RXO CEO talks earnings, tech-enabled logistics, and using AI for freight carriers

RXO CEO Drew Wilkerson joins Yahoo Finance Live to discuss company earnings, going public following the XPO spinoff, a slowdown in the macro economy, industry tailwinds, and the outlook for 2023.

Video transcript

- Moving on up. Logistics brokerage RXO announcing strong earnings, its first since spinning off from XPO. But investors watching for how RXO's tech-centric logistics pitch can keep momentum going as the economy potentially darkens. Joining us with more is Drew Wilkerson, RXO CEO. Thanks for being here, Drew. It's good to see you.

So as you now embark on this big milestone in your journey as a spun off public company, you talked in the call that this is sort of your favorite time of the economic cycle, if you will, in terms of the potential for the business. Talk me through that. Where are we from your view in the cycle? And then how do you try to take advantage of that?

DREW WILKERSON: Yeah, absolutely. Thank you so much for having me. When you look at where we are in the cycle, you've definitely seen a slowdown in the macro economy. And what we saw in the fourth quarter was e-commerce and retail were down. But we had a lot of other verticals that were up. Automotive was up. Electronics was up. Health care was up. So there were some strong results outside of what you saw from the overall what is a typical peak season.

As I look into what is going to happen for the rest of 2023, we're seeing a tight macro in the first and second quarter. But we've got some reasons for to be cautiously optimistic as we head towards the back half of the year. Some of the conversations that we're having with our customers right now is while it's been talks of destocking for the last six to nine months, the conversation is starting to shift more towards restocking, which will be a tailwind for the industry.

And for us, one of the things that's idiosyncratic to our business is our sales momentum. If you look at what we've got right now, in the fourth quarter, we closed with our annual bid revenue up 70% on a year over year basis with 30% more customers. We're seeing more sales momentum than I've ever seen in my career here.

- OK. And so with the digital freight marketplace that you operate, what are you seeing in terms of the number of drivers, truckers that are able to fulfill all of the different marketplace orders that are coming through?

DREW WILKERSON: We've got over 100,000 carriers in our platform our RXO Connect. And we actually grew that number sequentially quarter over quarter, again, in the fourth quarter. And there's a lot of reasons why carriers come to do business with. The first is our scale. We're one of the largest truck brokers out there.

So an owner-operator or a small trucking company doesn't have to leave RXO Connect. And we see that in that 74% of the time when you log on to RXO Connect, you're back on the platform within a week. That tells you that for these small trucking companies, their likely next load comes from RXO. So we've got a ton of momentum in our digital adoption. But we're just getting started.

- Drew, do you giggle at all this excitement we're seeing around artificial intelligence? Aren't you using this stuff already?

DREW WILKERSON: Absolutely we're using artificial intelligence. It's a huge part of our business. And it's something that we've been at the forefront of integrating with some of the largest companies in the world. And it's something that we'll continue to roll out to small and mid-sized customers in the future.

- What ways are you using artificial intelligence? How does that show up in the business so that even the end consumer knows the real delta?

DREW WILKERSON: Yeah. So there's a couple of different ways how we're using. One is just the interaction of how orders are tendered and that customers are able to get pricing in real time. That's extremely important for customers to know exactly what's going on in the pricing in a real time environment. So that's a great thing for us. The second place where we're using it is actually on the pricing side for the carriers.

And so when you look at how we're pricing loads for the carriers, we have a lot of sophistication that goes into the algorithms that we built and we built our technology from the ground up over the last decade, which is allowing us to accelerate as we move forward.

- Drew, you mentioned pricing. What is happening with contract pricing? You talked about a shift from the destocking to maybe starting to restock. Are you seeing a shift in contract pricing also?

DREW WILKERSON: Yeah. We said on last quarter's earnings call that we expected on a full year 2023 for contract pricing to be somewhere down around 10% at the midpoint. And we held that on this earnings call. With what we've seen, our heaviest bid cycle is in the fourth quarter and in the first quarter. And right now, we're expecting contract pricing to be down somewhere around 10% at the midpoint on a year over year basis. But for us, the important metric is our gross profit percentage. And for us, that operated at 18%. And it was up 290 basis points for our tech-enabled brokerage group.

- Drew Wilkerson, who is the RXO CEO. Drew, thanks so much for taking the time here with us today. We look forward to checking back in the future for sure.

DREW WILKERSON: Thank you. I appreciate it.