UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 20222023
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from____________to____________
Commission File Number: 001-32172
XPO, Logistics, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Delaware | | 03-0450326 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
Five American Lane | | |
Greenwich, | CT | | 06831 |
(Address of principal executive offices) | | (Zip Code) |
(855) 976-6951
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading symbol(s)Symbol(s) | | Name of each exchange on which registered |
Common stock, par value $0.001 per share | | XPO | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
| | | | | | |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
| | | | | | |
| | | | Emerging growth company | | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 4, 2022,April 28, 2023, there were 115,018,449115,857,013 shares of the registrant’s common stock, par value $0.001 per share, outstanding.
XPO, Logistics, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period Ended March 31, 20222023
Table of Contents
Part I—Financial Information
Item 1. Financial Statements.
XPO, Logistics, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
| | | March 31, | | December 31, | | March 31, | | December 31, |
(In millions, except per share data) | (In millions, except per share data) | | 2022 | | 2021 | (In millions, except per share data) | | 2023 | | 2022 |
ASSETS | ASSETS | | | | | ASSETS | | | | |
Current assets | Current assets | | Current assets | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 1,004 | | | $ | 260 | | Cash and cash equivalents | | $ | 309 | | | $ | 460 | |
Accounts receivable, net of allowances of $47 and $47, respectively | | 2,248 | | | 2,105 | | |
Accounts receivable, net of allowances of $48 and $43, respectively | | Accounts receivable, net of allowances of $48 and $43, respectively | | 1,019 | | | 954 | |
Other current assets | Other current assets | | 279 | | | 286 | | Other current assets | | 221 | | | 199 | |
Current assets of discontinued operations | Current assets of discontinued operations | | 24 | | | 26 | | Current assets of discontinued operations | | 16 | | | 17 | |
Total current assets | Total current assets | | 3,555 | | | 2,677 | | Total current assets | | 1,565 | | | 1,630 | |
Long-term assets | Long-term assets | | | | | Long-term assets | | | | |
Property and equipment, net of $1,790 and $1,828 in accumulated depreciation, respectively | | 1,796 | | | 1,808 | | |
Property and equipment, net of $1,743 and $1,679 in accumulated depreciation, respectively | | Property and equipment, net of $1,743 and $1,679 in accumulated depreciation, respectively | | 1,978 | | | 1,832 | |
Operating lease assets | Operating lease assets | | 821 | | | 908 | | Operating lease assets | | 717 | | | 719 | |
Goodwill | Goodwill | | 2,332 | | | 2,479 | | Goodwill | | 1,483 | | | 1,472 | |
Identifiable intangible assets, net of $578 and $612 in accumulated amortization, respectively | | 548 | | | 580 | | |
Identifiable intangible assets, net of $407 and $392 in accumulated amortization, respectively | | Identifiable intangible assets, net of $407 and $392 in accumulated amortization, respectively | | 396 | | | 407 | |
Other long-term assets | Other long-term assets | | 268 | | | 255 | | Other long-term assets | | 209 | | | 209 | |
| Total long-term assets | Total long-term assets | | 5,765 | | | 6,030 | | Total long-term assets | | 4,783 | | | 4,639 | |
Total assets | Total assets | | $ | 9,320 | | | $ | 8,707 | | Total assets | | $ | 6,348 | | | $ | 6,269 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
Current liabilities | Current liabilities | | Current liabilities | |
Accounts payable | Accounts payable | | $ | 1,330 | | | $ | 1,110 | | Accounts payable | | $ | 505 | | | $ | 521 | |
Accrued expenses | Accrued expenses | | 1,084 | | | 1,107 | | Accrued expenses | | 792 | | | 774 | |
Short-term borrowings and current maturities of long-term debt | Short-term borrowings and current maturities of long-term debt | | 682 | | | 58 | | Short-term borrowings and current maturities of long-term debt | | 66 | | | 59 | |
Short-term operating lease liabilities | Short-term operating lease liabilities | | 134 | | | 170 | | Short-term operating lease liabilities | | 110 | | | 107 | |
Other current liabilities | Other current liabilities | | 178 | | | 69 | | Other current liabilities | | 58 | | | 30 | |
Current liabilities of discontinued operations | Current liabilities of discontinued operations | | 24 | | | 24 | | Current liabilities of discontinued operations | | 15 | | | 16 | |
Total current liabilities | Total current liabilities | | 3,432 | | | 2,538 | | Total current liabilities | | 1,546 | | | 1,507 | |
Long-term liabilities | Long-term liabilities | | | | | Long-term liabilities | | | | |
Long-term debt | Long-term debt | | 2,877 | | | 3,514 | | Long-term debt | | 2,478 | | | 2,473 | |
Deferred tax liability | Deferred tax liability | | 300 | | | 316 | | Deferred tax liability | | 307 | | | 319 | |
Employee benefit obligations | Employee benefit obligations | | 120 | | | 122 | | Employee benefit obligations | | 92 | | | 93 | |
Long-term operating lease liabilities | Long-term operating lease liabilities | | 682 | | | 752 | | Long-term operating lease liabilities | | 606 | | | 606 | |
Other long-term liabilities | Other long-term liabilities | | 311 | | | 327 | | Other long-term liabilities | | 264 | | | 259 | |
| Total long-term liabilities | Total long-term liabilities | | 4,290 | | | 5,031 | | Total long-term liabilities | | 3,747 | | | 3,750 | |
Stockholders’ equity | Stockholders’ equity | | | | | Stockholders’ equity | | | | |
| Common stock, $0.001 par value; 300 shares authorized; 115 shares issued and outstanding as of March 31, 2022 and December 31, 2021 | | — | | | — | | |
Common stock, $0.001 par value; 300 shares authorized; 116 and 115 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | | Common stock, $0.001 par value; 300 shares authorized; 116 and 115 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | | — | | | — | |
Additional paid-in capital | Additional paid-in capital | | 1,176 | | | 1,179 | | Additional paid-in capital | | 1,252 | | | 1,238 | |
Retained earnings | | 531 | | | 43 | | |
Retained earnings (accumulated deficit) | | Retained earnings (accumulated deficit) | | 10 | | | (4) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | | (109) | | | (84) | | Accumulated other comprehensive loss | | (207) | | | (222) | |
| Total equity | Total equity | | 1,598 | | | 1,138 | | Total equity | | 1,055 | | | 1,012 | |
Total liabilities and equity | Total liabilities and equity | | $ | 9,320 | | | $ | 8,707 | | Total liabilities and equity | | $ | 6,348 | | | $ | 6,269 | |
See accompanying notes to condensed consolidated financial statements.
XPO, Logistics, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions, except per share data) | (In millions, except per share data) | | | 2022 | | 2021 | (In millions, except per share data) | | | 2023 | | 2022 |
Revenue | Revenue | | | $ | 3,473 | | | $ | 2,989 | | Revenue | | | $ | 1,907 | | | $ | 1,894 | |
Cost of transportation and services (exclusive of depreciation and amortization) | | | 2,437 | | | 2,053 | | |
Direct operating expense (exclusive of depreciation and amortization) | | | 385 | | | 334 | | |
Sales, general and administrative expense | | | 344 | | | 338 | | |
Salaries, wages and employee benefits | | Salaries, wages and employee benefits | | | 762 | | | 725 | |
Purchased transportation | | Purchased transportation | | | 457 | | | 510 | |
Fuel, operating expenses and supplies | | Fuel, operating expenses and supplies | | | 427 | | | 418 | |
Operating taxes and licenses | | Operating taxes and licenses | | | 15 | | | 16 | |
Insurance and claims | | Insurance and claims | | | 44 | | | 56 | |
Gains on sales of property and equipment | | Gains on sales of property and equipment | | | (3) | | | (1) | |
Depreciation and amortization expense | Depreciation and amortization expense | | | 116 | | | 119 | | Depreciation and amortization expense | | | 101 | | | 94 | |
Gain on sale of business | | | (450) | | | — | | |
| Transaction and integration costs | Transaction and integration costs | | | 10 | | | 5 | | Transaction and integration costs | | | 22 | | | 7 | |
Restructuring costs | Restructuring costs | | | 6 | | | 1 | | Restructuring costs | | | 24 | | | 6 | |
Operating income | Operating income | | | 625 | | | 139 | | Operating income | | | 58 | | | 63 | |
Other income | Other income | | | (14) | | | (16) | | Other income | | | (5) | | | (14) | |
Debt extinguishment loss | | | — | | | 8 | | |
| Interest expense | Interest expense | | | 37 | | | 65 | | Interest expense | | | 42 | | | 37 | |
Income from continuing operations before income tax provision | Income from continuing operations before income tax provision | | | 602 | | | 82 | | Income from continuing operations before income tax provision | | | 21 | | | 40 | |
Income tax provision | Income tax provision | | | 113 | | | 19 | | Income tax provision | | | 4 | | | 8 | |
Income from continuing operations | Income from continuing operations | | | 489 | | | 63 | | Income from continuing operations | | | 17 | | | 32 | |
Income (loss) from discontinued operations, net of taxes | Income (loss) from discontinued operations, net of taxes | | | (1) | | | 55 | | Income (loss) from discontinued operations, net of taxes | | | (3) | | | 456 | |
Net income | | | 488 | | | 118 | | |
| Net income from discontinued operations attributable to noncontrolling interests | | | — | | | (3) | | |
| Net income attributable to XPO | Net income attributable to XPO | | | $ | 488 | | | $ | 115 | | Net income attributable to XPO | | | $ | 14 | | | $ | 488 | |
| Net income (loss) attributable to common shareholders | Net income (loss) attributable to common shareholders | | | Net income (loss) attributable to common shareholders | | | |
Continuing operations | Continuing operations | | | $ | 489 | | | $ | 63 | | Continuing operations | | | $ | 17 | | | $ | 32 | |
Discontinued operations | Discontinued operations | | | (1) | | | 52 | | Discontinued operations | | | (3) | | | 456 | |
Net income attributable to common shareholders | Net income attributable to common shareholders | | | $ | 488 | | | $ | 115 | | Net income attributable to common shareholders | | | $ | 14 | | | $ | 488 | |
| Earnings (loss) per share data | Earnings (loss) per share data | | | Earnings (loss) per share data | | | |
Basic earnings per share from continuing operations | Basic earnings per share from continuing operations | | | $ | 4.26 | | | $ | 0.59 | | Basic earnings per share from continuing operations | | | $ | 0.15 | | | $ | 0.28 | |
Basic earnings (loss) per share from discontinued operations | Basic earnings (loss) per share from discontinued operations | | | (0.01) | | | 0.49 | | Basic earnings (loss) per share from discontinued operations | | | (0.02) | | | 3.97 | |
Basic earnings per share attributable to common shareholders | Basic earnings per share attributable to common shareholders | | | $ | 4.25 | | | $ | 1.08 | | Basic earnings per share attributable to common shareholders | | | $ | 0.13 | | | $ | 4.25 | |
Diluted earnings per share from continuing operations | Diluted earnings per share from continuing operations | | | $ | 4.23 | | | $ | 0.56 | | Diluted earnings per share from continuing operations | | | $ | 0.15 | | | $ | 0.28 | |
Diluted earnings (loss) per share from discontinued operations | Diluted earnings (loss) per share from discontinued operations | | | (0.01) | | | 0.46 | | Diluted earnings (loss) per share from discontinued operations | | | (0.02) | | | 3.94 | |
Diluted earnings per share attributable to common shareholders | Diluted earnings per share attributable to common shareholders | | | $ | 4.22 | | | $ | 1.02 | | Diluted earnings per share attributable to common shareholders | | | $ | 0.13 | | | $ | 4.22 | |
| Weighted-average common shares outstanding | Weighted-average common shares outstanding | | | Weighted-average common shares outstanding | | | |
Basic weighted-average common shares outstanding | Basic weighted-average common shares outstanding | | | 115 | | | 106 | | Basic weighted-average common shares outstanding | | | 116 | | | 115 | |
Diluted weighted-average common shares outstanding | Diluted weighted-average common shares outstanding | | | 116 | | | 112 | | Diluted weighted-average common shares outstanding | | | 116 | | | 116 | |
See accompanying notes to condensed consolidated financial statements.
XPO, Logistics, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(In millions) | | | | | | 2022 | | 2021 |
Net income | | | | | | $ | 488 | | | $ | 118 | |
| | | | | | | | |
Other comprehensive loss, net of tax | | | | | | | | |
Foreign currency translation loss, net of tax effect of $(2) and $(6) | | | | | | $ | (26) | | | $ | (42) | |
Unrealized gain on financial assets/liabilities designated as hedging instruments, net of tax effect of $— and $— | | | | | | 1 | | | — | |
| | | | | | | | |
Other comprehensive loss | | | | | | (25) | | | (42) | |
Comprehensive income | | | | | | $ | 463 | | | $ | 76 | |
Less: Comprehensive loss attributable to noncontrolling interests | | | | | | — | | | (2) | |
Comprehensive income attributable to XPO | | | | | | $ | 463 | | | $ | 78 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(In millions) | | | | | | 2023 | | 2022 |
Net income | | | | | | $ | 14 | | | $ | 488 | |
| | | | | | | | |
Other comprehensive income (loss), net of tax | | | | | | | | |
Foreign currency translation gain (loss), net of tax effect of $8 and $(2) | | | | | | $ | 13 | | | $ | (26) | |
Unrealized gain on financial assets/liabilities designated as hedging instruments, net of tax effect of $1 and $— | | | | | | 2 | | | 1 | |
| | | | | | | | |
Other comprehensive income (loss) | | | | | | 15 | | | (25) | |
| | | | | | | | |
| | | | | | | | |
Comprehensive income attributable to XPO | | | | | | $ | 29 | | | $ | 463 | |
See accompanying notes to condensed consolidated financial statements.
XPO, Logistics, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) | | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
(In millions) | | 2022 | | 2021 |
Cash flows from operating activities of continuing operations | | | | |
Net income | | $ | 488 | | | $ | 118 | |
Income (loss) from discontinued operations, net of taxes | | (1) | | | 55 | |
Income from continuing operations | | 489 | | | 63 | |
Adjustments to reconcile income from continuing operations to net cash from operating activities | | | | |
Depreciation, amortization and net lease activity | | 116 | | | 119 | |
Stock compensation expense | | 8 | | | 6 | |
Accretion of debt | | 4 | | | 5 | |
Deferred tax (benefit) expense | | (12) | | | 9 | |
Debt extinguishment loss | | — | | | 8 | |
Gain on sale of business | | (450) | | | — | |
Gains on sales of property and equipment | | (1) | | | (23) | |
Other | | 10 | | | 2 | |
Changes in assets and liabilities | | | | |
Accounts receivable | | (405) | | | (198) | |
Other assets | | 94 | | | (21) | |
Accounts payable | | 366 | | | 34 | |
Accrued expenses and other liabilities | | (19) | | | 73 | |
Net cash provided by operating activities from continuing operations | | 200 | | | 77 | |
Cash flows from investing activities of continuing operations | | | | |
Proceeds from sale of business | | 705 | | | — | |
Payment for purchases of property and equipment | | (137) | | | (74) | |
Proceeds from sale of property and equipment | | 3 | | | 36 | |
| | | | |
Net cash provided by (used in) investing activities from continuing operations | | 571 | | | (38) | |
Cash flows from financing activities of continuing operations | | | | |
| | | | |
Repayment of borrowings related to securitization program | | — | | | (24) | |
Repurchase of debt | | — | | | (1,200) | |
| | | | |
Repayment of borrowings on ABL facility | | — | | | (200) | |
Repayment of debt and finance leases | | (16) | | | (24) | |
Payment for debt issuance costs | | — | | | (5) | |
| | | | |
| | | | |
Change in bank overdrafts | | 3 | | | 8 | |
Payment for tax withholdings for restricted shares | | (12) | | | (21) | |
| | | | |
Other | | 1 | | | 2 | |
Net cash used in financing activities from continuing operations | | (24) | | | (1,464) | |
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
(In millions) | (In millions) | | 2022 | | 2021 | (In millions) | | 2023 | | 2022 |
Cash flows from operating activities of continuing operations | | Cash flows from operating activities of continuing operations | | | | |
Net income | | Net income | | $ | 14 | | | $ | 488 | |
Income (loss) from discontinued operations, net of taxes | | Income (loss) from discontinued operations, net of taxes | | (3) | | | 456 | |
Income from continuing operations | | Income from continuing operations | | 17 | | | 32 | |
Adjustments to reconcile income from continuing operations to net cash from operating activities | | Adjustments to reconcile income from continuing operations to net cash from operating activities | |
Depreciation, amortization and net lease activity | | Depreciation, amortization and net lease activity | | 101 | | | 94 | |
Stock compensation expense | | Stock compensation expense | | 22 | | | 6 | |
Accretion of debt | | Accretion of debt | | 3 | | | 4 | |
Deferred tax expense (benefit) | | Deferred tax expense (benefit) | | (2) | | | 5 | |
| Gains on sales of property and equipment | | Gains on sales of property and equipment | | (3) | | | (1) | |
Other | | Other | | 17 | | | 6 | |
Changes in assets and liabilities | | Changes in assets and liabilities | |
Accounts receivable | | Accounts receivable | | (69) | | | (154) | |
Other assets | | Other assets | | (24) | | | (37) | |
Accounts payable | | Accounts payable | | (8) | | | 117 | |
Accrued expenses and other liabilities | | Accrued expenses and other liabilities | | 22 | | | 116 | |
Net cash provided by operating activities from continuing operations | | Net cash provided by operating activities from continuing operations | | 76 | | | 188 | |
Cash flows from investing activities of continuing operations | | Cash flows from investing activities of continuing operations | | | | |
| Payment for purchases of property and equipment | | Payment for purchases of property and equipment | | (224) | | | (123) | |
Proceeds from sale of property and equipment | | Proceeds from sale of property and equipment | | 8 | | | 3 | |
| Net cash used in investing activities from continuing operations | | Net cash used in investing activities from continuing operations | | (216) | | | (120) | |
Cash flows from financing activities of continuing operations | | Cash flows from financing activities of continuing operations | | | | |
| Repayment of debt and finance leases | | Repayment of debt and finance leases | | (16) | | | (16) | |
| Change in bank overdrafts | | Change in bank overdrafts | | 19 | | | 3 | |
Payment for tax withholdings for restricted shares | | Payment for tax withholdings for restricted shares | | (12) | | | (12) | |
| Other | | Other | | (1) | | | 1 | |
Net cash used in financing activities from continuing operations | | Net cash used in financing activities from continuing operations | | (10) | | | (24) | |
| Cash flows from discontinued operations | Cash flows from discontinued operations | | Cash flows from discontinued operations | | | | |
Operating activities of discontinued operations | Operating activities of discontinued operations | | 1 | | | 96 | | Operating activities of discontinued operations | | (8) | | | 13 | |
Investing activities of discontinued operations | Investing activities of discontinued operations | | — | | | (57) | | Investing activities of discontinued operations | | 1 | | | 691 | |
Financing activities of discontinued operations | | — | | | (37) | | |
Net cash provided by discontinued operations | | 1 | | | 2 | | |
| Net cash provided by (used in) discontinued operations | | Net cash provided by (used in) discontinued operations | | (7) | | | 704 | |
Effect of exchange rates on cash, cash equivalents and restricted cash | Effect of exchange rates on cash, cash equivalents and restricted cash | | (3) | | | (2) | | Effect of exchange rates on cash, cash equivalents and restricted cash | | 2 | | | (3) | |
Net increase (decrease) in cash, cash equivalents and restricted cash | Net increase (decrease) in cash, cash equivalents and restricted cash | | 745 | | | (1,425) | | Net increase (decrease) in cash, cash equivalents and restricted cash | | (155) | | | 745 | |
Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | | 273 | | | 2,065 | | Cash, cash equivalents and restricted cash, beginning of period | | 470 | | | 273 | |
Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | | 1,018 | | | 640 | | Cash, cash equivalents and restricted cash, end of period | | 315 | | | 1,018 | |
Less: Cash, cash equivalents and restricted cash of discontinued operations, end of period | Less: Cash, cash equivalents and restricted cash of discontinued operations, end of period | | 4 | | | 407 | | Less: Cash, cash equivalents and restricted cash of discontinued operations, end of period | | — | | | 50 | |
Cash, cash equivalents and restricted cash of continued operations, end of period | Cash, cash equivalents and restricted cash of continued operations, end of period | | $ | 1,014 | | | $ | 233 | | Cash, cash equivalents and restricted cash of continued operations, end of period | | $ | 315 | | | $ | 968 | |
Supplemental disclosure of cash flow information | Supplemental disclosure of cash flow information | | | | | Supplemental disclosure of cash flow information | | | | |
| Leased assets obtained in exchange for new operating lease liabilities | Leased assets obtained in exchange for new operating lease liabilities | | $ | 46 | | | $ | 79 | | Leased assets obtained in exchange for new operating lease liabilities | | $ | 28 | | | $ | 22 | |
Leased assets obtained in exchange for new finance lease liabilities | Leased assets obtained in exchange for new finance lease liabilities | | 4 | | | 16 | | Leased assets obtained in exchange for new finance lease liabilities | | 19 | | | 4 | |
Cash paid for interest | Cash paid for interest | | 13 | | | 74 | | Cash paid for interest | | 39 | | | 13 | |
Cash paid for income taxes | Cash paid for income taxes | | 5 | | | 1 | | Cash paid for income taxes | | 3 | | | 3 | |
See accompanying notes to condensed consolidated financial statements.
XPO, Logistics, Inc.
Condensed Consolidated Statements of Changes in Equity
(Unaudited)
| | | | Series A Preferred Stock | | Common Stock | | | | | Common Stock | | | |
(Shares in thousands, dollars in millions) | (Shares in thousands, dollars in millions) | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total XPO Stockholders' Equity | | Non-controlling Interests | | Total Equity | (Shares in thousands, dollars in millions) | | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings (Accumulated Deficit) | | Accumulated Other Comprehensive Loss | | | Total Equity |
Balance as of December 31, 2021 | | — | | | $ | — | | | 114,737 | | | $ | — | | | $ | 1,179 | | | $ | 43 | | | $ | (84) | | | $ | 1,138 | | | $ | — | | | $ | 1,138 | | |
Balance as of December 31, 2022 | | Balance as of December 31, 2022 | | | 115,435 | | | $ | — | | | $ | 1,238 | | | $ | (4) | | | $ | (222) | | | | $ | 1,012 | |
Net income | Net income | | — | | | — | | | — | | | — | | | — | | | 488 | | | — | | | 488 | | | — | | | 488 | | Net income | | | — | | | — | | | — | | | 14 | | | — | | | | 14 | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | (25) | | | (25) | | | — | | | (25) | | |
Other comprehensive income | | Other comprehensive income | | | — | | | — | | | — | | | — | | | 15 | | | | 15 | |
| Exercise and vesting of stock compensation awards | Exercise and vesting of stock compensation awards | | — | | | — | | | 245 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Exercise and vesting of stock compensation awards | | | 315 | | | — | | | — | | | — | | | — | | | | — | |
Tax withholdings related to vesting of stock compensation awards | Tax withholdings related to vesting of stock compensation awards | | — | | | — | | | — | | | — | | | (12) | | | — | | | — | | | (12) | | | — | | | (12) | | Tax withholdings related to vesting of stock compensation awards | | | — | | | — | | | (8) | | | — | | | — | | | | (8) | |
| Stock compensation expense | Stock compensation expense | | — | | | — | | | — | | | — | | | 8 | | | — | | | — | | | 8 | | | — | | | 8 | | Stock compensation expense | | | — | | | — | | | 22 | | | — | | | — | | | | 22 | |
Other | | — | | | — | | | — | | | — | | | 1 | | | — | | | — | | | 1 | | | — | | | 1 | | |
Balance as of March 31, 2022 | | — | | | $ | — | | | 114,982 | | | $ | — | | | $ | 1,176 | | | $ | 531 | | | $ | (109) | | | $ | 1,598 | | | $ | — | | | $ | 1,598 | | |
| Balance as of March 31, 2023 | | Balance as of March 31, 2023 | | | 115,750 | | | $ | — | | | $ | 1,252 | | | $ | 10 | | | $ | (207) | | | | $ | 1,055 | |
| | | Series A Preferred Stock | | Common Stock | | | | Common Stock | | | |
(Shares in thousands, dollars in millions) | (Shares in thousands, dollars in millions) | | Shares | | Amount | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total XPO Stockholders' Equity | | Non-controlling Interests | | Total Equity | (Shares in thousands, dollars in millions) | | | Shares | | Amount | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | | Total Equity |
Balance as of December 31, 2020 | | 1 | | | $ | 1 | | | 102,052 | | | $ | — | | | $ | 1,998 | | | $ | 868 | | | $ | (158) | | | $ | 2,709 | | | $ | 140 | | | $ | 2,849 | | |
Balance as of December 31, 2021 | | Balance as of December 31, 2021 | | | 114,737 | | | $ | — | | | $ | 1,179 | | | $ | 43 | | | $ | (84) | | | | $ | 1,138 | |
Net income | Net income | | — | | | — | | | — | | | — | | | — | | | 115 | | | — | | | 115 | | | 3 | | | 118 | | Net income | | | — | | | — | | | — | | | 488 | | | — | | | | 488 | |
Other comprehensive loss | Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | — | | | (37) | | | (37) | | | (5) | | | (42) | | Other comprehensive loss | | | — | | | — | | | — | | | — | | | (25) | | | | (25) | |
| Exercise and vesting of stock compensation awards | Exercise and vesting of stock compensation awards | | — | | | — | | | 270 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Exercise and vesting of stock compensation awards | | | 245 | | | — | | | — | | | — | | | — | | | | — | |
Tax withholdings related to vesting of stock compensation awards | Tax withholdings related to vesting of stock compensation awards | | — | | | — | | | — | | | — | | | (21) | | | — | | | — | | | (21) | | | — | | | (21) | | Tax withholdings related to vesting of stock compensation awards | | | — | | | — | | | (12) | | | — | | | — | | | | (12) | |
Conversion of preferred stock to common stock | | (1) | | | (1) | | | 139 | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | |
Exercise of warrants | | — | | | — | | | 9,215 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
| | Stock compensation expense | Stock compensation expense | | — | | | — | | | — | | | — | | | 10 | | | — | | | — | | | 10 | | | — | | | 10 | | Stock compensation expense | | | — | | | — | | | 8 | | | — | | | — | | | | 8 | |
| Balance as of March 31, 2021 | | — | | | $ | — | | | 111,676 | | | $ | — | | | $ | 1,988 | | | $ | 983 | | | $ | (195) | | | $ | 2,776 | | | $ | 138 | | | $ | 2,914 | | |
Other | | Other | | | — | | | — | | | 1 | | | — | | | — | | | | 1 | |
Balance as of March 31, 2022 | | Balance as of March 31, 2022 | | | 114,982 | | | $ | — | | | $ | 1,176 | | | $ | 531 | | | $ | (109) | | | | $ | 1,598 | |
See accompanying notes to condensed consolidated financial statements.
XPO, Logistics, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization, Description of Business and Basis of Presentation
XPO, Logistics, Inc., together with its subsidiaries (“XPO” or “we”), is a leading provider of freight transportation services. We use our proprietary technology to move goods efficiently through our customers’ supply chains primarily by providing less-than-truckload (“LTL”)in North America and truck brokerage services.Europe. See Note 4—3—Segment Reporting for additional information on our operations.
2022 Strategic PlanRXO Spin-Off and Intermodal Sale
On March 8,November 1, 2022, we announced that our Boardcompleted the spin-off of Directors approved a plan to pursue the strategic spin-off ofRXO, Inc. (“RXO”), our tech-enabled brokered transportation platform in North America as a publicly traded company and to pursue 2 divestitures: the sale of our North American intermodal operation and the sale or listing of our European business. We sold our intermodal operation, which provides rail brokerage and drayage services, in March 2022. For further information, see Note 3—Divestiture.
If the spin-off to XPO shareholders is completed, the transaction will result in 2 pure-play, publicly traded companies with simplified business models and clearly delineated value propositions. The core business of the spin-off will be our truck brokerage service, with complementary brokered services for managed transportation, last mile logistics and global forwarding. The remaining company will be an asset-based provider of LTL service in North America. The planned spin-off transaction, which is intended to be tax-free to XPO and our shareholders for U.S. federal income tax purposes, would result in XPO shareholders owning stock in both companies. In connection with the transaction, it is anticipated that a portion of XPO’s outstanding debt may be repaid using proceeds from borrowings incurred and debt securities to be issued by the spun-off company.
We currently expect to complete the spin-off in the fourth quarter of 2022, subject to various conditions, including the effectiveness of a Form 10 registration statement, receipt of a tax opinion from counsel, the refinancing of XPO’s debt on terms satisfactory to the XPO Board of Directors, and final approval by the XPO Board of Directors, among other requirements. There can be no assurance that any strategic transaction will occur, or if one or more do occur, of the terms or timing.
2021 Spin-Off of the Logistics Segment
On August 2, 2021, we completed the spin-off of our Logistics segment as GXO Logistics, Inc. (“GXO”(the “RXO spin-off”). The historical results of operations and the financial positions of RXO and our Logistics segmentintermodal operation, which was sold in March 2022, are presented as discontinued operations in our Condensed Consolidated Financial Statements. For information on our discontinued operations, see Note 2—Discontinued Operations.
Basis of Presentation
We prepared our Condensed Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“GAAP”) and on the same basis as the accounting policies described in our annual reportAnnual Report on Form 10-K for the year ended December 31, 20212022 (the “2021“2022 Form 10-K”). The interim reporting requirements of Form 10-Q allow certain information and note disclosures normally included in annual consolidated financial statements to be condensed or omitted. These Condensed Consolidated Financial Statements should be read in conjunction with the 20212022 Form 10-K.
The Condensed Consolidated Financial Statements are not audited but reflect all adjustments that are of a normal recurring nature and are necessary for a fair presentation of the financial condition, operating results and cash flows for the interim periods presented. Operating results for the three months ended March 31, 20222023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022.2023.
In the first quarter of 2023, we made certain changes to our financial reporting to increase transparency and improve comparability. Specifically, we changed the expense captions within Operating income in the Condensed Consolidated Statements of Income to reflect the nature of the expense. The change to natural expense classification had no impact on consolidated Revenues or Operating income. We have recast prior period amounts to conform to the current period’syear’s presentation.
Restricted Cash
As of March 31, 20222023 and December 31, 2021,2022, our restricted cash included in Other long-term assets on our Condensed Consolidated Balance Sheets was $6 million and $10 million.million, respectively.
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We also sell trade accounts receivable under a securitization program for our securitization program.European transportation business. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers.
The maximum amount of net cash proceeds available at any one time under our securitization program, inclusive of any unsecured borrowings, is €200 million (approximately $221$217 million as of March 31, 2022)2023). As of March 31, 2022, €1 million (approximately $1 million) was2023, the maximum amount available under the program subject to having sufficient receivables available to sell and with consideration to amounts previously purchased.was utilized. The weighted average interest rate was 0.53%3.41% as of March 31, 2022. Charges for commitment fees,2023. In May 2023, we entered into an agreement to extend the securitization program, which was scheduled to expire in July 2024, through July 2026. The terms and conditions of the extended securitization program are based on a percentagematerially consistent with the prior program.
Information related to the trade receivables sold was as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(In millions) | | | | | | 2022 | | 2021 (1) |
Securitization programs | | | | | | | | |
Receivables sold in period | | | | | | $ | 447 | | | $ | 347 | |
Cash consideration | | | | | | 447 | | | 347 | |
| | | | | | | | |
Factoring programs | | | | | | | | |
Receivables sold in period | | | | | | 27 | | | 16 | |
Cash consideration | | | | | | 27 | | | 16 | |
(1) Information for the three months ended March 31, 2021 excludes the Logistics segment. | | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(In millions) | | | | | | 2023 | | 2022 |
Securitization programs | | | | | | | | |
Receivables sold in period | | | | | | $ | 440 | | | $ | 447 | |
Cash consideration | | | | | | 440 | | | 447 | |
| | | | | | | | |
Factoring programs | | | | | | | | |
Receivables sold in period | | | | | | 24 | | | 21 | |
Cash consideration | | | | | | 24 | | | 21 | |
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The levels of inputs used to measure fair value are:
•Level 1—Quoted prices for identical instruments in active markets;
•Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets; and
•Level 3—Valuations based on inputs that are unobservable, generally utilizing pricing models or other valuation techniques that reflect management’s judgment and estimates.
We base our fair value estimates on market assumptions and available information. The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and current maturities of long-term debt approximated their fair values as of March 31, 20222023 and December 31, 20212022 due to their short-term nature and/or being receivable or payable on demand. The Level 1 cash equivalents include money market funds valued using quoted prices in active markets and a cash deposit for the securitization program. OurFor information on the fair value hierarchy of our derivative instruments, are classified as Level 2see Note 6—Derivative Instruments; and are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves. Forfor further information on financial liabilities, see Note 7—Debt.
The fair value hierarchy of cash equivalents was as follows:
| | | | | | | | | | | | | | | | | | | | |
(In millions) | | Carrying Value | | Fair Value | | Level 1 |
March 31, 2022 | | $ | 931 | | | $ | 931 | | | $ | 931 | |
December 31, 2021 | | 181 | | | 181 | | | 181 | |
Cash equivalents at March 31, 2022 include the cash proceeds from the sale of our intermodal operation in March 2022. For further information, see Note 3—Divestiture. | | | | | | | | | | | | | | | | | | | | |
(In millions) | | Carrying Value | | Fair Value | | Level 1 |
March 31, 2023 | | $ | 238 | | | $ | 238 | | | $ | 238 | |
December 31, 2022 | | 402 | | | 402 | | | 402 | |
Adoption of New Accounting Standard
In November 2021,September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832)2022-04, “Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosures by Business Entities about Government Assistance.Disclosure of Supplier Finance Program Obligations.” The ASU increases the transparency surrounding government assistancesupplier finance programs by requiring the buyer to disclose information on an annual disclosure of (i)basis about the types of assistance received, (ii) an entity’s accounting for the assistance and (iii) the effectkey terms of the assistance onprogram, the entity’s financial statements.outstanding obligation amounts as of the end of the period, a rollforward of such amounts, and the balance sheet presentation of the related amounts. Additionally, the obligation amount outstanding at the end of the period must be disclosed in interim periods. We adopted this standard on January 1, 2022,2023, on a prospective basis. The adoption, which is limited to financial statement disclosures, did not have a material impact on our financial statement disclosures.
Accounting Pronouncement Issued but Not Yet Effectivestatements.
In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848)—: Facilitation of the effects of reference rate reform on financial reporting.” The ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform. The amendments apply only to contracts and hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The amendments are elective and
are effective upon issuance throughissuance. In December 2022, the FASB issued ASU 2022-06, “Reference rate reform (Topic 848): Deferral of the sunset date of Topic 848” which defers the expiration date for Topic 848 from December 31, 2022.2022 until December 31, 2024. At December 31, 2022, our revolving loan credit agreement (the “ABL Facility”) and the senior secured term loan credit agreement, as amended (the “Term Loan Facility”), provide for an interest rate based on LIBOR. In February 2023, we amended the terms of our ABL Facility, including transitioning the interest rate from LIBOR to other base rates, and we expect to similarly modify the interest rate basis in the Term Loan Facility in 2023. We intend to apply this guidance ifdo not expect the modifications of contracts that include LIBOR occur, which is not expectedthese facilities to have a material impact on our consolidated financial statements.
2. Discontinued Operations
As discussed above, the results of RXO and intermodal are presented as discontinued operations. In addition, discontinued operations include GXO Logistics, Inc. (“GXO”), our former logistics segment that we spun off in August 2021.
The following table summarizes the financial results of operations from discontinued operations of GXO:operations:
| | | | | | | | | | | | | | |
| | | | | | Three Months Ended March 31, |
(In millions) | | | | | | | | 20212022 |
Revenue | | | | | | | | $ | 1,8181,645 | |
Direct operating expense (exclusive of depreciationSalaries, wages and amortization)employee benefits | | | | | | | | 1,514164 | |
Sales, general and administrative expensePurchased transportation | | | | | | | | 1501,221 | |
Fuel, operating expenses and supplies | | | | | | | | 115 | |
Operating taxes and licenses | | | | | | | | 1 | |
Insurance and claims | | | | | | | | 9 | |
Depreciation and amortization expense | | | | | | | | 73 22 | |
Gain on sale of business | | | | | | | | (450) | |
Transaction and other operating costs | | | | | | | | 172 | |
Operating income | | | | | | | | 64561 | |
Other income | | | | | | | | (11) | |
Interest expense | | | | | | | | 4 | |
Income from discontinued operations before income tax provision | | | | | | | | 71 | |
Income tax provision | | | | | | | | 16105 | |
Net income from discontinued operations, net of taxes | | | | | | | | 55 | |
Net income from discontinued operations attributable to noncontrolling
interests
| | | | | | | | (3) | |
Net income from discontinued operations attributable to GXOdiscontinued operations | | | | | | | | $ | 52456 | |
During the three months ended March 31, 2022 and 2021, we incurred approximately $4 million and $13 million, respectively, of costs related to the GXO spin-off. For the three months ended March 31, 2021, $122023, we incurred approximately $24 million of these
costswhich $4 million are reflected within income (loss) from discontinued operations in our Condensed Consolidated Statements of Income. For the three months ended March 31, 2022, we incurred approximately $4 million of costs related to the GXO spin-off all of which are reflected within income from continuing operations in our Condensed Consolidated Statements of income.
In accordance with a separation and distribution agreement, GXO has agreed to indemnify XPO for payments XPO makes with respect to certain self-insurance matters that were incurred by GXOthe logistics segment prior to the spin-off and remain obligations of XPO. The receivable and reserve for these matters was approximately $20$16 million eachand $15 million, respectively, as of March 31, 20222023 and approximately $23$17 million and $21$16 million, respectively, as of December 31, 2021.2022.
3. Divestiture
In March 2022, we sold our North American intermodal operation for cash proceeds of approximately $705 million, net of cash disposed and subject to a customary post-closing purchase price adjustment. We recorded a pre-tax gain on the sale of $450 million, net of transaction costs, for the three months ended March 31, 2022. We agreed to provide certain specified customary transition services for a period not exceeding 12 months from the sale. The intermodal operation generated revenue of $1.2 billion and operating income of $53 million for the year ended December 31, 2021. The intermodal operation was included in our Brokerage and Other Services segment through the date of the sale.
4. Segment Reporting
We are organized into 2two reportable segments: (i) North American LTL, the largest component of our business, and (ii) Brokerage and Other Services.European Transportation.
In our asset-based North American LTL segment, we provide our customersshippers with geographic density and day-definite regional, inter-regionaldomestic and transcontinental LTL freight services. Ourcross-border services include cross-borderto the U.S. freight movements to and from Mexico and Canada,, as well as intra-Canada service.Mexico, Canada and the Caribbean. Our North American LTL segment also includes the results of our trailer manufacturing operations.
In our asset-light BrokerageEuropean Transportation segment, we serve a large base of customers with consumer, trade and Other Services segment, shippers create demand for our technology-enabled services and we place their freight with qualified independent carriers, pricing the transactions on either a contract or a spot basis. Ourindustrial markets. We offer dedicated truckload, LTL, truck brokerage, business is the largest component of the segment, which also includes three complementary brokered services: managed transportation, last mile, logistics for heavy goodsfreight forwarding and global forwarding. Our European business, which we plan to divest through either a sale or a listing on a European stock exchange, is also currently reported within this segment.
Some of our operating units provide services to our other operating units outside of their reportable segment. Billings formultimodal solutions, such services are based on negotiated ratesas road-rail and are reflected as revenues of the billing segment. We adjust these rates from time to time based on market conditions. We eliminate intersegment revenues and expenses in our consolidated results.road-short sea combinations.
Corporate includes corporate headquarters costs for executive officers and certain legal and financial functions, and other costs and credits not attributed to our reportingreportable segments.
Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. We include items directly attributable to a segment, and those that can be allocated on a reasonable basis, in segment results reported to the CODM. We do not provide asset information by segment to the CODM. Our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“adjustedAdjusted EBITDA”), which we define as income from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, gain on sale of business, transaction and integration costs, restructuring costs and other adjustments.
corporate costs. In the first quarter of 2023, we began allocating incremental corporate costs from Corporate to North American LTL. Prior periods have been recast to reflect these incremental allocations, which approximate $80 million annually. Selected financial data for our segments is as follows:
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
(in millions) | (in millions) | | | 2022 | | 2021 | (in millions) | | | 2023 | | 2022 |
Revenue | Revenue | | | | | | Revenue | | | | | |
North American LTL | North American LTL | | | $ | 1,105 | | | $ | 962 | | North American LTL | | | $ | 1,120 | | | $ | 1,107 | |
Brokerage and Other Services | | | 2,432 | | | 2,071 | | |
Eliminations | | | (64) | | | (44) | | |
European Transportation | | European Transportation | | | 787 | | | 787 | |
Total | Total | | | $ | 3,473 | | | $ | 2,989 | | Total | | | $ | 1,907 | | | $ | 1,894 | |
| Adjusted EBITDA | Adjusted EBITDA | | | Adjusted EBITDA | | | |
North American LTL | North American LTL | | | $ | 205 | | | $ | 214 | | North American LTL | | | $ | 182 | | | $ | 186 | |
Brokerage and Other Services | | | 164 | | | 125 | | |
European Transportation | | European Transportation | | | 37 | | | 38 | |
Corporate | Corporate | | | (48) | | | (60) | | Corporate | | | (9) | | | (40) | |
Total adjusted EBITDA | | | 321 | | | 279 | | |
Total Adjusted EBITDA | | Total Adjusted EBITDA | | | 210 | | | 184 | |
Less: | Less: | | | Less: | | | |
Debt extinguishment loss | | | — | | | 8 | | |
| Interest expense | Interest expense | | | 37 | | | 65 | | Interest expense | | | 42 | | | 37 | |
Income tax provision | Income tax provision | | | 113 | | | 19 | | Income tax provision | | | 4 | | | 8 | |
Depreciation and amortization expense | Depreciation and amortization expense | | | 116 | | | 119 | | Depreciation and amortization expense | | | 101 | | | 94 | |
Unrealized (gain) loss on foreign currency option and forward contracts | | | — | | | (1) | | |
Gain on sale of business | | | (450) | | | — | | |
| | Transaction and integration costs (1) | Transaction and integration costs (1) | | | 10 | | | 5 | | Transaction and integration costs (1) | | | 22 | | | 7 | |
Restructuring costs (2) | Restructuring costs (2) | | | 6 | | | 1 | | Restructuring costs (2) | | | 24 | | | 6 | |
Income from continuing operations | Income from continuing operations | | | $ | 489 | | | $ | 63 | | Income from continuing operations | | | $ | 17 | | | $ | 32 | |
| Depreciation and amortization expense | Depreciation and amortization expense | | | Depreciation and amortization expense | | | |
North American LTL | North American LTL | | | $ | 55 | | | $ | 55 | | North American LTL | | | $ | 68 | | | $ | 56 | |
Brokerage and Other Services | | | 60 | | | 60 | | |
European Transportation | | European Transportation | | | 32 | | | 33 | |
Corporate | Corporate | | | 1 | | | 4 | | Corporate | | | 1 | | | 5 | |
Total | Total | | | $ | 116 | | | $ | 119 | | Total | | | $ | 101 | | | $ | 94 | |
(1) Transaction and integration costs for the three months ended March 31,first quarter of 2023 are primarily comprised of stock-based compensation for certain employees related to strategic initiatives. Transaction and integration costs for the first quarter of 2022 and 2021 are primarily comprised of third-party professional fees related to strategic initiatives including the spin-offs and other disposal activities, as well as retention awards paid to certain employees. Transaction and integration costs for the three months ended March 31, 2023 and 2022 and 2021 include $2$1 million and $1$2 million, respectively, related to our Brokerage and Other ServicesEuropean Transportation segment and $8$21 million and $4$5 million, respectively, related to Corporate.
(2) See Note 6—5— Restructuring Charges for further information on our restructuring actions.
5.4. Revenue Recognition
Disaggregation of Revenues
We disaggregate our revenue by geographic area and service offering. Our revenue disaggregated by geographicalgeographic area based on sales office location was as follows:
| | | Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2023 |
(In millions) | (In millions) | | North American LTL | | Brokerage and Other Services | | Eliminations | | Total | (In millions) | | North American LTL | | European Transportation | | | Total |
Revenue | Revenue | | | | | | | | | Revenue | | | | | | | |
United States | United States | | $ | 1,082 | | | $ | 1,519 | | | $ | (64) | | | $ | 2,537 | | United States | | $ | 1,097 | | | $ | — | | | | $ | 1,097 | |
North America (excluding United States) | North America (excluding United States) | | 23 | | | 101 | | | — | | | 124 | | North America (excluding United States) | | 23 | | | — | | | | 23 | |
France | France | | — | | | 352 | | | — | | | 352 | | France | | — | | | 340 | | | | 340 | |
United Kingdom | United Kingdom | | — | | | 225 | | | — | | | 225 | | United Kingdom | | — | | | 224 | | | | 224 | |
Europe (excluding France and United Kingdom) | Europe (excluding France and United Kingdom) | | — | | | 210 | | | — | | | 210 | | Europe (excluding France and United Kingdom) | | — | | | 223 | | | | 223 | |
Other | | — | | | 25 | | | — | | | 25 | | |
| Total | Total | | $ | 1,105 | | | $ | 2,432 | | | $ | (64) | | | $ | 3,473 | | Total | | $ | 1,120 | | | $ | 787 | | | | $ | 1,907 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2021 |
(In millions) | | North American LTL | | Brokerage and Other Services | | Eliminations | | Total |
Revenue | | | | | | | | |
United States | | $ | 940 | | | $ | 1,221 | | | $ | (44) | | | $ | 2,117 | |
North America (excluding United States) | | 22 | | | 69 | | | — | | | 91 | |
France | | — | | | 342 | | | — | | | 342 | |
United Kingdom | | — | | | 209 | | | — | | | 209 | |
Europe (excluding France and United Kingdom) | | — | | | 213 | | | — | | | 213 | |
Other | | — | | | 17 | | | — | | | 17 | |
Total | | $ | 962 | | | $ | 2,071 | | | $ | (44) | | | $ | 2,989 | |
Our revenue disaggregated by service offering was as follows: | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended March 31, 2022 |
(In millions) | | North American LTL | | European Transportation | | | | Total |
Revenue | | | | | | | | |
United States | | $ | 1,084 | | | $ | — | | | | | $ | 1,084 | |
North America (excluding United States) | | 23 | | | — | | | | | 23 | |
France | | — | | | 352 | | | | | 352 | |
United Kingdom | | — | | | 225 | | | | | 225 | |
Europe (excluding France and United Kingdom) | | — | | | 210 | | | | | 210 | |
| | | | | | | | |
Total | | $ | 1,107 | | | $ | 787 | | | | | $ | 1,894 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three Months Ended March 31, |
(In millions) | | | | | | 2022 | | 2021 |
North America | | | | | | | | |
LTL (1) | | | | | | $ | 1,133 | | | $ | 976 | |
Truck brokerage | | | | | | 824 | | | 596 | |
Last mile | | | | | | 246 | | | 246 | |
Other brokerage (2) | | | | | | 551 | | | 453 | |
Total North America | | | | | | 2,754 | | | 2,271 | |
Europe | | | | | | 787 | | | 763 | |
Eliminations | | | | | | (68) | | | (45) | |
Total | | | | | | $ | 3,473 | | | $ | 2,989 | |
(1) LTL revenue is before intercompany eliminations and includes revenue from our trailer manufacturing business.
(2) Other brokerage includes intermodal, expedite, freight forwarding and managed transportation services. Freight forwarding includes operations conducted outside of North America but managed by our North American entities. In March 2022, we sold our intermodal operation. For further information, see Note 3—Divestiture.
Performance Obligations
Remaining performance obligations represent firm contracts for which services have not been performed and future revenue recognition is expected. As permitted in determining the remaining performance obligation, we omit obligations that: (i) have original expected durations of one year or less or (ii) contain variable consideration. On March 31, 2022, the fixed consideration component of our remaining performance obligation was approximately $120 million, and we expect approximately 89% of that amount to be recognized over the next three years and the remainder thereafter. We estimate remaining performance obligations at a point in time and actual amounts may differ from these estimates due to changes in foreign currency exchange rates and contract revisions or terminations.
6.5. Restructuring Charges
We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with spin-offs and other disposaldivestment activities. These actions generally include severance and facility-related costs, including impairment of operating lease assets, as well as contract termination costs, and are intended to improve our efficiency and profitability.
Our restructuring-related activity was as follows:
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| | | | Three Months Ended March 31, 2023 | |
(In millions) | | Reserve Balance as of December 31, 2022 | | Charges Incurred | | Payments | | | | Foreign Exchange and Other | | Reserve Balance as of March 31, 2023 |
Severance | | | | | | | | | | | | |
North American LTL | | $ | 2 | | | $ | — | | | $ | (1) | | | | | $ | — | | | $ | 1 | |
European Transportation | | 1 | | | 7 | | | (2) | | | | | — | | | 6 | |
Corporate | | 19 | | | 11 | | | (6) | | | | | (1) | | | 23 | |
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Total | | $ | 22 | | | $ | 18 | | | $ | (9) | | | | | $ | (1) | | | $ | 30 | |
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In addition to the severance charges noted in the table above, we recorded a non-cash lease impairment charge of $6 million in our North American LTL segment in the first quarter of 2023.
Our restructuring-related activity was as follows:
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| | | | Three Months Ended March 31, 2022 | |
(In millions) | | Reserve Balance as of December 31, 2021 | | Charges Incurred | | Payments | | | | | | Reserve Balance as of March 31, 2022 |
Severance | | | | | | | | | | | | |
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Brokerage and Other Services | | $ | 6 | | | $ | 2 | | | $ | (3) | | | | | | | $ | 5 | |
Corporate | | 7 | | | 1 | | | (2) | | | | | | | 6 | |
Total severance | | 13 | | | 3 | | | (5) | | | | | | | 11 | |
Facilities | | | | | | | | | | | | |
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Brokerage and Other Services | | 2 | | | — | | | — | | | | | | | 2 | |
Total facilities | | 2 | | | — | | | — | | | | | | | 2 | |
Contract termination | | | | | | | | | | | | |
North American LTL | | — | | | 3 | | | (3) | | | | | | | — | |
Total contract termination | | — | | | 3 | | | (3) | | | | | | | — | |
Total | | $ | 15 | | | $ | 6 | | | $ | (8) | | | | | | | $ | 13 | |
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We expect that the majority of the cash outlays related to the severance charges incurred in the first quarterthree months of 20222023 will be completecompleted within 12 months.
6. Derivative Instruments
In the normal course of business, we are exposed to risks arising from business operations and economic factors, including fluctuations in interest rates and foreign currencies. We use derivative instruments to manage the volatility related to these exposures. The objective of these derivative instruments is to reduce fluctuations in our earnings and cash flows associated with changes in foreign currency exchange rates and interest rates. These financial instruments are not used for trading or other speculative purposes. Historically, we have not incurred, and do not expect to incur in the future, any losses as a result of counterparty default.
The fair value of our derivative instruments and the related notional amounts were as follows:
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| | March 31, 2023 |
| | | | Derivative Assets | | Derivative Liabilities |
(In millions) | | Notional Amount | | Balance Sheet Caption | | Fair Value | | Balance Sheet Caption | | Fair Value |
Derivatives designated as hedges | | | | | | | | | | |
Cross-currency swap agreements | | $ | 617 | | | Other current assets | | $ | — | | | Other current liabilities | | $ | (21) | |
Cross-currency swap agreements | | 57 | | | Other long-term assets | | 2 | | | Other long-term liabilities | | — | |
Interest rate swaps | | 1,882 | | | Other current assets | | — | | | Other current liabilities | | — | |
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Total | | | | | | $ | 2 | | | | | $ | (21) | |
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| | December 31, 2022 |
| | | | Derivative Assets | | Derivative Liabilities |
(In millions) | | Notional Amount | | Balance Sheet Caption | | Fair Value | | Balance Sheet Caption | | Fair Value |
Derivatives designated as hedges | | | | | | | | | | |
Cross-currency swap agreements | | $ | 332 | | | Other current assets | | $ | — | | | Other current liabilities | | $ | (11) | |
Cross-currency swap agreements | | 68 | | | Other long-term assets | | 3 | | | Other long-term liabilities | | — | |
Interest rate swaps | | 1,882 | | | Other current assets | | — | | | Other current liabilities | | (1) | |
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Total | | | | | | $ | 3 | | | | | $ | (12) | |
The derivatives are classified as Level 2 within the fair value hierarchy. The derivatives are valued using inputs other than quoted prices, such as foreign exchange rates and yield curves.
The effect of derivative and nonderivative instruments designated as hedges on our Condensed Consolidated Statements of Income was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amount of Gain (Loss) Recognized in Other Comprehensive Loss on Derivatives | | | | Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) |
| | Three Months Ended March 31, |
(In millions) | | 2023 | | 2022 | | | | | | 2023 | | 2022 |
Derivatives designated as cash flow hedges | | | | | | | | | | | | |
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Interest rate swaps | | 1 | | | 1 | | | | | | | — | | | — | |
Derivatives designated as net investment hedges | | | | | | | | | | | | |
Cross-currency swap agreements | | (10) | | | 9 | | | | | | | 2 | | | 1 | |
Total | | $ | (9) | | | $ | 10 | | | | | | | $ | 2 | | | $ | 1 | |
Cross-Currency Swap Agreements
We enter into cross-currency swap agreements to manage the foreign currency exchange risk related to our international operations by effectively converting our fixed-rate USD-denominated debt, including the associated interest payments, to fixed-rate, euro (“EUR”)-denominated debt. The risk management objective of these transactions is to manage foreign currency risk relating to net investments in subsidiaries denominated in foreign currencies and reduce the variability in the functional currency equivalent cash flows of this debt.
During the term of the swap contracts, we will receive interest, either on a quarterly or semi-annual basis, from the counterparties based on USD fixed interest rates, and we will pay interest, also on a quarterly or semi-annual basis, to the counterparties based on EUR fixed interest rates. At maturity, we will repay the original principal amount in EUR and receive the principal amount in USD. These agreements expire at various dates through 2024.
We designated these cross-currency swaps as qualifying hedging instruments and account for them as net investment hedges. We apply the simplified method of assessing the effectiveness of our net investment hedging relationships. Under this method, for each reporting period, the change in the fair value of the cross-currency swaps is initially recognized in Accumulated other comprehensive income (“AOCI”). The change in the fair value due to foreign exchange remains in AOCI and the initial component excluded from effectiveness testing will initially remain in AOCI and then will be reclassified from AOCI to Interest expense each period in a systematic manner. Cash flows related to the periodic exchange of interest payments for these net investment hedges are included in Cash flows from operating activities of continuing operations on our Condensed Consolidated Statements of Cash Flows.
Interest Rate Hedging
We execute short-term interest rate swaps to mitigate variability in forecasted interest payments on our Senior Secured Term Loan Credit Agreement. The interest rate swaps convert floating-rate interest payments into fixed rate interest payments. We designated the interest rate swaps as qualifying hedging instruments and account for these derivatives as cash flow hedges. The outstanding interest rate swaps mature on various dates through 2023.
We record gains and losses resulting from fair value adjustments to the designated portion of interest rate swaps in AOCI and reclassify them to Interest expense on the dates that interest payments accrue. Cash flows related to the interest rate swaps are included in Cash flows from operating activities of continuing operations on our Condensed Consolidated Statements of Cash Flows.
7. Debt
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| | March 31, 2022 | | December 31, 2021 |
(In millions) | | Principal Balance | | Carrying Value | | Principal Balance | | Carrying Value |
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Term loan facilities | | $ | 2,003 | | | $ | 1,979 | | | $ | 2,003 | | | $ | 1,977 | |
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6.25% Senior notes due 2025 | | 1,150 | | | 1,141 | | | 1,150 | | | 1,141 | |
6.70% Senior debentures due 2034 | | 300 | | | 215 | | | 300 | | | 214 | |
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Finance leases, asset financing and other | | 224 | | | 224 | | | 240 | | | 240 | |
Total debt | | 3,677 | | | 3,559 | | | 3,693 | | | 3,572 | |
Short-term borrowings and current maturities of long-term debt | | 682 | | | 682 | | | 58 | | | 58 | |
Long-term debt | | $ | 2,995 | | | $ | 2,877 | | | $ | 3,635 | | | $ | 3,514 | |
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| | March 31, 2023 | | December 31, 2022 |
(In millions) | | Principal Balance | | Carrying Value | | Principal Balance | | Carrying Value |
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Term loan facility | | $ | 2,003 | | | $ | 1,983 | | | $ | 2,003 | | | $ | 1,981 | |
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6.25% senior notes due 2025 | | 112 | | | 112 | | | 112 | | | 111 | |
6.70% senior debentures due 2034 | | 300 | | | 218 | | | 300 | | | 217 | |
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Finance leases, asset financing and other | | 231 | | | 231 | | | 223 | | | 223 | |
Total debt | | 2,646 | | | 2,544 | | | 2,638 | | | 2,532 | |
Short-term borrowings and current maturities of long-term debt | | 66 | | | 66 | | | 59 | | | 59 | |
Long-term debt | | $ | 2,580 | | | $ | 2,478 | | | $ | 2,579 | | | $ | 2,473 | |
The fair value of our debt and classification in the fair value hierarchy was as follows:
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(In millions) | | Fair Value | | Level 1 | | Level 2 |
March 31, 2022 | | $ | 3,717 | | | $ | 1,500 | | | $ | 2,217 | |
December 31, 2021 | | 3,811 | | | 1,571 | | | 2,240 | |
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(In millions) | | Fair Value | | Level 1 | | Level 2 |
March 31, 2023 | | $ | 2,616 | | | $ | 395 | | | $ | 2,221 | |
December 31, 2022 | | 2,601 | | | 392 | | | 2,209 | |
We valued Level 1 debt using quoted prices in active markets. We valued Level 2 debt using bid evaluation pricing models or quoted prices of securities with similar characteristics. The fair value
ABL Facility
As of March 31, 2022,2023, our borrowing base was $1.0 billion and our availability under our revolving loan credit agreement (the “ABL Facility”) was $996 million after considering outstanding$502 million. Outstanding letters of credit were less than $1 million as of $4 million.March 31, 2023. As of March 31, 2022,2023, we were in compliance with the ABL Facility’s financial covenants.
Letters of Credit Facility
As of March 31, 2022,2023, we havehad issued $185$154 million in aggregate face amount of letters of credit under our $200 million uncommitted secured evergreen letter of credit facility.
Term Loan FacilitiesFacility
In the first quarter of 2021, we amended our Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”) and recorded a debt extinguishment loss of $3 million. The interest rate on our term loan facility was 1.99%6.45% as of March 31, 2022.
Senior Notes Due 2025
In March 2022, we provided notice to redeem $630 million of the $1.15 billion principal amount of our outstanding 6.25% senior notes due 2025. See Note 11—Subsequent Events for more information.
Senior Notes Due 2022
In January 2021, we redeemed our outstanding 6.50% senior notes due 2022. The redemption price for the notes was 100% of the principal amount, plus accrued and unpaid interest. We paid for the redemption with available cash. We recorded a debt extinguishment loss of $5 million in the first quarter of 2021 due to this redemption.2023.
8. Stockholders’ Equity
Series A Convertible Perpetual Preferred Stock and Warrants
Commencing in the fourth quarter of 2020, holders of our convertible preferred stock and warrants exchanged their holdings for our common stock or a combination of our common stock and cash. These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment. In the first quarter of 2021, 975 preferred shares were exchanged, and we issued 0.1 million shares of common stock and 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock. The warrants exchanged included holdings of Jacobs Private Equity, LLC, an entity controlled by the Company’s chairman and chief executive officer.
Share Repurchases
In February 2019, our Board of Directors authorized repurchases of up to $1.5 billion of our common stock. Our share repurchase authorization permits us to purchase shares in both the open market and in private transactions, with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.
There have been no share repurchases since the first quarter of 2020. Our remaining share repurchase authorization was $503 million as of March 31, 2022.
9. Earnings (Loss) per Share
The computations of basic and diluted earnings per share were as follows:
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
(In millions, except per share data) | (In millions, except per share data) | | | 2022 | | 2021 | (In millions, except per share data) | | | 2023 | | 2022 |
Basic earnings (loss) per common share | | | | | | |
| | Net income from continuing operations attributable to common shares | | Net income from continuing operations attributable to common shares | | | $ | 17 | | | $ | 32 | |
| Net income (loss) from discontinued operations, net of amounts attributable to noncontrolling interest | | Net income (loss) from discontinued operations, net of amounts attributable to noncontrolling interest | | | (3) | | | 456 | |
| Net income attributable to common shares, basic | | Net income attributable to common shares, basic | | | $ | 14 | | | $ | 488 | |
| Basic weighted-average common shares | | Basic weighted-average common shares | | | 116 | | | 115 | |
| | | Dilutive effect of stock-based awards | | | — | | | 1 | |
Diluted weighted-average common shares | | Diluted weighted-average common shares | | | 116 | | | 116 | |
| Basic earnings from continuing operations per share | | Basic earnings from continuing operations per share | | | $ | 0.15 | | | $ | 0.28 | |
Basic earnings (loss) from discontinued operations per share | | Basic earnings (loss) from discontinued operations per share | | | (0.02) | | | 3.97 | |
Basic earnings per share | | Basic earnings per share | | | $ | 0.13 | | | $ | 4.25 | |
| | | | | | Net income from continuing operations attributable to common shares | | | $ | 489 | | | $ | 63 | | |
| | | Income (loss) from discontinued operations, net of taxes | | | $ | (1) | | | $ | 55 | | |
| | Net income from discontinued operations attributable to noncontrolling interests | | | — | | | (3) | | |
| | Net income (loss) from discontinued operations attributable to common shares | | | $ | (1) | | | $ | 52 | | |
| | Net income from continuing operations attributable to common shares, basic | | | $ | 489 | | | $ | 63 | | |
| Net income (loss) from discontinued operations attributable to common shares, basic | | | (1) | | | 52 | | |
Net income attributable to common shares, basic | | | $ | 488 | | | $ | 115 | | |
| Basic weighted-average common shares | | | 115 | | | 106 | | |
| Basic earnings from continuing operations per share | | | $ | 4.26 | | | $ | 0.59 | | |
Basic earnings (loss) from discontinued operations per share | | | (0.01) | | | 0.49 | | |
Basic earnings per share | | | $ | 4.25 | | | $ | 1.08 | | |
| Diluted earnings (loss) per common share | | | |
| Net income from continuing operations attributable to common shares, diluted | | | $ | 489 | | | $ | 63 | | |
| Net income (loss) from discontinued operations attributable to common shares, diluted | | | (1) | | | 52 | | |
Net income attributable to common shares, diluted | | | $ | 488 | | | $ | 115 | | |
| Basic weighted-average common shares | | | 115 | | | 106 | | |
| | Dilutive effect of stock-based awards and warrants | | | 1 | | | 6 | | |
Diluted weighted-average common shares | | | 116 | | | 112 | | |
| Diluted earnings from continuing operations per share | Diluted earnings from continuing operations per share | | | $ | 4.23 | | | $ | 0.56 | | Diluted earnings from continuing operations per share | | | $ | 0.15 | | | $ | 0.28 | |
Diluted earnings (loss) from discontinued operations per share | Diluted earnings (loss) from discontinued operations per share | | | (0.01) | | | 0.46 | | Diluted earnings (loss) from discontinued operations per share | | | (0.02) | | | 3.94 | |
Diluted earnings per share | Diluted earnings per share | | | $ | 4.22 | | | $ | 1.02 | | Diluted earnings per share | | | $ | 0.13 | | | $ | 4.22 | |
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10.9. Commitments and Contingencies
We are involved, and willexpect to continue to be involved, in numerous proceedings arising out of the conduct of our business. These proceedings may include claims for property damage or personal injury incurred in connection with the transportation of freight, environmental liability, commercial disputes, insurance coverage disputes and employment-related claims, including claims involving asserted breaches of employee restrictive covenants. These matters also include several collective and class action cases involving claims that our owner-operators or contract carriers should be treated as employees, rather than independent contractors (“misclassification claims”) and may seek substantial monetary damages (including claims for unpaid wages, overtime, failure to provide meal and rest breaks, unreimbursed business expenses, penalties and other items), injunctive relief, or both.
We establish accruals for specific legal proceedings when it is considered probable that a loss has been incurred and the amount of the loss can be reasonably estimated. We review and adjust accruals for loss contingencies quarterly and as additional information becomes available. If a loss is not both probable and reasonably estimable, or if an exposure to loss exists in excess of the amount accrued, we assess whether there is at least a reasonable possibility
that a loss, or additional loss, may have been incurred. If there is a reasonable possibility that a loss, or additional loss, may have been incurred, we disclose the estimate of the possible loss or range of loss if it is material and an estimate can be made, or disclose that such an estimate cannot be made. The determination as to whether a loss can reasonably be considered to be possible or probable is based on our assessment, together with legal counsel, regarding the ultimate outcome of the matter.
We believe that we have adequately accrued for the potential impact of loss contingencies that are probable and reasonably estimable. We do not believe that the ultimate resolution of any matters to which we are presently a party will have a material adverse effect on our results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on our financial condition, results of operations or cash flows. Legal costs incurred related to these matters are expensed as incurred.
We carry liability and excess umbrella insurance policies that we deem sufficient to cover potential legal claims arising in the normal course of conducting our operations as a transportation company. The liability and excess umbrella insurance policies generally do not cover the misclassification claims described in this note. In the event we are required to satisfy a legal claim outside the scope of the coverage provided by insurance, our financial condition, results of operations or cash flows could be negatively impacted.
Shareholder Litigation
On December 14, 2018, a putative class action captioned Labul v. XPO Logistics, Inc. et al., was filed in the U.S. District Court for the District of Connecticut against us and some of our current and former executives, alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 20(a) of the Exchange Act, based on alleged material misstatements and omissions in our public filings with the U.S. Securities and Exchange Commission. On June 3, 2019, lead plaintiffs Local 817 IBT Pension Fund, Local 272 Labor-Management Pension Fund, and Local 282 Pension Trust Fund and Local 282 Welfare Trust Fund (together, the “Pension Funds”) filed a consolidated class action complaint. Defendants moved to dismiss the consolidated class action complaint on August 2, 2019. On November 4, 2019, the Court dismissed the consolidated class action complaint without prejudice to the filing of an amended complaint. The Pension Funds, on January 3, 2020, filed a first amended consolidated class action complaint against us and a current executive. Defendants moved to dismiss the first amended consolidated class action complaint on March 3, 2020. On March 19, 2021, the Court dismissed the first amended consolidated class action complaint with prejudice and closed the case. On April 29, 2021, the Pension Funds filed a notice of appeal, and the appellate process is ongoing.
Also, on May 13, 2019, Adriana Jez filed a purported shareholder derivative action captioned Jez v. Jacobs, et al., (the “Jez complaint”) in the U.S. District Court for the District of Delaware, alleging breaches of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the Exchange Act against some of our current and former directors and officers, with the company as a nominal defendant. The Jez complaint was later consolidated with similar derivative complaints filed by purported shareholders Erin Candler and Kevin Rose under the caption In re XPO Logistics, Inc. Derivative Litigation. On December 12, 2019, the Court ordered plaintiffs to designate an operative complaint or file an amended complaint within 45 days. On January 27, 2020, plaintiffs designated the Jez complaint as the operative complaint in the consolidated cases. Defendants moved to dismiss the operative complaint on February 26, 2020. Rather than file a brief in opposition, on March 27, 2020, plaintiffs moved for leave to file a further amended complaint and to stay briefing on defendants’ motions to dismiss. The Court granted plaintiffs’ motion on July 6, 2020. On April 14, 2021, the Court issued an order staying proceedings pending resolution of an appeal in the Labul action. Plaintiffs stipulated that they will dismiss the shareholder derivative action with prejudice if the Labul dismissal is affirmed on appeal.
We believe these suits are without merit and we intend to defend the company vigorously. We are unable at this time to determine the amount of the possible loss or range of loss, if any, that we may incur as a result of these matters.
Insurance Contribution Litigation
In April 2012, Allianz Global Risks US Insurance Company sued 18eighteen insurance companies in a case captioned Allianz Global Risks US Ins. Co. v. ACE Property & Casualty Ins. Co., et al., Multnomah County Circuit Court (Case No. 1204-04552). Allianz Global Risks US Ins. Co. (“Allianz”) sought contribution on environmental and product liability claims that Allianz
agreed to defend and indemnify on behalf of its insured, Daimler Trucks North America (“DTNA”). Defendants had insured Freightliner’s assets, which DTNA acquired in 1981. Con-way, Freightliner’s former parent company, intervened. We acquired Con-way in 2015. Con-way and Freightliner had self-insured under fronting agreements with defendant insurers ACE, Westport, and General. Under those agreements, Con-way agreed to indemnify the fronting carriers for damages assessed under the fronting policies. Con-way’s captive insurer, Centron, was also a named defendant. After a seven-week jury trial in 2014, the jury found that Con-way and the fronting insurers never intended that the insurers defend or indemnify any claims against Freightliner. In June 2015, Allianz appealed to the Oregon Court of Appeals. In May 2019, the Oregon Court of Appeals upheld the jury verdict. In September 2019, Allianz appealed to the Oregon Supreme Court. In March 2021, the Oregon Supreme Court reversed the jury verdict, holding that it was an error to allow the jury to decide how the parties intended the fronting policies to operate, and also holding that the trial court improperly instructed the jury concerning one of the pollution exclusions at issue. In July of 2021, the matter was remanded to the trial court for further proceedings consistent with the Oregon Supreme Court’s decision. There is no date yet set for the next stages of the proceeding. The parties have filed cross-motions for summary judgment concerning the interpretation of certain of the fronting policies, which are yet to be decided. Following summary judgment, we anticipate a jury trial on the pollution exclusion, then a bench trial on allocation of defense costs among the subject insurance policies. We have accrued an immaterial amount for the potential exposure associated with Centron in the bench trial regarding allocation. As any losses that may arise in connection with the fronting policies issued by defendant insurers ACE, Westport, and General are not reasonably estimable at this time, no liability has been accrued in the accompanying interim consolidated financial statements for those potential exposures.
11. Subsequent EventsCalifornia Environmental Matters
In MarchAugust 2022, the Company received a letter from the San Bernardino County District Attorney’s Office, written in cooperation with certain other California District Attorneys and the Los Angeles City Attorney, notifying the Company of an investigation into alleged violations with respect to underground storage tanks, hazardous materials, and hazardous waste in California, and offering a meeting. On October 20, 2022 and April 6, 2023, the Company met with the County Attorneys and the Los Angeles City Attorney. We are assessing the allegations and the underlying facts, and continue to engage with the County and Los Angeles City Attorneys to address the alleged violations. No discussion of potential monetary sanctions or settlement amount has occurred to date, nor can we provided notice to redeem $630 million (“Redeemed Notes”) of the $1.15 billion principal amount of our outstanding 6.25% senior notes due 2025. The redemption price for the Redeemed Notes was 100% of the principal amount plus a premium as defined in the indenture and accrued and unpaid interest. In April 2022, we completed the redemption of the Redeemed Notes using available liquidity. The loss on debt extinguishment of approximately $26 million will be reflected in the second quarter of 2022 results of operations.reasonably estimate potential costs at this time.
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 2021 Annual Report on2022 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.
Executive Summary
XPO, Logistics, Inc., together with its subsidiaries (“XPO,” or “we”), is a leading provider of freight transportation services.services with company-specific avenues for value creation. We use our proprietary technology to move goods efficiently through our customers’ supply chains primarily by providing less-than-truckload (“LTL”)in North America and truck brokerage services. These two core linesEurope. As of business generated the majority of our 2021 revenueMarch 31, 2023, we had approximately 38,000 employees and operating income.558 locations in 17 countries serving approximately 48,000 customers.
Our company has two reportable segments — (i)segments: North American Less-Than-Truckload (“LTL”), the largest component of our business, and European Transportation. Our North American LTL and (ii) Brokerage and Other Services — and within each segment we are a leading provider in vast, fragmented transportation sectors with growing penetration. As of March 31, 2022, we had approximately 42,000 employees and 731 locations in 20 countries serving approximately 50,000 multinational, national, regional and local customers. We believe that our substantial exposure to secular industry growth trends, our first-mover advantage as an innovator and our blue-chip customer relationships are compelling competitive advantages.
2022 Strategic Plan
On March 8, 2022, we announced that our Board of Directors approved a plan to pursueincludes the strategic spin-offresults of our tech-enabled brokered transportation platformtrailer manufacturing operations.
In the first quarter of 2023, we made certain changes to our financial reporting to increase transparency and improve comparability. Specifically, we changed the expense captions within Operating income in the Condensed Consolidated Statements of Income to reflect the nature of the expense. The change to natural expense classification had no impact on consolidated Revenues or Operating income. We have recast prior period amounts to conform to the current year’s presentation. We provided certain unaudited recast financial information for fiscal years 2020, 2021 and 2022 in a Form 8-K filed with the U.S. Securities and Exchange Commission on April 11, 2023.
North American Less-Than-Truckload Segment
LTL in North America asis a publicly traded companybedrock industry providing a critical service to the economy, with favorable pricing dynamics and to pursue two divestitures: the sale of our North American intermodal operation and the sale or listing of our European business.
If the spin-off to XPO shareholders is completed, the transaction will result in two pure-play, publicly traded companies with simplified business models and clearly delineated value propositions. The core businessa stable competitive landscape. We have one of the spin-off will be our truck brokeragelargest LTL networks in North America, with approximately 8% share of the $59 billion U.S. market as of December 31, 2022.
Our LTL sales and service with complementary brokered services for managed transportation, last mile logisticsprofessionals and global forwarding. The remaining company will be an asset-based providernetwork of LTL servicedrivers, tractors, trailers and terminals serve approximately 27,000 customers in North America. The planned spin-off transaction, which is intendedWe provide shippers with critical geographic density and day-definite domestic and cross-border services to be tax-free to XPOapproximately 99% of U.S. zip codes, as well as Mexico, Canada and our shareholders for U.S. federal income tax purposes, would result in XPO shareholders owning stock in both companies. In connection withthe Caribbean.
Together, our capacity and reach give us the transaction, it is anticipated that a portion of XPO’s outstanding debt may be repaid using proceeds from borrowings incurredability to manage large freight volumes efficiently and debt securitiesbalance our network to be issued by the spun-off company.
We currently expect to complete the spin-off in the fourth quarter of 2022, subject to various conditions, including the effectiveness of a Form 10 registration statement, receipt of a tax opinion from counsel, the refinancing of XPO’s debt on terms satisfactory to the XPO Board of Directors, and final approval by the XPO Board of Directors, among other requirements. There can be no assurance that any strategic transaction will occur, or if one or more do occur, of the terms or timing.
In March 2022, we sold our North American intermodal operation for cash proceeds of approximately $705 million, net of cash disposed and subject to a customary post-closing purchase price adjustment. We recorded a pre-tax gain on the sale of $450 million, net of transaction costs, for the three months ended March 31, 2022. We agreed to provide certain specified customary transition services for a period not exceeding 12 months from the sale. The intermodal operation was included in our Brokerage and Other Services segment through the date of the sale.
2021 Spin-Off of the Logistics Segment
On August 2, 2021, we completed the spin-off of our Logistics segment as GXO Logistics, Inc. (“GXO”). The historical results of our Logistics segment are presented as discontinued operations in our Condensed Consolidated Financial Statements. For information on our discontinued operations, see Note 2—Discontinued Operations.
During the three months ended March 31, 2022 and 2021, we incurred approximately $4 million and $13 million, respectively, of costs related to the GXO spin-off. For the three months ended March 31, 2021, $12 million of these costs are reflected within income from discontinued operations in our Condensed Consolidated Statements of Income.
North American Less-Than-Truckload Segment
XPO is the fourth largest provider of asset-based LTL services in North America — we have one of the industry’s largest networks of tractors, trailers and terminals, and approximately 8% share of the $51 billion LTL market as of December 31, 2021. We provide our customers with geographic density and day-definite regional, inter-regional and transcontinental LTL freight services. Our services include cross-border U.S. freight movements to and from Mexico and Canada, as well as intra-Canada service.
Our LTL business is one of the few truly national LTL providers in North America, with a historically high return on capital (“ROIC”) and robust free cash flow generation. Our LTL customer base is levered to the industrial economy, which we expect to be a growing opportunity for us as supply chain disruptions resolve and manufacturing scales up in North America. In addition to our competitive positioning, we benefit from favorable industry fundamentals of rational pricing and limited commoditization. We have relationships with approximately 25,000 LTL customers in North America, the majority of which are local accounts.leverage fixed costs. For the trailing 12 months ended March 31, 2022,2023, we delivered approximately 18 billion pounds of freight.
AfterImportantly, our LTL business historically has generated a high return on invested capital and robust free cash flow. This supports our ongoing investments in the planned spin-offexpansion of our North American brokered transportation platform,network capacity and the enhancement of our company will beproprietary technology. We are managing the third largest pure-play LTL provider in North America. We expect our business to move forward with continued strong momentum fromspecific objectives, such as high customer service scores for on-time delivery and damage-free freight, the numerous company-specific initiatives we have underway for network growthoptimal sourcing of linehaul transportation, and efficiency. We are using a combinationthe addition of operational tactics and investments in our capacity of tractors, trailers, doors and truck drivers, including our goal of adding 900 net new doors to our terminal footprint by the first quarter of 2024 from an October 2021 baseline. Since implementing our LTL 2.0 growth plan in the fourth quarter of 2021, we added six terminals to our network, by year-end 2023. Importantly,representing 369 net new doors.
Additionally, we are continuing to execute a host of initiatives that are specific to XPO and largely independent of the plan levers XPO-specific competitive advantages, including our continued deployment of proprietary LTL technology, the expansion of our national driver training network, and increased productionmacroeconomic environment. We produced 4,705 trailers at our Company-ownedin-house trailer manufacturing facility in Arkansas.
2022, nearly doubling the 2021 output. Our goal is to produce more than 6,000 trailers in 2023. We are making good progressalso investing in these areas, including the opening of three new LTL terminals from October 31, 2021 through March 31, 2022, one new terminal in April 2022 and one expected to open in May 2022. In January 2022, we added a second production line at our trailer manufacturing facility to double our output run-rate. We expect to graduate approximately 1,800 driver school trainees this year, which is twiceexpanding the number of 2021 graduates,drivers trained at our 130 commercial driver schools. Our in-house trailer manufacturing and driver schools are examples of idiosyncratic, self-reliant capabilities that are advantageous to counteract the industry-wide driver shortage.XPO, particularly when industry constraints on equipment or drivers exist.
Specific to our technology, we believe that we have a significantlarge opportunity to drive further improve thegrowth and profitability ofin our LTL network through innovation, beyondinnovation. For further information, see the “Technology and Sustainability” section below.
European Transportation Segment
XPO has a unique pan-European transportation platform with leading positions in key geographies: we are the #1 full truckload broker and the #1 pallet network (LTL) provider in France; the #1 full truckload broker and the #1 LTL provider in Iberia (Spain and Portugal); and a top-tier dedicated truckload provider in the U.K., where we also have the largest single-owner LTL network. We serve a large gainbase of customers within the consumer, trade and industrial markets, including many sector leaders that have long-tenured relationships with us.
Our range of services in operating marginEurope encompasses dedicated truckload, LTL, truck brokerage, managed transportation, last mile, freight forwarding and, increasingly, multimodal solutions, such as road-rail and road-short sea combinations that we have achievedtailor to date. Wecustomer needs. Our operators use
our proprietary XPO Connect
® technology to manage these services within our digital ecosystem in Europe.
20Technology and Sustainability
the ways in which we deliver superior service to our customers is by empowering our employees with technology. Our industry is evolving, and customers want to de-risk their supply chains by forming relationships with reliable service providers that have invested in innovation. We have built a highly scalable ecosystem on the cloud that deploys our software consistently across our operating footprint. In our North American LTL business, the caliber of our technology is mission-critical to our success; it optimizes linehaul, pickup-and-delivery and pricing — the main components of the service we provide. An LTL network of our scale has hundreds of thousands of activities underway at any given time, all managed on our technology. For the trailing 12 months ended March 31, 2023, we moved 18 billion pounds of freight 773 million miles, including moving linehaul freight an average of 2.5 million miles a day.
With intelligent route-building, we can reduce empty miles in our linehaul network, improve load factor and mitigate cargo damage. Our proprietary bypass models make recommendations to move LTLenhance trailer utilization, assimilating massive amounts of data and taking volume, density, and freight across North America, and proprietarydimensions into account. We use our visualization tools to help reduce the cost ofcosts with pickups and deliveries. Our XPO Smart™ productivity tools are deployed in our LTL cross-dock operations. Our largest opportunity is relateddeliveries, and we developed piece-level tracking to our proprietaryidentify individual pallets to enhance shipment loading and visibility. We also developed a robust pricing technology, which includesplatform for contractual account management and automated, dynamic pricing for local accounts and a new pricing platform utilized by our pricing experts for larger accounts.
Brokerage and Other Services Segment
XPO is one of the largest truck brokers in North America. As of December 31, 2021, we had approximately 3% share of the $88 billion truck brokerage industry — which is a subset of the $400 billion total addressable opportunity of for-hire trucking in North America. Shippers create truckload demand and we place their freight with qualified independent carriers, pricing the transactions on either a contract or a spot basis. Our truck brokerage business has an agile model with a variable labor structure that generates a high ROIC and free cash flow conversion.
The key factors driving growth and margin expansion in our truck brokerage business are massive capacity, our cutting-edge XPO Connect® technology platform and favorable industry tailwinds. The demand for truckload capacity in the e-commerce and omnichannel retail sectors continues to be robust. At the same time, more and more shippers are outsourcing to brokers, while increasingly preferring brokers like XPO that offer digital capabilities.
As of March 31, 2022, we had approximately 106,000 independent truckload carriers in our global brokerage network; approximately 88,000 of these carriers are in North America, representing more than one and a half million trucks. Our XPO Connect® brokerage platform is a major differentiator for our business and, together with our pricing technology, we believe it can unlock incremental profitable growth well beyond our current levels. As of March 31, 2022, cumulative truck driver downloads of the mobile app for XPO Connect® surpassed 700,000.
Our Brokerage and Other Services segment also includes three asset-light, brokered transportation services, all of which are complementary to our truck brokerage business: managed transportation, last mile logistics for heavy goods and global forwarding. Our European business, which we plan to divest through either a sale or a listing, is also currently reported within this segment.
Post-spin-off, we expect all of the brokered transportation services to continue to lever the first-mover technology advantage the new company will inherit from XPO.
From 2013 through 2021, our truck brokerage business in North America generated a compound annual growth rate (“CAGR”) of 27.4% — three times the truck brokerage industry growth rate of 9.6%.
Technology and Corporate Sustainability
Proprietary technology is a major competitive advantage for us across our service lines. Our company has been investing in transportation automation and digitization for more than a decade to innovate how goods move through supply chains. We believe that we are well-positioned to satisfy customer demands for faster, more efficient supply chains with greater visibility, while enhancing revenue and profitability.
Importantly, our technology also helps our Company and customerscompany meet our respectiveits environmental, social and governance (“ESG”) goals, such as a reduction in theour carbon footprint, of certain supply chains operations.and can help our customers meet their own goals. For a detailed discussion of our philosophy relating to innovation and ESG matters, see the ExecutiveCompany Overview included in our 2021 Annual Report on2022 Form 10-K, as well as our current Sustainability Report at sustainability.xpo.com.
Impacts of COVID-19 and Other 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 COVID-19 pandemicvirus that emerged in 2020 affected and may continue to affect, economic activity broadly and customer sectors served by our industry. Labor shortages, particularly a shortage of truck drivers and dockworkers, and equipment shortages continue to present challenges to many transportation-related industries. Additionally, disruptionsDisruptions in supply chains for industrial materials and supplies, such as semiconductor chips, have impacted some of the end-market activities that create demand for our services. We cannot predict how long these dynamics will last, in the economic recovery, or whether future challenges, if any, will adversely affect our results of operations. To date, the totality of the actions we have taken during the pandemic, and continue to take
in the recovery, have mitigated the impact on our profitability relative to the impact on our revenue and volumes, while our strong liquidity and disciplined capital management enable us to continue to invest in growth initiatives.
Additionally, economic inflation can have a negative impact on our operating costs. A prolonged periodcosts, such as the rising costs of inflation could cause interest rates,fleet maintenance, fuel wages and otherpurchased transportation we experienced in 2022. We mitigate these costs to continue to increase, which would adversely affect our results of operations unless our pricing to our customers correspondingly increases. For the three months ended March 31, 2022, the transportation industry’s truck driver shortage, together with rising fuel prices, resulted in higher transportation procurement costs to meet growing demand, which costs were largely offset by mechanisms in our customer contracts, including fuel surcharge clauses and general rate increases. In addition, the rise in interest rates increased our cost of capital in 2022. An economic recession could depress customer demand for transportation services.
Regarding the war between Russia and Ukraine, we have no direct exposure to those geographies. We cannot predict how global supply chain activities or the economy at large may be impacted by a prolonged war in Ukraine or sanctions imposed in response to the war, or whether future conflicts, if any, may adversely affect our results of operations.
Consolidated Summary Financial Table
| | | | | Three Months Ended March 31, | | Percent of Revenue | | Change | | | Three Months Ended March 31, | | Percent of Revenue | | Change |
(Dollars in millions) | (Dollars in millions) | | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 vs. 2021 | (Dollars in millions) | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 vs. 2022 |
Revenue | Revenue | | | $ | 3,473 | | | $ | 2,989 | | | 100.0 | % | | 100.0 | % | | 16.2 | % | Revenue | | | $ | 1,907 | | | $ | 1,894 | | | 100.0 | % | | 100.0 | % | | 0.7 | % |
Cost of transportation and services (exclusive of depreciation and amortization) | | | 2,437 | | | 2,053 | | | 70.2 | % | | 68.7 | % | | 18.7 | % | |
Direct operating expense (exclusive of depreciation and amortization) | | | 385 | | | 334 | | | 11.1 | % | | 11.2 | % | | 15.3 | % | |
Sales, general and administrative expense | | | 344 | | | 338 | | | 9.9 | % | | 11.3 | % | | 1.8 | % | |
Salaries, wages and employee benefits | | Salaries, wages and employee benefits | | | 762 | | | 725 | | | 40.0 | % | | 38.3 | % | | 5.1 | % |
Purchased transportation | | Purchased transportation | | | 457 | | | 510 | | | 24.0 | % | | 26.9 | % | | (10.4) | % |
Fuel, operating expenses and supplies | | Fuel, operating expenses and supplies | | | 427 | | | 418 | | | 22.4 | % | | 22.1 | % | | 2.2 | % |
Operating taxes and licenses | | Operating taxes and licenses | | | 15 | | | 16 | | | 0.8 | % | | 0.8 | % | | (6.3) | % |
Insurance and claims | | Insurance and claims | | | 44 | | | 56 | | | 2.3 | % | | 3.0 | % | | (21.4) | % |
Gains on sales of property and equipment | | Gains on sales of property and equipment | | | (3) | | | (1) | | | (0.2) | % | | (0.1) | % | | 200.0 | % |
Depreciation and amortization expense | Depreciation and amortization expense | | | 116 | | | 119 | | | 3.3 | % | | 4.0 | % | | (2.5) | % | Depreciation and amortization expense | | | 101 | | | 94 | | | 5.3 | % | | 5.0 | % | | 7.4 | % |
Gain on sale of business | | | (450) | | | — | | | (13.0) | % | | — | % | | NM | |
| Transaction and integration costs | Transaction and integration costs | | | 10 | | | 5 | | | 0.3 | % | | 0.2 | % | | 100.0 | % | Transaction and integration costs | | | 22 | | | 7 | | | 1.2 | % | | 0.4 | % | | 214.3 | % |
Restructuring costs | Restructuring costs | | | 6 | | | 1 | | | 0.2 | % | | — | % | | 500.0 | % | Restructuring costs | | | 24 | | | 6 | | | 1.3 | % | | 0.3 | % | | 300.0 | % |
Operating income | Operating income | | | 625 | | | 139 | | | 18.0 | % | | 4.7 | % | | 349.6 | % | Operating income | | | 58 | | | 63 | | | 3.0 | % | | 3.3 | % | | (7.9) | % |
Other income | Other income | | | (14) | | | (16) | | | (0.4) | % | | (0.5) | % | | (12.5) | % | Other income | | | (5) | | | (14) | | | (0.3) | % | | (0.7) | % | | (64.3) | % |
Debt extinguishment loss | | | — | | | 8 | | | — | % | | 0.3 | % | | (100.0) | % | |
| Interest expense | Interest expense | | | 37 | | | 65 | | | 1.1 | % | | 2.2 | % | | (43.1) | % | Interest expense | | | 42 | | | 37 | | | 2.2 | % | | 2.0 | % | | 13.5 | % |
Income from continuing operations before income tax provision | Income from continuing operations before income tax provision | | | 602 | | | 82 | | | 17.3 | % | | 2.7 | % | | 634.1 | % | Income from continuing operations before income tax provision | | | 21 | | | 40 | | | 1.1 | % | | 2.1 | % | | (47.5) | % |
Income tax provision | Income tax provision | | | 113 | | | 19 | | | 3.3 | % | | 0.6 | % | | 494.7 | % | Income tax provision | | | 4 | | | 8 | | | 0.2 | % | | 0.4 | % | | (50.0) | % |
Income from continuing operations | Income from continuing operations | | | 489 | | | 63 | | | 14.1 | % | | 2.1 | % | | 676.2 | % | Income from continuing operations | | | 17 | | | 32 | | | 0.9 | % | | 1.7 | % | | (46.9) | % |
Income from discontinued operations, net of taxes | | | (1) | | | 55 | | | — | % | | 1.8 | % | | NM | |
Income (loss) from discontinued operations, net of taxes | | Income (loss) from discontinued operations, net of taxes | | | (3) | | | 456 | | | (0.2) | % | | 24.1 | % | | (100.7) | % |
Net income | Net income | | | $ | 488 | | | $ | 118 | | | 14.1 | % | | 3.9 | % | | 313.6 | % | Net income | | | $ | 14 | | | $ | 488 | | | 0.7 | % | | 25.8 | % | | (97.1) | % |
NM - Not meaningful
Three Months Ended March 31, 20222023 Compared with Three Months Ended March 31, 20212022
RevenueOur consolidated revenue for the first quarter of 20222023 increased 16.2%0.7% to $3.5$1.9 billion, compared with the same quarter in 2021.2022. The increase in revenue reflects growth in bothfuel surcharge revenue in our Brokerage and Other Services and LTL segments and includes the impact of increased revenue from fuel surcharges.segment, due primarily to higher diesel prices. Foreign currency movement reduceddecreased revenue by approximately 1.22.5 percentage points in the first quarter of 2022.
Cost of transportation and services (exclusive of depreciation and amortization) includes the cost of providing or procuring freight transportation for XPO customers and salaries paid to employee drivers in our LTL and truck brokerage businesses.
Cost of transportation and services (exclusive of depreciation and amortization) for the first quarter of 2022 was $2.4 billion, or 70.2% of revenue, compared with $2.1 billion or 68.7% of revenue, for the same quarter in 2021. The year-over-year increase as a percentage of revenue is primarily due to higher third-party transportation costs, which were partially offset by pricing actions.2023.
Direct operating expenses (exclusive of depreciationSalaries, wages and amortization) are comprised of both fixedemployee benefits includes compensation-related costs for our employees, including salaries, wages, healthcare-related costs and variable expensespayroll taxes, and include operating costs related to our LTL service centers. Direct operating expenses (exclusive of depreciationcovers drivers and amortization) consist mainly of personnel costs,dockworkers, operations and facility workers and equipment expenses, such as rent, utilities, equipment maintenanceemployees in support roles and repair, costs of materialsother positions. Salaries, wages and supplies, information technology expenses, and gains and losses on sales of property and equipment.
Direct operating expense (exclusive of depreciation and amortization)employee benefits for the first quarter of 20222023 was $385$762 million, or 11.1%40.0% of revenue, compared with $334$725 million, or 11.2%38.3% of revenue, for the same quarter in 2021.2022. The year-over-year increase as a percentage of revenue primarily reflects the impact of inflation on our cost base, partially offset by lower headcount.
Purchased transportation includes costs of procuring third-party freight transportation. Purchased transportation for the first quarter of 2023 was $457 million, or 24.0% of revenue, compared with $510 million, or 26.9% of revenue, for the same quarter in 2022. The year-over-year decrease as a percentage of revenue was primarily driven byreflects lower rates paid to third-party providers for purchased transportation miles and the leveraginginsourcing of compensation costs across a larger revenue base. This decrease was almost entirely offset by a $23 million gains on salesgreater proportion of propertylinehaul from third-party transportation providers.
Fuel, operating expenses and equipmentsupplies includes the cost of fuel purchased for use in the first quarter of 2021. There were no gains on sales of propertyour vehicles as well as related taxes, maintenance and equipment in the first quarter of 2022.
Sales, general and administrative expense (“SG&A”) primarily consists of salaries and commissions for the sales function, salary and benefitlease costs for executiveour equipment, including tractors and certain administration functions, professional fees, facilitytrailers, costs related to operating our owned and leased facilities, bad debt expense, third-party professional fees, information technology expenses and legal costs.
SG&Asupplies expense. Fuel, operating expenses and supplies for the first quarter of 20222023 was $344$427 million, or 9.9%22.4% of revenue, compared with $338$418 million, or 11.3%22.1% of revenue, for the same quarter in 2021.2022. The year-over-year increase primarily reflects higher lease costs and bad debt expense, partially offset by lower third-party information technology expenses.
Operating taxes and licenses includes tax expenses related to our vehicles and our owned and leased facilities as well as license expenses to operate our vehicles.
Insurance and claims includes costs related to vehicular and cargo claims for both purchased insurance and self-insurance programs. Insurance and claims for the first quarter of 2023 was $44 million, compared with $56 million for the same quarter in 2022. The year-over-year decrease as a percentage of revenue was primarily driven byreflects lower compensationcargo insurance expense and third-party professional and consulting fees.due to improved operating performance related to damaged shipments.
Depreciation and amortization expense for the first quarter of 20222023 was $116$101 million, compared with $119$94 million for the same quarter in 2021.
Gain on sale2022. The year-over-year increase reflects the impact of business was $450 million, net of transaction costs, for the first quarter of 2022 as we sold our North American intermodal operation. For more information, see Note 3—Divestiture to our Condensed Consolidated Financial Statements.capital investments, in particular tractors and trailers.
Transaction and integration costs for the first quarter of 20222023 were $10$22 million, compared with $5$7 million for the same quarter in 2021.2022. Transaction and integration costs for the first three monthsquarter of 20222023 are primarily comprised of stock-based compensation for certain employees related to strategic initiatives. Transaction and 2021integration costs for the first quarter of 2022 are primarily comprised of third-party professional fees related to strategic initiatives including the spin-offs and other disposal activities, as well as retention awards paid to certain employees. We expect to incur additional transaction and integration costs related to rebranding and stock-based compensation in 2023 and 2024.
Restructuring costs for the first quarter of 20222023 were $6$24 million, compared with $1$6 million for the same quarter in 2021.2022. We engage in restructuring actions as part of our ongoing efforts to best use our resources and infrastructure, including actions in connection with spin-offs and other disposaldivestment activities. For more information, see Note 6—5—Restructuring Charges to our Condensed Consolidated Financial Statements. We may incur incremental restructuring costs in 2022 in connection with the planned spin-off of our North American brokered transportation operation or for other reasons; however, we are currently unable to reasonably estimate these costs.
Other income primarily consists of pension income. Other income for the first quarter of 20222023 was $14$5 million, compared with $16$14 million for the same quarter in 2021.
Debt extinguishment loss was $82022. The year-over-year decrease reflects $11 million for the first quarter of 2021 and related to the write-off of debt issuance costs for the redemption of our outstanding senior notes due 2022, as well as costs incurred related to the amendment of our term loan credit agreement. There was no debt extinguishment losslower net periodic pension income in the first quarter of 2022.2023 primarily due to a rise in interest rates and a lower expected return on plan assets.
Interest expense decreasedincreased to $42 million for the first three months of 2023 from $37 million for the first three months of 2022 from $65 million for the first three months of 2021.2022. The decreaseincrease in interest expense reflected lower average total indebtednessis primarily due to a higher floating interest rate on our Term Loan Facilities, partially offset by the impact of the redemption of $1.1 billion of our 6.25% senior notes due 2025 in the first quarter of 2022.
Our effective income tax rates were 18.8%18.3% and 23.0%19.6% for the first three months of 20222023 and 2021,2022, respectively. The effective tax rates for the first quarter of 20222023 and 20212022 were based on forecasted full-year effective tax rates, adjusted for discrete items that occurred within the periods presented. The decrease in our effective income tax rate for the first three months of 2023 compared to the same quarter of 2022 was primarily driven by an increased impact
from discrete items due to lower pre-tax book income. The primary items impacting the effective tax rate for the first three monthsquarter of 2022 compared to the same quarter in 2021 included a tax expense of $78 million from the sale of our North American intermodal operation, which resulted in a reduction to our effective tax rate due to the book gain exceeding the tax gain, as well as a tax benefit of2023 are $2 million of discrete tax benefits from stock-based compensation.revaluing deferred state taxes partially offset by forecasted non-deductible executive compensation expense. The primary item impacting the effective tax rate for the first quarter of 20212022 was a discrete tax benefit of $3$2 million from stock-based compensation.
Segment Financial Results
Our chief operating decision maker (“CODM”) regularly reviews financial information at the operating segment level to allocate resources to the segments and to assess their performance. Our CODM evaluates segment profit (loss) based on adjusted earnings before interest, taxes, depreciation and amortization (“adjustedAdjusted EBITDA”), which we define as income from continuing operations before debt extinguishment loss, interest expense, income tax, depreciation and amortization expense, gain on sale of business, transaction and integration costs, restructuring costs and other adjustments. Segment Adjusted EBITDA has historically reflected an allocation of corporate costs. In the first quarter of 2023, we began allocating incremental corporate costs from Corporate to North American LTL. Prior periods have been recast to reflect these incremental allocations, which approximate $80 million annually. See Note 4—3—Segment Reporting to our Condensed Consolidated Financial Statements for further information and a reconciliation of adjustedAdjusted EBITDA to Income from continuing operations.
North American Less-Than-Truckload Segment
| | | | | Three Months Ended March 31, | | Percent of Revenue | | Change | | | Three Months Ended March 31, | | Percent of Revenue | | Change |
(Dollars in millions) | (Dollars in millions) | | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 vs. 2021 | (Dollars in millions) | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 vs. 2022 |
Revenue | Revenue | | | $ | 1,105 | | | $ | 962 | | | 100.0 | % | | 100.0 | % | | 14.9 | % | Revenue | | | $ | 1,120 | | | $ | 1,107 | | | 100.0 | % | | 100.0 | % | | 1.2 | % |
Adjusted EBITDA | Adjusted EBITDA | | | 205 | | | 214 | | | 18.5 | % | | 22.2 | % | | (4.2) | % | Adjusted EBITDA | | | 182 | | | 186 | | | 16.3 | % | | 16.8 | % | | (2.2) | % |
Depreciation and amortization expense | | | 55 | | | 55 | | | 5.0 | % | | 5.7 | % | | — | % | |
Depreciation and amortization | | Depreciation and amortization | | | 68 | | | 56 | | | 6.1 | % | | 5.1 | % | | 21.4 | % |
Revenue in our North American LTL segment increased 14.9%1.2% to $1.1$1.12 billion for the first quarter of 2022,2023, compared with $962 million$1.11 billion for the same quarter in 2021.2022. Revenue included fuel surcharge revenue of $207$217 million and $135$207 million, respectively, for the first three months of 20222023 and 2021.2022. The increase in fuel surcharge revenue primarily reflects higher diesel prices.
We evaluate the revenue performance of our LTL business using several commonly used metrics, including volume (weight per day in pounds) and yield, which is a commonly used measure of LTL pricing trends. We measure yield using gross revenue per hundredweight, excluding fuel surcharges. Impacts on yield can include weight per shipment and length of haul, among other factors. The following table summarizes our key revenue metrics:
| | | | | Three Months Ended March 31, | | | Three Months Ended March 31, |
| | | | 2022 | | 2021 | | Change % | | | 2023 | | 2022 | | Change % |
Pounds per day (thousands) | Pounds per day (thousands) | | | 70,176 | | | 70,730 | | | (0.8) | % | Pounds per day (thousands) | | | 68,889 | | | 70,176 | | | (1.8) | % |
| Gross revenue per hundredweight, excluding fuel surcharges | Gross revenue per hundredweight, excluding fuel surcharges | | | $ | 20.76 | | | $ | 19.11 | | | 8.7 | % | Gross revenue per hundredweight, excluding fuel surcharges | | | $ | 21.06 | | | $ | 20.76 | | | 1.4 | % |
The year-over-year increase in revenue, excluding fuel surcharge revenue, for the first quarter of 20222023 reflects an increase in gross revenue per hundredweight.hundredweight, almost entirely offset by lower volume. The decrease in weight per day for the first quarter reflects lower shipmentsaverage weight per day,shipment, partially offset by higher shipments per day. In the month of April 2023, as compared to April 2022, weight per shipment.day decreased 2.0% while shipments per day increased 3.1%.
Adjusted EBITDA was $205$182 million, or 18.5%16.3% of revenue, for the first three months of 2022,2023, compared with $214$186 million, or 22.2%16.8% of revenue, for the same quarter in 2021.2022. The decrease in Adjusted EBITDA for the first quarter of 2021 included $17 million of gains from real estate transactions. There were no gains from real estate transactions in the first quarter of 2022. Additionally, adjusted EBITDA in the first quarter of 20222023 reflected higher revenue, partiallysalaries, wages and employee benefits, primarily due to cost inflation and, to a lesser extent, higher headcount, $11 million of lower pension income and higher fuel costs and bad debt expense. These items were almost entirely offset by increased compensation costs,lower purchased transportation, expenseprimarily due to lower rates paid to third-party providers for purchased transportation miles and fuel costs incurred to meet growing demand.
Brokerage and Other Services Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Three Months Ended March 31, | | Percent of Revenue | | Change |
(Dollars in millions) | | | | | | | | | | | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 vs. 2021 |
Revenue | | | | | | | | | | | | $ | 2,432 | | | $ | 2,071 | | | 100.0 | % | | 100.0 | % | | 17.4 | % |
Adjusted EBITDA | | | | | | | | | | | | 164 | | | 125 | | | 6.7 | % | | 6.1 | % | | 31.2 | % |
Depreciation and amortization expense | | | | | | | | | | | | 60 | | | 60 | | | 2.5 | % | | 2.9 | % | | — | % |
Revenue in our Brokerage and Other Services segment increased 17.4% to $2.4 billion for the first quarterinsourcing of 2022, compared with $2.1 billion for the same quarter in 2021. The year-over-year revenue increase for the first threea greater proportion of linehaul from third-party transportation providers.
monthsDepreciation and amortization expense increased to $68 million in the first quarter of 2023 compared with $56 million for the same quarter in 2022 primarily reflected an increasedue to the impact of capital investments, in North American truck brokerage loads, facilitated byparticular tractors and trailers.
European Transportation Segment
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Three Months Ended March 31, | | Percent of Revenue | | Change |
(Dollars in millions) | | | | | | | | | | | | 2023 | | 2022 | | 2023 | | 2022 | | 2023 vs. 2022 |
Revenue | | | | | | | | | | | | $ | 787 | | | $ | 787 | | | 100.0 | % | | 100.0 | % | | — | % |
Adjusted EBITDA | | | | | | | | | | | | 37 | | | 38 | | | 4.7 | % | | 4.9 | % | | (2.6) | % |
Depreciation and amortization | | | | | | | | | | | | 32 | | | 33 | | | 4.1 | % | | 4.2 | % | | (3.0) | % |
Revenue in our digital platform, as well as strengthEuropean Transportation segment was $787 million in other services.each of the first quarters of 2023 and 2022. Foreign currency movement reduceddecreased revenue by approximately 1.76.1 percentage points in the first quarter of 2022.2023. The increase in revenue compared to the first quarter of 2022, after taking into effect the impact of foreign currency movement, primarily reflects price increases to cover cost inflation as well as higher volume.
Adjusted EBITDA was $164$37 million, or 6.7%4.7% of revenue, for the first three months of 2022,2023, compared with $125$38 million, or 6.1%4.9% of revenue, for the same quarter in 2021.2022. The increasedecrease in Adjusted EBITDA was primarily driven by higher revenuesalaries, wages and employee benefits due to load growththe impact of cost inflation and bonuses paid to certain French employees in North American truck brokerage and strong pricing in other brokerage services, partiallyconnection with a government program (PPV: Prime de Partage de la Valeur), almost entirely offset by higher third-partylower purchased transportation and compensation costs.higher gains on sales of property and equipment.
Liquidity and Capital Resources
Our cash and cash equivalents balance was $1.0 billion$309 million as of March 31, 2022,2023, compared to $260$460 million as of December 31, 2021.2022. Our principal existing sources of cash areare: (i) cash generated from operations; (ii) borrowings available under our Second Amended and Restated Revolving Loan Credit Agreement, as amended (the “ABL Facility”); (iii) proceeds from the issuance of other debt; and (iv) proceeds from divestiture activities. As of March 31, 2022,2023, we have $996$502 million available to draw under our ABL Facility, based on a borrowing base of $1.0 billion$502 million and outstanding letters of credit of $4less than $1 million. Additionally, we have a $200 million uncommitted secured evergreen letter of credit facility, under which we havehad issued $185$154 million in aggregate face amount of letters of credit as of March 31, 2022.2023.
As of March 31, 2022,2023, we had approximately $2.0 billion$811 million of total liquidity. We continually evaluate our liquidity requirements 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.
Trade Receivables Securitization and Factoring Programs
We sell certain of our trade accounts receivable on a non-recourse basis to third-party financial institutions under factoring agreements. We also sell trade accounts receivable under a securitization program for our securitization program.European transportation business. We use trade receivables securitization and factoring programs to help manage our cash flows and offset the impact of extended payment terms for some of our customers. For more information, see Note 1—Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements.
The maximum amount of net cash proceeds available at any one time under our securitization program, inclusive of any unsecured borrowings, is €200 million (approximately $221$217 million as of March 31, 2022)2023). As of March 31, 2022, €1 million (approximately $1 million) was2023, the maximum amount available under the program subject to having sufficient receivables available to sell and with consideration to amounts previously purchased.
was utilized. Under the securitization program, we service the receivables we sell on behalf of the Purchasers,purchasers. In May 2023, we entered into an agreement to extend the securitization program, which gives us visibility into the timing of customer payments.was scheduled to expire in July 2024, through July 2026. The benefit to our cash flow includes the difference between the cash consideration in the table belowterms and the amount we collected as a servicer on behalfconditions of the Purchasers. In the first three months of 2022 and 2021, we collected cash as servicer of $464 million and $341 million, respectively.
Term Loan Facilities
In the first quarter of 2021, we amended our Senior Secured Term Loan Credit Agreement (the “Term Loan Credit Agreement”) and recorded a debt extinguishment loss of $3 million.
Senior Notes Due 2025
In March 2022, we provided notice to redeem $630 million (“Redeemed Notes”) of the $1.15 billion principal amount of our outstanding 6.25% senior notes due 2025. The redemption price for the Redeemed Notes was 100% of the principal amount plus a premium as defined in the indenture and accrued and unpaid interest. In April 2022, we completed the redemption of the Redeemed Notes using available liquidity. The loss on debt extinguishment of approximately $26 million will be reflected in the second quarter of 2022 results of operations.
Senior Notes Due 2022
In January 2021, we redeemed our outstanding 6.50% senior notes due 2022. The redemption price for the notes was 100% of the principal amount, plus accrued and unpaid interest. We paid for the redemption with available cash. We recorded a debt extinguishment loss of $5 million in the first quarter of 2021 due to this redemption.
Preferred Stock and Warrant Exchanges
Commencing in the fourth quarter of 2020, holders of our convertible preferred stock and warrants exchanged their holdings for our common stock or a combination of our common stock and cash. These exchanges were intended to simplify our equity capital structure, including in contemplation of the spin-off of our Logistics segment. In the first quarter of 2021, 975 preferred shares were exchanged, and we issued 0.1 million shares of common stock and 9.8 million warrants were exchanged, and we issued 9.2 million shares of common stock.
Share Repurchases
In February 2019, our Board of Directors authorized repurchases of up to $1.5 billion of our common stock. Our share repurchase authorization permits us to purchase shares in both the open market and in private transactions,extended securitization program are materially consistent with the timing and number of shares dependent on a variety of factors, including price, general business conditions, market conditions, alternative investment opportunities and funding considerations. We are not obligated to repurchase any specific number of shares and may suspend or discontinue the program at any time.
There have been no share repurchases since the first quarter of 2020. Our remaining share repurchase authorization was $503 million as of March 31, 2022.prior program.
Loan Covenants and Compliance
As of March 31, 2022,2023, 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.
Sources and Uses of Cash
| | | Three Months Ended March 31, | | Three Months Ended March 31, |
(In millions) | (In millions) | | 2022 | | 2021 | (In millions) | | 2023 | | 2022 |
Net cash provided by operating activities from continuing operations | Net cash provided by operating activities from continuing operations | | $ | 200 | | | $ | 77 | | Net cash provided by operating activities from continuing operations | | $ | 76 | | | $ | 188 | |
Net cash provided by (used in) investing activities from continuing operations | | 571 | | | (38) | | |
Net cash used in investing activities from continuing operations | | Net cash used in investing activities from continuing operations | | (216) | | | (120) | |
Net cash used in financing activities from continuing operations | Net cash used in financing activities from continuing operations | | (24) | | | (1,464) | | Net cash used in financing activities from continuing operations | | (10) | | | (24) | |
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During the three months ended March 31, 2022, we: (i)2023, we generated cash from operating activities from continuing operations of $200 million and (ii) generated net proceeds from sale of a business of $705 million. We used cash during this period primarily to purchase property and equipment of $137 million.
During the three months ended March 31, 2021, we: (i) generated cash from operating activities from continuing operations of $77 million and (ii) generated proceeds from sales of property and equipment of $36$76 million. We used cash during this period primarily to: (i) purchase property and equipment of $74$224 million; (ii) redeem our senior notes due 2022 for $1.2 billion;make payments on debt and finance leases of $16 million; and (iii) repay our ABL Facility borrowingsmake payments of $200$12 million related to tax withholding obligations in connection with the vesting of restricted shares.
During the three months ended March 31, 2022, we generated cash from operating activities from continuing operations of $188 million. We used cash during this period primarily to: (i) purchase property and equipment of $123 million; (ii) make payments on debt and finance leases of $16 million; and (iii) make payments of $12 million related to tax withholding obligations in connection with the vesting of restricted shares.
Cash flows from operating activities from continuing operations for the three months ended March 31, 2022 increased2023 decreased by $123$112 million, compared with the same period in 2021.2022. The increasedecrease reflects higher income from continuing operations of $426 million for the three months ended March 31, 2022, compared with the same period in 2021, and the impact of operating assets and liabilities providing $36 million of cash in the first three months of 2022, compared to utilizing $112 million during the same period in 2021. Partially offsetting these impacts was a $450 million gain on sale of business recognized during the three months ended March 31, 2022. Within operating assets and liabilities, accounts payable generated $332 million more cash while accounts receivable utilized $207 million more cash in the first quarter of 2022 compared to the same period in 2021 as a result of higher revenues and timing of payments.
Investing activities from continuing operations generated $571$79 million of cash in the three months ended March 31, 2023, compared with generating $42 million of cash during the same period in 2022. Within operating assets and liabilities, for the three months ended March 31, 2023, compared with the same period in 2022: (i) accounts payable utilized $125 million more cash primarily due to the timing of payments; and (ii) accrued expenses and other liabilities generated $94 million less cash primarily due to the accrual of a tax obligation related to the sale of our intermodal operation in the first quarter of 2022. Partially offsetting these items, accounts receivable utilized $85 million less cash in the first quarter of 2023 as compared to the first quarter of 2022 andprimarily as a result of a lower sequential increase in revenues.
Investing activities from continuing operations used $38$216 million of cash in the three months ended March 31, 2021.2023 and $120 million of cash in the three months ended March 31, 2022. During the three months ended March 31, 2022,2023, we received $705 million of cash from the sale of our intermodal operation, net of cash disposed, and used $137$224 million to purchase property and equipment. Duringequipment, as compared to a $123 million usage of cash in the same period in 2022. The increase reflects our continued investment, primarily in tractors and trailers, to support our long-term growth targets.
Financing activities from continuing operations used $10 million of cash in the three months ended March 31, 2021, we used
$74 million of cash to purchase property2023 and equipment and received $36 million from sales of property and equipment.
Financing activities from continuing operations used $24 million of cash in the three months ended March 31, 2022 and $1.5 billion2022. The primary uses of cash from financing activities in each of the first three months ended March 31, 2021.of 2023 and 2022 were $16 million used to repay borrowings and $12 million to make payments for tax withholdings on restricted shares. The primary usessource of cash from financing activities during the first three months of 2022 were $162023 was $19 million usedof proceeds from bank overdrafts, as compared to repay borrowings. The primary uses$3 million in the same period of cash from financing activities during the three months ended March 31, 2021 were $1.2 billion used to redeem the senior notes due 2022 and $200 million used to repay borrowings under our ABL Facility.2022.
Except for the notice of our intent to redeem a portion of our senior notes due 2025 as described above, thereThere were no material changes to our December 31, 20212022 contractual obligations during the three months ended March 31, 2022.2023. We anticipate full year netgross capital expenditures to be between $425$500 million and $475$600 million in 2022 (without giving effect to the planned spin-off2023, funded by cash on hand and other dispositions).available liquidity.
New Accounting Standards
Information related to new accounting standards is included in Note 1—Organization, Description of Business and Basis of Presentation to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk related to changes in interest rates, foreign currency exchange rates and commodity risk.prices. There have been no material changes to our quantitative and qualitative disclosures about market risk related to our continuing operations during the three months ended March 31, 2022,2023, as compared with the quantitative and qualitative disclosures about market risk described in our Annual Report on2022 Form 10-K for the year ended December 31, 2021.10-K.
Item 4. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of March 31, 2022.2023. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of March 31, 2022 were effective as of such time2023, such that the information required to be included in our Securities and Exchange Commission (“SEC”) reports is: (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to the Company, including our consolidated subsidiaries; and (ii) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the quarter ended March 31, 20222023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II—Other Information
Item 1. Legal Proceedings.
For information related to our legal proceedings, refer to “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 20212022 and Note 10—9—Commitments and Contingencies of Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors.
There are no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, except as set forth below.
The announced spin-off and sale or listing of our European business are contingent upon the satisfaction of a number of conditions, may not be completed on the currently contemplated timeline, or at all, and may not achieve the intended benefits.
On March 8, 2022, we announced that our Board of Directors had approved a plan to pursue the strategic spin-off of our tech-enabled brokered transportation platform in North America as a publicly traded company and pursue two divestitures, including the sale or listing of our European business. Completion of the announced spin-off, as well as the timing of completion, is subject to a number of conditions, including the effectiveness of a Form 10 registration statement, receipt of a tax opinion from counsel, the refinancing of our debt on terms satisfactory to our Board of Directors, and final approval by our Board of Directors. These transactions are complex in nature and may be affected by unanticipated developments or changes in market conditions. There is the potential for business disruption and significant separation costs. These or other unanticipated developments or costs could delay or prevent the announced transactions, or cause the announced transactions to occur on terms or conditions that are less favorable than anticipated. Furthermore, if the transactions are completed, there is no guarantee that they will be successful in meeting their objectives or achieving their intended benefits. Any of these factors could have a material adverse effect on our business and results of operations.2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
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Exhibit Number | | Description |
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10.1+*10.1*+ | | |
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101.INS * | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH * | | XBRL Taxonomy Extension Schema. |
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101.CAL * | | XBRL Taxonomy Extension Calculation Linkbase. |
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101.DEF * | | XBRL Taxonomy Extension Definition Linkbase. |
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101.LAB * | | XBRL Taxonomy Extension Label Linkbase. |
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101.PRE * | | XBRL Taxonomy Extension Presentation Linkbase. |
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104 * | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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* | | Filed herewith. |
** | | Furnished herewith. |
+ | | This exhibit is a management contract or compensatory plan or arrangement. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| XPO, LOGISTICS, INC. |
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By: | /s/ Brad JacobsMario Harik |
| Brad JacobsMario Harik |
| Chief Executive Officer |
| (Principal Executive Officer) |
| |
By: | /s/ Ravi TulsyanCarl D. Anderson II |
| Ravi TulsyanCarl D. Anderson II |
| Chief Financial Officer |
| (Principal Financial Officer) |
Date: May 10, 20224, 2023