RXO, Inc. (RXO) FY 2024 MD&A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report. This Annual Report contains certain forward-looking statements that are intended to be covered by the safe harbors created by the Private Securities Litigation Reform Act of 1995. Please see “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements.

This section of this Annual Report generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 are not included in this Annual Report and can be found in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Overview

RXO, Inc. 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.

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 United States, 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 Separation

On November 1, 2022, we completed the separation from XPO, which we refer to as the Separation. The Separation was accomplished by the distribution of 100 percent of the outstanding common stock of RXO to XPO stockholders as of the close of business on October 20, 2022, the record date for the distribution. XPO stockholders received one share of RXO common stock for every share of XPO common stock held at the close of business on the record date. On November 1, 2022, RXO became a standalone publicly-traded company.

30

Table of Contents

The Coyote Acquisition

On the acquisition date, the Company acquired Coyote from 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 totaling $10 million, which was paid in the first quarter of 2025. Refer to Note 3 — Acquisition to the consolidated financial statements in this Annual Report on Form 10-K for disclosures regarding the Company’s acquisition of Coyote.

Notable External Conditions

As a leading provider of freight transportation services, our business can be impacted to varying degrees by factors beyond our control. The impact of macroeconomic conditions, including but not limited to, prolonged inflation, higher interest rates and capital costs, exchange rate volatility, increased shipping costs, labor disputes, reduced discretionary consuming spending, increased tariffs and international conflicts, could negatively impact our financial results. We continue to monitor the evolving macroeconomic environment and the impact to our business. For further discussion of potential impacts of these macroeconomic effects on our business, refer to Item 1A — Risk Factors.

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

Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO (the “historical financial statements”). On November 1, 2022, the Company became a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis. The combined financial statements for all periods presented prior to the Separation are now also referred to as “consolidated financial statements,” and have been prepared under the U.S. generally accepted accounting principles (“GAAP”).

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”), including the allocated costs of XPO prior to the Separation, 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.

31

Table of Contents

Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses including XPO’s corporate function which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications. An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including RXO. The charges reflected have either been specifically identified or allocated using drivers including proportionally adjusted earnings before interest, taxes, depreciation and amortization, which includes adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount. The Company believes the assumptions regarding allocations of XPO corporate expenses are reasonable. Nevertheless, the consolidated financial statements may not reflect the results of operations, cash flows and financial position had the Company been a standalone entity during the periods presented. The majority of these allocated costs are recorded within SG&A; Depreciation and amortization expense; Transaction and integration costs; and Restructuring costs in the Consolidated Statements of Operations. All charges and allocations for facilities, functions and services performed by XPO organizations have been deemed settled in cash by RXO to XPO in the year in which the cost was recorded in the Consolidated Statements of Operations.

For the periods ended before the Separation, XPO investment represents XPO’s historical investment in RXO and includes the net effects of transactions with and allocations from XPO as well as RXO’s accumulated earnings. Certain transactions between RXO and XPO, including XPO’s non-RXO subsidiaries, have been included in these consolidated financial statements, and are considered to be effectively settled at the time the transaction is recorded. The total net effect of the cash settlement of these transactions is reflected in the Consolidated Statements of Cash Flows as a financing activity and in the Consolidated Statements of Changes in Equity as XPO investment. The components of the net transfers to and from XPO include certain costs allocated from XPO’s corporate functions, income tax expense, certain cash receipts and payments made on behalf of RXO and general financing activities.

For the periods ended before the Separation, the Company was a member of the XPO consolidated group, and its U.S. taxable income was included in XPO’s consolidated U.S. federal income tax return as well as in the tax returns filed by XPO with certain state and local taxing jurisdictions. For the periods ended after the Separation, the Company will file a consolidated U.S. federal income tax return as well as certain state and local income tax returns.

The Company’s consolidated financial statements include the accounts of RXO, Inc. and its majority-owned subsidiaries. The Company has eliminated intercompany accounts and transactions.

RXO has one reportable segment.

32

Table of Contents

Results of Operations

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Revenue increased by 15.9% to $4.6 billion in 2024, compared with $3.9 billion in 2023. The year-over-year increase in revenue was driven primarily by a $796 million increase in revenue as a result of the Coyote acquisition in our truck brokerage business. This was partially offset by (i) a $125 million decrease in legacy RXO truck brokerage revenue, driven primarily by a 7% decrease in revenue per load, which was impacted by a combination of fuel prices, freight mix and transportation market rates, partially offset by a 1% increase in legacy RXO load volume and (ii) a $90 million decrease in revenue in our managed transportation business, driven primarily by a decrease in ocean and expedite air rates and volume.

Cost of transportation and services (exclusive of depreciation and amortization) in 2024 was $3.6 billion, or 78.4% of revenue, compared with $3.0 billion, or 75.6% of revenue in 2023. The year-over-year increase as a percentage of revenue in 2024 was driven primarily by (i) a 1.6 percentage point increase in truck brokerage cost of transportation and services as a percentage of revenue, as lower freight rates were not fully offset by corresponding reductions in cost of purchased transportation, and (ii) a 0.5 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 $202 million in 2024 decreased $33 million, or 14.0%, compared with $235 million in 2023. As a percentage of revenue, direct operating expense (exclusive of depreciation and amortization) decreased to 4.4% in 2024 compared to 6.0% in 2023 due to cost reduction initiatives.

SG&A of $666 million in 2024 increased $75 million, or 12.7%, from $591 million in 2023, primarily due to the Coyote acquisition. As a percentage of revenue, SG&A decreased to 14.6% in 2024 compared with 15.0% in 2023 driven primarily by cost savings from restructuring actions executed in 2024.

Depreciation and amortization expense in 2024 was $87 million, compared with $67 million in 2023. Depreciation and amortization expense for 2024 included $19 million as a result of the Coyote acquisition.

Transaction and integration costs in 2024 and 2023 were $53 million and $12 million, respectively. Transaction and integration costs for 2024 included $49 million as a result of the Coyote acquisition. Transaction and integration costs for 2023 primarily comprised spin-off related costs.

33

Table of Contents

Restructuring costs in 2024 and 2023 were $33 million and $16 million, respectively, and primarily comprised severance and operating lease impairment costs.

Other expense in 2024 includes 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, based on the difference between the issuance price and the closing market price of common stock on August 12, 2024, the effective date of the private placement.

Our effective income tax rates were 4.6% and (13.0)% for 2024 and 2023, respectively. Our effective tax rate for 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. Our effective tax rate for 2023 differs from the U.S. corporate income tax rate of 21% primarily due to a discrete tax benefit of $2 million from changes in reserves for uncertain tax positions.

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 facilities. 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 2024 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

Revolving Credit Facilities

On October 18, 2022, we entered into a five-year, $500 million, unsecured, multi-currency revolving credit facility (the “Revolver”) with $50 million available for the issuance of letters of credit. Loans under the Revolver bear interest at a fluctuating rate plus an applicable margin based on the Company's credit ratings. There were no amounts outstanding under the Revolver as of December 31, 2024.

On November 2, 2023, the Company exercised a feature to increase the total commitments under its Revolver from $500 million to $600 million.

34

Table of Contents

The Revolver requires the Company to maintain a minimum interest coverage ratio of not less than 3.00:1.00. On August 8, 2024, the Company and lenders entered into an amendment, which, following the completion of the Coyote acquisition on September 16, 2024, increased the Company’s maximum consolidated leverage ratio to not greater than 4.50:1.00. This amendment also extended the Revolver maturity date to September 16, 2029, subject to a springing earlier maturity date based on outstanding borrowings under the Company’s existing notes. Refer to Note 10 — Debt to the consolidated financial statements for additional information.

We also have a non-U.S. revolving credit facility with a maximum commitment of approximately $14 million. This facility has a one-year term and we had $14 million outstanding as of December 31, 2024 classified as short-term debt.

Notes

On October 25, 2022, we completed an offering of $355 million in aggregate principal amount of unsecured notes (the “Notes” or the “7.50% Notes due 2027”). The Notes bear interest at a rate of 7.50% per annum payable semiannually in cash in arrears on May 15 and November 15 of each year, beginning May 15, 2023, and mature on November 15, 2027, unless earlier repurchased or redeemed. RXO is permitted to redeem some or all of the Notes prior to their maturity at redemption prices described in the indenture governing the Notes. The Notes were issued at a price of 98.962% of par. Refer to Note 10 — Debt to the consolidated financial statements for additional information.

Loan Covenants and Compliance

As of December 31, 2024, we were in compliance with the covenants and other provisions of our debt agreements. Any failure to comply with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

Equity Offering

During 2024, the Company completed both a private placement and public offering of its common stock. Total proceeds from these offerings, net of related issuance costs, of approximately $1.1 billion were used to fund the acquisition of Coyote on September 16, 2024. Refer to Note 13 — Stockholders' Equity to the consolidated financial statements for additional information.

Financial Condition

The following table summarizes our asset and liability balances as of December 31, 2024 and 2023:

Total assets and liabilities increased from December 31, 2023 to December 31, 2024, primarily due to the acquisition of Coyote. Refer to Note 3 — Acquisition for additional information related to assets acquired and liabilities assumed.

35

Table of Contents

Cash Flow Activity

Our cash flows from operating, investing and financing activities are summarized as follows:

Net cash used in operating activities for 2024 decreased by $101 million compared with 2023. The decrease in cash provided by operating activities was due primarily to the decrease in net income between periods and changes in working capital. The $294 million decrease in net income was driven primarily by higher non-cash adjustments including a $216 million deemed non-pro rata distribution and increased depreciation and amortization expense related to the Coyote acquisition.

Investing activities used $1,064 million of cash in 2024 compared with $66 million of cash used in 2023. The primary uses of cash in 2024 were (i) $1,019 million for the acquisition of Coyote, net of cash acquired, and (ii) $45 million to purchase property and equipment. The primary use of cash in 2023 was to purchase property and equipment.

Financing activities provided $1,108 million of cash in 2024 compared with using $117 million of cash in 2023. The primary source of cash from financing activities in 2024 was $1,095 million in net proceeds from the issuance of common stock. The primary uses of cash from financing activities in 2023 were (i) $104 million for debt and finance lease repayments, driven primarily by the payoff of the $100 million term loan facility and (ii) $14 million for payments of tax withholdings related to vesting of stock compensation awards.

Contractual Obligations

We lease certain facilities and equipment under non-cancellable operating and finance lease arrangements. As of December 31, 2024, our outstanding discounted obligations under operating and finance leases were $296 million and $4 million, respectively. See Note 8 — Leases to the consolidated financial statements for additional information.

As of December 31, 2024, we had $355 million of the Notes outstanding with interest payable semiannually in cash in arrears on May 15 and November 15 of each year, beginning May 15, 2023. The Notes mature on November 15, 2027, unless earlier repurchased or redeemed, if applicable.

As of December 31, 2024, we had no amounts outstanding under the Revolver. Interest on any outstanding borrowings is payable monthly or quarterly, depending on RXO’s upfront election. Borrowings under the Revolver are payable, at our option, at any time prior to or at maturity on September 16, 2029. We also have a non-U.S. revolving credit facility with a maximum commitment of approximately $14 million. This facility has a one-year term and we had $14 million outstanding as of December 31, 2024 classified as short-term debt. See Note 10 — Debt to the consolidated financial statements for additional information.

In addition, we have obligations for agreements to purchase goods or services entered into in the ordinary course of business that are enforceable and legally binding.

36

Table of Contents

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with GAAP. A summary of our significant accounting policies is contained in Note 2 — Basis of Presentation and Significant Accounting Policies to our consolidated financial statements. The methods, assumptions, and estimates that we use in applying our accounting policies may require us to apply judgments regarding matters that are inherently uncertain and may change based on changing circumstances or changes in our analysis. Material changes in these assumptions, estimates and/or judgments have the potential to materially alter our results of operations. We have identified below our accounting policies that we believe could potentially produce materially different results if we were to change underlying assumptions, estimates and/or judgments. Although actual results may differ from estimated results, we believe the estimates are reasonable and appropriate.

Business Combinations

We apply the acquisition method of accounting with respect to the identifiable assets and liabilities of a business combination and record the assets acquired and liabilities assumed at their estimated fair values as of the acquisition date. The excess of the cost of the acquired business and the fair value of the assets acquired and liabilities assumed is recognized as goodwill. During the measurement period, which is up to one year from the acquisition date, we may adjust provisional amounts that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires our management to make significant estimates and assumptions for intangible assets, contract obligations assumed, and pre-acquisition contingencies, where applicable. Although we believe the assumptions and estimates we have made in the past are reasonable and appropriate, they are based, in part, on historical experience and information obtained from the management of the acquired companies and are inherently uncertain. The assistance of an independent third-party valuation firm was used to determine the estimated fair values and useful lives of finite-lived intangible assets including customer relationships and trademarks. Valuation methods used were based on income-based approaches including the excess earnings method and relief-from-royalty method for customer relationships and trademarks, respectively. Critical estimates and assumptions used in valuing certain acquired intangible assets include projected revenues, projected expenses, customer retention rate, contributory asset charges, and discount rate for the customer relationships; and projected revenues, trademark phase-out projection, trademark royalty rate, and discount rate for the trademarks. Unanticipated events and circumstances may occur which could affect the accuracy or validity of such assumptions, estimates or actual results.

Evaluation of Goodwill

We measure goodwill as the excess of consideration transferred over the fair value of net assets acquired in business combinations. We allocate goodwill to our reporting units for the purpose of impairment testing. We evaluate goodwill for impairment annually, or more frequently if an event or circumstance indicates an impairment loss may have been incurred. We measure goodwill impairment, if any, at the amount a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill. Our reporting units are our operating segments or one level below our operating segments for which discrete financial information is prepared and regularly reviewed by segment management. We have six reporting units. Application of the goodwill impairment test requires judgment, including the identification of the reporting units, the assignment of assets and liabilities to the reporting units, the assignment of goodwill to the reporting units, and a determination of the fair value of the reporting units.

For our 2024 goodwill assessment, we performed a quantitative analysis for our reporting units using a combination of the income and market approaches. As of November 30, 2024, we completed our annual impairment tests for goodwill with all of our reporting units having fair values in excess of their carrying values, resulting in no impairment of goodwill.

37

Table of Contents

A quantitative goodwill impairment test, when performed, includes estimating the fair value of a reporting unit using an income approach and/or a market-based approach. The income approach of determining fair value is based on the present value of estimated future cash flows, which requires us to make various judgmental assumptions, including assumptions about the timing and amount of future cash flows, growth rates and discount rates. The discount rates reflect management’s judgment and are based on a risk adjusted weighted-average cost of capital utilizing industry market data of businesses similar to the reporting units. Inherent in our preparation of cash flow projections are assumptions and estimates derived from a review of our operating results, business plans, expected growth rates, cost of capital and tax rates. Our forecasts also reflect expectations concerning future economic conditions, interest rates and other market data. The market approach of determining fair value is based on comparable market multiples for companies engaged in similar businesses, as well as recent transactions within our industry. We believe our approach, which utilizes multiple valuation techniques, yields the most appropriate evidence of fair value.

Many of the factors used in assessing fair value are outside the control of management, and assumptions and estimates may change in future periods. Changes in assumptions or estimates could materially affect the estimate of the fair value of a reporting unit, and therefore could affect the likelihood and amount of any potential impairment.

Insurance

We participate in a combination of self-insurance programs and purchased insurance that are managed to provide for the costs of medical, casualty, liability, vehicular, cargo, workers’ compensation, cyber risk and property claims. Insurance coverage levels are adjusted annually based on risk tolerance and premium expense.

Liabilities for the risks we retain, including estimates of claims incurred but not reported, are not discounted and are estimated, in part, by considering retention levels, historical cost experience, demographic and severity factors, and judgments about current and expected levels of cost per claim. Additionally, claims may emerge in future years for events that occurred in a prior year at a rate that differs from previous actuarial projections. Changes in these assumptions can impact actual costs paid to settle the claims and those amounts may be different than estimates.

New Accounting Standards

Information related to new accounting standards is included in Note 2 — Basis of Presentation and Significant Accounting Policies.