatives and improved leverage as a result of increased scale due to the Coyote acquisition. SG&A of $208 million in the third quarter of 2025 increased $59 million, or 39.6%, from $149 million in the third quarter of 2024, primarily attributable to a full quarter of Coyote activity in the third quarter of 2025. As a percentage of revenue, SG&A increased to 14.6% in the third quarter of 2025 compared with 14.3% for the same quarter in 2024 driven primarily by an increase in purchased services and legal expense between periods. Depreciation and amortization expense for the third quarter of 2025 was $26 million, compared with $21 million for the same quarter in 2024. Depreciation and amortization expense for the third quarter of 2025 included an increase of $7 million attributable to a full quarter of Coyote activity in the third quarter of 2025. Transaction and integration costs for the third quarter of 2025 was $5 million, compared with $30 million for the same quarter in 2024. Transaction and integration costs for the third quarter of 2025 and 2024 included $4 million and $29 million, respectively, attributable to the Coyote acquisition. Restructuring costs for the third quarter of 2025 and 2024 were $4 million and $2 million, respectively, and primarily comprised severance costs and operating lease impairment costs. Other expense for the third quarter of 2024 included a one-time charge of $216 million representing a deemed non-pro rata distribution in connection with the private placement common stock issuance completed in August 2024. Our effective income tax rates were 9.2% and (0.4)% for the third quarter of 2025 and 2024, respectively. The effective tax rates for the third quarter of 2025 and 2024 were calculated using the discrete method. Our effective tax rate for the third quarter of 2025 differs from the U.S. corporate income tax rate of 21% primarily due to the effect of nondeductible expenses when experiencing a pre-tax loss. Our effective tax rate for the third quarter of 2024 differs from the U.S. corporate income tax rate of 21% primarily due to the effect of large non-deductible tax items associated with the Coyote acquisition and related common stock issuances. Nine Months Ended September 30, Percentage of Revenue (In millions) 2025 2024 2025 2024 Revenue $ 4,273 $ 2,883 100.0 % 100.0 % Cost of transportation and services (exclusive of depreciation and amortization) 3,408 2,208 79.8 % 76.6 % Direct operating expense (exclusive of depreciation and amortization) 143 152 3.3 % 5.3 % Sales, general and administrative expense 632 448 14.8 % 15.5 % Depreciation and amortization expense 88 54 2.1 % 1.9 % Transaction and integration costs 18 38 0.4 % 1.3 % Restructuring costs 21 15 0.5 % 0.5 % Operating loss $ (37) $ (32) (0.9) % (1.1) % Other expense 1 217 — % 7.5 % Interest expense, net 26 22 0.6 % 0.8 % Loss before income taxes $ (64) $ (271) (1.5) % (9.4) % Income tax benefit (10) (6) (0.2) % (0.2) % Net loss $ (54) $ (265) (1.3) % (9.2) % 20 Table of Contents Nine Months Ended September 30, 2025 Compared with Nine Months Ended September 30, 2024 Revenue increased by 48.2% to $4.3 billion in the first nine months of 2025, compared with $2.9 billion for the same period in 2024. The year-over-year increase in revenue in the first nine months of 2025 was driven by (i) a $1.4 billion increase in truck brokerage revenue, primarily as a result of the Coyote acquisition and (ii) a $133 million increase in last mile revenue, primarily as a result of an 18% increase in volume. This was partially offset by a $43 million decrease in revenue in our managed transportation business, driven primarily by a decrease in expedite automotive volume. Cost of transportation and services (exclusive of depreciation and amortization) in the first nine months of 2025 was $3.4 billion, or 79.8% of revenue, compared with $2.2 billion, or 76.6% of revenue in the same period in 2024. The $1.2 billion increase is primarily attributable to a full nine months of Coyote activity in 2025. The year-over-year increase as a percentage of revenue in the first nine months of 2025 was driven primarily by (i) a 0.5 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue, as lower customer freight rates were not fully offset by corresponding reductions in cost of purchased transportation during the current year and (ii) a 2.4 percentage point increase in last mile cost of transportation and services as a percentage of revenue as a result of freight mix changes. Direct operating expense (exclusive of depreciation and amortization) of $143 million in the first nine months of 2025 decreased $9 million, or 5.9%, from $152 million in the same period in 2024. As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 3.3% in the first nine months of 2025 compared with 5.3% in the same period of 2024 driven primarily by cost reduction initiatives and improved leverage as a result of increased scale due to the Coyote acquisition. SG&A of $632 million in the first nine months of 2025 increased $184 million, or 41.1%, from $448 million in the same period in 2024, primarily attributable to a full nine months of Coyote activity in 2025. As a percentage of revenue, SG&A decreased to 14.8% in the first nine months of 2025 compared with 15.5% for the same period in 2024 driven primarily by improved leverage as a result of increased scale due to the Coyote acquisition, as well as cost savings from restructuring actions. Depreciation and amortization expense for the first nine months of 2025 was $88 million, compared with $54 million for the same period in 2024. Depreciation and amortization expense for the first nine months of 2025 included an increase of $33 million attributable to a full nine months of Coyote activity in 2025. Transaction and integration costs for the first nine months of 2025 and 2024 were $18 million and $38 million, respectively. Transaction and integration costs for the first nine months of 2025 and 2024 included $15 million and $35 million, respectively, attributable to the Coyote acquisition. Restructuring costs for the first nine months of 2025 and 2024 were $21 million and $15 million, respectively, and primarily comprised severance costs and operating lease impairment costs. Other expense for the first nine months of 2024 included a one-time charge of $216 million representing a deemed non-pro rata distribution in connection with the private placement common stock issuance completed in August 2024. Our effective income tax rates were 16.0% and 2.2% for the first nine months of 2025 and 2024, respectively. The effective tax rates for the first nine months of 2025 and 2024 were calculated using the discrete method. Our effective tax rate for the first nine months of 2025 differs from the U.S. corporate income tax rate of 21% primarily due to the effect of nondeductible expenses when experiencing a pre-tax loss. Our effective tax rate for the first nine months of 2024 differs from the U.S. corporate income tax rate of 21% primarily due to the effect of large non-deductible tax items associated with the Coyote acquisition and related common stock issuances. 21 Table of Contents Liquidity and Capital Resources Overview Our ability to fund our operations and anticipated capital needs are reliant upon the generation of cash from operations, supplemented as necessary by utilization of our revolving credit facility. Our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures, repayment of borrowings, share repurchases and strategic business development transactions. The timing and magnitude of our growth and working capital needs can vary and may positively or negatively impact our cash flows. We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources. We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months and thereafter, for the foreseeable future. Capital Expenditures Our 2025 capital expenditures include capital associated with strategic investments in technology, equipment and real estate. The level and the timing of the Company’s capital expenditures within these categories can vary as a result of a variety of factors outside of our control, such as the timing of new contracts and availability of labor and equipment. We believe that we have significant discretion over the amount and timing of our capital expenditures as we are not subject to any agreement that would require significant capital expenditures on a designated schedule or upon the occurrence of designated events. Debt and Financing Arrangements We were in compliance with all covenants and other provisions of our outstanding debt and financing arrangements as of September 30, 2025. Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations. Refer to Note 7—Debt to our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for disclosures regarding the Company’s debt and financing arrangements as of September 30, 2025. As of September 30, 2025, the Company had $565 million committed under the Revolver, net of outstanding borrowings. As of September 30, 2025, the Company’s available borrowing capacity under the Revolver, after giving effect to the financial covenants described above, was $383 million. Financial Condition Our asset and liability balances are summarized as follows: (In millions) September 30, 2025 December 31, 2024 $ Change % Change Total current assets $ 1,201 $ 1,339 $ (138) (10.3) % Total long-term assets 2,000 2,075 (75) (3.6) % Total current liabilities 907 1,065 (158) (14.8) % Total long-term liabilities 714 737 (23) (3.1) % Total assets decreased by $213 million from December 31, 2024 to September 30, 2025, primarily due to (i) a $123 million decrease in accounts receivable as a result of a decrease in revenue in the third quarter of 2025 compared to the fourth quarter of 2024, (ii) a $36 million decrease in identifiable intangible assets as a result of amortization and (iii) a $22 million decrease in operating lease assets as a result of amortization. Total liabilities decreased by $181 million from December 31, 2024 to September 30, 2025, primarily due to (i) a decrease in third-party transportation costs in the third quarter of 2025 compared to the fourth quarter of 2024 and (ii) a $17 million decrease in short-term and long-term operating lease liabilities as a result of amortization. These decreases were partially offset by a $36 million increase in long-term debt and obligations under finance leases. 22 Table of Contents Cash Flow Activity Our cash flows from operating, investing and financing activities are summarized as follows: Nine Months Ended September 30, (In millions) 2025 2024 $ Change Net cash provided by (used in) operating activities $ 44 $ (5) $ 49 Net cash used in investing activities (56) (1,052) 996 Net cash provided by financing activities 1 1,107 (1,106) Effect of exchange rates on cash, cash equivalents and restricted cash 2 — 2 Net increase (decrease) in cash, cash equivalents and restricted cash $ (9) $ 50 $ (59) Net cash provided by operating activities for the first nine months of 2025 was $44 million compared with $5 million used in the same period in 2024. The increase in net cash provided by operating activities was primarily due to higher income and working capital. Net cash used in investing activities for the first nine months of 2025 was $56 million compared with $1.1 billion in the same period in 2024. The primary uses of cash in the first nine months of 2025 were (i) $43 million for purchases of property and equipment and (ii) $10 million paid related to the Coyote acquisition for working capital and post-closing adjustments. The primary uses of cash in the first nine months of 2024 were (i) $1.0 billion for the acquisition of Coyote, net of cash acquired and (ii) $33 million for purchases of property and equipment. The increase in purchases of property and equipment was driven primarily by strategic real estate investments in 2025. Net cash provided by financing activities for the first nine months of 2025 was $1 million compared with $1.1 billion in the same period in 2024. The primary source of cash in the first nine months of 2025 was $33 million in net proceeds from borrowings on revolving credit facilities, partially offset by $20 million in payments for tax withholdings primarily attributable to the vesting of stock compensation awards held by non-RXO employees at the spin which are now substantially complete. The primary source of cash in the first nine months of 2024 was $1.1 billion in net proceeds from the issuance of common stock used to fund the acquisition of Coyote. Critical Accounting Policies Our significant accounting policies, which include management’s most subjective and complex estimates and judgments, are included in Note 2—Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements for the year ended December 31, 2024 included in the 2024 Form 10-K. A discussion of accounting estimates, considered critical because of the potential for a significant impact on the financial statements due to the inherent uncertainty in such estimates, are disclosed in the Critical Accounting Policies and Estimates section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the 2024 Form 10-K. There have been no significant changes in the Company’s critical accounting estimates since December 31, 2024.