RXO Reports Negative Earnings in Soft Q3 Market
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Freight brokerage company RXO reported that its third-quarter bottom line was affected by a series of one-time costs, as the company’s leader said he was pleased with how his company is navigating the challenging environment.
The Charlotte, N.C.-based asset-light company on Nov. 7 posted an as-reported net loss of $1 million, or negative 1 cent a diluted share, for the three months ending Sept. 30. That compared with net income of $13 million, or 11 cents, during the same time the previous year. Revenue decreased by 14.2% to $976 million from $1.14 billion.
The Q3 net loss included $5 million in transaction, integration, restructuring and other costs. RXO exercised a feature under its revolving credit agreement that increased total commitments from $500 million to $600 million in early November. The company simultaneously repaid all outstanding obligations under its term loan credit agreement. RXO said these transactions have no impact on its net debt and liquidity and are expected to save the company more than $1 million per year in pretax interest expense.
On an adjusted basis, RXO posted Q3 net income of $6 million, or 5 cents per diluted share, compared with $39 million a year ago.
“I’m pleased with RXO’s performance in the third quarter in what was and continues to be a soft freight market,” RXO CEO Drew Wilkerson said during a call with investors. “We’ve seen this part of the freight cycle before and know exactly what actions we need to take to fuel our continued growth and set us up for long-term success.”
Wilkerson noted that during the third quarter the company started seeing accelerated brokerage market share gains. He also pointed out that, at the same time, the company maintained a strong brokerage gross margins, with those volumes growing 18% year-over-year.
“Total volume, quarterly loads per day and monthly loads per day during the month of September all set new records,” Wilkerson said. “All major brokerage verticals grew on a year-over-year basis, and loads per day grew every month as the quarter progressed. The most important driver of that growth was contractual volume, which grew 30% year-over-year, faster than the 19% year-over-year growth we achieved last quarter.”
He added that securing contractual volume positions the company to win more spot volume and project loads when the market inflects. “We expect to grow brokerage volumes again in the fourth quarter on a year-over-year basis,” Wilkerson said.
“Our market share gains continue to be profitable,” Wilkerson said. “We leveraged our cutting-edge, AI-enabled technology to improve our buy rates and our sell rates. The year-over-year decline in revenue per load in the third quarter eased when compared to the revenue-per-load decline we saw in the second quarter.”
RXO has focused on developing its technology capabilities. The earnings report noted that 97% of brokerage loads were created or covered digitally during the quarter, compared with 81% during the year-ago period. The report also noted that the seven-day carrier retention rate was 77%, compared with 75% last year.
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JPMorgan Chase & Co. analyst Brian Ossenbeck in a research report noted RXO’s focus on profitable growth. “The company provided additional details on the monthly gross margin progression, which improved throughout the quarter and into October, off the low in July,” he said.
The RXO truck brokerage segment reported that revenue decreased 13.8% to $591 million from $686 million during the same time last year. Gross margins for the segment fell 31.5% to $89 million from $130 million. The brokerage business grew volume 18% year-over-year during the quarter. Contract volume increased by 30% year-over-year because of sales pipeline growth. Full-truckload brokerage volume increased 13% year-over-year, while less-than-truckload volume increased 55%.
“Brokerage gross margin was strong at 15.1% in the quarter,” Wilkerson said. “We also saw momentum in our complementary services. We achieved another quarter of synergy load growth in managed transportation and secured additional new business wins that will onboard in 2024. Within last mile, we continue to take action to improve our profitability.”
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Complementary services segment revenue decreased 14% to $419 million from $487 million. Gross margins for the segment fell 9.7% to $84 million from $93 million. The report highlighted that loads provided by the managed transportation business to its brokerage business increased both year-over-year and quarter-over-quarter. The segment includes last mile, managed transportation and freight-forwarding operations.
- Last-mile operations revenue decreased 3% to $256 million from $264 million.
- Managed transportation revenue decreased 12.4% to $107 million from $122 million.
- Freight-forwarding revenue decreased 44.6% to $56 million from $101 million.
RXO ranks No. 18 on the Transport Topics Top 100 list of the largest logistics companies in North America.
