What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-10 compared with 2022-11-09 · 97 added, 171 removed, 60 unchanged (82% of the section changed)

8 unchanged sentences

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 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 17, 2022 (the “2021 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Form 10-Q.

All forward-looking statements set forth in this Quarterly Report on Form 10-Q are qualified by these cautionary statements, and there can be no assurance that the 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 16, 2023 (the “2022 Form 10-K”), and the unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

GXO Logistics, Inc., together with its subsidiaries (“GXO,” the “Company” or “we”), is the largest pure-play contract logistics provider in the world and a foremost innovator in an industry propelled by strong secular tailwinds.

Our customers rely on us to move their goods with high efficiency through their supply chains from the moment inbound goods arrive at our logistics sites, through fulfillment and distribution and the management of returned products.

Our customer base includes many blue-chip leaders in sectors that demonstrate high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics services.

GXO Logistics, Inc., together with its subsidiaries, (“GXO,” the “Company” or “we”) is the largest pure-play contract logistics provider in the world and a foremost innovator in the industry.

We provide our customers with high-value-add warehousing and distribution, order fulfillment, e-commerce, reverse logistics and other supply chain services differentiated by our ability to deliver technology-enabled, customized solutions at scale.

Our customers rely on us to move their goods with high efficiency through their supply chains — from the moment inbound goods arrive at our warehouses, through fulfillment and distribution and the management of returned products.

Our customer base includes many blue-chip leaders in sectors that demonstrate high growth and/or durable demand, with significant growth potential through customer outsourcing of logistics and warehousing services.

We strive to provide all of our customers with consistently high levels of service and cutting-edge automation.

We also collaborate with our largest customers on planning and forecasting and assist with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as environmental, social and governance.

Our multidisciplinary, consultative approach has led to many of our key customer relationships extending for years and expanding in scope.

The most dramatic growth in secular demand in recent years has been in e-commerce and related sectors, including omnichannel retail and other direct-to-consumer channels.

We expect to attract new customers and expand the services we provide to existing customers through new projects, thus earning more of their external and internal logistics spending.

We use technology to manage advanced automation, labor productivity, sustainability, safety and the complex flow of goods within sophisticated warehouse environments.

Our business model is asset-light and historically resilient in cycles, with high returns, strong free cash flow and visibility into revenue and earnings.

The vast majority of our contracts with customers are multi-year agreements, and our facility lease arrangements generally align with contract length.

The vast majority of our contracts with customers are long-term in nature, and our facility lease arrangements generally align with contract length.

The Company has both fixed-price contracts and cost-plus contracts.

Most of our customer contracts contain both fixed and variable components.

The fixed component is typically designed to cover facility, technology and equipment costs and may cover management costs, while the variable component is determined based on expected volumes and associated labor costs.

We use technology to manage advanced automation, labor productivity, safety and the complex flow of goods within sophisticated logistics environments.

We strive to provide all of our customers with consistently high levels of service and cutting-edge automation managed by our proprietary technology.

We also collaborate with our largest customers on planning and forecasting and provide assistance with network optimization, working with these customers to design or redesign their supply chains to meet specific goals, such as sustainability metrics.

Our multidisciplinary, consultative approach has led to many of our key customer relationships extending for years and expanding in scope.

The Separation

On August 2, 2021, we completed the separation from XPO Logistics, Inc.

(“XPO”) (the “Separation”).

Prior to the Separation, the Company’s financial statements were prepared on a standalone combined basis and were derived from the consolidated financial statements and accounting records of XPO.

On August 2, 2021, the Company became a standalone publicly traded company, and its financial statements post-Separation are prepared on a consolidated basis.

The combined consolidated financial statements for all periods presented prior to the Separation are now also referred to as “Condensed Consolidated Financial Statements” and have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”).

Prior to the Separation, the Company’s historical assets and liabilities presented were wholly owned by XPO and were reflected on a historical cost basis.

In connection with the Separation, the Company’s assets and liabilities were transferred to the Company on a carryover basis.

Prior to the Separation, the historical results of operations included allocations of XPO costs and expenses, including XPO’s corporate function, which incurred a variety of expenses including, but not limited to, information technology, human resources, accounting, sales and sales operations, procurement, executive services, legal, corporate finance and communications.

An allocation of these expenses is included to burden all business units comprising XPO’s historical results of operations, including GXO.

The charges reflected have been either specifically identified or allocated using drivers including proportional adjusted earnings before interest, taxes, depreciation and amortization, which include adjustments for transaction and integration costs, as well as restructuring costs and other adjustments, or headcount.

The majority of these allocated costs is recorded within Selling, general and administrative expense;

Depreciation and amortization expense;

and Transaction and integration costs in the Condensed Consolidated Statements of Operations.

The Company’s Condensed Consolidated Financial Statements include the accounts of GXO and its majority-owned subsidiaries and variable interest entities of which the Company is the primary beneficiary.

The Company has eliminated intercompany accounts and transactions.

We have a single reportable segment.

Clipper Acquisition

The fixed component is typically designed to cover facility, technology and equipment costs, while the variable component is determined based on expected volumes and associated labor costs.

Under fixed-price contracts (closed book or hybrid contracts), the Company agrees to perform the specified work for a pre-determined price.

To the extent the Company’s actual costs vary from the estimates upon which the price was negotiated, the Company will generate more or less profit.

Cost-plus contracts, or open book contracts, provide for the payment of allowable costs incurred during the performance of the contract plus a specified margin.

On May 24, 2022, the Company completed the acquisition of Clipper Logistics plc (“Clipper”), an omnichannel retail logistics specialist based in Leeds, England (the “Clipper Acquisition”).

The Company acquired Clipper for $1,103 million, consisting of $900 million in cash and the issuance of 3,749,266 shares of GXO common stock having a value of $203 million.

The Clipper Acquisition was subject to review by the Competition and Markets Authority in the United Kingdom (the “CMA”).

On October 4, 2022, the CMA approved the Clipper Acquisition.

In connection with the Clipper Acquisition, (i) the Company and Clipper entered into a Cooperation Agreement;

(ii) the Company entered into a Delayed Draw Term Loan;

(iii) the Company entered into a Five-Year Term Loan;

and (iv) the Company terminated its Bridge Term Loan.

For additional information regarding the financing agreements entered into in connection with the Clipper Acquisition, see Note 7.

Debt and Financing Arrangements.

The Company included Clipper’s results of operations from the date of acquisition.

For the three and nine months ended September 30, 2022, the Company recorded $239 million and $319 million of revenue, respectively, and $— million and $1 million of income before income taxes, respectively.

Due to the Clipper Acquisition, comparisons in our results of operations between 2023 and 2022 are less meaningful.

Results of Operations

Three Months Ended September 30,

Three Months Ended March 31,

(In millions) 2023 2022 $ Change % Change

7 unchanged sentences

Other income, net — 16 (16) (100) %

Interest expense, net (6) (5) (1) 20 %

Interest expense, net (13) (4) (9) n/m

Income before income taxes 29 49 (20) (41) %

Income tax (expense) benefit (19) 31 (50) n/m

Income tax expense (3) (11) 8 (73) %

Net income $ 26 $ 38 $ (12) (32) %

n/m - not meaningful

Three Months Ended September 30, 2022 compared with the Three Months Ended September 30, 2021

Revenue for the three months ended September 30, 2022 increased by 16%, or $313 million, to $2.3 billion, compared with $2.0 billion for the same period in 2021.

Our North America, Asia and Pacific operations and European operations reported growth of 18% and 15%, respectively.

The Clipper Acquisition contributed 16% to our European revenue and 10% to total revenue.

Foreign currency movements decreased revenue by approximately 11% for the three months ended September 30, 2022.

Direct operating expenses comprise both fixed and variable expenses and consist of operating costs related to our logistics facilities, including personnel costs and facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, transportation costs, costs of materials and supplies, and information technology expenses.

Direct operating expense for the three months ended September 30, 2022 was $1.9 billion, or 82% of revenue, compared with $1.7 billion, or 84% of revenue, for the same period in 2021.

For the three months ended September 30, 2022, direct operating expenses primarily increased due to higher personnel and temporary labor costs of $131 million, higher facilities and transportation costs of $76 million and higher costs of materials and supplies of $16 million, these increases are mainly driven by the Clipper Acquisition.

Revenue for the three months ended March 31, 2023 increased by 12%, or $240 million, to $2.3 billion compared with $2.1 billion for the same period of 2022.

The increase in 2023 compared to the prior period primarily reflects an increase of $224 million due to the Clipper Acquisition and growth in our business primarily driven by new contract implementations.

Foreign currency movement decreased revenue by $100 million in 2023.

Direct operating expenses comprise both fixed and variable expenses and consist of operating costs related to our logistics facilities, including personnel costs, facility and equipment expenses, such as rent, utilities, equipment maintenance and repair, transportation costs, costs of materials and supplies and information technology expenses.

Direct operating expense for the three months ended March 31, 2023 increased by 9%, or $158 million, to $1.9 billion compared with $1.7 billion for the same period in 2022.

Direct operating expense increased primarily due to the Clipper Acquisition and growth in our business.

As a percentage of revenue, direct operating expense for the three months ended March 31, 2023, was 82.0% compared with 83.9% for the same period in 2022.

Selling, general and administrative expense (“SG&A”) primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs.

SG&A for the three months ended September 30, 2022 increased by $56 million, to $227 million, compared with $171 million for the same period in 2021.

SG&A for the three months ended September 30, 2022 increased compared with the same prior year period due to higher personnel costs, primarily for certain administrative functions and the Clipper Acquisition.

Depreciation and amortization expense for the three months ended September 30, 2022 was $89 million, compared with $85 million for the same period in 2021.

Depreciation and amortization expense included amortization of intangible assets of $21 million and $16 million for the three months ended September 30, 2022 and 2021, respectively.

The increase was primarily due to higher depreciation and amortization from the Clipper Acquisition, partially offset by lower depreciation as a result of contract modifications in the prior year.

Transaction and integration costs for the three months ended September 30, 2022 were $14 million, primarily related to the Clipper Acquisition and rebranding as a result of the Separation.

Transaction and integration costs for the three months ended September 30, 2021 were $29 million, primarily related to the Separation.

Restructuring costs and other for the three months ended September 30, 2022 and 2021 was not material.

Other income, net consists primarily of foreign exchange gains and losses, including foreign currency contracts, and pension income.

Other income, net for the three months ended September 30, 2022 was $17 million compared with $11 million for the same period in 2021.

For the three months ended September 30, 2022, the gain on foreign currency contracts was $9 million and pension income was $7 million.

For the three months ended September 30, 2021, pension income was $10 million.

Interest expense, net for the three months ended September 30, 2022 was $6 million compared with $5 million for the same period in 2021.

For the three months ended September 30, 2022, interest expense primarily related to outstanding debt and capital lease obligations, partially offset by interest income on the cross-currency swap agreements.

For the three months ended September 30, 2021, interest expense primarily related to debt issued in connection with the Separation, and related-party debt with XPO before the Separation, partially offset by interest income on the cross-currency swap agreements.

Income before income taxes for the three months ended September 30, 2022 increased by $41 million, to $83 million, compared with $42 million for the same period in 2021.

The increase was primarily due to growth in our business, lower transaction and integration costs, and other income from a pension plan and foreign currency contracts.

Income tax for the three months ended September 30, 2022 was $19 million expense compared with $31 million benefit for the same period in 2021.

Our effective tax rate was 22.5% for the three months ended September 30, 2022 compared with (72.5)% for the same period in 2021.

The change in our effective tax rate was primarily driven by a discrete tax benefit from the initial recognition of a deferred tax asset in connection with the Separation.

Nine Months Ended September 30,

SG&A for the three months ended March 31, 2023 increased by 36%, or $68 million, to $258 million compared with $190 million for the same period in 2022.

SG&A increased due to the Clipper Acquisition and higher personnel costs, primarily for certain administrative functions, reflecting the growth in our business.

Depreciation and amortization expense for the three months ended March 31, 2023 increased by $7 million to $83 million compared with $76 million for the same period in 2022.

Amortization expense was $17 million and $14 million for the three months ended March 31, 2023 and 2022, respectively.

Depreciation and amortization expense increased primarily due to the Clipper Acquisition.

Transaction and integration costs for the three months ended March 31, 2023 were $13 million compared with $19 million for the same period in 2022.

Transaction and integration costs in the first quarter of 2023 and 2022 primarily relate to the Clipper Acquisition.

Restructuring costs are primarily related to severance, including projects to optimize finance, human resource and information technology functions, and are not associated with customer attrition.

Restructuring costs and other for the three months ended March 31, 2023 were $21 million compared with $13 million for the same period in 2022.

In the fourth quarter of 2022, the Company initiated a restructuring plan designed to centralize certain processes and standardize operating structures.

For the three months ended March 31, 2023, restructuring costs and other included severance charges of $15 million and impairment charges of $6 million as a result of closing certain corporate and administrative offices.

For the three months ended March 31, 2022, restructuring costs and other included severance charges of $5 million and $8 million related to the deconsolidation of a joint venture.

Other income decreased due to foreign currency movements and pension income.

Other income, net was as follows:

Three Months Ended March 31,

(In millions) 2023 2022 $ Change % Change

Revenue $ 6,526 $ 5,678 $ 848 15 %

Direct operating expense 5,408 4,725 683 14 %

Selling, general and administrative expense 637 519 118 23 %

Depreciation and amortization expense 242 259 (17) (7) %

Transaction and integration costs 57 82 (25) (30) %

Restructuring costs and other 14 5 9 n/m

Operating income 168 88 80 91 %

Other income, net 56 11 45 n/m

Interest expense, net (19) (16) (3) 19 %

Income before income taxes 205 83 122 n/m

Income tax (expense) benefit (51) 21 (72) n/m

Net income $ 154 $ 104 $ 50 48 %

Net periodic pension income

$ 2 $ 9 $ (7) (78) %

Foreign currency:

Realized foreign currency contracts gain (loss)

(2) 2 (4) n/m

Unrealized foreign currency contracts gain

1 6 (5) (83) %

Foreign currency remeasurement loss

(1) (1) — — %

Total foreign currency gain (loss) $ (2) $ 7 $ (9) n/m

Other income, net $ — $ 16 $ (16) (100) %

n/m - not meaningful

Nine Months Ended September 30, 2022 compared with the Nine Months Ended September 30, 2021

Revenue for the nine months ended September 30, 2022 increased by 15%, or $848 million, to $6.5 billion, compared with $5.7 billion for the same period in 2021.

For the nine months ended September 30, 2022, our North America, Asia and Pacific operations and European operations reported growth of 18% and 13%, respectively.

The Clipper Acquisition contributed 7% to European revenue and 5% to total revenue.

Foreign currency movements decreased revenue by approximately 8% for the nine months ended September 30, 2022.

Direct operating expense for the nine months ended September 30, 2022 was $5.4 billion, or 83% of revenue, compared with $4.7 billion, or 83% of revenue for the same period in 2021.

For the nine months ended September 30, 2022, direct operating expenses primarily increased due to higher personnel and temporary labor

expenses of $457 million, higher facilities and transportation costs of $171 million, and higher costs of materials and supplies of $43 million.

SG&A primarily consists of salary and benefits for executive and administrative functions, professional fees and legal costs.

SG&A for the nine months ended September 30, 2022 increased by $118 million, to $637 million, compared with $519 million for the same period in 2021.

SG&A for the nine months increased compared with the same prior year period due to higher personnel costs, primarily for certain administrative functions.

Depreciation and amortization expense for the nine months ended September 30, 2022 was $242 million, compared with $259 million for the same period in 2021.

Depreciation and amortization expense included amortization of intangible assets of $48 million and $44 million for the nine months ended September 30, 2022 and 2021, respectively.

The decrease was primarily a result of $15 million allocated corporate charges from XPO before the Separation in the prior year and lower depreciation as a result of contract modifications in the prior year, partially offset by higher depreciation and amortization from the Clipper Acquisition.

Transaction and integration costs for the nine months ended September 30, 2022 were $57 million, primarily related to the Clipper Acquisition and rebranding as a result of the Separation.

Transaction and integration costs for the nine months ended September 30, 2021 were $82 million, primarily related to the Separation.

Restructuring costs and other for the nine months ended September 30, 2022 were $14 million.

For the nine months ended September 30, 2022, restructuring costs and other included $8 million related to the deconsolidation of a joint venture and $6 million related to severance costs.

Restructuring costs and other for the nine months ended September 30, 2021 were $5 million and related to severance costs.

Other income, net consists primarily of foreign exchange gains and losses, including foreign currency contracts, and pension income.

Other income, net for the nine months ended September 30, 2022 was $56 million compared with $11 million for the same period in 2021.

For the nine months ended September 30, 2022, the gain on foreign currency contracts was $33 million and pension income was $25 million.

For the nine months ended September 30, 2021, pension income was $10 million.

Interest expense, net for the nine months ended September 30, 2022 was $19 million compared with $16 million for the same period in 2021.

For the nine months ended September 30, 2022, interest expense primarily related to outstanding debt and capital lease obligations, partially offset by interest income on the cross-currency swap agreements.

For the nine months ended September 30, 2021, interest expense primarily related to debt issued in connection with the Separation, related-party debt with XPO before the Separation, and capital lease obligations, partially offset by interest income on the cross-currency swap agreements.

Income before income taxes for the nine months ended September 30, 2022 increased by $122 million, to $205 million, compared with $83 million for the same period in 2021.

The increase was primarily due to growth in our business, lower transaction and integration costs, and other income from a pension plan and foreign currency contracts, partially offset by restructuring costs due to the deconsolidation of a joint venture.

Income tax for the nine months ended September 30, 2022 was $51 million expense compared with $21 million benefit for the same period in 2021.

Our effective tax rate was 24.7% for the nine months ended September 30, 2022 compared with (24.8)% for the same period in 2021.

The change in our effective tax rate was primarily driven by a discrete tax benefit from the initial recognition of a deferred tax asset in connection with the Separation and non-deductible transaction cost, offset by deferred true-ups in 2022.

Interest expense increased primarily due to debt incurred for the Clipper Acquisition.

Interest expense, net was as follows:

Three Months Ended March 31,

(In millions) 2023 2022 $ Change % Change

Debt and capital leases

$ 24 $ 9 $ 15 n/m

Cross-currency swaps

(8) (4) (4) 100 %

(3) (1) (2) n/m

Interest expense, net $ 13 $ 4 $ 9 n/m

n/m - not meaningful

Income before income taxes for the three months ended March 31, 2023 decreased to $29 million compared with $49 million for the same period in 2022.

The decrease was primarily due to higher interest expense, lower pension income and a foreign currency loss, partially offset by higher operating income in 2023.

Income tax expense for the three months ended March 31, 2023 was $3 million compared with $11 million for the same period in 2022.

Our effective tax rate was 11.0% for the three months ended March 31, 2023, compared with 22.1% for the same period in 2022.

The change in our effective tax rate was primarily driven by discrete tax benefits from the release of valuation allowances as it is more likely than not that the deferred income tax assets will be realized.

Liquidity and Capital Resources

2 unchanged sentences

The timing and magnitude of our start-ups can vary and may positively or negatively impact our cash flows.

At March 31, 2023, we held cash and cash equivalents of $426 million, and we had $799 million of borrowing capacity available, net of letters of credit under our Revolving Credit Facility.

On April 7, 2023, we repaid $35 million of our Two-Year Term Loan due 2024.

We continually evaluate our liquidity requirements and capital structure in light of our operating needs, growth initiatives and capital resources.

We believe that our existing liquidity and sources of capital are sufficient to support our operations over the next 12 months.

Debt and Financing Arrangements

Five-Year Term Loan

On May 25, 2022, we entered into a five-year unsecured Term Loan (the “Five-Year Term Loan”) that provided a $500 million unsecured term loan facility to fund the Clipper Acquisition.

On May 26, 2022, we borrowed $500 million that will mature on May 26, 2027.

The loan bears interest at a fluctuating rate per annum equal to, at our option, the alternate base rate or the adjusted Secured Overnight Financing Rate (SOFR), plus an applicable margin based on the Company’s credit ratings.

Delayed Draw Term Loan

On March 22, 2022, we entered into an unsecured delayed draw Term Loan (the “Delayed Draw Term Loan”) that provided a £375 million unsecured term loan facility to fund the Clipper Acquisition.

The loan was available to us in U.S.

dollars or British pounds sterling.

On May 26, 2022, we borrowed in U.S.

dollars a $165 million 2-year term loan tranche (the “Two-Year Term Loan”) and a $235 million 3-year term loan tranche (the “Three-Year Term Loan”) that will mature on May 26, 2024, and May 26, 2025, respectively.

Loans bear interest at a fluctuating rate per annum equal to, at our option, the alternate base rate or the adjusted SOFR, plus an applicable margin based on the Company’s credit ratings.

Bridge Term Loan

On February 28, 2022, we entered into an unsecured Bridge Term Loan (the “Bridge Term Loan”) that provided a £745 million unsecured term loan facility to fund the Clipper Acquisition.

The commitments under the Bridge Term Loan were terminated with the effectiveness of the Five-Year Term Loan and the Delayed Draw Term Loan.

No amounts were drawn under the Bridge Term Loan.

Unsecured Notes

In 2021, we completed an offering of $800 million aggregate principal amount of notes, consisting of $400 million of notes due 2026 (the “2026 Notes”) and $400 million of notes due 2031 (the “2031 Notes”).

The 2026 Notes bear interest at a rate of 1.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2026.

The 2031 Notes bear interest at a rate of 2.65% per annum payable semiannually in cash in arrears on January 15 and July 15 of each year, beginning January 15, 2022, and maturing on July 15, 2031.

Revolving Credit Facility

In 2021, we entered into a five-year unsecured multi-currency Revolving Credit Facility (the “Revolving Credit Facility”).

The Revolving Credit Facility provides commitments of up to $800 million, of which $60 million is available for the issuance of letters of credit.

No amounts were outstanding under the Revolving Credit Facility as of September 30, 2022.

Sales of Certain Receivables

We sell certain of our trade accounts receivables on a non-recourse basis to third-party financial institutions under various factoring agreements.

We also sold certain European trade accounts receivables under a securitization program.

In the first quarter of 2022, we terminated our securitization program.

We account for these transactions as sales of receivables and present cash proceeds as cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

We use the sale of certain receivables to help manage our working capital.

Information related to the trade receivables sold was as follows:

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended March 31,

(In millions) 2023 2022

Factoring agreements

Receivables sold in period $ 263 $ 229

Cash consideration 261 228

Securitization program

Receivables sold in period $ — $ 418 $ — $ 1,320

Cash consideration — 418 — 1,320

Net cash provided in operating cash flows (1)

(1) The three months ended March 31, 2022 includes $124 million of cash provided by factoring programs, reduced by $118 million used in the securitization program that was terminated in the first quarter of 2022.

Covenants and Compliance

As of September 30, 2022, we were in compliance with the covenants contained in our debt and financing arrangements.

The covenants in the unsecured notes, term loans and revolving credit facilities, which are customary for financings of this type, limit the Company’s ability to incur indebtedness and grant liens, among other restrictions.

In addition, the facilities require the Company to maintain a consolidated leverage ratio below a specified maximum.

As of March 31, 2023, the Company was in compliance with the covenants contained in its debt and financing arrangements.

Financial Condition

The following table summarizes our asset and liability balances as of September 30, 2022 and December 31, 2021:

(In millions) September 30, 2022 December 31, 2021 $ Change % Change

The following table summarizes our asset and liability balances:

(In millions) March 31, 2023 December 31, 2022 $ Change % Change

Total current assets $ 2,311 $ 2,428 (117) (5) %

2 unchanged sentences

Total long-term liabilities 3,950 4,009 (59) (1) %

The increase in our assets and liabilities from December 31, 2021 to September 30, 2022 primarily reflects the assets acquired and liabilities assumed, as well as various debt instruments entered into in connection with the Clipper Acquisition.

The decrease in total assets and total liabilities from December 31, 2022 to March 31, 2023 primarily reflects the seasonality of our business.

Cash Flow Activity

Our cash flows from operating, investing and financing activities, as reflected on our Condensed Consolidated Statements of Cash Flows, were summarized as follows:

Nine Months Ended September 30,

Our cash flows from operating, investing and financing activities, as reflected on our Condensed Consolidated Statements of Cash Flows, are summarized as follows:

Three Months Ended March 31,

(In millions) 2023 2022 $ Change

Net cash provided by operating activities $ 39 $ 46 $ (7) (15) %

Net cash used in investing activities (1,056) (140) (916) n/m

Net cash provided by (used in) financing activities 863 (165) 1,028 n/m

Net cash used in investing activities (82) (44) (38) 86 %

Net cash used in financing activities (29) (18) (11) 61 %

Effect of exchange rates on cash and cash equivalents 3 (5) 8 n/m

Net increase (decrease) in cash and cash equivalents $ 101 $ (53) $ 154 n/m

Net decrease in cash and cash equivalents $ (69) $ (21) $ (48) n/m

n/m - not meaningful

Operating Activities

Cash flows from operating activities for the nine months ended September 30, 2022 increased by $65 million compared with the same period in 2021.

The increase was due to $50 million higher net income in 2022 and $39 million non-cash adjustments driven by a deferred tax benefit in 2021, partially offset by a $24 million decrease in working capital.

Cash flows provided by operating activities for the three months ended March 31, 2023, decreased by $7 million compared with the same period in 2022, primarily due to lower net income, net of non-cash expenses.

Investing Activities

Investing activities used $1,056 million of cash for the nine months ended September 30, 2022, compared with $140 million used for the same period of 2021.

During the nine months ended September 30, 2022, we used $874 million, net of cash received, to fund the Clipper Acquisition, used $239 million to purchase property and equipment, received $26 million in proceeds from the settlement of cross-currency swap agreements, excluding accrued interest, and received $22 million from sales of property and equipment.

During the nine months ended September 30, 2021, we used $180 million to purchase property and equipment, received $34 million net cash from the Kuehne + Nagel acquisition, and received $8 million from sales of property and equipment.

Investing activities used $82 million of cash for the three months ended March 31, 2023, compared with $44 million used for the same period of 2022.

During the three months ended March 31, 2023, we used $91 million of cash to purchase property and equipment and received $9 million of cash from sales of property and equipment.

During the three months ended March 31, 2022, we used $65 million of cash to purchase property and equipment, received $14 million from the release of an escrow related to the Kuehne + Nagel acquisition and received $3 million of cash from sales of property and equipment.

Financing Activities

Financing activities generated $863 million of cash for the nine months ended September 30, 2022, compared with $165 million used for the same period of 2021.

The primary sources of cash from financing activities in the nine months ended September 30, 2022, were $898 million in proceeds from long-term debt, net, partially offset by $23 million repayment of debt and finance leases and $12 million in payments for employee taxes on net settlement of equity awards.

The primary uses of cash from financing activities in the nine months ended September 30, 2021, were $774 million of net transfers to XPO, $128 million in the purchase of noncontrolling interest, $64 million in repayments of debt and finance leases, and $21 million in repayment of debt related to a trade securitization program, partially offset by $794 million in proceeds from long-term debt.

Financing activities used $29 million of cash for the three months ended March 31, 2023, including $21 million used to repay debt, $8 million to repay finance lease obligations and $4 million in payments for employee taxes on net settlement of equity awards.

Financing activities used $18 million of cash for the three months ended March 31, 2022, including $11 million in payments for employee taxes on net settlement of equity awards and $9 million to repay finance lease obligations.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

The Company’s contractual cash requirements have not changed materially since the 2021 Form 10-K, except for the new term loan credit agreements described above.

As of March 31, 2023, the Company’s contractual obligations had not materially changed compared with December 31, 2022.

Critical Accounting Policies and Estimates

Preparation of our Condensed Consolidated Financial Statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities.

There have been no material changes to the critical accounting policies and estimates as previously disclosed in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021, and that are hereby incorporated by reference.

There have been no material changes to the critical accounting policies and estimates as previously disclosed in “Critical Accounting Policies” in Part II, Item 7 of our Form 10-K for the year ended December 31, 2022.

Accounting Pronouncements

Information related to new accounting standards is included in Note 1—Basis of Presentation and Significant Accounting Policies to the Condensed Consolidated Financial Statements.

Information related to new accounting standards is included in Note 1 — Basis of Presentation and Significant Accounting Policies in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis